Radical Product Innovations in SMEs: The ... - Wiley Online Library

94

CREATIVITY AND INNOVATION MANAGEMENT

Radical Product Innovations in SMEs: The Dominance of Entrepreneurial Orientation Helen Salavou and Spyros Lioukas The present study focuses on strategic factors underlying the adoption of radical product innovations in SMEs. It investigates whether market focus, technological posture and entrepreneurial orientation lead to the adoption of more radical product innovations. The study provides some new evidence on this issue drawing upon data collected from Greek SMEs in the food and beverages industry. More specifically, a logistic regression model is applied to analyse the choice between radical as against incremental product innovations. Empirical results appear to support the claim that it is mainly entrepreneurial orientation that favours the choice of radical product innovations. This suggests that in SMEs the notion of entrepreneurial-push outweighs both market-pull and technology-push arguments. The findings are discussed in the context of Greece, taking into account the specific conditions prevailing. Apart from providing some new evidence in the important area of SMEs, they have also important implications for managers and policy-makers. In addition, they encourage further theoretical and empirical investigation.

Introduction

T

he present paper focuses on strategic orientation of small and medium-sized enterprises (SMEs) and its effect on product innovations. In particular, it explores the importance of strategic aspects related to market orientation, technology policy and entrepreneurial orientation in adopting radical as against incremental product innovations. There is prior empirical evidence that these strategic factors are important contributors to innovation at large. This is mainly based on investigations built on perspectives, such as ‘market-pull’, ‘technology-push’ and ‘strategic choice’ respectively, as well as on related extensions. It appears that all these factors are, in general, drivers to innovation. However, almost all previous evidence comes from large enterprises. We do not know if similar effects hold for SMEs. More specifically, existing knowledge is not sufficient to verify which of the strategic variables related to market orientation, technology policy and entrepreneurial orientation make SMEs select radical product innovations. Exploring such relationships

Volume 12

Number 2

June 2003

in the context of SMEs will enrich our understanding of the relative importance of these strategic forces in explaining innovative performance. SMEs are generally considered to have behavioural advantages that may justify their significant share in innovation (Dutta and Evrard, 1999). Despite their disadvantages, most often attributed to resource constraints (Freel, 2000), SMEs are somehow forced to utilize product innovations as a means of competitive strategy to a higher degree than large firms (Fritz, 1989; Sweeney, 1983). Product innovations, however, vary in a range from incremental improvements to radical changes. Radical product innovations may take a prominent place in the case of SMEs in their efforts to compete with large firms. It would be interesting, therefore, to focus our analysis on the above mentioned strategic factors as potential determinants of radical product innovation adoptions. The present study draws upon data from food and beverages, a traditional sector of the Greek economy that includes many domestic firms. This industrial sector of Greece, like the

© Blackwell Publishing Ltd, 2003. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

PRODUCT INNOVATION IN SMES

respective sectors of most economies in the EU, is undergoing rapid transformation. The ‘rise’ of new technologies, new ways to add customer value and localization of globalized trends (often called ‘glocalization’) have created a state of flux. The results of this new competitive landscape are often mirrored in never-ending introductions of product innovations. Greece presents an interesting case given the dominance of SMEs (more than 95% of firms) and the processes of integration in the euro area which are under way. The traditional behaviour of semi-protected family-type SMEs is challenged as they confront both European integration and global competition. As such, competitiveness through radical product innovations is an important concern for both SMEs and policy-makers, especially when it relates to traditional sectors, such as food and beverages, with a vital contribution to economic growth. Survey data were collected by a structured questionnaire through personal interviews with top managers in 69 randomlyselected manufacturing SMEs. A logistic regression model was applied to the sample in order to empirically test the effects of market orientation, technology policy and entrepreneurial orientation on the decision on whether or not to adopt radical product innovations. In order to assist in the formulation of hypotheses and the interpretation of results, additional evidence was collected related to the specific conditions prevailing in the Greek business environment in which our sampled firms operate. To this purpose, interviews were conducted with experts in a sectorspecific support organization.1 The opinions elicited provide further qualitative information concerning Greek SMEs’ strategic orientation and its impact on product-related innovative activity. The present study would also contribute to theory as the strategic determinants considered are related to the traditional debate about the market-pull vs. technology-push question. On top of that, the present analysis helps to broaden this debate by adding the notion of ‘entrepreneurial push’, which is often assumed to be a driving force of strategic importance, particularly in SMEs. The article is organized as follows. First, the groundwork is laid out by presenting the the1 ETAT S.A. is sector-specific Industrial Research and Technological Development company of the General Secreteriat of Research and Technology (Ministry of Development) for the food and beverages industry.

© Blackwell Publishing Ltd, 2003

95

oretical model and hypotheses. This is followed by a brief presentation of the research methodology and the survey. Research findings and their implications are discussed next, and a concluding section summarizes the results.

Conceptual Model and Hypotheses Innovation researchers have, to a large extent, debated whether product innovations are driven by market demand or by technological advances. The market-pull argument suggests that firms innovate based on market needs, whereas the technology-push argument claims that change in technology is the primary driver of product innovation (Chidamber and Kon, 1994). Extending the research into the underlying driving forces behind product innovations in SMEs would be very useful. Given the strategic importance of innovative new products in SMEs, an interesting investigation would be to consider whether market orientation and technology policy influence the adoption of radical product innovations. This investigation could also embody the potential effect of entrepreneurial orientation. A rationale for including entrepreneurial orientation would be found by extending the ‘strategic choice’ perspective (Bourgeois, 1984; Child, 1972; March and Simon, 1958) which emphasizes the role of ‘upper echelons’ or ‘top managers’ or ‘strategic leadership’ in determining organizational outcomes (Guth and Ginsberg, 1990; Hambrick and Mason, 1984; Miller, Droge and Toulouse, 1988). Entrepreneurial style would be a key determinant of radical product innovations, especially in SMEs, where the top management (including the CEO) appears to be most influential. The conceptual model adopted (see Figure 1) assumes a direct linkage between market orientation, technology policy and entrepreneurial orientation on product innovativeness. The argument we intend to explore is whether market-focused, technology-prone and entrepreneurially-oriented SMEs are more inclined to adopt radical as against incremental product innovations. We define product innovativeness along with the development of the hypothesised relationships in the model.

