Key Stakeholders /External Parties Relevant for Innovation and the Nature of their Relationship with SMEs

Empirical Literature Review

There are multiple studies found in the application of innovation in SMEs. The research of Karpak and Topçu (2010) is based on the development of the framework of multiple criteria the estimate the success of SMEs in Turkey. The use of analytical network process (ANP) for manufacturing B+SMEs in this research concluded that there are five critical factors that played an essential role in the company uses, These factors include the external environment, the internal environment of the firm, the expertise of management, institutional support, and approach to innovation. In another study by Talebi et al. (2012), various types of change were identified, and their independent factors are attempting SMEs successes. On the other hand, another research of Iran found essential factors affecting innovation capacities of the firm are the stage of the industry, demand, and industry-university linkage, attitude toward change and size and age. Other studies in this area have developed further concepts and models to explain innovation performance and the factors that can influence said performance. For example, Chang et al. (2011) argue that to be genuinely useful at harnessing the power of external and open innovation; SMEs need to develop a high level of innovation ambidexterity, which refers to their ability to innovate simultaneously from both an internal and external perspective.

Another important reason for innovation importance is the advantage of financial performance and competitive ability linked to innovation’s success. Snoj, et al. (2007) added that it is hard to forecast the required changes in future markets and technologies despite this importance to innovation. Therefore, visible approaches in top management plays a vital role in devising policies for innovation in an organization to forecast the next situation, which was reviewed in various studies (Prajogo and Ahmed 2006). In this context, McEvily (2004) research prescribed two critical factors of innovation growth in an organization, the culture with innovation orientation and the organizational ability to enforce successful innovation in approaches, technology, and progressive techniques.

Challenges for Innovation in SMEs

Despite the development of technology and support for open innovation collaborations, there are specific challenges for SMEs’ progress. The lack of managerial, technical and human resources create the major challenge for rapid progress in SMEs (Rahman and Ramos 2010). Also, Colombo et al. (2014) asserted that SMEs’ activity in open innovation was found less compared to the large organizations due to their lack of resources and lack of visionary approaches in organizational culture, strategy, and policies. OECD (2016) report on SMEs progress concluded that the active SMEs for open innovation are only 5-20% of the total SMEs in the economy. Therefore, there is fragmentation observed in the studies on open innovation in SMEs’ progress (Bianchi et al. 2010). However, some studies support the role of open innovation SMEs’ progress compared to the massive organizations since SMEs are flexible with less bureaucratic procedures that can hamper innovation in rapidly changing environments (Parida et al. 2012). Similarly, Gassmann et al. (2010) also supported that notion that open innovation is a means for SMEs to overcome their flaws and increase productivity.  The presence of skilled human resources is an anointer barrier to developing open innovation approaches in SMEs (Comacchio et al. 2012). Despite external support from government and non-government sources, Henkel 2006) argued that internal development of human and technical resources restrict the SMEs effort’s to exploit available support in an external environment.

Furthermore, Abouzeedan et al. (2013) criticized the slow progress of SMEs in exploiting open innovation resources due to the resources scarcity, complexity of technology, lack of coordination, and inability to access a state of the art scientific resources. However, licensing and franchising of the SMEs’ progress through open innovation is not appropriate in the short term. It requires building up of reputation and testing the transferred knowledge to larger scales. Hence, SMEs cannot materialize their knowledge base readily in the presence of the large organization and their extensive resource base (Andries and Faems 2013). In this case, Christensen et al. (2005) argued that transactions costs involved in an exchange of open innovation resources are due to technology companies’ involvement and complicated procedures.

Brunswicker and Vanhaverbeke (2015) identified three main streams in the literature related to innovation in SMEs. The first is the economic oriented literature, the second is organization-oriented, and the third is project-oriented literature. Economically oriented studies are primarily focused on the fact that small businesses should be considered important driving factors of innovation. The degree of innovation in SMEs can be as much as large multinational enterprises. But the organisation-oriented studies largely recommend that there are only a limited number of factors that small business owners can use to improve the business’s performance, including using regional centres, networking, careful planning, and appropriate business development strategies. Likewise, organisation oriented literature also prescribes various methods through SMEs that could enhance innovation, for example, by optimizing organizational structure. The project-oriented literature concludes that the main source of innovation in SMEs is the customers. Brunswicker and Vanhaverbeke (2015) critiqued that innovation SME literature has a high level of diversity in focus. Therefore it is difficult to identify a universally accepted list of factors that affect innovation in the SMEs sector.

Davis and Brady (2015) also conducted a comprehensive review of SME innovation literature. They concluded that a variety of barriers had been identified in promoting innovation in SMEs, including variation in the degree of innovation processes, variation in typologies and types of innovative, innovation and diffusion types of market. The author also criticised that literature related to innovation management is often focused on hi-tech small firms and conducts analyses of the innovation process and innovation in the product development process. A review of the recent literature shows that there is a variety of factors that can effectively promote innovation in the company, for example, benchmarking and networking, Research and Development (R&D), and the degree of effective organizational learning.

Brunswicker and Van de Vrande (2014) showed that corporate leadership has a significant role in promoting innovation and translating it into its performance. The leadership is involved in developing a competitive structure and shaping strategic orientation. If innovative processes are integrated by the leadership in these two management functions, there is likely to be a positive impact on the company’s performance.

