Chia- An Chao. Introduction

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1 IT Use and Strategic Alignment in Financial Services and Small Manufacturing Businesses: Organizational Characteristics of Aligned and Unaligned Businesses Chia- An Chao Small businesses are often characterized as lacking in strategic planning and lagging behind large businesses in information technology (IT) adoption. In this study, business IT strategic alignment (the fit between the business and IT strategy) and relatively sophisticated IT use were found in some small businesses. Two homogeneous groups resulted from a cluster analysis of 217 small businesses in the financial services and manufacturing industries: strategically aligned and unaligned. An examination of characteristics of these two groups such as industry sector, business planning practices, and levels of IT sophistication revealed a higher concentration of financial services small businesses in the aligned group, indicating the influence of external environmental factors on strategic alignment. Small businesses committed to business planning were also more likely to be strategically aligned. Additionally, strategically aligned small businesses used IT to support operational as well as some strategic functions such as market analysis and planning. The rate of IT adoption was generally low, however, indicating small businesses were indeed lagging behind in IT adoption. Introduction Information technology has become an integral part of organizational operations. With the adoption of information and communication technology hardware and software, organizations have reported numerous benefits such as increased productivity, improved decision making, and more effective supply chain management (Beheshti, 2004; Cline & Guynes, 2001; Davenport, 2005; Green, 2003; O Marah, 2005). IT adoption in itself, however, does not guarantee a positive outcome; to maximize IT investment and achieve a positive impact on business performance, there must be a high degree of alignment between business and IT strategies (Bergeron, Raymond, & Rivard, 2004; Chan, Huff, Barclay, & Copeland, 1997; Henderson & Venkatraman, 1993; Luftman & Brier, 1999; Marchand, 2005). This study explores the issue of business IT strategic alignment in small and medium- sized enterprises (SMEs) and the organizational characteristics of SMEs with varying degrees of alignment. Small businesses constitute an important economic force in the US. According to the Small Business Administration [SBA] (2004), about half of the country s private sector employees work in small businesses, and SMEs contribute to about half of the private sector s output. While SMEs have been credited with driving employment growth, they are also known for their fragility. In the 2004 SBA report, about 66% of new businesses survived for two or more years. The percentage of companies still in business after six years dropped to 40%. Small businesses are plagued by a variety of problems; among their growth impediments and reasons for failure are liquidity and other financial issues, lack of market knowledge, Chia- An Chao is Professor, Management, Information Systems and Business Education, Indiana State University, Terre Haute, Indiana. Information Technology, Learning, and Performance Journal, Vol. 25, No. 2 42

2 IT Use and Strategic Alignment in Financial Services and Small Manufacturing Businesses 43 innovation, and management expertise, technology constraints, and a lackadaisical approach towards business planning (Sims, Breen, & Ali, 2002; SBA, 2000; Toftoy & Chatterjee, 2004; Wu & Young, 2003). Given the importance of information technology in improving business performance and helping SMEs compete with larger businesses, SMEs that take advantage of IT, particularly if they adopt a strategic approach to IT adoption and implementation, are at an advantage (Bergeron et al., 2004; Lin, Vassar, & Clark, 1993; Schaefer, 1995). Information technologies have been credited with helping small businesses enhance their operational efficiency (Neeley, 1996; Penhune, 1998), drive business growth (Eckhouse, 1998), and integrate marketing operations with marketing strategies (Roge & Chakrabarty, 2002). In addition to the operational and strategic importance of IT, given small businesses limited financial resources (SBA, 2000), SMEs must invest wisely by making sure that their IT resource allocation properly reflects their business priorities. The central research question to be addressed in this study is: Are there differences in organizational characteristics and in the level of IT use between strategically aligned and misaligned small businesses? The following section reviews the literature on business IT strategic alignment, IT use in small businesses, and factors affecting strategic alignment. IT Strategic Alignment Information technology strategic alignment is the fit between business strategy and IT strategy (Chan et al., 1997; Hussin, King, & Cragg, 2002). Henderson and Venkatraman s (1993) Strategic Alignment Model identified four fundamental domains of strategic choices: (a) business strategy, (b) IT strategy, (c) organizational infrastructure and processes, and (d) IT infrastructure and processes. They contend that strategic alignment requires more than congruent business and IT strategies. It requires a close examination and alignment of an organization s external environment and its internal infrastructure, process and functional integration. According to Henderson and Venkatraman (1993), strategic alignment involves strategic fit, the interrelationships between the external and the internal components of business and IT strategies and organizational infrastructure, as well as functional integration, the strategic and operational integration of business and IT domains. The multitude of interrelated domains in Henderson and Venkatraman s Strategic Alignment Model illustrates the complexity of strategic alignment. This may explain why companies find strategic alignment a challenging task (Chan et al., 1997; Luftman & Brier, 1999). To elucidate the strategic alignment construct and to develop instruments to measure it, Chan et al. (1997) studied IT strategic alignment and its impact on business performance, measured by market growth, profitability, product- service innovation, and company reputation, and perceived IT effectiveness. They defined IT effectiveness as user information satisfaction and organizational impact, and they hypothesized that IT strategic alignment was directly related to IT effectiveness and business performance. Their findings supported both hypotheses, and they found that IT strategic alignment was a better predictor of business performance and IT effectiveness than either business strategic orientation or IT strategic orientation. In the small business context, Bergeron et al. (2004) used cluster analysis to group 110 small businesses into four homogenous groups based on the coalignment of the firms business strategy, business structure, IT strategy, and IT structure. They found businesses belonging to clusters that demonstrated conflicting coalignment patterns reported lower growth and profitability rates compared to businesses in the coaligned clusters. In addition, strategic alignment has been found to moderate the impact of IT investment on business performance. Byrd, Lewis, and Bryan (2006) found a statistically significant interaction

3 44 Chao effect of IT investment and strategic alignment on business performance beyond those of the two main effects individually. The study showed that better business performance can be achieved through strategic alignment without increasing IT investment. While the content, approach, process, and impact of alignment have been the focus of some researchers (Bergeron et al., 2004; Byrd et al., 2006; Chan et al., 1997; Henderson & Venkatraman, 1993; Peak & Guynes, 2003; Rathnam, Johnsen, & Wen, 2004), others focused on the social dimensions, enablers, and inhibitors of strategic planning. Reich and Benbasat (2000) studied the social dimension of alignment and found several factors influencing alignment: shared domain knowledge and communication between business and IT executives, and coupled business and IT planning processes. Weill and Broadbent (1998) asserted the importance of collaboration between the heads of business lines and IT professionals in determining the IT infrastructures appropriate for the business, and they identified various benefits of appropriate IT infrastructures, including faster times to market, higher growth rates, and more sales from new products. The importance of mutual understanding through communication and collaboration between business and IT is supported by Luftman and Brier (1999), who identified important enablers of alignment, including IT involvement in strategy development and business- IT partnership. Other enablers include senior executive support for IT and the IT organization s proven track record based on well- prioritized IT projects, strong IT leadership, and business knowledge. IT Use and Factors Affecting Strategic Alignment in Small Businesses While existing strategic alignment research is extremely informative, most of these studies were conducted in large corporations. It is not clear whether these findings are applicable to smaller organizations. For example, Luftman and Brier (1999) identified several IT alignment enablers, including strong IT leadership and involvement of IT personnel in strategy development. Planning in small businesses, however, is often not as formalized as in larger corporations, and many SMEs do not have a dedicated IT department. Given that small businesses have unique characteristics and challenges (Lin et al., 1993; O Toole, 2003), what, then, are the factors affecting business and IT strategic alignment in small businesses? Existing research on small businesses helped identify several factors that could affect strategic use of IT and strategic alignment. Before exploring these factors, though, the following section reviews the current state of IT use in SMEs as essential contextual information for this study. IT Use in Small Businesses Some have described IT use in small