Earlier in the last century, an Austrian economist and political scientist Josef Schumpeter defined innovation as creating "new or improved" goods, services, procedures, methods, processes, business models or markets. Schumpeters conceptualisation was applicable to technology and to management. The range of innovative activities therefore run the gamut from small incremental continuous improvements in our businesses, up to major radical or disruptive innovations. Schumpeter would tell us that by a process of "creative destruction", the old ways of doing things (which he terms the incumbency) would give way to the more relevant and valuable technigues, methods, markets, products and services (which he terms the innovating business). Schumpeter in his early writings opined that small businesses were the crucible for innovation. He subsequently moved to adopt a big business position as he opined that small businesses were resource constrained and hence would not be able to innovate to the same extent as larger businesses. However, in his later years he returned to the SME as the main driver of innovation.
Refer: Schumpeter J, 1934, "The Theory of Economic Development: An inquiry into profits, capital, credit, interest and the business cycle"
An answer on this question isn't simple. Our research in Poland on over 5000 enterprises in last eight years shows, that in less-development countries innovations are often implemented in large and medium enterprises. It's different, than well-development states. In time (an evolutionary approach) innovation strenght come from large, through medium to small firms, but microfirms are always less interested at new solusions. So, innovation policy focused on MSE's has different impact in each country. More sufficent in well- and less in transition states. Even now EU change their minds in this area.
Conducted research conclusion are in article below (unfortunately only in polish, but I'm trying publish it in english, too):
https://www.researchgate.net/publication/260650376_Wpyw_wielkoci_przedsibiorstw_na_innowacyjno_systemu_przemysowego_w_Polsce
I've attached a direct english translation of an original article text:
https://www.researchgate.net/publication/266262969_THE_IMPACT_OF_FIRM_SIZE_ON_POLISH_INNOVATION_SYSTEM
Article Wpływ wielkości przedsiębiorstw na innowacyjność systemu prz...
Yes, the idea of innovation and innovativeness finds more support in small organization because of the faster communication and quicker acceptance. Organizations adopt spin-out and spin-in processes to let innovative ideas flourish in small organizations where like minded people support each others initiatives and convert ideas into innovative products faster. In big organizations too innovation centers work like small organization with high empowerment to move forward faster without waiting for approvals from higher ups.
An answer on this question isn't simple. Our research in Poland on over 5000 enterprises in last eight years shows, that in less-development countries innovations are often implemented in large and medium enterprises. It's different, than well-development states. In time (an evolutionary approach) innovation strenght come from large, through medium to small firms, but microfirms are always less interested at new solusions. So, innovation policy focused on MSE's has different impact in each country. More sufficent in well- and less in transition states. Even now EU change their minds in this area.
Conducted research conclusion are in article below (unfortunately only in polish, but I'm trying publish it in english, too):
https://www.researchgate.net/publication/260650376_Wpyw_wielkoci_przedsibiorstw_na_innowacyjno_systemu_przemysowego_w_Polsce
I've attached a direct english translation of an original article text:
https://www.researchgate.net/publication/266262969_THE_IMPACT_OF_FIRM_SIZE_ON_POLISH_INNOVATION_SYSTEM
Article Wpływ wielkości przedsiębiorstw na innowacyjność systemu prz...
The case of Italian firms demonstrates that SMEs can innovate. In Italy the majority of manufacturing firms are small and medium sized. However, the Italian industrial system shows a competitive advantage in various manufacturing sectors, and according to International Trade Centre UNCTAD/WTO data, its competitiveness results second only to that of Germany, and higher than that of Chinese and American companies. The main industry is that of mechanical products and machinery, and the competitiveness of firms is firstly based on innovation, and secondly on flexibility.
Innovation of Italian SMEs is mainly experience-based and incremental. Investments in R&D are low but a widespread process of gradually improving products and processes is common to almost all firms.
Thank you for that insight Zafar,
Tell us more about the concept of spin-in and spin-out
Silburn
Appreciate the nuanced response Arkadiusz,
I can appreciate that different societies would have inherited or organized their economic production systems differently and that these structures were in a constant ever-changing evolutionary dynamic.
