master thesis - fernanda vilela

8/13/2019 Master Thesis - Fernanda Vilela

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CONTENTS

1 Introduction ................................................................................................ 114

1.1 Context ............................................................................................................ 161.2 Justification ..................................................................................................... 171.3 Objectives ....................................................................................................... 191.4 Research questions .......................................................................................... 191.5 Relevance of the study ..................................................................................... 211.6 Limitation of the research ................................................................................ 21

2 Theoretical Framework .............................................................................. 222.1 Brazilian micro, small and medium-sized companies ....................................... 222.1.1 Brazilian technology-based MSMEs ................................................................ 24

2.2

Support for technology-based MSMEs ............................................................ 26

2.2.1 Venture Capital ............................................................................................... 262.2.2 Venture Capital in Brazil ................................................................................. 292.3 Innovation Management .................................................................................. 302.3.1 Technological Innovation: concepts ................................................................. 30

2.3.2 Innovation process ........................................................................................... 322.3.3 Managing Innovation ....................................................................................... 372.3.4 Measuring Innovation Management ................................................................. 382.4 Market Orientation .......................................................................................... 41


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2.4.1 Definition of market orientation ....................................................................... 422.4.2 Measuring Market Orientation ......................................................................... 44

3 Methodology ............................................................................................... 483.1 Research design ............................................................................................... 48

3.2 Variables of the study ...................................................................................... 493.3 Methods of data collection ............................................................................... 50

4 Field research ............................................................................................. 514.1 Areas of the study ............................................................................................ 514.2 Target group and research sample .................................................................... 52

4.3 Research partners ............................................................................................ 524.4 Established contact .......................................................................................... 53

4.5

Encountered problems ..................................................................................... 53

5 Data analysis .............................................................................................. 545.1 Introduction ..................................................................................................... 54

5.2 Personal background information .................................................................... 555.3 Company information ...................................................................................... 58

5.4 Innovation Management .................................................................................. 605.4.1 Innovation strategy .......................................................................................... 60

5.4.2 Organization and culture .................................................................................. 765.4.3 Innovation life cycle management ................................................................... 93


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5.4.4 Enabling factors for innovation management ................................................. 1155.5 Market Orientation ........................................................................................ 126

5.5.1 Intelligence generation ................................................................................... 1265.5.2 Intelligence dissemination ............................................................................. 132

5.5.3 Responsiveness.............................................................................................. 1375.6 Firm performance .......................................................................................... 146

5.6.1 Innovation Management performance ............................................................ 1465.6.2 Market Orientation performance .................................................................... 160

6 Main results ................................................................................................ 1687 Conclusion ............................................................................................................179

References....................................................................................................... 190

Annex I ............................................................................................................ 197

Annex II .......................................................................................................... 208

Annex III ......................................................................................................... 211

Appendix A ...................................................................................................... 212


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LIST OF TABLES

Table 2.1: Examples of industrial firmsclassification according to their size.......... 22

Table 2.2: Base of definition IBGE/Sebrae............ 23

Table 2.3: Examples of innovation studies. 36

Table 2.4: Scales measuring Market(ing) orientation ... 44

Table 3.1: Variables of the study 50

Table 6.1: Main differences found between VC backed and Non supported firms ... 176

LIST OF FIGURES

Fig 2.1: Phases of the innovation process 34Fig 2.2: Actions concerning the Innovation Management 38Fig 2.3: A.T. Kearneys House of Innovation 39Fig 2.4: Status of SMEs on IMP3rove Platform 41Figure 5.2.1: Age of entrepreneur 55Figure 5.2.2: Age of entrepreneur X Category of respondents 55Figure 5.2.3: Sex of entrepreneur 56Figure 5.2.4: Sex of entrepreneur X Category of respondents 56Figure 5.2.5: Educational background 57Figure 5.2.6: Educational background X Category of respondents 57Figure 5.3.1: Number of employees 58Figure 5.3.2: Number of employees X Category of respondents 59Figure 5.3.3: Years in operation 59Figure 5.3.4: Years in operation X Category of respondents 60Figure 5.4.1: Visions attribute: documented for all staff to see 61Figure 5.4.2: Documented for all staff to see X Category of respondents 61

Figure 5.4.3: Visions attribute: clearly linked to innovation 62Figure 5.4.4: Visions attribute: well understood by customers and suppliers 62


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Figure 5.4.5: Well understood by customers and suppliers X Category of respondents 63Figure 5.4.6: Visions attribute: well understood by innovation partners 63Figure 5.4.7: Well understood by innovation partners X Category of respondents 64Figure 5.4.8: Innovation strategy 64

Figure 5.4.9: Innovation strategys attribute: result of the analysis of potentialbusiness opportunities activities 65Figure 5.4.10: Innovation strategys attribute: setting clear objectives for innovation

management activities65

Figure 5.4.11: Setting clear objectives for innovation management activities X

Category of respondents66

Figure 5.4.12: Innovation strategy s attribute: guide to the idea management 66Figure 5.4.13: Innovation strategys attribute: setting clear objectives for projectmanagement in each innovation project

67

Figure 5.4.14: Innovation strategys attribute: guide to the improvement of current

product/service or process development67

Figure 5.4.15: Innovation strategys attribute: basis for organizational changes andbusiness model development

68

Figure 5.4.16: Basis for organizational changes and business model development X


Figure 5.4.17: Innovation strategys attribute: Focused on the development of

innovation capabilities69

Figure 5.4.18: Innovation Strategy: degree of communication 69Figure 5.4.19: Degree of communication X Category of respondents 70Figure 5.4.20: Innovation Strategy: degree of understanding 70Figure 5.4.21: Degree of understanding X Category of respondents 71

Figure 5.4.22: Innovation Strategy: degree of implementation 71Figure 5.4.23: Degree of implementation X Category of respondents 72Figure 5.4.24: Innovation projects: alignment with innovation strategy 72Figure 5.4.25: Innovation projects: balance between incremental and radical

innovation73

Figure 5.4.26: Balance between incremental and radical innovation projects X


Figure 5.4.27: Innovation projects: balance with respect to risk and return 74Figure 5.4.28: Balance with respect to risk and return X Category of respondents 74Figure 5.4.29: Innovation projects: balance with respect to long and short-term

perspectives75

Figure 5.4.30: Balance with respect to long-term and short-term perspectives X


Figure 5.4.31: Innovation projects: balance between low and high costFigure 5.4.32: Balance between low and high cost X Category of respondents

76

Figure 5.4.33: Staff attitudes towards innovation: excited about innovation 77Figure 5.4.34: Staff attitudes towards innovation: open rather than skeptical towards

new ideas77

Figure 5.4.35: Staff attitudes towards innovation: able to think out-of-the box 78Figure 5.4.36: Able to think out-of-the box X Category of respondents 78


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Figure 5.4.37: Staff attitudes towards innovation: Imaginative 79Figure 5.4.38: Imaginative X Category of respondents 79Figure 5.4.39: Staff attitudes towards innovation: reluctant to try out new methods 80Figure 5.4.40: Reluctant to try out new methods X Category of respondents 80

Figure 5.4.41: Staff attitudes towards innovation: able to sell ideas internally 81Figure 5.4.42: Able to sell ideas internally X Category of respondents 81Figure 5.4.43: Staff attitudes towards innovation: Focusing on business impact 82Figure 5.4.44: Focusing on business impact X Category of respondents 82Figure 5.4.45: Capacity for innovation viewed by customers 83Figure 5.4.46: Capacity for innovation viewed by customers X Category of

respondents83

Figure 5.4.47: Capacity for innovation viewed by competitors 84Figure 5.4.48: Capacity for innovation viewed by competitors X Category ofrespondents

84

Figure 5.4.49: Capacity for innovation viewed by suppliers 85Figure 5.4.50:Capacity for innovation viewed by suppliers X Category ofrespondents

