Innovativeness among small businesses Theory and propositions for future research

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Industrial Marketing Management 34 (2005) 773 – 782 Innovativeness among small businesses: Theory and propositions for future research Angela HausmanT The University of Texas - Pan American, 1201 W. University Drive, Edinburg, TX 78539, USA Received 26 April 2004; received in revised form 4 November 2004; accepted 6 December 2004 Available online 2 March 2005 Abstract Small businesses represent the lifeblood of the economy. Variations in the innovativeness of these firms may help explain why s
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Innovativeness among small businesses: Theory and propositions for future research Angela HausmanT The University of Texas - Pan American, 1201 W. University Drive, Edinburg, TX 78539, USA Received 26 April 2004; received in revised form 4 November 2004; accepted 6 December 2004 Available online 2 March 2005 Abstract Small businesses represent the lifeblood of the economy. Variations in the innovativeness of these firms may help explain why some succeed, but many fail [Frambach, R. T. (1993). An integrated model of organizational adoption and diffusion of innovations.European Journal of Marketing, 25(5), 22-41; Nord, W. R. & Tucker, S. (1987). Implementing routine and radical innovations.Lexington, MA: Lexington Books.]. To understand how small businesses develop and use innovations, a series of depth interviews were conducted with small, family-owned firms in the US and Spain. Results suggest several factors affect innovativeness, including industry-specific, firm- specific, and innovation-specific factors. The study ends with a series of propositions, potential managerial implications of the study, and suggestions for further research. D2005 Elsevier Inc. All rights reserved. Keywords:Innovation; Innovativeness; SME; Small business 1. Introduction Despite their public prominence and political influence, the economic impact of large businesses is about equal that of small businesses. For instance, nearly one-half of the US GDP in 1999 was attributable to small businesses, which employed 68.2 million people or 58% of the 1999 employment (Small Business Administration, 2001). EU countries show lower, but still substantial, economic contributions attributable to small businesses (Bednarzik, 2000). In fact, most businesses started as small ventures. These factors argue strongly for a more thorough under- standing of factors influencing the success of these businesses. Among the most important aspects of success in small firms is innovativeness, as exemplified by the phenomenal growth of start-up ventures like Starbucks, Apple Computers, Dell, and Kinkos (Daily & Thompson, 1994). These firms are able to capitalize on customer closeness and flexibility to satisfy rapidly changing customer demands, thereby creating valuable competitive advantages (Hausman & Fontenot, 1999). Problems retaining this nimbleness might help explain why such a large percentage of these businesses fail (Drozdow & Carroll, 1997). But, how do small firms remain innovative when they face scarce resources and have little market influence? The answer, while obfuscated by a relative paucity of research, is that they conceivably do it in different ways than large businesses (Yap and Souder, 1994). The purpose of this study is to fill this void by developing an understanding of factors affecting innovativeness among small businesses. Unfortunately, the literature does not provide sufficient detail for deductive model development; hence we used an inductive, multiple informant procedure similar to that utilized byRogers and Shoemaker (1971) andRogers (1995). A grounded theory interpretation of qualitative data was combined with extant literature to develop a series of propositions related to innovativeness in small businesses (Glaser & Strauss, 1967; Strauss & Corbin, 1994). The following sections will first review extant theories of 0019-8501/$ - see front matterD 2005 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2004.12.009 TTel.: +1 956 381 2826; fax: +1 956 384 5065. E-mail address:hausman@panam.edu. Industrial Marketing Management 34 (2005) 773 \u2013 782innovativeness, then develop a series of propositions with suggestions for future research. 2. Innovativeness in small firms Small firms are more than simply smaller versions of major corporations, especially when one talks about family- owned businesses. Not only do they lack the financial and human capital common in large businesses, their gover- nance and reward structure are often entirely different. Thus, it is unclear whether theories developed to understand large firms apply to small businesses. Some characteristic features of small businesses suggest an increased ability to respond to changing environmental needs. As mentioned earlier, closeness between small business customers and managers can provide impetus for innovation due to the ease with which these managers can identify unmet customer needs. Less bureaucracy and more clannish structures, which are common in small businesses, might also improve inter-organizational trust, communica- tion, and cooperative competency that contribute to inno- vativeness (Olson, Walker, & Reukert, 1995; Sivades & Dwyer, 2000). Owners also normally have more operational expertise, which, combined with superior customer