Open Innovation and Knowledge Management in Small and Medium Enterprises

Susanne Durst, Serdal Temel, Helio Aisenberg Ferenhof

• Publisher: WSPC
• Year: 2018
• ISBN:
  9789813233607
• Topic: Business
• Subtopic: Investments & Securities
• Index: Business

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The book studies the interplay between open innovation and knowledge management issues in small and medium-sized enterprises (SMEs). With the proliferation of the open innovation paradigm and against the backdrop of increasing external knowledge transfer activities, knowledge management is more important than ever for innovation and firm performance of any type of organization. In fact, knowledge management is no longer a pure intra-organizational activity but constitutes a vital interface function between the organization and its external partners/stakeholders.

Throughout the book, readers will obtain both a broad overview of the two main concepts namely open innovation and knowledge management and its interplay. In addition, research will be presented which will help the readers to develop and/or expand their understanding of the phenomenon. This broad approach can also support in broadening the mindset regarding the topic under investigation and its application. Thereby, this book will primarily focus on SMEs and their approach with respect to the interplay in question.

In order to achieve the above-mentioned aim, the book consists of ten chapters that are assigned to three parts. Part 1 introduces to the main concepts, namely, SMEs, Open Innovation, Knowledge Management, and the interplay between open innovation and knowledge management in SMEs. This is followed by Part 2, which provides empirical research insights into the phenomenon of interest. The book concludes with Part 3 which addresses promising future avenues regarding the study of open innovation and knowledge management in SMEs. All the chapters are written by leading international researchers in the respective fields, which makes the book a unique piece of work.

--> Contents:

• Preface
• About the Editors
• About the Contributors
• Introduction (Susanne Durst, Serdal Temel, and Helio Aisenberg Ferenhof)
• Introduction to Main Concepts:
  • Small and Medium-sized Enterprises (SMEs) (Thomas Henschel and Ilka Heinze)
  • The Concept of Open Innovation (Ilker Murat Ar)
  • Knowledge Management (Helio Aisenberg Ferenhof)
  • The Interplay between Open Innovation and Knowledge Management in SMEs (Serdal Temel and Susanne Durst)
• Research Insights:
  • Knowledge Creation and Open Innovation in High-Technology SMEs (Elsa Grimsdottir and Ingi Runar Edvardsson)
  • Knowledge Sharing and Open Innovation (Ardalan Haghighi Talab, Victor Scholten, and Cees van Beers)
  • Comparing Open Innovation of Innovative Food SMEs with SMEs in the Seed and High-Tech Industries — An Analysis of 15 SMEs in the Netherlands (Onno Omta, Frances Fortuin, and Niels Dijkman)
  • ALITE: Open Innovation and Experimentation in a Small Learning Organization (Joaquín Alegre, Francisco Romera, Ana García-Granero, and Anabel Fernández-Mesa)
  • Mitigation of Knowledge Risks in Open Innovation (Haley Wing Chi Tsang and Rongbin W B Lee)
• The Future:
  • Open Innovation and Knowledge Management in SMEs: What Comes Next? (Susanne Durst and Serdal Temel)
• Index

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--> Readership: Graduate students and researchers in the fields of open innovation and knowledge management. -->
Keywords:Open Innovation;Knowledge Management;Innovation Management;Small and Medium-Sized Enterprises;SMEs;Small FirmsReview:

"Open innovation in SMEs has not received yet the attention it deserves. This edited volume explores open innovation and knowledge management in small and medium-sized companies. I highly recommend this book to anyone interested in the unique characteristics of open innovation management in small companies."

Wim Vanhaverbeke
Professor, Hasselt University;
Visiting Professor, ESADE and National University of Singapore

"This is a timely book; the fields of knowledge management and open innovation are growing fast, reflecting their rising importance for competitive success.
This book brings together leading scholars studying knowledge management, open innovation and their intersection. They advance new ideas and frameworks that will inspire insightful future research and managerial action. I highly recommend it."

Shaker A Zahra
Professor & Department Chair
University of Minnesota

"Open innovation is one of the great advances in society whose potential is just now being recognized. The editors and authors have pioneered bringing this important topic into the domain of SMEs. This book will set the strong foundation for future investigation that scholars will consistently refer as we move forward."