The impact of this perspective is measured by its immediate influence on policy modification
Would love to get a copy of the research when the English version is produced
Silburn
Great perspective Fabio,
I was aware that Italy had a significant SME sector in its economy, but had not realized that this was the majority. The information that I had indicated that Italian firms were typically family-owned and claimed that because of the family factor, then businesses had a high a high level of persistence and resilience. On the obverse, it was also claimed that as a consequence of the pervasiveness of family in businesses, the organisations were more tolerant of inefficiencies as strict business practices and principles were not always adhered to. Your data on the high level of global competitive advantage runs counter to the claim of low efficiency.
Silburn
Coming at this discussion from a service innovation viewpoint, the challenges facing the average firm in identifying the need for service innovation, appreciating the methods and processes involved and developing the capabilities to pursue this goal, are all magnified in the case of the typical SME. Implementing service innovations requires a broad, sustainable and multidisciplinary range of management capabilities relevant to both the back (behind the scenes) and front stage (customer interfacing) activities of firm development, which are often lacking (Berry et al., 2006; Hortog et al., 2010). Certain in-company capability and capacity factors are more pronounced in the SME sector and these centre on their small size, scope, capacity and available resources to invest in and exploit innovation activities.
As Leiponen (2002) (as cited by Ritala et al., 2009) highlighted, whereas knowledge has a role to play in product innovation, in service innovation it is the sole ingredient, as it often involves the development of new concepts and procedures rather than a new tangible product (Quintane et al., 2011). However, the typical small firm, first and foremost, is often cited for: a lack of managerial competence, failure to update market knowledge, difficulties linking with outside sources of expertise hence fewer strategic alliances; all of which can make the innovation process more difficult (Freeman & Engel, 2007; Lauder et al., 1994; Stokes & Wilson, 2010;). On the other hand, small firms are known for their effective and informal internal communication, and their proximity to individual customers which can positively impact on idea generation, eliciting hidden customer needs and validation of new service (Bommer & Jalajas, 2004; Gottfridsson, 2010; Quintane et al., 2010. However, “the capability to bundle knowledge-based resources is the weapon that a firm has to possess to persist [in] the service innovation implementation process” (Ostrom et al., 2010:26) and consequently, the knowledge resources of small firms and learning how to exploit these resources will play a major role in the adoption and development of this type of innovation.
The limited knowledge resources of SMEs is just one element, but in this emergent field of service innovation, there is a further difficulty in that small firms are constrained by the degree of investment and expenditure they can contribute to innovation activities (CSO, 2012b). A lack of funds to invest in innovation activities can be detrimental to the SME sector in developing and accelerating their business ideas and activities (Small Business Forum, 2006).
See also our paper which provides insights into how we help small businesses innovate & overcome of the barriers to innovation
http://repository.wit.ie/2174/
It is true that efficiency is low, particularly in smaller firms (under 50 employees). indeed, best performances are coming from larger firms (compared to those under 50). Attached you can find some more detailed information about competitiveness of Italian firms.
Fabio
Even as SMEs do not indulge in innovation by setting up an R & D department, the successful SMEs thrive because of some innovative ideas that they use for delivering products and/or services that are innovative in nature, including system and process innovations.
Though SME in India do not have any R&D dept, but personal / family / 3-4 persons are holding all powers. they take the decisions faster for development. in this approach technocrats are more inclined to the R&D than others as they understand the technology quickly. I would say that though the SME innovates in products as well as processes, the documentation is not done as the do not have time and connection to such platforms.
...if the small ones realize that "small is beautiful", they will innovate to be so. Yet learning curve is for the grown ones...
To integrate the picture: historically, significant innovation has often been brought about primarily by neither small nor big businesses, but public bodies of various size fostering R&D (e.g. public universities, research centres, the army, sector-specific agencies). Look at the history of the 20th century and think of, say, the US agricultural extension, the aero-spatial sector, atomic energy, the green revolution, or the internet.