86

Figure 5.4.51: Capacity for innovation viewed by the entrepreneur 86Figure 5.4.52:Capacity for innovation viewed by the entrepreneur X Category of

respondents87

Figure 5.4.53: Degree of partnerships support and enhance: idea management

phase87

Figure 5.4.54: Support to the idea management phase X Category of respondents 88Figure 5.4.55: Degree of partnerships support and enhance: development phase 88Figure 5.4.56: Support to the development phase X Category of respondents

Figure 5.4.57: Degree of partnerships support and enhance: launch phase 89Figure 5.4.58: Support to the launch phase X Category of respondents 90Figure 5.4.59: Number of external partners participating in innovation projects 90Figure 5.4.60: Number of external partners participating in innovation projects XCategory of respondents

91

Figure 5.4.61: Number of external partners that have cooperated in the last 3 years 91Figure 5.4.62: Number of external partners that have cooperated in the last 3 years X


Figure 5.4.63: Number of people current working on innovation projects with

external partners92

Figure 5.4.64: Number of people current working on innovation projects withexternal partners X Category of respondents

93

Figure 5.4.65: Time for the most profitable from the development until

product/service on sale94

Figure 5.4.66: Time for the most profitable from the development until

product/service on sale X Category of respondents94

Figure 5.4.67: Time for the most profitable product/service from the projectauthorization until the breakeven point

95

Figure 5.4.68: Time for the most profitable product/service from the projectauthorization until the breakeven point

95


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Figure 5.4.69: Number of incremental innovation projects started in the last 4 years 96

Figure 5.4.70: Number of incremental innovation projects started in the last 4 yearsX Category of respondents

96

Figure 5.4.71: Number of incremental innovation projects that showed success withinthe last 4 years

97

Figure 5.4.72: Number of incremental innovation projects that showed success within

the last 4 years X Category of respondents97

Figure 5.4.73: Number of radical innovation projects started in the last 4 years 98Figure 5.4.74: Number of radical innovation projects started in the last 4 years X


Figure 5.4.75: Number of radical innovation projects that showed success within the

last 4 years99

Figure 5.4.76: Number of radical innovation projects that showed success within the

last 4 years99

Figure 5.4.77: Assessment of new ideas by an interdisciplinary team 100

Figure 5.4.78: Assessment of new ideas by an interdisciplinary team X Category ofrespondents

100

Figure 5.4.79: Assessment of new ideas by a set of predefined criteria applied to all

innovation projects101

Figure 5.4.80: Assessment of new ideas by a set of predefined criteria applied to all

innovation projects X Category of respondents101

Figure 5.4.81: Assessment of new ideas by criteria tailored per project 102Figure 5.4.82: Assessment of new ideas by criteria tailored per project X Category

of respondents102

Figure 5.4.83: Assessment of new ideas by criteria derived from innovation strategy 103

Figure 5.4.84: Assessment of new ideas by criteria derived from innovation strategyX Category of respondents 103

Figure 5.4.85: Provision of feedback to the suppliers 104Figure 5.4.86: Provision of feedback to the suppliers X Category of respondents 104Figure 5.4.87: Provision of feedback to the direct customers 105Figure 5.4.88: Provision of feedback to the indirect customers 105Figure 5.4.89: Provision of feedback to the indirect customers X Category of

respondents106

Figure 5.4.90: Provision of feedback to marketing and sales personnel 106Figure 5.4.91: Provision of feedback to product/service development personnel 107

Figure 5.4.92: Provision of feedback to research institutes and universities 107Figure 5.4.93: Provision of feedback to research institutes and universities X


Figure 5.4.94: Provision of feedback to experts on intellectual property rights 108Figure 5.4.95: Provision of feedback to experts on intellectual property rights X


Figure 5.4.96: Provision of feedback to network partners 109Figure 5.4.97: Formal system for generating and assessing ideas 110Figure 5.4.98: Formal system for generating and assessing ideas 110Figure 5.4.99: Percentage of generated ideas taken to the development stage 111


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Figure 5.4.100: Degree of formalization of development processes 111Figure 5.4.101: Percentage of innovation projects with well defined targets 112Figure 5.4.102: Percentage of innovation projects with well defined targets X


Figure 5.4.103: Percentage of innovation projects that met launch-specific targets 113Figure 5.4.104: Percentage of innovation projects that met launch-specific targets X


Figure 5.4.105: Frequency of customer data and feedback analysis 114Figure 5.4.106: Frequency of customer data and feedback analysis X Category of

respondents114

Figure 5.4.107: Definition of indicators to measure innovation activities 115Figure 5.4.108: Definition of indicators to measure innovation activities X Categoryof respondents

115

Figure 5.4.109: Incentives to stimulate innovation: extra money 116Figure 5.4.110: Incentives to stimulate innovation: extra money X Category of

respondents 116Figure 5.4.111: Incentives to stimulate innovation: direct recognition 117Figure 5.4.112: Incentives to stimulate innovation: direct recognition X Category of

respondents117

Figure 5.4.113: Incentives to stimulate innovation: innovation award 117

Figure 5.4.114: Incentives to stimulate innovation: permission to use companys

facilities for free to test own ideas118

Figure 5.4.115: Incentives to stimulate innovation: permission to use companys

facilities for free to test own ideas X Category of respondents118

Figure 5.4.116: Incentives to stimulate innovation: provision of administrative

support to get external fund119

Figure 5.4.117: Incentives to stimulate innovation: provision of administrative

support to get external fund X Category of respondents119

Figure 5.4.118: Number of patents generated within the last 5 years 120Figure 5.4.119: Number of patents generated within the last 5 years X Category of

respondents120

Figure 5.4.120: Number of patents turned into market success 121Figure 5.4.121: Number of patents turned into market success X Category of

respondents121

Figure 5.4.122: Percentage of innovation projects with defined targets 122Figure 5.4.123: Percentage of innovation projects with defined targets X Category

of respondents122

Figure 5.4.124: Percentage of innovation projects that met targets 123Figure 5.4.125: Percentage of innovation projects that met targets X Category of

respondents123

Figure 5.4.126: Partnership with universities or research institutes 124Figure 5.4.127: Partnership with universities or research institutes X Category of

respondents124


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Figure 5.4.128: Human research policy to stimulate staff qualification 125Figure 5.4.129: Human research policy to stimulate staff qualification X Category

of respondents125

Figure 5.5.1: Meeting with customers to find out future needs 126Figure 5.5.2: Meeting with customers to find out future needs X Category of

respondents 126Figure 5.5.3: In-house market research 127Figure 5.5.4: In-house market research X Category of respondents 127

Figure 5.5.5: Detection of changes in customers preferences 128Figure 5.5.6: Detection of changes in customers preferences X Category of

respondents128

Figure 5.5.7: Poll of end users to assess the quality of products and services 129Figure 5.5.8: Poll of end users to assess the quality of products and services X


Figure 5.5.9: Detection of fundamental shifts in the industry 130Figure 5.5.10: Detection of fundamental shifts in the industry X Category of

respondents130

Figure 5.5.11: Review of the likely effect of changes in business environment on

customers131

Figure 5.5.12: Review of the likely effect of changes in business environment on

customers X Category of respondents131

Figure 5.5.13: Interdepartmental meetings to discuss marketing trends and

development132

Figure 5.5.14: Interdepartmental meetings to discuss marketing trends and

development X Category of respondents132

Figure 5.5.15: Discussion of customers future needs between marketing personneland other departments 133

Figure 5.5.16: Discussion of customers future needs between marketing personnel

and other departments X Category of respondents133

Figure 5.5.17: Disseminationof information about important events with customers 134Figure 5.5.18: Disseminationof information about important events with customers

X Category of respondents134

Figure 5.5.19: Sharing of data on customer satisfaction at all levels in the firm 135Figure 5.5.20: Sharing of data on customer satisfaction at all levels in the firm X


Figure 5.5.21: Disseminationof information about competitors 136Figure 5.5.22: Dissemination of information about competitors X Category ofrespondents