Product Innovativeness The product innovativeness concept is an important classifier of new products reflecting a choice, either explicit or implicit, of product strategies (Song and Montoya-Weiss, 1998). The significance of such a classification has

Volume 12

Number 2

June 2003

96


Firm Strategy-related Characteristics: Market Orientation Technology Policy Entrepreneurial Orientation

Product Innovativeness: Radical/Incremental Product Innovations

Figure 1. Conceptual Model

been recently addressed (Danneels and Kleinschmidt, 2001). Previously, most studies generally did not make any distinction between different levels of innovativeness in new products (Balachandra and Friar, 1997; Blythe, 1999; De Brentani, 2001). Instead, they considered as new product anything that was introduced into the market by the firm, regardless of the extent and type of newness. Product innovativeness, though, reflects the level of newness in product innovations that can vary broadly ranging over a wide spectrum (Balachandra and Friar, 1997). Such variations most often reflect the degree of changes related to product innovations (Hull, Hage and Azumi, 1985). Our analysis considers a dichotomy of this spectrum, namely radical and incremental product innovations. These two categories are mutually exclusive and reflect product newness relative to the firm, as perceived by managers (Song and Montoya-Weiss, 1998). Therefore, the higher the likelihood of adopting radical innovations, the lesser the likelihood for incremental innovations. Product innovativeness, the dependent variable, is, thus, a binary one expressing a choice of high as against low degree of newness in new products. Under the assumed conceptual model, our aim is to isolate and test the impact of market orientation, technology policy and entrepreneurial orientation on the choice among the two levels of product innovations, i.e. radical versus incremental. This study is in line with certain recent research studies positing that there are major differences in factors depending on whether the innovation is radical or incremental (Balachandra and Friar, 1997). In addition, it responds to the need for crosslevel research on organizational innovation (Atuahene-Gima and Ko, 2001; Drazin and Schoonhoven, 1996) by investigating the impact of characteristics at the firm level on innovativeness at the product level. Next, the components of the conceptual model are discussed in more detail. Given the lack of related studies on SMEs, hypotheses

Volume 12

Number 2

June 2003

are developed taking into consideration (a) the extant research which draws mainly from large firms, (b) evidence, where available, referring to the specific national context and related debate, and (c) the viewpoints of industry experts who understand conditions and the factors at work in the specific environment of Greek SMEs in the food and beverages sector. However, the hypothesized relationships will be tested statistically to confirm if, and to what extent, they apply to the particular case of Greek SMEs.

Effects of Market Orientation Market orientation has attracted enhanced interest in both management and marketing literature. Nonetheless, little attention has been paid to the relationship between market orientation and innovation, as the market orientation literature has only recently begun to acknowledge the role of innovation in the context of market orientation (Han, Kim and Srivastava, 1998). Researchers who dealt with this issue tried to explore the impact of market orientation on innovation, either direct or indirect. Jaworski and Kohli (1996), for example, regard innovation as an outcome of market orientation stating that innovation has been inappropriately absent in models of market orientation. Nonetheless, Slater and Narver (1994) suggest that the market-driven business is well positioned to anticipate the developing needs of customers and respond to them through the addition of innovative products. In a similar vein, Gatignon and Xuereb (1997) provide support for a positive impact of the firm’s market orientation dimensions on the way product innovations are marketed and acquire strong relative advantages. Overall, however, results of those studies dealing with the impact of market orientation on different types of product innovations are rather contradictory, failing to yield consistent conclusions. Davis (1993), for example, found a positive effect of market orientation on radical but not on incremental product innovations. On the contrary, Atuahene-Gima



(1995) concluded that the impact of market orientation was greater on incremental rather than on radical product innovations. Similarly, Christensen and Bower (1996) suggest that market orientation stifles the development of original new products, instead encouraging the development of product modifications. A more recent study, on the other hand, found positive effect of market orientation on both product innovations, i.e. radical (‘new to the market’) and incremental (imitations) (Sandvik, Grønhaug and Øgaard, 2000). Because researchers’ views are not uniform, this relationship is explored here in the light of empirical data. However, the prevailing view based mainly on evidence from large firms in the relevant literature is that market-oriented firms may be more innovative, because they are more responsive to rapidly evolving customer needs. To our knowledge, very few studies have explored the same argument in the context of SMEs. So, in the absence of such evidence it is useful to resort to qualitative evidence from the Greek context. The industry experts believe that the adoption of the market orientation concept is necessary for SMEs, given the strong competition within the food and beverages sector. When interviewed, they argued in favour of market orientation as an enabling factor of product innovations in SMEs. In their view, persistence in satisfying their customers’ changing needs and wants is a source of radical product innovations which is nurtured by SMEs’ inherent advantages of flexibility, adaptability and closeness to their customers. Taking all the above into account the following hypothesis can be advanced: H1: Market orientation is likely to lead to radical as against incremental product innovations.

Effects of Technology Policy Many empirical studies have interpreted their results pinpointing the impact of technology policy on firms’ innovative behaviour. To this direction, Ettlie (1983) asserts that technology policy becomes a central variable in the emerging modification of existing innovation theories. Firms’ strategic orientation including technology policy has often been investigated as an innovation determinant (Wilson, Ramamurthy and Nystrom, 1999). Technology policy undoubtedly affects the development of new ideas, new processes and new products. Ettlie and Bridges (1983), for example, suggest that technology policy reflects the innovative attitude of an organization and its commitment to innovation. It involves such things as recruiting technical personnel, com-