Garry D Bruton
Texas Christian University
Key Features:

• Unique treatment of addressing the interface between open innovation and knowledge management from a SME point of view
• Contributions from authors from different parts of the world

Part 1

Introduction
to Main Concepts

Chapter 1

Small and Medium-sized Enterprises (SMEs)

Thomas Henschel^* and Ilka Heinze^†

^*Hochschule für Technik und Wirtschaft Berlin, Treskowallee 8, 10318 Berlin, Germany
^†School of Management and Organizational Science, Kaposvár University, P.O. Box 16, H-7400 Kaposvár, Guba Sándor U. 40, Hungary

In this chapter, we will introduce small and medium-sized enterprises (SMEs) by defining and discussing characteristics of SMEs in qualitative and quantitative terms. In doing so, this chapter takes an international perspective to account for regional and international differences. As SMEs are often owner-managed, individual attitudes to management and decision-making play an important role in management and governance issues. Therefore, major research findings that contribute to a better understanding of the complex dependencies of SMEs from their owners are presented. Finally, we will address recent challenges and discuss how SMEs can address them to identify and exploit business opportunities.

1.Introduction

The first chapter of this book aims to provide some general knowledge about how small and medium-sized enterprises (SMEs) can be defined, what makes them different from large enterprises, and what are the challenges for these enterprises.

Hence, the chapter is organized as follows. First, SMEs will be characterized by qualitative and quantitative criteria. Critical for a comprehensive understanding of the small businesses are the owners’ motives as well as their approach in managing the firm. This will include their attitudes to risk and uncertainty and the financing behavior. Additionally, we will address megatrends that change our societies and hence also affect how SMEs are positioned and have been managed. In that connection, we will discuss recent challenges SMEs have to face and to find answers to, also with respect to the role of creator and innovator. Finally, the chapter will be rounded up with a short conclusion.

2.The Big Picture

Today, SMEs and entrepreneurs live in an age of change and opportunity. According to Burns (2016), there has been a shift in most economies away from manufacturing and toward the service sector where SMEs often flourish because of their ability to deliver a personalized, flexible, and tailor-made service approach at a local level. Start-ups have pioneered innovation in the IT sector and created new markets for these innovations. SMEs were at the forefront of developing mobile apps because the production costs were so low but the gains from selling it to the global market can be enormous. Furthermore, these technologies have facilitated the growth of selfemployment and small businesses by easing communication and encouraging working from home and allowing smaller market segments to be served (Burns, 2016; Bridge and O’Neill, 2013).

Additionally, many new technologies (e.g. digital printing) have reduced fixed costs so that production can be more profitable in smaller and more flexible units. New technologies have also simplified the routes to market, small firms can sell to larger firms or directly to customers around the world without the expense of putting in place a distribution network. Nowadays, as large firms increasingly outsource non-core activities, the beneficiaries are often small firms (Burns, 2016). As we have moved from an industrial economy to a knowledge-based economy, the economies of scale have become less important as a form of competitive advantage (Burns, 2016).

These technological developments have affected markets; customers increasingly expect firms to address their particular needs. This means market niches are becoming slimmer and more competitive — which can be better served by SMEs that can get closer to their customers (Burns, 2016). As Haltiwanger et al. (2013) have shown that especially newly created firms, compared to established SMEs, are responsible for the job creation and growth in the new information age.

3.Characteristics of SMEs

3.1.Qualitative characteristics

Although researchers have been studying SMEs and how they are different from large organizations for many years, there is no universal approach to defining and researching SMEs nor their owners and managers (Gilmore et al., 2013). The research to date has focused on how SMEs are created, grow, become successful or fail, and how they behave in an entrepreneurial sense.

SMEs are seen as a vibrant and innovative source of new ideas and have been the main source of new employment growth in many advanced economies. Looking back, we can now see that SMEs evolutionary capabilities were far more attuned to survival in a dynamic global economy subject to many significant economic shocks over the last 40 years (Gilmore et al., 2013).

Small businesses are often defined by what they lack, namely, capital and human resources, management structures, and access to international markets. As confirmed by research and literature, SMEs operate and do business in a different way from large firms. In small firms, the managerial roles and hence the overall decisionmaking rest with one person, the owner, whose personality, experiences, and knowledge clearly influence the management processes in the firm (McGregor and Tweed, 2002). As the international literature has revealed, these owner-managers show a lack of knowledge in management and planning practices (Woods and Joyce, 2003).