136

Figure 5.5.23: Time to respond to competitors price changes 137Figure 5.5.24: Time to respond to competitors price changes X Category of

respondents137

Figure 5.5.25: Tendency to ignore changes in customers product/service needs 138Figure 5.5.26: Tendency to ignore changes in customers product/service needs X


Figure 5.5.27: Review of product development efforts to be in line with what 139


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Figure 5.6.19: Reduction in operational costs attributed to process innovation XCategory of respondents

155

Figure 5.6.20:Growth driver with highest impact on profit growth over the last 4

years155

Figure 5.6.21: Growth driver with highest impact on profit growth over the last 4

years X Category of respondents 156Figure 5.6.22: Number of people employed over the last 4 years 156Figure 5.6.23: Number of people employed over the last 4 years X Category of

respondents157

Figure 5.6.24: Current impact of innovation management on business success 157Figure 5.6.25: Current impact of innovation management on business success X


Figure 5.6.26: Future impact of innovation management on business success 158Figure 5.6.27: Future impact of innovation management on business success XCategory of respondents

159

Figure 5.6.28: Degree of current innovation management performance improvement 159Figure 5.6.29: Degree of current innovation management performance improvement

X Category of respondents160

Figure 5.6.30: Firms market share growth in primary market 160Figure 5.6.31: Firms market share growth in primary market X Category of

respondents161

Figure 5.6.32: Firms sales growth 161Figure 5.6.33: Firms sales growth X Category of respondents 162Figure 5.6.34: Firms success in achieving customer satisfaction 162Figure 5.6.35: Firms success in achieving customer satisfaction X Category of

respondents163

Figure 5.6.36: Firms success in retaining current customers 163Figure 5.6.37: Firms success in retaining current customers X Category of

respondents164

Figure 5.6.38: Firms success in attracting new customers 164Figure 5.6.39: Firms success in attracting new customers X Category of respondents 165Figure 5.6.40: Firms success in building a positive image 165Figure 5.6.41: Firms success in building a positive image X Category of respondents 166Figure 5.6.42: Time to market 166Figure 5.6.43: Time to market X Category of respondents 167


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LIST OF ABBREVIATIONS

MSMEs - Micro, small and medium-sized enterprises

IBGE - Brazilian Institute of Geography and Statistics

IPEA - Institute of Applied Economic Research IPEA

PDP - Productive Development Policy

FINEP - Brazilian Research Project Financing Institution

CNPq - National Research Conseul

SEBRAE - Brazilian Service to Support Micro and Small Enterprises

BNDES - National Bank of Economic and Social Development

RAIS - Annual Social Information

R&DResearch and Development

VC - Venture Capital

GDP - Gross Domestic Product


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ACKNOWLEDGEMENT

I give my heartfelt thanks to my supervisor Prof. Utz Dornberger, who gave me great

support to do this thesis.I am grateful to the Deutscher Akademischer Austausch Dienst German Academic

Exchange Service (DAAD) for granting me the scholarship to take part in this master

course.

I also confirm the support of the Center for Studies and Research in Entrepreneurship,

Innovation and Venture Capital from the Catholic University of Rio de Janeiro (NEP

Genesis). I am particularly grateful to Prof. Jose Antonio Pimenta Bueno for the

assistance, useful information and contacts available to complete my thesis.I would like to thank all the people, firms, and other organizations, who have assisted

me in their own capacities in during the different phases of this research.

I also would like to thank my classmates and friends, in special Javier Changoluisa who

has always supported and encouraged me during my time in Germany.

My special thanks to my husband and my family. Their love, support, and

encouragement are the most precious things for me.


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ABSTRACT

This work aims to contribute with the understanding about the level of Innovation

Management and Market Orientation in Brazilian technology-based MSMEs. In order to

reach the levels of usage of both Innovation Management and Market Orientation

practiced by Brazilian technology-based firms and the performance levels attained by

such firms, a field research was carried out in Brazil to collect primary data through

structured interviews. For doing this, survey instruments were used as the basis for

structured interviews structured interviews personally conducted with the entrepreneurs

form the target firms. More specifically, the IMP rove Assessment tool, developed by

A.T. Kearney and supported by the European Commission under the Europe INNOVA

Initiative, was the basis to gauge Innovation Management practices of firms. TheMARKOR scale was the basis applied to gauge Market Orientation information.

Personal background information and company information were also included. At the

end, an overview about the behavior of the Brazilian technology-based firms with

respect to each dimension of Innovation Management and Market Orientation was

available. It was also possible to highlight the main differences presented between VC-

backed firms and Non-supported firms, emphasizing those differences that were

profound or classified through chi-squares tests as statistically significant. Asconclusions, the research results have revealed that, in general, Brazilian technology-

based MSMEs are practicing each dimension of Innovation Management to a different

level, with the Enabling factors for innovation managementpracticed at the highest

level among all. Market Orientation has been practiced slightly well by these firms, with

de component Responsivenesseffectuated as the best. The main weaknesses showed

by Brazilian technology-based firms can be addressed to activities related to:

implementation and idea management and launch phases, regarding to InnovationManagement; and dissemination and marketing issues, regarding to Marketing

Orientation. Comparing the two groups of firms, Non-supportedfirmsare performing

better the dimensionsInnovation strategy, Enabling factors and Responsiveness, while

VC-backed firms Innovation Life Cycle Management, Intelligence generation and

Intelligence dissemination. The results presented in the performance of the two groups

of firms reflect these differences.


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1 Introduction

1.1 Context

Micro, small and medium-sized enterprises (MSMEs) have been for a long time thesubject of attention from economic analysts because of their potential for income

generation and employment (La Rovere, 2001) and, more recently, for their role in the

reduction of regional inequalities.

Statistics about the importance of industrial MSMEs in Brazil, according to data from

2005 of the Brazilian Institute of Geography and Statistics (IBGE)1, show that they

account for 99% of the total number of companies in Brazil and are responsible for 56%

of formal employment, generating around 24% of the gross value of the industrial

production.

A study hold by the Institute of Applied Economic Research (IPEA) (De Negri and

Salerno, 2005), involving 72,000 industrial enterprises which account for about 95% of

Brazilian industrial production, showed that companies that innovate and differentiate

products generate higher quality jobs, employing better skilled workforce, better paid

and more stable employment. Innovate and differentiate products allow companies to

export more value-added products, obtaining price premium on its exports.

Besides, research in administration confirms that innovative firms outperform their

competitors in terms of market share, profitability, growth or market capitalization

(Garvin, 1991).

In this new economy, a private group of companies has been increasing due to its

important contribution to economic growth and job creation the technology-based

MSMEs. In fact, the sector where the company operates has an important role in the

process of technological innovation: in the higher technological content sectors there are

more opportunities for individual and collective innovations, while in those with a low

content these opportunities have been more restricted (IBGE, 2007).

1 All the acronyms used in this work are referent to the names in Portuguese, excepted by MSMEs.


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A comparative analysis of the innovation rates between the Brazilian technology-based

MSMEs and the universe of Brazilian industrial companies shows that the rates of

innovation displayed by the technology-based MSMEs are almost twice (7.2% and

9.9% respectively in the periods 2001-2003 and 2003-2005) of that displayed by theuniverse of Brazilian industrial companies (Vilela, 2009).

Conscious about the importance of technology-based MSMEs, the Brazilian

Government in the context of the PDP (Productive Development Policy) is focusing on

the support of these companies. The perception that MSMEs based on innovative

technology couldnt find adequate mechanisms to finance their growth in the traditional

credit system lead FINEP - a public company with ties to the Ministry of Science and

Technology- to support this start ups together with entities such as CNPq (National

Research Conseul), SEBRAE (Brazilian Service to Support Micro and Small

Enterprises) and BNDES (National Bank of Economic and Social Development) filling

the gap in financing for technology-based companies.

But besides financial support many Brazilian technology-based start-ups face different

problems such as entering in the market, expanding the market, sales difficulties, among

others.