97

mitting funds to new technology development and building or maintaining a tradition of being at the forefront of a technological area in a particular industry. Innovative firms may be proactive in acquiring new production technologies, and employ such technologies for developing new products (Cooper, 1984, 1994). To this direction, Ettlie, Bridges and O’Keefe (1984) assert that an aggressive technology policy is required for supporting the adoption of radical innovations. In a similar vein, Ettlie and Rubenstein (1987) suggest that changes in technology are more likely to lead to more radical product innovations. In an empirical study, Gatignon and Xuereb (1997) investigated the way that technological orientation affects product innovations, and more particular their characteristics. They further supported the view that the more technology-oriented the firms are, the more radical their product innovations. The aforementioned discussion supports the argument that technology policy significantly affects product innovations, and in particular the more aggressive it is, the more radical the product innovations marketed by firms. However, it remains unclear whether this argument holds true for all firms, irrespective of size. Additional evidence related to the specific national context and related debate is partially in line with this viewpoint. On the one hand, industry experts believe that resource constraints may direct SMEs’ efforts towards innovations that require less capital investment and a lesser reliance on qualified staff. As such, they argue that SMEs often introduce innovations based not so much on core production technology which requires high R&D budgets, but on other aspects (e.g. delivery tuning, value-added services, etc.) along the value chain. On the other hand, European Community technology and innovation policy initiatives, in conjunction with national policies in support of SMEs, are intensively working on the creation of a fertile breeding ground for innovative ways of doing business.2 The business environment, aided by the Community Support Framework programmes, is making aggressive technology policies easier for SMEs. Therefore, despite reservations expressed by the industry experts, we think that the dominant argument prevailing in large enterprises would also be transferred in the context of SMEs. Hence, we hypothesise that: 2

Recent evidence indicates that among the member states Greece showed one of the highest growth rates in R&D investments (European Commission Research, 2002).

Volume 12

Number 2

June 2003

98


H2: Aggressive technology policy is likely to lead to radical as against incremental product innovations.

Effects of Entrepreneurial Orientation Previous research studies suggest that entrepreneurial orientation drives innovative activity (Covin and Slevin, 1991; Kitchell, 1995; Russell and Russell, 1992). Moreover, innovative firms exhibit a greater willingness for risktaking and proactive market leadership (Khan and Manopichetwattana, 1989). In a similar conceptualization, being reactive is not sufficient to compete successfully in a dynamic world of aggressive innovators, and most innovative firms are more willing to look hard at risky opportunities and confront them (Souder, 1987). However, few research studies have empirically explored the influence of entrepreneurial orientation on product innovation. Among them, Miller and Friesen (1982) argue that entrepreneurial firms innovate boldly and regularly while taking considerable risks in their product-market strategies. In a similar vein, Miller, Kets de Vries and Toulouse (1982) suggest that substantial product innovations require greater amount of risk-taking and proactiveness from companies. Saleh and Wang (1993) support the view that more innovative compared to less innovative companies would take more risks and adopt a proactive strategy (leading rather than following competitors) in anticipating the need for change and new opportunities. Whilst the preceding literature suggests that entrepreneurial orientation promotes innovative activity by affecting the introduction and implementation of product innovations within firms, there is no explicit empirical evidence concerning the influence of this organizational phenomenon on product innovativeness. It is interesting, therefore, to explore whether enhanced entrepreneurial orientation demonstrated by greater amount of proactiveness, and risk-taking assumed by top management influence the level of newness in product innovations marketed by SMEs. Besides, top-management style is frequently playing an important role in determining strategic directions while shaping ‘outcomes’ (Hambrick, 1989). This is particularly true for Greek SMEs characterized by concentration of power and control in the hands of top management, which is most often identical with family ownership (Lioukas and Makridakis, 1996). The industry experts interviewed also believe that entrepreneurial attitude is salient in SMEs, and accounts for initiatives related to radical product innovations. Recent research also indicates that during 1980s and 1990s significant changes occurred

Volume 12

Number 2

June 2003

in the Greek management practices, especially as a new generation of well-educated ownersmanagers takes responsibility (Bourantas and Papadakis, 1996; Makridakis et al., 1997; Spanos, Prastacos and Papadakis, 2001). The tradition of entrepreneurship in the food and beverages sector, coupled with enhanced emphasis on creativity exhibited by new top managers (Makridakis, Papagiannakis and Calogirou, 1996) is likely to amplify the capabilities needed for implementing aggressive innovative behaviour. Given the above considerations, we would hypothesise that in the case of SMEs: H3: Enhanced entrepreneurial orientation is likely to lead to radical as against incremental product innovations. Control Variables In considering control variables for SMEs, experience and size come as obvious candidates for inclusion. The former can be expressed through firm age. Several studies support a negative relationship between firm age and innovative behaviour. It is argued that the older the firm, the more bureaucratic and the less receptive it is to innovation (Hurley and Hult, 1998). On the contrary, recently established firms are more inclined to innovation, probably due to the necessity of conquering space in the market (Garvin, 1983). Based on the above, the relationships between product innovativeness and firm-specific strategic characteristics are re-examined after controlling for age. Size was finally excluded from the analysis, because it was highly correlated with firm age.

Research Methodology Sample and Data Collection The data pertain to one of the most dynamic industries of the Greek economy, namely food and beverages, in which the vast majority are SMEs. This choice is dictated by (1) the importance of this sector for the Greek economy in terms of manufacturing employment and GDP share (23% and 25% respectively), and (2) the opportunity it provides for studying the proclivity of firms within a traditional sector towards the adoption of radical product innovations in the new competitive scene. Following the EU definition of SMEs,3 the relevant population is defined as all inde3

Published by the Official Newspaper of the European Communities on 30 April 1996.



pendent firms with less than 250 employees and less than € million annual turnover. According to these criteria, a population of 745 SMEs was identified using ICAP database (Gallup’s subsidiary). Subsequently, 69 firms which have introduced at least one new product (or new product category) during the last three years (1995–1997) were selected by random sampling.4 Data were collected by a structured questionnaire through personal interviews with the top management (42% managing directors, 26% marketing & sales managers, 17% financial managers and 15% others). All interviews were carried out personally by the authors during 1998. The estimation data set included 66 firms that provided complete data for all necessary variables. With respect to the type of new products (or new product categories) introduced by the sampled firms, 28% were described as incremental product innovations (i.e. improvements and modifications of existing products) while 72% as radical product innovations (i.e. new product lines, new-to-the-market products).

