The Influence of Information Technology (IT) Knowledge on

Organization Performance with Adaptability to Change as a

Moderator among Small Medium Enterprises (SMEs) in Malaysia:

A Conceptual Paper

Lo Liang Kheng and Rajendran Muthuveloo

Graduate School of Business, Universiti Sains Malaysia, Penang, Malaysia

Keywords: Information Technology (IT) Knowledge, Adaptability to Change, Organization Performance,

Resource-based View Theory, Small Medium Enterprises (SMEs).

Abstract: The raising business cost with ever-changing business environment forces SMEs to develop adaptability and

flexibility that will ensure their survival and improved performance. In the digital age, no business can grow

without the use of information technology (IT). Organization performance of SMEs is the key focus for this

study as SMEs are the key contributors to national economy. This study will be useful for entrepreneurs as

well as academic scholars in generating a framework that can improve overall organizational performance

in an emerging economic context.

1 BACKGROUND

Organizations operate in an environment where

internal and external forces affect its overall

performances. Measurement of organization

performance also varies. As highlighted by Dess and

Robinson (1984), strategic management researchers

often encounter problems obtaining objective

measures of selected aspects of organizational

performance that are reliable and valid. However,

such data are frequently not available with privately-

held firms or such data is indistinguishably mingled

with corporate-wide data for the conglomerate

business units.

Performance measurement has great significance

in the effective management of an organization and

in the enhancement of the process since only

measurable things is manageable. As such, the

enhancement of the organizational performance

requires some measurements to determine the impact

of the level of organizational effectiveness upon

business performance. Measurement of performance

can offer invaluable information to allow

management to monitor performance, report

progress, improve motivation and communication

and pinpoint problems. Accordingly, it is to the

firm’s best interest to evaluate its organization

performance. Various ways have also been brought

forward to measure financial performance and

among them are: measurement of performance as the

level of Return on Assets (ROA), Return on Equity

(ROE), Tobin-Q, Profit Per Employee (PPE), Return

on Fixed Assets (ROFA) etc (Al-Matani et al.,

2014).

The Malaysia Productivity Blueprint 2015

identifies various challenges to the growth of

productivity of the country. These challenges were

categorized into five categories i.e. talent,

technology, incentive structure, business

environment, and productivity mindset; are

applicable for both big corporate and SMEs. The

second thrust identified by the Malaysian

Productivity Blueprint 2015 was driving

digitalization and innovation. To achieve

digitalization and innovation, the organizations need

to strengthening of technology readiness by

knowledge and adoption of technology across all

sectors and strengthen digitalization among SMEs

through e-commerce and adopting innovative

technology. Therefore, it is of importance for the

business organizations to align themselves in a fast

changing environment by acquiring the digital

technology and remaining relevant by enhancing

organizational performance (Malaysia Productivity

Corporation, 2017).

124

Kheng, L. and Muthuveloo, R.

The Inﬂuence of Information Technology (IT) Knowledge on Organization Performance with Adaptability to Change as a Moderator among Small Medium Enterprises (SMEs) in Malaysia: A

Conceptual Paper.

DOI: 10.5220/0008489201240129

In Proceedings of the 7th International Conference on Entrepreneurship and Business Management (ICEBM Untar 2018), pages 124-129

ISBN: 978-989-758-363-6

Referring to Digital News Asia (2018), 7% of the

Malaysia’s GDP in 2017 was based on digital

products and services i.e. mobile services, clouding,

and internet of things (IoT), artificial intelligence

(AI) etc. IT and digital are transforming economy

landscape and changing the competition among

businesses. Riding on the importance of change, this

study also focuses to test whether the moderator

known as ‘adaptability to change’ moderates

between the knowledge-IT and organization

performance.

