ANA SÍLVIA CORDEIRO1, FILIPA DIONÍSIO VIEIRA TO INNOVATION IN SMES: ... New technologies, new products,…

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  • II Conferncia Internacional de Integrao do Design, Engenharia e Gesto para a inovao Florianpolis, SC, Brasil, 21-23, Outubro, 2012

    BARRIERS TO INNOVATION IN SMES: AN INTERNATIONAL COMPARISON ANA SLVIA CORDEIRO1, FILIPA DIONSIO VIEIRA21Universidade do Minho, acordeiro@dps.uminho.pt 2Universidade do Minho, filipadv@dps.uminho.pt

    Abstract: The Portuguese business frame is mainlycompounded of smallsized companies, namely smallandmediumenterprises,whichrepresent99.99%ofallPortuguese firms. This reality is common to othercountriesandmakes itrelevant tostudy theirbehaviorand attitudes towards competitiveness andsustainability. The present study proposes to inquireabouttheissueofbarrierstoinnovationinthefollowingcircumstances:whatarethebarriersfacedbydomesticcompanies,howdotheydealwithandovercomethem,and finallywhat is the importanceofeachbarrier.Theresearch identifies themain barriers in the companiessurveyedwhich revealedasofextreme importance thecurrent economic climate and showed the similaritiesbetween thebarriers revealed inPortugalandbarriersto innovation on other countrieswhere similar studiesoccurred.

    Keywords: Innovation Barriers; SMEs; EconomicSustainability;Portugal.

    1. IntroductionThe importance of innovation for the survival andcompetitivenessoforganisations isanundeniable fact.The explosion of shared information, the growth of amore globalized economy and the rising crisis haschangedtherules.Companiesmustconductinnovationprocesses to ensure sustainability and promoteprominentpositionsintheirmarkets.

    New technologies, new products, new services,wholenew industries have emerged. Since the IndustrialRevolution,businessesrelyupontechnologyasadriverof their progress. Innovation, understood as the

    sustainable implementationof improvementsandnewideas, depends on other factors rather than thisbreakthrough technology, despite the fact that thetechnological improvements have providedconsistently,inthepast,opportunitiesfromwhichweremade and sold products and enhanced services(Dearing,2000).

    Theeconomicenvironment isaneverchanging reality.Firms are driven to react as fast as they can as thespeed and intensity of events make this concern acritical condition for their permanence inmarket. Theglobal markets and highspeed technologicalimprovements have changed the competitiveenvironment,making itmorecomplex,moreuncertainandforcingchangeinorganisations.

    Crisis forces to peep into shortrun problems, theimmediatefuture.Allthesame,firmscannotforgetthattoday'sdecisionshave impactsonthefuture.Alsotrueis the existence ofmore space for small andmediumenterprises (SMEs)with innovative spirit, to standout.Thedeepeningcrisissince2007andthecompetition inthe currentworldmarket,whereemergingeconomiesgrowfasterthantheothers,requireEuropeancountriesto puzzle out products and services of higher qualityandmoreinnovative(Cordeiro,2011).

    Are companiesprepared for this stage?What sustainsthe survival and sustainability of European SMEs, andespeciallythePortugueseones?

    Thus, the urgency and relevance for the companies,whatever themarket inwhich they operate, to driveprocessimprovementsorchangesinvolvingtheirfuturesustainability is the current theme. The question thateverybusinessfaces is inwhichway,usingwhichtools

  • II Conferncia Internacional de Integrao do Design, Engenharia e Gesto para inovao- IDEMi 2012 Florianpolis, SC, Brasil, 21-23, Outubro , 2012

    and applyingwhat attitudes and actions,willpromotethisclaim.

    Overlooking at Portugal, the country never needed somuch its firms to be able to compete externally.Enterprises know that the call for innovation ismoreintensethanever.

    Thepaper is structured in the followingway.First it isdrawn a critical literature review on topics such asinnovation and barriers to innovation. Then adescription on the goals is made. Subsequently, themethodology followed is explained. The sectionpresenting the results acquired comes after, revealingthefirmsinnovativeattitudeandthebarriersidentified.Lastlytheconclusionsattainedaredisclosed.

    2. LiteraturereviewThePortugueseentrepreneurial ismostlycomposedofsmall and mediumsized firms. According to theEuropean Comission 2003/361, SMEs are companieswith less than 250 employees, turnover of up to 50million and a total balance sheet less than 43millioneuros.

    AccordingtotheNationalStatisticsInstitute(INE,2011),thenumberofnonfinancialcorporationsinPortugalatthe end of 2009 was 1 060 906. Only 888 of thememployedmore than 250workers (about 0.0837% oftotal). On the other hand, the number of companiesthat have less than 10 employees reaches 1 014 103(95.59%).Thisdatafortheyear2009reflectsanationalandinternationaltrendandsupportstheimportanceofthisstudyonSMEs.