Due to the complex management hierarchy in larger companies, the innovation ideas raised by the frontier workers with access to innovations in the large companies are often ignored or aborted by their superiors. I speak from my experience with my former employers, who were standardized. More importantly, the managers seem to worry more about risks than benefits of the innovations.
It depends on the type of innovation. I like the book 'The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail' written by Clayton Christensen. The book was published more than 15 years ago but for me it is still up-to-date. See what happened with Nokia few years ago. Of course 90% of innovations are, I call, migrating innovation and big companies have resources to successfully manage them. But I think big companies usually are not prepared for deep changes in their environment - when 'disruptive technology' occurs there is place for start-ups or other small companies. Of course in management there is nothing black and white but I see many examples that confirm this theory.
The problem is that in innovation "small is beautiful sometimes and in certain respects" LOL Essentially the small organisation has the advantage (usually) of fleetness of foot. Even that isn't always true; often small business folk like to kid themselves that they are cool and wired and quick on their feet, but what they forget is that-as Charles Fyne points out in Clockspeed , what is important is not how fast yo are to act, but rather how fast you act RELATIVE to relevant others.
Innovation is of course different from innovation and the ability t bring an inventive act to market (innovation) is context specific. Take as a simple example a small manufacturer of light aircraft who comes innovates a new, simpler cockpit layout. Well that's fine; there is a channel to market since the implementation cost is consistent with the scale of business. On the other hand the small manufacturer can be as inventive as he likes in terms of .(say) transonic aerodynamics or med um prf radar design, but the surrounding industry and the scale of investment required will prevent that small manufacturer innovating whereas the larger industry members can do so.
More structurally, it is a mistake to think that large organizations, because they are slow moving, are not innovative.or are slow thinking. In fact large organizations, (Lockheed, Google, for example) have the capacity to provide the resources and diversity necessary for invention as well as the channel to innovation, in the strict sens in which I use the term above.
In short, don't make the mistake of thinking that small is beautiful. It's more complicated and you can commit terrible errors by thinking it's simple. Imagine running a small innovative company and making the mistake of thinking that the big elephant whim you are trying to supplant (albeit in a minority of their business) can't respond to your inventiveness. You may be right, but if not...hello, bankruptcy court...
Small enterprise can fill in many niches. But I would hardly count on a small business to break new ground in any area of technological research. Perhaps, though, in process or new areas of technology, we should not be surprised to see these originate in small firms which then become large and/or get bought by deep pockets.
In organizational innovation, there are probably many innovations, but they are ad-hoc, and the ones which will be most relevant to the marketplace will be those organizational innovations which allow large organizations to be more efficient or which allow large number of small organizations to effectively operate as a larger one across a supply chain or in cooperating across a market (consider farmer cooperatives in mitigating risk, for example).
Big enterprises are in general multinational corporations and they are based on technological development. Innovation is part of their activities whereas small enterprises are sometimes family enterprises which have not the necessary conditions of innovation.
Mounir's perspective makes sense, but of course, some big enterprises are not MNCs and some big enterprises are thrombotic, slow moving and elephantine while others are fantastically fast moving and inventive. . Equally there small enterprises which exhibit all the resistivity and glacier-rate change that characterizes the worst MNCs. The research problem for Silburn is how to disentangle one causality from another, since it is clear that it is not size per se which conditions innovation.
There are large companies with a track record of excellent innovations in the last decades. Business literature points to 3M as a paradigm of these situations, although there are also other great innovative organizations. Thus, I see trouble a response of a general nature, in the sense that all small businesses are more innovative and that all the big companies are endowed with heavy structures, which hamper the degree of innovation and creativity. Small companies can present numerous innovations, however, are not all that they can do it. There are difficulties in obtaining resources that understand the technical leaders with financial and market, etc.
What can be an interesting situation is that of Intel: being a large company, monitors and invests in several small start-ups around the world, having an expertise in finding projects most likely to succeed in bringing new products and / or services.
A small enterprise can innovate if the urge for innovation and progress is more. they have simple structure and quick decisions for innovation, but lack in finances and facilities. I have done innovation and could file 6 patents based on it.
small enterprises led by technocrats needs boost to innovate.
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