SIM MIS MARTERLY XECUTIVE EXE WHERE IT LEADERS CONNECT 45 TM KELLEY SCHOOL OF BUSINESS INDIANA UNIVERSITY Technology-Driven Innovation in Small Firms Globally, small firms are important drivers of economic growth and prosperity. We describe how two small firms with very different goals use everyday digital technolo- gies to create business opportunities and innovate. These two firms strategically use the technologies very differently in their business processes, external markets, and industries. We identify a variety of ways to effectively use these inexpensive technolo- gies to innovate and provide guidelines for small firms on using the technologies to drive innovation.¹,2 Yolande E. Chan Queen's University (Canada) Rashmi Krishnamurthy Queen's University (Canada) DOI: 10.17705/2msqe.00024 Craig Desjardins City of Kingston (Canada) Small Firms Need to Leverage Digital Technologies ¹,2 Small and medium-sized enterprises (SMEs) are critical for national economies. They contribute to innovation, job creation, and economic growth. (A small business has up to 99 employees, and a medium-sized business has 100 to 499 employees.³) Recent statistics show that SMEs form a very high percentage of all businesses in major economies-98% in Canada, 99.8% in France, 99.5% in Germany, 99.9% in Italy, 99.7% in Japan, 99.5% in the U.K., and 99.9% in the U.S.4 In the U.S., for example, in 2018 there were 30.5 million small firms employing 47.5% of the private U.S. workforce.5 Small firms are drivers of economic growth and social well-being, but they often struggle to find and retain human talent, access financial capital, form external alliances, and scale their businesses. Often, they also struggle to balance finding new opportunities with deploying resources to survive in competitive marketplaces. Although small firms face daunting challenges, they are understudied by information systems (IS) scholars. A review of any top IS journal reveals that only a small minority of articles focus on small business issues. Our study addresses this research gap. Digital technologies are radically changing how business is conducted, and many small businesses need to more fully engage with the trend toward digitization. Small firms that leverage digital technologies strategically are better able to survive, as illustrated by Alpaca 1 Dorothy Leidner is the accepting senior editor for this article. 2 The authors thank Dr. Leidner and the anonymous reviewers for their thoughtful feedback and guidance throughout the review process. We also gratefully acknowledge funding provided by the Social Sciences and Humanities Research Council of Canada. Finally, we thank our research collaborators and the participating firms. 3 Key Small Business Statistics, Innovation, Science, and Economic Development Canada, June 2016, available at https://www. ic.gc.ca/eic/site/061.nsf/vwapj/KSBS-PSRPE_June-Juin_2016_eng-V2.pdf/$file/KSBS-PSRPE_June-Juin_2016_eng-V2.pdf. 4 McDaniels, J. and Robins. N. Mobilizing Sustainable Finance for Small and Medium Sized Enterprises: Reviewing Experience and Identifying Options in The G7, United Nations Environment Programme, June 2017, available from http://unepinquiry.org/ publication/mobilizing-sustainable-finance-for-small-and-medium-sized-enterprises/. 5 Small Businesses Drive Job Growth in the U.S., U.S. Small Business Administration, April 2018, available at https://www.sba. gov/advocacy/small-businesses-drive-job-growth-us. March 2020 (19:1) | MIS Quarterly Executive 39 Technology-Driven Innovation in Small Firms Direct. This small firm is located in Hayden, Idaho, and was established with the goal to sell ecofriendly yarn and wool. The firm's owners adopted digital technologies such as social media and online forums to post video and knitting tutorials to connect with their customers. This use of digital technologies helped the firm develop a loyal customer base. Alpaca Direct now has over 100,000 customers from about 30 countries. With the help of digital technologies, it has turned into a local yarn shop for people all over the world" and "92% of the company's sales currently come from the web." In this article, we examine how small firms use commonly available inexpensive (even free) digital technologies such as the Google Cloud Platform, Skype, and online forums to innovate and recognize, develop, and evaluate business opportunities. We describe, for instance, how firms use these technologies to learn about and access new markets and business partners across the globe. We argue that small firms should leverage these digital technologies more fully if they are to succeed in today's digitally connected business world. We focus on two digitally intense small firms in Canada that illustrate innovative and quite different uses of digital technology. (Our research method is described in the Appendix.) We describe how these two small firms strategically use digital technologies to quickly sense opportunities in their industries, validate their ideas, and deploy resources to rapidly innovate and sustain competitive