    Schumpeter (1939) portrays the importance ofinnovation for longterm profitability, consideringinnovationasaprocessof"creativedestruction."Totheauthor innovation creates competitive advantage byavoiding changes in the achievement of the balance,through the destruction of businesses and businessmodels.

    According to Fernandes, Noronha and Nicolas (2002),the turbulence that characterizes the current socioeconomic environment, driven largely by theimperatives of increasing innovation at various levels,maintains themost effective strategies of business asthosethatmakethetechnologyaprivileged"weapon".

    AsCarayannis,Popescu,SippandStewart(2006),SMEsare characterized by their ability to react quickly tochanging market conditions, which represent acompetitive advantage. In addition, SMEs arerecognized by their growing participation in terms ofemployability and development of output.Notwithstanding that fact, SMEs suffer from lack oftechnologyadoptionasstandardpractice,despitetheirgreater tendency forproduct innovationafterapplyingtechnologicalinnovationprocesses.

    However, SMEs, according to previous authors, facecritical economic challenges such as increasingcompetition driven by globalization, restrictions onaccess to finance, developed networks with foreignpartners, imperfect access to the transfer of researchresults and technology, speed of change in thetechnological environment, and the uncertainty ofsustainability.

    For Tidd and Bessant (2009) organisationswithmoresuccess in themarket are leading innovation. Despitethecompetitiveadvantagecouldresultfromthesizeorownershipofassets,amongothers,there is favoritism,increasingly, toorganisations thatmobilizeknowledge,technological skills and experience to the creation ofnovelty.Thisinnovationisreflectedintheiroffersand/or the way they create and integrate them in theproductrange.Thethemeofsurvival/growthraisestheproblem for established firms but provides a hugeopportunitytorebuildthenewrulesofthegame.

    To Demirbas (2010) SMEs hold an important role innational economies because of their number andengaged workforce. However, despite recognizing itsimportance, some keybarriers to innovation for SMEsprevent them to succeed in driving innovationprocesses.

    Therefore the world faces enormous challenges. Theimpactof the crisiswillextendover thenextyears. Ingeneral, themeasurement ofwelfare is based on theGrossDomesticProduct (GDP)percapita,andchangesinwelfarecanresultfromchangesinlaborproductivity(GDP per hour worked) and labor utilization (hoursworked per person employed). The erosion anddecelerationof laborproductivitygrowthperformance

  • II Conferncia Internacional de Integrao do Design, Engenharia e Gesto para inovao- IDEMi 2012 Florianpolis, SC, Brasil, 21-23, Outubro , 2012

    is already a precrisis (200708),whichmakes it evenmore imperative for countries to find new andsustainablesourcesofgrowth.

    Portugal follows the same trend. According to OECDstatistics on Productivity (2009), between 2001 and2007, GDP per capita grew, by about 0.3% annuallybetween2007and2008andabout()0.3%peryear.Itcould already be noticed, in labor productivity, from2001 to 2007 the growing at an annual rate of 1.1%,while from2007 to2008 itgrewbyabout ()1.4%peryear.More even, the use ofmanpower, at an annualdecrease of 1% between 2001 and 2007, and anincreaseof1%from2007to2008.Thisreadingsupportsand corroborates the existence of resourcesaccompaniedby a lowproductivitypromotedby theiruse.

    Undoubtedly,innovationisakeyrequiredforimprovingproductivity, growth and business sustainability.Giventhis environment, knowledge of the factors that liftinnovationisthekey.ThisstudyidentifiesandpresentsthebarrierstoinnovationperceivedandexperiencedbythePortuguesecompanieswhoparticipated.

    To Pinheiro (2002) organisations dealingwith change,uncertainty,instability,competitioninasystematicwayshould be alert to breaking barriers and stimulatingactions that maximize the opportunities for theemergenceofinnovations.

    According to Smith (2005), innovation is somethingnew. It'screatingsomethingnew throughprocessesoflearning or knowledge. MadridGuijarro, Garcia andAuken (2009) found that innovation is widelyrecognized as a key factor in the competitiveness ofnations and companies. Small businesses that do notembraceinnovationinitsbusinessstrategytaketheriskof becoming uncompetitive due to their obsoleteproducts and processes. Innovative companies are aprerequisite for a dynamic and competitive economy.For these authors, the importance of innovation ismounting as a result of increased globalcompetitiveness,reducedproductlifecycle,increaseofthe technological capacity of companies and rapidlychanging consumer requests. The study of innovationand innovativeattitudeofbusinesses isrelevant inthis

    context as a critical factor for the sustainability andsurvivalofbusinesses.Itbecomesevenmoreimportantnoticing the facts that prevent companies, even afterrecognizingthisneedtobeinnovative.

    Hadjimanolis (2003) claimed that there are factors orconstraints that inhibit innovation: barriers toinnovation. The study of the barriers to innovationfocusesontheproblemsthatcanoccurthroughoutthecomplex and delicate process of innovation. Thesefactors,whichplaceobstructionorinertiaininnovation,termed barriers to innovation, can arise for variousreasons. The identification and categorization isfundamental since itwillcreatemechanisms to reduceits existence, minimizing them, deleting them orconvertingthemintofacilitatorsofinnovation.

