Innovative Value Chain: Supply Chain Technology (SCT) Adoption of SMEs in Sabah
Sidah Idris1*, Shafiennawanie Mohamad Faisal1, Nelson Lajuni1, Al-Nasri Weli1, Siti Hajar Samsu1, Charlie Albert1
1 Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah, MALAYSIA
*Corresponding Author: [email protected]
Accepted: 15 December 2020 | Published: 28 December 2020
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Abstract: Information technology drives innovation and innovation is the path to business success. Innovation in business has the same impact that steam had on the industrial revolution. Without a backbone of information technology, a business is not going to go far.
Unfortunately, in Malaysia although there are many steps taken by the government to assist technological development of SMEs, the mood by the supposed receivers paints a sombre picture. Digital adoption, especially among SMEs, is barely touching 20 per cent, and most manufacturing companies apply less than 50 per cent of automation. Malaysia has always scored among the highest in the region in terms of digital readiness, according to global surveys. However, the drive by industry players themselves falls short. Critical challenges include the lack of awareness, especially among SMEs, in terms of the impact of and benefits of keeping up with new technologies. It shows the level of technology usage still very low within business operation especially in supply chain that discourage the firm to digitalise their business. Thus, this study identified factors affecting supply chain technology (SCT) adoption among SMEs in Sabah particularly. This paper use Diffusion of Innovation (DoI) theory with introduce three variables were proposed to help predict SCT adoption among SMEs in Sabah namely: idea generation, idea conversion, and diffusion of innovation. This study employed quantitative method approach by using questionnaire as a tool to answer the study aims. Data was collected from 106 SMEs in Sabah regardless in manufacturing, services and agriculture industry was analysed using Structural Equation Modelling (SEM) via Partial Least Squares (PLS). The results and implications included in our study contribute to an expanded understanding of the innovation factors that influencing SCT adoption among SMEs.
Keywords: adoption, innovative value chain, idea generation, idea conversion, diffusion of innovation
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1. Introduction
The Small Medium Enterprises (SME) can be known as an enterprise that classifies as micro, small or medium, in which, it depends on either two criteria; annual sales turnover or full-time employees as per the definition by the National SME Development Council (Hanifah et al., 2019). Due to its significant contribution to the fulfilment of various socio-economic objectives, such as higher employment growth, production, promotion of exports and promotion of entrepreneurship, the small and medium enterprises (SMEs) sector has been well recognised worldwide. In the developed countries, SME enterprises are often called foundation enterprises which as are the core of the country’s industrial base (OECD, 2007). In the United States (US) SME situation, it is noted that more than 99 percent of US companies are SMEs.
The SMEs improve economic and job development in developed and developing countries to a higher level. Around 6.14 percent of all SMEs talked to neighbouring SMEs in Sabah (Ministry of International Trade and Industry Malaysia, 2018). Sabah SMEs have positioned at the seventh-most noteworthy number of the whole Malaysian SMEs where it demonstrated an expected critical for Sabah SMEs to add to the nation's financial development. As Hanifah, Halim, Ahmad and Vafaei-Zadeh (2019) emphasized that innovation was recognized as an important thing to reinforce the competitive advantage and remain productive among SMEs.
The gracefully chain was a system that begins with the providers to the producers, until to the end shoppers.
2. Literature Review
2.1 Supply Chain
Supply Chain (SC) is a network of organization that involved various process to produce products and services and deliver the value-added to the consumer (Christopher, 2016). The process in SC including procurement, manufacturing flow management, product development and commercialization, order fulfilment, customer relationship management, customer service management, demand management and return (Croxton, García-dastugue, Lambert and Rogers, 2001). Along the chain, there have suppliers, manufacturers, producers, wholesalers, retailers, service logistics and consumers Rajgopal (2016).
SC connect the business participants each other to achieve a common objective. SC participants become networking to exchange the information to deliver the products and services to the end consumers (Cutting-Decelle et al., 2007). (Bozarth, Warsing, Flynn and Flynn, 2009) stated that SC is a complex process due to the SC participants relate to numerous SC that produce various products and services, facing a hard-to-forecast situation and diverse consumers behaviour. Thus, it should have a good planning in SC activities because this information allows the firm to have better access to the host country and exploit global opportunities through various sources (Senik, Isa, Scott-Ladd and Entrekin, 2010).