Overall, the literature related to factors that promote innovation in small and medium enterprises is diverse and fragmented.  The majority of the studies are more focused on understanding the role of innovation management in the context of new product development and that innovation processes are often analysed in isolation. Many studies are based on field research design, using survey questionnaires and conducting case studies that have limited implications and application on the general population.

Support of Open Innovation in SMEs

There are various means discovered in the literature to support open innovation processes in SMEs. Due to the variety of factors affecting innovation practices in SMEs, as discussed earlier, the role of collaboration and networking is essential.

Collaboration

The study of Spithoven et al. (2013) discovered that SMEs’ partnership with external organizations and agencies support their struggle to launch new services and products. Similarly, Parida et al. (2012) the vertical collaboration involved support for radical or disruptive innovation. The incremental change is supported, but the horizontal cooperation among various agencies and SMEs facilitated incremental innovation. However, Lecocq and Demil (2006) argued that vertical collaboration decreased SMEs’ size due to the adoption of the latest technologies and outsourcing that can easily share the workload. For instance, cooperation with call centres helps SMEs reduce the clerical staff and telephone operators. On the other hand, there is the inevitable collaboration that goes beyond the technical assistance and involves the partnerships in enhancing value chains efficiently (Spithoven et al. 2013).

Similarly, external agencies and consultants’ collaboration can be performed through open innovation that includes product or service development. In contrast, the incremental innovations in horizontal collaborations involved changes in the existing products (Wynarczyk 2013). In another study, the support for increasing innovation is essential in SMEs’ commercialization stages as early stages bed offerings of the same product or service for a long time (van de Vrande et al. 2009). Moreover, the SMEs’ external support for innovation is largely linked to the size of the organization (Hemert et al. 2013). For instance, small SMEs are less likely to achieve external support for innovation than the larger SMEs that have more room for gaining external collaboration (Teirlinck and Spithoven 2013).

Networking

Networking is one of the most current methods of getting support from the business and social environment in SMEs innovation processes (Lee et al., 2010). Nevertheless, Heger and Boman (2014) emphasized the partnerships developed through networking are limited to the use of collected data or support in some primary activities of decision making or strategy formulation. Given Sarasvathy (2007), the identification and recognition of entrepreneurship opportunities are primarily linked to the closed interlink with associate individuals and companies. Hemert et al. (2013) suggested that it is a common observation that SME innovation is largely inclined to the other SMEs and institutions.

In this respect, McAdam et al. (2014) asserted that horizontal networks collaboration demonstrated that knowledge-based networks and other social network constructs support more wisely in the case of horizontal collaborative networks. However, it can be argued that consideration of both informal and formal association is vital in making networks of business and social circles (Padilla-Meléndez et al., 2013). Nonetheless, Pullen et al. (2012) discovered a consistent and focused approach to networking to generate efficient innovation performance. The network profile presented in this study includes a complement of goals and resources and the requirement of low position strengths of networks and mutual trust. On the other hand, the study on networking by Suh and Kim (2012) argued that networking is not a practical approach to support innovation in SMEs since these organizations cannot balance the powers among many partners in networks.

Similarly, Török and Tóth (2013) declared that rather than using organizational networks, the approach of personal networking was found useful for SMEs as managing people is a challenging task at these SMEs of developing countries. The reason for this cautious approach of SMEs in building extensive and intensive networks found in the study of Hughes (2009) is that there is a tradeoff involved in creating these two types of networks for SMEs. Apart from this criticism on the networking approach of support for innovation in SMEs, Theyel (2013) found that the preference of networking with customers is more profound in SMEs than the networks of suppliers.

In this regard, Hronszky and Kovács (2013) suggested that living Labs agencies can provide useful innovation strategies by integrating SMEs in collaborative networks. Open innovation in the collaborative economy also posed valuable implications for innovation in SMEs. The example of IDEO provides an interactive and collaborative platform for SMEs to invite suggestions and plans for innovating products or services. Open competitions from professional agencies, experts, and students of universities can provide cost-effective and economic innovation support in the collaborative economy (Theyel 2013; Hronszky and Kovács 2013).

Financing

As published in the report published by the Organization of Economic and Cooperation Development in the Bologna Symposium, (OECD, 2000) Financing was marked as a major hurdle by these SMEs in conducting R& Ds for innovation novelty. Research can be expensive as it demands both time and finance to conduct, reducing profitability. Unfortunately, most SMEs, unlike large scale industries, have limited budgets that they find hard to categorize for research. As a result, these companies fail to access the completion of ideas, even if they might have innovative ideas.

The companies at this scale need a minimum capital to keep the functioning going. After dedicating most of their budget to the company’s running expenditure, they hardly can save some for research. Moreover, most of the Smaller Scale Industries do not have the technologies or the finances that can buy them the technologies they need for finances. Inadequate knowledge and knowledge assets are also one of the reasons for the limited access of SMEs to innovation. If supported or helped accordingly, these SME’s can also prove themselves the bringers and beginners of change, innovation and new technology.

Copyrights, Gratuity and Benefits

One way that ensures the promotion of innovation and novelty in small and medium enterprises promise them that they reap the benefits of their innovation. Laws and administrative procedures should be so that promise the copyrights of innovation to its fore bringers. Even if all share the technology, a share in a profit should be given to the company that brings it forward. It is the intellectual property of a company or its inventor, and the company should benefit from it as its creator. When in the conference, (OECD, 2000), patents and copyrights laws were brought up, most SME representatives mentioned that either the laws had loopholes that made them too difficult to approach or too easy to breach. Or these laws dampened the flourishing and nourishment of the new idea, making it dead in some time.