Information System Development in the Small Firm: tests of contingency, agency and markets & hierarchies approaches

This paper is designed to explore the nature of information system development in small and medium sized enterprises (SMEs), by appeal to three theories: contingency, agency and markets vs hierarchies. To address these theories empirically, use is made of new data which have been gathered from a sample of Scottish SMEs over a five-year period, 1994-1998. The structrue of this paper is as follows. First, the three theories under examination, contingency, agency and markets vs hierarchies, are briefly described. Second, an overview of the methodology is presented, looking at sampling, the database and summary statisics. Third, the contingency theory approach is explored on the data, both taxonomically (using cluster analysis) and inferentially (using regression analysis). Fourth, the agency approach is tested, using regression analysis. Finally, the markets vs hierarchies approach is tested, using regression analysis. The paper ends by concluding that the contingency approach is not a rival approach to the agency or markets vs hierarchies approaches, but may rather be regarded as incorporating, and supporting, elements of both.