advantages. The owner of one firm recognized the need to develop a technology-based solution to address an industry challenge. The owner of the 6 Connecting Small Businesses in the US, Deloitte Touche Tohm- atsu, 2017, available at https://www2.deloitte.com/content/dam/ Deloitte/us/Documents/technology-media-telecommunications/us- tmt-connected-small-businesses-Dec2017-old.pdf. 7 For more on innovation by SMEs, see: 1) Curado, C., Muñoz- Pascual, L. and Galende, J. "Antecedents to Innovation Perfor- mance in SMEs: A Mixed Methods Approach," Journal of Business Research (89), August 2018, pp. 206-215, available at https://doi. org/10.1016/j.jbusres.2017.12.056; 2) Valaei, N., Rezaei, S. and Ema- mi, M. "Explorative Learning Strategy and Its Impact on Creativity and Innovation: An empirical investigation among ICT-SMES," Busi- ness Process Management Journal (23:5), pp. 957-983, September 2017, available at https://doi.org/10.1108/BPMJ-12-2015-0179; and 3) Valaei, N., Rezaei, S. and Ismail, W. K. W. "Examining Learn- ing Strategies, Creativity, and Innovation at SMEs using Fuzzy Set Qualitative Comparative Analysis and PLS Path Modeling," Journal of Business Research (70), January 2017, pp. 224-233, available at https://doi.org/10.1016/j.jbusres.2016.08.016. 40 MIS Quarterly Executive | March 2020 (19:1) other firm recognized that advances in digital technologies would enable him to transform his business to provide fast, cheap, and high-quality services. We use their experiences to demonstrate that small firms can readily leverage a range of digital technologies to innovate. In summary, our study reveals that leading- edge small firms can: 1. Use digital technologies to uncover industry patterns and examine how technology advances can be leveraged to solve industry problems; 2. Leverage digital technologies to engage with external communities (e.g., customers and experts) to validate business ideas; 3. Deploy digital technologies to combine the internal and external resources required to develop products or services; 4. Use digital technologies to evaluate product performance and monitor changes in market needs; 5. Constantly upgrade technologies and technology-enabled processes to stay agile. The insights from the two case companies will help small firm owners and managers better understand how commonly available, inexpensive digital technologies can help their firms succeed. However, our findings will also be relevant for managers in larger firms. Larger firms also have access to the same technologies and can deploy them to innovate and develop new opportunities. Below, we first describe the process of opportunity development in the context of small firms. Next, we provide a brief description of the two small firms that we use to illustrate important points from our study. We then show how these two firms leveraged digital technologies to drive the recognition, development, and evaluation of their specific business opportunities. The article concludes with recommendations for small firms on how to leverage everyday digital technologies. Opportunity Development in Small Firms Small firms face several challenges when trying to innovate. They often do not have the misqe.org | © 2020 University of Minnesota Figure 1: The Opportunity Development Framework Opportunity Recognition Sense an opportunity and create business concept Feedforward Opportunity Development Invest resources, experiment and build prototypes Feedback deep pockets and networks of larger firms. A single market mistake may be a temporary setback for a large firm, but result in the failure of a small firm. Small firms must therefore accurately identify and evaluate opportunities. Fast-paced, turbulent environments characterized by changing customer needs, technological advances, and intense competition make innovating particularly risky for small firms. In addition, because of tight resource constraints, small firms seeking to innovate often need to simultaneously search for and explore new external knowledge while also efficiently exploiting existing firm knowledge. Innovation in small firms can be likened to "building a new plane in the air, even as you fly the old one." In our study, we adopted the opportunity development framework shown in Figure 1 to examine how small firms use digital technologies to recognize, develop, and evaluate business opportunities. This framework comprises three processes opportunity recognition, opportunity development, and opportunity evaluation. Although the framework is depicted as a linear sequence; in reality, the three processes are complex and iterative. 