Levels of innovation within SMEsin peripheral regions: the role ofbusiness improvement initiatives

Richard HarrisUniversity of Glasgow, Glasgow, UK

Rodney McAdamUniversity of Ulster, Belfast, UK

Irene McCauslandDundalk Institute of Technology, Dundalk, Ireland, and

Renee ReidGlasgow Caledonian University, Glasgow, UK

Abstract

Purpose – The aim of this paper is to investigate the effectiveness of business improvement methods(BIM/TQM) in contributing to innovation implementation in SMEs within peripheral regions.

Design/methodology/approach – A survey with responses from 606 SMEs in the North WestEuropean peripheral regions was administered. The survey explores the role of a range of businessimprovement methods (BIM/TQM) as an antecedent or stimulant in helping to achieve three levels ofeffective innovation implementation: introducing new products/services; engaging in innovation thatresulted in major product/service innovation (radical), and engaging in innovation activities that didnot result in major product innovation (incremental), and non-innovative.

Findings – The findings show that BIM/TQM was likely to stimulate and encourage thedevelopment of incremental levels of innovation in the SMEs where there was an emphasis on thepeople, or organic aspects of BIM/TQM applied, rather than more mechanistic BIM/TQM approaches.However, there was a lack of a clear link between BIM/TQM and radical innovation where newness inproducts/services and markets was required.

Originality/value – There is a paucity of studies that probe the effectiveness of applying businessimprovement methods in stimulating innovation implementation, especially in peripheral regions andinvolving multiple levels of innovation.

Keywords Innovation, Survey, Business improvement, Peripheral regions,Small to medium-sized enterprises

Paper type Research paper

IntroductionGovernments, at both national and EU level, have faced a significant policy challengeover the past decade in seeking to improve the competitiveness of indigenous SMEs inperipheral regions (such as North West Europe, as in this study). A number of studies(e.g. Skuras et al., 2008; Cooke, 1996; Soderquist et al., 1997) have shown that SMEsfrom these regions are less competitive and innovative in comparison to more centrallylocated companies. Paelinck and Polese (1999) and Nash and Martin (2003) show thatthe innate limitations of SMEs are compounded in peripheral regions. Their location isleast accessible in relation to the centre of administration or government and costs arehigher in relation to distance to markets and the acquisition of raw materials.

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Journal of Small Business andEnterprise DevelopmentVol. 20 No. 1, 2013pp. 102-124q Emerald Group Publishing Limited1462-6004DOI 10.1108/14626001311298439

Moreover, there are more infrastructure deficiencies, fewer large companies to trade(i.e. lack of a critical mass in local markets), more small-scale traditional familyenterprises, and higher servicing costs.

These geographical or regional limitations are compounded with innate SME skilllimitations (Pinho, 2008). These include training and development ( Jones, 2005;Barclay and Porter, 2005), and resources (Clark, 2010; Venter et al., 2006; Nooteboom,1994). To address these limitations, one area of government policy over the past decadehas been a focus on using business improvement methods, tools and techniques,including total quality management (referred to as BIM/TQM throughout this paper) toimprove competitiveness. Using an overriding mantra of best practice, methods haveincluded total quality management (TQM), ISO 9001, continuous improvement, lean,Six Sigma and many others. A number of studies have shown that the application ofthese methods in SMEs has helped in improving efficiency in some cases (e.g. customersatisfaction – Pinho, 2008; reducing defects – Parast, 2011).

While the increases in efficiency has helped overall competitiveness, the challengeof increasing levels of competition, globalisation and technology development (Hugheset al., 2009; Bierly and Daly, 2007), coupled with the economic down turn in the regionsconsidered in this paper, has challenged SMEs to increase their levels ofinnovativeness (Raymond and St-Pierre, 2010; Laforet and Tann, 2006; Mohannak,2007). In this context innovation is seen as leading to, or being a proxy variable for,competitiveness (Pinho, 2008), in addition to that of efficiency improvements. Hence,government policy has increasingly focused on innovation in SMEs in these regionsusing a range of approaches (Scuras et al., 2008), one of which has been to developBIM/TQM as an enabler for innovation (Clark, 2010; Freel and Robson, 2004). However,there are few empirical studies, probing the effectiveness of BIM/TQM in helping toimplement innovation where innovation is defined as a multi-level construct includingboth incremental and radical levels of innovation (Pinho, 2008; Sa and Abrunhosa,2007; Clark, 2010). There is also a lack of conceptual clarity probing the underlyingassumptions within BIM/TQM in relation to innovation tenets to identify synergies orcontradictions (Hoang et al., 2010; Prajogo and Sohal, 2003).

The aim of the study is to explore the possibility of SMEs in peripheral regionsusing BIM/TQM approaches to overcome their innate resource and geographiclimitations in terms of increasing innovation implementation and ultimately producingnew products and services, beyond that of improving efficiency. The findings will beuseful for both policy makers in terms of targeting development efforts, and for SMEsin using scarce resources effectively to improve innovation implementation and hencecompetitiveness.

The following structure is used in the paper. First, the literature on challenges toSMEs in peripheral regions is explored. Second, the literature and theory relating toBIM/TQM and innovation in SMEs is critiqued, leading to the establishment ofresearch questions. Third, the research methodology and data analysis is given.Fourth, the results are discussed and conclusions drawn along with recommendationsfor further research.

