Journal of Small Business and Enterprise Development

Innovative characteristics of small manufacturing firms

Sylvie Laforet, Jennifer Tann,
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Journal of Small Business and Enterprise Development, Vol. 13 Issue: 3, pp.363-380, doi:
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Innovative
Innovative characteristics of characteristics
small manufacturing firms
Sylvie Laforet
Management School, The University of Sheffield, Sheffield, UK, and 363
Jennifer Tann
Business School, The University of Birmingham, Birmingham, UK

Abstract
Purpose – The purpose of the paper is two-fold: one, to focus on a specific industry – the
manufacturing industry. In response to recent criticisms research in small to medium-sized enterprises
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(SME) is not sector/industry-specific, consequently the advice for these companies was too general and
not of any particular help. Two, the research addresses innovation management in terms of the
interrelationship among the three elements of a business: product, process and ways of working, which
were often explored in isolation in the literature. Similarly, a definition of innovation was established
and a systematic approach to company innovativeness was adopted.
Design/methodology/approach – A survey of 1000 West-Midlands-based manufacturing SMEs
(SMMEs) was conducted. Ten indicators were used to measure company innovativeness. The top 20
per cent firms were compared with bottom 80 per cent firms in terms of product innovation
management, process and work organisation. Means of responses were compared for two sets of
companies. T-tests were performed to draw some conclusions on the results. Discriminant analysis
was used to determine the factors distinguishing more and less innovative companies.
Findings – The results showed SMEs in the manufacturing industry are similar to SMEs in other
industries. The drivers of SMME innovativeness were: market anticipation, customer focus and
commitment of CEO/owners in NPD, processes and new ways of working. Innovation was part of the
business strategy and goal-oriented. However, innovation in SMME was based more around
developing new ways of working than new product innovations. The use of systems/technology and
process innovation was not uniform amongst more and less innovative companies. The main
constraints of SMMEs were customer dependency, skills and knowledge acquisition through training,
poor learning attitude and networking because of their tradition of being insular and autonomous.
Originality/value – The paper provides useful information on innovation management in small
manufacturing firms.
Keywords Manufacturing systems, Small to medium-sized enterprises, Innovation
Paper type Research paper

Introduction
The relative advantages or disadvantages to a manufacturing company of focusing on
single or tightly-related portfolio of products or, of diversifying have been addressed by a
number of authors (Porter, 1980; Kanter, 1989). For small to medium-sized enterprises
(SMEs), there is often little choice. Many will have entered the market as single product or
technology-led companies without the finance to broaden their product range even if this
were considered strategically desirable (Storey, 1982). A major issue for all SMEs in this Journal of Small Business and
position and particularly for those in existence for some years is how to survive by Enterprise Development
Vol. 13 No. 3, 2006
maintaining or increasing market share through innovation. Such companies are pp. 363-380
particularly vulnerable to competition from organisations both within and outside the q Emerald Group Publishing Limited
1462-6004
sector that propose alternatives to the product, raw materials/components and the DOI 10.1108/14626000610680253
 JSBED manufacturing process or work organisation. While key characteristics of large
13,3 innovating firms are better known (Pettigrew, 1985; Pavitt, 1991; DTI/CBI, 1993/1994),
little research has been done on innovation in SME manufacturing single products,
although the sector was reported to be critical to the British economy by the DTI report
(DTI/CBI, 1993/1994). According to this report, manufacturing companies make one-fifth
of Britain’s economy, employ about four million people and many more indirectly.
364 Manufacturing SMEs (SMMEs) not only directly provide a major component of
manufactured output they are the essential seeds from which larger businesses grow.
Their importance has also long been recognised through a range of government support
initiatives (Duan and Kinman, 2000), for example, £15 million government funding went
to SMMEs to provide hands-on help with new manufacturing technology and best
practice (DTI/CBI, 1993/1994). Through regional centres for manufacturing excellence,
practical advice was also offered to SMMEs.
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In the 1990s the manufacturing sector was reported to have experienced a slow pace
of output growth (The Times, 1996), thus in order to survive and maintain their
competitiveness in the market place, innovation is fundamental to SMMEs. Larger
manufacturing companies can often invest in new technologies and equipment,
providing world-class skills and training to their workforce and winning new markets,
which is clearly not the case for their smaller counterparts. However, studies by Mosey
et al. (2002) and Mosey (2005) showed that a small number of British SMMEs survived
and thrived through the release of innovative new products.
This paper explores the characteristics of innovative SMMEs. The research
addresses issues of innovation management in terms of new product development,
process innovation (referring to investments in systems/technology and people),
culture (or organisational values) and new ways of working. The paper outlines a
review of literature on innovation research and the factors contributing to successful
innovation in SMEs, discussion of methodology and presentation of findings.
Conclusions are drawn based on the analyses of results and a discussion of the
implications for companies is provided.

