The management of innovation and its role for the accomplishment of leadership excellence in SMEs
©2003
Magisterarbeit
231 Seiten
Zusammenfassung
Inhaltsangabe:Zusammenfassung:
Die aktuelle Situation auf den Märkten ist gekennzeichnet durch Hyperwettbewerb, stark verkürzte Produktlebenszyklen, immer kürzere Produkt- und Technologieentwicklungszeiten. Daraus resultiert die zunehmende Notwendigkeit auch für KMUs, auf internationalen Märkten tätig zu sein und Kernkompetenzen global zu nutzen. Vorsprung zu haben vor anderen, vor Wettbewerbern ist zweifellos von Vorteil. Im Wettlauf um Kunden und überzeugte Anhänger gewinnt doch immer der, der besser, innovativer ist.
Erfolgreiches Innovationsmanagement ist eine wesentliche Voraussetzung für überdurchschnittliche Wertsteigerung des Unternehmens, höheres Wachstum im Vergleich zu Konkurrenzunternehmen, Kundenzufriedenheit und letztendlich somit auch eine Notwendigkeit zur Zufriedenstellung aller Stakeholder.
Die eingehende Auseinandersetzung mit sowohl theoretischen Grundlagen als auch praktisch angewandten Methoden des Innovationsmanagements bildet den Ausgangspunkt für unsere Diplomarbeit. Das Ziel unserer Arbeit ist es, einerseits theoretische Einblicke in neue Konzepte des Innovationsmanagements zu geben, und andererseits auch praktische Entscheidungshilfen für kleine und mittlere Unternehmen zur Verfügung zu stellen.
Abstract:
What are the main reasons for the fact that some companies are able to produce more innovative products and services of better quality in less time for their customers compared to their competitors in a given market? Which are the most important success factors and leadership implications that make some small and medium-sized firms more innovative and more successful than others? Those have been the underlying questions that guided us, when writing this paper on the management of innovation and its role for the accomplishment of leadership excellence in small- and medium-sized enterprises (SMEs). When searching the literature of the past five years one can find a vast amount of published articles and studies on innovation and the management of innovation but only a limited number of articles dealt with the specific situation and needs of SMEs. Thus we felt that it would be helpful for leaders of this type of companies to identify a set of practicable implications and measures to be taken in order to support and foster innovation. Of course we cannot reinvent the wheel by setting completely new rules of doing business in SMEs. But what we can do here is trying to identify relevant steps helping to support innovative […]
Die aktuelle Situation auf den Märkten ist gekennzeichnet durch Hyperwettbewerb, stark verkürzte Produktlebenszyklen, immer kürzere Produkt- und Technologieentwicklungszeiten. Daraus resultiert die zunehmende Notwendigkeit auch für KMUs, auf internationalen Märkten tätig zu sein und Kernkompetenzen global zu nutzen. Vorsprung zu haben vor anderen, vor Wettbewerbern ist zweifellos von Vorteil. Im Wettlauf um Kunden und überzeugte Anhänger gewinnt doch immer der, der besser, innovativer ist.
Erfolgreiches Innovationsmanagement ist eine wesentliche Voraussetzung für überdurchschnittliche Wertsteigerung des Unternehmens, höheres Wachstum im Vergleich zu Konkurrenzunternehmen, Kundenzufriedenheit und letztendlich somit auch eine Notwendigkeit zur Zufriedenstellung aller Stakeholder.
Die eingehende Auseinandersetzung mit sowohl theoretischen Grundlagen als auch praktisch angewandten Methoden des Innovationsmanagements bildet den Ausgangspunkt für unsere Diplomarbeit. Das Ziel unserer Arbeit ist es, einerseits theoretische Einblicke in neue Konzepte des Innovationsmanagements zu geben, und andererseits auch praktische Entscheidungshilfen für kleine und mittlere Unternehmen zur Verfügung zu stellen.
Abstract:
What are the main reasons for the fact that some companies are able to produce more innovative products and services of better quality in less time for their customers compared to their competitors in a given market? Which are the most important success factors and leadership implications that make some small and medium-sized firms more innovative and more successful than others? Those have been the underlying questions that guided us, when writing this paper on the management of innovation and its role for the accomplishment of leadership excellence in small- and medium-sized enterprises (SMEs). When searching the literature of the past five years one can find a vast amount of published articles and studies on innovation and the management of innovation but only a limited number of articles dealt with the specific situation and needs of SMEs. Thus we felt that it would be helpful for leaders of this type of companies to identify a set of practicable implications and measures to be taken in order to support and foster innovation. Of course we cannot reinvent the wheel by setting completely new rules of doing business in SMEs. But what we can do here is trying to identify relevant steps helping to support innovative […]