1.1 Small and Medium-sized

Enterprise and Organization

Performance

As noted by Kannan (2016), 97% of business

establishments in Malaysia are SMEs and they

provide almost 50% of the total employment

generated in Malaysia. It is estimated that more than

600,000 SMEs in Malaysia employ almost 3.7

million workers. These figures show the importance

of SMEs in the country’s economy. Unfortunately,

according to the US Small Business Administration,

almost 50% of SMEs fall in the first year itself and

95% tend to fail by the five-year mark. SMEs with

fewer than 20 employees have only a 37% chance of

surviving for four years and a 9% chance of

surviving for 10 years (Kannan, 2016). Similarly in

Malaysia, the SME’s survey in the Third Quarter of

2016 found that majority of SMEs continue to face

the pressure of rising cost and 7.1% of the SMEs

reported the 10% annual increase in total operation

cost. The increased operation cost (i.e. cost of raw

material and input, electricity rates, and import cost

due to depreciation of currency) in performing

business forced SMEs to opt for cost-cutting

measures and other initiatives such as intensified

promotional activities and introduction of new

product and services in the near future as an

extended business strategy (SME Annual Report

2016/17).

The effective knowledge of information and

communication technology (ICT) is vital for the long

run of the SMEs. However, according to the

Malaysian SMEs corporation, Malaysian SMEs are

still lacking sufficient investment for digital

technology due to insufficient commercial funds and

low awareness. Lack of an effective mechanism to

transfer knowledge and technology from large firms

to SMEs is also a challenge. Malaysia also lacks an

affordable and high quality digital infrastructure that

could be helpful for SMEs (Malaysia Productivity

Blueprint, 2015). Furthermore, Malaysian SMEs are

found to provide a lower contribution to the nation’s

GDP and exports compared to SMEs of many

neighboring nations such as Japan, South Korea and

Singapore (Halim, Ahmad & Ramayah, 2013).

During the 2017 Annual Conference, former

Malaysia prime minister, Datuk Seri Najib Razak

also urged the SME sector to strive harder after the

government allocated RM22.2 billion to help spur

the industry under Budget 2018. It was highlighted

that the government is targeting 41% growth for the

sector deemed to be a catalyst for the country’s

economic expansion leading to 2020. However, the

industry only posted 36.9% growth which is still

below the target up to 2017 (SME Corp, 2017).

Understanding the importance of SMEs to the

national economies, Malaysian government has

developed various programs to support SME growth

with the motive to fulfill the 2020 vision to become

high income nation with developed status. However,

despite various efforts, Malaysian SMEs are still

losing their global competitiveness due to the poor

performance and low productivity (Tehseen et al.,

2015).

2 LITERATURE REVIEW

The literature review of the three key variables

relevant to this study comprises of Organization

Performance, Information Technology (IT)

Knowledge, and adaptability to change.

2.1 Organization Performance

The success of a firm can be measured by its

performance over a period of time as measurement

of performance is vital for the effective management

of the firm. By measuring the outcome of

performance, the process of functioning of a firm

can be improved. Hence, the enhanced

organizational performance needs tools which can

measure the impact of resources responsible for

business performance (Al-Matani et al., 2014).

According to

Lo et al. (2016), organization

performance is the measurement of financial and

non-financial factors which complement each other

and provide a richer description of actual

performance. It can also be defined as the degree to

which an operation fulfils the performance

objectives (primary measures) and meets the needs

of the customers (secondary measures).

A review study performed by Stores et al. (2013)

on technological investment and organization

performance revealed that a comprehensive

The Inﬂuence of Information Technology (IT) Knowledge on Organization Performance with Adaptability to Change as a Moderator among

Small Medium Enterprises (SMEs) in Malaysia: A Conceptual Paper

125

framework based on operational and administrative

technology is needed to effectively use technology

investment. According to Lo et al. (2016) technology

orientation has positive relationship with financial

and non-financial performances of the organization.

The firms which have given emphasis on technology

can achieve superior firm performance.

In the current knowledge-based business setting,

the fundament question arises is whether and how

information technology can become a tool for the

firms to gain competitive advantage in the uncertain

environment. To provide the answer Mikalef and

Pateli (2017) performed an empirical study to

investigate the relationship between IT-enabled

dynamic capabilities and competitive advantage of

the firms. The results of the study revealed that the

two types of agilities are facilitated by IT-enable

dynamic capability, i.e., market capitalizing agility

and operational adjustment agility which ultimately

leads to competitive performance.