businesses as tactical (Bridge & Peel, 1999; Hassan & Tibbits, 2000; Lin & Wu, 2004), fragmented (Foong, 1999; Poon & Swatman, 1999), short- term oriented (Temtime, Chinyoka, & Shunda, 2003), and lacking in strategic foresight (Levy & Powell, 1998). Lin and Wu (2004) and Temtime et al. (2003) found that small businesses more frequently used microcomputers for routine, operational tasks such as accounting, payroll, and stock control activities than for managerial activities such as strategic analysis, investment appraisal, market research, and profit forecasting. Levy and Powell (1998) also found small businesses were more likely to use IT to improve efficiency and reduce cost by automating existing business processes instead of using IT to improve their products, services, and business processes. Foong s study (1999) provides a clear illustration of the fragmented nature of IT use in small businesses. Many small businesses Web sites were not linked to their back- office transaction processing systems, making their Web sites more akin to a shop window than a sales channel. With the adoption of the Internet and other communication technologies, Keindl (2000) found a high

4 IT Use and Strategic Alignment in Financial Services and Small Manufacturing Businesses 45 percentage of SMEs used e- mail, but many were unwilling to develop e- commerce systems or change their current business model to take full advantage of the new technologies. These studies indicated a relatively low IT sophistication level in small businesses compared to large businesses where a larger number of information technologies were implemented throughout the enterprise to support mission critical business processes and gain competitive advantage. SMEs tendency to use IT for operational support instead of strategic- level functions is likely due to their limited resources and technological competencies. Firm size has been found to be the most important determinant of IT adoption (Foong, 1999; Igbaria, Zinatelli, Cragg, & Cavaye, 1997; Thong & Yap, 1995), given that larger businesses have more financial resources and IT talent; conversely, the lack of resources and in- house IT skills limits IT adoption. Levenburg (2005) found differences among SMEs in Internet use: Micro and small businesses tend to use the Internet in limited ways, such as finding new supply sources and e- mailing prospective customers. On the other hand, Internet use was more sophisticated in midsized businesses where Internet technologies were assimilated into activities such as directly selling products online. Environmental factors, such as intense competition and pressure from customers, have also been found to have a positive relationship to IT adoption rates (Levy, Powell, & Yetton, 2001; Looi, 2005). Organizational Characteristics Organizational factors such as firm size, industry affiliation, and business planning practice affect not only IT use but strategic alignment as well. With few exceptions (e.g., Lesjak & Lynn, 2001), most of the existing literature on strategic use of IT and alignment issues focuses on small businesses in a single industry. Examples of such research include the impact of the rank and role of IT leaders on strategic alignment (Karimi, Gupta, & Somers, 1996) and reasons for misalignment (Rathnam et al., 2004) in financial services businesses, an IT alignment planning model based on the study of an energy services organization (Peak & Guynes, 2003), and IT strategic planning at different stages of the life cycle in high- tech businesses (Berry & Taggart, 1998). To expand our understanding of strategic alignment in different industries, this study compares IT alignment in two information intensive industries: financial services and manufacturing. Another factor affecting business IT strategic alignment is the practice of business planning and performance measurement in small businesses. Research indicates SMEs often lack business planning and focus more on short- term operational planning than strategic planning (Carson & Cromie, 1990; Toftoy & Chatterjee, 2004). However, other studies have shown that SMEs do carry out mid- to long- term business planning. For example, Upton, Teal, and Felan (2001) studied 65 fast- growth, family- owned SMEs and found that these businesses had detailed business plans and measurable business objectives. In addition, these SMEs monitored their business performance and compared actual business results to planned objectives. Method As previously stated, most business IT strategic alignment studies examined large corporations, and with few exceptions, alignment issues in SMEs have received little attention (e.g., Hussin et al., 2002). The purpose of this study is to explore the organizational characteristics of strategically aligned and misaligned small businesses by comparing the industry affiliation, business planning, and IT use in SMEs with different degrees of strategic alignment. Hypotheses include: H1: Small businesses industry sector and strategic alignment are related. H2: Business planning differs between aligned and unaligned small businesses.