Challenges to innovation development within SMEs in peripheral regionsIn defining innovation, Harris and Robinson (2002) refer to innovation that includestechnological and organisational aspects as being a “broad definition of innovation

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[. . .] including not only the ‘hard’ technologically determined definition but also theorganisational and managerial practices”.This broader approach, beyond that oftechnical innovation, is consistent with that of Tushman and Nadler (1986), whosuggest that “innovation is the creation of any product, service or process, which isnew to a business [. . .] the vast majority of successful innovations are based on thecumulative effect of incremental change in ideas or methods”. Moreover, consistentwith Tidd et al.’s (2009) conception of the “pipeline” of innovation, the Department ofTrade and Industry (1998) states that innovation “is a process of continuous renewalinvolving the whole company and technological developments; it is an essential part ofbusiness strategy and every day practice”. Based on this broad inclusive process orpath approach to innovation, Klein and Sorra’s (1996) seminal work has developed theconcept of innovation implementation, which they describe as “the overall, pooled oraggregate consistency and quality of targeted organisation members’ innovation use”,where innovation is viewed as a path-dependent construct that is more inclusive andwider in comparison to technical innovation. In this current study, innovationimplementation in organisations covers both organisational and technologicalperspectives of innovation (Mosey et al., 2002). While innovation implementation isuseful, it is somewhat homogenous and needs to be deconstructed into levels to showdifferent attainment by SMEs. Three levels of attainment, consistent with previousstudies, are suggested in decreasing order of magnitude:

(1) radical;

(2) incremental; and

(3) lack of innovation.

From this broader perspective of innovation a number of challenges arise for SMEs.First, the process or pipeline of innovation implementation is complex, non-linear, andeclectic and can have breaks or lack of connectedness (Dougherty and Hardy, 1996).This complexity and disconnectedness can be compounded in SMEs due to their scarceresources, lack of skills, limited formal training and development of management andemployees (Pullen et al., 2009; Vossen, 1999; Freel, 2000). However, there is a paucity ofstudies showing how BIM/TQM can be used to overcome these limitations in enablinginnovation especially in areas of difficult market conditions such as peripheral regions(Pinho, 2008).

Second, increasingly larger organisations, which are under pressure to make up forshortfalls in existing large-scale markets, are targeting niche markets, once the uniquepreserve of SMEs, offering specialist products and services innovations (Kumar, 2010;Gunasekaran et al., 1996). This effect creates the need for change in SMEs beyond thatof incremental improvement in efficiency measures (Bhaskaran, 2006) and creates ademand for more radical change in terms of innovation as a sustainable source ofcompetitive advantage. Ghobadian and Gallear (1997) state that SMEs “mustre-examine and modify their competitive strategies by fully incorporating innovationwithin their people, processes and products”. However, there remains a lack ofsystematic research studies on how organisational and technological innovation can beeffectively implemented in SMEs (Scozzi et al., 2005; Freel, 2000; Klein and Sorra, 1996).

Third, location in a peripheral region can be a barrier to innovation in SMEs. Skuraset al. (2008) and Dolereux (2003) show that innovation development is influenced by thecharacteristics of the region. One of the main traits indicative of most peripheral

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economies, and in the current study, is increased costs of operations and organisationsize, as noted by Clark (2010). Areas on the periphery of large economies, such as theEU or the UK, tend to have a larger percentage of SMEs (250 employees or less) incomparison to other regions (Nash and Martin, 2003). Ultimately these smallerorganisations have fewer resources to drive innovation efforts, consistent with Skuraset al.’s (2008) finding for SMEs in peripheral regions that organisational size ispositively correlated with innovation. Overall, there is a paucity of studies oninnovation and SMEs in peripheral regions (Cooke, 1996; Soderquist et al., 1997).

In a review of theoretical conceptions of innovation, which incorporate BIM/TQM,Galende (2006) develops the idea of evolutionary theory. This theory, which is similarto the incremental innovation approach referred to by Sa and Abrunhosa (2007),analyses innovation as having dynamic properties in terms of its development inorganisations and contrasts with the static and linear model of innovation.Evolutionary theory suggests that the process of innovation is path-dependent andis linked to the firm’s historical development and investment in programmes such asBIM/TQM, and hence grounded innovative capabilities are difficult to replicate byothers (Cohen and Levinthal, 1990). This path dependency suggests that BIM/TQMmay, amongst other factors, act as an antecedent for innovation implementation inrelation to more incremental levels of innovation (Hoang et al., 2010). However, Harrisand Robinson (2002) and Clark (2010) suggest that more radical innovation is requiredin terms of newness in products/services and markets if SMEs in peripheral regions areto grow through exporting beyond the peripheral regions.

BIM/TQM and innovation in SMEs: congruence or contradiction?The large-scale investment by government in BIM/TQM (e.g. BEM, ISO 9000, lean, SixSigma) to stimulate competitiveness through increased efficiency in peripheral regionsover the past decade (Sampaio et al., 2009; Pedersen and Neergaard, 2008) has led tocriticisms of government switching to new initiatives without building on previousefforts. It has also led to questioning as to whether the existing and established base ofBIM/TQM can be used to address the new environmental challenge of innovation as akey component of competitiveness (where Pinho, 2008, concludes that innovation is akey dependant variable for competitiveness). Can BIM/TQM and best practiceapproaches contribute to innovation management leading to incremental and radicallevels in terms of new products/services?

A range of BIM/TQM approaches have been developed over the past two decadeswhere BIM/TQM are viewed as multidimensional constructs embodied in an eclecticrange of methods, tools and techniques (Sa and Abrunhosa, 2007; Thompson, 1998).During this period the concepts of BIM/TQM have been subjected to rigorous andtransforming critique and debate, and have become part of accepted managementknowledge (McAdam, 2000). A key feature of the discourse is that it has been groundedin organisational practice and is thus shaped by environmental and market changes inan ongoing and integrated manner within organisations (Prajogo and Sohal, 2003).However, is there a possibility that these grounded characteristics of BIM/TQM couldpromote improvements to the status quo and limit large-scale innovation inorganisations where discontinuities are needed, as discussed by Hermandez-Mogollonet al. (2010), Parast (2011), and Sa and Abrunhosa (2007)? This paradox has led to a

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number of comparative studies between the BIM/TQM and innovation managementliteratures (e.g. Hoang et al., 2010; Prajogo and Sohal, 2003).

