The glue and the pieces: Entrepreneurship and innovation in small-firm networks

Abstract

The entrepreneurial view of the firm stresses the need for a more insightful understanding of business leaders within sets of SMEs. Here, competitiveness emerges as a network-embedded capability and the coordination among firms, maximizing firm-specific competencies, represents a strategic leverage in accomplishing and maintaining a sustainable competitive advantage. When the goal is not only greater efficiency in terms of the lowest cost but innovation in terms of how to improve productive performance by changing the way in which it is undertaken, a critical issue becomes the entrepreneur's ability to create, manage, and recombine the set of relationships with external suppliers. The ability to glue external expertise and capabilities in an original and unique way is considered the key factor in pursuing innovative performance. As orchestrators of inter-firm linkages, entrepreneurs relying on personal networks and prior relationships are able to identify possible sources of knowledge. As coordinators of such innovative ties, they combine a wide set of diverse competencies not only to overcome size constraints through development cost reduction, but also to recoup ideas and creativity for the realization of more complex typologies of innovation. These elements reduce the level of uncertainty, while enhancing early cooperation between firms. Because the entrepreneur is supposed to be able to manage a higher number of “innovative poles”, which can be better managed thanks to trust and reputation developed in prior relationships, the different management topology could be associated with a different level of supplier contribution to the development of new products. This paper provides insights into the role of suppliers in the new product development process, and explores the role of the entrepreneur in promoting and managing a wide set of external, innovative ties. Attention is focused on 103 small- and medium- sized firms located within two Italian industrial networks where interdependencies are unusually large and complex. With respect to the first aim, the empirical analysis confirmed SME's structural recourse to suppliers. More important, the contribution of such resources is not necessarily limited to cost reductions and marginal improvements. Although incremental contributions certainly exist and are relevant, more complex relationships largely focused on joint design and development emerge as important patterns in buyer—supplier interaction. With respect to the second aim, an entrepreneurial explanation of SMEs' innovative performance is advanced. In a competitive environment where the actors are not atomistic, but exist within systems of actors, the relational capability could represent for entrepreneurial firms the way to gain a sustainable competitive advantage. We found entrepreneurs who, exploiting basic experiences, seek new combinations among the various inter-firm ties, relying upon such linkages as a vehicle for transferring and combining their organizationally embedded learning capability. Our findings showed that (1) when the entrepreneur is leading and managing the business, more suppliers are involved in the development of new products, and (2) the type of contribution given by suppliers differs by management typology. More precisely, the incremental type of contribution is dominant whenever professional management is present, while the relevance of architectural and radical topologies increase when the entrepreneur is present. On a broader level, the findings suggest further studies to address the question of how internally determined, rather than spontaneous, is the evolution toward a network structure in sets of SMEs similar to those studied. We showed that the number and the quality of inter-firm relationships cannot be explained merely by environment-specific factors.