SME innovation research

Brown (1998) noted three research streams in SME innovation research: the
economic-oriented, organisation-oriented and the project-oriented streams. Studies
from the economics-oriented stream showed that small businesses are an important
driving force for innovation and that they can be as innovative as larger enterprises.
Research from the organisation-oriented stream prescribed a number of factors that
small business owners could use to enhance company performance such as
networking, making use of regional centres, planning carefully and developing
strategies appropriate to their businesses. Similarly, these studies prescribed how
SMEs could manage innovation effectively and efficiently through optimising
organisational structure, which will be explained in the next section of this paper. The
project-oriented stream suggested that customers were important sources of SMEs
innovation. Brown (1998) further commented that innovation studies in SMEs had a
large diversity of focuses and much remained unknown about the ingredients for
successful innovation in the small business sector. Hisrich and Drnovsek (2002) also
revealed innovation studies in SMEs covered a wide range of issues such as barriers to
innovation, regional variations in the level of innovation activities, types and
 typologies of innovative SMEs. He further added these studies were predominantly Innovative
normative and directed to practitioners or policy makers. In addition to Brown, Hisrich characteristics
and Drnovsek’s reviews of literature, our own literature review revealed that
innovation research in SMEs centred round entrepreneurship and innovation
(Goldsmith and Kerr, 1991; Ramachandran and Ramnarayan, 1993; Lipparini and
Sobrero, 1994; Georgellis et al., 2000; Beaver and Prince, 2002; Gray, 2002; Mambula
and Sawyer, 2004), diffusion and innovation (Rothwell and Zegveld, 1986; Nooteboom, 365
1994), regional variations (White et al., 1988), market types (Sebora et al., 1994) as
mentioned above, as well as innovation management and the mismanagement of
innovation in medium-sized firms (Webb, 1992). Innovation management studies in
particular, often focused on hi-tech small firms (Oakey et al., 1988; Boag and Rinholm,
1989; Storey, 1994; Raffa and Zollo, 1994; Reid and Garnsey, 1996; Birchall et al., 1996;
Motwani et al., 1999) and examined in terms of process innovation (Livesay et al., 1989;
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Birchall et al., 1996; Barnett and Storey, 2000) and new product development (Mosey
et al., 2002; Mosey, 2005). Recent studies also looked at a number of contributing
factors which might lead to an increase in company innovative performance such as
benchmarking, networking (Mitra, 2000; Terziovski, 2003; Massa and Testa, 2004),
R&D (Raymond and St-Pierre, 2004) and organisational learning. At the corporate
level, corporate entrepreneurship (Zhara et al., 2000) embodying a company’s
innovation and venturing was found to influence company performance. Similarly
strategic orientation and competitive structure (Salavou et al., 2004) in which a
company operates was found to have effects on company innovative performance. As
stated above, innovation studies in SMEs are diverse, our literature review also showed
research in this area is fragmented in so far as innovation management is concerned,
new product development and process innovation were often explored in isolation and,
the research was often done through field studies, questionnaire surveys or case
studies focusing on a small sample of companies.

