Small firm - Large firm Relationships. Druid 2014

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  • 1.Small firm-large firm relationships and the implications for small firm innovation: What do we know? Dr Andrew James*, Dr Sally Gee*, Prof Jim Love**, Prof Stephen Roper*** and Jack Willis* * Manchester Institute of Innovation Research, Manchester Business School, University of Manchester, UK ** Aston Business School, Aston University, UK *** Warwick Business School, Warwick University, UK DRUID Society Conference 2014 on ENTREPRENEURSHIP - ORGANIZATION INNOVATION, Copenhagen Business School, Denmark 16-18 June 2014

2. Rationale for the paper Long-standing debate on the relative innovativeness of large and small firms (Acs and Audrestch, 1987; Tether, 1998) Much less research on the impact of relationships between large & small firms on innovation in smaller firms Few explicit studies despite extensive literature on SME innovation, increasing focus on open innovation & SMEs, SMEs in innovation ecosystems, SMEs in supply chains Rothwell (1989) published 25 years ago but remains seminal work 3. A typology of small firm-large firm relationships in innovation Vertical/supply chain relationships: oriented around the flow of material goods & service Subcontracting relationships Producer-customer/user relationships Knowledge creation & exchange relationships: internalising knowledge Large firm-small firm collaborations Licensing agreements Knowledge-informed acquisitions Knowledge creation & exchange relationships: stabilising divisions of innovation activity Contract research Corporate venturing Open innovation ecosystems (adapted by the authors from Rothwell, 1989) 4. Dynamic complementarities between large & small firms Certain relationships can effectively combine the advantages of large firms & SMEs to promote technological innovation (Rothwell, 1989; Arora & Gambardella, 1990; Rothwell & Dodgson, 1994) Behavioural advantages of some SMEs: entrepreneurial dynamism, internal flexibility, responsiveness to changing circumstances Material advantages of large firms: greater financial & technological resources for innovation; large scale investment in production facilities; regulatory capabilities; extensive distribution networks & channels to market; financial capacity to undertake longer time-to- market investments Extent of dynamic complementarities may vary between sectors & over the industry life cycle 5. Vertical relationships: demand networks & supply chains Vertical relationships with customers & suppliers are the most common form of external innovation linkage for SMEs (Brunswicker & Vanhaverbeke, 2011) & have the largest impact on innovation in SMEs (Nieto & Santamaria, 2010) SMEs who are proactive in strengthening vertical relationships have higher innovation performance than other SMEs (Lasagni, 2012) Large firms tend to be the focal organisations in many of these demand networks & supply chains but we know very little about their engagement of SMEs as sources of innovation 6. Horizontal relationships: open innovation, alliances & networks Open innovation literature emphasises the growing role of external knowledge networks & routes to commercialisation in business strategy as a means to overcome resource constraints and improve innovativeness & competitiveness of firms (Chesbrough, 2003; Chesbrough, 2006) SMEs may rely more heavily on external knowledge networks than large firms (Rogers, 2004) & strength of alliance networks of start-ups may lead to significant differences in their subsequent innovative performance (Baum et al, 2000) Engagement in open innovation networks may be a particular challenge for SMEs since they may lack the breadth of technological knowledge necessary for broad partnerships; lack the ability to efficiently protect their intellectual property; and have lower absorptive capacity (van de Vrande et al, 2009; Chesbrough, 2010) Open innovation strategies of large firms emphasise effective engagement of external sources of innovative capabilities wherever they reside, including SMEs but we know very little about how large & small firms interact in open innovation ecosystems 7. Tensions in the SME-large firm relationship may have an impact on SME innovation Lean supply chain management practices may be reducing opportunities for SMEs (Dowdall, 2004; Rutherford & Holmes, 2008) Where a focal (large) firm has a monopoly or oligopoly position, this may suppress radical/disruptive innovation in the supply chain (Afuah, 2002; Kaufman et al, 2003) & opportunities for innovative SMEs in the supply chain (James, 2012) In some sectors, large firm practices may have led (SME) suppliers to invest less in new product development & innovation (UK Competition Commission, various) 8. Limitations of data from innovation surveys Much of the data on small firm-large firm relationships comes from qualitative case studies or supply chain analyses Econometric or statistical analysis of small firm-large firm relationships & impacts on small firm innovation are limited, due in part to limitations of most innovation surveys Community Innovation Survey (CIS) provides some information on innovation partnerships but not size of partners: Whether a firm collaborated with suppliers, customers, etc as part of its innovative activity Subjective indication of importance Other sources of innovation (patents, standards, etc) 9. What do we need to know? There is virtually no specific evidence on the size of the firms with which SMEs interact or on whether interactions with firms of different sizes have differential effects with regard to SME innovation Limited attention has been paid to the factors that may support or hinder the engagement of SMEs in the supply chains of large firms & the responsiveness of large firms to innovation from SMEs We know very little about how large firms and SMEs interact in open innovation nor the creation & dynamics of large firm-SME relationships within innovation ecosystems The focus of much of the research has been on technological innovation yet large firm-SME relations may lead to other types of innovation (e.g. in business processes) Most of the research has focused on new, growing technology sectors (e.g. biotechnology) but what about stable/traditional sectors? What about the service sector? There is little in the existing research on management practice: what SMEs should do to maximise the innovation benefits of links with large firms & overcome the challenges


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