The SC has been highlighted as a critical area for the firm’s success (Patterson, Grimm and Corsi, 2003). Holmberg (2000) emphasized that the firm who concern in SC able to create a competitive advantage. It is because SC give a high impact on operational efficiency in the business operation (Dobie, Glisson and Grant, 2000). SC perspective must be well-concerned to ensure the business participants could respond efficiently and minimize the surprise as (Towill and Mccullen, 1999) mentioned that the successful of SC is when there have less uncertainty and variability in SC, so that the business participants could improve their competitive position.
2.2 Supply Chain Technology Adoption
Supply chain technology (SCT) is a tool that helps in improving the effectiveness and the efficiencies of SC, thus, become a competitive weapon to the firm strategy. Since the Malaysian government is well recognized with the importance of technology, Industrial Revolution 4.0 (IR 4.0) has been established (Ministry of International Trade and Industry Malaysia 2017, 2018). With IR 4.0 establishment, firms can enrich their business operation in order to enhance the traditional methods to the new views like innovation. Knight (2000) asserted that innovation happens when firms suggest and support a unique idea and the latest processes that encourage the firms to produce new physical products and technologies.
The SCT is an innovation that can influence the organizational productivity, competitiveness,
flexibility and has been recognized in SCM area (Deitz, Hansen and Glenn Richey, 2009). It has been emphasized that SCT give a significant impact to enhance firm performance when the effectiveness of this kind technology meets organizational goals (Collins, Worthington, Reyes and Romero, 2010). This has been supported by (Jadhav, 2015) where technology plays an important role in SC decision phase, thus achieving the main objective of supply chain, in which, to enhance supply chain profitability.
SMEs knows that relying on SCT within their supply chain could help them achieve a strategic opportunity (Collins et al., 2010). Albaladejo (2001) emphasized that strong technological capabilities can help firms to generate a better network. This has been supported by Idris and Mohezar (2019) that technology capabilities were important for the successful global supply chain. This is because technology plays a role as a “connectivity” (Power, 2005).
2.3 Diffusion of Innovation Theory
Diffusion of Innovation (DoI) theory has been widely used in social science for a wide perspective (Brown, Venkatesh and Hoehle, 2014). DoI theory was developed to focus on the belief of technology perspective, so there were five-step process or stages in technology adoption which were knowledge, persuasion, decision, implementation and confirmation stage (Taherdoost, 2018). These stages or called as communication channel would be passed by individual or organization at a different rate of innovation usage, depends on the characteristics of adopters which include innovators, early adopters, late adopters, late majority and laggard (Sanson-Fisher, 2004). Lyytinen and Damsgaard (2001) has seen to support that adopter characteristics can influence the rate of innovation diffusion, in which, the adopter characteristics also can explain the time aspect in innovation diffusion (Dahnil et al., 2014). It has been emphasized by Chang (2010) that innovative idea, product or system might influence the different level of community, individual and organization which support this study.
In this study, the context of the innovation refers to the technologies relevant to the firm which is SMEs in Sabah. This includes the existing technologies, as well as the emerging technologies relevant to the firm. Many innovation characteristics can influence its adoption (Wang, Wang and Yang, 2010). There were relative advantage, complexity, compatibility, trialability and observability (Aizstrauta et al., 2015). However, not all innovation determinants were necessary to be applied for SCT. Prior studies found that relative advantages, complexity and compatibility as the most well-utilized factors for information technology (IT) adoption (Jeyaraj, Rottman and Lacity, 2006). This has been supported by Mustonen-Ollila and Lyytinen (2003) that relative advantage, complexity and compatibility as important factors in DoI theory.
Tornatzky and Klein (1982) conducted meta-analysis research about the innovation characteristics and innovation adoption-implementation found that relative advantage and compatibility often positively influence the rate of adoption and complexity was negatively influence the rate of adoption (as expected). For this study, relative advantage would be substitute with perceived usefulness. It is because perceived usefulness considered as the most relevant factor in work setting and has a strong judgement of direct relationship between perceived usefulness and IT adoption (Jeyaraj et al., 2006). In addition, relative advantage and perceived usefulness were considered as an interchangeable factor in technology diffusion (Tarofder, Marthandan, Mohan and Tarofder, 2013). Hence, there were three important innovation characteristics has been highlighted which include perceived usefulness, complexity and compatibility that influence the SCT adoption.