Additional Qualitative Information In order to help the hypothesis development and explain the results of this study, qualitative data were collected through semistructured interviews with experts. More specifically, experts from the food and beverages sector support organization (ETAT S.A.) were asked to express their opinions concerning Greek SMEs’ strategic posture in terms of market orientation, technology policy and entrepreneurial orientation as well as its impact on product-related innovative activity. Although these viewpoints are confined in the context of Greece, they nevertheless are useful in understanding the conditions prevailing and the particularities of the effects found regarding the food and beverages industry. Thus, opinions expressed by experts are supplementary and shed additional light on the extent to which specific dimensions of strategic importance affect (or not) the adoption of radical product innovations. This evidence is embodied both in hypotheses formulation and the discussion following the empirical findings.

4

Given that such a criterion required phone calls to 745 firms and the related cost was extremely high, a sample was randomly selected from the whole population. Firms not meeting this criterion were replaced by others that were not selected in the first run.


99

Variables Measurement Product innovativeness, our dependent variable, has been operationalized by many previous empirical studies from an internal, firm perspective in terms of product’s newness relative to the firm, as perceived by managers (Booz, Allen and Hamilton, 1982; Brouwer and Kleinknecht, 1996; Cooper, 1979; Song and Montoya-Weiss, 1998). Likewise, product innovativeness is measured in the present study using a dichotomous categorisation as defined from the firm’s perspective, i.e. based on managers’ perceptions of newness (Song and Montoya-Weiss, 1998). In particular, respondents were asked first to identify the most important, in terms of sales turnover, new product (or new product category) introduced by their firms in the last three years (1995–1997) and then to classify it according to its newness (i.e. radical or incremental). Thus, in the binary construct, 1 represents radical product innovations (i.e. new product lines, new-to-the-market products) while 0 refers to incremental product innovations (i.e. improvements and modifications of existing products). Product innovativeness is, therefore, a perceptual measure reflecting the degree of similarity of the new product with those already marketed by the firm. Market orientation is measured in this study by a version of the scale developed by Ruekert (1992). This version is similar to the instruments proposed by Kohli and Jaworski (1990), Narver and Slater (1990) and Shapiro (1988). This modified instrument is defined as a set of specific behaviours and activities reflected by the extent to which a firm understands and responds to customer needs. More specifically, market orientation captures in this study four dimensions, i.e. customer information, customer responsiveness, market-driven strategy formulation, market-driven pricing policy (see Appendix A). Technology policy is tapping the degree of the firm’s long-term commitment to activities involving technological issues. This variable is measured in this study by a scale proposed by Ettlie (1983), based on the earlier work of Ettlie and Bridges (1982) (see Appendix A). Entrepreneurial orientation is measured by a multi-item, semantic differential scale suggested by Naman and Slevin (1993) reflecting top-management’s behaviour in taking strategic decisions and operating management philosophies. In the present study, this variable captures two dimensions, i.e. proactiveness and risk-taking. More specifically, proactiveness is conceived by top management’s willingness to carry out actions before competitors, while risk-taking is compre-

Volume 12

Number 2

June 2003

100


hended by top management’s preference to undertake activities of (high/low) risk (see Appendix A). Finally, firm age, the control variable, is measured by the number of years passed since the firm’s foundation (Da Rocha, Christensen and Paim, 1990; Heunks, 1998).

Estimation and Results Appendix A presents inter-item reliability coefficients of the scales adopted which are acceptable according to standards suggested by Van de Ven and Ferry (1980). All multi-item scales measuring independent strategy-related variables were factor-analysed (see Appendix A) in order to assess their ‘factorial validity’ which is a form of construct validity (Allen

and Yen, 1979). Then, averages of items pertaining to factors extracted were used to form independent variables for further statistical analysis. Tables 1 and 2 report descriptive statistics of all the independent variables, together with their correlation coefficients. As mentioned above, product innovativeness, the dependent variable, is dichotomous. In a way, it expresses the likelihood that a new product will suggest radical as against incremental innovation. A logistic regression model was therefore employed to deal explicitly with that type of dependent variable (Kleinbaum, 1994). So, the estimated model takes the following form: Prob (radical product innovation) = 1 (1 + e - Z ) ,

Table 1. Descriptive Statistics of Independent Variables Variable

Min.

Max.

Mean

SD

Market Orientation: Customer Information Customer Responsiveness Market-driven Strategy Formulation Market-driven Pricing Policy Technology Policy

3.33 4.50 3.67 2.00 2.00

7.00 7.00 7.00 7.00 7.00

5.78 6.34 5.48 5.40 5.25

0.79 0.65 0.83 1.05 1.17

Entrepreneurial Orientation: Proactiveness Risk-taking Firm Age

2.00 1.50 1.00

6.60 6.25 136.00

4.82 3.93 27.25

1.07 1.12 23.77

Table 2. Spearman’s rho Correlations among Independent Variables Variable

1. 2. 3. 4. 5. 6. 7. 8.

Variable

Customer Information Customer Responsiveness Market-driven Strategy Formulation Market-driven Pricing Policy Technology Policy Proactiveness Risk-taking Firm Age

1.

2.

3.

4.

5.

6.

7.

8.

1.00 0.34** 0.41** 0.32** 0.19 0.07 0.15 -0.11

1.00 0.39** 0.31* 0.34** 0.23 -0.00 0.16

1.00 0.18 0.28* 0.30* 0.13 -0.10

1.00 0.28* -0.00 -0.04 0.26*

1.00 0.52** 0.37** -0.17

1.00 0.47** -0.02

1.00 -0.12

1.00

Notes: ** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).