Small firms tend to have fewer layers of management and more people-focused working practices (Turner and Ledwith, 2016). Turner et al. (2010) found that micro firms had just one business unit, whereas larger firms had more, with more layers of management. In micro and small firms, employees work in multidisciplinary teams, with employees multitasking, able to perform several different functions, whereas in medium-sized firms employees work as specialists, performing just one function (Turner and Ledwith, 2016). Turner et al. (2010) provide an overview how the organizational and team structure differs by company size (see Table 1).

According to Turner and Ledwith (2016), medium-sized firms need more formal practices to coordinate the work of specialists working separately, whereas micro and small firms need more people-focused procedures to facilitate the working of people in multidisciplinary teams. Agile methods were often adopted in smaller companies. Nguyen and Bryant (2004) also found that larger firms were adopting more formal procedures than smaller ones. They suggested the reason was that larger firms face more internal uncertainty, whereas smaller firms face more external uncertainty and so need to be more agile (Nguyen and Bryant, 2004).

Table 1.Organizational and Team Structures by Size of Company

Source: Adapted from Turner et al. (2010).

Brettel et al. (2010) suggested that SMEs follow a lifecycle model: as they grow, they need to change their organizational and management structures and ways of working. The owner is present in the enterprise as an entrepreneur. He is, directly and indirectly, liable for all decisions so that his entrepreneurial risk, is linked with the loss of wealth. The owner, therefore, has a personal as well as a professional interest in all procedures and decisions involving the company. But again, SMEs can often reach a size and complexity which require the owner to delegate decision-making to his employees.

Matching business processes to the needs of the organization can improve performance (Li et al., 2013). As Perren and Grant (2001) confirm, informal management and leadership practices are most effective in newly founded businesses, but there is a need for greater formality and planning as the SME grows. They suggest the entrepreneur’s fear of delegation may have a detrimental effect. Barbero et al. (2011) identified a significant barrier to the growth of SMEs: the owner-manager’s ability to establish appropriate organizational models and business planning systems when the company develops.

As Fletscher and Harris (2002) have also observed, directors express the desire for an increased level of specific practical advice on implementing strategic planning to be taught in further training courses for entrepreneurs. Woods and Joyce (2003) have also established that owner-managers have less strategic planning skills than other managers. It is not that owner-managers view these techniques more skeptically but rather that they simply have less knowledge of the methods. One explanation is certainly that the other managers were often previously employed in larger companies and so had already come into contact with appropriate techniques. Woods and Joyce (2003) confirm that, as company size increases, the ownermanagers begin to take on other managers to provide support for the top management. They also confirm that a greater utilization of strategic methods could be seen than in the companies surveyed.

Richbell et al. (2006) draw on the results of Woods and Joyce (2003) and confirm that the owner-managers characteristics can have a significant influence on the business planning activities in small firms. In particular, the level of education and previous work experience in a large firm immediately before setting up their firm and running firms in sectors outside their previous experience have a significant influence on the attitudes on planning activities and practices.

Business planning is hallmarked by the interaction between various subsystems, the degree of integration of their links and by the time horizon. Perry (2001) discovered that the critical size above which a systematic planning in the form of a master budget begins to make sense is from 5 to 15 employees. Below this level, detailed written planning makes little sense, and it cannot positively influence the potential to insolvency. However, if the company employs more than 15 employees, detailed planning has a clear positive effect on the likelihood of insolvency. Perry (2001) further determined that SMEs are either good planners or they are non-planners — there is no intermediate group between these two extremes.

Gibson and Cassar (2002) state that the age and size of a company have a substantial influence on the quality of planning as size increases, the responsibility for business planning shifts from the company management alone to the lower levels (accounting function). The level of training and knowledge also has a positive effect on successful planning.

As the literature indicates, SMEs show a strong capacity for innovation, but often they lack the necessary resources and knowledge to manage the whole innovation project by themselves (Marcelino-Sadaba et al., 2014). To overcome this hurdle, SMEs can adopt an open approach to innovation, which means making use of corporate networks by tapping into partners’ resource networks and making extensive use of their manufacturing facilities, distribution channels, and customer databases (Xia and Roper, 2016).

To summarize, SMEs tend to have a simple rather than a complex organizational structure and thereby avoid problems like duality, functional barriers, and overlap (O’Regan et al., 2005). Well-performing SMEs often make effective use of existing resources and outsourcing. Through that, they keep a low hierarchy level and quick decision-making. In most SMEs, there is a high concentration of ownership with no separation of ownership from control (Neville, 2011). One can often find an overlap between ownership and the management...