1.2 Justification

The choice of technology-based MSMEs as an object of study can be justified by two

arguments: (i) related to economic order - encouraging the creation of MSMEs is seen

as one of the alternatives to the high rates of unemployment and economic stagnation

(Lundstrom and Stevenson, 2002) and (ii) related to technological development, which

highlights the growing importance of MSMEs in the process of generation and

dissemination of technological innovations (Rothwell and Zegveld, 1982, ACS and

Audretsch, 1990). For the complementary character of these two arguments, scholars

(De Negri and Salerno, 2005) state that companies which innovate are different from

their competitors, as well as more productive, have higher market shares, pay better

wages and export more. In particular, the technology-based MSMEs differ significantly


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from MSMEs in general when it comes to efforts to innovate (Fernandes and Cortes,

1999; Fernandes, Cortes and Oishi, 2000, Fernandes et al., 2000).

Despite the different efforts started so far Brazilian technology-based MSMEs face

difficulties of implementation. These difficulties can be approached by the fact that,

traditionally, technological innovation appears to have been largely bypassed in

defining the management structures of high-technology companies. Most companies

build their structures around the traditional functions of finance, marketing, production,

human resources and R&D (Pavitt et al., 2005).

In fact, technology-based MSMEs are very particular companies that need to encompass

all the activities which contribute to the commercially successful outcome of theinnovation process (Martin, 1994). This includes innovation managementand market

orientation.

A study developed by A.T. Kearney (Engel et al, 2007) shows that companies that

have begun to approach innovation management in a more systematic way have

achieved significantly higher success rates in terms of transforming ideas into

marketable products and realizing successful innovation commercialization.

But innovation management is difficult and risky: the majority of new technologies is

not enough to make up products and services, and most new products and services is not

a commercial success (Pavitt et al, 2005). Because of this, research on innovation has

long stressed the importance of understanding user needs when developing new

products (Cooper and Kleinschmidt, 1993).

According to scholars (Pelham and Wilson, 1996), market orientation is significantly

and positively correlated with the previous year's level of use ofinnovation/differentiation strategy. A high level of market orientation does seem to

offer the small firm a strong source of competitive advantage and performance viability.

Market orientation coupled with formalization and an innovation/differentiation

strategy, positively affects new product success, which in turn influences growth/share

(Pelham and Wilson, 1996).


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To these factors that motivated the choice of research topic can be added the fact that

available studies on Brazilian technology-based MSMEs focus on topics such as

technology-transfer, intellectual property, cooperation with universities, local

productive arrangements and funding sources for innovation. There is a lack ofempirical studies related to the Innovation Management and Market Orientation in

technology-based MSMEs in Brazil.

1.3 Objectives

The main objective of this research is to gain further understanding about the level of

Innovation Management and Market Orientation in Brazilian technology-based

MSMEs.

As secondary objectives, this research aims to investigate whether there are: (1)

differences in the level of such practices between firms supported and not supported by

Venture Capital and (2) distinction in firm performance between companies with

different levels of such practices.

1.4 Research Questions

In order to reach a target is important to know the way to go. In this case, high levels of

innovation management and market orientation can be achieved by isolating problems

and addressing these deficiencies in future intervention efforts. For doing this is

essential to know from where to start: to establish a base line level of innovation

management and market orientation.

So, To what level is Innovation Management and Market Orientation practiced by

Brazilian technology-based MSMEs? is a question that should be answered.

In order to get data for answering the major research question, more specific questions

are formulated:


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Q1To what level is Innovation Management practiced by the firms?

Q 1.1To what level is Innovation Strategypracticed by the firms?

Q 1.2To what level is Organization and Culturepracticed by the firms?

Q 1.3To what level is Innovation Life Cycle Managementpracticed by the firms?

Q2 - To what level is Market Orientation practiced by the firms?

Q 2.1 - To what level is Intelligence generation practiced by the firms?

Q 2.2 - To what level is Intelligence dissemination practiced by the firms?

Q 2.3 - To what level is Responsiveness practiced by the firms?

Q3 - How is the performance of these firms?

Q 3.1 - How is the Innovation Management performance of these firms?

Q 3.2 - How is the Market Orientation performance of these firms?

Secondary research questions are formulated based on the secondary objectives oh this

research:

Q4- Are there differences in the level of Innovation Management between VC-backed

and Non-supported firms?

Q5- Are there differences in the level of Market Orientation between VC-backed and

Non-supported firms?

Q6Are there distinction in Innovation Management performance between VC-backed

and Non-supported firms?

Q7- Are there distinction in Market Orientation performance between VC-backed and

Non-supported firms?


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1.5 Relevance of the study

The overall results of the study should:

- Contribute to the framework of studies related to Brazilian technology-basedMSMEs in an still restricted area of knowledge;

- Provide significant subsidies for the formulation of policies in support of

Brazilian technology-based firms;

- Provide information to the firms that allow them: 1) to establish a base line level

of innovation management and market orientation and 2) to isolate problems and

address these deficiencies in future intervention efforts.

1.6 Limitation of the research

Because of limited time and financial resource, this research only focuses on 30

technology-based companies located in 5 different Brazilian states. So, the limitation of

this study is geographical location and small scale of the sample. From that point, the

result of this study can not give an overall picture of the level of innovation

management and market orientation in Brazilian technology-based MSMEs. But it does

not prevent fulfilling the objective of this research, which is gain further understanding

about the level of Innovation Management and Market Orientation in Brazilian

technology-based MSMEs.


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2. Theoretical Framework

2.1 Brazilian micro, small and medium-sized firms

The concept of MSMEs constitutes an important element in the formulation of public

policies aimed at economic development (Filion, 1991). Despite this, there is no single

universally accepted criteria for the classification of MSMEs. Different organizations

classify companies according to different concepts to meet specific purposes.

Different criteria are therefore used in Brazil to establish the classification of MSMEs.

For example, the simplified system of taxation (SIMPLES) adopts the criterion of gross

revenue as required under the Act 11307/0622, which provides that micro enterprise is

one whose annual revenue is less than or equal to R$ 240 thousand3and small enterprise

is one whose annual revenue is between R$ 240 thousand and R$ 2.4 million.

The Brazilian Service to Support Micro and Small Enterprises (Sebrae) and the National

Bank of Economic and Social Development (BNDES) adopt different concepts for the

classification of micro and small enterprises for the purpose of promotion. The first

follows the criteria of the Statute of Micro and Small Companies, based on the number

of employees and annual sales, while the second is based on gross operating revenues,as shown in Table 2.1.

Table 2.1 -Examples of industrial firmsclassification according to their size

Sebrae BNDES

Micro

- Up to 19 employees- Annual revenue up to BRL 244thousand

- Gross operating revenue (annual orannualized) up to BRL 1.2 million

Small

- Up to 99 employees- Annual revenue up to BRL 1.2million

- Gross operating revenue (annual orannualized) over BRL 1.2 million andless than BRL 10.5 million

2 Available at: http://www.jusbrasil.com.br/legislacao/95780/lei-11307-06

3 USD 1.00 = BRL1.80


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Medium ------------ - Gross operating revenue (annual orannualized) over BRL 10.5 millionand less than BRL 60 million

Large ----------- - Gross operating revenue (annual or

annualized) over BRL 60 millionSources: Sebrae and BNDES4

In addition to the definition used for purposes of promotion, Sebrae adopted for

study and research (eg: surveys on the presence of micro and small enterprises in the

Brazilian economy) the concept of "employed persons"5in business, in accordance with

the IBGE criterion, as shown below:

Table 2.2- Base of definition IBGE/Sebrae

Firm size Industry Services

Micro up to 19 employees up to 09 employees

Small from 20 to 99 employees from 10 to 49 employees

Medium from 100 to 499 employees from 50 to 99 employees

Sources: IBGE and Sebrae

The concept of MSMEs proposed by IBGE/Sebrae serve the purposes of this research

given that: (i) ranks the medium enterprise without the need to consider the annual

revenue, (ii) is used by the IBGE in order to produce Nationwide statistical studies, (iii)

is used by Sebrae to operationalize its interventions at the micro and small enterprises

and to accomplish its studies, and (iv) uses the number of employed persons, which

tends to be an easier information to access (available on the RAIS in the Ministry of

Labor and Employment

6

) than the revenue.