5 46 Chao H3: IT sophistication differs between aligned and unaligned small businesses. Testing of these hypotheses provides useful insight into business IT strategic alignment and alignment- related factors in small businesses. In this study, strategic alignment was measured by assessing the fit between implemented business strategy and IT strategy. While some strategic alignment studies included measurements such as business structure and IT structure (Bergeron et al., 2004), communication and shared knowledge (Reich & Benbasat, 2000), and IT governance (Weill & Ross, 2005), others only measured the fit between implemented or realized business strategy and IT strategy (e.g., Byrd et al., 2006; Chan et al., 1997; Hussin et al., 2002). This study focused only on the fit between IT and business strategy, or the extent to which IT adopted by small businesses supported business strategies implemented in those small businesses. It did not examine the alignment of business and IT organizational structures or communication between business and IT executives, given that organizational structures in small businesses are more informal and less likely to have the separate IT organization often found in large businesses. Survey Sample and Instrument A survey was used to collect input from small business owners in three states in the Midwest. The sample was selected from the ReferenceUSA database. Two selection criteria were used: firm size and industry classification. Size- based classifications of small businesses differ. In Europe, businesses that have fewer than 250 employees are classified as medium- sized, small businesses are those with fewer than 50 employees, and micro businesses have fewer than 10 employees ( Commission adopts, 2003). This study adopted the U.S. Small Business Administration s definition of a small and medium- sized business (SBA, n.d.): an independent business having fewer than 500 employees. Two information- intensive industries, manufacturing and financial services, were selected given their use of information and communication technologies for processing relatively high volumes of information (Chan et al., 1997; King & Pollalis, 2000). Small businesses with North American Industry Classification System codes having the following first two digits were randomly selected: manufacturing, codes 32 and 33, and financial services, code 52. Monetary authorities, code 521, were omitted. Owners or managers of the randomly selected businesses received by mail a two- page questionnaire containing questions pertaining to the company s business strategies, business planning activities, types of IT used, and the extent to which IT supported each business strategy. A personalized cover letter explaining the study purpose and the voluntary and anonymous nature of the survey was attached to each questionnaire. Each questionnaire measured business strategy using a 10- item scale adapted from Hussin et al. (2002). The business strategies included pertained to pricing, operational efficiency, quality (product/service and customer service), product distinction and differentiation, innovation, and marketing strategies. Using a five- point Likert- type scale, survey respondents indicated strategies their businesses employed to compete in the market. In addition, they indicated the extent to which IT supported their business strategies, also using a five- point Likert- type scale. Respondents also answered questions about whether they have a written, orally communicated, or no business plan, and types of IT they used, such as accounting applications, document management, and marketing or customer relationship management (CRM). The last section of the survey included questions on the business profile: industry affiliation, annual sales revenue, number of years in business, and number of employees. An extensive review of the literature and feedback from colleagues

6 IT Use and Strategic Alignment in Financial Services and Small Manufacturing Businesses 47 established the content validity of the survey instrument. Cronbach s α, which yielded an α of 0.894, verified the internal consistency of the instrument. Two months after the initial mailing of the questionnaires, the selected businesses received a reminder postcard. A total of 217 usable responses resulted. The response rate was 11 percent. Profiles of Small Businesses Answers to the business profile questions indicated that most of the businesses in this study were very small and relatively well- established, generating $5 million or less in annual sales. The majority of the businesses (69.1%) had fewer than 10 employees. Businesses with 10 to 50 employees made up 28.6% of the respondents, and those with over 51 employees accounted for less than 3%. As to firm age, about one third (33.6%) had been in business for over 30 years, 23% for 20 to 30 years, and 20.7% for 10 to 19 years. Those established for 5 to 9 years represented 13.4% of the respondents, and less than 10% had been in business for fewer than 5 