Can Expanding the Use of Computers Improve the Performance of Small Minority- and Women-Owned Enterprises?

Robert I. LermanCaroline Ratcliffe Harold Salzman Douglas Wissoker Jennifer GaudetCan Expanding the Use of Computers Improve the Performance of Small Minority- and Women-Owned Enterprises? Can Expanding the Use of Computers Improve the Performance of Small Minority- and Women-Owned Enterprises? ROBERT I. LERMAN CAROLINE RATCLIFFE HAROLD SALZMAN DOUGLAS WISSOKER JENNIFER GAUDETTHE URBAN INSTITUTE The authors thank the Microsoft Corporation for funding this study. The authors are also grate-ful to Jin Chon, Bey-Ling Sha, Gayle Cruise, and Nerea Alvarez for useful comments. RobSantos and Julie Paasche of NuStats, Inc. helped design and carried out the telephone surveyused in this study. Henry Chen and David Moskwitz provided excellent research assistance. Copyright © March 2004. The Urban Institute. All rights reserved. Except for short quotes, nopart of this paper may be reproduced in any form or used in any form by any means, electronicor mechanical, including photocopying, recording, or by information storage or retrieval sys-tem, without written permission of the Urban Institute.The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthyof public consideration. The views expressed are those of the authors and should not be attrib-uted to the Urban Institute, its trustees, or its funders.ContentsBackground and Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Obtaining the Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3The Methods Used to Answer the Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4The Characteristics of Firms and Business Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6The Patterns of Computer Use among Small Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9What Determines Computer Use by Small Firms? What Limits Expansion? . . . . . . . . . . . . . 11Computer Use, Productivity, and Firm Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Effects of Improving MWEs’ Computer Use on the National Economy . . . . . . . . . . . . . . . . . 18Conclusions and Next Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Background and Key FindingsA thriving small business sector is an important national objective. So, too, is the developmentof healthy businesses owned by women and minorities. Currently, African Americans, HispanicAmericans, and women fall well short of achieving the business success that white men attain.Wide ethnic and gender gaps in self-employment demonstrate this trend. As of 2000, nearly1 in 7 employed white men worked in their own business, as compared with about 1 in 18employed African American men, 1 in 12 employed Hispanic men, and 1 in 14 employedwomen.1Minorities and women are less likely to own businesses than are white males and thebusinesses they do own generate far lower sales (figure 1). Even among small business owners,minority- and women-owned enterprises (MWEs) are less likely to survive and prosper (Fairlieand Robb 2003). Helping small businesses in general and MWEs in particular can promote economic growthand improve the relative economic position of minorities and women. To pursue these goals,the federal Small Business Administration offers loans and technical assistance, and federal andstate governments engage in preferential contracting policies. These existing policies repre-sent a national commitment to creating and channeling contracts to MWEs. However, onlylimited resources have been devoted to helping these businesses achieve the high levels of pro-ductivity, profitability, and dynamism necessary for them to contribute significantly to eco-nomic and employment growth. Since public support may hinge on how well these businessesenhance growth and avoid becoming a drain on public resources, it is critical that policymak-ers understand what is helping and what is hindering small businesses and MWEs. The effective use of computer technologies is one factor that may influence the businesssuccess of small firms and especially small MWEs. Past studies have found lower computer useamong MWEs than among white-male-owned firms, though not for all uses (Bitler 2001).Numerous studies have examined the complex relationship between computer use and firmperformance and productivity. While most studies point toward a positive impact of computeruse on performance, others present confli