Therefore, in this study the diffusion of innovation theory has been appeared as an underpinning theory to explain the value chain dimension on SCT adoption among SMEs. The
term of ‘adoption’ has been used to describe the implementation of new ideas or behaviours (Damanpour, 1991). (Kaminski, 2011) highlighted that implementation stage known as a trial stage where the organization have made a full use of such technology. Thus, this would more focusing on the implementation stage because the SCT adoption by the firm should use the SCT on regular basis.
Innovative Value Chain
In this context, putting together significant relationships is important. In fact, Waghmare and Mehta (2014) noted that innovative value chain is a range of methods that are efficiently applied to connected suppliers, producers, warehouses and products in order to produce and disseminate the products in appropriate quantities, to the right place based on time request, to minimise system-wide costs while fulfilling the demands of facility level, multinational companies to leverage their philosophy in order to sustain this climate of globalisation by adopting information technology.
Idea generation
Idea generation is important which refers to a process that encourages the responsive in creating and sourcing new ideas and inspirations from the internal and external environment (Hansen
& Birkinshaw, 2007; Roper, Du, & Love, 2008), and idea generation will be observed and a critical analysis will made in order to achieve a company’s competitive advantage in a marketplace. Furthermore, interactions between internal and external parties in the innovation process is crucial as it can be a source for a wider selection of idea (Ramalho et al., 2019). It is, however, a requirement for company to be decentralised in order to pursue such activities in the innovation process (Taghizadeh, Jayaraman, Ismail, & Rahman, 2014). Instead of converting raw materials into finished product value chain according to Michael Potter, managers need to convert ideas into commercial production in order to boost innovation (Lin, Yeh, & Chen, 2018).
Before hitting the market as new products, services, processes, business models or a combination of two or more business, ideas generated within the company and ideas that originate from external relationship, alliances and interactions must go through the selection, development and implementation procedures (Goffin & Mitchell, 2005). This is because, not all ideas valid, there is some idea which might not be relevant to be used. Ideas that are more likely to fulfil the market needs are chosen through an innovation funnel to continue in the process until the implementation stage (Wheelwright & Clark, 1992).
Idea conversion
It is critical for executives to know how to deal with good ideas after creating them. Conversion is sub-categorized by the collection and testing of the best concept and the production of the activity that managers need to take into account the budget requirements (Hansen &
Birkinshaw, 2007). The conversion requires the transformation of information to create innovation, such as new processes, services, product, or organisational modes. According to (Roper et al., 2008), this phase may involve the use of multi-skill teams and various types of external parties in the process of developing innovations. This phase, on the other hand, refers to the screening of new ideas which chosen on the basis of their importance and relevance so that they can be incorporated in products (Ramalho et al., 2019), and translating it into an innovation.
Diffusion of innovation
The final phase is also called as diffusion of the idea, which relates to the marketing of products based on new ideas within the organization as well as outside the organization (Smit, 2015).
The diffusion of the idea through the organization dictates how well the company is able to disseminate the ideas generated. In order to promote and distribute company’s new product, services, process and practices through geographic areas, customer segments and channels, company can find the appropriate communities inside the organization (Hansen & Birkinshaw, 2007). This phase involves various aspects of customer engagement, as well as internal expenditure on branding and the use of intellectual property rights as a reputation (Roper, Du,
& Love, 2006).
2.4 Relationship between Innovative Value Chain and SCT Adoption
The implementation of new technologies may be difficult for SMEs to adjust the processes through which they connect with their business systems. If they face difficulties in terms of process improvements when using technology, most businesses would be hesitant to use technology in their business operations (Alshamaila et al., 2013). In addition, The use of new technology normally would make some changes to the current business processes, but if the technology would fit with the existing processes, the firm would more likely to make adoption of technology (Gupta, Seetharaman and Raj, 2013). The relationship also showed, the adopters’
characteristics may possibly influence the rate of innovation diffusion. Chang (2010) established that time aspect is essential to determine the impact of adopters in adapting the technology, thus in the growth rate of adoption.