Volume 12

Number 2

June 2003



101

where Z = f (Xi, C), i.e. a linear combination of independent variables (Xi) and a constant (C). Table 3 provides the statistics of the model. First, it appears that the model does a good job in explaining variation in product innovativeness (Nagelkerke R2 = 0.386). The classification table (see Figure 2) provides an additional way to assess the model fit by comparing predictions to observed outcomes. More specifically, this table compares the observed and predicted types of product innovations, when firms with a predicted probability of 0.5 or greater are classified as having radical product innovations. In other words, this table shows only whether the estimated probability is greater or less than one-half. The off-diagonal entries of the table show how many firms were incorrectly classified. Overall, 74.24% of the firms examined were correctly classified. Table 3. Statistics for Model containing the Independent Variables -2 Log Likelihood Goodness of fit Cox & Snell – R2 Nagelkerke – R2

58.454 54.551 0.270

Table 4 contains the estimated coefficients (under column heading B) and related statistics of the logistic regression model. The model predicts radical product innovations from the variables customer information, customer responsiveness, market-driven strategy formulation, market-driven pricing policy, technology policy, proactiveness, risk-taking, firm age and a constant. The 95% confidence interval of Exp (B), which is the exponential of the coefficient, is also reported. Intervals which include the value 1 are not statistically significant at the 0.05 level. Inspection of Table 4 reveals that only two of the explanatory variables have significant coefficients. These are the entrepreneurial orientation components, notably proactiveness and risk-taking. The first is statistically significant at the 0.01 level while the second at the 0.10 level. Both these coefficients have the expected signs. These results support H3 and indicate that the higher the entrepreneurial orientation, the higher the probability for a firm to launch radical product innovations, and, hence, the lower the probability to adopt incremental product innovations. On the contrary, in the light of present empirical evidence, H1 and H2 must be rejected. Also, the coefficient of the control variable, firm age, is not significant.

0.386

Discussion Chi-Square

Significance

20.778 20.778 20.778

0.007 0.007 0.007

Model Block Step

Research findings suggest that the effect of market orientation (H1) is insignificant. Thus, they support neither of the previous claims, that market orientation has a positive impact on radical product innovations (Davis, 1993; Sandvik, Grønhaug and Øgaard, 2000) or that it has a negative impact on radical product

Predicted:

Observed: Incremental Product Innovation Radical Product Innovation

Incremental Product Innovation

Radical Product Innovation

% Correct:

36.84% 7

12

5

42

89.36%

Overall

74.24%

Figure 2. Classification Table Note:

The Cut Value is 0.50


Volume 12

Number 2

June 2003

102


Table 4. Parameter Estimates of the Logistic Regression Model Variable

Constant

B

S.E.

Sig.

Exp (B)

95% CI for Exp (B) Lower

Upper

1.553

0.590

0.009

Market Orientation: Customer Information Customer Responsiveness Market-driven Strategy Formulation Market-driven Pricing Policy Technology Policy

–0.354 –0.440 –0.048 0.422 0.132

0.334 0.378 0.353 0.345 0.371

0.288 0.244 0.893 0.221 0.722

0.702 0.644 0.954 1.524 1.141

0.365 0.307 0.478 0.776 0.551

1.349 1.350 1.903 2.996 2.361

Entrepreneurial Orientation: Proactiveness Risk-taking Firm Age

1.494 0.673 –0.008

0.477 0.403 0.015

0.002*** 0.095* 0.599

4.454 1.960 0.992

1.750 0.890 0.964

11.336 4.312 1.021

Notes: *** Significant at the 0.01 level. ** Significant at the 0.05 level. * Significant at the 0.10 level.

innovations (Atuahene-Gima, 1995; Bennett and Cooper, 1981; Christensen and Bower, 1996). So, it appears that when controlling for entrepreneurial orientation, market orientation appears to play a lesser role or no role at all. The question then arises, why market orientation does not affect the radicalness of product innovations in SMEs. Market orientation has rightfully received much attention as it is based on management practices (Slater and Narver, 1999). However, it may be that in our case negative effects, like those pointed out by Christensen and Bower (1996), may counteract and cancel out the expected positive effects of market orientation in SMEs. Another plausible explanation may be related to the observed limited variability across firms as regards market orientation (see Table 1). This may be attributed to particularities in the context of Greek SMEs in the food and beverages industry. It is interesting to report the opinions of industry experts, who emphasised that market orientation does matter for SMEs mainly because of the strong competition within the food and beverages industry. Thus, Greek SMEs are challenged and somehow forced to be market-oriented to effectively cope with demanding conditions underpinned by European integration and globalisation. This seems to account for high average scores given by respondents to market orientation dimensions (see Table 1). In other

Volume 12

Number 2

June 2003

words, since market orientation appears to be generally adopted by all firms, its effects may not show up in the degree of newness incorporated into product innovations. Despite recent evidence (Baltas and Salavou, 2000) that Greek SMEs tend to offer more new products when adopting stronger market orientation, the present study goes a step further and provides additional insights on their innovative activity. In particular, the present findings indicate that market orientation does not help to explain the level of innovativeness embodied in new products. However, future research in SMEs of other sectors is needed to verify whether similar results hold true, since the market orientation concept has been foremost based on large organizations (Appiah-Adu and Singh, 1998). The insignificance of technology policy (H2) contradicts previous assertions involving a positive relationship between aggressive technology policy and radical product innovations (Ettlie, Bridges and O’Keefe, 1984; Ettlie and Rubenstein, 1987; Gatignon and Xuereb, 1997). However, this finding may be attributed to constraints faced by SMEs, as in our case. More specifically, it is often argued that SMEs cannot easily ensure resources which are usually required to implement radical product innovations (Ettlie and Rubenstein, 1987). This argument appears to be strong in the case of food and beverages SMEs in Greece. The



industry experts expressed their reservations by referring to the resource constraints that the majority of SMEs face regarding their ability to retain highly qualified and competent personnel in production and to afford heavy investments in production technology. As a result, these firms often innovate by relying on aspects other than technological along the value chain (e.g. delivery tuning, value-added services, etc.). Thus, the link between technology policy and product innovation is less strong or constrained to areas outside core technology. This particular finding seems to corroborate relevant evidence that Greek firms strive to differentiate themselves by emphasising non-technological techniques to mimic the image of established foreign rivals (Droukopoulos and Thomadakis, 1993). This relationship should, in any case, be subject to more empirical scrutiny given the little empirical evidence on the effects of technology policy in small firms (Zahra and Covin, 1993). Results provide support of a positive effect of entrepreneurial orientation on product innovativeness for both of its components, proactiveness and risk-taking. These findings support hypothesis H3. This suggests that SMEs, in which top managers behave proactively and are risk-takers, favour radical as opposed to incremental product innovations. These results are in line with international literature arguing in favour of a positive relationship between firms’ entrepreneurial orientation and product innovation. In particular, they corroborate the work of Miller, Kets de Vries and Toulouse (1982), who suggest that greater amount of proactiveness and risktaking is needed for substantial product innovations. They are also consistent with the empirical findings of Saleh and Wang (1993) which support broadly that more proactive and risky postures adopted by top managers are indicative of firms’ behaviour displaying radical product innovations. A justification of these results may, however, be tied to the nature of our sample consisting of SMEs in Greece, a country endued with unique capabilities in the entrepreneurial act. This may explain why these firms preserve their traditional behaviour which is in general characterized by family-type management dominated by one individual or a small number of individuals, usually identified with ownership (Bourantas and Papadakis, 1996). That is, top-management team is permeated by the entrepreneurial attitudes, the values and style of the owner(s). These findings converge with experts’ opinions. They emphasized that entrepreneurs in SMEs, who are both owners and managers, do play an impor-