Leseprobe
Inhaltsverzeichnis
ID 7684
Riedl, Bruno/ Santer, Markus: The management of innovation and its role for the
accomplishment of
leadership excellence in SMEs
Hamburg: Diplomica GmbH, 2004
Zugl.: Leopold-Franzens-Universität Innsbruck, Universität, Magisterarbeit, 2003
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1
CONTENTS
I. INDEX OF TABLES AND FIGURES
p. 7
II. INDEX OF ABBREVIATIONS
p. 9
1. INTRODUCTION
p. 10
1.1 Problem Formation
p. 10
1.2 Goals of our work
p. 12
1.3 Structure of our work
p. 14
1.4 Subject of investigation: Small and Medium-Sized Enterprises p. 17
1.4.1 Overall situation of SMEs
p. 17
1.4.2 Definition of SMEs
p. 17
1.4.3 Characteristics of SMEs
p. 19
1.4.4 Stakeholder management in SMEs
p. 20
1.4.5 Innovation and core competences in SMEs
p. 23
2. DEFINING INNOVATION
p. 24
2.1 A choice of different definitions of innovation used in recent
literature
p. 24
2.2 Defining innovation in the context of our work
p. 25
2.3 Dimensions of Innovation
p. 25
2.3.1 Product versus Process Innovation
p. 26
2.3.2 Radical versus Incremental Innovation
p. 26
2.3.3 Technological versus Administrative Innovation
p. 27
3. ANALYSIS OF THE EXTERNAL ENVIRONMENT OF
INNOVATION
p. 28
3.1 Impact of public authorities and political decisions on
Innovation
p. 29
3.1.1 Public Innovation Climate
p. 29
3.1.2 Active participation in innovation activities
p. 31
3.1.3 How innovative are SMEs in Europe?
p. 32
2
3.2 Regional Innovation Support Systems
p. 33
3.2.1 Identifying the Need for Regional Innovation Support
Systems
p. 35
3.2.2 Example of a Regional Innovation Support System:
Upper Austria
p. 35
3.2.2.1 Typical problems of the innovation process in
SMEs
p. 36
3.2.2.2 Regional Support Systems to improve SME
innovativeness
p. 37
3.2.2.3 Problems with innovation support systems
p. 38
3.2.3 Implications for efficient regional SME innovation
support systems
p. 39
3.3 Territorial Efficiency Innovative Clusters
p. 41
3.3.1 The notion of Territorial Efficiency and its importance
for SMEs
p. 41
3.3.2 How do Industrial Clusters support SMEs commited to
Innovation
p. 44
3.4 Networking between firms
p. 48
3.4.1 Motives for networking
p. 49
3.4.2 Problems associated with inter-firm cooperations
p. 50
3.4.3 Suggestions on networking between SMEs
p. 51
3.5 The current situation in Europe results from CIS2
p. 53
3.5.1 Innovators: who, how many?
p. 53
3.5.2 Output of Innovation
p. 54
3.5.3 Innovation activities and expenditure
p. 54
3.5.4 Why do firms innovate?
p. 55
3.5.5 Sources of information for innovation
p. 55
3.5.6 Innovation cooperation
p. 56
3.5.7 Obstacles to innovation
p. 56
4. THE INDIVIDUAL FIRM'S PERSPECTIVE
p. 58
4.1 Leadership and Innovation
p. 58
4.2 Leadership Excellence in SMEs
p. 61
4.3 Strategic Management and Innovation
p. 62
3
4.4 The strategy in the context of innovation
p. 65
4.4.1 Basics of strategy
p. 65
4.4.2 Types of innovation strategies
p. 66
4.4.2.1 Pioneer strategy
p. 67
4.4.2.2 Early follower strategy
p. 67
4.4.2.3 Later-to-market strategy
p. 67
4.5 New Innovation Management
p. 67
4.5.1 A definition of innovation management
p. 69
4.5.2 The main tasks of innovation management
p. 69
4.5.3 Characteristics of innovation
p. 72
4.5.3.1 Degree of newness
p. 72
4.5.3.2 Insecurity
p. 72
4.5.3.3 Complexity
p. 73
4.5.3.4 Conflict potential
p. 74
4.5.4 Project or process structure
p. 75
4.5.5 The management of innovation and the organization
p. 77
4.5.5.1 The organization dilemma
p. 77
4.5.5.2 Organizational architecture for innovation
p. 78
4.6 The process of innovation
p. 80
4.6.1 The idea production phases
p. 83
4.6.2 The idea development phases
p. 84
4.6.3 The idea implementation phases
p. 84
4.6.4 The phase-spanning controlling activity
p. 84
4.6.5 Technological and market forces
p. 84
4.7 Innovation controlling
p. 85
4.7.1 Organization of innovation controlling
p. 86
4.7.2 Functional innovation controlling
p. 86
4.7.3 Project based innovation controlling
p. 86
4.7.4 Management ratios
p. 89
4.7.5 Performance management controlling of soft facts
p. 90
4.8 Technology Management
p. 92
4.8.1 A definition of technology management
p. 93
4.8.2 Tasks of technology management
p. 94
4.8.3 Information and Know-How Management
p. 96
4
4.8.3.1 Technology Forecast
p. 96
4.8.3.2 Technology Monitoring
p. 96
4.8.3.3 Technology Approval
p. 97
4.8.4 Core competences and technology
p. 98
5. EMPIRICAL QUALITATIVE CASE STUDIES
p. 101
5.1 On qualitative researching
p. 101
5.1.1 Qualitative versus quantitative research
p. 101
5.1.2 Introduction to qualitative research and respective
methods
p. 103
5.1.3 Qualitative Research Design
p. 106
5.1.3.1 The Stage of Reflection
p. 106
5.1.3.2 The Stage of Planning
p. 107
5.1.3.3 The Stage of Entry
p. 107
5.1.3.4 The Stage of Productive Data Collection
p. 108
5.1.3.5 The Stage of Withdrawal
p. 108
5.1.3.6 The Stage of Writing
p. 109
5.1.4 Extension and deepening of findings
p. 110
5.1.5 General principles of qualitative research a summary
p. 111
5.2 Methodology
p. 112
5.2.1 A short introduction to GABEK
p. 112
5.2.2 Research Design
p. 112
5.3 Interview Guidance
p. 114
5.4 Participating Companies
p. 115
5.4.1 Firm A
p. 115
5.4.2 Firm B
p. 115
5.4.3 Firm C
p. 116
5.4.4 Firm D
p. 116
5.5 GABEK Analysis
p. 116
5.5.1 Innovation
p. 117
5.5.2 Leadership
p. 120
5.5.3 Customers
p. 122
5.5.4 Ideas
p. 124
5.5.5 Framework
p. 126
5
5.5.6 Organizational Structure
p. 128
5.5.7 Corporate Culture
p. 129
5.5.8 Process Management
p. 131
5.5.9 RD
p. 133
5.5.10 Technologies
p. 135
5.5.11 Know-How
p. 137
5.5.12 Know-How Transfer
p. 139
5.5.13 Cooperations
p. 141
5.5.14 Core Competencies
p. 143
5.5.15 Strategy
p. 145
5.5.16 Team
p. 148
6. THE INNOVATION MODEL FOR SMES
p. 150
6.1 The Leadership House
p. 151
6.1.1 Core Task of the Company
p. 152
6.1.2 Core Competences
p. 152
6.1.3 Core Products and Services / Strategic Issues
p. 153
6.1.4 Core Differentiations
p. 154
6.1.5 Well-Being
p. 154
6.1.6 Corporate Culture
p. 154
6.1.7 Annual Mission Statement and Behavioural Norms
p. 155
6.1.8 Organization and Leaders
p. 155
6.1.9 Strategies
p. 156
6.1.10 Corporate Image
p. 156
6.2 Identifying Success Factors for Innovations in SMEs
p. 157
6.2.1 Customer Orientation
p. 158
6.2.2 Financial Resources
p. 158
6.2.3 Human Resources
p. 158
6.2.4 Strategic Capabilities
p. 159
6.2.5 Identification and Development of Core Competences
p. 159
6.2.6 Cooperation Capabilities
p. 159
6.2.7 Capability to harvest the creative potential of employees p. 160
6.2.8 Creating a Corporate Culture that fosters
Organizational Learning
p. 160
6
6.2.9 Organizational Structure that is adaptable to change
p. 160
6.2.10 Project and Process Management Capabilities
p. 161
6.2.11 Implementation Capabilities
p. 161
6.3 The Model of Innovation Success Factors for SMEs
p. 162
7. IMPLICATIONS FOR SMES AND FINAL REMARKS
p. 164
7.1 Implications of the innovation success factors for SMEs
p. 164
7.1.1 Implications regarding Customer Orientation
p. 164
7.1.2 Implications regarding Financial Resources
p. 166
7.1.3 Implications regarding Human Resources
p. 167
7.1.4 Implications regarding Strategy
p. 169
7.1.5 Implications regarding Core Competences
p. 171
7.1.6 Implications regarding Cooperation
p. 172
7.1.7 Implications regarding Creative Potential of Employees p. 173
7.1.8 Implications regarding Corporate Culture
p. 174
7.1.9 Implications regarding Organizational Structure
p. 176
7.1.10 Implications regarding Project and Process
Management
p. 176
7.1.11 Implications regarding Implementation
p. 177
7.2 Final Remarks
p. 179
8. ANNEX
p. 180
8.1 Original questionnaire used during the interviews
p. 180
8.2 GABEK
®
WinRelan
®
expression list
p. 190
9. REFERENCES ADDITIONAL BIBLIOGRAPHY
p. 207
9.1 References
p. 207
9.2 Additional Bibliography
p. 214
7
I. INDEX OF TABLES AND FIGURES
Figures
Figure 1 The structure of our work
p. 14
Figure 2 Stakeholders of SMEs
p. 21
Figure 3 A multidimensional model of innovation
p. 26
Figure 4 Policies influencing the public innovation climate
p. 31
Figure 5 Percentage of SMEs innovating in-house in Europe
p. 32
Figure 6 The four core elements of Agile Manufacturing
p. 42
Figure 7 What drives innovation in an industrial cluster
p. 46
Figure 8 The two dimensions of the entrepreneurial vision
p. 59
Figure 9 The Magic Triangle
p. 70
Figure 10 Innovation characteristics and the relationship structure
p. 74
Figure 11 Innovation contexts and the power of change
p. 75
Figure 12 The key responsibilities for personnel
responsible for innovation
p. 80
Figure 13 Innovation management
p. 82
Figure 14 Self controlling and innovation success
p. 88
Figure 15 Performance-Management-Process
p. 91
Figure 16 Innovation strategy as link of IT-Management and strategic
management
p. 92
Figure 17 The classic S-curve model
p. 94
Figure 18 The process of core competence determination
p. 98
Figure 19 Technology portfolio for the management of new technologies
p. 100
Figure 20 Association Graph - Innovation
