Elsevier

Technovation

Volume 25, Issue 10, October 2005, Pages 1119-1127
Technovation

Understanding innovation in small and medium-sized enterprises: a process manifest

https://doi.org/10.1016/j.technovation.2004.04.005Get rights and content

Abstract

This paper proposes new directions in researching innovation in small and medium sized enterprises (SMEs) based on a process perspective. We proceed by (a) reviewing advances in mainstream innovation research, (b) considering the nature of studies of innovation in SMEs, and (c) outlining new directions that take into consideration the conceptual arguments illustrated in the previous sections. We propose that our current level of understanding is restricted due to the theoretical and methodological biases that have informed existing research. A better understanding is more likely to be achieved by rejecting normative-variance approaches and assessing innovation in the context of strategic conduct within institutional processes and structures. This should contribute to a better appreciation of innovation in SMEs by focusing on the process of change.

Introduction

Encouraging innovation in small and medium sized enterprises (SMEs) remains at the heart of policy initiatives for stimulating economic development at the local, regional, national and European levels (Jones and Tilley, 2003). In the UK, this can be traced back to the emergence of the New Right in the 1980s and the demise of the corporatist perspective of ‘big is beautiful’ and its replacement with the logic of entrepreneurship in stimulating economic growth (Hutton, 1995). At a theoretical level, innovation has also replaced efficiency as the crucial focus of much theory building and policy analysis with efficiency becoming a necessary adjunct to innovation (Clark and Staunton, 1989). Yet, despite increasing attention being given to the role of SMEs and innovation there is a hiatus between what is understood by way of the general innovation literature and the extant literature on innovation in SMEs. Although there is the absence of a common theoretical basis for innovation research more generally (Drazin and Schoonhoven, 1996) it is apparent that, notwithstanding this, studies of innovation in SMEs have largely failed to reflect advances in the innovation literature. This failure to improve our basic understanding of innovation in SMEs is disappointing given that, in the UK, SMEs (including sole traders) amount for 99% of businesses, 55% of non-governmental employment and 51% of turnover (SBS, 2001). Our main contention is that a revision of existing research perspectives is not only theoretically overdue in the context of SMEs it is of practical relevance, given the continued focus of public policy and money on improving the innovative potential of SMEs, particularly in mature Western economies.

Our aim in this paper, building on Child's (1997) conception of strategic choice, is to propose a theoretical framework of innovation in SMEs that is sensitive to the micro-processes of innovation and the institutional processes reflect the mediating role of dominant institutions. This is consistent with institutional theory, as innovation is believed to involve the relational interplay of the firm context with the political efforts of actors to accomplish their own ends (see Beckert, 1999, Kostova and Roth, 2002). We begin to develop this process perspective by: (a) reviewing recent developments in innovation research, (b) considering the nature of studies of innovation in SMEs, and (c) outlining new directions that take into account these conceptual arguments. Adopting an integrative approach provides an opportunity to contextualise existing studies and to assess the implications of our preferred view in the context of existing trends in theory development.

Section snippets

Challenging normative-variance approaches of innovation

At present, and despite the voluminous literature, our understanding of innovation—the commercial exploitation of ideas—is quite limited (Wolfe, 1994). Making sense of this failure demands closer scrutiny of the theoretical assumptions of the existing innovation literature, especially the innovation in SMEs literature. Efforts to improve the explanatory reach of innovation research have led to increasing interest in the process through which ‘new ideas, objects and practices are created and

The Study of Innovation in SMEs

To date, little has been said about the multi-level dimensions and often paradoxical links between agency and structure in studies of innovation in SMEs (for exceptions see Edwards, 2000, Jones et al., 2000). Thus, despite the voluminous literature on innovation in SMEs (for reviews see Chanaron, 1998 and Motwani et al., 1999, also see Acs and Audretsch, 1990, Cobbenhagen, 2000) the aggregate benefits has, it might be argued, been marginal in explaining the innovation process in SMEs. We

New directions in researching innovation in SMEs

The complexity of innovation (as alluded to by Rogers and Burns and Stalker in later revisions) can usefully be considered in terms of recent theories of the innovation process (Robertson et al., 1997). In the case of technical innovation, this process consists of several episodes that are recursively rather than sequentially organised that include: invention, diffusion and implementation. Invention is a personalised process where individuals form relations based on expertise and skills for the

Discussion

We suggest that a process view allows for (limited) comparative generalisations and moves beyond simple investigations that focus purely on the innovation project in SMEs. Exploring the innovation process will require longitudinal studies based on qualitative methods designed to make sense of the socio-political processes that underpin innovation within SMEs. Our proposal is to view innovation in terms of the constraining and enabling aspects of existing competencies, dispositions, resources

Concluding remarks

Our current understanding of innovation in SMEs is relatively poor. In part, our level of understanding will be improved by assessing intra- and inter-organizational firm links. However, higher levels of understanding will ultimately depend on making more sense of the mutual interdependence between agency and social processes. Child's (1997) theory of social action (strategic choice) offers the potential to make links across the diverse approaches found in the institutionalist literature. This

Tim Edwards lecturers in Organization Behaviour and Human Resource Management at Cardiff Business School. His research interests include strategic choice, the management of innovation and institutional change. Tim has published in these areas and has undertaken research for a number of bodies including the European Regional Development Fund (ERDF) and the UK Advanced Institute of Management where he has been a lead scholar. He is currently acquired research funding from the British Academy to

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    Tim Edwards lecturers in Organization Behaviour and Human Resource Management at Cardiff Business School. His research interests include strategic choice, the management of innovation and institutional change. Tim has published in these areas and has undertaken research for a number of bodies including the European Regional Development Fund (ERDF) and the UK Advanced Institute of Management where he has been a lead scholar. He is currently acquired research funding from the British Academy to continue his work on innovation and strategic choice in the super yacht industry.

    Rick Delbridge is Professor of Organizational Analysis at Cardiff Business School and a Fellow of the UK Advanced Institute of Management Research. He is the author of ‘Life on the Line in Contemporary Manufacturing’ and co-editor of ‘Manufacturing in Transition’. He has published in the Academy of Management Review, Human Relations, Industrial Relations, Journal of Management Studies, Organization Studies and Sociology amongst others. He is an Associate Editor of Organization and co-editor of the Routledge Studies in Employment Relations series. His research interests include the management of innovation and the implications for organizational and institutional change.

    Max Munday is Reader in Economics at Cardiff Business School and Director of the Welsh Economy Research Unit. He has research interests in regional policy, the economics of the multinational, and regional economic modelling. Recent publications in these areas have appeared in Journal of International Business Studies, Fiscal Studies, Regional Studies and Policy Studies. Max has also undertaken research for a number of national institutions and the EU. Very recently he was part of a team, which completed an evaluation of the EU structural funds programmes in Wales. He also undertook (with the co-authors on this paper) an examination of the innovative potential of SMEs in Wales which was supported by the European Union.

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