Innovation Success of Non-R&D-Performers: Substituting Technology by Management in SMEs

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08092.pdf Non-technical SummaryThis paper investigates the role of research and development (R&D) and innovation management for innovation success in small and medium-sized enterprises (SMEs). While there is little doubt about the significance of in-house R&D activities for generating successful innovations and obtaining a novelty-based competitive advantage, entering into continuous in-house R&D activities may be a particular challenge for small firms. They will have to bear high fix costs such as setting up a separate R&D laboratory, meet minimum scale requirements of effective R&D activities and have to deal with high sunk costs in case of stopping R&D. Since the nature of R&D implies high uncertainty of its outcome, devoting large resources to R&D may jeopardise the whole enterprise in case R&D investment fails.Given these restraints, SMEs may opt to substitute R&D by innovation managing practices which demand less investment and bear less uncertainty. Innovation management science has developed a number of tools which should support firms in identifying innovation potentials, transferring them into new products and processes and implementing them successfully in the market or within a firm's operations. These include human resource management, team working, co-operating with external partners and sourcing relevant knowledge from the firm's environment, particularly from clients, suppliers and competitors.The paper analyses whether SMEs can in fact substitute R&D activities by innovation management in order to achieve the same innovation success as R&D performing SMEs. The research question is closely linked to the innovation policy as it explores whether R&D is a necessary prerequisite for innovation success, or whether other in-house activities can play a similar role. The analysis rests on data obtained from the 2003 wave of the German CIS.Innovation success is measured through a categorial variable that captures the extend to which an SMEs has successfully introduced "challenging" product and/or process innovations, i.e.innovations that significantly change the firm's market position. We run ordered probit models that control for a potential selection bias between innovating and non-innovating firms.Our findings show that continuous R&D activities are a main driver of innovation success in SMEs, especially when linked to external knowledge sourcing. Firms without in-...

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