p. 117
Figure 21 Association Graph - Leadership
p. 120
Figure 22 Association Graph - Customers
p. 122
Figure 23 Association Graph - Ideas
p. 124
Figure 24 Association Graph - General Conditions
p. 126
Figure 25 Association Graph - Organizational Structure
p. 128
Figure 26 Association Graph - Corporate Culture
p. 129
Figure 27 Association Graph - Process Management
p. 131
8
Figure 28 Association Graph - RD
p. 133
Figure 29 Association Graph - Technologies
p. 135
Figure 30 Association Graph - Know-How
p. 137
Figure 31 Association Graph - Know-How Transfer
p. 139
Figure 32 Association Graph - Cooperations
p. 141
Figure 33 Association Graph - Core Competencies
p. 143
Figure 34 Association Graph - Strategy
p. 145
Figure 35 Association Graph - Team
p. 148
Figure 36 The Leadership House
p. 151
Figure 37 Positioning of core products or services in the portfolio matrix
p. 153
Figure 38 Leadership Matrix adapted from GE
p. 167
Figure 39 Innovation Portfolio
p. 169
Figure 40 Customer Matrix
p. 170
Tables
Table 1
Newly adopted EU definition of SMEs
p. 18
Table 2
Problems constraining innovation activities
p. 36
Table 3
Problems with the regional innovation support system
in Upper Austria
p. 39
Table 4
Eight suggestions for successful networking
p. 51
Table 5
New versus routine projects
p. 87
Table 6
Sub-tasks of technology monitoring
p. 97
Table 7
Core ideas of qualitative investigation
p. 105
Table 8
Phases of extension and deepening of findings
p. 110
Table 9
Advantages Disadvantages of SMEs regarding innovation
p. 150
Table 10 Functions of the Annual Mission Statement
p. 155
Table 11 Dimensions of innovation success
p. 157
Table 12 The Model of Innovation Success Factors for SMEs
and associated Leadership Tasks
p. 163
9
II. INDEX OF ABBREVIATIONS
CIS
Community Innovation Survey
FAZAT
Research and Training Centre for Labour and Te chnology in Steyr,
Upper Austria
RD
Research and Development
SME
Small And Medium-Sized Enterprise
10
1. INTRODUCTION
What are the main reasons for the fact that some companies are able to produce more
innovative produc ts and services of better quality in less time for their customers
compared to their competitors in a given market? Which are the most important success
factors and leadership implications that make some small and medium-sized firms more
innovative and more successful than others? Those have been the underlying questions
that guided us, when writing this paper on the management of innovation and its role for
the accomplishment of leadership excellence in small- and medium-sized enterprises
(SMEs). When searching the literature of the past five years one can find a vast amount
of published articles and studies on innovation and the management of innovation but
only a limited number of articles dealt with the specific situation and needs of SMEs.
Thus we felt that it would be helpful for leaders of this type of companies to identify a
set of practicable implications and measures to be taken in order to support and foster
innovation. Of course we cannot reinvent the wheel by setting completely new rules of
doing business in SMEs. But what we can do here is trying to identify relevant steps
helping to support innovative activities and perhaps even more important to sharpen
the leaders' senses for the significance of innovation to their business success.
1.1
Problem Formation
The main reason for why we concentrate on SMEs in our work is that they play a major
role for the economic wealth of a nation. Smaller firms contribute the biggest share for
the success of national economies. They are recognised as being ve ry influential for
employment figures, economic growth and economic dynamics in any country
1
. For
example Vermond concentrating on the situation in Canada argues, "75 % of all
Canadian businesses have fewer than five employees. 97 % have fewer than 50. Small-
and medium-sized businesses have created more jobs for Canadians than corporations
not only in booming times, but when recession hits as well"
2
. Moreover sources for
potential innovations can be found primarily in SMEs instead of big corporations.
Zimmer argues that the most important reason for this is the fact that "the small and
medium-scale sector of the economy needs to innovate in order to survive in the
1
Keizer, J. A./Dijkstra, L./Halman, J. I. M. (2002), p. 1
2
Vermond, K. (2002), p. 20
11
marketplace"
3
. This argument is even more strengthened by the current situation of
economic slowdown or even a possible economic downturn ahead of us.
Apart from the current economic situation in an increasingly knowledge-based
economy
4
the general development towards shortening technology- and product-life
cycles as well as the rise of Hypercompetition
5
, that we experienced during the past
decades provide enough reasons for SMEs to concentrate on innovative activities in
order to compete successfully. But the most significant factor highlighting the relevance
and importance of innovations for business success is the customer. Innovations can
only be successful if they meet with the acceptance of customers in the market.
Remember the well-known Kano model
6
, which delivers a profound understanding of
what is needed to satisfy customers. Kano distinguishes three different dimensions
influencial to customer satisfaction summarized by Shen et al. as follows
7
:
(1)
Must-be attributes: Customers take them for granted when fulfilled. However, if
the product does not meet this basic need sufficiently, the customer may become
very dissatisfied. For example, when a customer wants to buy a new car, "no
scratches" may be such an attribute.
(2)
One-dimensional attributes: These attributes result in customer satisfaction
when fulfilled and dissatisfaction when not fulfilled. The better the attributes
are, the better the customer likes them, e.g. "low fuel consumption". These
attributes are also known as spoken qualities.
(3)
Attractive attributes: The absence of attractive attributes does not cause
dissatisfaction because customers who may be unaware of such product features
do not expect them. However, strong achievement in these attributes delights
customers, e.g. (...) "remote door lock on ignition key".
One important feature common to such attributes (e.g. "remote door lock on ignition
key") is that they may change their type of attribute over time. Today a remote door
lock has become a standard feature in the automotive industry not only for luxury cars
3
Zimmer, D. (2001), pp. 42-43
4
European Commission (2002), p. 1
5
D'Aveni, R. A. (1994), p. xiii; D'Aveni first introduced the term Hypercompetition and defined it as
a "(...) condition of rapidly escalating competition (...)"
6
Kano, N. et al. (1984), pp. 39-48
7
Shen, X. X./Tan, K. C./Xie, M. (2000), p. 92
12
but also for small mass-market cars. Thus this feature has switched from being an
attractive attribute at the beginning to a one-dimensional attribute nowadays. From this
little example we can see how important it is for all companies whether bigger
corporations or SMEs to become attuned for innovation. Constantly developing
innovations that exceed customer requirements or deliver a specific function to them,
which they did not yet get from any other product but might have needed, is key to
business success in the long run. Although this argument seems to be common sense
as no entrepreneur will state that her/his innovations are not customer oriented its
importance is highlighted by a study of the French elite business school INSEAD. The
results of this study were published in the German Handelsblatt
8
and revealed a dark
picture: Out of 100 innovations by 30 international companies only 14 % were real
innovations (compared to "me-too" innovations, which are copies of product features or
whole products already available from other companies, and marginal improvements).
But those 14 % real innovations counted for 38 % of total turnover and even 61 % of
total profit in the study.
The second important driver for our work can be seen in the fact that only limited
research and empirical studies are currently available on the specific leadership topics
that SMEs should concentrate on in order to develop successful innovations. Much of
the available literature concentrates on innovation management without considering the
constraints that SMEs have to cope with. These constraints, appearing in various forms,
can be traced back to two underlying limiting factors: limited available financial
resources and a limited number of available personnel that has enough time to fully
concentrate on strategic innovation management while not neglecting the usual tasks of
conducting daily business.
1.2 Goals of our work
We will distinguish between factors of the external environment that can support
innovative activities in SMEs and individual firms' characteristics, which can be
influenced by strategic action of leaders.
