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nnovation and Small Business - Volume 1



Irychan Thomas; Christopher Miller; Lyndon Murphy




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Brychan Thomas, Christopher Miller and Lyndon Murphy

Innovation and Small Business

Volume I



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Innovation and Small Business: Volume I

© 2011 Brychan Thomas, Christopher Miller and Lyndon Murphy &

Ventus Publishing ApS

ISBN 978-87-7681-729-9



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Innovation and Small Business: Volume I



Contents



Contents



Foreword

Preface

Acknowledgements

1. Introduction

2. Invention, Innovation and Small Business

3. Research and Development and the Small Firm

4. Technology Diffusion

5. Clusters and Knowledge Flows

6. Higher Education Spin-offs

7. Global Start-ups and business development

8. Innovation Performance Indicators



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Innovation and Small Business: Volume I



Contents



Conclusions



127



References

Chapter 1 : Introduction

Chapter 2: Invention, Innovation and Small Business

Chapter 3: Research and Development and the Small Firm

Chapter 4: Technology Diffusion

Chapter 5: Clusters and Knowledge Flows

Chapter 6: Higher Education Spin-offs

Chapter 7: Global Start-ups and business development

Chapter 8: Innovation Performance Indicators

Chapter 9: Conclusions



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About the Contributors



Index



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Innovation and Small Business: Volume I Foreword?



Foreword

With a modern society that is seeing fast changing social, economic, political and cultural developments
never before has innovation been more important for small businesses. As a consequence the study of
innovation is a fast developing area with publication of a number of leading texts. These however tend to
investigate innovation management activities in large businesses with limited consideration of the small
business area. This is disproportional to the amount of research activity that is being undertaken in the
small business field. These seminal texts into innovation management in large organizations have
previously considered popular, as well as requisite, concepts such as disruptive technology and more
recently open innovation and the "fuzzy front end". Moreover, innovation is seen in terms of creativity
and the generation of new ideas. It is evident that whereas large companies are good at implementing
innovation, small companies are better at generating new ideas although research tells us that only around
10% will be commercially viable. Contributing to this innovation activity there will also be different
forms of innovation including product, process and service innovations and also radical and incremental
innovations.

In response to this gap this volume considers innovation and small business with particular reference to
the innovation process. Here an approach appropriate to small businesses is taken by considering the
distinction between invention and innovation as well as research and development in the context of the
small firms. In addition, technology diffusion, clusters and knowledge flows, higher education spin-offs,
global start-ups and innovation performance indicators are also considered with particular reference to the
small business sector.

The second volume considers industrial settings and essentially attempts to apply the theory considered in
volume one. Furthermore, this volume recognizes the contributions of small firms to these industries,
firmly establishing the pivotal role they play in future economic development and prosperity. This is
achieved by investigating a number of industries such as agri-food, health, energy, construction and
heritage. In particular there is consideration of innovative and sustainable solutions, the assessment of
research and development, technology and multimedia knowledge management systems.

Whilst it is recommended to read volume one before progressing to volume two, each volume has been
constructed so that they can be read independently of one another. Given this exciting and new approach it
is a pleasure to commend this text not only to students, researchers and scholars of small business but also
to policy makers, small business practitioners and owner managers.

Gary Packham

Professor of Entrepreneurship
Centre for Enterprise
University of Glamorgan



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Innovation and Small Business: Volume I Preface



Preface

In modern technological society small businesses are expected to have an innovative role in the emerging
knowledge economy, especially at an international level (EC, 2005; BERR, 2008). In fact the effective use
of technological innovation is considered to be a prerequisite for small business survival (Packham, 2002;
Packham et al, 2005). It has long been recognised that the small business sector is important for economic
growth and it has been noted that there is a need for an international focus on small businesses having
access to international markets (OECD, 2005). Within this context it has been acknowledged that small
business development programmes and assistance should enable them to take advantage of innovative
global technologies (OECD, 2005). Although significant opportunities are presented to small businesses
through the adoption of new technologies there needs to be awareness to the barriers of implementation
and this has led researchers to focus on adoption factors (Parasuraman, 2000). Indeed, there has been little
success linking the determinants of adoption in small businesses with expected outcomes such as
innovation, apart from specialised research and development (R&D) intense sectors (Thomas and
Simmons, 2010).