In relation to definitions Spencer (1994), Pinho (2008) and Sa and Abrunhosa (2007)show that both organic and mechanistic aspects of BIM/TQM are reflected to varyingdegrees in all of the associated models tools and techniques. People aspects, as shownby Pinho (2008), are associated with the organic aspect and include leadership,teamwork, employee involvement, and culture. The mechanistic or efficiency aspectcovers strategy, planning, customer focus, information and process analysis. Prajogoand Sohal (2003) shows that the elements of both organic and mechanistic BIM/TQMare embodied in models such as the Business Excellence Model (BEM), the BaldrigeModel, and other quality award models. In defining innovation, consistent with theprevious discussion, Clark (2010) indicates that innovation can be both incremental andradical, and depends on a facilitating climate such as a supportive BIM/TQM culture(Hoang et al., 2010). Benner and Tushman (2002) develop a variation on this theme bysuggesting the need for “exploration” and “exploitation” innovation. Explorationinnovation involves widely searching for new capabilities resulting in newproducts/services (i.e. radical innovation), while exploitation innovation involvesbuilding on a firm’s existing capabilities (incremental innovation). The findings ofHoang et al. (2010) and Pinho (2008) suggest that BIM/TQM may contribute more to thelatter category.

In relation to BIM/TQM and innovation is the idea of foundation or precedence(Galende, 2006) that innovation implementation is path-dependent, and concludes that“incremental improvement and [. . .] innovation can be used to complement oneanother”. Similarly, Sa and Abrunhosa (2007) also conclude that innovationimplementation is more effective in companies that have effective BIM/TQM.However, in these studies innovation is viewed as being beyond continuousimprovement but is not explicitly linked to more radical forms of innovation in terms ofnewness of products/services and markets. For example, Pinho’s (2008) study ofinnovation in SMEs found only a weak link between BIM/TQM and innovation andsuggested the need for further studies characterising the levels of innovation. Similarlyin their studies Prajogo and Sohal (2003) and Feng et al. (2006) in their study of 194manufacturing and non-manufacturing Australian managers, and of 252 managersfrom Australia and Singapore it was found that BIM/TQM characteristics correlatedmore closely with incremental innovation, especially organic or people aspects, asopposed to mechanistic aspects, using Spencer’s (1994) classification of TQMdimensions. Consistent with Hoang et al. (2010) in a survey of 63 SME managers, theidea of BIM/TQM having precedence or antecedence for innovation is suggested.However, in all of these studies innovation was defined in an incremental orsingle-level manner, resulting in lack of evidence of support for more radicalinnovation.

Many BIM/TQM models incorporate the ideas of a quality improvement-innovationcontinuum where BIM/TQM is an effective antecedent for innovation implementation.However, many of these models conceptualise innovation as being somewhat beyondcontinuous improvement, rather than using more radical definitions. Prajogo andSohal (2003) and McAdam (2000) list examples of some of the most used BIM/TQMmodels, such as the Business Excellence Model (BEM), Investors in People (IiP) andISO 9000:2000. However, all of these models emphasise the importance of building on

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existing approaches using a continuous improvement ethos and showing evidence ofimproving trends on existing key performance measures. Tidd et al. (2009) contendsthat there is an underlying rationale of cause and effect within these models that canconflict with attempts at “white sheet” or radical innovation with discontinuities ratherthan extrapolation of existing approaches and results. In relation to this issue, Pinho(2008) refers to this effect as “the efficiency of continuous improvement may haveultimately minimised and even removed available resources for innovation”.

In summary, and consistent with Pinho’s (2008) call for more definitive studies,there is a paucity of studies that explore the role of BIM/TQM in relation innovation inSMEs, where BIM/TQM is defined as being incorporated in BIM/TQM methods, toolsand techniques (organic and mechanistic; Feng et al., 2006), and where innovation isdefined at different levels (i.e. incremental to radical). Moreover, there are few studiesthat enquire into this issue in relation to SMEs in peripheral regions, where the need forinnovation is further emphasised by limited resources (Clark, 2010). Two researchquestions are proposed. First, there is a need to determine what types of BIM/TQM arebeing used by the SMEs in the peripheral regions over a sufficient period to be effective(taken as two years minimum, as suggested by Hoang et al., 2010):

RQ1. What are the types of BIM/TQM models, tools and techniques that have beeneffectively applied within the SMEs in the peripheral regions?

Second, there is a need to probe the effectiveness of BIM/TQM in relation to innovationimplementation at different levels, i.e. radical, incremental, or non-evident levels,within SMEs in peripheral regions as suggested by Hoang et al. (2010), Feng et al.(2006), Pinho (2008) and Clark (2010):

RQ2. Is there a link between BIM/TQM and the different levels of innovationimplementation within the SMEs in peripheral regions?

Research methodologyThe research approach involved a survey of 2,000 SMEs in peripheral regions with ausable response of 606 (i.e. 30 per cent which, as shown by Robson, 2002, is anacceptable return for this type of study). Hair et al. (2010) suggest that thiscross-sectional approach is most appropriate where relationships between variablesneed to be probed at an organisational (SME) level of analysis, which is consistent withRQ1 and RQ2. The survey questionnaire was designed to address RQ1 and RQ2 andwas applied using a telephone survey, which gives increased reliability in comparisonto postal or e-mail approaches (Robson, 2002). The geographical area covered theborder counties of the Republic of Ireland and Northern Ireland, and South WesternScotland (designated in the EU RDF Guidelines of 2010 as peripheral regions). All threedevelopment agencies operating in the border regions gave us access to their full list ofSME client companies operating in the border regions (1,334 for NI; 346 for RoI; and495 for Scotland). A random sample of these SMEs was used for the telephone surveysand there is no evidence that suggests the samples were not representative of thepopulation of client firms operating in each region. The telephone survey was targetedat small or medium-sized enterprises (SMEs – up to 250 employees based on theEuropean definitions; micro firms, i.e. those with fewer than ten employees, wereexcluded due to their volatility) – with a target of 200 useable responses for each subregion. The companies were clients of the three government development agencies