103

tant role in undertaking initiatives related to radical product innovations. Overall, our results provide support of entrepreneurial-push as an important driving force of innovative behaviour. This force seems to outweigh the traditional forces of both market-pull and technology-push in guiding radical product innovation adoptions by SMEs. This not only justifies our investigation of entrepreneurial orientation but would also trigger off further theoretical and empirical investigation on this issue.

Conclusions The purpose of this study was to investigate strategic drivers of radical product innovation adoptions in SMEs. Based on extensions of the ‘market-pull’, ‘technology-push’ and ‘strategic choice’ perspectives, it considers the potential effects of market orientation, technology policy and entrepreneurial orientation. So, this article provides evidence on these drivers of innovation from the area of SMEs, which is considerably under-researched. The specific findings support the dominance of entrepreneurial orientation. Both its dimensions (proactiveness and risk-taking) were found to be statistically important in explaining the choice of SMEs to adopt radical as against incremental product innovations. Technology policy and market orientation, on the other hand, appear to play an insignificant role. So, it appears that radical product innovations are more likely to be introduced by SMEs as a result of proactive behaviour and risk-taking posture assumed by top management. These empirical results regarding SMEs differ with those in the literature of large enterprises, which give a role to all three strategic forces investigated. These results have wider implications for both theory and policymaking. First, in relation to the debate of whether market orientation or technology policy affects the choice of high-level product innovativeness, the specific findings suggest that neither of these two drivers is important in adopting radical product innovations. On the contrary, they justify an extension of this debate to include the notion of ‘entrepreneurial-push’. This lends support to a wider argument which underlines that entrepreneurial orientation in SMEs may be more important than market orientation and technology policy in promoting aggressive innovative behaviour. Stated differently, the argument of ‘entrepreneurialpush’ is elevated, and seems to outweigh the traditional debate of market-pull and technology-push.

Volume 12

Number 2

June 2003

104


From a practical perspective, the results of this study have useful implications, especially for SMEs in Greece. Given the strong entrepreneurial tradition in the food and beverages sector, policy-makers and managers need to examine the extent to which proactiveness and risk-taking leverage radical product innovations. These capabilities appear more important than reliance on market orientation and technology policy. Thus building a fertile entrepreneurial environment would accelerate innovativeness and adaptation to the emerging new competitive landscape. Furthermore, the present analysis could be used to qualify on policies, both national and in the framework of EU innovation and entrepreneurship support programmes. Enhancing dimensions of entrepreneurial environment, which amplify SMEs’ innovative activity, especially through radical product innovations, may be crucial to designing better policies. Our findings, suggesting that it is mainly entrepreneurial orientation that favours radical as opposed to incremental product innovations, provide empirical support to such policy directions. Taking it further, this would lend support to the wider cultivation of entrepreneurship in the society. We should close, however, with a note of caution. Our study provides some new evidence drawing upon data from SMEs in the food and beverages industry of Greece. As such, it helps to project to the international literature a view from a national context other than those of large countries (such as United States, Japan, Australia) which dominate the literature. Nonetheless, it would be interesting to see whether similar relations obtain in SMEs from other industries and/or national contexts of similar set-up. This would help to confirm and extent the present results and to direct policies accordingly.

References Allen, M.J. and Yen, W.M. (1979) Introduction to Measurement Theory. Brooks/Cole, Monterey, CA. Appiah-Adu, K. and Singh, S. (1998) Customer orientation and performance: a study of SMEs. Management Decision, 36, 6, pp. 385–94. Atuahene-Gima, K. (1995) An Explanatory Analysis of the Impact of Market Orientation on New Product Performance. Journal of Product Innovation Management, 12, pp. 275–93. Atuahene-Gima, K. and Ko, A. (2001) An Empirical Investigation of the Effect of Market Orientation and Entrepreneurship Orientation Alignment on Product Innovation, Organization Science, 12, 1, pp. 54–74. Balachandra, R. and Friar, J.H. (1997) Factors for Success in R&D Projects and New Product Inno-

