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Organisational Size Measurement in IS Research: Implications and

Consequences of Using Different Metrics
Sigi Goode

School of Business and Information Management

Faculty of Economics and Commerce
Australian National University
Sigi.goode@anu.edu.au

Abstract
Organisational size is an important research variable in information systems research. Prior
research has identified a large number of organisational size metrics in use in the published
information systems research literature. However, many researchers offer little supportive
discussion for their choice of size metric.

This paper documents a pilot study to determine the effects of using different organisational
size metrics. The study takes a dataset from an existing study and analyses a group of research
hypotheses in terms of different organisational size metrics in an operational research context.

It is the thesis of this paper that if researchers do not pay attention to the size metric in use,
they risk delivering erroneous results. Additionally, due to the high amount of extant literature
available, researchers are easily able to unwittingly justify these results. The paper makes
several important findings. First, the outcome of hypothesis testing depends on the metric
used. Second, this effect does not appear to be systematic. Third, regardless of the outcome of
this hypothesis testing, the results can be justified.

Introduction
There has been recent argument in the literature concerning IS as a reference discipline.
Authors such as Baskerville and Myers (2002) have argued that whereas IS has drawn on
older disciplines for formation and foundation, IS should now seek to stand on its own as a
reference discipline. These authors appear to argue not for isolation, but rather co-operation
and consistency in building a model discipline that other scholars would look to for guidance
and innovation. The advantages of such an approach are clear. Cooperation with academics
from other disciplines should introduce other researchers to the fresh approaches prevalent in
IS research. It would also serve to reinforce the research methods prevalent in IS. Such
cohesion would demonstrate disciplinary maturity and agreement among researchers. To
some extent, this is attractive but remains elusive.

Examination of the behaviour of organisations (and, macroscopically, groups of

organisations) remains a pivotal component of many research domains. This scholarly
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attention is echoed in the IS research literature (Baroudi and Lucas 1994). This organisational
research comes in a variety of forms, including social organisations, governmental
organisations, managerial groups and commercial organisations, with particular attention
given to the analysis of social organisations (Holsapple and Luo 1996).

Amid the many experimental variables that researchers employ in their scholarly endeavour,
organisational size is of particular importance. Many have observed it as important in the
analysis of organisations and technology. Some studies have argued that organisational size
has been a poor indicator of behaviour. For instance, Grover and Teng (1992) observed
similar technology adoption behaviour between larger and smaller organisations. Sampler and
Short (1994) and Ewusi-Mensah (1997) delivered similar findings with regard to project and
system development failure respectively. Brynjolfsson et al. (1994) provided inconclusive
results with respect to size and technology use: Ettlie et al. (1984) argued that, ultimately,
only extremely large organisational size is a useful predictor of technology adoption or
organisational behaviour. Gifford (1992:295) wrote, “if firm size matters at all, it matters only
in industries with low technological opportunity”. While researchers persist in using size as a
component of their research, its application continues to deliver inconclusive results. Clearly,
organisational size deserves sober reassessment.

This at once provides a dual opportunity. First, it allows us to colour the construct and hence
reinforce/improve IS research. Second, it contributes to the reputation of IS as a reference
discipline in and of itself. These arguments lead to the following research questions.

Do different organisational size metrics affect research outcomes?

What are the research implications of using different organisational size metrics?

It is the purpose of this chapter to illustrate some of the inconsistency regarding the
application and use of the organisational size construct. Evidence of the inconsistency of
organisational size will be observed in terms of primary evidence. This paper comes in the
tradition of Hitt and Brynjolfsson who examined the concept of IT value using different
measures. They obtained similar results for that construct.

The rest of this paper is structured as follows. The paper first establishes organisational size
as an important construct in the IS discipline. The paper then discusses the research method
used in the study. The results are then detailed. Based on these results, the paper offers two
alternative but exclusive courses of discussion. The paper then attempts to illustrate how
easily researchers can justify these results based on extant argument from the literature by
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offering discussion from two separate points of view as if only one metric had been used.
Conclusions and areas for further research are offered.