knowl- edge, might translate into innovative solutions (Dahl & Moreau, 2002). Counteracting the benefits of these internal strengths are external weaknesses. Among the weaknesses is the some- what parochial nature of small businesses, resulting in fewer external contacts that might otherwise increase thebseek and respondQ capability of the firm (Srinivasan, Lilian, & Rangaswamy, 2002). As a result, small businesses become less innovative over time as they become less aware of environmental changes or innovative solutions. This relative paucity of weak ties was identified byHausman and Fontenot (1999)as a major impediment to innovativeness in small businesses. Other features of small firms support the contention that they have a difficult time adapting to changes in the economic, technological, or competitive markets (Drozdow & Carroll, 1997; Gallo & Sween, 1991). For instance, small business managers often lack the types of education and training that have been linked with innovativeness (Romano, 1990). This lack of strategic expertise prevents small firms from transforming their superior customer knowledge into new products and services (Davis, Hills, & LaForge, 1985; Gruner & Homburg, 2000; Sethi, Smith, & Park, 2001). Small businesses are also closely held, with power and decision-making concentrated in the owner/manager (Dyer & Handler, 1994). Thus, innovativeness may translate into the innovativeness of the owner/manager rather than the innovativeness of the firm (Verhees & Meulenberg, 2004). Commonly these owners reject the advice of others and are reluctant to delegate authority or decision-making to others, which conspires to reduce innovativeness (Dyer & Handler, 1994). In addition, over-involvement by the owner in operational level decisions and family considerations might reduce their tendency to take risks (Sethi et al., 2001). Moreover, strategic decisions are often framed within the constraints of family and individual goals, rather than maximization of firm potential, which might encourage firms to reject changes due to their concomitant conflict (Davis et al., 1985; Donckels & Fro\u00a8hlich, 1991; Dyer & Handler, 1994). Empirical and theoretical evidence linking these variables with innovativeness in small business is limited and mostly anecdotal, suggesting further study is needed to explicate their importance in small business innovativeness. Manager/owners are also risk averse and conservative (Donckels & Fro\u00a8hlich, 1991; File & Prince, 1996). Since innovation and adoption involve risks, risk-aversion and conservativeness reduce innovativeness. From a practical perspective, small firms have limited financial capacity, suggesting they lack the financial resources to capitalize on innovative opportunities that can be very risky and costly (Davis et al., 1985; Sivades & Dwyer, 2000). 3. Description of research activity To fully understand the forces affecting innovativeness in small businesses, quantitative research is often less valuable than qualitative research mainly because there is little guidance regarding what factors to measure. Supporting this,Rogers and Shoemaker (1971) provide pages of potential variables that have been tested for their impact on either individual or organizational adoption in prior research. In fact,Rogers (1995) identifies the large number of variables and contrary findings across studies investigat- ing them as one of the fundamental problems in this research area. In small business research, this problem is compounded by the lack of prior research and questions regarding the validity of existing measurement tools and theories in firms that differ in organizational structure and firm characteristics from the large firms used in developing the tools (Romano, 1990). To investigate the most salient features accounting for firm innovativeness, small family-owned businesses were chosen since they are the most common type, representing 90% of all US small businesses (Daily & Thompson, 1994). In-depth, qualitative analysis was used as it provided an opportunity to develop theory from observations, rather than imposing pre-determined models on the data (Huberman & Miles, 1995). Multiple sites provided both greater general- izability and explanatory ability by highlighting common- alities and particular factors affecting innovativeness (Huberman & Miles, 1995). By comparing features of innovative and less innovative firms, we were able to identify aspects that might account for this difference. This methodology is particularly useful when the underlying A. Hausman / Industrial Marketing Management 34 (2005) 773\u2013782 774theoretical framework is not well understood, as was the case here (Babbie, 1998). To understand the factors affecting adoption in small businesses, depth interviews were conducted with six multi- generational businesses (Table 1), three in the US and three in Spain. Each firm was between two and five generations old, having been passed down from one family member to another. These businesses were particularly appropriate for this study, since the continuity of management over many years suggested a stable management philosophy and supported the notion that observations made at a single point reflect the accumulated management philosophy over many years. Paired industries across counties enabled a more nuanced understanding of country differences, while controlling for industry effects. The rationale for