Factors contributing to successful innovation

Past literature identified several aspects of what was considered as critical success
factors for innovative strategy in SMEs (Dogson and Rothwell, 1991; Bowen and
Ricketts, 1992) and effective strategic formulation in successful small hi-tech firms
(Oakey and Cooper, 1991). The success factors highlighted in these studies among
others were: promoting a corporate culture, creating structure reflecting in the effective
use of systems and technology and investors in people (IIP) (currently known as
process innovation), analysing competitors, developing co-operations and partnerships
similar to the networking concept.
With regard to promoting a corporate culture, Pavitt (1991) first raised issues such as
flexibility, short communication lines, close relations with customers, motivation of
management and labour force, less bureaucracy, little filtering of proposals with strong
interest in product development and technological change as part of the characteristics
and strengths of an innovative culture. Lack of bureaucracy, efficiency, informal
communication, flexibility were further emphasised by Birchall et al. (1996), Chandler
et al. (2000) and Beaver and Prince (2002). Adaptability through nearness to markets and
close working relationships with customers were again found to be associated with
innovation. In addition, Chandler et al. (2000) found close analysis of competitors,
supervisory and reward system support to be most relevant to successful innovation.
 JSBED Part of the theme of promoting an innovative culture, Heunks (1998) also found
13,3 successful SMEs associated with committed leaders with vision, enthusiasm,
future-oriented exploit external opportunities for inward investment and information
gathering. In addition, Motwani et al. (1999) prescribed that leaders must demonstrate
active strategic commitment to research and technological change. All the above themes
such as fostering a creative environment, the right leadership in addition, listen to new
366 ideas, top management play multiple roles, the right organisational systems are also
found to be relevant in current literature (Blumentritt, 2004; Mambula and Sawyer, 2004).
Other studies also showed the extent to which small businesses innovate successfully
would depend on their capacity to plan ahead, to have a clear strategy and to manage
strategically which is reflected in companies being market-oriented and willing to learn
as well as to innovate and take risks (Georgellis et al., 2000; Beaver and Prince, 2002;
Salavou et al., 2004). The finding on risk-taking was also confirmed by a study conducted
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among American SMEs (Blumentritt, 2004), showing that the most innovative firms
were competitively aggressive and willing to take on greater degrees of risk.
Regarding process innovation, current literature suggested innovation was part of a
long-term organisational evolution, customer relationships were important to
long-term sourcing both financial and knowledge terms, while human resource
development issues were necessary in order to underpin the two elements mentioned
above (Barnett and Storey, 2000). Under this theme, past literature also often
hypothesised that SME did not innovate in formally recognised ways and that they
made much more extensive use of external linkages (Barnett and Storey (2000) citing
Hoffman et al. (1998)). Another finding related to this theme by Barnett and Storey
(2000) was companies emphasised process innovation as much as product innovation.
This was further supported by Georgellis et al. (2000) who showed that the degree of
innovation in processes closely associated with degree of innovation in new products
and services. This finding contrasts with tendency in literature to emphasise either
process improvement or new product development. For instance, Blumentritt (2004)
found that US SMEs pursued process innovation more than developing new products
found that SMEs spent more time developing new ways of producing products or
services and new ways of delivering them to customers.
While some studies focussing on new product development suggest that product
innovation activities are the cornerstone of better-performed companies and, those
with aggressive growth ambitions (Mosey et al., 2002; Mosey, 2005). Mosey (2005)
further suggested that manufacturing SMEs by repeatedly introducing innovative new
products opens up new market niches, which is essential to their survival.
Furthermore, Mosey’s longitudinal study showed success to product innovation
activities of a SME includes a multi-functional approach to decision making and the
use of market and competitor analysis in strategic product planning. This was further
supported by effective cross-company communication of decisions and plans.
Innovation literature also places great importance on company learning,
benchmarking, training and networking. For instance, highly innovative firms were
found to place great emphasis on employee development training through industrial
education of young people in the locality through modern apprenticeships, student
placement and school visits – a clear contrast with SMEs in general (Barnett and
Storey, 2000). With regard to benchmarking, a recent study found that this enables a
company to compare its practices and performances with others as well as to acquire
 external explicit and tacit knowledge, which may lead to improvements and Innovative
innovations (Massa and Testa, 2004). Other researches also showed that SMEs were characteristics
better able to innovate when they were part of clusters (Mitra, 2000), i.e. networking.
Additionally, a study conducted among Australian manufacturing SMEs suggested
that small manufacturing companies was more likely to improve their chances of
achieving business excellence through networking than without (Terziovski, 2003).
Size, age and flatter hierarchies were found to have effects on company 367
innovativeness. White et al. (1988) for instance, suggested that the smallest firms (, 20
employees) had the benefit of individualism, the larger firms (50 þ employees) the
benefit of more resources and systems, while the intermediate group (20-49 employees)
lacked the best of either world. Ettlie and Rubenstein (1987) also suggested the type of
innovation that moderated the size relationship. They further stated for radical
innovations may require additional funds for technical work, capital investment for
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plant and equipment, marketing and promotions. Larger size may be a key enabling
condition because of access to key resources and addressing these key issues. Whereas
Rothwell and Zegveld (1986) contrasted firm size and innovation across several
industries and concluded that the issue of innovation by firm size was not to do with
the question of “big” or “small” firms, but with other factors such as different phases in
the industry cycle that would vary with technology, markets and government policy.
As far as age is concerned, little was explored in the literature to determine whether
age of the company or how established the company is would have an impact on a
company’s innovativeness. Nevertheless, Reid and Garnsey (1996) in their study on
small hi-tech companies asserted that companies spent the first ten years to contract
out and began a programme of product innovation later. This suggests that age may
have an impact on company innovativeness. Flatter structure or hierarchies were also
suggested to be the norm in successful SMEs (Heunks, 1998; Motwani et al., 1999;
Chandler et al., 2000; Georgellis et al., 2000; Beaver and Prince, 2002).
A concluding remark – as Leseure (2000) observed, what works in one organisation
does not necessarily apply to another and managerial practices vary from one
socio-economic culture to another. This lack of contextual sensitivity is especially true
when one considers the extensive research carried out in innovation in SMEs through
the literature review above. Yet, first, in so far there is no standard definition of
innovation. Second, there is no specific guidance on what constitutes company
innovativeness or world-class performance – neither standard measures of company
innovativeness nor measures of company performance were found in the literature.
Third, there is no guidance on factors contributing to successful innovation and
innovation management for a specific industry within the SME sector. As stated above,
most studies were done through field studies, questionnaire surveys or case studies
focusing on a small sample of companies across industries – in particular, very few
studies focussing on the manufacturing sector. As previously highlighted, this sector is
an important one to the British economy and specific strategies are required for
SMMEs in order to assist these companies face future business challenges.
Therefore, the research objectives are to investigate company practice, to determine
innovative characteristics of SMMEs using a systematic approach to measuring
company innovativeness – based on the DTI/CBI report as explained below. To
examine the inter-relationship between new product development, process innovation
and work organisation based on our working definition of innovation above.
 JSBED Methodology
13,3 A mail survey was conducted randomly among chief executives (CEOs)/owners of
1,000 Birmingham and the West Midlands-based manufacturing firms. The list of
companies was obtained from the DTI and Birmingham Business Link’s database. The
companies surveyed were broken down twice: first, a Business Link’s breakdown of
company size by the number of employees, second, by a regional breakdown of
368 manufacturing industry by sub-sectors (Table I). Companies were selected in a way so
a control group was created. Of the 1,000 questionnaires mailed, a total of 100 were
returned giving a response rate of 10 per cent, five were non-usable. CEOs/owners were
asked questions on the company’s new product development, systems and technology,
process innovation, culture and ways of working as well as networking. This is based
on our working definition of innovation as “seeking new or better products, processes
and/or work methods”.
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The responses were entered into a SPSS database and analysed using both
descriptive statistics and inferential statistics to generate hypotheses and validate the
results observed. Ten indicators derived mainly from referencing the DTI/CBI
(1993/1994) report were used as an arbitral measure of company innovativeness. These
were:
(1) number of new product ideas a company had in last five years;
(2) number of new product(s) launched in last five years;
(3) number of product (s) improvement introduced in last five years;
(4) innovation prize(s);
(5) when the newest product introduced;