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(Enterprise Ireland, Invest Northern Ireland, and Scottish Enterprise), and provide aprofile of the firms already being assisted by government agencies, and hence that aremore likely to have developed innovation implementation agendas. The tables andfigures show the key issues covered in the questionnaire. The questionnaire wasdesigned such that each question and construct within the draft questionnaire wasderived from a triangulation of literature, case data, previous scales/questionnaires andsemi-structured interviews facilitated by the researchers. This process is in line withthat suggested by Hoyle and Panter (1995) for questionnaire design. The initialquestionnaire was then further tested and refined using a pilot study. The pilot samplecontained ten SMEs and ten academics who worked in related disciplines, each withextensive experience of the SME and innovation environment. These pilot tests led toimprovements in the wording throughout the questionnaire and the removal and/oraddition of some questions. The updated questionnaire was then piloted for a final timeusing five companies in each of the three sub regions (i.e. n ¼ 15) to check forunderstanding and validity. A random sample of these SMEs was used for thetelephone surveys, and there is no evidence to suggest that the samples were notrepresentative of the population of client firms operating in each region. The telephonesurvey was undertaken of 606 small-to-medium sized enterprises (SMEs – up to 250employees based on the European definitions) – with a target of 200 useable responsesfor each sub-region. The companies provide a profile of the firms already beingassisted by government agencies, as these are more likely to have developedBIM/TQM agendas as a result of assistance provided by the government agencies inthese regions.

Table I shows the industrial breakdown of the firms surveyed; as expected,manufacturing is the dominant sector in all regions, given that government aid hastraditionally been concentrated on these types of firms. However, fewer firms in theWest of Scotland border region belonged to manufacturing compared to the otherregions, reflecting both a relatively lower manufacturing presence as well as somemovement in recent years on the part of Scottish Enterprise towards assisting firms inother sectors. The information in Table I also indicates that on average, assisted firmsin the West of Scotland were larger in terms of employment, especially inmanufacturing, but generally in other sectors as well.

Responses received were captured in SPSS Version 15 as they arrived until theclosure date. Data was cleaned as necessary, resulting in a useable sample.

ResultsFirm and market characteristics in relation to innovationTable II provides information on characteristics of the firms often associated withdiffering levels of productivity (and thus long-run growth). Northern Irelandcompanies were on average “younger” (i.e. had been in business for a shorter period)and smaller. A smaller percentage of Scottish firms were family-owned (defined as 50per cent or more of the ownership residing within the family). All firms in the surveywere established (micro firms were excluded) in terms of starting to form managementstructures and having the capacity (and hence were more likely to be able) to useBIM/TQM. In terms of sales, the majority of goods and services produced went to otherfirms and households within the same country (consistent with peripheral regionstudies; Skuras et al., 2008), while around 14 per cent of sales went to customers outside

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Table I.Comparison of

distribution of SME firmsin ICE survey by industry

and region

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the British Isles (there was little difference across the three border regions with respectto the importance of exporting). The differences across the border regions in terms ofthe percentage of sales sold outside the country but within the British Isles is 100 percent minus the two figures presented in Table II. For Scotland this is 28.9 per cent (ofwhich 23.6 per cent was sales to England and Wales – there was little to NorthernIreland or the Republic of Ireland); for Northern Ireland the figure is 39.9 per cent (littleof which went to Scotland, but 19.7 per cent and 15.6 per cent went to the Republic ofIreland and England and Wales, respectively); and for the Republic of Ireland thefigure is 22.6 per cent (again there was little trade with Scotland, while 10.5 per centand 8.9 per cent was sold to Northern Ireland and England and Wales, respectively).This findings show that the peripheral regions lack critical mass in terms of being amajor market, as found by Skuras et al. (2008).

As regards the percentage of firms that were “foreign” owned, some 15 per cent ofScottish border region companies had their company headquarters outside of Scotland(two thirds of this figure represented companies headquartered in England and Wales),while far fewer of the SMEs in the Irish border regions (North and South) wereexternally owned. Overall these figures reflect the relative lack of inward investment inperipheral regions and the higher reliance on family owned enterprises, as noted byDolereux (2003) and Ibrahim et al. (2008).

Table II also shows the answers given to the question “In the next 3-5 years whatsingle most important factor will provide the competitive edge of your business?”.Overall some 30 per cent of companies in the ICE survey answered that“product/servicedesign” (i.e. quality factors) was most important (there is littledifference across the border regions, although firms in the Republic of Ireland wereslightly more likely to put this factor highest); while nearly 27 per cent overall thoughtthat “cost effectiveness” was most important (with fewer/more firms inNorthern/Republic of Ireland putting this factor first). The other two factors, whichwere most important for just over a quarter of firms in the survey, were processtechnology and marketing (with respect to the latter, there was a more significant

ScotlandNorthernIreland

Republic ofIreland

Allfirms

Age (in years) 28 21 34 28Average FTE employed 75 30 35 47Percentage family-owned 44.7 64.0 62.5 56.9Percentage sales within own country 55.8 46.3 63.6 55.2Percentage of sales sold outside British Isles 15.3 13.9 13.7 14.3Headquarters outside region 15.1 6.0 3.0 8.1Competitive edge: product designa 28.2 29.5 34.0 30.5Competitive edge: cost effectivenessa 27.7 22.5 30.0 26.7Competitive edge: process technologya 14.1 15.5 13.5 14.4Competitive edge: marketinga 15.5 20.5 8.5 14.9Over last three years competition hasincreased significantlya 17.5 18.5 33.0 22.9In last year overall performance significantlybetter than rivalsa 18.4 10.0 9.5 12.7

Notes: aFigures are the percentage of firms in each region reporting “yes” to the question