8
Niehörster, K. (2002), 2
nd
and 3
rd
column
13
Current trends and policies regarding the external environment are being reviewed and
commented in order to get a broader view of how countries and regions help SMEs to
develop their ability to innovate further. We can already state that the European Union
has implemented a series of studies and programmes to provide SMEs with the
necessary knowledge in order to improve their innovative activities and to help them
understand the importance of innovation to business success. In the latest statistical
report on the results of an innovation survey in Europe, two representatives state in the
foreword that "the aim of the Innovation survey is to serve as a good information source
for monitoring and assessment of the Community and national policy to strengthen the
scientific and technological basis of the European businesses to be more innovative and
competitive, both by providing data for analytical studies to have a better understanding
of the innovation process"
9
.
Looking at Innovation from the individual firm's perspective we will try to find out how
Leadership and Strategic Management influence Innovation activities in a company.
Moreover and this is crucial to the development of our model of success factors we
provide a sound review of the suggestions and components of Innovation management
in the recent literature.
Given the natural constraints of SMEs stated in the problem formation of our work
above we focus primarily on how to deal with these given circumstances and how to
achieve leadership excellence by working in line with the principles of innovation
management adopted for the needs of SMEs but also regarding the macroeconomic
setting a company belongs to. We therefore try to identify a model of Innovation
Success Factors specifically tied to the special situation in SMEs, based on recent
literature about innovation management and the "Leadership House" by Hinterhuber
and Krauthammer
10
. But instead of solely relying on the literature, in order to develop
this model of innovation success factors for SMEs we also conducted an explorative
study of two Austrian and two Italian successful companies. Combining the results of
those empirical case studies with the theory on leadership and innovation management
should enable us to set up success factors, which then will be summarized in leadership
implications. Our model is meant to give practicable implications that should be
considered by leaders in small and medium-sized enterprises.
9
European Commission (2001), p. 9
10
Krauthammer, E./Hinterhuber, H. H. (1999), p. 54
14
1.3 Structure of our work
The guiding principle behind the structure of our work is to proceed from a broader
view on the topic of innovation management, beginning with a set of definitions, to the
very specific implications that we identified as being relevant for the success of
innovative activities in SMEs. The following figure gives a short overview of our
work's structure:
Defining Innovation
Analysis of the external environment
of Innovation
Analysis of the individual firm's
perspective
Explorative empirical case studies
The Innovation Model for SMEs
Conclusion and Implications
During the literature research we came across various definitions of the term innovation.
Thus, after presenting a choice of relevant definitions found in articles and books, we
will try to find a valid definition of innovation, which fits within the context of our
work. Later on we will concentrate on different types of innovation explaining the main
differences.
Figure 1: The structure of our work
15
After the relevant dimensions of innovation are defined we will go on to take a look at
the external environmental setting in which SMEs are conducting their business. This
part of our work will focus on the institutional and infrastructural setting and different
ways and tools to foster innovations on a national of supranational level. In this chapter
we will also briefly show, which national and regional innovation support systems are
in place to help firms develop their innovation potential further. Also the current trend
of building clusters among smaller firms will be investigated, searching for the benefits
that motivate SMEs to participate in such networks. Taking a closer look on the notion
of territorial efficiency we will try to identify differences in the performance of firms
that are due to their local setting. This will be rounded up by figures taken out of the
latest statistic material available on innovation activities in the European Union, which
we received from the Office for Official Publications of the European Communities in
Luxembourg.
In our chapter on the individual firm's perspective on innovation we provide a review of
the current literature about leadership and its role for innovation performance. Further
we will focus on the interaction of strategic management and innovation. But the main
part of this chapter deals with the process of innovation itself and the various elements
and tools of innovation management.
Before introducing our model of innovation success factors for SMEs, in Chapter 5 we
will present four empirical case studies. We interviewed four entrepreneurs of two
Austrian and two Italian medium-sized companies situated in different business sectors,
which are all operating highly successful in their business. The interviews with the
executives were structured according to a questionnaire of nine pages, which contained
44 open- and closed-style questions on how innovative the company was and what
measures were taken in order to remain or become more innovative. The questionnaire
could give us an insight on how innovations are currently managed in the participating
companies, if the entrepreneurs and leaders follow innovation management techniques
or if they decided more on the basis of intuition (which is not necessarily a bad thing)
and if there are common policies that might have an influence on the innovative
performance of SMEs but have not yet been considered in literature.
16
The research design of those case studies was explorative. Those empirical case studies
allow us to develop our model of innovation success factors not only based on
renowned literature but also taking into consideration the experience of successful
entrepreneurs and leaders.
However, as we lack the resources to test our model in a descriptive way, further
research will be necessary to evaluate our model emp irically.
Chapter 6 represents the core of our work. Here we will first briefly introduce the
renowned "Leadership House" by Hinterhuber and Krauthammer
11
, before going on to
link this model with our explorative study in order to proceed to a model of success
factors for innovations in SMEs. In this model we will introduce and discuss the driving
factors of innovation performance for SMEs also taking into account the specific
constraints that smaller firms have to cope with.
In Chapter 7, which will comprise implications of our model for SMEs and the final
remarks we will summarize the results, highlighting the identified leadership
implications and drawing conclusions of our work. In the final remarks we are going to
discuss the outcomes of innovation and thus the reasons for why it is so important for
SMEs to innovate constantly. Our main focus here is the impact of innovation on the
individual economic value added in SMEs and the relationship between innovation and
long-term sustainable growth.
11
Krauthammer, E./Hinterhuber, H. H. (1999), p. 54
17
1.4 Subject of investigation: Small and Medium-Sized Enterprises
1.4.1 Overall situation of SMEs
The SMEs sector plays a major role within the European Union. The economic climate
depends highly on the situation of SMEs as they contribute substantially to the
economic performance of a nation. Nevertheless they suffer, as they are not as popular
as large companies. This is not the case for some very active and prosperous SMEs,
which specialized on specific markets. Often they are market leaders in niches and work
with instruments and tools like big companies.
In addition another important fact must be mentioned. SMEs often have a different
background. Start-Ups cannot be compared with Spinn-Offs of large corporations.
Furthermore SMEs are often traditional companies and the whole family is working for
generations for the company. All that indicates that there is no homogeneous group of
companies when we are talking about SMEs.
Within the European Union the SME sector gains more and more attention. Numerous
programmes are started to help the SME sector. On one side financial subsidizes come
from the European Union co-financed together with the member states and on the other
side the European Investment Bank and the European Investment Fund promote SMEs.
1.4.2 Definition of SMEs
According to the European Union no binding definition of SMEs exist. In order to
classify companies four criteria are selected by the European Commission.
12
·
Amount of employed persons
·
Turnover
·
Total assets
·
Independence
12
European Union (2003), UN-ECE Operational Activities, [On-line], available:
http://www.unece.org/indust/sme/def-eu.htm
, query date: 05.03.2003
18
The importance of a clear definition is rooted in the significance of programmes helping
SMEs to stay competitive.
The following table shows the up to date criteria a SME must fulfill:
Criteria
Micro Enterprises
Small-sized
enterprises
Medium-sized
enterprises
Max. number of
employees
10
50
250
Max. turnover in million
ECU
-
7
40
Max. balance sheet total
in million ECU
-
5
27
Independence
25 %
25 %
25 %
Table 1: Newly adopted EU definition of SMEs
Source: European Union (2003), UN-ECE Operational Activities, [On-line], available:
http://www.unece.org/indust/sme/def-eu.htm
, query date: 05.03.2003
Within this group of criteria the amount of employed persons plays a major role when it
comes to a classification of companies. The European Commission speaks from SMEs
if the total amount of employees is not more than 249. Companies with more than 250
employed persons are counted among large companies. Additionally it is not likely that
all four factors indicate that a company belongs to one or another classification.
