Does combining different types of innovation always improve SME performance? An analysis of innovation complementarity

Abstract

Small- and medium-sized enterprises (SMEs) sometimes introduce different types of innovation simultaneously. However, the performance implications of simultaneous innovation practices remain under-researched in the literature. Therefore, this paper explores the combined use of six types of innovation and examines complementarity/substitutability in performance between these types of innovation. Data for the empirical analysis originates from a sample of 1,139 Chinese manufacturing SMEs. We identify two tendencies of simultaneous innovation by means of exploratory factor analysis (EFA), which are as follows: product-oriented and production-oriented. Using a conditional approach to supermodularity, we find no interplay between product-oriented types of innovation, but substitutability between production-oriented types of innovation. Based on organizational literature, we perform a supplementary test for the relationship between production-oriented types of innovation and organizational innovation. The result shows that substitutability between production-oriented types of innovation exists only in the absence of organizational innovation. These findings suggest that SMEs in China derive only additive benefits from a combination of product-oriented innovation, and gain no performance payoff from a combination of production-oriented innovation unless they introduce simultaneous organizational change.