Abstract
Abstract Innovations can provide small and medium-sized enterprises (SMEs) a significant competitive advantage considering the ambiguous business environment. SMEs may face lower capacity and more constrained funding for long-term investments, however, understanding innovation in a broader sense and looking into organizational structures, behaviors and processes, SMEs have an opportunity to become more competitive. This study analyzes the impact of ethical behavior as a part of an organizational culture on organizational innovation performance in SMEs. Six hundred SMEs in Latvia were surveyed to assess whether employees follow the principles of business ethics in their work and what is the organizational innovation performance in these enterprises. We found that more ethical behavior leads to better organizational innovation performance, and that the size of enterprise is the most significant factor affecting this relationship. The study proposes insights that contribute to theoretical and practical discussions on fostering small businesses innovation in small economies.
Highlights
small and medium-sized enterprises (SMEs) play an important role in many European economies, their ability to innovate is vital for welfare and economic growth
Innovative SMEs could differentiate themselves from the competition (Porter, 1980), yet the share of innovative SMEs in Europe is very low – according to the Eurostat, only 48 % of SMEs were innovative compared to 78.1 % of large enterprises (Eurostat, 2017)
The aim of this study is to find out, whether enterprises where employees follow the principles of business ethics in their work demonstrate a better organizational innovation performance
Summary
SMEs play an important role in many European economies, their ability to innovate is vital for welfare and economic growth. Innovation process is complex and includes substantial ambiguity and risk (Kline & Rosenberg, 1986), and SMEs might have more constrained resources for longterm, large-scale innovation projects (Acs & Audretsch, 1988; Nooteboom, 1994). They might have less human resources to effectively implement innovations. Considering these aspects, SMEs might have higher relative costs to innovate in comparison to large businesses.
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