Nevertheless the European Commission states that "... an enterprise has to satisfy the
criteria for the number of employees and one of the two financial criteria, i.e. either the
turnover total or the balance sheet total."
13
13
European Union (2003), UN-ECE Operational Activities, [On-line], available:
http://www.unece.org/indust/sme/def-eu.htm
, query date: 05.03.2003
19
1.4.3 Characteristics of SMEs
In terms of some criteria SMEs are different in comparison to their large counterparts.
These differences are typical for SMEs and often they hinder the small companies to act
proactively and to encourage innovation.
Hollensen explains the main differences between SMEs and large companies
14
.
Resources
SMEs are often limited because they lack financial resources. In the most countries of
the European Union the equity base is limited and if the circumstances change only a
limited amount of money is available.
Moreover the business expertise is limited. SMEs experience severe problems with
professionals as professionals often prefer large companies with a better reputation.
Organization
People working in SMEs are generally closer to the head of the company. Daily
communication with a low number of colleagues is possible according to the flat
hierarchy. Leadership and guiding principles represent topics not often discussed.
Flexibility
As SMEs benefit from shorter communication lines. The resulting increase in flexibility
is two-fold. SMEs can react faster to internal as well as external changes. On one hand,
internal changes for example occur if internal processes are adapted in order to increase
company performance. On the other hand external changes are represented by more
sophisticated customer needs and market situations.
14
Hollensen, S. (1998), pp. 7 ff.
20
Use of information sources
Most SMEs collect information in an informal manner by the discussion of problems
and issues with other professionals.
As mentioned before these characteristics are valuable for most SMEs. The possibility
to divide sharply is nevertheless decreasing as SMEs are a heterogeneous group of
companies.
1.4.4 Stakeholder management in SMEs
In the most cases SMEs are not aware of the importance of stakeholder management
and the handling of potentially as well as already existing areas of conflict. Important
relationships exist between suppliers, customers, employees and the society as well as
with other companies. Especially the management of relationships to employees and
suppliers are increasingly important. Large companies are much more aware of the need
for professional stakeholder management.
In the following figure the most important stakeholders are shown. The relationship of
the company to distinctive stakeholders is never static. The priorities will change as the
environment evolves constantly. The peaks of the figure display the evolvement and
change of existing relationships and their importance. In addition there are some more
peaks indicating that new stakeholders get in contact with the company.
21
Figure 2: Stakeholders of SMEs
adapted from: Hinterhuber, H. H. (1996), p. 110
Customers
In contrast to large corporations SMEs often have very intense relationships with a
limited number of customers. They are in touch with their needs and established a
relationship of trust. Especially highly specialized SMEs are able to provide new
solutions to the customer in a better quality and with a higher speed than large
competitors. Changes according to customer needs are implemented immediately. As a
consequence customers and SMEs usually maintain stable relationships.
Suppliers
The suppliers of SMEs have a great impact on the success of SMEs. In contrast to large
corporations the suppliers are just one or two companies. Losing a supplier often means
losing essential parts for the products and services offered. Highly specialized SMEs
Customers
Partners in
strategic alliances
Suppliers
Employees
Shareholders and
the financial
community
Society
SMEs
22
depend on a stable partner. The power of suppliers is therefore unequally higher than for
large companies.
Employees
The employees are the heart of performance in SMEs. The relationship between
colleagues can be described as intensive and face-to-face communication. The head of
the company meets employees nearly every day and the performance can be evaluated
directly. The main difference to large firms lies in the closeness of people. In many
large companies they do not know each other as they are not in the same department
and communicate via phone or e-mail. The power relationship can be seen as a critical
part either contributing to the well-being of employees or conformism. The head of the
company often represents the person having everything under control. Successful SMEs
respect the needs and wishes of their employees and continually develop their human
resources.
Society
SMEs are generally not that popular as large companies. The reputation of SMEs is
restricted to the specific regional area or the market. Therefore people have only a
limited knowledge what SMEs actually perform. Additionally SMEs are not aware of
the importance of relationships to their environment.
Shareholders and the financial community
Regarding this special relationship substantial differences exist between SMEs. Usually
the number of stakeholders is limited to a few persons who know the company very
well. They have a deep knowledge about the situation and future perspectives of the
company.
23
Partners in strategic alliances
The possibilities of networking with close partners can be described as difficult in the
case of SMEs. The mentality of doing things alone is widespread. Nevertheless well-
developed SMEs successfully cooperate with partners.
1.4.5 Innovation and core competences in SMEs
The topic and its relevance are widely accepted in successful SMEs. Nevertheless the
actual rate of innovation in SMEs is approximately half of the rate compared to large
companies. The European Commission states that the share of innovating large firms
within the European Union lies between 70 and 80 % whereas the share of SMEs
innovating is only reaching 30 to 50 % in most countries
15
. According to the publication
by the European Commission the propensity to innovate seems to be higher in Austria
compared to Italy
16
.
The reasons for differences between SMEs as well as the differences in comparison to
large corporations depend on the industry, the technologies, required capital etc. In
addition the geographic region seems to have an influence. The importance and
significance of networks and cooperations is explained in the third section. Tailor made
products of SMEs in the low tech sector requiring limited financial resources are more
likely to be competitive in comparison to products of large firms. SMEs operating in
high tech industries often have to use other sources of competitive advantage than
SMEs in low-tech business fields. Successful SMEs in the high tech sector are aware of
the importance of concentrating on their core competencies. Often they are market
leaders in niches exploiting their strengths. These SMEs concentrate on specific
technologies and produce outstanding products and services for a given number of
customers. The more flexibility and speed is needed by customers the more likely is the
success of SMEs in a given market. The existing and potential core competencies are
constantly developed and nurtured by these SMEs. In contrast, the vast majority of
SMEs is not aware of core competences and their importance for long-term success.
15
European Commission (2001), p. 22 f
16
ibid
24
2. DEFINING INNOVATION
In the contemporary literature many definitions of the term "innovation" can be found.
As there is no single truth describing and defining "innovation" many authors provide
different definitions. Some define "innovation" broader while others understand
innovation in a more technological sense, hence they provide a narrow definition. It
depends from what point of view the problem is seen.
2.1 A choice of different definitions of innovation used in recent literature
As all of them highlight one or more aspects of innovation a more systematic approach
should be followed. One appropriate definition takes care of the different stages of
innovation:
"An innovation might be something which has never previously existed. Conversely it
could be something quite new to our own personal situation or capable of having fresh
use at the time that we become aware of it."
17
Using this definition, the term "innovation" is seen as something going through
different stages beginning from invention to diffusion in the marketplace.
18
Having an
idea is not enough, the diffusion stage is critical to speak from innovation. The
economic and technological realisation is undoubtedly necessary. Nevertheless this
definition cannot be seen as exhaustive as the re is no strategic element integrated. In
order to understand innovation in a more strategic sense following definition helps:
"Innovation is not only a newness, it must contribute to sustainable growth and success
of the company."
19
Inevitably there are some aspects missing as these two definitions only highlight certain
aspects of the topic but they cover two important areas that help to understand what
17
Zhuang, L./Williamson, D./Carter, M. (1999), p. 57
18
Schulz, K.-P. et al., 2000, p. 57
19
Bullinger, H. J./Schlick, G. H. (2002), p. 14
25
innovation really is. Nevertheless a common criterion can be identified. Whatever
definition is preferred, the newness or the degree of improvement both have in common.
2.2 Defining innovation in the context of our work
In the context of our work the term "innovation" must contain four important aspects.
First, an innovation has to be realised technologically and economically. Second, there
are different stages an innovation has to go through. Third, the innovation has to
contribute to sustainable growth and success of the company. Fourth, the sources of
innovations are core capabilities and core competences of a company. In consideration
of these aspects the following definition completes the understanding:
"Innovation is a newness, either new to the world or new to our personal situation, that
contributes to sustainable growth and success of the company by creating value out of
the core capabilities and core competences that are embedded in minds, technologies
and processes."
