Service innovation and performance in SMEs

Christopher Mark McDermott · Daniel Indarto Prajogo

226 citations0/0 files storedInternational Journal of Operations & Production Management

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Innovation and Knowledge Management Firm Innovation and Growth Service and Product Innovation

Abstract

Purpose The purpose of this paper is to examine the relationship between exploration and exploitation innovation, and business performance in small and medium enterprise (SME) service firms. Furthermore, the paper also examines the interaction between the two innovation orientations in predicting business performance, and the influence of size in the effectiveness of each of them in enhancing business performance. Design/methodology/approach Using empirical data drawn from 180 managers in Australian service organisations, this study also compares the effect of ambidextrous innovation on business performance within these SMEs. Findings The findings show that, controlled for size, neither of the innovation orientations show significant, direct relationships with firms' performance. However, ambidextrous innovation was positively associated with business performance, indicating a synergy between exploration and exploitation. Further examination indicates the relationship between exploration/exploitation innovation and performance is moderated by size within the authors' sample of small firms. Research limitations/implications Taken together, the results point to an interesting and complex relationship within SMEs relating to innovation orientation, size, and performance. This relationship suggests that service SMEs are best served by the simultaneous pursuit of both exploitive and exploratory innovation. Originality/value This research is original in that it deliberately focuses on innovation in service SMEs, an area that has not seen significant research previously. As such, the authors' insights into the relationship between ambidextrous innovation and performance suggest the need for creating balance and synergy between the two innovation types.

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References

1997Dynamic capabilities and strategic management 2003The Theory of Economic Development 1991Exploration and Exploitation in Organizational Learning 1986Self-Reports in Organizational Research: Problems and Prospects 1934The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle 1992Core capabilities and core rigidities: A paradox in managing new product development 1989Strategic management of small firms in hostile and benign environments 1996The robustness of test statistics to nonnormality and specification error in confirmatory factor analysis.

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