2.2 Information Technology (IT)

Knowledge

Information technology is the application of

computers to store, study, retrieve, transmit, and

manipulate data, or information, often in the context

of a business or other enterprise. IT is considered a

subset of information and communications

technology (ICT). Having staff with the knowledge

in this area will ensure the company reaches its

desire level of organization performance in today

business world. In this era of digitalization, it is hard

for the businesses to survive without using

information technology. The different IT platforms

such as cloud-based services, social network, and e-

commerce used software for accounting and data

analysis to enable organization to reach new clients

and partners. However, in some cases, organizations

ignore the extensive use of IT as the budget for

procuring, training, and management of technology

was not sufficiently allocated (Kannan, 2016).

There has been a drastic increase among SMEs

on utilization of ICT in their businesses. The SME

Survey conducted by SME Corporation Malaysia in

Q1 of 2016 showed that the majority of respondents

utilized computers, smartphones and Internet in their

daily life, both for business operation or for personal

use. Looking at the business usage, about 89.1% of

the respondent cited that they have utilized

computers for business as compared to only 27.0%

recorded in 2010. Besides that, about 20.3% of

respondents were involved in online transactions to

better reach out to their customers. Going forward,

SMEs should further capitalize on ICT to modernize

and improve their business performance. Hence, IT

knowledge is one of the crucial skill for the SMEs’

workforce as their organization have now adopted

information technology, realigned to the new

technology and acknowledged the importance of

ICT (SME Annual Report 2016/17).

In the contemporary knowledge-intensive

business environment, a central question is whether

and how IT can help build competitive advantage in

uncertain environments. Mikalef and Pateli (2017)

explored the relationship between IT-enabled

dynamic capabilities and competitive performance.

The authors argue that the impact of IT-enabled

dynamic capabilities on competitive performance is

mediated by organizational performance. The

findings suggest that IT-enabled dynamic

capabilities facilitate two types of agility, which are

market capitalizing agility and operational

adjustment agility, which subsequently enhance

competitive performance.

Similarly, Lo et al., (2016) found that technology

orientation is significantly and positively related to

both financial and non-financial performance. It is

evidenced that firms which are technology-oriented

have a better chance to achieve superior

performance. If the firm fails to adapt the advanced

technology into customers’ benefits, the business

performance of the firms could not improve.

Therefore, any high technology adaptation should

align with high organizational performance.

2.3 Adaptability to Change

Pulakos et al., (2015) defines that every organization

need to change in this dynamic environment and as

such the need for adaptive workers has become

increasingly important. With respect to business and

manufacturing systems and processes adaptability

has come to be seen as an increasingly important

factor for their efficiency and economic success. As

highlighted by Kannan (2016), most SMEs are

wiped out because they get comfortable with their

original business plan and do not want to tweak it

according to the current flow. The question “What’s

next?” should always exist in a business. SMEs that

are not willing to change and are in denial will

remain in the danger zone. “Change” is the mantra

that should always be at the forefront of an SME to

ensure the organization’s sustainability.

It is apparent that changes are necessary for

employees and employer, so it is the responsibility

of the organization to articulate how change is

positive to them and in what manner it is

ICEBM Untar 2018 - International Conference on Entrepreneurship and Business Management (ICEBM) Untar

126

implemented in the existing scenario (Muthuveloo

and Teoh, 2013). According to Pulakos et al.,

(2015), all workers need to increase their skill of

adaptability, and they also need to be versatile and

tolerant of uncertainty to stay in today dynamic

working life situation. Enhancing adaptability in the

work place has been seen as a trend and important

by both researchers and practitioners in the

organizations. Previous studies have also identified

and discussed the reasons why employees in an

organization do not adapt the changes. The Tariq et

al., (2011) study links an approach towards the

employee adaptability to change and the competitive

advantage.

According to Pulakos et al., (2015), to enhance

or improve their performance, organizations need to

increase their workers’ skills of adaptability,

versatile and tolerant of uncertainty so that they can

stay in today’s dynamic working life situation.

Workers should change their way of working

according to these changing and diverse

environments. Adaptability to change and enhanced

adaptability in the working place have become

important for both researchers and practitioners. In

psychological literature, the terms adaptability,

versatility, and flexibility are incomprehensible

concepts which are not defined clearly, therefore,

they have been difficult to measure, predict, and

train effectively.