2.3 Dimensions of Innovation
Innovation is by itself difficult to conceive and to grasp the various different forms can
be a nearly unsolvable task. By its nature innovation cannot be seen as a phenomenon
that easily fits a unidimensional approach. In fact, most of the misunderstandings
surrounding innovation could be solved if researchers understand innovation in a
multidimens ional sense
20
. Cooper argues that there are three main distinctive areas of
major importance: product versus process, radical versus incremental, and technological
versus administrative
21
. This framework provides a rough route, however it is just a
starting point to discover the phenomenon innovation. Just to mention market
innovation and service innovation as well as organizational and social innovation.
20
see Cooper, J. R. (1998), p. 499 ff
21
see Cooper, J. R. (1998), p. 500
26
Figure 3: A multidimensional model of innovation
Source: Cooper, R. J. (1998), p. 500
2.3.1 Product versus Process Innovation
In the first place, the differentiation between product and process innovation is rather
old but nevertheless of great importance. Cooper states: "...product innovation
reflects change in the end product or service offered by the organization, while process
innovation represents changes in the way firms produce end products or services."
22
Product innovations are particularly important for SMEs and their long-term success
and growth opportunities. On the other hand process innovations seem to be less
important within the SME sector, anyway, generalisations cannot be applied to this
sector.
2.3.2 Radical versus Incremental Innovation
The degree of newness determines the distinction between radical and incremental
innovation. Hage argued that radical innovations occur in a revolutionary manner
whereas incremental innovation is associated with innovations within a paradigm.
23
Another useful explanation is discussed widely that is to say that incremental innova tion
22
Cooper, J. C. (1998), p. 498 f
23
Johannessen, J.-A. et al. (2001), p. 23
Radical
Process
Product
Technological
Incremental
Administrative
27
represents a lesser degree of departure from existing practices. A radical innovation in
this case would be a higher degree of difference from previously applied practices.
2.3.3 Technological versus Administrative Innovation
Cooper states that "... technological innovation involves the adoption of an idea that
directly influences the basic output processes, while administrative innovations include
changes that affect the policies, allocation of resources, and other factors associated
with the social structure of the organization."
24
Some additional types of innovation can enhance the above-mentioned framework.
Market innovation receives increasing attention from research. According to Johne
market innovation is concerned with improving the mix of target markets and how
chosen markets are served best.
25
The main objective must be to identify positions in the
market where the company is able to achieve competitive advantage in the long-term,
markets, where the company is among the three industry leaders.
Organisational innovations affect the structure of a company and move the power
relations between people. The way of working changes and influences the
communication flow and behaviour of employees within the enterprise.
24
Cooper, J. C. (1998), p. 498
25
Johne, A. (1999), p. 6 ff
28
3. ANALYSIS OF THE EXTERNAL ENVIRONMENT OF INNOVATION
In order to understand why some SMEs are more innovative than others, the study of
the institutional and infrastructural setting of the respective companies is equally
important as the study of firm-specific innovation processes
26
. Innovation management
comprises more than just the concentration on capabilities and processes within
companies. When talking about best practice innovation management we should also
include the external factors that are influential to innovation success in firms
27
. Thus, in
this chapter we will take a closer look at what happens around SMEs that are commited
to innovation.
We will use the term "external environment of innovation" as a synonym for public as
well as private institutions and organizations that interact with companies, political
initiatives, programs and regional support systems having influence on the success of
innovation processes, the territorial infrastructure and clusters a company belongs to,
and last but not least networking initiatives of companies no matter if induced by
regional/national institutions or the firms themselves.
It is generally agreed that innovative companies and especially SMEs are very
important drivers of economic welfare in a given national economy
28
as well as in
supranational organisations such as the European Union. Especially in times of slow
economic growth or even a recession, which we are currently facing, governments
highlight the need for strong, innovative companies. Thus, of course every nation has a
strong interest in supporting the innovativeness of its economy. But there are not only
national programs that help companies to improve their innovative power, but also
regional support systems, which are more or less successful in improving the necessary
infrastructure for innovative companies.
At the European Council Summit in Lisbon in March 2000, an ambitious goal in terms
of economic development was set: "To make the European Union the most competitive
and dynamic knowledge-based economy in the world"
29
. In order to support this goal,
26
Mitra, J. (2000), p. 229
27
Porter, M. E./Stern, S. (2001), p. 28
28
Keizer, J. A./Dijkstra, L./Halman, J. I. M. (2002), p. 1
29
European Commission (2001), p. 13
29
Eurostat collects a comprehensive series of statistical data on behalf of the European
Commission on a regular basis. One important part of this series of publications is the
Community Innovation Survey (CIS), which was first developed and conducted
between 1991 and 1993. The latest available statistical data in this respect are the results
of CIS2, which were collected during 1996 and 1997. In response to our request, the
European Commission was as kindly as to support our work with the latest available
publication about statistical data on innovation in Europe based on the results of CIS2.
In this chapter, we will include some of the results of this comprehensive survey in
order to back up the findings from the literature.
3.1 Impact of public authorities and political decisions on Innovation
As already mentioned above, the institutional setting and public policies have a major
impact on the innovativeness of firms in a national economy. The deciders in the
institutions of public authorities and politicians are not only responsible for the general
economic setting but also influence the fields and direction of innovation with the
research- and technology-policies and the co-financing of research activities in a given
economy
30
. According to Hübner, the impact of public authorities and political
decisions on innovation is mainly achieved by:
1)
the installation and nurturing of an appropriate "public innovation climate",
2)
the active participation in innovative activities
31
3.1.1 Public Innovation Climate
The public innovation climate does not only influence the attitude of firms towards
innovation activities but also the perceived picture of an economy. Thus we could say
that the innovation climate also results in a "nationa l innovation image" and so
determines how national firms as well as foreign companies (which perhaps consider to
found production sites in the respective country) view the country. The "national
innovation image" could be compared to the "corporate image" of a company with its
30
Hübner, H. (2002), p. 26
31
ibid
30
dimensions Corporate Attitude, Corporate Design and Corporate Communication
32
. In
this sense the national innovation image would comprise the three dimensions
"innovation attitude", "innovation design" and "innovation communication":
Innovation attitude
The innovation attitude describes the underlying attitude of national authorities and
firms towards innovative activities. Only if the whole economy is attuned to innovation,
international firms will consider the respective economy attractive for setting up
production sites etc. Innovation attitude is as over-proportionately important for the
national innovation image as corporate attitude for the corporate image of a firm.
Innovation design
Corporate design comprises company logos, style of packaging products, the design of
corporate buildings etc. In comparison to the corporate design of a firm the innovation
design of an economy is perhaps less important. However, public authorities also have
to assure professional layout of printed information material, official letters etc.
Innovation communication
The last of the three components i.e. innovation communication is of enormous
importance for the national innovation image. It is above all a task of the ministry of
external affairs, economic affairs and chambers of commerce, who have to prove that
their national economy is superior compared to competing economies in terms of
available innovation support in all used forms of communciation (written, oral,
electronic). Additionally regional authorities have to support the national line of
communication.
32
Hinterhuber, H. H./Krauthammer, E. (2001), p. 165
31
The following figure shows, which political instruments influence the public innovation
climate:
Figure 4: Policies influencing the public innovation climate
adapted from: Hübner, H. (2002), p. 27
3.1.2 Active participation in innovation activities
The public authorities have the possibility to participate in and influence the extent of
innovation activities by financing or co-financing research activities and by establishing
an excellent educational system. Public authorities finance a substantial share of basic
research that is necessary in order to yield innovative products and services
33
. This
becomes necessary as basic research is expensive and often neglected by all kinds of
companies. By financing research activities it becomes possible to boost the innovative
capabilities of firms without an in-house research department and thus especially SMEs.