Table II.Characteristics of SMEfirms in by region

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difference between firms either side of the Irish border). All of these factors reflect theSMEs’ recognition of their innate lack of skills, training and development, which isnecessary to drive the design and development of products/services. It reflects theirrecognition of the need for more radical innovation in products/services to meet rapidlychanging market conditions (Clark, 2010), in contrast to incremental innovation inquasi-stable markets (Pinho, 2008). For example, Table II shows that around 23 percent of firms thought that competition had increased significantly in the three yearsleading up to the survey; this was especially evident in the six Southern bordercounties of Ireland – where one-third of firms believed that competition was muchstronger – and probably reflects the greater impact of the recent recession in theRepublic of Ireland in comparison to the halcyon days of the “Celtic tiger”.The need forinnovation is also shown by the results in Table II that show whether firms thoughtthat their performance was significantly better than their rivals in the 12-month periodbefore the survey; only around 10 per cent of firms operating in the Irish border regionsthought this to be the case, while just over 18 per cent of Scottish firms answered thatthey experienced significantly better performance. Hence a large majority of the firmswere under pressure from their competitors, leading to a need to increase their levels ofinnovativeness.

Classification of innovation levels in the SMEsFirms in the survey were asked a series of questions:

. whether they had introduced any new products/services in the last three years;

. whether they were involved in innovation-related activities (defined for thepurpose of the survey as “Committing resources to developing new products,processes or services and/or significantly improving existing products, processesor services, or developing new niches for the firm”); and

. whether such innovation activities had resulted in any major product or processinnovations introduced into their plants in the last three years.

Note that the definition of innovation-related activities did not mention R&Dspecifically (to avoid the use of a narrow interpretation of the resources they may havecommitted in this area[1]), and firms were also allowed to distinguish between majorand minor innovations and those developed locally as opposed to in other branches ofthe firm located outside the border regions.

Figure 1 shows that first, overall some 63 per cent of firms stated that they hadintroduced new products/services in the last three years, with the highest level ofinnovation in the border region of the Republic of Ireland (67.5 per cent) and the lowestin Northern Ireland (60.5 per cent). However, second, when firms in the survey wereasked if they were engaged in innovation-related activities, and whether thecommitment of such resources had resulted in any major product innovations in thelast three years, only 45 per cent answered “yes” (again with the highest percentage –49.5 per cent – being located in RoI); thus overall some 18 per cent of firms (i.e. thepercentage introducing new products services less those engaged in innovation relatedactivities which had resulted in major product innovations in the last three years)reported that they introduced new products/services but these were either “not major”and/or had not been as a result of innovation activities undertaken in the local firm asopposed to off-site locations.

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The more important figure is whether there were major product innovations locally,resulting from an investment of local resources in innovation activities. Thus Figure 1also shows the percentage of firms engaging in innovation activities which did notresult in a major product innovation (overall 23 per cent of firms were in this category),as well those not involved in innovation (33 per cent of all firms, but relatively muchhigher in Northern Ireland at 39 per cent compared to 28.5 per cent of firms located inthe Republic of Ireland). In summary, some 55 per cent of the assisted firms in thesurvey did not produce major local product innovations, with those based in NorthernIreland having the worst outcome, as nearly 60 per cent did not innovate. Thesefindings reflect the challenge to innovation implementation at higher levels inperipheral regions where resource limitations ultimately limit investment ininnovation, consistent with the findings of Cooke (1996) and Freel (2000).

Factors affecting innovation within the SMEsWhether or not a firm is involved in innovation-related activities (resulting in a majorproduct innovation in the last three years or no product innovation) is likely to berelated to its characteristics (such as size, market orientation, and approach tocompetitiveness). Thus, certain of the characteristics listed in Table III are related toinnovativeness to see if there is any link between them. Although a certaincharacteristic may vary across innovation sub-groups (based on the three innovationlevels above), this does not mean there is necessarily a strong statistical link; thus, wetest the (null) hypothesis that there is no trend either upwards or downwards across thesub-groups of innovation levels to see if we can reject this hypothesis at a high level ofsignificance (1 per cent), medium significance (5 per cent), or low significance (10 per

Figure 1.Product innovation inSME firms in ICE surveyby region

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orp

rod

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9531

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37.8

45.6

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inn

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7526

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agin

gin

inn

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**

**

**

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Maj

orp

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inn

ovat

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3416

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inn

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ion

3230

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7.8

58.5

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gin

inn

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ion

rela

ted

acti

vit

ies

2422

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35.9

**

**

**

**

**

**

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Ireland

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4329

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3442

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ted

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atio

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Notes:

aA

llfi

rms

are

incl

ud

ed.A

ster

isk

sin

dic

ate

the

abil

ity

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ject

the

nu

llof

no

tren

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ross

inn

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ion

sub

-gro

up

atth

e* 1

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erce

nt,

** 5

per

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gn

ifica

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lev

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Table III.Characteristics of firmsand innovation related

activities in SME firms inICE survey by regiona

Levels ofinnovation

within SMEs

113

cent). Rejecting at any of these levels shows there is a statistical trend, but obviously astrong(er) rejection of the hypothesis requires a high(er) level of significance.

Table III shows that generally larger firms (in terms of their employment size) aremore likely to be successful at innovation, i.e. there is a positive link between firm sizeand moving from not engaging in innovation-related activities to producing a majorproduct innovation. The link is strongest in the Republic of Ireland firms that weresurveyed and weaker in Scottish firms (but still significant), but no significantrelationship is found for firms in Northern Ireland (even though employment sizechanges across the sub-groups with the expected pattern). In part, this positiverelationship between size and innovativeness suggests that larger firms have moreresources for investing in innovation-related activities, consistent with the findings ofKumar (2010) in a comparative study of large and SME firms.