8 Teece, D. J., Pisano, G. and Shuen, A. "Dynamic Capabilities and Strategic Management," Strategic Management Journal (18:7), August 1997, pp. 509-533, available at http://www.business.illinois. edu/josephm/BA545_Fall%202019/Teece,%20Pisano%20and%20 Shuen%20(1997).pdf. 9 The foundational theory for this framework is described in Ardi- chvilia, A., Cardozob, R. and Ray, R. "A Theory of Entrepreneurial Opportunity Identification and Development," Journal of Business Venturing (18:3), January 2003, pp. 105-123. Technology-Driven Innovation in Small Firms Opportunity Evaluation Create product and conduct feasibility analysis The opportunity recognition process involves understanding market needs, finding a fit between market needs and resources, and creating or updating a business concept. When starting a new small business or expanding an existing one, it is important that the owner first identifies new business ideas. Personal experience, industry connections, and deep industry knowledge are key factors that help small businesses recognize a business opportunity. But, successful small businesses go beyond this. They see opportunity recognition as both an internal and external process in which they engage external stakeholders in both detecting and validating opportunities. Tapping into the wisdom of external players can help small firms with a very limited resource base. As other parties contribute to the refinement of the ideas, they provide value to the firm. Engaging with external stakeholders can also help small business owners build a loyal support base for their products and services. The second-opportunity development- process involves creating a business plan. After a firm has identified an innovative business concept, the next step is usually to decide what resources have to be invested to exploit the opportunity. The timeline for product development is crucial for profiting from the opportunity. If a firm does not create the product or service quickly enough or lacks the correct features or a loyal customer base, a rival firm may develop a similar or better offering. Small firms may need to acquire resources in order to act quickly to implement their ideas. However, March 2020 (19:1) | MIS Quarterly Executive 41 Technology-Driven Innovation in Small Firms Table 1: Overview of the Case Companies Year Established MediaCo TireCo 1998 2009 Resolutions Remotely deliver high- quality TV content to large media clients Build digital platform and app to facilitate tire sales Business Vision Provide cheap, fast, customized, high-quality customer service at a distance Disrupt the industry to enable car dealers to sell tires efficiently research suggests that many small firms find it difficult to hire and retain talent because of the lower pay they offer. During the opportunity development stage, firms often experiment with business models and prototypes and may have to make tough trade-offs. 42 MIS Quarterly Executive | March 2020 (19:1) After developing a product or service, a firm must next evaluate and refine it (the third process in the framework). The opportunity evaluation process may involve conducting feasibility analyses to assess not just new products and services but also entire business models. It also often involves learning from customers and converting that knowledge into action, which may require making further changes to business processes, products, and practices based on lessons learned. Understanding what works and what does not work provides important feedback into the opportunity recognition process to spur further innovation. As illustrated in Figure 1, information and knowledge are fed forward and backward as learning and innovation occur. The Companies We Studied Our research team has now been collaborating for over 10 years to complete case studies and conduct action research involving small firm innovation in Ontario, Canada. Several of the firms we studied are high-growth startups, but many are small firms that wish to remain small (i.e., they are lifestyle businesses). However, even these firms look for ways to continuously Use of Digital Technologies Cloud-based technologies used to revamp internal and external processes, services, and communications with employees and customers Digital technologies used to cocreate tire app; digital platform used to engage customers, dealers, and contract workers No. of Full-time Employees 12 11 innovate and stay competitive. What we often observed (no doubt because of our IS focus) is that small firms frequently neglect or are unaware of the potential of digital technologies they can acquire at minimal cost or already have. They fail to recognize that innovation strategies can be executed with minimal technology investments by using readily available tools such as Skype, Zoom, Dropbox, and Google Docs. We describe this phenomenon as the reverse of "the emperor has no clothes."