The Effect of Business Improvement Methods on Innovation in Small and Medium-Sized Enterprises in Peripheral Regions

Abstract

Harris R., McAdam R. and Reid R. The effect of business improvement methods on innovation in small and medium-sized enterprises in peripheral regions, Regional Studies. This paper tests whether commonly used business improvement methods (BIM) foster or inhibit innovation in small and medium-sized enterprises (SMEs) in peripheral regions. The findings show that adopting BIM diverts firms away from successful innovation (i.e., in terms of new products/services and new processes in the past three years), and instead is associated with undertaking innovation-related activities while remaining non-innovators. Indeed, reinforcing BIM (through greater ‘depth’ of use) may lead to further exclusion from successful innovation.

Harris R., McAdam R. and Reid R. 增进商业方法对边陲地区中小型企业创新的影响，区域研究。本文检测一般用来增进商业的方法（BIM），是否促进或抑制边陲地区中小型企业（SMEs）的创新。研究结果显示，採用BIM使得企业远离成功的创新（例如过去三年内的新产品／服务和新制程），反而是在维持非创新者的同时，与着手从事创新相关活动有关。强化BIM（透过更为“深化”的运用），的确有可能导致进一步排除成功的创新。

Harris R., McAdam R. et Reid R. L'impact des méthodes d'amélioration opérationnelle sur l'innovation dans les petites et moyennes entreprises situées à la périphérie, Regional Studies. Ce présent article cherche à évaluer si, oui ou non, les méthodes d'amélioration opérationnelle fréquemment utilisées ouvrent la voie ou constituent une entrave à l'innovation dans les petites et moyennes entreprises (Pme) situées à la périphérie. Les résultats montrent que l'adoption des méthodes d'amélioration opérationnelle détourne les entreprises de l'innovation réussie (c'est à dire en termes de nouveaux produits et services, et de nouveaux procédés au cours des trois dernières années), et les associent plutôt à la réalisation des activités liées à l'innovation tout en restant non-innovatrices. En effet, il se peut que renforcer les méthodes d'amélioration opérationnelle (par moyen d'une utilisation plus ‘approfondie’) puisse provoquer une intensification de la marginalisation qui pourrait porter atteinte à une future innovation réussie.

Harris R., McAdam R. und Reid R. Die Auswirkung von Methoden zur Geschäftsverbesserung auf die Innovation in kleinen und mittelständischen Unternehmen in Randgebieten, Regional Studies. In diesem Beitrag wird überprüft, ob häufig eingesetzte Methoden zur Geschäftsverbesserung die Innovation in kleinen und mittelständischen Unternehmen (KMU) in Randgebieten fördern oder hemmen. Aus den Ergebnissen geht hervor, dass die Umsetzung von Methoden zur Geschäftsverbesserung Firmen von erfolgreichen Innovationen (hinsichtlich neuer Produkte bzw. Dienstleistungen und neuer Verfahren in den letzten drei Jahren) abhält und stattdessen mit der Durchführung von innovationsbezogenen Aktivitäten bei gleichzeitiger fortgesetzter Nichtinnovation einhergeht. Eine Verstärkung der Methoden zur Geschäftsverbesserung (durch intensivere Nutzung) kann sogar zu einem weiteren Ausschluss von erfolgreichen Innovationen führen.

Harris R., McAdam R. y Reid R. El efecto de los métodos de mejora empresarial en la innovación en las pequeñas y medianas empresas de regiones periféricas, Regional Studies. En este artículo comprobamos si los métodos que se utilizan habitualmente para la mejora empresarial fomentan o inhiben la innovación en las pequeñas y medianas empresas (pymes) de regiones periféricas. Los resultados indican que al introducir métodos de mejora empresarial, las empresas no solo se alejan de conseguir una innovación eficaz (en lo que afecta a nuevos productos o servicios y nuevos procesos en los últimos tres años), sino que más bien al emprender actividades relacionadas con la innovación permanecen a la vez como empresas no innovadoras. Al reforzar los métodos de mejora empresarial (mediante un uso más intensivo) las empresas pueden incluso quedar aún más alejadas de poder conseguir una innovación eficaz.