Generally there is little relationship between the number of years the firm has beenoperating and innovativeness (micro and nascent firms were excluded, and hence allrespondent firms had some degree of structure). However, there is a strong negative(positive) link between the amount sold within the country (amount exported) andsuccessful innovation-related activities. This is as expected, as there is awell-established literature that shows that exporting firms have higher levels ofproductivity (Harris and Li, 2009; Cassiman and Golovko, 2011).

With the exception of the Republic of Ireland, being family-owned is associated withlower levels of innovativeness. Lastly, firms who believe that their competitive edge inthe next 3-5 years will come from product design (cost effectiveness) are much morelikely to engage in successful innovation-related activities, reflecting a differentstrategic approach between such firms.

BIM/TQM and levels of innovationHaving established the characteristics of the respondents and their markets in relationlevels of innovation, the more specific influence of BIM/TQM was examined.

With regard to business improvement methods (BIM) used within the SMEs,Figure 2 shows the percentage of firms in each region that used BIM/TQM for over twoyears, consistent with Hoang et al.’s (2010) finding that a two-year period is needed toembed BIM/TQM within organisations. Figure 2 shows that the most popularBIM/TQM is continuous improvement (some 33 per cent of all firms were using this, 39per cent in the Republic of Ireland, 33 per cent in Northern Ireland and 26 per cent inScotland). This finding reflects the emphasis on the incremental approach to changewithin SMEs (Sa and Abrunhosa, 2007; Kumar, 2010) and also the fact that continuousimprovement requires relatively little training and resources. The second mostprevalent BIM/TQM was ISO 9001 (overall 27 per cent of firms had this quality mark).These results reflect the need for many SMEs to have ISO to be admitted to tenderinglists for large private and public sector organisations. For many years the schemereceived grant aid, especially in NI, where relatively more companies are registered(Figure 2). The corresponding figures for the use of ISO 14001 are much lowerreflecting the more specialist environmental nature of this certification which is seen asless relevant to many SMEs, despite government efforts to increase its application aspart of the corporate social responsibility agenda. The results for specific TQMprogrammes (overall 22 per cent of firms had TQM[2] – a broader application ofcontinuous improvement, as shown in Sa and Abrunhosa’s TQM classification) and

JSBED20,1

114

Figure 2.Percentage of SME firms

with businessimprovement methods fortwo years or more in ICE

survey by region (TQM isa formal TQM programme

in these results)

Levels ofinnovation

within SMEs

115

that of total preventative maintenance (TPM) are Investors in People are broadlysimilar in terms of usage where the TPM usage reflects the higher percentage ofmanufacturing SMEs within the respondents (Table I). The similar occurrences ofTQM and Investors in People may reflect the high levels of teamwork and peopledevelopment emphasised within both approaches, which are seen as an extension ofcontinuous improvement within many SMEs. Both Hoang et al. (2010) and Sa andAbrunhosa (2007) equate the “people” aspects of BIM/TQM with the “organic”taxonomy of Spencer (1994) and the “efficiency” aspect with Spencer’s (1994)“mechanistic” construct. The use of the BEM (Figure 2) was surprisingly low giventhat all three regions have regional business award models and processes predicatedon this model. However McAdam (2000) has shown that many SMEs in applying theBEM have applied large model variants that require considerable skill and resources,with a commensurate increase in bureaucracy. Hence, McAdam’s (2000) multiple caseanalysis of applying the BEM within SMEs shows that SMEs do not persist with theBEM up to or beyond the two year period required for inclusion on Figure 2 due toresource constraints. Apart from the mediatory nature of ISO 9001, the results inFigure 2 broadly indicate that the SMEs tend to favour BIMs that are easier to applyand that require lower levels of resources and skills, consistent with the conclusions ofPinho (2008), who found that SMEs were “slow in adopting quality initiatives” incomparison to large companies due to resource constraints. However, in relation toinnovation levels, what stands out in Figure 2 (which is confirmed below in discussingthe BIM/TQM results in Table IV) is the large percentage of firms with BIM/TQM thatalso engaged in innovation activities that did not result in a major product innovationin the last three years. In the majority of cases, this sub-group made higher use ofBIM/TQM than did those firms that innovated and those not engaged ininnovation-related activities. These findings are consistent with Sa and Abrunhosa’s(2007) and those of Pinho (2008) results and conclusions, who states that “the efficiencyof continuous improvement may have ultimately minimised and even removedavailability of resources required for innovation”. This greater popularity of BIM/TQMin such firms may in part explain why they were less likely to have a major innovation,despite investing in innovation-related resources. That is, the time and resources thatneed to be committed to successfully implementing BIM/TQM may weaken the abilityof some firms, who are also investing in innovation activities, to achieve any majorproduct innovations[3]. Moreover the emphasis on cause and effect rationale andextrapolation and improvement of past results and trends may limit morediscontinuous innovation (Sa and Abrunhosa, 2007; Hoang et al., 2010).

The results show that in relation to the culture of the organisation (Table IV) thatinnovative firms were generally more likely to agree that there was a strong team spiritat all levels of the organisation (although differences across innovation sub-groupswere less evident in Scotland); that the culture of the organisation promoted change;and that the structure of the organisation facilitated change (although “structure” –rather than “culture” – was weaker, especially in Scotland). When asked whethertwo-way communication happened at all levels in the organisation, only firms inNorthern Ireland were different in terms of innovation sub-groups (those innovatingwere significantly more likely to agree than were non-innovators). And only in theRepublic of Ireland was there a statistical difference with regard to the statement that“overall employees have access to all the resources needed to get the job done”;

JSBED20,1

116

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Notes:

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†10

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=1

per

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ifica

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aA

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b1,

maj

orp

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uct

inn

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;2,

no

maj

orp

rod

uct

inn

ovat

ion

;3,

not

eng

agin

gin

inn

ovat

ion

-rel

ated

acti

vit

ies

Table IV.Culture and business

improvement methodslinked to and innovationrelated activities in SME

firms in ICE survey byregiona

Levels ofinnovation

within SMEs

117

however, it was those firms that had engaged in innovation related activities, but notachieved a major product innovation, that were most likely to agree strongly with thisstatement. Overall, the findings suggest that the BIM/TQM culture can encourage thedevelopment of innovation, consistent with BIM/TQM acting as a catalyst or “fertilesoil” for innovation (Pinho, 2008), but that the association with more radical innovationis more limited due to diversion of scarce resources (Clark, 2010). These findingssupport those of Figure 2 and the findings of Sa and Abrunhosa (2007) and Hoang et al.(2010), where the cause and effect rationale of BIM/TQM may ultimately limit radicalor discontinuous innovation that is not an improvement on extrapolations of pastperformance. With regard to business improvement methods (BIM), continuousimprovement had been in use for at least two years in some 33 per cent of firms,followed by 27 per cent using ISO 9001, and 22 per cent having adopted total qualitymanagement. Overall, firms that had engaged in innovation-related activities butwithout introducing a major new product/service made higher use of BIM/TQM thandid those firms that innovated (and those not engaged in innovation-related activities).This greater popularity of BIM/TQM in such firms suggests that the time andresources that need to be committed to successfully implementing BIM/TQM mayweaken the ability of some firms, who are also investing in innovation activities, toachieve any major product innovations. However, there were regional differences thatneed to be noted. While TQ/CI programmes seemed to be associated more with firmswho invested unsuccessfully in innovation in Scotland (perhaps indicating TQ/CI “gotin the way”, which is consistent with Pinho’s results), firms in the Republic of Irelandbelieved that TQ/CI was more likely to be associated with successful innovation. InNorthern Ireland there was a much weaker relationship between effective TQ/CI andinnovation activities. More especially, Table IV also shows that those firms in Scotlandand Northern Ireland engaging in innovation-related activities that did not innovatewere more likely to agree that the organisation had a TQ/CI programme. Furthermore,such firms in Scotland (but not the other two regions) stated that they had TQ/CIprogrammes with clear goals, objectives and measures of success; the programme wasadequately resourced; greater than 50 per cent of the workforce was involved; theprogramme was used to improve success; and a number of quality improvements hadbeen achieved from the programme. In contrast, firms in the Republic of Ireland weremore likely to agree that they had a formal TQ/CI programme if they were innovative,and these firms were also more likely to have successful TQ/CI problem-solving teamsspread throughout the organisation. In contrast, there was little relationship betweeneffective TQ/CI programmes and innovation activities in Northern Ireland.

Overall the findings from Figure 2 and Table IV appear to indicate that BIM/TQMis more strongly linked to incremental than radical innovation within the SMEsconsistent with the conceptual findings of Sa and Abrunhosa (2007), Clark (2010), andempirical findings of Pinho (2008) and Hoang et al. (2010).

DiscussionThe results showed that a range of levels were evident in terms of innovation in theSMEs, i.e. innovation implementation activity leading to a major product/serviceinnovation, innovation activity leading to non-major product/service development, andlittle evidence of innovation activity or outcomes. These levels – i.e. radical,incremental and none – contribute to Galende’s (2006) call for knowledge and

JSBED20,1

118

innovation studies using a range of innovation levels. The results of Figure 1 indicatethat although the government-assisted firms in the survey indicated that they were“one step ahead” of the local competition, overall the results suggest that firms in thesurvey that were involved in product innovation were relatively risk-averse towardsmaking a strong commitment to introducing new products and services, which isconsistent with studies on innovation in SMEs (Bessant and Caffyn, 1997).

The factors relating to innovation (Table III and IV) showed that cost effectiveness,competitive pressure and maintaining a competitive edge in process technology, andmarketing were all key drivers for innovation consistent with SME studies oninnovation pull factors (Ibrahim et al., 2008; Ottenbacher and Harrington, 2008). Herethe range of innovation levels reflects the diverse range and intensity of theseenvironmental and market pull factors. The larger firms within the SME sample(i.e. more than 100 and fewer than 250 employees) were more likely to invest ininnovation related activities (Table III), consistent with Moy and Luk’s (2003) growthstudy. Furthermore, firms that exported and those that believed that “product design”was the most important factor in determining their competitiveness in the next 3-5years were more likely to engage in large-scale innovation, consistent with Neupertet al.’s (2006) findings that the intensity of global competition necessitated more radicalinnovation in products/services. The relatively high occurrence of family firms in theresponses reflected the indigenous nature of firm growth in peripheral regions whereinward investment is limited, consistent with the findings of Ibrahim et al. (2008). Thefindings show, consistent with Ibrahim et al. (2008), that family-owned firms weregenerally associated with lower levels of innovativeness and was associated by familymembers’ emphasis on family ownership rather than leadership development and anunwillingness to share knowledge throughout the organisation and its environs.

In terms of BIM/TQM applications, Figure 2 shows that the BIM/TQM mostfrequently applied for a period of two years and greater were those that were relativelyeasy to apply and that involved relatively few resources (e.g. continuous improvement,TQM, and IiP), consistent with the findings of Pinho (2008). These findings show thatthe innate and geographical resource limitations of SMEs in peripheral regions requireall efforts to be focused on business need and avoid unnecessary tangential activity orparallelism consuming scarce resources (Hoang et al., 2010). The exception was ISO9001, which was widely applied by the SMEs. However as shown by Sampaio et al.(2009) SMEs tend to apply ISO 9001 because of trading requirements, i.e. many largeorganisations require ISO 9001 certification by firms who want to be on their tenderlists. Consistent with the mechanistic findings of Sa and Abrunhosa (2007), ISO 9001,with its bureaucracy and procedure-driven approach, is the antithesis of innovationimplementation. In contrast, Figure 2 shows that people and teamwork based BIMs(e.g. CI, TQM. IiP) were used more frequently, which is likely due to fit with SMEsbecause of their ease of use and ability to involve employees at all levels through teamswithout the need for in-depth training (Venter et al., 2006; Nooteboom, 1994; Pinho,2008; Barclay and Porter, 2005). However, in relation to innovation, Figure 2 shows thata large percentage of firms with BIM/TQM also engaged in innovation activities thatdid not result in a major product/service innovation in the last three years. Most firmsin this sub-group made more use of BIM/TQM than did those firms that innovated, andthose not engaged in innovation-related activities. These findings suggest that onereason why they were less likely to have a major innovation, despite investing in