An Empirical Study of IT Adoption

IT adoption is one phenomenon that has been frequently examined in the IS literature.
Researchers are keen to determine the differences in adoption behaviour between “larger” and
“smaller” firms. Despite the competing theories, as discussed above, the topic remains
popular in the literature. Unsurprisingly, given this intense literature coverage, a number of
technologies have been examined with regard to organisational adoption. These include
database management systems (Grover and Teng 1992), expert systems (Shao 1999),
microcomputers (Robey 1981, Delone 1988, Lind et al. 1989), and Electronic Data
Interchange (Iacovou and Benbasat 1995).

Business technology adoption can be analysed according to the business’ physical

characteristics. Given certain business characteristics, inferences can be made about how the
business will adopt technology. Numerous business characteristics receive attention in the
Information Systems literature (Yap 1990). Ein-Dor and Segev (1978), identify 22
characteristics of businesses which have particular bearing on the success of information
systems. Ginzberg (1980) recognised 12 factors which affected the implementation of an
information system, while Lind et al. (1989) focused on just two elements. Other
characteristics in addition to those outlined above are identified, however their relationship to
technology adoption has been inconsistent. Such discrepant characteristics include the
presence of a systems analyst (Yap et al. 1992), management support (Cale and Eriksen
1994), management structure (Sanders and Courtney 1985), remoteness of business location
(Raymond 1985), and customer requirements (Yap 1990).

The size of the business is held to be the most important characteristic in the analysis of
technology adoption (Lind et al. 1989). However, despite the arguments of authors such as
Goode (2001), many researchers rely on univariate measures of organisational size and
several metrics are available in the IS literature. However, regardless of this apparent
popularity, there appears to be very little supportive discussion of organisational size metrics.
Whereas authors typically offer sound reasons for why their use of size is relevant to the
experiment at hand, they are reluctant to apply the same rigour to their measurement of the
construct. Furthermore, these analyses appear to be undertaken with scant regard for their
effects on experimental rigour, validity and reliability.
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Authors may pursue a number of avenues when selecting a metric for their studies involving
organisational size. First, they may adopt a metric already in use in the literature (as in Karimi
et al. 1996). Alternatively, instead of basing measurement on theory, authors may base
measurement on their understanding of the size construct or metric availability (Kimberly
1976). They may eventually choose a metric for which data are easiest to obtain. Yankelovich
(1972) described this as McNamara’s fallacy:

“The first step is to measure whatever can be easily measured. This is OK as

far as it goes. The second step is to disregard that which can’t be easily
measured or give it an arbitrary quantitative value. This is artificial and
misleading. The third step is to presume what can’t be measured easily really
isn’t important. This is blindness. The fourth step is to say that what can’t be
measured really doesn’t exist. This is suicide.”

The apparent assumption is that the choice of organisational size metric does not affect the
outcome of the research testing.

Approach
It is important to note that the research approach was not aimed at testing or validating theory
on technology adoption per se, but rather to test the effects of using different organisational
size metrics: in essence, the study was geared towards determining sensitivity towards
experimental error through mis-measurement. The study aims to show that if theory
development is based primarily on hypothesis testing then researchers risk making errors if
their understanding and measurement of size is poorly founded. In the interests of exploratory
analysis, this study takes six size metrics that have received some empirical use in the
research literature.

The goals of the study placed several requirements on the research method, so care was taken
to choose a sound path of research program development. The first requirement was for
empirical organisational data. The second requirement was that these data had to be amenable
to satisfying analysis of organisational size as an explanatory experimental variable.

Data were taken from an existing study, aimed at examining the different reasons for IT
adoption. The study surveyed 588 publicly listed Australian companies, and yielded 100
complete and usable responses, a response rate of 18.6%. The outcomes of that study are still
undergoing analysis and refinement, however the data provides an acceptable platform for
this examination.
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Method
For each respondent in the original study, extra data were sought. The initial survey only
required respondents to list the number of employees present in their firm. In order to extend
the data set, data concerning the firm’s total assets, market capitalisation and gross revenue
were also sought. These data were extracted from public listing information as disclosed to
the Australian Stock Exchange (ASX).

For the sake of exploratory analysis, a group of research hypotheses was developed from the
seminal research literature as follows. Swanson (1994) observes that size is critical to reasons
for technology adoption. He observes that larger organisations are more knowledgeable about
market developments due to “market spanners” and, citing Fuller and Swanson 1992 and
Anderson 1981, are more likely to adopt innovations for a variety of reasons. Swanson’s
meta-analysis evidence suggests that many studies have found that size was either an
explaining or associated factor in many adoption studies.