• Innovation
• Business improvement methods

• 创新
• 商业增进方法

• Innovation
• Méthodes d'amélioration opérationnelle

• Innovation
• Methoden zur Geschäftsverbesserung

• Innovación
• Métodos de mejora empresarial

JEL classifications:

• D24
• L23
• O12
• O31

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplemental data

Supplemental data for this article can be accessed at http://dx.doi.org/10.1080/00343404.2015.1083971

Notes

1. A number of studies (e.g. Melançon and Doloreux, 2013; Skuras et al., 2008; Cooke et al., 1997) have shown that SMEs from peripheral regions are likely to be less competitive and innovative in comparison with more centrally located companies.

2. For example, total quality management (TQM), ISO: 9001:2008, continuous improvement, lean, Investors in People and Six Sigma (see Bessant and Tidd, 2011, for a discussion).

3. EEF (2008) estimate that just under three-fifths of UK manufacturing was using lean in 2008 (with 41% take-up in those employing fewer than 50 rising to over 70% in those employing 500 or more). The Workplace Employee Relations Survey for 2004 (for Great Britain) shows that some 36% of plants benchmark against other organizations, 17% use quality circles (which can include continuous improvement, and other forms of problem-solving groups), and 37% have an Investors in People award.

4. For example, Scottish Enterprise provides an especially intensive form of support to account and client managed firms (commonly referred to as ‘direct relationship management’ companies) that are considered to be capable of benefiting from a high level of attention. They are companies with a proven or likely higher growth potential. Each company is regularly reviewed by a ‘client-manager’ with the company offered the most appropriate (in-house) training, courses or programmes. Invest Northern Ireland and Enterprise Ireland follow a similar approach.

5. For example, Harris and Trainor (1995) collected information on 140 manufacturing firms operating in Northern Ireland in 1991; Roper and associates have used the Irish Innovation Survey (IIS), which has several waves comprising between 750 and 1055 manufacturing plants (including non-SMEs) operating in Ireland and Northern Ireland; Harris and Trainor (2011) used 250 matched manufacturing plants in Northern Ireland. None of the datasets is claimed to be representative of the population of SMEs operating in (Northern) Ireland. For example, the IIS reports levels of product innovation that are around twice the levels reported in the results from the Community Innovation Surveys conducted in each area.

6. Appendix A in the supplemental data online also discusses ‘Other determinants of innovation activities’.

7. For example, Grant et al. (1994) state ‘TQM comprises a group of ideas and techniques for enhancing competitive performance by improving the quality of products and processes' (p. 20).

8. The BIM–innovation relationship can be simultaneous and complementary, but it is often argued that ‘in general business practice first incorporates the concept of quality management and then gradually integrates innovation' (Perdomo-Ortiz et al., 2009, p. 5088). The theoretical underpinning for this is the resource-based and dynamic capabilities (RDBC) view, which incorporates an evolutionary view of management priorities being path dependent with the ‘quest for innovation performance (requiring) greater organizational complexity than that for quality' (p. 5088). The literature cited to back up such claims includes Foss (1993), Teece et al. (1997) and Hodgson (1998). Note that below this paper also tests the links between BIM and innovation using a ‘matching’ approach that mitigates against any bias from that part of a simultaneous relationship due to self-selection issues.

9. Although note that this distinction is not universally accepted as some influential studies – such as Utterback (1971) and Freeman (1982) – suggest that so-called hard BIM practices support innovation performance.

10. This paper does not limit innovation inputs to R&D, as many SMEs do not engage in such (formal) activities. Therefore, the present empirical work simply asked firms to state if they were engaged in innovation-related activities, which were defined for them as committing resources to developing new products, processes or services and/or significantly improving existing products, processes or services, or developing new niches for the firm.

11. At a practical level, studies point to the critical role of R&D investment and training that firms undertake in order to absorb, assimilate and manage foreign technologies (Mowery and Rosenberg, 1989; Cohen and Levinthal, 1989, 1990; Globerman, 2000). Thus, R&D is often used as a proxy measure of absorptive capacity, but clearly when using this concept to explain why firms undertake innovation-related activities (including R&D) it is necessary to measure absorptive capacity in a more specific way, which is done below when more direct proxies for absorptive capacity are introduced.

12. Although it was found that over 60% of the sample of SMEs used at least one form of BIM (see Fig. 1). In addition, Ahire and Golhar (1996) surprisingly found that the size of the firm was not a critical factor in the implementation of TQM.

