Knowledge, Innovation and Performance in SMEs: a new Methodology

Abstract

The role of innovation in SMEs is strategic in shaping the ability of the firm to compete; innovation depends on on the firms’ ability to identify, assimilate and exploit knowledge from all around. Generally, an important source of knowledge is the R&D because it helps the firm in developing an absorptive capacity (Cohen, Levinthal, 1989) and also it is a strategic input of the path to innovation. If the firm is too small to afford R&D expenses this important source of knowledge creation is unavailable. Nevertheless SMEs can create and enrich knowledge thanks to human capital (Grant, 1996; Hodgson, 1998) and networks (Becattini, 1989) both inside and outside the firm itself. Human capital is considered in two ways, the one of the entrepreneur (Colombo, Grilli, 2005) and the other of the employees. Another source of knowledge are the networks; they give access to information that can be used in knowledge creation; there are two main kind of networks the firm is involved: the first is the internal network made by the relation established inside the firm (e.g. measured in terms of workers participation in the decision process of the firm); the second is the external network, measured in terms of relations with other firms (Becattini, 1989, Becattini et al 2009) and with other actors, such as suppliers, buyers, and customers (De Devitiis et al. 2009). Two different bivariate models are used; the first one aims to measure the effects of knowledge on innovation, and the second looks at the performance gained thanks to innovation. The results of the first model show that human capital plays a positive role on innovation; innovation is also positively influenced by the dimension of the firm, training and workers participation in the strategic decision; anyway, those elements are not significant for the probability to increase sales. The probability to increase the sales is positively influenced by owner’s/entrepreneur’s characteristics such as a higher age and previous working experience as self-employed; the probability is also influenced positively if the firm sells is oriented to sell its products in non local markets (other than regional ones). Many firms found innovation a key resource; in fact, those which are less likely to increase sales are pushed to innovate in order to catch up the other firm and get a positive result from innovation. Something similar happens when the entrepreneur has a high level of education; in this case innovation is a key element in the effort of catching up competitors. There are also some policy implication: the first one bases on the positive results of innovation and we suggest to reinforce the incentives to innovate, but also to enrich, enlarge and render more effective the relations within and between the firms (Grant, 1996) and enhance human capital in the firm. Another important implication refers to a system of support to extend the market sales outside the Southern area of Italy. In this case enlarging the market the firm will face a stronger competition but at the same time it can have more information to analyze about its sector; this can generate an awareness of the necessity of innovation to better face competition. [edited by author]