years. Another business profile question addressed annual sales revenue. Approximately half of the small businesses (47%) generated less than $1 million in sales, 37.8% had sales between $1 and $5 million, and 7.8% between $5 and $10 million. Of the 217 small businesses in the survey, 59.4% were in the financial services industry and 40.6% were in the manufacturing sector. The age of the small businesses in this study, with 77% more than 10 years old, was similar to that reported by Hussin, King, and Cragg (2002), in which 83% were more than 10 years. The businesses in Table 1. Business Strategy, IT Strategy, and Strategic Alignment Mean Scores Strategies this study were larger though, given that 58% of the businesses had between 50 and 100 employees, as compared to about 3% in this study. Results The moderation method, the interaction or product of business strategy and IT support for business strategy, measured strategic alignment in this study, rather than the matching method or difference score. The former method is more effective in detecting IT support for business strategies that are important to the business versus support for less important business strategies, whereas the matching model focuses on the difference between business strategy and IT strategy and does not differentiate between high business strategy and high IT strategy versus low business strategy and low IT strategy (Chan et al., 1997). Table 1 shows the mean scores and standard deviations of all 10 business strategies, IT strategies, and strategic alignment. Small businesses most frequently adopted customer service, quality products Business Strategy (BS) Mean Std. Dev. IT Support for Bus. Strategies (ITS) Mea Std. n Dev. Strategic Alignment (BS*ITS) Mean Std. Dev. 1. Superior customer service High quality products/services Higher efficiency to reduce cost Greater product/service variety Effective cross- selling Distinctive products/services Continual market expansion New products/services Lower product/service prices Aggressive marketing

7 48 Chao Table 2. Comparison of Strategic Alignment in Clusters 1 and 2 N Mean Std. Dev. Cluster Cluster t Sig..000 and services, operational efficiency, and product diversification strategies. This finding is consistent with prior research. Small businesses often compete by offering quality products and personal customer service (Hussin et al., 2002). The mean scores of the same four strategies under IT Support for Business Strategies were not as high as those of the business strategies; however, they were the four highest IT strategies. High business and IT strategy scores resulted in high alignment scores (BS x ITS), indicating high adoption and high congruency. The remainder of the business and IT strategies adopted by small businesses and congruency between business and IT strategies showed higher levels of variability. Strategic Alignment Cluster Analysis A t- test of the average alignment scores provided evidence that the cluster assignment of the cases was meaningful. Table 2 shows the number of cases in each cluster, the mean alignment scores, and the result of the t- test. Cluster 1 has a mean alignment score of 9.09, whereas cluster 2 has a higher average alignment score of An independent sample t- test showed a t value of (df = 215, p <.01). The test result shows that Cluster 2, the aligned group, is made up of small businesses with significantly higher degrees of alignment than cluster 1, the unaligned group. Comparison of firm demographic and sales information provided a better understanding of the nature of these two clusters. As shown in Table 3, small businesses in the unaligned and aligned groups were similar in age and size. The distributions of the number of employees in each of the four categories were almost identical for the aligned and unaligned groups. The χ 2 tests revealed that there were no significant differences between these two groups in age and size. When the Annual Sales Revenue was compared, however, a Cluster analysis identified groups of small businesses with similar strategic alignments. Following suggestions from Ketchen and Shook (1996) and Punj and Stewart (1983), the analysis involved a two- stage procedure. First, a hierarchical algorithm, Ward s agglomerative clustering procedure, grouped organizations with similar strategic alignments. Ward s method identified two homogeneous clusters. Then, a nonhierarchical clustering method tested the validity of cluster assignments. The cases in the two- cluster solution were submitted for an iterative partitioning analysis using the k- means method. Comparison of the case assignments from the hierarchical and nonhierarchical procedures revealed 197 of the 217 cases were correctly classified. The 91% consistency rate indicated a stable and valid solution. Table 3. Business Profiles and Alignment Groups Business Profiles Unaligned Group (N=107) Aligned Group (N=110) Years in Business Under 5 Years Years Years Years Over 30 Years Number of Employees Under Annual Sales Revenue Under 1 Million Million Million Million Million 4 2 Over 50 Million 0 2 Chi- square Test χ 2 = 3.85 df = 4 Sig. =.413 χ 2 = df = 3 Sig. =.497 χ 2 = df = 5 Sig. =.055