4 Available at http://www.sebrae.com.br and http://www.bndes.gov.br5 The concept of "employed persons" does not include only employees but also the owners. Thisconcept does not differentiate the links between people working and businesses.6 RAIS - Annual Social Information, available at http://www.mte.gov.br/rais/default.asp
http://www.sebrae.com.br/http://www.sebrae.com.br/


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2.1.1 Brazilian technology-based MSMEs

There is also not a world consensus on the concept of technology-based companies.

Starting with the name as known in the United States and Europe, particularly in the

United Kingdom, NBTFs, which differs from "new technology-based companies" and"companies based on new technologies".

According to scholars (Rickne et al., 1999), a definition for NBTFs would be "a

company whose strength and competitive advantage derived from the expertise of its

members in the natural sciences, engineering or medicine, and the subsequent

transformation of this know-how into products or services to a market". NTBFs are said

to operate in innovative and technology-intensive industries such as electronic

engineering, computer science, physics engineering, industrial economics, chemical

engineering, mechanical engineering, civil engineering and medicine. These industries

are relatively homogeneous in terms of rapid technological changes, innovation of

product, entrepreneurship, environmental uncertainty and high levels of competition

(Karagozoglu et al, 1998, Preece et al, 1998).

Some key characteristics of NTBFs, identified by the Bank of England (Bank of

England, 2001 apud Kiederich, 2007), are: (i) the value of NTBFs is dependent on thelong-term potential growth, which is derived from the amount and quality of scientific

knowledge and intellectual property that they have, (ii) at the beginning, the NTBFs

lack of tangible assets that can be used as collateral, (iii) initially, the products

developed by NTBFs have little or no track record, in majority have not yet been tested

in the market and are usually subject to high rates of obsolescence.

Brazilian studies (Carvalho et al, 1998) identified as EBT (acronym in Portuguese for

technology-based companies) the enterprises engaged in the design, development and

production of new products or processes, also characterized by the systematic

application of technical and scientific knowledge (applied science and engineering).

According to Marcovitch et al (1986), high-tech companies "are those created to make

products or services using high-tech." Analysing the definition originally proposed by

these authors, Iron and Torkomian (1988) suggest individualize with this concept those


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companies that "have the rare or unique expertise in terms of products or processes that

are commercially viable, that incorporate high level of scientific knowledge". Stefanuto

(1993), in turn, proposes to consider EBT those national companies that, in each

country, are among the technological frontier of its sector.

According to Fernandes et al (2004), if a profile of Brazilian technology-based MSMEs

could be set, a starting point would be to consider the historical and geographical

constraints to which they are exposed. This means recognizing the limits that these

companies face in access to knowledge, markets and credit at a particular time, under

the constraints of a given macroeconomic environment. Such limits are set in the

context of a national innovation system less dynamic than that in which operate their

American, European or Japanese competitors on the one hand, and a macroeconomic

environment of restricted associations between financial capital and productive capital

on the other.

For these authors, this assumption necessarily requires the translation of the

understanding of the concept of technology-based company used in developed

countries for the specific conditions of a developing country. Thus, Fernandes et al

(2004) suggest that there should be a differentiation between modernized and

technology-based companies. According to these scholars, "the strategically critical

character that technology has for this group of companies indicates that their innovative

effort should be guided not exactly to the technological modernization of the production

process, but essentially to the product characteristics: technology-based company

introduces new products that reflect new technologies developed by the company,

whether or not in partnership with other companies or research centers" (Fernandes et

al, 2004). Moreover, the authors add that this product must be in the market and be

economically viable, or is it just an invention, an applied scientific knowledge.


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2.2 Support for technology-based MSMEs

Micro, small and medium-sized enterprises find many difficulties to leverage due to

lack of financial resources. When these organizations turn to banks, they face

difficulties due to poor billing history and the low liquidity of its assets that normally

are pledged as security (Pavani, 2003).

A significant difference between technology-based firms and other enterprises is that,

generally, there is not a marketable product either before or shortly after its formation.

Because of this, the initial financing of the company can not be based on the cash flow

of its anticipated sales (Pavitt et al, 2005).

In this case, technology-based MSMEs need to find other sources of capital. The types

of capital are aimed at businesses with different stages of development and degree of

risk. The higher the business risk, the greater the potential for growth and enhanced

financial returns required by investors. The investment funds seeking opportunities in

startups and early-stage companies are the seed capitaland venture capital.

Seed Capital and Venture Capital (VC) are presented as a viable alternative for

technology-based SMEs because the investor bet in these companies believing on thegrowth potential of these organizations, sharing the risk with the entrepreneur, seeing

gains with good pay, tied to distribution of profits, dividends from the company and the

effective return of capital (Pavani, 2003).

2.2.1 Venture Capital

Venture capital promotes funding for small company in exchange for part of the

organization through the acquisition, aiming thus the rapid rise and high profitability.

Venture capital sees high returns with big returns in excess of other assets available in

the market (Soledade et al, 1997).

In the process of traditional venture capital, the three main entities involved are: i)

institutional investors such as pension funds, individual capitalists, corporations and


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insurance companies, ii) the entrepreneur it receives and makes use of resources, and iii)

agents or agencies intermediary, the venture capital firms, which usually identify, select,

monitor and operationalize investment, and raise additional funds to companies

(Brophy, 1996).

The main idea is that venture capitalists appear because they develop specialized skills

in selecting and monitoring projects. They are financial intermediaries with a

comparative advantage in environments where there is information asymmetry. Based

on this approach, Amit et alli (1998) suggest that venture capitalists act in environments

in which their relative efficiency in selecting and monitoring investment give them a

comparative advantage over other investors.

Due to its peculiarities, venture capital has great synergy with small technology-based

companies. There is evidence that support through venture capital means that young

companies grow faster, create more value and generate more employment than other

firms (Gorgulho, 1996). According to empirical researches (Keuschnigg, 2004),

companies backed by venture capital pursue more radical innovations and more

aggressive marketing strategies.

It is often claimed in the entrepreneurship literature that the human capital ofentrepreneurs and the (financial and non-financial) support provided by venture capital

(VC) investors are key drivers of the growth of high-tech start-ups.

A limited number of prior studies have analyzed the relationship between VC backing

and firm growth, providing mixed evidence. Hellmann and Puri (2000) examined a

stratified random sample of 149 VC and non-VC backed firms in Silicon Valley during

the period 19941997 and found that VC backed firms, especially innovators, had a

faster time to market. Manigart and Van Hyfte (1999) find that VC backed firms havehigher asset growth than non-VC backed firms in Belgium. Engel and Keilbach (2007)

use propensity score matching to identify a control sample of non-VC backed firms in

Germany and find that VC backed firms generate faster employment growth. In

contrast, Burgel et al. (2000) find that VC backing has no impact on the growth of firms

in Germany and the UK. Other studies of the growth of VC and non-VC backed firms

that went to IPO also show mixed results, with Jain and Kini (1995) and Audretsch and


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Lehmann (2004) finding positive effects of VC on growth, while Bottazzi and Da Rin

(2002) find no effect.

Important problems with these studies include their often cross-sectional nature and a

typical failure to address the issue of endogeneity in VC backing. Bertoni et al. (2008)using a 10 year panel study of 550 Italian high-tech start-ups show that VC backing,

especially by financial VCs rather than corporate VCs, strongly spurs employment and

sales revenue growth. A Spanish study of firms by Alemany and Marti (2005) using

panel data analysis of VC-backed start-ups shows that both VC backing and its amount

are associated with higher performance. Davila et al. (2003) show that VC backed firms

have faster employment growth.