33
Hübner, H. (2002), p. 28
innovation- and
technology-management
internal
organization-/innovation-climate
public
innovation climate
company
innovation policies
education policies
tax policies
other policies
technology policies
32
3.1.3 How innovative are SMEs in Europe?
In order to get an overview about the innovativeness of European SMEs we present a
graph indicating, what percentage of small and medium-sized enterprises actually
innovates. From the graph we can see that on average around 44 % of all manufacturing
SMEs in the European Union innovate in-house. A fairly high figure, given the fact that
the by far highest share of companies belongs to the group of SMEs. It is worth noting
that Austria together with Ireland, Denmark, Germany and Switzerland achieved above-
average results on this survey. Results below average have been identified inter alia for
Belgium, Finland (where innovation seems to be mainly occuring in big corporations
like e.g. Nokia), Portugal and Spain. Differences in national performance are at least
partly the result of the national attitude towards innovation and level of innovation
support provided by public authorities.
Figure 5: Percentage of SMEs innovating in-house in Europe
Source: EUROSTAT, Community Innovation Survey, [On-line], available:
http://trendchart.cordis.lu/Scoreboard2002/html/indicators/indicators_3.1.html
, query date: 21.01.2003
33
The following definition and explanation of the graph presented above are provided by
EUROSTAT
34
:
Definition:
Innovative manufacturing firms are defined as those who introduced new products or
processes either:
1. in-house or
2. in combination with other firms
Note: This indicator does not include new products or processes developed by other
firms (option 1 in the CIS questionnaires; compare question 2 in the CIS 2 questionnaire
and question 2.1 in the CIS 3 questionnaire). Only SMEs with 20-249 employees are
taken into account in CIS 2. Small and medium-sized enterprises (SMEs) are
characterised as those enterprises with 20-249 employees.
Interpretation:
The CIS defines innovative manufacturing firms quite broadly as those who introduced
new products or processes developed by 1) other firms, 2) in house, or 3) in
combination with other firms. The present indicator is more focused in two respects. It
is limited to SMEs because almost all large firms innovate and because countries with
an industrial structure weighted to larger firms would tend to do better. And it is limited
to firms with in-house innovative activities that either develop product or process
innovations themselves or in combination with other firms.
3.2 Regional Innovation Support Systems
To start the discussion about regional innovation support systems it seems first of all
necessary to define the term innovation support systems in order to avoid
misunderstandings.
34
EUROSTAT, Community Innovation Survey, [On -line], available:
http://trendchart.cordis.lu/Scoreboard2002/html/indicators/indicators_3.1.html
, query date: 21.01.2003
34
Hassink defines innovation support systems as
"...a group of actively cooperating organizations that support the innovativeness
of small and medium-sized enterprises. An innovation support system consists of
all agencies found in three support stages, namely the provision of general
information, technological advice and joint RD projects, between firms (...),
higher education institutes and public research establishments. Agencies found in
these stages try to help to solve innovation problems mainly of technology-
following SMEs by either giving them advice themselves or by referring them to
other agencies in a further stage of support..."
35
Kaufmann and Tödtling have given a definition of regional innovation support, that is
somewhat different and broader compared to the one by Hassink presented above:
"The exact nature of a region's support for the innovation process of firms
depends on the respective institutional setting (e.g., universities and other
research organizations, vocational training institutions, technology centres and
transfer agencies) and the structure of the regional economy (dominant industries,
availability of service firms and adequate suppliers, organizations providing
innovation finance)."
36
We prefer the latter definition, as it includes more elements that are relevant to a firm's
innovation process (excellent suppliers, financial and general service firms, the
dominant industries of a region) and seems to be more integrated than the former one by
Hassink.
Those regional support systems are often backed by national and supranational policies,
such as the CIS series of surveys initiated by the European Commission. The results of
such surveys undoubtedly influence state-policies and thus also have effects on national
decisions on the financial support of regional support systems. However, in this chapter
we will concentrate mainly on the regional level of support and its results in terms of
SME innovativeness.
35
Hassink, R. (2002), p. 154
36
Kaufmann, A./Tödtling, F. (2002), p. 148
35
3.2.1 Identifying the Need for Regional Innovation Support Systems
The reason for why regional support systems are so important for SME innovativeness
can be seen in the fact that most SMEs are "technology users", which means that they
at least partly use technologies in their production processes that are not developed in
their own company. Clearly some smaller companies use more "own technology" than
others, especially SMEs in high tech fields (as we can see from our empirical case
studies later in our work), but overall SMEs innovate in their own specific way,
according to their specific needs and RD in smaller firms is more concentrated on
development of their products and less on research or development of complementary
knowledge and equipment. Bessant calls this phenomenon a market failure
37
and thus
delivers a profound reason for public actio n. Above all, the need for Regional
Innovation Support is prevalent, where SMEs are not geographically linked in clusters
and thus remain isolated in their regional setting.
It is important to state that the need for regional support systems is by no means a sign
of weakness common to all SMEs, they just need a sound infrastructure as much as big
corporations do, but in a different, more specific way. For SMEs, the region, which they
are situated in is of special relevance to their innovative capabilities, as their external
relations are more confined to the region than those of large firms
38
. Kaufmann and
Tödtling moreover state that SMEs are usually not as experienced in the process of
searching for and even more important actually using scientific knowledge
compared to bigger corporations. For this reason, they argue, SMEs have to "...rely
more on personal ways of transferring this knowledge and on learning-by-doing and
(learning-by)-interacting..."
39
.
3.2.2 Example of a Regional Innovation Support System: Upper Austria
The study we present in paragraph 3.2.2 represents one part of a series of studies
reviewing SME innovation support in a number of European regions. It was conducted
during 1998 and published 2002 by Kaufmann and Tödtling
40
. It takes a comprehensive
37
Bessant, J. (1999), p. 602
38
Kaufmann, A./Tödtling, F. (2002), p. 148
39
Kaufmann, A./Tödtling, F. (2002), p. 148
40
ibid, p. 147 - 159
36
look at the typical problems that SMEs face during their innovation processes and how
regional authorities in Upper Austria addressed those problems.
3.2.2.1 Typical problems of the innovation process in SMEs
Regarding innovative activities SMEs suffer several problems, most of which are due to
their size and related limited financial and human resources compared to large
companies. Thus smaller enterprises typically follow different innovation strategies. In
the study of regional innovation support systems in Upper Austria, the authors showed
that the majority of SMEs concentrates more on quality improvement and the
specialization on market niches, whereas larger firms adapt diversification-, cost
reduction- and productivity increase-strategies more often
41
.
According to the study SMEs in Upper Austria are interacting by far less with
knowledge providers (i.e. universities, contract research organizations, technology
centres and training institutions) than larger firms
42
. This represents a severe problem,
given the fact that SMEs typically lack personnel with scientific know-how that is
needed to improve innovativeness and thus should interact with knowledge institutions
more than companies of larger size.
Comparing the problems constraining innovative activities between the group of SMEs
and large firms the study revealed the following picture:
% of SMEs
% of large firms
Lack of funds
24.3
15.6
Too high risk
25.0
28.1
Lack of technical know-how
6.4
4.7
Inavailable or too expensive technology
12.1
14.1
Lack of qualified personnel
10.7
7.8
Lack of time
15.0
12.5
No need for innovation
5.0
12.5
Deficiencies in marketing or commercialisation
7.1
4.7
Dominating external demands (clients)
7.1
3.1
Secrecy requirements of clients
4.3
3.1
Table 2: Problems constraining innovation activities
adapted from: Kaufmann, A./Tödtling, F. (2002), p. 151
41
ibid, p. 149
42
ibid, p. 150
37
The biggest problems SMEs identified were the high risk adhering to innovative
activities, followed by a lack of funds, lack of time, inavailable or too expensive
technology and a lack of qualified personnel. Moreover SMEs perceived deficiencies in
marketing or commercialisation, dominating demands from clients, lack of technical
know-how and secrecy requirements from clients as bigger problems than larger firms.