    For most authors their categorizations divide intointernal and external barriers (Piatier, 1984;Hadjimanolis,2003;MadridGuijarro,GarciaandAuken,2009;StanislawskyandOlczak,2010). Internalbarriersare those that arise inside the company and externalbarriers, those that arise from the externalenvironment. This classification is also assumed in thecourseofthisstudy.

    Piatier(1984)describesthelackofgovernmentsupportasan importantbarrier to innovation in theEuropeancountriesanalyzed.Thestudyconducted forAccentureby the Economist Intelligence Unit (2007) over apopulation of six hundred and one senior managersrevealed the following barriers to innovation: (1) thenecessities related to the frequency, timingand speedof innovation; (2) the organisational culturemutationandreducingtimetomarketasapermanentchallengein theassumptionof innovationobjectivesand (3) theChiefExecutiveOfficers(CEO)offullagehaveagreaterdeparturefromtheviewagainstthegoalsofinnovationand innovativecapacityoftheorganisation. Inadditionto this, evidence, pointedout the following additionalbarriers to innovation reported inorderof importance(higher to lowest importance within companiessurveyed). Firstly, theorganisation seeks to follow thecurrent line extensions rather than developing newbusiness models. Next, the organisation assigns toppriority to shortterm rather than longterminvestments. Furthermore, opportunities to explore

  • II Conferncia Internacional de Integrao do Design, Engenharia e Gesto para inovao- IDEMi 2012 Florianpolis, SC, Brasil, 21-23, Outubro , 2012

    untappedmarkets or areas die for lack of thosewhofoster. Additionally, the entity seeks for the next"chicken with golden eggs" rather than pursuing aportfolioofopportunities.And finally, theorganisationdoesnot include in the learningprocess thepasterrormodified due to a growing aversion to risk on newideas.

    Baraano (2005) revealed two barriers to innovationwhenconductedastudyonfivePortugueseSMEs.Thebarriersarethelackofqualifiedhumanresourcesandahugeabsenceofexternalcommunicationbetween theknowledge generators (Universities and InvestigationInstitutes).

    Janeiro (2009) sentenced that some Portuguese firmsface some obstacles. The crisis arrival and thedifficulties that followed itbroughtabout thequestiononwhyPortuguesefirmsreactsolate.Whydotheynotinnovate? As the author states, they deal with someinnovationbarriers,asdescribed:(1)theorganisationalstructure, as well as the climate; (2) the culture andstrategy resistance to change; (3) the tradition andcemented rules; (4) the market leadership and theabsence of rethinking on it; (5) the additional workbroughtby change,and finally, (6) theweek repayonriskassumption.Thesameauthorreinforcesthatthesebarriers are cognitive and are not materially ortechnologicallyevidenced.

    Fernandes, Noronha and Nicolas (2002), conducted astudy that related the localization and innovationdynamic of SMEs in Portugal. The main barriersacknowledged were the structure of the Portugueseentrepreneurial, the low formal investigation due topaucityonhumanandfinancialresources.

    Cardoso, LimaandCosta (2004),promoteda studyonorganisational barriers to the introduction of newtechnologies.Theresultsreportedinthatstudyshowedthat the leading opposition to new technologies isstructural in nature. So, innovation faces barriers notonly inside but outside the organisation. In otherswords,thecoststructureandalsotheconsumers.

    TheobservationofthePortuguesebusinesscommunityin order to understand the longevity of companiesallowed to establish the following barriers to

    innovation: (1) the high economic cost and riskassociatedwith innovation; (2) the lackof funding; (3)theorganisationalrigidity;(4)the lackofskilledhumanresources; (5) the lack of market information andtechnology; (6) thegovernment regulationand (7) theweakcapacity toapproach theclient (Silva,LeitoandRaposo,2007),aswellas the lackof cooperationwithcentersoflearning(Vieira,2007).

    According to Nabo (2008), innovation plays probablythemostrelevantplay, inthecontextofeconomicandsocialdevelopment.Portuguesecompaniesneedaboveall, a culture of sustained innovation.While this doesnothappen, they shouldnotbe surprised to find thatthemajorityofmanagersbelieve in the importanceofinnovation,butonly40%ofthempracticeit.

    The same study conducted by Strategos Iberica alsorevealedthat46.7%ofenterprisesrecognizethefutureimportance of innovation. For 40%, it is a survivancecondition,to12.6%ofthecompaniesitisimportantandonly0.7%referto itasnotbeingapriority investment.Insummary,thisstudydemonstratedtheneedtoworkto systematize innovation, namely to meet thechallengeofinnovationwithastructuredapproachthatallowsinnovationtohappen.Thebarrierstoinnovation,of greater expression, identified in the above studywere the focus in the short term, the lack of asystematic approach, the la...