The Evaluation of Innovation Capabilities in Small Software Firms: A Methodological Approach

This paper presents a methodological approach for the evaluation of innovation capabilities in small software firms. The methodology is based on the assumption of a relationship between specific resources managed by small software firms and their innovation capabilities. Within the proposed methodological approach, a model for the quantitative analysis of innovation capabilities is presented. In order to show how the methodology can be applied to concrete situations, three case studies of small firms operating in the software sector and information services are presented and discussed.     

The logic behind foreign market selection: Objective distance dimensions vs. strategic objectives and psychic distance

The aim of this paper is to highlight the importance of the firm’s strategic objectives regarding the choice of countries for foreign expansion, complementing the existing literature on the internationalisation process. Through a multiple case study methodology, we conduct a comparative analysis of three Brazilian ventures that have internationalised in Italy, and three Italian firms that have internationalised in Brazil, seeking to investigate the firms’ decisions on the selection of foreign markets. We consider jointly the objective aspects of distance, the overall perceptions of the decision-makers in relation to the differences between the domestic and (potential) host countries, and the firm’s strategic objectives. This research contributes to International Business studies by revealing the role of firm-specific strategic objectives as determinants of foreign market selection, in addition to, or even on top of, the dimensions of objective distance and psychic distance.     

Design thinking for innovation: Considering distinctions,fit, and use in firms

As firms struggle with high failure rates when developing new products and services, they seek new approaches to innovation. One method garnering attention is design thinking (DT), a design-based method of problem solving. Businesses as varied as Airbnb and PepsiCo are embracing DT in growing numbers, but some may be joining the bandwagon without understanding its distinctions compared to the main alternative, the Stage-Gate (SG) methodology. SG, a project-review process, is used in many firms today to create innovations. To guide managerial consideration of DT, this article provides an explanation of DT as compared with SG, a framework to assess DT’s fit with the firm, and ways DT may be effectively used.     

On innovation patterns and value-tensions in public services

In the innovation studies literature, innovation patterns have been described, such as science-based and practice-based innovation, that vary among industrial sectors. As a consequence, firms become distinguished with respect to their typical innovation pattern. Less attention has been paid to the possibility of intertwined innovation patterns. Focusing on public sector services, this paper argues that intertwined innovation patterns emerge within public services as a response to value-tensions. Values can be defined as measures for beneficial behaviour that guide innovation. Value-tensions in public services include tensions between the political, economic, communal, aesthetic and intellectual values. The contribution of the paper to service innovation research is the emphasis on the concept of intertwined innovation patterns, such as the intertwinement of science-driven and task-driven innovation. Furthermore, the paper contributes by pinpointing how varied values guide innovation in public services.     

Performance expectations of small firms considering radical product innovation

Performance expectations influence business decisions such as investment decisions and demand for supplies, particularly in small firms with limited strategic planning. Despite widespread use of performance expectations by firms and governments when making sales forecasts and economic outlooks, surprisingly little research exists about how small firms form performance expectations. This paper contributes to reduce this knowledge gap by analyzing performance expectations of small firm managers operating in markets with radical product innovations. This paper proposes a model and hypotheses, which explain performance expectations of small firm managers based on firms' current success, radical product innovation, and variables that indicate firms' ability to respond to customer needs for radical product innovation. Data from 200 decision-makers in a real decision-making context support the model. The results show that performance expectations in small firms are only to a limited extent a naïve extrapolation of current success: radical product innovation and small firm's ability to respond to customer needs for radical product innovation influence performance expectations.     

Knowledge Intensive Business Services and Urban Industrial Development

This paper analyses the role of knowledge intensive business services (KIBS) as innovation agents for other firms and industries with empirical evidence from the capital region of Oslo, Norway. It focuses in particular on the role of two sectors (software industry and organisational consultants) in stimulating innovation and growth, showing that firms in the two KIBS sectors mainly provide products and services tailored to individual clients and have frequent face-to-face meetings, relationships that may stimulate innovation. Moreover, data reveal that Oslo firms are more frequent users of consultancy services than firms located outside urban areas, suggesting a gap between ‘insiders’ and ‘outsiders’.     