3.2.2.2 Regional Support Systems to improve SME innovativeness
The support services available in Upper Austria can be grouped into two wider
categories
43
. The first one contains regional technology centres, the second one
comprises all direct financial innovation support.
There are six technology centres in Upper Austria, of which two are mainly research-
oriented, thus providing SMEs in the region with up-to-date technological know-how
that is not directly applicable to product development and thus often is neglected by
SMEs. The first of those two technology centres is the Software-Park Hagenberg, a
technology and research centre developing software and conducting research in the field
of industrial mathematics. The second important institut ion is the Research and Training
Centre for Labour and Technology (FAZAT) located in Steyr. This knowledge-centre
not only serves as an incubation centre for several SMEs but also hosts a technical
college for Manufacturing and Management Technique, which is highly accepted by the
local industrial companies. The college under the point of view of innovation support
for SMEs above all should provide SMEs situated in the central Upper-Austrian
industrial region (the triangle between Linz, Wels and Steyr) with excellent personnel
coming from the same region. The question, if this centre and especially the college
courses offered really benefit the intended target group, i.e. regional SMEs, remains
unanswered because two of the biggest employers situated in Steyr are in the need for
qualified graduates, too. Thus, the intention behind this knowledge-centre might not be
the support of SME innovation activities in the first place. We do not want to say that is
the wrong policy to establish an institution capable of training excellent personnel for
the industry, but the predominant goal of this centre might also be seen in the fact that it
represents an advantageous location factor for the attractiveness of the business location
Steyr, attracting big corporations like Magna Austria or BMW to locate plants in or
43
Kaufmann, A./Tödtling, F. (2002), p. 152
38
around the city. However, of course a number of SMEs in the region of Upper Austria
benefit from the high-qualified personnel, "produced" by this knowledge centre and
thus it represents a sound institution fostering SME innovativeness by providing high-
qualified staff to the region.
Direct financial innovation support comes from the Austrian Industrial Research
Promotion Fund (original name: ,,Forschungsförderungsfonds für die gewerbliche
Wirtschaft"). The Austrian Ministry controls this fund for Economic Affairs and aims at
supporting RD in the early stages of innovation processes. Unfortunately a limited
number of mainly new and "high potential" industries receive the biggest share of the
fund, thus neglecting more mature industries such as metal products, textiles, furniture
and food. Moreover the figures presented by the authors of the study reveal that this
fund does not primarily support SMEs but larger firms instead.
3.2.2.3 Problems with innovation support systems
In short the authors of the study presented above identified a mismatch between the
support offered on one side and support needed by SMEs on the other side as well as a
mismatch of firms targeted by supporting measures and firms needing the support
44
.
The following table summarizes the problems with the regional innovation support
intended for SMEs in Upper Austria:
·
Technology Centres in Upper Austria are hardly used by external SMEs in the region.
·
The use of technology centres is less frequent than the participation in direct support
programmes.
·
A significant number of Upper Austrian SMEs indicated that the received support was
not required for the realization of their innovation projects.
·
In contrast to direct support, the effectiveness of technology centres seems to be far
worse as far as the provision of technical know-how and technical services is
concerned.
·
The technological level of firms benefiting from direct financial support, in particular
the Austrian Industrial Research Promotion Fund scheme, tends to be high, which leads
to a situation where low-tech firms find it difficult, in some cases even impossible, to
44
Kaufmann, A./Tödtling, F. (2002), p. 154
39
receive support for their innovation projects.
·
As far as strategy and dependency are concerned, both effects as well as problems were
rarely mentioned. (...) This might result in a situation of mutual "lock-in" where, on the
one hand, firms lack awareness for deficiencies and, on the other hand, instruments do
not target them.
Table 3: Problems with the regional innovation support system in Upper Austria
Source:
Kaufmann, A./Tödtling, F. (2002), p. 154 - 156
3.2.3 Implications for efficient regional SME innovation support systems
Most people will agree with the statement that efficient regional innovation support
systems have to address the deficiencies most SMEs face in their innovation activities.
Unfortunately there is no common set of SME deficiencies that can be used as a
roadmap to SME innovation support as the problems vary not only according to the
business field (level of technology, high potential industries vs. mature industries etc.)
but also to the very specific characteristics of the individual firm. Some SMEs on one
hand indicate less problems concerning financial capabilities then others but on the
other hand suffer a severe lack of qualified personnel. Generally the provision of funds
by public institutions is easier to establish than the provision of knowledge-centres
providing knowledge needed by SMEs that are situated in a specific region. Moreover
direct financial support benefits all companies in the target group of the fund equally.
However, as we learned from the example of Upper Austria, direct financial support is
too often only available to firms in new, promising, high technology business fields,
thus neglecting SMEs in more mature industries although in those fields innovative
activities are the only way to differentiate from the often-bigger competitors dominating
the mass markets. In our opinion the provision of knowledge via research- or
technology-centres is more effective for the needs of SMEs commited to innovation. Of
course, such knowledge-support has to be established according to the needs of the
majority of regional SMEs and this will again lead to a situation, where some SMEs
receive less relevant support than others. It is simply not possible to support all SMEs
equally. But the majority of SMEs needs some form of support in terms of strategic
guidance to innovation and leadership issues. Although such support might not be seen
as important by many SME leaders, this would help to improve the awareness of the
processes in their own company and thus help entrepreneurs and managers to develop a
40
clear view about the future of their company. Identifying the core task of their company,
they could then develop strategies to fulfill this core task by concentrating on the core
competencies of their firm. With such knowledge in mind, it would be much easier to
identify the competencies that potentially improve customer utility. These are the
competencies that SMEs by the way as well as bigger corporations should actually
concentrate its innovative activities on.
We do not say that technology-centres are useless and for sure they have a very
important function for SMEs in specific business fields. But in our opinion technology
centres provide more efficient support when organized on a private market basis,
because public authorities are often not able to finance highly specific technological
institutes that benefit only a limited number or organizations and moreover are not in
the position to analyse the technological needs of SMEs as thoroughly as private
institutions can do.
Public or private Knowledge-Centres and Research- and Technology-Centres, in any
case, have to be designed in a way that attracts SMEs to make use of them. Bessant on
one hand identified a general "information gap" among SMEs about which institutions
and organizations exist in their specific region and what they are able to offer in terms
of innovation support, on the other hand he identified a "perception gap", which means
that SMEs considered the offered support services as not relevant to their business
activities or as too advanced for their support needs
45
. Apart from this demand-side-
problem he also identified deficiencies of the public supply of regional innovation
support systems. Similar to the problem that most direct financial support systems tend
to benefit high-technology firms more than others, Bessant reported that technology-
transfer-institutions also show a tendency towards preferring to work with larger,
technologically advanced companies and thus do not see SMEs as an important target
group:
"There is an understandable pressure inside these organizations to work on
intellectually challenging research-based projects rather than on delivering
45
Bessant, J. (1999), p. 603
Details
- Seiten
- Erscheinungsform
- Originalausgabe
- Jahr
- 2003
- ISBN (eBook)
- 9783832476847
- ISBN (Paperback)
- 9783838676845
- DOI
- 10.3239/9783832476847
- Dateigröße
- 991 KB
- Sprache
- Englisch
- Institution / Hochschule
- Leopold-Franzens-Universität Innsbruck – Sozial- und Wirtschaftswissenschaftliche Fakultät
- Erscheinungsdatum
- 2004 (Februar)
- Note
- 1,0
- Schlagworte
- core process strategic support system innovation-leadership