Thus, the adopters were being more careful to choose the best innovation after varying degree of time yet comfortable to change, while the late majority were conservatives where they were really sensitive to adopt the innovation however will adopt only if the innovation has been successfully used by others, and laggard are known as technology sceptics whereby they were highly suspicious of the innovation and resists to change (Kaminski, 2011). Rogers (2003) highlighted that the early adopters have shorter decision-making in innovation adoption, compared to the later adopters. Below are the hypotheses used in this study:
H1: Idea generation has positive effect on the SCT adoption among SMEs in Sabah.
H2: Idea conversion has positive effect on the SCT adoption among SMEs in Sabah.
H3: Diffusion of innovation has positive effect on the SCT adoption among SMEs in Sabah.
3. Methodology
This study employed quantitative method approach by using questionnaire as a tool to answer the study aims and the respondents were the SMEs in Sabah. SMEs in Sabah were the subject of this study. The reason for choosing SMEs in Sabah is that Sabah has seen significant changes in Malaysia's growth, such as the development of many infrastructures and the rapid increase in Sabah's GDP per capita (Idris and Idris, 2017). SMEs from the database of SME Corporation Sabah Regional Office and other government agencies selected by using purposive sampling.
This study identifies the functions of innovative value chain to the adoption of SCT among SMEs in West-Coast of Sabah. Figure 1 shows the research framework used.
*Adapted from Diffusion of Innovation Theory (Chong et al., 2010) Figure 1: Research Framework
The study questionnaires were mailed to the 82 SMEs in West-Coast of Sabah. This study only received 63 useful responses. The response rate was thus 76.83%. Sample profiles are shown in Table 1. Five Likert Scale was employed, and the questionnaire was prepared in English and then translated to Bahasa Malaysia. The structure of the questionnaires consists of five sections which are section A (Supply Chain Technology Adoption), section B (Idea Generation), section C (Idea Conversion), section D (Diffusion of Innovation), and section E (Demographic Profile).
Table 1: Respondent Profile
The data that has been collected were analyzed through the Statistical Package for Social Sciences (SPSS) and Partial Least Squares Structural Equation Modelling (PLS-SEM). PLS- SEM would be analysed and interpret in two stages. First, the reliability and validity of the measurement model have been assessed. Then, the structural model itself was assessed. The data that were statistically analysed to see if the hypothesis generated was supported or not.
4. Findings
Measurement Model Results
According to Hair, Hult, Ringle, & Sarstedt (2016), the item with outer loading values at least 0.70 is acceptable. Hence, due to the outer loadings lower than accepted value, which is 0.70, items IG5 and IG6 were deleted and the rest were remain as they loadings were above accepted
Variable Description No. of respondents %
Size of company
Medium Cluster 18 28.6
Small Cluster 20 31.7
Micro Cluster 25 39.7
Total 63 100.0
Types of products/s ervice
Services 29 46.0
Consumer Goods (including Fishery and livestock item) 12 19.0
Manufacturing 10 16.0
Others 12 19.0
Total 63 100
Year of operations
Less than 5 years 44 69.8
6-10 years 19 30.2
Total 63 100
H3 H2 H1
SCT Adoption Idea generation
Idea conversion
Diffusion of innovation
value 0.70 (Refer to Table 2). Furthermore, the AVE and CR were introduced in order to test the convergent validity and internal consistency reliability. The results shows that all AVEs and CRs values were more than 0.50 and 0.70 respectively and it is indicate sufficient convergent validity and reliability (Fornell & Larcker, 1981; Gefen, Straub, & Boudreau, 2000). Other that, discriminant validity was then checked by comparing the square root of AVE with its corresponding relation with all variables in the model (Refer to Table 3). The square root of AVEs exceeds the inter-construct associations in all cases, supporting the validity of discriminants (Fornell & Larcker, 1981).