Interestingly, the interdependence between VC investments and entrepreneurs human

capital has gone almost unremarked in the literature. Colombo and Grilli (2008) is an

exception. They examine the influence of the human capital characteristics of founders

on the growth of VC backed and non-VC backed high-tech start-ups. Using a sample of

439 Italian firms and after controlling for survivor bias and the endogeneity of VC

funding, they find that once a firm receives VC backing the role of founders skills

becomes less important in contributing to firm growth. This result points to the

importance of the coaching function performed by VC investors in enhancing theperformance of portfolio firms.

In addition to VC investors, technology-based firms may receive a positive contribution

to growth from interaction with other institutions. Among them, universities play an

important role. Colombo et al. (2009) analyze empirically under which circumstances

the universities located in a geographical area contribute to the growth of a special

category of local high tech start-ups, those established by academic personnel (academic

start-ups, ASUs). They examine the effects of a series of characteristics of localuniversities on the growth rates of ASUs and compare them with the effects of the same

university characteristics on the growth of other (i.e. non-academic) high-tech start-ups.

They find that universities do influence the growth rates of local ASUs, while the

effects on the growth rates of other start-ups are negligible.


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2.2.2 Venture Capital in Brazil

In Brazil, the activities of venture capital were institutionalized in the late '90s, after the

stabilization of the currency. Brazilian Venture Capital industry is an enormously

dynamic industry, whose committed capital grew 50% per year between 2005 and 2008,which invested USD 11 billion, maintains 482 portfolio companies, and doubled its

participation in GDP over this period7. In addition, 71% of the VC organizations expect

to raise funds in the next years totalizing USD 20.9 billion. There is a considerable

volume of business in Venture Capital with the greatest emphasis on the Early Stage

(17%). This denotes an important concentration on the initial and intermediate stages of

entrepreneurial development guaranteeing the consolidation of the links that permit

sustained industry growth over the long term.

In particular, the Brazilian Development Bank (BNDES) has made invested in 33

different investment vehicles, including Private Equity, Venture Capital, PIPE and

Mezzanine investments, totalizing BRL 1.5 billion in capital commitments by the bank

(on average 20% of all vehicles), of which approximately BRL 0.6 billion has already

been invested.

In 2007, BNDES launched a program to support seed capital called CRIATEC. Bornfrom the BNDES initiative with a budget of BRL 80 million and managed by a

consortium formed between Antera Gesto de Recursos S.A. e Instituto Inovao S.A.,

Criatec is a seed capital fund destinated to innovative startup companies. With

investments of up to BRL 1.5 million, Criatec makes the allocation of resources in the

company in exchange for equity participation. Besides investment, Criatec actively

participates in the management of companies, providing strategic and managerial

support to entrepreneurs, helping in the selection and training of staff, setting targetsand track results8.

7 Overview of the Brazilian Private Equity and Venture Capital Industry, Research Report December

2008.

8Information available at: www.fundocriatec.com.br


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2.3 Innovation Management

The literature has emphasized the central role of innovation in knowledge-based

economy. At the macro level, reports a significant body of evidence that innovation is

the dominant factor in national economic growth and patterns of international trade. At

company level, experts point out that research and development (R&D) are perceived as

the factor of greatest capacity to absorb and use new knowledge of all kinds, making

innovative companies more productive and more successful than those that do not

invest in the generation of innovations (OECD, 2004).

Nowadays, it would be difficult to find someone willing to argue against the view that

innovation is important and tends to be increasingly important in coming years. Butthere are still questions about the possibility to manage the complex and fraught with

uncertainty innovation process.

The answers to such questions may be based in the fact that despite the apparently

random and uncertain nature of the innovation process it is possible to find a basic

pattern of success. Not every process fails, and even in case of failure, some companies

seem to have learned how to treat it and manage it in order to take advantage in favor of

an effective innovation process. (Pavitt et al, 2005). In this sense, the term management

is not used in this work towards the creation and implementation of complex and

predictable mechanisms, but to create conditions within a company to facilitate the

effective resolution of multiple challenges in high indices of uncertainty.

2.3.1 Technological Innovation: concepts

According to Schumpeter (1934), the concept of innovation encompasses five distinct

types: (i) introduction of new products that may be new to consumers, or new items to

match the quality of an existing product, (ii) introduction of new production methods,

which have not been tested in the companys field of business, that is not necessarily a

scientific discovery, (iii) opening new markets, where other companies in the same line

of business have not yet entered, and such markets have existed before or not, (iv)


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development of new sources providers of raw materials and other inputs, (v)

establishment of a new industrial organization, either by creating a monopoly or by

fragmentation of a monopoly.

The concept of "technological innovation" by the Oslo Manual, in its third edition, is

"the implementation of a product (or service) new or significantly improved, or a

process or a new marketing method, or a new organizational method in business

practices, the organization of the workplace or external relations" (OECD, 2004, p.55).

Regarding to this concept, there are four types of innovation: product, process,

marketing and organizational. This classification has the highest possible degree of

continuity with the previous definition of product and process innovation used in the

second edition of the Oslo Manual: "technological product or process (TPP -

Technological Product and Process) will cover deployments of products or processes

technologically new and substantial technological improvements in products and

processes" (OECD, 1997). In order to consider a TPP innovation implemented it is

necessary that this have entered the market (product innovation) or used in the

production process (process innovation).

The general concept of innovation used in the second edition of the Oslo Manual refers

to product or process that is new or substantially improved for the company, not

necessarily new to the market or industry in which it operates. Within a more rigorous

analytical perspective, Schumpeterian, should not be considered as such innovations the

products and processes that are only new for the companies in which they were

introduced. These products and processes should be classified as technological diffusion

and absorption of innovations.

Having as a research object the technology-based MSMEs, this work adopts the morestringent concept of innovation: the product (or service) technologically new or

significantly improved for the domestic market and/or processes that are technologically

new or significantly improved for a particular industry". When compared to the generic

concept, this definition has a higher meaning in their impact in terms of gains in

competitiveness and accumulation of technological capabilities for technology-based

MSMEs that introduced them.


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2.3.2 Innovation process

The importance of understanding the innovation as a process is that this knowledge

shapes the way that it is experienced (Pavitt et al, 2005).

This changed a lot over time. Early models viewed innovation as a linear sequence of

activities. The linear model, which emerged from the end of the second world war,

dominated the thinking about innovation in C & T for about three decades (Bush, 1945,

apud Earl and Arajo-Jorge, 2003). In this model, development, production and

commercialization of new technologies are seen as a sequence of well defined steps: (i)

scientific research that could lead to processes of invention, (ii) applied research, (iii)

experimental development, (iv) production, (v) introduction of marketable products andprocesses (OECD, 1992). This could be because new opportunities arising as the result

of research has resulted in applications and refinements that eventually find their way

into the market (technology push), or because the market signaled needs of something

new that was originated through new solutions to the old problem (market pull).

The linear innovation approaches rely on two theoretical frameworks: (i) the classical

theories, which treat innovation mechanistically from endogenous variables to

businesses and as a product of their internal processes, (ii) the neoclassical theories,

which try to incorporate the external forces and assign technical change to external

factors (Ebner, 2000; Jackson, 1999 apud Conde and Araujo-Jorge, 2003).

The limitations of the linear model were perceived by the finding that investments in

R&D does not automatically lead to technological development, nor to the economic

success of technology use. The limitations of this approach are clear: in practice

innovation is a combinatorial process in which interaction is the critical element

(Coombs et al, 1985; Von Hippel, 1988; Freeman, 1997). This perception reinforced the

emergence of non-linear or interactive approaches.

From the 1980s, the interactive model (chain-link model) proposed by Kline and

Rosenberg (1986) became the model that was opposed to the linear model. Its design

combines the interactions in the internal environment of business and those between


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individual enterprises and the system of science and technology more widely in which

they operate.