Volume 12

Number 2

June 2003

vation: A Contextual Framework. IEEE Transactions on Engineering Management, 44, 3, pp. 276– 87. Baltas, G. and Salavou, E. (2000) An Empirical Investigation of the Determinants of Product Innovation in Small and Medium Sized Firms, 29th EMAC Conference, Rotterdam. Bennett, R.C. and Cooper, R.C. (1981) The Misuse of Marketing: An American Tragedy, Business Horizons, 25, pp. 51–61. Blythe, J. (1999) Innovativeness and Newness in High-tech Consumer Durables. Journal of Product and Brand Management, 8, 5, pp. 415–29. Booz, Allen and Hamilton (1982) New Product Management for the 1980’s. Booz, Allen & Hamilton, Inc., New York. Bourgeois III, L.J. (1984) Strategic Management and Determinism. Academy of Management Review, 9, pp. 586–96. Bourantas, D. and Papadakis, V. (1996) Greek Management: Diagnosis and Prognosis. International Studies of Management and Organization, 26, pp. 13–32. Brouwer, E. and Kleinknecht, A. (1996) Firm Size, Small Business Presence and Sales of Innovative Products: A Micro-econometric Analysis. Small Business Economics, 8, 3, pp. 189–201. Chidamber, S.R. and Kon, H.B. (1994) A Research Retrospective of Innovation Inception and Success: The Technology-Push, Demand-pull Question. International Journal of Technology Management, 9, 1, pp. 94–112. Child, J. (1972) Organisational Structure, Environment and Performance: The Role of Strategic Choice. Sociology, 6, pp. 1–22. Christensen, C.M. and Bower, J.L. (1996) Customer Power, Strategic Investments, and the Failure of Leading Firms. Strategic Management Journal, 17, pp. 197–218. Cooper, R.G. (1979) The Dimensions of Industrial New Product Success and Failure. Journal of Marketing, 43, pp. 93–103. Cooper, R.G. (1984) The Strategy-Performance Link in Product Innovation. R&D Management, 14, pp. 247–59. Cooper, R.G. (1994) New Products: The Factors that Drive Success. International Marketing Review, 11, 1, pp. 60–76. Covin, J.G. and Slevin, D.P. (1991) A Conceptual Model of Entrepreneurship as Firm Behavior. Entrepreneurship: Theory and Practice, 16, 1, pp. 7–26. Danneels, E. and Kleinschmidt, E.J. (2001) Product Innovativeness from the firm’s perspective: Its dimensions and their relation with project selection and performance. Journal of Product Innovation Management, 18, pp. 357–73. Da Rocha, A., Christensen C.H. and Paim, N.A. (1990) Characteristics of Innovative Firms in the Brazilian Computer Industry. Journal of Product Innovation Management, 7, pp. 123– 34. Davis, D.C. (1993) Marketing in High-technology Industries: The Biotechnology Example. PhD dissertation, Kent State University, Ohio. De Brentani, U. (2001). Innovative versus incremental new business services: Different keys for



achieving success. Journal of Product Innovation Management, 18, pp. 169–87. Drazin, R. and Schoonhoven, C.B. (1996) Community, population, and organization effects on innovation: A multilevel perspective. Academy of Management Journal, 39, pp. 1065–83. Droukopoulos, V. and Thomadakis, S. (1993) The share of small and medium-sized enterprise in Greek manufacturing. Small Business Economics, 5, pp. 187–96. Dutta, S. and Evrard, P. (1999) Information technology and organization within European small enterprises. European Management Journal, 17, 3, pp. 239–51. Ettlie, J.E. (1983). Organizational Policy and Innovation Among Suppliers to the Food Processing Sector. Academy of Management Journal, 26, 1, pp. 27–44. Ettlie, J.E. and Bridges, W.P. (1982) Environmental Uncertainty and Organizational Technology. IEEE Transactions on Engineering Management, EM-29, 1, pp. 2–10. Ettlie, J.E. and Rubenstein, A.H. (1987) Firm Size and Product Innovation. Journal of Product Innovation Management, 4, pp. 89–108. Ettlie, J.E., Bridges, W.P. and O’Keefe, R.D. (1984) Organization Strategy and Structural Differences for Radical versus Incremental Innovation. Management Science, 30, 6, pp. 682–95. European Commission Research (2002) Towards a European Research Area, Science, Technology and Innovation, Key Figures 2002, available at www.cordis.lu/ Freel, M.S. (2000) Barriers to Product Innovation in Small Manufacturing Firms. International Small Business Journal, 18, 2, pp. 60–80. Fritz, W. (1989) Determinants of Product Innovation Activities. European Journal of Marketing, 23, 10, pp. 32–43. Garvin, D.A. (1983) Spin-off and the New Firm Formation Process. California Management Review, 25, 2, pp. 3–20. Gatignon, H. and Xuereb, J.M. (1997) Strategic Orientation of the Firm and New Product Performance. Journal of Marketing Research, Vol. XXXIV, pp. 77–90. Guth, W. and Ginsberg, A. (1990) Guest Editor’s Introduction: Corporate Entrepreneurship. Strategic Management Journal, 11, pp. 5–15. Hambrick, D.C. (1989) Putting Top Managers back in the Strategy Picture. Strategic Management Journal, 10, pp. 5–15. Hambrick, D.C. and Mason, P. (1984) The Organization as a Reflection of Its Top Managers. Academy of Management Review, 9, pp. 193– 206. Han, J.K., Kim, N. and Srivastava, R.K. (1998) Market Orientation and Organizational Performance: Is Innovation a Missing Link? Journal of Marketing, 62, 4, pp. 30–45. Heunks, F.J. (1998) Innovation, Creativity and Success. Small Business Economics, 10, pp. 263– 72. Hull, F.M., Hage, J. and Azumi, K. (1985) R&D Management Strategies: America versus Japan. IEEE Transactions on Engineering Management, EM-32, 2, pp. 78–83.


105

Hurley, R.F. and Hult, G.T.M. (1998) Innovation, Market Orientation, and Organizational Learning: An Integration and Empirical Examination. Journal of Marketing, 62, pp. 42–54. Jaworski, B.J. and Kohli, A.K. (1996) Market Orientation: Review, Refinement, and Roadmaps. Journal of Market Focused Management, 1, 2, pp. 119–35. Khan, A.M. and Manopichetwattana, V. (1989) Innovative and Noninnovative Small Firms: Types and Characteristics. Management Science, 35, 5, pp. 597–606. Kitchell, S. (1995) Corporate Culture, Environmental Adaptation, and Innovation Adoption: A Qualitative/Quantitative Approach. Journal of the Academy of Marketing Science, 23, 3, pp. 195– 205. Kleinbaum, D.G. (1994) Logistic Regression: A SelfLearning Text. Springer-Verlag, New York. Kohli, A.K. and Jaworski, B.J. (1990) Market Orientation: The Construct, Research Propositions, and Managerial Implications. Journal of Marketing, 54, pp. 1–18. Lioukas, S. and Makridakis, S. (1999) Globalisation and Competitive Strategies of Greek Firms (in Greek). Strategies, 1, pp. 18–28. Makridakis, S., Papagiannakis, L. and Calogirou, Y. (1996) Greek Management: Developments, Prospects, Trends (in Greek). EASE. Makridakis, S., Calogirou, Y., Papagiannakis, L. and Trivellas, P. (1997) The dualism of Greek firms and management: present state and future implications. European Management Journal, 14, 4, pp. 381–402. March, J.C. and Simon, H.A. (1958) Organization. Wiley, New York, USA. Miller, D. and Friesen, P.H. (1982) Innovation in Conservative and Entrepreneurial Firms: Two Models of Strategic Momentum. Strategic Management Journal, 3, pp. 1–25. Miller, D., Kets De Vries, M.F.R. and Toulouse, J.M. (1982) Top Executive Locus of Control and its Relationship to Strategy-making, Structure and Environment. Academy of Management Journal, 25, 2, pp. 237–53. Miller, D., Droge, C. and Toulouse, J.M. (1988) Strategic Process and Content as Mediators between Organisational Context and Structure. Academy of Management Journal, 31, pp. 544–69. Naman, J.L. and Slevin, D.J. (1993) Entrepreneurship and the Concept of Fit: A Model and Empirical Tests. Strategic Management Journal, 14, pp. 137–53. Narver, J.C. and Slater, S.F. (1990) The Effect of a Market Orientation on Business Profitability. Journal of Marketing, 54, pp. 20–35. Ruekert R.W. (1992) Developing a Market Orientation: An Organizational Strategy Perspective. International Journal of Research in Marketing, 9, 3, pp. 225–45. Russell, R.D. and Russell, C.J. (1992) An Examination of the Effects of Organizational Norms, Organizational Structure, and Environmental Uncertainty on Entrepreneurial Strategy. Journal of Management, 18, 4, pp. 639–56. Saleh, S.D. and Wang, C.K. (1993) The Management of Innovation: Strategy, Structure, and Organiza-

