Pathways to Innovative Performance for SMEs

During the first few industrial revolutions, the standard business practice for achieving innovative performance was a reliance on internal capabilities and resources. Today, Industry 4.0 has emerged due to the evolution of technology. New technologies mean that organisational resources extend beyond the bounds of the business. Being more open to utilising external resources can be highly beneficial, especially for small-to-medium enterprises (organisations) that are traditionally limited by fewer resources than large corporations.

The resource-based view of organisational development

The resource-based view of organisational development is that organisations that collect those unique resources that their rivals struggle to imitate usually enjoy a competitive market advantage based on increased innovation performance. An increased pool of resources tends to improve an organisation’s dynamic capabilities. These enable rapid responses to environmental and market changes. There are several factors which foster the availability and use of resources, such as technology, including:

• External information resources and learning
• Government support
• Organisational absorptive capacity – the capability of an organisation to learn
• The organisation’s industrial sector

External information resources

Every organisation has an internal collection of knowledge-based, financial and personnel resources that support current operations and future developmental goals. However, smaller organisations have fewer resources and tools to support their business strategies. Consequently, many choose to acquire external information and services to improve decision-making, product and service development, business planning and management practices, for example.

Additionally, leaders gather information through professional networks and interactions with other organisations, for instance clients and partners in their supply chain. This increases their depth of knowledge and improves exploratory innovation performance. The types of external information resources utilised are likely to vary based on the organisation’s business environment and needs, as well as the exploratory nature of the leader(s).

Absorptive capacity

External information resources are only advantageous when they are processed correctly and enter the organisation in a form that can be used. Absorptive capacity refers to the level to which an organisation can assimilate and accommodate new knowledge and information, integrating it into operational systems and use. This process converts external knowledge and information into internal knowledge and know-how.

Absorptive capacity is critical to helping organisations sense new business opportunities and improving decision-making. It is also the primary engine behind empowering organisations to make a first strategic business move into new market spaces and promotes continuous profit creation.

Government support

Small-to-medium organisations tend to have limited internal resources at their disposal and are more likely to take advantage of external government financial assistance through subsidy programmes, grants and loans. Resources like tax reductions and research and development subsidies can all help SMEs develop. When governments actively invest in the success of smaller businesses, it reduces financial burdens and helps them enter high-risk industries that positively impact society, such as artificial intelligence and biotechnology. However, government support tends to produce mixed outcomes for organisations. Some achieve higher levels of commercialisation and innovative performance in technology, whilst others fail to experience any significant improvements. This tends to hinge on the market environment and industry, as well as the types of external information resources that are being used.

Type of industry

The types of resources organisations choose are often determined by the sector they are in. For example, high-tech industries tend to operate based on technological and scientific knowledge that directly informs research and development. In any industry sector an in-depth knowledge about scientific theories, research and principles needed for innovative activities is often complex and demands expertise and access to specialist knowledge.

In contrast, low-tech industries tend to incorporate fewer forms of technology and often engage in research and development through slower incremental innovation processes instead of rapid changes. For example, it has been found that new product and service design and optimisation of work processes tends to be created through experimentation, constant iterations and learning, rather than through engaging with the research. This is a slower process.

Previous research

Previous research looking at the resources small-to-medium organisations choose and their associated outcomes has found that:

• Organisations that adapt to their unique business environment and choose the most relevant resources tend to create a significant competitive advantage.
• The innovative strategies of SMEs and the ways they find external information resources and develop internal capabilities are really diverse.
• Choosing to take advantage of government financial resources often prevents market failure for many organisations.
• Studies have found that SMEs receiving government subsidies are more likely to achieve commercialisation and technology development goals than those who do not.
• Technology-based strategies vary widely between product-oriented and work process-oriented organisations.
• SMEs that search for and acquire a wider range of external information resources significantly improve their innovative performance.

A new study

A new study by researchers from the College of Business, the Korea Institute of Science and Technology Information and Hoseo University in Korea has looked at how small-to-medium enterprises achieve innovative performance through different pathways such as:

• external information resources
• government support
• absorptive capacity
• the type of industry

Findings

The study found that:

• The type of industry and reason for engaging in innovative business practices determines which forms of government support and external information resources SMEs choose to engage with.
• The organisation’s absorptive capacity has a significant impact on which types of government support and external information resources are utilised.
• The innovation path SMEs choose is highly affected by the technology level of the business environment’s industry. High-tech industries tend to use research and existing knowledge significantly more than lower tech businesses. As a result, they tend to have a higher absorptive capacity and can react to market changes much quicker than lower-tech companies.

Reference

Park, Y., Chung, Y., & Son, H. (2022). Configurational paths for SMEs’ innovation: focusing on information resources, absorptive capacity, and government support. Technology Analysis & Strategic Management, 1-14.

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