No. of employees
5-10 22
11-20 19
21-50 30.5
51-100 19
101-150 6.5
151-200 1
201 þ 2
Sector by SIC code
Pulp paper/paper production/publishing/printing 16
Electrical/optical equipment 12
Food products/beverages 2
Wood/wood products 2
Chemicals/chemical products/manmade fibre 2
Rubber/plastic products 2
Machinery/equipment 13
Transport equipment 1.5
Table I. Furniture 13
Breakdown of companies Basic metals/fabricated metal products 29
surveyed by employees Textile/textile products 2
and SIC code Other non-metal mineral products 3.5
 (6) the percentage of sales from this product; Innovative
(7) extent to which major customers provide specification for new product(s); characteristics
(8) level of investment in systems and technology for office;
(9) level of investment in systems and technology for shop floor; and
(10) new or improved ways of working in last five years.
369
Top 20 per cent companies, which scored high on the ten criteria above, were compared
with the bottom 80 per cent companies, which scored low on the same criteria. The
former companies would be referred as “more innovative” companies, the latter as “less
innovative” companies. The grouping is such that because, none of the companies
surveyed were consistently innovative over the ten indicators above (Table II). Some
led on certain innovations and followed on others; this is not unusual. Furthermore, if
companies were categorised as innovative and non-innovative companies, a lot of data
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would have been lost across a number of variables. T-tests were performed to
determine whether any significant difference exists between means of responses from
more and less innovative companies on a number of independent variables. A
discriminant analysis used to find out which factors differentiated the more and less
innovative firms. Similarly, to better describe data in terms of frequencies
cross-tabulation analyses were employed and chi-square statistics calculated to
determine whether the data were generated through observation or occurred more
naturally.

Findings
Characteristics differentiating between more and less innovative companies
The results of the survey showed more and less innovative companies broadly differed
in culture, process and strategic orientation.
Culture and ways of working. The results showed more innovative companies had
higher commitment to innovation than in less innovative companies. In more
innovative companies, the CEO/owner was found more involved in developing new
products, processes and ways of working than in less innovative companies. (Table III
shows a significant difference between more and less innovative companies on these
variables.) This finding is consistent with the DTI/CBI (1993/1994) report based on a
survey of manufacturing companies of various sizes – which prescribed best

Criterion Value Percentage of companies

No. of new product ideas in last five years 4þ 20

No. of new products launched in last five years 4þ 31.60
No. of new products improvement 3þ 23.20
Innovation prizes won in last five years 1þ 5.30
Most recent product introduced 2,000 þ 60
Percentage sales from this product 50 þ 5.30
Customers provide specifications for NPs Yes 45.30 Table II.
Cost reduction Yes 39 Spread of companies in
Investment in machinery equipment last two years 50,000 þ 11.30 each “innovativeness”
Ways of working introduced in last five years Yes 51.60 indicator
 JSBED
More Less
13,3 innovative innovative
(%) (%) x 2 sig. t-test sig.

Commitment to innovation
Innovation feature in objective 100 65.3 0.019 0.02
370 Innovation in publicity feature in publicity 91 47.2 0.007 0.006
CEO involves in NPD 100 79 0.01 0.04
CEO involves in developing new ways of working 100 88.6 0.003 0.01
CEO involves in developing new processes 100 82 0.01 0.01
Continuous improvement and technology system
Employee suggestion scheme 58.3 18.5 0.002 0.002
CAD 70 37 0.045 0.045
CAM 44.5 12 0.01 0.01
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Market anticipation
Regularly study the market 88.3 56 0.025 0.006
Regularly study competitors 67.5 42.5 0.014 0.03
Working environment
Employees feel free to disagree 83.3 57 0.05 0.05
Project champions
Table III.
New product team takes lead in implementing NPD 25 5 0.01 0.01
Factors differentiating
Everyone knows criteria for evaluating new product
the more and less
projects 82 32 0.006 0.01
innovative companies –
chi-square and t-tests Staff training
results Middle managers (in-house courses) 50 21 0.025 0.03