The impact of innovation centres on small technology-based firms: The example of the federal republic of Germany

Small and medium-sized enterprises have not only in the Federal Republic of Germany been the source of several strategies of economic development and innovation policy for some time. The majority of these measures aims at revealing the potential strength of small and medium-sized enterprises in the innovation process by eliminating particular bottlenecks in the development and other problems of these enterprises which large enterprises do not have. Since 1983, the instrument of innovation centres for a specific promotion of a part of the small and medium-sized enterprises, namely, the new technology-based firms, has been applied also in the Federal Republic. This article investigates to what extent the meanwhile nearly 70 innovation centres could have a positive influence on the development of technology-based small firms. The empirical basis of the analysis consists of data collected in 31 innovation centres and 177 of the enterprises located there.The majority of the entrepreneurs indeed expect advantages over against alternative locations in the same region. The services offered by the centres meet with a lively demand from the tenants who, however, criticize the weaknesses, especially in the advisory services, generally attributable to the centres' managers. Concerning their infuence on the enterprises, the innovation centres do not at all represent a homogenous group, but differ considerably with regard to personnel and infrastructure. However, this assessment can only be tentative, a definite assessment regarding the effectiveness of this instrument is not possible after only six years of existence in the F.R.G.     

A comparative study of innovation behaviour in Singapore's KIBS and manufacturing firms

While most services innovation studies are concentrated on the OECD or EU countries, research on services innovation in the non-OECD context is still rare. This study investigates innovation behaviour of a certain group of services – knowledge-intensive business services (KIBS), compared with the manufacturing sector in Singapore. The main findings of this study are: (1) KIBS firms have higher innovating ratio than manufacturing firms, but innovating manufacturing firms are more likely to do R&D than innovating KIBS firms; (2) KIBS firms have higher human capital intensity, training spending intensity, innovation spending intensity, and R&D spending intensity than manufacturing firms; (3) KIBS firms and manufacturing firms have similar innovation objectives, although some delicate nuances do exist; (4) KIBS firms are less likely to have overseas partners for innovation collaboration than manufacturing firms; (5) there is a U pattern of innovation collaboration with geographic distance for both KIBS and manufacturing firms; (6) social capitals are important for KIBS firms' successful provision of innovation support to manufacturing clients; (7) the importance of spatial proximity varies over different phases of innovation support.     

Do innovation spillovers impact employment and skill upgrading?

So far, the research on impact of innovation on employment and skills focused on effects within firms and sectors. Little attention was paid to the influence of interlinkages between sectors as a source of employment change. The main contribution of this paper to the field refers to broadening the analysis of innovation impacts to innovation spillovers from vertically linked sectors on firms' employment and skill change in user industries. The empirical analysis conclusively demonstrates an important role of innovation spillovers in the economy. Firms' employment growth is shown to benefit significantly from spillovers of product innovations in manufacturing and knowledge-intensive services. Similarly, firms that are subject to increased spillovers of product innovations as well as marketing and organisational innovations are more likely to upgrade their skill composition. Conversely, employment growth and skill composition of firms seem to be negatively affected by spillovers of process innovations in vertically linked sectors.     

Financial projections in innovation selection: The role of scenario presentation,expertise, and risk

Innovation project selection is a decision of major relevance to firms. Errors in this decision may have serious consequences for firms, especially as many firms struggle with optimizing innovation project selection decisions. In their pitches to innovation decision-makers, project teams invariably present financial projections on their innovation projects, which often include best- and worst-case scenario presentation. Despite the potential influence the presentation of such financial projections has on firms’ innovation project selection decisions, this topic has not received sufficient attention in the literature. This study examines the role of scenario presentation on financial projections in innovation project selection by conducting two conjoint experiments among 2,425 managers and 11 follow-up interviews with senior executives. First, the findings of this study suggest that firms should help project teams present small- rather than large-range scenarios. This is important for at least the 57% of firms surveyed in this study where project teams are reported to present ‘too wide’ and ‘too extreme’ scenarios. Second, firms seeking to promote transformational innovation in their innovation pipeline should make the presentation of small-range scenarios required for an innovation proposal to be presented to a project selection committee. This is relevant for 79% of surveyed firms that would like to select more transformational than core innovation projects and especially for the half of which that currently do not require scenario presentation. Third, project teams with less expertise should develop scenarios analytically rather than intuitively and convey the project’s strategic merit to decision-makers to help increase innovation project selection likelihood.     