We next select a variety of reasons for this adoption. We acknowledge that these reasons are
not exhaustive however, as noted earlier, our intention is to explore measurement selection
effects. Authors argue that firms will adopt technology in order to acquire competitive
advantage (Earl 1989, Kettinger et al. 1994), remove a competitive disadvantage (Swanson
1994, Fichman and Kemerer 1997), improve value chain communications (Swanson 1994,
Earl 1989), improve cost management (Kelley 1994, Scudder and Kucic 1991), and to offer
new products and services (Norton and Bass 1987, Sethi and King 1994).

By drawing on both of these literature groups, it could be argued that if larger firms are more
likely to adopt innovations, and that organisations may have different reasons for undertaking
the innovation process, then larger firms may have different reasons for adopting innovations
than smaller firms. This would be consistent with Donaldson (1995), who observes a
relationship between organisational size and its contingency approach to innovation
behaviour. This discussion leads to the group of example research hypotheses to be used in
this study, as shown below.
H1: Larger firms expect to introduce new products
H2: Larger firms expect to introduce new services
H3: Larger firms expect to improve communications with customers
H4: Larger firms expect to improve communications with suppliers
H5: Larger firms expect to improve communications with shareholders
H6: Larger firms expect to improve communications with regulators
H7: Larger firms expect to reduce customer relationship management costs
H8: Larger firms expect to reduce shareholder relationship management costs
H9: Larger firms expect to reduce costs of hiring staff
H10: Larger firms expect to reduce costs of marketing products
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H11: Larger firms expect to reduce costs of product distribution

H12: Larger firms expect to reduce costs of marketing service range
H13: Larger firms expect to increase competitive advantage

The next step of the study was to gather a group of candidate size metrics for hypothesis
testing. Kimberly (1976) observes that many researchers simply conduct a brief literature
analysis and use the metric which appears easiest to use. Following this process, literature
works in the areas of business, management and finance were read for the purposes of
obtaining research metrics. It is understood that this process appears ad hoc and somewhat
crude however it is also argued that this very process receives patronage in the extant
literature itself. Additionally, the metric list is not held to be complete or exhaustive. Table *
shows the metrics used for organisational size. Importantly, it should be noted that these
metrics are identical to those used in the research literature. For each metric, the table
provides a brief definition and a literature source.

Table *: Candidate Size Metrics and Metric Definitions

Metric Definition Literature References

In accounting terms, the sum of total equity and

Waldman et al. (2001), Samiee and
total liabilities (Renwick 1969). The total amount of
Total Assets Walters (1990), Carpenter and Petersen
physical and working capital (Carpenter and
(2002)
Petersen 2002)
Geletkanycz and Hambrick (1997),
Ln(Total Assets) The natural log of total assets.
Wald (1999)
Market The value of sales of shares on the market (Martin Reinganum (1982), Yook and McGabe
Capitalisation and Rey 2000) (2001)
Pugh et al. (1969), Nemati and Barko
Number of
Number of full and equivalent part-time employees. (2002), Samiee and Walters (1990),
Employees
Evers et al. (1976), Child (1973)
Ln(Number of The natural log of number of employees (Hickson Pugh et al. (1969), Child (1973), Evers
Employees) et al. 1967). et al. (1976)
Ryan and Prybutok (2001), Wixom and
Gross Revenue Revenue from sales (Kudyba and Diwan 2002)
Watson (2001)

Table * raises two important points. First, prima facie examination of these metrics shows
distinct functional dissimilarity. Other than sharing the grouping under size, it might be
difficult to argue for contiguity between, for instance, gross revenue and the natural log of
number of employees. In addition, it is foreseeable that a firm might have many employees
but very little revenue (such as those firms engaged in speculative mining). In this regard, it
may be difficult to argue that these metrics exhibit convergent validity. Second, it should be
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noted that metrics such as market capitalization may inherently possess some selection bias
towards those firms which are large enough to attract public capital.