Table 2: Measurement Model Evaluation
Construct Measurement Items Factor Loadings AVE CR
Supply Chain Technology Adoption
SCT1 0.830
0.733 0.856
SCT2 0.883
SCT3 0.783
SCT4 0.821
SCT5 0.713
SCT6 0.791
SCT7 0.728
SCT8 0.821
SCT9 0.711
SCT10 0.830
SCT11 0.866
SCT12 0.856
SCT13 0.821
SCT14 0.791
SCT15 0.823
Idea Generation
IG1 0.724
0.685 0.869
IG2 0.748
IG3 0.762
IG4 0.783
Idea Conversion
IC1 0.771
0.743 0.878
IC2 0.828
IC3 0.819
IC4 0.836
Diffusion of Innovation
ID1 0.864
0.749 0.899
ID2 0.848
ID3 0.863
Note: CR, Composite Reliability; AVE, Average Variance Extracted
Table 3: Discriminant Validity Coefficient Diffusion of
Innovation
Financial Performance
Idea Conversion Idea Generation
SCT Adoption 0.845
Diffusion of Innovation 0.474 0.866
Idea Conversion 0.488 0.471 0.807
Idea Generation 0.417 0.486 0.475 0.865
Note: Diagonal terms (bold) are square roots of the AVE.
Structural Model Results
In this analysis, three structural relationship developed that consist of three direct relationships.
Based on the analysis shown in result table, it suggested that all relationship H1 (𝛽=0.234, t=2.863, p<0.01), H2 (𝛽=0.229, t=2.842, p<0.05) and H3 (𝛽=0.242, t=1.878, p<0.05) were supported which innovative value chain positively influence supply chain technology adoption among SMEs in Sabah. Thus, hypotheses H1, H2 and H3 were supported.
Table 4: Structural Relationship
Hypotheses Relationship Std. Beta
(β) Std. Error (SE)
t-value Decision H1 Idea Generation -> SCT
Adoption
0.234 0.104 2.863** Supported H2 Idea Conversion -> SCT
Adoption
0.229 0.112 2.842* Supported
H3 Diffusion of Innovation -> SCT Adoption
0.242 0.141 1.878* Supported
Note: t-values > 1.65* (p<0.05); t-values > 2.33** (p<0.01)
5. Discussion
The result shows that majority of SMEs in Sabah have adopt customer relationship management (CRM) system in their supply chain (which has factor loading of 0.883) compared to radio frequency systems (RFID) that has the lowest adoption among them (which has loading of 0.711). The result also shows that the extent to which the SMEs in Sabah perceived the usefulness in SCT adoption. They were highly perceived that using SCT makes the supply chain job easier, followed by the SCT helps solving the problem quicker, helps save time in spending on unproductive activities, can enhances the firm’s productivity, increases the firm’s effectiveness in SCM, allows more work accomplishment and support critical aspect of business operation.
In addition, based on the result it found that idea generation, idea conversion and diffusion of innovation have significantly influenced the SCT adoption of the company. This is because through generating a good idea from internal and external organization can make them to be innovative. In addition, the company manages or manages well the ideas they have that convert it into useful goods supplied to the consumer as well as provides good insight into how well the company can disseminate the created ideas. This study extends our knowledge on the issues relating to SCT adoption among the SMEs especially in Sabah. The analysis also strengthens our understanding by revealing the significant internal factors in the adoption of technology.
This study gives weight to technology readiness in support of SCT adoption for SMEs in Sabah, consistent with previous empirical work.
6. Conclusion
In conclusion, this study highlighted the knowledge on the issues relating to SCT adoption among Sabah SMEs. In addition, this research also revealed several advantages of SCT adoption that previous studies have also highlighted. This study extends the knowledge of the determining factors of innovation towards the adoption of innovation, supporting the theory of DoI as an interesting ground for explaining the dissemination of innovation among SMEs particularly in Sabah. Finally, the author would like to investigate in depth for adopting the new technology in making the manager of the company be creative and do some innovation for their survival in the market. Besides, the results and implications included in our study contribute to an expanded understanding of the innovation factors that influencing company performance among local companies in Sabah especially in the current challenging time during Movement Control Order (MCO) of Covid-19 pandemic.
Acknowledgement
This study funded under SDK0211/2020 The Impact of Innovative Value Chain in Facing MCO: Enhancing Local Businesses Performance in Sabah. Thank you to Centre of Research and Innovation, UMS.
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