companies as “having a clear sense of mission and purpose and strongly committing to
innovation” and “the CEO shows a strong personal commitment to innovation” (Pavitt,
1991; Heunks, 1998).
The findings also showed more innovative companies empowering their employees,
studied the marketplace regularly and provided training more for their managers than
in less innovative companies. (Table III shows a significant difference between more
and less innovative companies on variable “studying the market” and on variable
“studying competitors” and in terms of training respectively). These findings also
confirm with the literature (Barnett and Storey, 2000; Chandler et al., 2000; Georgellis
et al., 2000; Beaver and Prince, 2002; Salavou et al., 2004). In addition, the results
obtained from the discriminant analysis (Table IV) showed the determining factors of
more innovative companies were: project champions, a good working environment,
and staff training.
Strategic orientation. The findings showed in more innovative companies,
innovation was goal-oriented. It featured in the company’s objectives and in the
company’s publicity materials. This finding confirms the DTI/CBI (1993/1994) report
and broadly consistent with a number of past and recent studies (Pettigrew, 1985;
Pavitt, 1991; Georgellis et al., 2000; Salavou et al., 2004).
Process innovation. The results showed more innovative companies have a better
systems and technology in place than less innovative companies. With regard to
computer-aided design (CAD) and computer-aided manufacture (CAM) processes, more
 innovative companies used almost twice CAD as many as less innovative companies Innovative
and three times more CAM process than less innovative companies. (Table III shows a characteristics
significant difference between more and less innovative companies on these two
variables). Results obtained from the discriminant analysis also showed, people’s
investors was also a determinant of more innovative companies (Table IV), which is
broadly consistent with DTI/CBI report.
Part of process innovation identified in literature on large firms and the Dogson and 371
Rothwell (1991) report above includes the organisation for new product development,
such as the use of an employee suggestion scheme, new ideas for products and
processes evaluated by team members and the criteria for evaluating new product
projects are known by everyone in the company. Similarly, Mosey et al. (2002) raised
the issue of cross-company communication of decisions and plans in successful
SMMEs. The results showed that more innovative companies have an employee
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suggestion scheme, a new product development team taking the lead in implementing
new product projects, and the criteria for evaluating new product projects were known
by everyone in the company.
More innovative companies also differed from less innovative companies in terms of
the CEO/owner’s background and their perception of barriers to innovation. The
results showed in more innovative companies, the CEO/owner’s background were in
sales/management accounting/self-employed as opposed to a background in
engineering. More innovative companies also perceived time and money as barriers
to innovation, while less innovative companies perceived time, money and market
demand as barriers to innovation.

Discussion
Our findings suggest four broad factors that contribute to innovative management in
SMMEs: culture, process, leadership (referring to CEOs’ commitment to innovation, as
mentioned above) and company strategic orientation. With regard to the
interrelationship between new product development, process innovation and culture
we set out to examine, the findings showed a correlation between corporate culture
(refer to organisational values and ways of working i.e. a culture that supports
innovation including innovative behaviour and commitment of leaders, where
customers and employees are important as mentioned above), and process innovation
(refer to investments in systems and technology and people, as mentioned above).

Discriminant functions
Variable Wilks Lambda Sig. Function 1

New ways of working 0.00261 0.0006 26.11335

Investors in People 0.55556 0.0353 78.03103a
NPD team implementing NPD 0.06502 0.0036 217.8592
Manufacturing management implement NPD 0.35354 0.0263 246.0218 Table IV.
MD background 0.18676 0.0132 1.991989a Factors distinguishing
Barrier to innovation – time 0.01711 0.0013 12.08931a more and less innovative
companies –
Notes: a Associate with more innovative companies; Proportion correctly classified: 80.23 per cent; discriminant analysis
x 2 ¼ 29:73 (x 2 0.0000) results
 JSBED However, the findings showed no support for new product innovations. This reflects in
13,3 that at least, half of manufacturing SMEs surveyed did not develop new products
themselves, specification for new products was provided by their customers. For
instance, food manufacturers tend to make incremental product changes instead of
developing entirely new products; while consistently with reports (Raymond and
St-Pierre, 2004) that SMMEs generally depend heavily on their customers for product
372 specification. The results of the survey also showed that SMMEs perceived time and
money as main barriers for developing new products and a number of less innovative
companies perceived no demand for new products (Table V). The survey data could
not give insights why some companies perceived no demand for new products.
However, Storey (1994) found that many small companies had no ambitions to grow
similarly they perceived more risks in developing new products therefore were often
content with their existing products and customers regardless of market changes.
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Although, according to Mosey et al. (2002) developing new products, is the way
forward for small manufacturing firms. His study suggests that companies with
aggressive growth ambitions repeatedly introduced innovative new products that
opened up new market niches were also those that performed better. While, Raymond
and St-Pierre (204) noted customer dependency would leave a company very
vulnerable indeed due to a higher level of business risk, they also reported that R&D
activities would counter the influence of SMMEs’ major customers and reduce their
vulnerability.
Process innovation in our study is referred to a company’s investments in systems,
technology and people – the findings suggest that process innovation is not uniform
across companies. For example, Table V shows CAD and CAM processes were used by
70 per cent of more innovative companies and 45 per cent respectively; ISO 900 was
used in 50 per cent of more innovative companies, none used total quality management
(TQM), Investors in People (IIP) (17 per cent by more innovative companies) and
manuals were used by nearly half of the more innovative companies. The barriers
perceived for developing new processes were money, time, knowledge and demand.
Little team integration and group orientation was also found in SMMEs. The results
showed only one-third of more innovative SMMEs used cross-functional teams. In
most cases, the CEO/owner was found to be project-champion (75 per cent). The
CEO/owner was found to evaluate new ideas for products and, the new product
development team evaluated processes. This is perhaps partly due to the lack of new
product development activities mentioned above.
Company culture and ways of working was consistent with literature (White et al.,
1988), which suggested SMEs’ main impetus for innovation came from board level,
with a spread of participation. The findings showed that, similar to other SMEs,
innovation in SMMEs was characterised by a top-down approach with a degree of
participation from shop floor personnel and office staff (see Table V, “Employees’
contribution to new ideas”). Shop floor personnel contribution to new ideas was found
particularly low compared to strategic managers. Nevertheless, this contradicts
Barnes’ (2000) findings on strategic planning in manufacturing SME, suggesting that
there was a greater degree of deliberation in manufacturing strategy that was unlikely
to be determined through a top-down planning process linked to a business planning
regime. Barnes (2000) further asserted that manufacturing actions were often not
systematically linked to business strategy and for many SMEs goals existed unlike
 Innovative
Circumstances
New Info./new ways of Info./prob. Info./prob. Info./prob. characteristics
business working to NP to M&E to JV
Network with (%) (%) (%) (%) (%)