Small businesses with an above average absorptive capacity tend to exhibit experience, knowledge, a
skills base, knowledge creation and sharing processes (Cohen and Levinthal, 1990; Zahra and George,
2002; Gray, 2006). Their effective use of networking and an optimal use of technological innovation are
the focus of this first volume. It is therefore hoped that this volume will provide a greater understanding of
these innovation processes for small businesses.

References

Cohen, W. and Levinthal, D. (1990) Absorptive Capacity: A New Perspective on Learning and Innovation,
Administrative Science Quarterly, 35(1), 128-152.

Department for Business, Enterprise and Regulatory Reform (BERR) (2008) Business Plan 2008-2011,
June, London.

European Commission (EC) (2005) Implementing the Community Lisbon Programme - Modern SME
Policy for Growth and Employment (COM) (2005), 551 final, November, Brussels.

Gray C. (2006) Absorptive capacity, knowledge management and innovation in entrepreneurial small
firms, International Journal of Entrepreneurial Behaviour & Research, 12(6), 345-360.

OECD. (2005) Small to Medium-Sized Business (SME) and Entrepreneurs hip Outlook, OECD, Paris.
Packham, G., Brooksbank, D., Miller, C. and Thomas, B. (2005) Climbing the Mountain: Management
Practice Adoption in Growth Oriented Firms in Wales, Small Business and Enterprise Development, 12,
482-497.

Packham, G. (2002) Competitive Advantage and Growth: The Challenge For Small Firms, International
Journal of Management and Decision-Making, 3, 165-179.



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Innovation and Small Business: Volume I Preface



Parasuraman, A. (2000) Technology Readiness Index (TRI): a multiple-item scale to measure readiness to
embrace new technologies, Journal of Service Research, 2, 397-329.

Thomas, B. and Simmons, G. (eds.) (2010) E-Commerce Adoption and Small Business in the Global
Marketplace: Tools for Optimization, Business Science Reference, Hershey: IGI Global.

Zahra, S. and George, G. (2002) Absorptive capacity: A review, reconceptualization and extension,
Academy of Management Review, 27(2), 185-203.



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Innovation and Small Business: Volume I Acknowledgements



Acknowledgements



The publication of this first volume would not have been possible without the assistance of a number of
people and institutions to whom we are grateful. We are indebted to the Welsh Enterprise Institute and the
Centre for Enterprise at the University of Glamorgan and to the University of Wales Newport Business
School, for their support in the course of editing this book. We are also grateful to all the chapter authors,
for their hard work and contributions to the book and for their helpful comments and advice. Special
thanks go to Book Boon at Ventus Publishing, and its publishing team, for helping us to keep to schedule.
Finally, we would like to make a special thank you to our families for their support and encouragement.

Dr. Brychan Thomas, Dr. Christopher Miller and Lyndon Murphy

Cardiff and Newport

December 2010



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Innovation and Small Business: Volume I



Introduction



1. Introduction



Brychan Thomas, Christopher Miller and Lyndon Murphy



'Innovation is the central issue in economic prosperity'



MICHAEL PORTER (1947-)



This chapter at a glance

■ Innovation and Small Business

■ Small Business Innovation Networks

■ Organisation of the Book

Innovation and Small Business

Small businesses are making an important contribution to the development of technological innovation
within industries at regional and national levels. In fact, the European Commission (EC, 1993, 1994, 2007)
has reported that this sector probably holds the key to the future renewal and growth of Europe. According
to the EC small businesses are enterprises employing fewer than fifty people, with an annual
turnover/balance sheet total not exceeding ten million euro (EC, 2005). Innovation can be defined as either
the 'application of a new method or device' (Collins, 1997) or the 'successful exploitation' of a new idea
(Thomas and Rhisiart, 2000). According to Baregheh et al. (2009) innovation is 'the multi-stage process
whereby organisations transform ideas into new/improved products, services or processes, in order to
advance, compete and differentiate themselves successfully in their marketplace'.