8 IT Use and Strategic Alignment in Financial Services and Small Manufacturing Businesses 49 Table 4. Industry Sector and Alignment Groups Financial Services higher number of aligned small businesses were in the higher sales categories than the unaligned businesses. The χ 2 test showed a weak significant difference between these two groups at the 90% confidence level. Having established the validity of the two cluster solution and having analyzed their demographic information, the results of the study hypotheses testing follow. Industry Sector Table 4 shows a cross- tabulation of the industry affiliation of the 217 cases and their cluster assignments. The frequency count indicated a higher concentration of financial services small businesses in the aligned group than in the unaligned group, whereas the cluster assignments of small businesses in the manufacturing sector were the opposite. A χ 2 test determined whether industry sector and strategic alignment were independent, and it proved significant, χ 2 (1, N = 217) = 7.06, p =.008. The result indicated financial services businesses were more likely to have aligned business IT strategies than businesses in the manufacturing sector. The null hypothesis was rejected. Hence, the first hypothesis was supported. Business Planning Unaligned Group (N=107) Aligned Group (N=110) Chi- square Test χ 2 = 7.06 df = 1 Manufacturing Sig. =.008 groups was significant. The null hypothesis was rejected, and the second hypothesis was supported. IT Sophistication The last hypothesis focused on the level of IT used in aligned and unaligned small businesses. As shown in Table 6, four of the nine technologies currently used in the small businesses showed significant differences between the aligned and the unaligned groups. In addition to industry- specific IT, such as CAD, CAM, and MRP for the manufacturing industry and portfolio management, policy/premium management, and claims processing for the financial services sector, strategic use of IT for marketing or CRM, and more advanced applications of the Internet and e- commerce differed significantly between the groups. Among the technologies that did not show significant differences, accounting system and basic Web presence were adopted by a large number of small businesses in both groups, whereas business intelligence and electronic data interchange (EDI) were used infrequently in both. Document management systems were adopted by a moderate number of small businesses, but there were no differences between the two groups. Since IT sophistication includes both the type and the number of information technologies used, the number of technologies each business used was tallied and submitted for a t- test. As shown in the last row in Table 6, the average number of technologies used in aligned small businesses was higher than in the unaligned businesses. A χ 2 test determined whether business planning was different between the aligned and unaligned small businesses. As shown in Table 5, 89 of the 110 businesses in the aligned group had either a written or orally communicated business plan. On the other hand, only 62 of 107 businesses in the unaligned group had a business plan. The χ 2 test showed that the difference between the Table 5. Business Planning and Alignment Groups Unaligned Group (N=107) Aligned Group (N=110) Chi- Square Test Written Plan χ 2 = 13.9 Orally Communicated Plan df = 2 No Plan Sig. =.001

9 50 Chao The result of the t- test indicated a significant difference. Since mixed results for the number and type of technologies emerged, the third hypothesis was only partially supported. Discussion Small and medium- sized enterprises are often characterized as being short- term oriented, lacking in planning, and lagging behind large businesses in IT adoption. Findings from this study showed that these descriptions applied to only some of the small businesses. Based on their strategic alignment, small businesses were separated into two homogeneous groups: aligned and unaligned. In addition to the significant difference in their average alignment scores, businesses in these two groups demonstrated other dissimilarities. First, the industry affiliation of small businesses and their degrees of strategic alignment were related. In this study, a significantly higher number of businesses in the financial services sector were in the aligned group. This could be explained by the fact that financial services businesses are subjected to numerous compliance and Table 6. IT Sophistication and Alignment Groups Unaligned Aligned Group Group χ 2 (df = 1) Sig. (N=107) (N=110) (2- tailed) Industry- Specific IS * Accounting Marketing & CRM ** Data Warehouse & Business Intelligence Document Imaging, Storage, & Retrieval EDI Web site Web- based Self ** Service E- business * Unaligned Aligned Number of Group Group Sig. Technologies Adopted (mean) (mean) t(df=215) (2- tailed) ** enforcement rules which may, in turn, affect their business planning and IT deployment. Similar to inconsistent findings from prior research on whether and to what extent small businesses engaged in business planning (Ibrahim, Angelidis, & Parsa, 2004), this study found that business planning was carried out in some small businesses but not in others. The majority of the businesses (81%) in the aligned group had either a written or an orally communicated business plan, as compared to 58% in the unaligned group. The significant difference indicated that small businesses committed to business planning were more likely to have a higher degree of strategic alignment. Finally, this study found mixed results in the level of IT sophistication in aligned and unaligned small businesses. Aligned small businesses differed from unaligned businesses in their use of industry- specific technology. This could be explained by the higher concentration of financial services businesses in the aligned group, an industry with higher standardization of such information systems as loans and mortgage management, claims processing, agent sales/productivity, and compliance reporting. Another interesting finding was that aligned businesses had a significantly higher adoption rate of marketing and CRM systems, indicating a more strategic use of customer information. In addition, aligned small businesses demonstrated a significantly higher level of sophistication in other customer and market development IT applications. They were more likely to use the Internet to provide better customer service and conduct business. The aligned and the unaligned groups did not differ in their use of the five remaining IT applications examined in this study. A static Web site has become commonplace today, and the rate of adoption of EDI

10 IT Use and Strategic Alignment in Financial Services and Small Manufacturing Businesses 51 was so low in both groups that there was no significant difference. Software for back- office operations accounting and document management showed no significant difference since the former has been very widely adopted by small businesses and the latter was moderately adopted in both groups. Considering the usage pattern of all nine applications, this study showed that while most small businesses used IT to support operational efficiency, consistent with prior research (Cragg & King, 1993; Lin & Wu, 2004; Temtime et al., 2003), this study also found that strategically aligned small businesses were more likely to use IT to manage their marketing and customer relations efforts and to expand their customer base, as evidenced in the higher adoption rates of CRM and Internet technologies. Another notable observation regarding the level of IT use was the variety of technologies businesses used. While the number of technologies used differed significantly between the aligned and the unaligned small businesses, overall the variety of technologies used in both groups was limited. With the exception of three technologies industry- specific information systems, accounting applications, and static company Web sites all other technologies were adopted by less than 50% of the businesses in both groups. Given the low adoption rates, small businesses do seem to be lagging behind large companies in the use of IT. This finding must be considered in the context of the profiles of these small businesses, though. The majority of the businesses in this study were micro and small businesses; 69% of them had fewer than 10 employees and 29% had fewer than 50 employees. As has been well documented in small business research (Sims et al., 2002; SBA, 2000; Wu & Young, 2003), one of the growth impediments is limited resources. Pociask (2004) compared the cost burden of telecommunication services for small business to larger companies and found that the cost of telecommunication services for very small businesses was four times higher per employee than for larger companies. Finally, the profiles of the small businesses in this study indicated that the majority of them (57%) had been in business for over 20 years, and the aligned and unaligned groups did not differ significantly with regard to longevity. This suggests, at best, a very weak relationship between strategic alignment, firm longevity, and IT sophistication among very small businesses. Implications for Research and Practice This study found a significant difference in the degree of business IT alignment between small businesses in the financial services and manufacturing industries. The financial services industry is highly regulated, and businesses are subjected to statutory compliance. This finding suggests that strategic alignment is influenced by external circumstances. Future studies of IT strategic alignment could expand on this study by including additional industry sectors and other environmental variables to examine the impact of such variables on strategic alignment. The significant difference in business