including Spanish firms in the analysis was partly based on wide cultural differences recorded in prior research (Hofstede, 2001) and access to Spanish firms. Data collected included taped, semi-structured interviews with multiple informants in each business, pictures of the business operation, financial and other secondary data contained in company records, and media accounts of the business. Interviews used a standard question guide to ensure adequate coverage of the topic. This was translated into Spanish by a bi-lingual Spaniard to ensure accurate understanding given regional dialects. Spanish interviews were conducted by the same bi-lingual Spaniard, involving abbreviated translation of the answers to allow follow-up questioning and elaboration. The Spanish tapes were later translated and all interviews were transcribed by a second bi-lingual Spaniard from the same region, resulting in 57 single-spaced pages. Since this technique does not utilize rigid questioning, but encourages more natural discourse between informant and researcher, complex translation/back translation procedures were deemed unnecessary. Each interview began with a discussion of the history and current operations of the business. Then, following a phenomenological focus, interviews proceeded based on the topics introduced by the informant, as recommended by Thompson (1997). Rather than following an invariant set of questions, the interviewer allowed the business owner to determine the course of the interview, while still making sure to cover the broad topic areas of interest to the researchers. Questions addressed issues of how they first became aware of innovations, how the adoption process was accomplished, innovations introduced by the firms, and why innovations might have been discarded as inappropriate. To avoid social desirability bias, questions were framed in terms of managing change within the organization, since terms like innovation and adoption may play into the pro- adoption bias noted byRogers (1995). The goal was to illuminate key factors that influenced the innovativeness within the firm. Supplementing this, observational data were collected by touring facilities and talking to employees as they performed daily tasks. Depending on the amount of access allowed by the owner, observations might have been as short as one- half hour or as long as several hours. In two cases, the need for repeated interviews allowed observation of the operation over several different times. Discrepancies between obser- vations and reports were noted and, when possible, were later discussed with the business owner. Photographs were also used both as a form of observa- tion and an aid to later recall the observations. A more subtle analysis was also possible through these recordings, as they representbtruth-revealing mechanismsQ and provide perspectives in action to complement the perspectives of action supplied by informants (Snow & Anderson, 1987). Photographs were also effective in identifying intangible aspects imbedded so deeply within the culture and experience of the business that they remained unarticulated during interviews (Harper, 1994). A final data source was secondary data. The types and amount of secondary data varied greatly from one business to the next. In some cases, firms had been the subject of several newspaper and magazine reports including more photographs of the operation. The study protocol involved asking managers for information including organizational charts, brochures, catalogs, price lists, menus, press clip- pings, and samples of advertisements. These data were mainly used to corroborate and expand on information supplied by the owner. For instance, secondary data were particularly useful in validating the timing of innovations. As is customary with qualitative data collection, key informants were not representative of the population from which they were drawn in thebstatistical senseQ. Instead, a purposive sampling technique was used whereby informants were selected for their variability to provide a broad range of Table 1 Characteristics of respondents Number InnovativeT Industry Country Type of business Number generations 1 No Service U.S. Fast food restaurant 3 2 Yes Industrial manufacturer U.S. Oil drilling and truck brake equipment 2 3 No Consumer manufacturer U.S. Glassware and stained glass 4 4 No Service Spain Bakery and ice creamery 5 5 Yes Industrial supplier Spain Produce broker 2 6 Partially Consumer manufacturer Spain Soft drinks and water 2 TExamples of criterion used to classify include offering different products than competitors, introducing new products recently, using automated production techniques, automated accounting and logistics, use of computers (other than as cash registers). A. Hausman / Industrial Marketing Management 34 (2005) 773\u2013782 775perspectives regarding the topic of interest (Lincoln & Guba, 1985). Selection of companies in the US was accomplished by obtaining a list of firms fitting the profile (i. e., multi-generational small businesses) from the Small Business Institute and selecting firms from very different industries – a service business, a manufacturer of consumer products, and a manufacturer of industrial products. Firms from the same types of industries were selected in Spain based on a list obtained from the Family Business Center in Seville, Spain. Owners or other highly placed family members were contacted by