13. See note 7 above.

14. Pinho studied manufacturing plants in Portugal; in a different study, Sá and Abrunhosa (2007) looked at the Portuguese footwear industry (again finding a low linkage between TQM and innovation). Clark (2010) considered the case of 95 SMEs in New Zealand, again finding little evidence supporting a link.

15. There is often an issue in collecting survey data about the impact of self-reported information (studies have suggested this can lead to bias; e.g., Cassar, 2010; Storey, 2011; Fraser et al., 2007). The study was part of a larger European Union-funded study involving SMEs and so early on in the project, when devising the questionnaire, the authors engaged in face-to-face interviews with a small number of the firms in each region to satisfy themselves that the information being supplied was accurate.

16. The development agencies provided access to their SME client companies operating in the relevant areas (1334 for Northern Ireland, 346 for the Republic of Ireland and 495 for Scotland). A random sample of these SMEs was used for the telephone surveys and the responses were tested based on industry and size characteristics to ensure the samples were representative of the population of client firms operating in each region.

17. There were a small number of innovating firms (12%) that had introduced only a process innovation and not a product innovation as well; the majority of innovators (88%) had introduced a product innovation, and over 68% of innovators had introduced both a product and a process innovation. The authors experimented with classifying innovators as successful/non-successful product innovators separately from successful/non-successful process innovators, and while there are small differences in the parameter estimates obtained, the overall conclusions remain unchanged.

18. Although not shown in Fig. 1, firms in the Republic of Ireland tended to have a higher use of some of the different types of BIM (e.g., 29% used TQM versus 26% across firms in all three areas; 42% used continuous improvement vis-à-vis 37% for all firms). However, the use of different forms of BIM is comparable (continuous improvement was the most popular in all areas, followed by ISO 9001 and TQM). The authors therefore believe these BIM schemes were of similar (international) composition in all three areas covered, although further work needs to be done in order to confirm this.

19. See Appendix D in the supplemental data online for the questions asked.

20. As the authors only had access to cross-sectional data (as is usually the case in studies of this kind that rely on the collection of new information on variables of interest that are generally not available elsewhere), one cannot consider time-varying issues such as the pre- and post-impact of the introduction of BIM on innovation, or test (using instrumental variables, or similar, approaches) whether there is any systematic bias to the relationships estimated between BIM and innovation because of endogeneity issues (due to causality going in both directions) (although see note 8 above). Therefore, it could be argued that the results are possibly only indicative of relevant associations between the variables concerned, and potentially biased in magnitude. However, a ‘matching’ approach that should limit any bias due to possible simultaneity was also used.

21. Thirty-three industry dummy variables are omitted from Table 1.

22. Such ‘depth’ was measured using factor analysis based on agreement with statements such as whether there were clear goals for total quality/continuous improvement programmes, it was spread throughout the organization, adequately resourced, involved the majority of workers, etc. (see Table C5 in the supplemental data online).

23. The authors agree with a referee who stated that one might expect size effects to be significant; however, this paper only deals with SMEs and not larger firms where the relationship between size and adoption of BIM is stronger.

24. Employment size dummies were not significant in the model and therefore dropped.

25. It could be argued that there is an internal contradiction with different BIM. For as long as learning – absorptive capacity and other proxies – is a feature of BIM, then the likelihood of SMEs being innovators is enhanced, though not guaranteed. The problem seems to be with the efficiency element and its relative emphasis in the BIM used by firms. Thus, perhaps it is not surprising that certain BIM lead to unsuccessful innovation. For example, some are innovation (continuous improvement) whilst others are explicit tools/frameworks for innovation (balanced scorecard), or not. Others are mixtures (TQM). Lastly, the authors experimented with other specifications of the key BIM variables, but the results were always weaker. Some robustness checks are included allowing for selection effects in Appendix B in the supplemental data online.

26. In 2012 the authors fed-back the results through presentations to Scottish Enterprise, Invest Northern Ireland and Enterprise Ireland.

27. That is, it is possible that SMEs that are not clients of regional development agencies and adopt BIM may experience a different outcome to that found herein, and it is also possible that SMEs in other peripheral regions could also have different BIM–innovation relationships. A priori this is thought unlikely, but it would be useful to test whether the results presented here can be generalized.