BL core staff
More 25 25 25 17 17 373
Less 18 17 13 11 3.6
Other BL consultant
More 17 8.5 8.5 0 8.5
Less 11 23 8.5 3.6 2.4
Specialist professional
association
More 17 8.5 17 17 8.5
Less 9.7 12 9.7 11 5
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Bank managers
More 25 0 0 0 8.5
Less
Accountant
More 17 8.5 8.5 8.5 8.5
Less 3.6 9.7 2.5 9.7 3.6
Lawyer
More 17 8.5 8.5 0 0
Less
Local business
organisation
More 33.5 0 17 8.5 17
Less
Clients
More 50 0 8.5 25 8.5
Less 47 13 17 14.5 1
Use of advertisements
More 58.5 0 8.5 0 0
Less 48 7 22 0 2.5
Local university/college
More 17 8.5 8.5 8.5 8.5
Less 2.5 7 6 3.6 1
Friends
More 25 8.5 8.5 8.5 0
Rotary/Lions/Free Masons
More 58.5 0 8.5 0 0
Less 48 0 22 0 0
Church
More 8.5 0 0 0 0
Less 0 0 0 0 0
Newspaper/television/video
More 8.5 0 0 0 0
Less 6 7 7 11 3.6
Professional magazine
More 33.5 33.5 17 42 0
Less 28 25.5 24 46 2.5
Leisure golf/WCC/rugby Table V.
More 17 0 0 8.5 0 Networking – items
Less 3.6 1 1 1 0 scored
 JSBED formalised plans. He also stated incrementalism, culture, politics and powerful
13,3 individuals all played a role. Our findings are nevertheless in line with literature in
innovation in SMEs, emphasising the role of leaders and their commitment to
innovation.
A good level of training was found in more innovative companies. Apart from
blue-collar workers who had on-the-job training, supervisors, middle and senior
374 managers received outside and in house training (Table V). However, training was more
limited in less innovative SMMEs, only about one-third of the companies surveyed sent
their supervisors, middle and senior managers to outside and in house courses compared
to two-thirds of more innovative companies (Table V). This seems to be consistent with
the literature (Scott et al., 1996), suggesting small manufacturing companies had a
shortage of skills and technology (refer to finding above that the use of technology was
not uniform across more innovative companies) as well as training problems.
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Networking – contrary to other SMEs, our findings did not show that SMMEs
networked with others in their market or region. Instead, they tend to refer to
professional magazines for information or any problems relating to new ways of
working, new products and processes. Some turned to Business Link staff and
specialist professional associations or local business organisation chambers for
information relating to new products and a few companies turned to their friends and
leisure clubs. This is one of the major drawbacks of SMMEs as the literature above
highlighted the importance of networking, which might lead to an increase in company
innovative performance.
Strategic orientation – our findings showed that in more innovative companies,
innovation was goal oriented and part of the company objectives. This seems
consistent with literature highlighting the importance of company strategic
orientation, including market orientation and organisational learning which was
shown to increase company innovative performance (Salavou et al., 2004).
Demographic factors – our findings did not show any relationship regarding sector,
size and age nor company structure with company innovativeness. However, we found
the CEO/owner’s background was a determinant of company innovativeness. The
results obtained from the discriminant analysis revealed, that in more innovative
companies, the CEO/owner’s background was in either in sales, management
accounting and/or self-employed; while the CEO with an engineering background was
found more widespread in both more and less innovative companies.

