Should entrepreneurs invest in the latest technologies?
How environment can dictate spend
By Dr Saadat Saeed - January 2020
Over the last decade, there has been a rapid advancement in technology, which has led to many people believing we are in a fourth industrial revolution, otherwise known as ‘Industry 4.0’.
Industry 4.0 can be defined as a digital transformation which will have a massive impact on every single industry, including our economy and education sector. It’s the merging of the physical and cyber worlds, and is changing the way we store data.
Nowadays, businesses seem to be obsessed with having the latest technologies such as artificial intelligence, big data and blockchain. This is because technology makes it easier for a business to communicate with their customers, and in today’s environment, time is everything. A business will want their employees to interact with clients and customers as quickly and as easily as possible, as better communication often leads to a better public image.
That being said, it is hard for businesses to keep up with the ever-changing industry. What was once the latest and best technology can very quickly become out of date, which leaves businesses struggling to catch up. For this reason, I wanted to see if technology really has that much of an impact on the success of an organisation.
In the pursuit of competitive advantage, I found that new ventures which invest in the latest technologies are 65% more likely to be innovative.
My research, based on data from the Global Entrepreneurship Monitor (GEM) survey and interviews with more than 57,000 individuals in 67 countries over a 6 year period, found that technology plays an integral role in enhancing new ventures’ operations and performance. This is because small startups are often at a disadvantage in their ability to compete with large companies and by using the latest technology, this allows them to level the playing field and outclass competitors. It’s important to note that I’m not saying every new start-up should invest in the latest technologies, as the effectiveness of using them to improve new venture innovation depends on external pressures, such as uncertain environments and regulations.
My study shows the environment has to have the right conditions for a business to thrive. An entrepreneur should focus on the economic, political and social aspects of the environment. Is the economy growing? Is the government stable? And is entrepreneurship seen as acceptable? Being in the right environment will strengthen the impact of using the latest technologies because it creates a context that is rich in knowledge and ideas which make entrepreneurs more likely to invest.
Previous studies have shown that heavily regulated environments may impose significant barriers and deter entrepreneurs from investing in resources because of increasing costs. My research shows if firms are located in an environment like this, then they should consider settling for lower levels of investment in technology, even though there will be a negative impact on innovation.
However, my research also shows that if the regulations are in favour of entrepreneurship, entrepreneurs are more likely to invest because they are more willing to take risks. An environment like this helps new startups to achieve continuing profitability through assistance programmes which offer money, information and services. In fact, in this situation, entrepreneurs should consider investing as it increases the likelihood that small startups will become high-growth firms.
Furthermore, my findings suggest an environment where it is socially acceptable to be an entrepreneur, such as the USA (where in fact you could argue they’re obsessed with the idea of entrepreneurship), means the latest technologies will have more of an impact on innovation. This is because having an environment where people and media see entrepreneurship as desirable has a positive effect on the entrepreneur and how they act, increasing the likelihood of them investing.
In contrast, if entrepreneurship is not seen as desirable, then investing in the latest technologies is unlikely to facilitate innovation because there are strict roles and behaviours that should be adhered to. That being said, even though the use of the latest technologies won’t work in this environment, innovative entrepreneurs are often those who challenge existing norms, values and business processes to create unfamiliar products and services. So, it is still possible for a business to be innovative in this environment, but it won’t be through using the latest technologies. Previous research has also stressed the importance of an environment which focuses on the impact education can have on entrepreneurial activity. It suggests that, especially for business, education can improve a person’s ability to solve problems, which in the long run improves their confidence and their ability to create a new venture.
Before I conducted my research, I thought that because education improves entrepreneurs’ sense-making and self-efficacy, investing in new technology is more likely to lead to innovation. However, I found no evidence to show education plays a key role in the relationship between the use of the latest technology and innovation. An entrepreneur’s education and possession of the knowledge and skills necessary to operate a business appears to have no influence on their use of technology in new ventures. My study has an in-depth analysis of 4 environments that new startups can be located in, which provides valuable insights into how and when the latest technologies can lead to innovation.
The ideal environment for a new startup to be innovative is one that sees entrepreneurship in a positive way, which results in business-friendly regulations to support them. To sum up, entrepreneurs who use the latest technologies are more likely to offer innovative products and services than those who don’t. But only if their startup is in the right environment.