Results

Data items were coded according to the variables in Table *. The reader is reminded that this
study does not seek to examine technology adoption reasons. However, the study aims to give
a more complete picture by providing a broad range of data items for examination.

Table *: Explanation of experimental variables

Item Name Item Explanation
NEWPRO New products
NEWSERV New services
COM_CUST Improve communications with customers
COM_SUPP Improve communications with suppliers
COM_SHARE Improve communications with shareholders
COM_REG Improve communications with regulators
COS_CUSR Reduce customer relationship management costs
COS_SHLD Reduce shareholder relationship management costs
COS_HR Reduce costs of hiring staff
COS_MKTP Reduce costs of marketing products
COS_PDIS Reduce costs of product distribution
COS_MKTS Reduce costs of marketing service range
ADVANT Increase in competitive advantage

Respondent data were first subject to response bias analysis according to the date of receipt of
each returned questionnaire (as advocated by Grover et al. 1994). The respondents were split
into two groups, according to their date of response in relation to the mean response date.
Mann-Whitney analysis of business age and respondent position revealed insignificant
differences between earlier and later respondents. The respondent sample was then compared
to the population of businesses obtained from the Australian Bureau of Statistics. The profile
suggested the sample's industries are generally equally well represented in the respondent
sample, with no industry sector under or over represented in the data set. The profile was
deemed to indicate an acceptable level of response representativeness.
Tables *, * and * show demographic information from the respondent group.

Table *. Respondent Demographic Information

Industry Number
Banking and Financial Services 11
Equipment and Services 10
Mining (Exploration and Production) 9
Computer & Office Services 8
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Diversified Industrials 7
Gold (Producer) 6
Gold (Explorer) 6
Retail 6
Biotechnology 5
Oil/gas (Exploration and Production) 5
High Technology 5
Electricity, Gas, Coal Provision 4
Publishing, Advertising and Marketing 4
Building and Property Development 4
Equity Investment 3
Base Metals 2
Diversified Media 2
Food and Consumables 2
Agriculture & Related Services 2
Transport and Automotive 2
Casinos/Gaming 1
Paper Merchant 1
Total 104

Table 3: Respondent Number of Employees

Number of Employees Number
N/A† 1
0 - 10 20
11 - 25 19
26 - 50 13
51 - 100 12
101 - 200 7
201 - 300 7
301 - 400 4
401 - 500 6
501 - 1000 8
1001 - 1500 2
1501 - 2000 1
2001 - 2500 0
2501 - 3000 0
3001 - 4000 2
4001 - 5000 2
5001 - 10000 2
More than 10000 2
Total 104
†One respondent did not answer this question.

Table 4: Respondent Organisation Age

Organisation Age Number
Less than 1 year 4
2 - 5 years 19
6 - 10 years 18
11 - 15 years 17
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16 - 20 years 11
21 - 25 years 6
26 - 40 years 11
41 - 50 years 3
51 - 100 years 11
More than 100 years 8
104

Descriptive statistics were first derived. Table * gives the industry summary statistics of the
entire respondent group. The largest single industry to be represented in the respondent group
was that of Banking and Financial Services, followed closely by General Equipment and
Services. Mining and Computer and Office Services were also well represented.
Most respondents employed ten or fewer equivalent full time staff, however over the
respondent group a substantial number employed less than one hundred staff. According to
Australian Bureau of Statistics categories, this suggests that respondents were split across
small, medium and large businesses. The business age summary statistics show respondents
generally evenly split across age categories. This suggests that the respondent sample was not
biased towards older or younger businesses.

The selection of statistical method was of strict importance. A number of studies (such as
Hickson et al. 1969 and Kimberly 1976) have shown that organisational size and age can
exhibit significant skewness and kurtosis. That is, measures of organisational age, for
instance, tend to be skewed towards the lower bound, and not towards the point of centrality.
Intuitively, there are more smaller, younger firms than there are larger, older firms (due to
natural attrition, takeovers and mergers) (Hart 1962). The potential skewness and kurtosis
suggests possible population non-normality. This suggests that the use of non-parametric
statistics would be appropriate. The data comprised Likert scale responses. Accordingly,
Spearman’s Rho correlation was deemed an appropriate analysis method.