Implications and conclusions

The findings suggest the drivers of innovation in small manufacturing firms are:
culture, leadership, process innovation and company strategic orientation. Innovation
activities consist of developing new ways of working and incremental product
innovations. Consistently with the literature on SMEs, our findings also showed
SMMEs have advantages over large firms such as being close to customers, a flexible
and informal environment. Additionally, they have a risk-taking attitude and welcome
change in particular in relation to new ways of working – this was found across
SMMEs (Table VI). SMMEs’ main drawbacks are customer dependency, lack of
knowledge and skills, training, networking as well as lack of financial resources.
With regard to skills, Scott et al. (1996) reported that SMMEs’ lack of suitability
skilled or trained personnel to be a major business problem in the third quarter of 1988.
 Innovative
Items More innovative Less innovative characteristics
NPD
Customer provide new product specification 50 50
Barriers to NPD
Time 42 38
Money 34 32 375
Market demand 0 18
Systems and technology
CAD * 70 37
CAM * 45 12
ISO9000 50 39
TQM 0 6
IIP * 17 4
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Manual 47 42
Barriers to machine and equipment
Money 75 51
Market demand 17 19
Time * 34 11
Knowledge 0 12
Organising for NPD
Employee suggestion scheme * 58 19
Cross-functional team 33 33
Project champions
MD/CEO/owner 75 75
Manufacturer manager
NPD team * 25 5
Marketing manager
Evaluation of new ideas for products
NPD team 34 13
MD/CEO/owner 59 65
Manufacturer manager 9 16
Marketing manager 34 21
Evaluation of new ideas for products for processes
NPD team 42 33
MD/CEO/owner
Manufacturer manager
Marketing manager 9 33
Everyone knows criteria for NP projects * 82 32
Culture and ways of working
Innovation features in
Company’s objective * 100 65
Company’s publicity * 91 47
CEO’s commitment to innovation
On NPD * 100 79
On new machine and equipment * 100 89
On new ways of working * 100 82
Study customers wants in NP 59 58
Finding out what customers think of company’s
products 67 65 Table VI.
Learn a lot from customers 84 74 Questionnaire items
Study of market change 88 56 scored by more and less
(continued) innovative companies
 JSBED Items More innovative Less innovative
13,3
Employee contribution to new ideas
Shop floor 45 37
Office staff 43 36
Strategic manager 91 80
376 Reward system 75 58
Employees free
To act 75 76
To disagree * 83 57
CEO attitude to risk-taking 92 74
Barriers to new ways of working
People resistance 9 21
Money 9 15
Tradition 0 6
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Training budget 34 30
Training on the job – blue collar 84 83
Outside course
Supervisor 84 52
Middle manager 67 38
Senior manager 67 34
Blue collar
In house course
Supervisor 50 35
Mid management * 59 44
Senior manager 50 30
Blue collar
Table VI. Notes: * These results are statistically significant; see Tables II and III

Individual acquired expertise in SMMEs was largely one of informal and intuitive
incrementally. They also suggested that SMMEs did not exploit recruitment to the
same degree as larger firms. SMMEs tend not to recruit from higher education sector
because of financial reason. As such, graduate and postgraduate were perceived as
more expensive to hire.
Scott et al. (1996) also found that SMMEs preferred to external recruitment of
experienced staff than training staff internally. Training was usually ad hoc. This also
underlines SMMEs’ poor attitude to learning. In terms of consulting external sources of
advice or assistance, SMMEs were found often unwilling to explore external sources
that could lead to business benefits, as they associated this with a loss of control or as
an embarrassing indictment of the value of their in house expertise. This suggests
deeply-rooted obstacles to the further acquisition of technological and organisational
expertise in small manufacturing firms. Scott et al. (1996) also suggested that many
SMMEs often relied on their own experiential know-how, and trained up their own
operative and intermediate level skills. Furthermore, British SMMEs were found
typically insular and autonomous. Because of this, they failed to recognise the
underlying or latent skill deficiencies. Even where SMMEs actively identified
deficiencies in their in house technical capabilities there was often especially in
owner-managed firms uncertainty about or resistance to outside help. This problem
 was compounded by a lack of adequate communication channels for the transmission Innovative
of aid, which in the authors’ opinion was the largest obstacle. characteristics
Similarly to Scott et al.’s study, our study highlights the problems of knowledge,
training, attitude to learning, networking and employees’ contribution to new ideas, which
are embedded in innovative activities of companies, are problematic to SMMEs. While
customer dependency and networking, can be overcome. As mentioned above, to counter
customer dependency companies can engage themselves in R&D and/or in new product 377
innovations. Networking can also be counter by companies engaging themselves more in
networking activities. However, the problems of training, attracting and retaining good
workers are more long-term and more difficult to address for a small company that lacks
financial resources. Yet investments in skills and people remain essential for any future
businesses and unless these problems and above are addressed, not only SMMEs would
be able to move on to be truly innovative and competitive in the marketplace but also, this
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might further contribute to their decline. Government aid is paramount in this case, for
instance it can assist SMMEs in several ways such as through collaborative training
programmes, R&D programmes among government-funded research centres, universities
for specific sectors of the manufacturing industry. Encourage networking, promote
growth ambitions in small companies and encourage new product development by
making them aware that it is a risky option to continue with their existing
products/customers regardless of market changes. Provide specialist advice for sector
specific within the manufacturing industry. Provide more financial and tax incentives or
relief to help with lack of financial resources in small companies.
In conclusion, this research had examined innovation management for a specific
industry – the manufacturing industry. This is for two reasons: one, there has been a
criticism (Leseure, 2000) that the growing literature addressing innovation management
in SMEs without focusing on any particular industry, consequently the advice for these
companies were too general and therefore, not sufficient in terms of assisting the
particular sector. Two, the reason for this research to concentrate on the manufacturing
industry was due to its standing and importance in the British economy, its complexity
and problems. The research had also addressed innovation management in SMEs in
terms of the interrelationship among the three elements of a business: product, process,
culture and new ways of working, which were often explored in isolation in the literature.
Similarly, a definition of innovation was established and a systematic approach to
measuring company innovativeness based on the DTI/CBI report was adopted.
An overview of company practice was captured through a survey of 1,000 SMMEs
based in the West Midlands. Culture, leadership, process innovation and strategic
orientation were found to distinguish between more and less innovative SMMEs.
SMMEs’ drawbacks as well as government aid were highlighted in the discussion part.
The contributions of this study have been: contribution to the understanding of the
manufacturing industry and broadly to innovation management in SMEs.
In future, this research needs to be complemented by qualitative research aiming to
provide an insight into companies’ innovative behaviour, to address issues such as
whether innovation is associated with cost reduction, profit, turnover, or return on
investment and whether it is associated with growth or recession as company history,
how they start up and how they aim to continue. As well as to focus on a specific or the
particular sector(s) within the manufacturing industry in order that more specialised
advice can be given to those that are in need.
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About the authors