¹⁰ The "emperor" (i.e., the firm) actually has "clothes" (technology tools) but is unaware of them. Many of the small firms we study tell us they are not "technical," and so incorrectly assume they can overlook these commonplace tools and not exploit them. There are exceptions, however, and we describe the experiences of two of them in this article. Both of these small firms leveraged digital technologies to innovatively recognize, develop, and evaluate business opportunities. The owner 10 See Hersholt, J. The Emperor's New Clothes (a translation of Hans Christian Andersen's Keiserens Nye Klæder), The Hans Christian Andersen Center, 1973, available at http://www.andersen. sdu.dk/vaerk/hersholt/TheEmperorsNewClothes_e.html. In this short story, tailors claim to provide an emperor with new clothes that are invisible to anyone who is incompetent. However, they place nothing on him and parade him unclothed around the town. The emperor and all his subjects are afraid to say that they see nothing in case others see them as unfit. Eventually, a small child cries out that the emperor is wearing nothing! In many small firms the opposite exists. They actually have "clothes" (technology tools) but they do not see or use them! misqe.org | © 2020 University of Minnesota of the first firm-which we call "Media Co"¹¹- recognized how advances in digital technologies provided the flexibility needed to relocate his television production company and reduce operational costs, while allowing him to remain agile and able to respond to customer needs. The owner of the second firm-which we call TireCo-sensed the need to build a technology solution to streamline the complex multifirm tire selling process by connecting sellers, buyers, and suppliers. By designing and deploying a digital platform, he transformed his industry. Table 1 provides an overview of the two case companies. We use these two cases to illustrate very different ways in which small firms can use easily accessible technologies to develop their businesses. In one, the opportunity development process involved using digital technologies to more efficiently and effectively deliver services; in the other, it involved creating a simple technology-based app and platform to restructure an industry. Together, however, the two cases demonstrate that everyday and inexpensive digital technologies can support both incremental and radical innovations. Although digital technologies became core components of each firm, both used the technologies to achieve very different business and industry goals. The insights gained from the experiences of these two firms should help other small firms (and also large organizations that don't appreciate that "the emperor does have clothes") to recognize the value of inexpensive everyday digital tools they currently underutilize and to more actively exploit these tools. Case 1: MediaCo Leverages Everyday Digital Technologies to Increase Efficiencies and Improve Service Delivery MediaCo is a boutique television production company that produces home and living genre TV shows for large media clients. Its focus is on creating original media content for sports, magazines, documentaries, advertisements, real estate promotions, museums, and TV series in high-definition, 3D, 4K, and ultra-HD formats. When the owner of MediaCo set the firm up in 1998, he aimed to develop a company that 11 We have used pseudonyms for both companies because they wish to remain anonymous. Technology-Driven Innovation in Small Firms offered inexpensive and quick services. MediaCo positions itself as a micro-TV company that responds to clients' requests within 12 hours. In the words of the owner: "We are now focused on being the Walmart of television production. Cheap, fast, and good." Origins of the Firm and Initial Growth. After working for several years in the media industry, the owner of MediaCo decided to move to a smaller city to raise a family and enjoy a better work-life balance. He sensed that advances in TV production and communication technologies were disrupting the media industry. The flexibility offered by these technologies meant that work could be done remotely, away from big production facilities. The owner noted that "Editing systems had just made the transformation from the days ... [when] you had to go to a big post production facility and cut your show on very expensive machines and have very expensive editors, and you did all of your post production in a big facility. Avid had created something called Avid Xpress where you could cut the show on a little computer and some monitors." The owner realized that these technology advances meant he could create high-quality TV content using just his computer. So, he decided to move his business to a smaller city, which would enable him to reduce his costs in meaningful ways for a small firm—for example, he could spend less on employee salaries, taxes, and office space. The lower cost of living and working in the smaller city increased MediaCo's efficiencies and freed up resources that could be focused on creative experimentation. The owner acknowledged that "We [could] come up with some really cool and creative ways to do [TV production] because we are not worrying [about] needing more money for rent this month or [it's] costing us a fortune in labor. ... Things were just cheaper here and that became ... the secret to our success." Use of Everyday Digital Technologies. Although MediaCo invested in expensive high- definition cameras and other cutting-edge digital equipment, the bulk of its digital technology was commonplace, easy to acquire, and low cost. March 2020 (19:1) | MIS Quarterly Executive 43