Trade and Innovation in Services: Evidence from a Developing Economy

Studies on innovation and international trade have traditionally focused on manufacturing because neither was seen as important for services. Moreover, the few existing studies on services focus only on industrial countries, even though in many developing countries services are already the largest sector in the economy and an important determinant of overall productivity growth. Using a recent firm‐level innovation survey for Chile to compare the manufacturing and ‘tradable’ services sector, this paper reveals some novel patterns. First, even though services firms have on average a much lower propensity to export than manufacturing firms, services exports are less dominated by large firms and tend to be more skill intensive than manufacturing exports. Second, services firms appear to be as innovative as – and in some cases more innovative than – manufacturing firms, in terms of both inputs and outputs of ‘technological’ innovative activity, even though services innovations more often take a ‘non‐technological’ form. Third, services exporters (like manufacturing exporters) tend to be significantly more innovative than non‐exporters, with a wider gap for innovations close to the global technological frontier. These findings suggest that the growing faith in services as a source of both trade and innovative dynamism may not be misplaced.     

Innovation strategies,innovator types and openness: a study of KIBS firms in Spain

This paper studies the determinants of innovation strategies in knowledge-intensive business services, by examining the relationship between these strategies and two dimensions of innovativeness: the type of innovator (internal, collaborative or external) and the degree of openness (reliance on internal or external information sources). First, we describe the characteristics of innovator types and their degree of openness. Second, we investigate the extent to which different innovation strategies—determined by examining innovation expenditures and cooperation in innovation—are associated with different innovator types and with different degrees of openness. The data used in this paper are part of the Technological Innovation Panel carried out by the Spanish National Institute of Statistics. The results obtained show that innovation strategies do not lead in any mechanical way to a higher or lower degree of openness. The recognition of the importance that external knowledge can have for innovation is not incompatible with the existence of firms that prefer to rely mainly on their internal capacities to innovate. However, it seems that when firms decide to cooperate for innovation, they are more likely to innovate collaboratively than in isolation.     

Knowledge of Inter-customer Relations as a Source of Value Creation and Commitment in Financial Service Firm's Intermediation

This paper develops a knowledge perspective on value creation in organisations that employ mediating technology to facilitate inter-customer relations. Mediators, individually and collectively, build networks of customers between whom linking can take place, and they provide services that facilitate inter-customer exchanges. Earlier research has shown the importance of size and standardisation in mediation. A different stream of research has shown that contextual knowledge is important for problem solving and innovation in organisations. Combining theories of mediating technology and situated problem solving, the paper posits that inter-customer relations constitute the fundamental context for value creation of firms using the mediating technology. LISREL is used to test relationship-level, cross-sectional hypotheses that link knowledge of inter-customer relationships, added value, and customer commitment to bank services for small firms. This work extends Thompson's work on mediating technology with implications for organisation action by demonstrating that mediators' knowledge of inter-customer relationships is an important resource in intermediation. Three contributions are made to strategic management and organisation theory. First, the paper provides a deeper understanding of the relationship between knowledge and committed customers. Second, fundamental resources are developed for firms using mediating technology. Finally, the use of the situated knowledge concept is extended to inter-customer relations, thus explaining performance beyond the contexts to which the concept has previously been applied. The findings have implications for segmentation practices, organisation domain decisions and the corresponding organisational structures, and practices that can provide effective service to inter-customer relations rather than to atomistic independent customers.     

When are strategic orientations beneficial for collaborative service innovation?

Despite the importance of collaborative innovation, the existing literature tends to be somewhat vague in identifying when strategic orientations are beneficial for service innovation between a focal firm and its business partners. The purpose of this study is to examine the relative effects of four strategic orientations (market, service, interaction, and learning) on collaborative service innovation performance, while considering the contextual factor of service offerings (basic installed base, maintenance, operational, and professional). Results based on survey data from 362 paired B2B firms show that learning orientation has the strongest effect on collaborative service innovation performance, and is the most effective for basic installed base services and maintenance services. In contrast, interaction orientation best supports those firms with operational services, while market and service orientations are more effective for professional services. Managers are advised to consider alternative strategic orientations individually aligned with service offerings to achieve desired collaborative service innovation outcomes.     