telephone, the general purpose of the research was explained, and an appointment made for an interview. All informants were assured confidentiality and were offered a copy of the report to insure their cooperation. After arriving in Spain, a substitution was made for the industrial manufacturer based on unavailability of the srcinally scheduled business owner. In this case an industrial supplier was used instead. Since analysis was built on a relatively small number of firms, questions regarding the likelihood of reaching saturation existed (Glaser & Strauss, 1967). Therefore, only propositions derived from the data are presented with suggestions for future testing, rather than using the data for both theory development and testing, as suggested by Strauss and Corbin (1994). These findings are therefore specific to these individuals at this time and are not meant to be generalizable to other contexts or even other individuals employed in the same industry. These partic- ipants are providing exploratory insights into the issues they face. The analyses of the interview transcripts and other data were completed using the hermeneutic procedure outlined byThompson (1997). Analysis proceeded through a series of part-to-whole iterations; first comparing within the text followed by comparisons across texts to identify patterns and differences across utterances (Thompson, 1997). The interpretive process was similar to its hermeneutic cousins, involving iterative analysis to develop a holistic understanding of the data. Earlier readings of the text inform later readings, and recip- rocally, later readings allow the researcher to recognize and explore patterns not noted in the initial analysis. As the analysis proceeds, textual interpretations broaden, with the resultant thematic structure reflecting the understand- ing of the broadest text. As described, the development of a holistic understanding of the participants’ experiences must be developed over time. The next step involved creating individual descriptions, or summaries of the researchers’ understanding of the text. The descriptions were sent to the participants for review and evaluation. This, in essence, served as an additional inter- view with each participant. It provided direct feedback on the equality between the participants’ own understanding and that deriving from the researchers’ analysis of the transcript. This procedure is referred to as member checking (Lincoln & Guba, 1985). 4. Theory development Wide variation existed across firms in the number and complexity of innovations developed and adopted by them, remembering that innovation reflects the newness of the product to the adopting unit, not absolute newness of the product. In reviewing the history of the firms, all appeared to have been innovative during their early years. For instance, the Spanish baker invented a pastry named for Pope Pious the Ninth that can be traced to 1935 – Piononos. The US industrial manufacturer began his business with an innovative gas well drilling apparatus. The current state of the business reflects several were still innovative – either inventing or adopting new technologies or practices. However, several of the businesses had lost the innovative spark over the generations. For example, the US consumer manufacturer, who was once known worldwide for their unique designs, was rapidly losing their market edge. The goal of this study was to identify similarities between more innovative firms and, using extant theory, propose factors that distinguish them from less innovative firms. Although it is difficult to trace the reason for the differences in innovativeness and the propositions presented here are not designed to be exhaustive, several issues bear further study. Analysis suggested a model of small business innovativeness containing the contributing factors of market intensity, owner/manager factors, organizational culture, and channel network effects (Fig. 1). The next sections will present empirical support from the case studies and extant literature to support each proposed relationship in the model. 4.1. Market intensity In certain markets, disparities in market access may hinder small businesses trying to compete against much larger ones. Specifically, competitive intensity, commonly defined as the market share controlled by the largest businesses, might negatively affect potential rewards and increase innovative risks (Sebora, Hartman, & Tower, 1994). For instance, in industries dominated by oligopolies, like Coke and McDonalds, new consumer products present high potential rewards based on the number of potential customers. But small businesses, with their regional customer base, might be ill-prepared to capture a substantial portion of this market, thus reducing anticipated rewards for their innovativeness (Daily & Thompson, 1994). Mean- while, large businesses are poised to capitalize on the innovativeness of these small businesses through their ability to mimic innovations and their enormous distribution capacity. At low levels of competitive intensity it is conceivable that new products would provide sustainable competitive advantage to the innovator, while in industries dominated by oligopolists, innovations might quickly be matched, thereby reducing the attractiveness of being innovative (Sorescu, A. Hausman / Industrial Marketing Management 34 (2005) 773–782 776
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