In recent decades, the analysis of interactions between the different actors of innovation

processes has become the focal point of many theoretical and empirical studies in the

field of economics of innovation (Nelson and Winter, 1982; Dosi, 1988; Lundvall,

1988). These approaches (evolutionary or neo-Schumpeterian) recognize the importance

of R&D in the innovation process and emphasize the central position occupied by

companies in developing new technologies.

Nelson & Winter (1982) consider the innovation as a process through which knowledge

and technology are developed based on the interaction between various actors andfactors. According to these authors, the market demand and marketing opportunities

have an influence in the products to be developed and the technologies that will be

successful (Meirelles, 2008).

Evolutionary approaches imply a view of business organizations as collective and

interactive learning, providing technological and individuals trajectories. From this

perspective, organizational and learning factors (learning-by-doing) have great

prominence and innovation process involves a series of scientific, technological,

organizational, financial and trade activities. The central feature of the innovation

process in interactive models is the existence of learning cycles between research,

production and marketing activities.

Based on the evolutionary approach, the following simplified model illustrates the

Innovation process:


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Fig 2.1 - Phases of the innovation process

Source: Adapted from Pavitt et al , 2005

Fig 2.1 shows that the innovation process can be simplified in the following phases:

Search - The innovation process begins with a survey of several indications of

opportunities. These may be related to technology, market, competitive behavior,

changes in policy or regulatory environment, new social trends etc. and can come from

inside or outside the company.

Select - Explore the environment leads to the identification of a broad spectrum of

potential targets for innovation, however, even the best-equipped companies have to

strike a balance as to what to explore and to leave aside.

The task of making innovation happen - evolving from a simple idea to create

successful products, services and processes - is essentially tied to a gradual process of

reducing the uncertainty, going from the phases of search and selection to the

implementation (Pavitt et al, 2005).

Implement - The implementation phase can be seen as the phase that gradually

combines different forms of knowledge composing with it an innovation. In the initial

stages there is a high degree of uncertainty - details on technological feasibility, market

demand, competitive conduct, legislation and other influences are scarce. But during

this stage the uncertainties are replaced by the knowledge acquired in several attempts

and a growing cost. This phase can be explored in greater detail by considering three


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key elements: (1) knowledge acquisition; (2) project execution; (3) launch and

innovation support.

The knowledge acquisition involves the combination of new and existing knowledge

(available within and outside the organization). It can also involve both the generation

of technological knowledge and the technology transfer. It represents a first draft of the

solution. The result of this stage in the process may be either progress to the next stage

of development or retroactive to the conceptual stage.

The project executionis the core of the innovation process. A clear strategic concept

and ideas to achieve it compose the initial data of this stage. The results in this stage

provide a developed innovation and a ready market (internal or external) for theinnovation launch.

Parallel to the solution of technical problems associated with the development of an

innovation there is a range of activities aimed at preparing the market where the product

will be launched. The launchstage can involve a consumer test - availability of product

prototype for the user, marketing test - sham sale of the new product, marketing

strategy, marketing plan etc.

Over the past 80 years, many studies on the innovation process, analyzing it from

different angles, has been developed. Different innovations, different sectors, companies

of different sizes and types operating in different countries etc. has been analyzed in

many different ways. The following table gives some examples of these studies.


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Table 2.3 - Examples of innovation studies

Name of the

studyCentral focus Reference

SAPPHO Project Success and failure factors in matched pairs of companiesRothwell

(1977)

Wealth among

the knowledge

Case studies of successful companies - all award winners

Queens Award for Innovation

Langrish

(1972)

Performancepost-innovation

Evaluation of cases, 10 years later, to analyze how theyhave evolved

Georghiou(1986)

TRACES

Historical review of 50 years of work funded by the U.S.

government on key projects. The main objectives were to

identify effective sources of innovation and managerial

factors influencing success.

Insenson

(1968)

Industrial

technical

progress

Investigation of UK companies to identify why some weremore innovative than others in the same industry, size, etc..

Resulted in a list of managerial factors that pointed to

technical advances

Carter and

Willians

(1957)

Minnesota

Studies

Detailed case studies in about 14 years of innovation.

Resulted in a map of the innovation process and factors that

influenced it at various stages.

Poole et al

(1989)

NEWPROD

Project

Long-term research on success and failure in product

development

Cooper

(2001)

Stanford

Innovation

Project

Case studies of product innovation with emphasis on

learning

Maidique

and Zirger

(1985)


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ErnstExtensive literature review of success factors in product

innovation

Ernst

(2002)

Interprod An international study (17 countries) gathering data onfactors that influence the success or failure of new products

Ledwith(2004)

Innovation Wave

Case studies on service innovation and manufacturing,

based on experience of the London Business School

Innovation exchange

Vom

Stamm

(2003)

Source: Adapted from Pavitt et al, 2005

From this database of information is possible to find consensus on two key factors:

- Innovation is a process, not an isolated event;

- The influences on this process can be manipulated to affect the outcome, that is,

innovation can be managed.

2.3.3 Managing Innovation process

Innovation can increase competitiveness, but it requires a skill set and knowledge

management different from those commonly used in commercial management (Pavitt et

al, 2005). Companies have to have the capabilities to manage their process of

innovation, from their innovation strategy to original idea to final product. Only then

companies will know with which products, services, processes or business models they

will generate their revenues and profits in the near future.

Innovation is a management issue as there are choices to be made about resources and

their provision and coordination. Innovation management is not just a means in itself,

but is about developing and organising capabilities within companies and translating

them into competitive advantages and profits. Some actions concerning the management

of the innovation process are showed in the Fig.2.2.


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Fig 2.2Actions concerning the Innovation Management

Source: Adapted from Instituto Inovao, 20109

As showed in Fig 2.2, the actions concerning the innovation management should cover

the entire innovation process. Examples of these actions are:

Directthe actions of innovation ensuring alignment with the innovation strategy;

Equip the company through the development of internal skills and external

partnerships;

Support the initiatives of innovation with resources and support from top management;

Sensitize all levels of the organization about the importance of innovation;

Learn from the experiences at all stages of the innovation process and make necessary

adjustments.

2.3.4 Measuring Innovation Management

The effective management of innovation is largely the result of design and effective

routines to increase and facilitate its emergence within the enterprise (Pavitt, 2005).

9Available at:http://www.institutoinovacao.com.br/internas/servicos_gestao/idioma/1
http://www.institutoinovacao.com.br/internas/servicos_gestao/idioma/1http://www.institutoinovacao.com.br/internas/servicos_gestao/idioma/1


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According to Pavitt (2005), is possible to mount checklists and even simple schemes for

the effective management of innovation from many studies on success and failure in

innovation.

In fact, a large number of models for auditing innovation was developed, models that

provide a framework from which is possible to evaluate the performance of innovation

management (Johne and Snelson, 1988; Chiesa et al, 1996; Francis, 2001). Some

models are simple listings, others deal with structures, some with very specific sub-

processes.

A study developed by A.T. Kearney (Engel et al., 2007) shows that best practice

innovation management begins with innovation strategy and continues throughinnovation development to management of the entire innovation life cycle. It covers all

dimensions of Innovation Management including: Innovation strategy, Innovation

organization and culture, Innovation Management processes, as well asenabling factors

for Innovation Management.

Based on this holistic approach to innovation management, A.T. Kearney developed the

House of Innovation (Fig. 2.3). With this, SMEs, intermediaries, financial actors,

policy makers and academia dispose of a framework that links innovation management

with business impact.

Fig 2.3A.T. Kearneys House of Innovation

Source: Engel et al., 2007


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As summarized by Fig.2.3, A.T. Kearneys House of Innovation addresses all relevant

innovation management dimensions (IMP3rove, 2007):

- Innovation Strategy with regards to comprehensiveness, forward focus and

communication;

- Organization and Culture with regards to the ability to create passion for

innovation and openness for new ideas;

- Innovation Life Cycle Management with regards to all levers which help to

accelerate idea-to-profit as well as optimize life cycle management through

continuous improvement;

- Enabling Factors for Innovation Management with regards to Intellectual

Property, Knowledge, Human Resources, Controlling- and IT Management;

- Innovation Management Success with regards to the right key performance

indicators to monitor and measure innovativeness.