2.4 Underpinning Theory: Resource

based View Theory (RBV)

The resource-based view is an approach to achieving

competitive advantage of a firm which lies primarily

in the application of a bundle of valuable tangible or

intangible resources at the firm's disposal

(Wernerfelt, 1984). According to RBV proponents, it

is much more feasible to exploit external

opportunities using existing resources in a new way

rather than trying to acquire new skills for each

different opportunity. In RBV model, resources are

assigned a major role in helping companies to

achieve higher organizational performance. There

are two types of resources namely tangible (physical

thing namely land, buildings, machinery, equipment

and capital) and intangible (example: brand

reputation, trademarks, intellectual property).

Physical resources can easily be bought in the

market, so they confer little advantage to the

companies in the long run because rivals can soon

acquire identical assets whereas intangible assets are

everything else that has no physical presence but can

still be owned by the company. Two critical

assumptions of RBV are that resources must also be

heterogeneous and immobile.

The RBV framework was adapted in numerous

organization performance studies. For example,

Muthuveloo and Teoh (2014) used RBV to explore

organizational capabilities and investigate its

influence on manufacturing firms’ performance.

Sawng et al., (2018) studied the adoption of Radio

frequency identification (RFID) to improve company

performance and found that strategic decision

making is required for adopting smart technology

(i.e. RFID) in the perspective of technology

convergence to improve the performance of

companies among heterogeneous industries. Gligor

and Holcomb (2014) found that logistics capabilities

positively impact supply chain agility which helps

the companies to respond in a timely and effective

manner to market vitality and other uncertainties.

Literature on core capabilities of a firm derives from

RBV, and RBV of an organization consists of

various powerful resources which are valuable, rare,

difficult and costly to imitate. Organization must be

able to wisely integrate their organizational

capabilities to gain sustainable competitive

advantages and thus resulting in outstanding

organizational performance.

3 CONCEPTUAL FRAMEWORK

The conceptual framework as per depicted in Figure

1 was developed based on the research gap identified

through the literature review and Resource based

view theory (RBV). Among the major factors

impacting economic progress in today’s global

business atmosphere is the transmission and

application of the latest technologies in

organizations. However, the latest technologies

alone will not guarantee organizational success as

technological innovation without applying and

employing them may not grant the expected higher

organization performance. The fast development of

IT which created an explosion of information is

essential for today’s market as it creates new

opportunities and development for the organizations.

On the other hand, it also creates unpredictability

and organizations that do not embrace the change

will be left behind.

Hence, it is a central question for organizations

to examine how IT-moderated knowledge on

adaptability to change can enhance organization

performance in order not to be left behind or to lose

its competitive advantage. Thus, this study proposed

a conceptual framework focusing on the

The Inﬂuence of Information Technology (IT) Knowledge on Organization Performance with Adaptability to Change as a Moderator among

Small Medium Enterprises (SMEs) in Malaysia: A Conceptual Paper

127

organization’s IT knowledge and adaptability to

change as valuable resources in the current business

environment.

Figure 1: Conceptual Framework.

4 SIGNIFICANCE OF STUDY

From the theoretical point of view, this study

provides a theoretical contribution by investigating

the SMEs’ organization performance through the

lens of Resource-based view (represented by IT-

knowledge) with incorporation of adaptability to

change as a moderator. In terms of practical

perspectives, the findings will enable businesses,

SMEs specifically, and direct them to contribute

towards formulating strategies to achieve higher

organizational performance.

5 CONCLUSION

In the present business environment, the raising

business cost with ever changing business

environment forces SMEs to develop adaptability

and flexibility that will ensure their survival and

improved performance. As noted by Blanco and

Botella (2016), business adaptive resilience is an

overall competence, summarizing company internal

competitive advantages. At the company level,

differences in the ability to respond to change and

survival are explained by differences in productivity,

organizational and innovative culture, technology etc

which are linked to resilience. In a similar vein,

Alamro et al., (2018) found significant positive

relationship between both new product flexibility

and market flexibility and operational performance

in Jordanian manufacturing companies.

This study intends to fill the gap by identifying

critical success factors for SMEs in the context of

Malaysia and by studying the relationship between

identified critical success factors (IT-knowledge)

and organizational performance while incorporating

adaptability to change as a moderator. The outcome

of this study will be useful for entrepreneurs as well

as academic scholars in generating a framework that

can improve overall organizational performance in

an emerging economic context.

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Small Medium Enterprises (SMEs) in Malaysia: A Conceptual Paper

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