Levels ofinnovation

within SMEs

119

innovation related resources, is that the BIM/TQM approach may not be a significantstimulant for innovation in these firms. The earlier literature discussion indicates thatthe use of scarce resources by the BIM/TQM (Cope, 2005), the cause and effect ormechanistic rationale supporting continuous improvement rather than innovativeness,and the emphasis on trend improvements or extrapolations (Sa and Abrunhosa, 2007;Hoang et al., 2010) by BIMs may contribute to this lack of innovativeness. Hence theassumption BIM/TQM leading seamlessly to innovativeness at incremental andradical levels is more complex than previously envisaged.

The results from Table IV show that that a culture of continuous improvement andbusiness improvement is supportive of innovation. The findings indicate thatBIM/TQM cultural elements such as a strong team spirit at all levels of theorganisation and effective two-way communication tended to support incrementalinnovation but that the association with more radical product/service innovation wasless significant. These findings suggest, consistent with Figure 2 and the findings of Saand Abrunhosa (2007) and Hoang et al (2010). that the cause and effect rationale ofBIM/TQM may ultimately limit radical or discontinuous innovation that is not animprovement on extrapolations of past performance. However, there were regionaldifferences shown in the results that are not analysed in this paper and will be furtherprobed using qualitative techniques. Table IV also shows similar findings in relation topresence of a TQ/CI programme, clear goals, objectives and measures of success;adequate resourcing; greater than 50 per cent of the workforce was involved; theprogramme was used to improve success; and a number of quality improvements hadbeen achieved from the programme. Overall the findings from Figure 2 and Table IVappear to indicate that BIM/TQM is more strongly linked to incremental than radicalinnovation within the SMEs consistent with the findings of Sa and Abrunhosa (2007),Clark (2010), Pinho (2008), and Hoang et al. (2010).

ConclusionsThe study seeks to contribute to the relative paucity of studies on businessimprovement methods (BIM/TQM) and innovation using a consistent theoreticalapproach. The increased pressure on SMEs in peripheral to implement innovation toremain competitive in times of economic downturn has led to a probing of the role ofBIM/TQM in stimulating increased innovation implementation.

It is concluded in relation to the first research question that the BIM/TQM that aremore likely to be used by the SMEs are those that are easier to apply, involve fewresources and which are people-orientated in terms of encouraging and facilitatinginvolvement in all levels in team improvement activities (i.e. continuous improvement,TQM, Investors in People). Only a limited number of SMEs used more involvedapproaches such as the BEM and Six Sigma, which is likely due to their morebureaucratic and formal approach and use of scarce resources (Pinho, 2008) and theneed for in-depth training (Jones, 2005). However Hoang et al. (2010) and Sa andAbrunhosa (2007) suggest that the more people-orientated approaches of BIM/TQMare more likely to encourage innovation than mechanistic approaches, albeit still at anincremental level.

The study concludes, in relation to the second research question, that there isevidence that the use of BIMs can help continuous improvement and incrementalinnovation but that more radical innovation in terms of new products/services is less

JSBED20,1

120

clear. Therefore, in relation to the contribution of BIM/TQM to incremental innovationfundamental there is an opportunity for SMEs with relatively little additionalexpenditure in terms of resources and skills to develop innovation agendas for existingproducts, processes and markets. These findings are consistent with policyrecommendations (Pinho, 2008), where it is suggested that government policymakers could leverage existing resource investment in BIM/TQM to encourageincremental innovation. However, developing radical innovation in peripheral regionSMEs is likely to require a different policy and approach. These findings areparticularly important for SMEs in peripheral regions where innate SME limitations oflack of resources, skills and investment are further limited by geographical factors.

There is a need for further research to probe regional differences within the threeperipheral regions in the study. Research to progress this agenda could includequalitative interviews with both government policy formers and SMEowner/managers. There is also a need to further probe the links between the BIMsand innovation levels using multivariate analysis to further explain latent variable andhierarchical effects within the analysis.

Notes

1. We did ask firms to tell us how important was the presence of an R&D department in thedesign and development process surrounding the introduction of new products/services inthe last three years; the percentage answering that it was crucial were 41.1 per cent, 47.9 percent and 62.2 per cent, respectively, in Scotland, Northern Ireland and the Republic ofIreland.

2. Note, the percentage of firms with at least one of the BIM’s was 57.8 per cent, 50 per cent, and60 per cent respectively, for Scotland, Northern Ireland and the Republic of Ireland borderregions.

3. Alternatively, it may be that such firms treat BIM/TQM in part as an alternative tointroducing new products/services – i.e. to instead incrementally improve the quality oftheir existing goods and services.

References

Barclay, I. and Porter, K. (2005), “Facilitating innovation across SME networks”, InternationalJournal of Entrepreneurship and Innovation Management, Vol. 5 No. 1, pp. 20-35.

Benner, M. and Tushman, M. (2002), “Process management and technological innovation; alongitudinal study of the photography and paint industries”, Administration ScienceQuarterly, Vol. 47 No. 4, pp. 76-109.

Bessant, J. and Caffyn, S. (1997), “High-involvement innovation through continuousimprovement”, International Journal of Technology Management, Vol. 14 No. 1, pp. 14-22.

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Corresponding authorRodney McAdam can be contacted at: r.mcadam@ulster.ac.uk

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