Based on this holistic approach, the European Commission under the Europe INNOVA

supports an initiative, called IMP rove, to improve the innovation success in the

European SMEs.

The proof of the IMP3rove concept is provided by more than 3,500 European SMEs that

have been introduced to the IMP3rove approach since the launch in 2007 (Fig. 2.4).

More than 400 innovation management support service providers across Europe have

been trained in the IMP3rove approach. They now constitute an international network.


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Fig. 2.4Status of SMEs on IMP3rove Platform

Source: IMP3rove Core Team, 201010

Because of this, this study takes the IMP3rove Assessment tool as the basis to gauge

information about the level of innovation management in Brazilian technology-based

MSMEs.

2.4 Market orientation

Small firms are noted for their more cohesive cultures and simpler organization

structures, thus diminishing the coordinating benefits of a strong market orientation

culture. Small firms are also noted for their fewer numbers of product lines and

customers, reducing the need for formal activities designed to gather and process market

information for marketing decision making. On the other hand, these characteristics of

small businesses may enhance the firms' ability to fully exploit a market-oriented

culture.

10Available at: www.improve-innovatio.eu


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It could also be argued that other internal firm variables and external variables have

such a significant effect on small-firm performance that the impact of market orientation

is negligible. For instance, undercapitalization and lack of planning have commonly

been cited by small-business researchers as the most significant influences on success orfailure (Robinson and Pearce, 1984). Internal small-firm structure aspects such as

formalization, coordination, and control systems may be such important determinants of

small-firm success as to render insignificant the impact of market orientation. On the

other hand, because small firms have been characterized as lacking systematic decision

making, strategic thinking (Robinson, 1982; Sexton and Van Auken, 1982), and a long-

term orientation (Gilmore, 1971), market orientation could be a highly significant

determinant of performance. A market orientation culture could provide small firms,

noted for their ad hoc and short-term decision-making patterns, with a much needed

firmwide focus for objectives, decisions, and actions.

2.4.1 Definition of market orientation

Although there are some discrepancies in the way of using marketing and market

orientation, it generally consists of orientation to both customers and competitors, and

integration the whole companys efforts to achieve companys goals through satisfying

customers needs.

According to scholars (Kohli and Jaworski I990; Narver and Slater 1990), market

orientation is defined as the process of generating and disseminating market intelligence

for the purpose of creating superior buyer value.

These authors divided market orientation into three principal components, those are: (1)

Customer orientation, that means the understanding of a firm about their target market

to create products/services fit to their customers need or desire; (2) Competitor

orientation, means to understand about their current and potential competitors

capabilities and strategies; and (3)Inter-functional coordination, that is coordinating all

the companys resources of every individual function to create products/services for

target customers as their need or desire.


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Narver and Slater (1990) also suggested two decision criteria. The first criterion is a

long-term focus, which includes suitable tactics and investments to prevent the ability of

overcoming the firms competitive advantage of competitors. Of course, this focus is

implicit in a marketing orientation. The second is short-term focus, which is seen asboth a component of market orientation and a consequence of it.

Consistent with Narver and Slaters view of market orientation, Day (1990) argued that:

Market orientation represents superior skills in understanding and satisfying customers

as well as understanding competitors. Day and Nedunggadi (1994) found that a firm

operates according to market driven, balancing these two orientations, will achieve

better performance than emphasis on only one orientation.

Another concept is initiated by Kohli and Jaworski (1990) through a process-driven

model that emphasizes the stages of generating, disseminating and responding to market

intelligence as the essence of market orientation. They defined market orientation

concept through three basic components (processes) dealing with marketing

information, those are Generation of marketing intelligence all over the company

pertaining to customer needs, the Dissemination of intelligence across functions in the

company, and the organizational responsiveness to this market.

Although Narver and Slater (1990) and Kohli and Jaworski (1990) used distinct

theoretical bases to explain the market orientation concept, both groups agreed that the

market orientation is conceded to create great customer satisfaction and organizational

commitment of employees (Kohli and Jaworski, 1993). These two groups also have

some commonalities with respect to customers, competitors, functional integration and

market opportunities.

After Kohli and Jaworski (1990) and Narver and Slater (1990), many other marketing

scholars all over the world adopt their conceptual basic to develop the theory of market

orientation, such as Greenley, 1995; Pelham, 1996; Chan and Ellis, 1998; Baker and

Sinkula, 1999; Farrell, 2000; Shoham and Rose, 2001; Hult et al, 2003; Ellis, 2005

This creates fulfill literature reviews in terms of market orientation.


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2.4.2 Measuring market orientation

Since market orientation has been one of the most important concepts of marketing

theory, many empirical researches have been carried out to measure it. Table 2.4

summarizes some studies over the last ten years that measure market orientation.

Table 2.4: Scales measuring Market(ing) Orientation

Author Construct Measure scale

Narver and Slatter (1990) Market orientation 7 pt. Likert-type

Naidu and Narayanna (1991) Marketing orientation Categorical and Thurstone-

type based on Kotler (1977)

Ruekert (1992) Market orientation Likert

Jaworski, Kohli & Kumar (1993) Market orientation Likert

Qureshi (1993) Marketing orientation Thurstone-type

Slater and Narver (1994) Market orientation Likert

Wrenn, LaTour & Calder (1994) Marketing orientation Thurstone

Day and Nedungali (1994) Market orientation Categorical

Greenley (1995) Market orientation 7 pt.Likert-type

Pelham and Wilson (1996) Market orientation 7 pt.Likert-type

Wrenn (1997) Marketing orientation Thurstone

Source: Bruce Wrenn, 1997


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From table, four types of market orientation measures can be identified: Categorical,

Thurstone-type, Likert and Thurstone. Each type has its own advantages and

disadvantages. In order to assess the level of market orientation in Brazilian technology-

based companies, this research uses Likert scale.

Among many studies, the two most famous examples of using Likert scale are MKTOR

and MARKOR.

The first scale, MKTOR, with 21-item measure of market orientation, is given by

Narver and Slater (1990). According to their literature review of market orientation,

Narver and Slater operationalized market orientation as the comprising of three

behavioral dimensions (customer orientation, competitor orientation and inter-functional coordination) and two decision-making criteria (long-term and short term

focus). However, the measures of the two decision criteria exhibited very low levels of

Cronbach's Alpha, so Narver and Slater (1990) deleted these sub-constructs.

Based on earlier studies by Kohli and Jaworski (1990) and Jaworski and Kohli (1993),

Kohli, Jaworski and Kumar (1993) developed the MARKOR scale (market orientation)

with the purpose of creating as an instrument to measure the degree of market

orientation of companies. They defined the MARKOR scale and the process of

measuring as: The market orientation scale (MARKOR) assesses the degree to which a

firm (1) engages in multi-department market intelligence generation activities, (2)

disseminates this intelligence vertically and horizontally through both formal and

informal channels, and (3) develops and implements marketing programs on the basis of

the intelligence generated.

As conceptualized by Jaworski and Kohli (1993), the three dimensions of market

orientation (MARKOR) are:

Intelligence generation: refers to the collection and assessment of both customer needs

and the forces (task and macro environments) that influence the development and

refinement of those needs. Importantly, multiple departments should take part in this

activity because each department has a unique market point of view (Kohli and


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Jaworski, 1993). To give a supplemental suggestion, Narver and Slater (1994) said that

market orientation is a corporate culture that differentiates one business from another in

its tendency to always give superior value to its customers. A business with careful

market information collection and processing capabilities can predict more preciselyand make rapid changes in the market place and know what the superior value to

customers is (Pelham, 1996). Understanding the customer needs is critical. Failure to

define current and future customer needs will result in creating products and services

that do not satisfy customers.

Intelligence dissemination: In order for market orientation to operate correctly,

information developed in the intelligence generation stage must be shared with other

functions

master thesis - fernanda vilela

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