Whereas the advantages of small businesses in innovation are largely associated with flexibility,
dynamism and responsiveness (Rothwell, 1994), the disadvantages are often related to a lack of financial
and technological resources. This can lead to problems in their capability to absorb and diffuse technology
within industrial sectors. This is a major problem in the development of the small business sector in many
UK regions, especially as external inputs are of greater importance for the small firm than for the large
firm during the innovation process (Allen et al., 1983). With the different levels of regional industrial
development within Europe there will also be variations in the importance of innovation support to the
small business (Saxenian, 1991). This inequality can make access to knowledge, technology and human
resources more difficult, and will affect not only the development of small businesses within regions, but
also the efficiency and effectiveness of the regional innovation system. Regional policy needs to respond
to these variations, and develop innovation support networks that are sensitive to the needs of small
business.



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Innovation and Small Business: Volume I



Introduction



Uyarra (2005) has investigated theoretical issues and empirical evidence of regional innovation strategies
with regard to knowledge, diversity and regional innovation policies. The development of concepts
concerning regional innovation has led to the new regionalist literature (Lovering, 1999) and to models of
territorial innovation (Moulaert and Sekia, 1999). Such concepts include regional innovation systems, the
triple helix, innovative milieu, technological districts and learning regions (Uyarra, 2005). Here there are
concerns on the use of concepts including regional innovation systems to study declining economies, rural
areas and peripheral regions (Doloreux, 2002; Asheim and Isaksen, 2002). It is concluded that it is rare to
identify the requisite aspects for a regional system of innovation (Evangelista et al, 2002). In terms of
increasing globalisation it appears sensible for small businesses to use support for their own innovation
goals (Cooke, 2001) whether or not the support comes from outside or within a region (Uyarra, 2005).

Small Business Innovation Networks

It has been shown that networking is a time-consuming and demanding activity with opportunity costs for
small businesses with limited resources (Rothwell, 1994). Accordingly, there is a need to enable small
businesses to overcome innovation-related disadvantages associated with networking. Since this has
become a key feature of industrial innovation this increases the small businesses innovatory capabilities.
Negative and positive aspects of networks need to be noted since, for example, ICT systems carry dangers
as well as opportunities for small businesses, especially where industry-wide operating standards lock
them into large networks.



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Innovation and Small Business: Volume I Introduction



In innovation support networks technology equates with knowledge. Within university-industry link
systems a multiplicity of technology transfer mechanisms are apparent, which appear to be well integrated
(Cheese, 1993). Chambers of commerce who deliver innovative support to small businesses complement
the higher education system. Small businesses need to co-operate through network groups to share
learning and training resources and good practice. It is clear that chambers of commerce can provide
support by acting as the prime entry point into the local innovation support network, by offering basic
consultancy and using knowledge of the network to direct businesses, as necessary, to the agent, such as
an independent research centre or a higher education institution (Cheese, 1993). A non-trivial source of
the exchange of information on problems of common interest are personal contacts within an informal
network (Desforges, 1985). A problem that is particularly acute for small businesses is co-operation since
they tend not to be well integrated into academic/government/company networks.

A network of co-operation partners will operate to form a 'focal point' of business innovation (Martinussen,
1992). The hub of the process needs good organisation and a network of co-operation partners involving
business innovation centres, technology transfer companies, science parks, and venture capital companies.
These will be responsible for developing technology from a business idea to establishment of a new firm.

Organisation of the Book

This volume contains chapters concerning the innovation process and small business and considers
invention, innovation and small business, research and development and the small firm, technology
diffusion, clusters and knowledge flows, higher education spin-offs, global start-ups and business
development and innovation performance indicators.

Chapter 2: Invention, Innovation and Small Business

This opening chapter introduces the distinction between invention and innovation and the
interrelationships between invention, innovation and small business. The chapter investigates inventive
activity in the modern technological setting of the 21 st Century and reports on the barriers, motivations and
drivers to inventors becoming entrepreneurs in exploiting their ideas and taking them to market.

Chapter 3: Research and Development and the Small Firm

The chapter investigates R&D in terms of spillovers and technology absorption, the measurement of R&D
activity and these activities in small businesses. In relation to these aspects the chapter considers R&D
activities in businesses according to demand, organisation, innovation, imitation and diffusion,
complementary assets, networking and government influence on business R&D.

Chapter 4: Technology Diffusion

This chapter considers technology diffusion, technology transfer networks, a model of technology
>>>