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Small firm innovation performance

Small firms typically rely on the CEO’s individual knowledge for developing
innovations, but recent work suggests that this is inefficient because it underutilizes other
employees’ knowledge. In their paper “Small firm innovation performance and employee
involvement,” Petra Andries and Dirk Czarnitzki study “to which extent using CEOs,
managers and non-managerial employees’ ideas enhances small firms’ innovation
performance.” The analysis relies on a dataset of 305 small manufacturing and service
firms, collected through a large-scale survey.

Previous work studies the impact of employee involvement on the large firms’ innovative
performance, but Andries and Czarnitzki are among the first to apply this to small firms.
They find that “also in small firms, using ideas of managers but even of non-managerial
employees significantly impacts a firm’s innovative performance. More specifically,
[they] show that for process innovation performance, small firms benefit greatly from
suggestions by non-managerial production employees.” For product innovation
performance, their results show that there is a positive effect of using non-managerial
employees’ ideas, suggesting that the “historical focus on the entrepreneur/CEO which
was broadened more recently to the study of entrepreneurial teams does not yet fully
capture small firms’ innovative potential.”

They write that, “although CEOs generally do not provide relevant input for process
innovation, their ideas are actually very relevant for product innovation.” In addition,
they show that “R&D managers’ knowledge is highly relevant knowledge for product
innovation, while production managers’ suggestions contribute heavily to process
innovation. At the same time, however, we show that ideas from R&D managers do not
contribute to process innovation, ideas from production managers do not contribute to
product innovation and using ideas from managers in marketing/distribution or
administration does not contribute to process nor product innovation. This implies that,
depending on their functional expertise and the desired type of innovation, CEOs and
managers actually do contribute their knowledge and skills directly to innovation.”
Finally their results show that “non-managerial employees’ contributions depend on their
functional area of expertise as well as on the desired type of innovation.”

One important managerial implication of this paper is that “small firms’ CEOs should
refrain from relying solely on their own actions and ideas in the innovation process.” A
second is that “both functional differences as well as differences between product and
process innovation need to be taken into account when a firm intends to use ideas from
employees in its innovation process. If a firm wants to excel in product innovation, it
should focus mainly on using ideas from its CEO and R&D managers. If it wants to excel
in process innovation, attention should go to ideas from employees in the production
department, including both production managers and non-managerial production
employees.” At the end of the day, Andries and Czarnitzki’s research “clearly indicates
that separate – and perhaps simultaneous – initiatives to engage a select group of
employees in either process or product innovation are far more efficient.”

Paper: https://lirias.kuleuven.be/bitstream/123456789/338133/1/MSI_1203.pdf

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