Theory and practice of innovation : evidence from small Australian enterprises

Abstract

The power of innovation is one of the most critical resources for both organisational and societal wealth. It effectively offers solutions in the face of economic and social challenges. Furthermore, commercial entities may sustain their operations in the current market environment through innovative strategies. Through innovation, different entities can survive and thrive by creating value and gaining a competitive advantage. Current research on innovation management has mainly focused on developed market economies and relatively large firms. However, Small and Medium-sized Enterprises (SME) form a significant fraction of the players that contribute a great deal to economic growth as well as innovation. In addition, little research has been conducted to explore the internal and external drivers of innovation in SME operations, adopting an integrative and comprehensive approach that takes into account the dynamic global climate. This study seeks to contribute knowledge on innovation theory, practice and evidence from the Australian socioeconomic context to business and innovation management literature. The Australian economy is regarded as greatly diverse and is dominated by SMEs. The study contributes to filling the gap in strategy-focused research in the domain of SMEs. Through government support, the economy has achieved significant levels of industrialisation, modernisation, and steady economic growth. The present research problem is to identify the innovation enabling and deterring factors, and to explore strategic orientation and its influence on innovation and firm growth performance. In addition, this study seeks to offer insights on innovation development in Australia, to determine the impact of innovation practices on SME business growth performance and attain a greater understanding of SME innovation practices and capacities. The hypothetical conceptual model developed in this study was based on a systematic review of innovation management literature for the construction of an innovation-driven organisation that aims to empower its knowledge workers to innovate, thus unleashing organisational innovation and improving the governance and measurement of innovation. It also provides answers to recent calls to differentiate between components of a firm’s strategic orientations. The study has also developed a behavioural model for strategic planning and investigating the desirability and feasibility for Australian SMEs to engage in innovative activity. It addresses the concern that more evidence is needed to understand the impact of innovation practices on innovation engagement in SMEs. The dataset used in this study comes from the Business Longitudinal Survey (BLS) for Australian SMEs over the financial years 2006/07 - 2010/11, which is the main statistical instrument of Australia. The BLS was developed for monitoring a wide range of business characteristics and behaviours, which it links to performance over time. The results suggest that: first, certain strategic orientations (future orientation, technology orientation, collaboration orientation, risk orientation, and innovativeness orientation) tend to have a significant influence on innovation practices; second, the perception of moderate barriers (financial, knowledge, and environmental) could be beneficial for stimulating innovation activities; and third, innovation practices tend to have a significant influence on business growth performance. Furthermore, a moderating effect of IS integration in the relationship between collaborative network and innovation performance is found. The results of this study present several interesting findings and provide significant contributions. It is highly probable that this is the first empirical study exploring SMEs’ innovation practices in the Australian economy and the impact of these practices on business growth performance. The present study further enriches business and innovation management literature with both managerial and academic implications, because it offers empirical evidence of the relationship between innovation practices, strategic orientations, and business growth performance. It finally provides a practical model at the strategic level of the firm with dynamic capabilities that SMEs can use as guiding principles for formulating innovation strategies.