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Is innovation always beneficial for SMEs?

There is a widespread assumption that innovation should be a key focus for small and medium enterprises (SMEs) that want to be successful. However, studies on the topic report mixed results. This investigation brings together past research to determine whether evidence shows that innovation has a strong tie to bottom line results. The research then looks at when small, resource-strapped firms may actually benefit from an innovation focus. Factors such as firm age, type of innovation and culture are assessed for their effect on the innovation-success relationship.

What You Need to Know

Young SMEs with innovative thinking at their heart are better off working on new ideas internally than with external partners. A team effort focused on thinking innovatively without the constraints of a specific patent- or product-focus can also yield better results for the firm.

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What Did the Researchers Do?

Nina Rosenbusch teamed up with Jan Brinckmann and Andreas Bausch to ask: Does innovation always provide a benefit for SMEs? Are there circumstances that increase the chances of success? The team conducted a meta-analysis of the results from 42 prior studies to determine the direction and strength of the relationship between innovation and firm performance.

What Did the Researchers Find?

In general, SMEs can benefit from an innovation strategy. However, fostering a culture of innovative thinking has a higher benefit than focusing on innovative outcomes such as patents or products. In turn, patents and products are more important to success than increasing the resources applied to the innovation process. This means that the way of thinking about innovation in the organization matters more than the money spent.

The results suggest that younger firms benefit more from innovation than will more established SMEs. Furthermore, internally developed innovations are more successful than those created in partnerships with other organizations. Finally, the national culture of the firm has a direct effect on innovation outcomes. Firms in countries where success is thought to be a team effort see much stronger impact from innovation than those where individualism reigns.

How Can You Use This Research?

Young firms can use this research to funnel innovation investments to areas where they have unique strengths, prioritizing resource allocation for innovation. They should focus more on internal innovation rather than with external partners and be aware of the influence cultural values have on the firm’s innovation strategy.

Want to Know More?

Contact: Nina Rosenbusch

Article citation: Rosenbusch, N., Brinckmann, J., Bausch, A. (2011). Is innovation always beneficial? A meta-analysis of the relationship between innovation and performance in SMEs. Journal of Business Venturing, 26, 4, pp 441-457.

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