planning between the aligned and unaligned groups offers further evidence of the importance of business planning. Future studies could focus on the details of planning practices in small businesses, such as the process of planning and planning best practices to ensure alignment. Findings related to IT sophistication clearly indicated room for growth. As shown in the study, 71% of the small businesses reported having a Web presence, but only 28% were conducting business online. Limited resources are clearly a barrier for businesses when it comes to adopting more advanced technologies; however, limited resources could also be an incentive for innovative use of IT (Lin et al., 1993). Case studies on innovative applications of IT to support business strategies in small businesses could shed light on ways to overcome the cost barrier. For example, Software as a Service (SaaS), a recent development in IT usage following the

11 52 Chao widespread use of the Internet, can help lower the cost of adopting various software capabilities such as Web conferencing, CRM solutions, desktop sharing, and time management. By allowing small businesses to rent Web- based software hosted at the provider s site, the SaaS model, also known as the application service provider (ASP) model, can help overcome the challenge of limited in- house IT expertise and reduce the burden on small businesses IT staff as they ensure service availability, and manage data backup and security control. The impact of this emerging IT usage model on small businesses IT use and strategic alignment should be examined in future studies of small business computing. Several limitations and caveats restrict the conclusions of this study. First, the survey sample included a large percentage of micro and small businesses in the Midwest. Since larger SMEs are likely to use IT differently from very small businesses, findings from this study should be replicated using samples that include larger small businesses and businesses from various U.S. regions. Second, this study focused on characteristics of aligned and unaligned businesses and their differences, but it did not examine cause- and- effect relationships among the observed factors. Finally, important factors such as the impact of strategic alignment on business performance were not included in this study. Future studies could use different research methods and include additional factors to determine causal relationships between alignment and business performance. References Beheshti, H. M. (2004). The impact of IT on SMEs in the United States. Information Management and Computer Security, 12(4), Bergeron, F., Raymond, L., & Rivard, S. (2004). Ideal patterns of strategic alignment and business performance. Information & Management, 41(8), Berry, M. M. J., & Taggart, J. H. (1998). Combining technology and corporate strategy in small high tech firms. Research Policy, 26(7), Bridge, J., & Peel, M. J. (1999). Research note: A study of computer usage and strategic planning in the SME sector. International Small Business Journal, 17(4), Byrd, T. A., Lewis, B. R., & Bryan, R. W. (2006). The leveraging influence of strategic alignment on IT investment: An empirical examination. Information & Management, 43(3), Carson, D., & Cromie, S. (1990). Marketing planning in small enterprises: A model and more empirical evidence. The Journal of Consumer Marketing, 7(3) Chan, Y. E., Huff, S. L., Barclay, D. W., & Copeland, D. G. (1997). Business strategic orientation, information strategic orientation, and strategic alignment. Information Systems Research, 8(2), Cline, M. K., & Guynes, C. S. (2001). A study of the impact of information technology investment on firm performance. The Journal of Computer Information Systems, 41(3), Commission adopts a new definition of micro, small and medium sized enterprises in Europe. (2003, May 8). Retrieved June 23, 2009, from do?reference=ip/03/652&format=pdf&aged =1&language=EN&guiLanguage=en Cragg, P. B., & King, M. (1993). Small- firm computing: Motivators and inhibitors. MIS Quarterly, 17(1), Davenport, T. (2005, October 1). Analyze this: More and more companies are using analytics to drive their decision- making processes. But there s a right and a wrong way to do it. CIO, 19(1), 1-4. Eckhouse, J. (1998, November 30). Technology gives edge to smaller businesses. InformationWeek, 2-4. Foong, S. Y. (1999). Effect of end- user personal and systems attributes on computer based information system success in Malaysian SMEs. Journal of Small Business Management, 37(3), Green, H. (2003, August 25). Companies that really get it: Using tech to chip away at problems is what gave these leaders a winning edge. Business Week, Hassan, H., & Tibbits, H. (2000). Strategic management of electronic commerce: An adaptation of the balanced scorecard. Internet Research: Electronic Networking Applications and Policy, 10(5), Henderson, J. C., & Venkatraman, N. (1993). Strategic alignment: Leveraging information

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