Independent financial advisors: open innovation and business performance

The purpose of this paper is to examine the behaviour of small independent financial advisors (IFAs) in terms of their involvement in networks and open innovation. A mail survey of small IFAs was undertaken utilising previously validated scales to assess business performance in relation to networking and open innovation. Results indicate that IFAs involvement in networks and open innovation can assist business performance. The managerial implications are that IFAs and other financial services organisation sector firms may be able to achieve higher sales growth by participating in networks and engaging in open innovation. This paper provides an original empirical assessment of possible strategies to enhance sales growth in small financial service sector firms facing volatile market conditions.     

Configurations of strategic R&D decisions and financial performance in small-sized and medium-sized firms

This paper links the strategic decisions made in R&D during the financially turbulent period of 2009 to the firm's financial health in the period 2010–2013. The focus is on decisions made in R&D-active small and medium-sized enterprises in terms of absorptive capacity, open innovation, type of R&D, and the organizational structuring of R&D. Based on a representative set of R&D-active firms in Belgium, qualitative comparative analysis reveals that the outcomes in terms of financial performance related to optimal configurations of strategic R&D decisions depend on the firm's size and on the time-lag under consideration. Managers in small-sized firms are advised to pay particular attention to a more functionally-structured R&D approach in configurations of strategic R&D decisions. To increase medium-term financial performance, managers in medium-sized firms benefit from more engagement in research-oriented activities, more in-house innovation, and the enhancement of absorptive capacity in sets of strategic R&D decisions.     

Determinants of proactive innovative behaviour in new services: empirical investigation of service versus manufacturing firms

The research performs a complete analysis of the differences between services and products based on factors associated with the innovation process. The research analyses the factors/dimensions and their repercussions that determine firms' capacity to adapt to their environment and observes how the critical dimensions of the innovation process influence the gap generated by the difference in the firm's current level of innovation and the level developed by the competition. The results show that the client's participation in the process of innovation is greater in service firms that possess a larger innovation gap and are more proactive. The opposite is the case for formalization and decentralization, which occur in lower levels in this kind of firm. Further, decentralization and formalization are lower in service than in manufacturing firms.     

Multinational Firms’ Motivations and Foreign Direct Investment Decisions: An Analysis of the Software and IT and Financial Services Sectors in the Irish Context

This article focuses on the way greenfield foreign direct investment (FDI) in different sectors is influenced by locational characteristics and explores the role of policy in attracting and retaining foreign investment. We contribute to the literature by empirically investigating the investment motivations of multinational companies in the software and information technology (IT) and financial services sectors in Ireland and those locational factors that contribute to the retention of FDI. The methodology used in this research is of a qualitative nature, and an exploratory deductive approach is adopted in order to gain an understanding of firms’ internationalization decisions and motivations. The data demonstrate that companies in the two sectors follow different investment motivations. Firms in the software and IT sector entered Ireland primarily because of the availability of a high‐quality workforce, whereas firms in the financial services sector entered Ireland following the deregulation of markets and the subsequent ease of doing business. The article builds on these findings to develop policy recommendations. © 2017 Wiley Periodicals, Inc.     

Metropolitan innovation,firm size,and business survival in a high-tech industry

This paper contributes to the growing body of business survival literature that focuses on regional determinants of the hazard faced by firms. Using parametric survival analysis, we test the effects of regional innovation on exit likelihood in the US computer and electronic product manufacturing during the 1992–2008 period. The novelty of our approach is in conditioning the effects of metropolitan innovation on firm size. Estimation results suggest a negative relationship between metropolitan patenting activity and survival of firms that started with 1–3 employees. This effect decreases if companies grow. Establishments with more than 4 employees at start-up are insensitive to metropolitan innovation, although size of firms that started with 4–9 employees improves their survival chances. These findings indicate that local knowledge spillovers do not translate into lower hazard. The negative relationship indicates either a creative destruction regime or decisions of entrepreneurs to shut down existing ventures in order to pursue other opportunities.     

Internalization theory: An unfinished agenda

Internalization theory is usually applied at the firm level to analyse FDI, licensing and subcontracting. This paper extends it to the industry level. It synthesises internalization theory and oligopoly theory. It analyses a global industry where firms innovate competitively, and freely enter and exit the industry. It presents a formal model which highlights the inter-dependencies between rival firms. Each firm responds to its rivals by jointly optimising production and innovation through inter-dependent ownership and location decisions. The competitive outcome determines which firms serve which markets, which firms enter or exit the industry, and the internalization strategy of each firm.