Table 3: Spearman Rho Correlation Matrix for Size Metrics

Item Name Total Assets Ln(Total Market Number of Ln(Number of Gross
Assets) Capitalisation Employees Employees) Revenue
Total Assets 1.000 1.000** .744** .579** .579** .769**

Ln(Total 1.000 .744** .579** .579** .769**

Assets)
Market 1.000 .514** .514** .757**
Capitalisation
Number of 1.000 1.000 .707**
Employees
Ln(Number of 1.000 .707**
Employees)
Gross Revenue 1.000
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Table 3 reveals a number of interesting points. First, predictably, Number of Employees and
log(Number of Employees) are perfectly correlated. The case is the same for Total Assets and
log(Total Assets). As the natural log function affects magnitude but not order, this is to be
expected. Second, it is interesting to observe that all of the size metrics within this dataset
exhibit at least some degree of correlation.

The correlation between size measures appears to be a bone of contention in the research
literature. Some authors observe the correlation as a natural product of size measurement.
This is typified by the arguments of Price and Mueller (1986:233): “our definition is based on
the assumption that different indicators are highly correlated”. Other authors identify this
correlation as evidence that all indicators exhibit convergent validity: Clarke (1983:887)
makes the comment, “since the intercorrelations of the measures…are so substantial, it did
not appear that selection of size indicators was a source of the discrepant findings”.
Conversely, some authors explicitly avoid correlated measures, ostensibly in order to avoid
problems of multicolinearity. For instance, Barua et al. (1995) use total employees instead of
other size metrics because the authors found that the other size metrics were highly correlated.

Table 4: Spearman Rho Correlation Matrix for Experimental Variables

Ln(Total Market Number of Ln(Number of
Total Assets Gross Revenue
Assets) Capitalisation Employees Employees)
NEWPROD 0.059 0.059 0.116 0.179 0.179 0.195
NEWSERV 0.156 0.156 .213* .353** .353** .300**
COM_CUST 0.138 0.138 0.183 .272** .272** .308**
COM_SUPP 0.177 0.177 .206* .326** .326** .321**
COM_SHARE 0.149 0.149 0.185 -0.025 -0.025 0.031
COM_REG .206* .206* .203* 0.154 0.154 0.162
COS_CUSR 0.05 0.05 .197* .228* .228* .259*
COS_SHLD 0.006 0.006 .197* -0.023 -0.023 0.024
COS_HR .204* .204* .270** .238* .238* .278**
COS_MKTP 0.014 0.014 0.158 0.17 0.17 .206*
COS_PDIS 0.052 0.052 0.141 .285** .285** .224*
COS_MKTS 0.148 0.148 .227* .343** .343** .374**
ADVANT 0.049 0.049 0.031 0.173 0.173 0.105
** Correlation is significant at the .01 level (2-tailed).

* Correlation is significant at the .05 level (2-tailed).

Table 4 shows the Spearman correlation tests for the hypotheses developed in the previous
section. Each of the six size metrics are tested and, for convenience, cells containing
significant outcomes have been shaded. The table shows a number of interesting points. First,
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despite the substantial inter-item correlation seen in Table 3, not all size metrics exhibit
significant associations with the experimental variables. This suggests that not all size metrics
are equivalent in meaning or effect. The second point is that most instances of significance
occur when Number of Employees, Ln(Number of Employees) and Gross Revenue are used.
Total Assets, Ln(Total Assets), do not appear to show the same level of significance. It is
tempting to ascribe predictive capability, then, to the Number of Employees and Gross
Revenue metrics. However, this constitutes a dangerous undertaking as the researcher has no
assurance that these particular measures of significance are correct: in this regard it would be
just as valid to assume that Total Assets is the correct metric.

Finally, consider the findings for perceptions of improvements in shareholder

communications (COM_SHARE). As the magnitude of the correlation reading reflects the
degree of association between the factors, we observe substantial variability between
readings. For market capitalization, we observe a mild association (.185), however for number
of employees we observe a very mild negative correlation (-.025). We could make similar
observations regarding the readings for reductions in costs of shareholder management
(COS_SHLD). From this, we can see that researchers may find both positive and negative
correlations between factors, leading researchers to make conflicting observations about the
same phenomena.