Sylvie Laforet is a Lecturer at The University of Sheffield Management School. Sylvie Laforet is
the corresponding author and can be contacted at: s.laforet@sheffield.ac.uk
Jennifer Tann is a Professor of Innovation Studies at The University of Birmingham Business
School.

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24. Nick Leithold Department of Business Administration, University of Applied Sciences Jena, Jena,
Germany Heiko Haase Full Professor, Department of Business Administration and Director, Center
for Innovation and Entrepreneurship, University of Applied Sciences Jena, Jena, Germany Arndt
Lautenschläger Department of Business Administration, University of Applied Sciences Jena, Jena,
Germany . 2015. Stage-Gate® for SMEs: a qualitative study in Germany. European Journal of Innovation
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30. Antonio Padilla-Meléndez Economics and Business Administration, Universidad de Málaga, Málaga,
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36. Malin Löfving Department of Industrial Engineering and Management, School of Engineering,
Jönköping University, Jönköping, Sweden and Department of Technology Management and Economics,
Chalmers University of Technology, Göteborg, Sweden Kristina Säfsten Department of Industrial
Engineering and Management, School of Engineering, Jönköping University, Jönköping, Sweden Mats
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38. Dr Paul Jones, Prof Gary Packham, Dr Martin Beckinsale Piers Thompson Nottingham Business
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40. Yahya Al-Ansari Southern Cross Business School, Southern Cross University, Bilinga, Australia Simon
Pervan Southern Cross Business School, Southern Cross University, Bilinga, Australia Jun Xu Southern
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41. Cristina Santandreu‐MascarellDepartment of Business Organisation, Universitat Politècnica De València,
Valencia, Spain Dolores GarzonDepartment of Business Organisation, Universitat Politècnica De València,
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42. Ian Chaston. 2013. Independent financial advisors: open innovation and business performance. The Service
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44. Richard HarrisUniversity of Glasgow, Glasgow, UK Rodney McAdamUniversity of Ulster, Belfast, UK
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46. Sara ParryBangor Business School, Bangor University, Bangor, UK Rosalind JonesBangor Business
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Manchester Metropolitan University, Manchester, UK Beata Kupiec‐TeahanScottish Agricultural
College, Edinburgh, UK. 2012. Marketing for survival: a comparative case study of SME software firms.
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47. Anahita BareghehBangor Business School, Bangor University, Bangor, UK Jennifer RowleyDepartment
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SambrookBangor Business School, Bangor University, Bangor, UK Dafydd DaviesBIC Innovation,
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48. Christina Grundström, Christina Öberg, Anna Öhrwall Rönnbäck. 2012. Family-owned manufacturing
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49. Dr Harriette Bettis‐OutlandChristian FelzenszteinSchool of Business, Universidad Adolfo Ibáñez,
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 50. Petra De Saá-Pérez, Nieves L Díaz-Díaz, José Luis Ballesteros-Rodríguez. 2012. The role of training to
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51. Anahita BareghehBangor University, Bangor, UK Jennifer RowleyDepartment of Information and
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52. Ian Chaston. 2012. Entrepreneurship and knowledge management in small service-sector firms. The
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53. Professor Wei Wei WuZhang BoSchool of Management, Beijing Union University, Beijing, China Tao
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57. Richa AwasthyInternational Management Institute, Delhi, India Rajen K. GuptaManagement
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60. Paul Jones & Paul Beynon‐DaviesVanessa ZhengSchool of Management, University of Surrey, Guildford,
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70. Rajesh K. PillaniaRajesh K. PillaniaManagement Development Institute, Sukhrali, Gurgaon, India and
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