Discussion

The findings presented in the previous section have distinct and important implications for
research in Information Systems. First, because all firms in this study were among Australia’s
top 1000 firms as listed on the Australian Stock Exchange, substantial data concerning
structural characteristics were available. It could be argued, however, that these data items
would not be as easy to obtain for unlisted companies. Many of these unlisted firms are
deemed to be “small business”. This is important if researchers wish to examine these smaller
businesses, or to compare larger and smaller firms.

Second, many of the firms listed in this study have significant transnational interests,
engaging in businesses in other countries and owning or being owned by foreign interests.
The analysis of financial indicators in this regard can be difficult for several reasons. First,
accounting standards are frequently incompatible across nation states. The process of
determining Gross Revenue, for instance, depends heavily on what constitutes acceptable
revenue sources and non-expensable items. Additionally, for "publicly traded
firms...concentrated in high-tech industries, a large fraction of their assets are firm-specific or
intangible" (Carpenter and Petersen 2002), making size measurement using total assets
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difficult. Second, the consolidation of financial documentation can make extracting values for
partially-owned subsidiaries difficult. Different naming conventions across reporting
jurisdictions will also impede this process.

Third, certain industries pose difficulties when extracting data. For instance, mining and
speculative exploration firms typically push financial revenue and profit into the future,
realizing returns on investment at a later stage. Accordingly, in these circumstances,
indicators for gross revenue would be low until the firm makes a discovery. However, mining
operations typically involve substantial human resources. This would result in an inflated
Number of Employees metric. Firms in these industries could hence be both “large” and
“small” at the same time.

These findings could be justified regardless of the outcome. For instance, let us assume that
the study only used total assets to proxy for organisational size. The finding in this case would
mean that larger firms were associated with both perceived improvements in communicating
with regulators (.206) and the costs of hiring staff (.204). No other factor was found to be
significant for this metric. In these circumstances, authors could argue that large firms could
benefit from the outreach potential of electronic commerce to address conditions of
complexity: “as organisations increase in size, they develop differentiated subunits and
increase investment in telecommunications resources…they tend to have steering committees
to coordinate and monitor policy” (Torkzadeh and Xia 1992:190). Staff acquisition for such
purposes would be of distinct importance (Felix and Harrison 1984). Additionally, as the firm
grows, it must report on its financial situation in order to comply with regulatory groups.
While electronic commerce allows firms to communicate with a variety of stakeholders,
larger firms may already have the experience, infrastructure and personnel to deal with such
processes, and there is little attraction in being able to change communications with
stakeholders such as customers and suppliers. From this analysis, researchers might conclude
that electronic commerce will have little overall effect on firm operations as measured by
size. This would be consistent with the arguments of Mirchandani and Motwani (2001).

However, if researchers had used gross revenue as their sole size metric, they might have
observed a very different story. In this case, only five factors were found to have an
insignificant association with size, being the provision of new products, communication with
shareholders, communication with regulators, costs of managing shareholder relationships
and the derivation of competitive advantage. In these circumstances, researchers might argue
that due to the larger resource base, firms may be able to devote more attention to developing
new services (explaining the NEWSERV finding). As observed by Rayport and Sviokla
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(1995), e-commerce adopters stand to gain from benefits to the value chain, which at least
partially explains the perceived savings associated with market participation (COS_MKTP
and COS_MKTS), product distribution (COS_PDIS) and customer management
(COS_CUSR). Finally, if both large and small firms are adopting electronic commerce
(consistent with Quelch and Klein 1996), then it is unlikely that firms will be able to derive
competitive advantage according to size alone.

The evidence presented here offers a possible explanation for the inconsistency observed in
the literature. However, this brief study is subject to a number of limitations. First, the dataset
is reasonably small, comprising only one hundred observations. While this posed no problems
in terms of statistical analysis, there is no guarantee that the data are not in some way unique.
Second, while the dataset was compared to the wider population in order to garner some idea
about response representativeness, there is no guarantee that the data are actually
representative of the wide population. Third, the study made use of non-parametric statistical
methods due to significant levels of skewness and kurtosis. While these methods are
approximately equal in predictive strength to their parametric counterparts when a significant
number of observations are available (Newbold 1991), we cannot be certain that other
approaches may not yield different results.

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