Volume 12

Number 2

June 2003

106


tional Climate. IEEE Transactions on Engineering Management, 40, 1, pp. 14–21. Sandvik, K., Grøhhaug, K. and Øgaard, H. (2000) The Impact of Market Orientation on Innovation and Profitability, 29th EMAC Conference, Rotterdam. Shapiro, B.P. (1988) What the Hell is ‘Market Oriented’. Harvard Business Review, 66, pp. 119–25. Slater, S.F. and Narver, J.C. (1994) Does Competitive Environment Moderate the Market OrientationPerformance Relationship? Journal of Marketing, 58, 1, pp. 46–55. Slater, S.F. and Narver, J.C. (1999) Market Oriented Is Not Enough: Build a Learning Organization. In R. Deshpandé (ed.) Developing a Market Orientation, SAGE Publications Inc., pp. 237–66. Song, M.X. and Montoya-Weiss, M.M. (1998) Critical Development Activities for Really New versus Incremental Products. Journal of Product Innovation Management, 15, pp. 124–35. Souder, W.E. (1987), Managing New Product Innovations. Lexington Books, Lexington, MA. Spanos, Y.E., Prastacos, G.P. and Papadakis, V. (2001) Greek firms and EMU: contrasting smes and large-sized enterprises. European Management Journal, 19, 6, pp. 638–48. Sweeney, G.P. (1983) New Entrepreneurship and the Smaller Firm. Campus, Frankfurt, New York. Van de Ven, A. and Ferry, D. (1980) Measuring and Assessing Organizations. Wiley, New York. Wilson, A.L., Ramamurthy, K. and Nystrom, P.C. (1999) A Multi-attribute Measure for Innovation

Volume 12

Number 2

June 2003

Adoption: The Context of Imaging Technology. IEEE Transactions on Engineering Management, 6, 3, pp. 311–21. Zahra, S.A. and Covin, J.G. (1993) Business strategy, technology policy and firm performance. Strategic Management Journal, 14, pp. 451–78.

BIOGRAPHICAL SKETCH Helen Salavou is a post-doctoral researcher at the Athens University of Economics and Business. Her research interests are in innovation management and business strategy. She holds a BSc in Business Administration, an MBA and a PhD from the Athens University of Economics and Business. Spyros Lioukas is Professor of business strategy at the Athens University of Economics and Business. He received a PhD from the London Business School. Formerly he was a lecturer at the London Business School. His current research interests are in strategy, business transformation and entrepreneurship. He has published many articles in leading academic journals including Management Science, Organization Science, and the Strategic Management Journal.



107

Appendix A. Measures and items 1. Market Orientation (Cronbach Alpha Coefficient for scale: 0.73) To what extent does each of the following statements describe adequately your firm 7 ‘very much’)

(Response format: 1 ‘not at all’ to

Variables

Factor loadinga Factor 1

Customer Information: Listens to opinions of customers. Uses customer information to improve quality of products. Personnel has adequate information about customers and competitors.

Factor 2

Factor 3

Factor 4

0.86 0.70 0.69

Customer Responsiveness: Keeps promises made to customers. Respond to customer needs in delivery on time.

0.82 0.71

Market-driven Strategy Formulation: Company objectives are based mainly on customer needs. Uses customer information to develop new products. Company planning is organised by markets rather than products.

0.61 0.66 0.76

Market-driven Pricing Policy: Prices are determined by market conditions. Responds to customer needs in credit policy. Total Variance Explained: 67.25%

0.88 0.70

Notes: a Principal components analysis with varimax rotation.

2. Technology Policy (Cronbach Alpha Coefficient for scale: 0.87) Please rate the extent to which the following statements describe the technology policy followed by your firm (Response format: 1 ‘strongly disagree’ to 7 ‘strongly agree’) Variable

The policy of this firm has been to always consider the most up-to-date production technology available. We have a long tradition and reputation in our industry of attempting to be first to try out new methods and equipment. We spend more than most firms in our industry on new product development. We devote extra resources (i.e. time, money) to recruit the best qualified personnel in production. We devote extra resources (i.e. time, money) to technological forecasting. Total Variance Explained: 69.60%

Factor loadinga Factor 1 0.85 0.88 0.83 0.72 0.88



Volume 12

Number 2

June 2003

108


3. Entrepreneurial Orientation (Cronbach Alpha Coefficient for scale: 0.81) Please indicate the point that represents your opinion by comparing your company with your main competitors, on average for the last three years (1995–1997) for each of the following pair of sentences. Factor loadinga

Variable

Factor 1 Proactiveness Less new products. Changes in products have been mostly of a minor nature (i.e. incremental).

1234567 1234567

More new products. Changes in products have usually been radical.

Factor 2 Risk-taking

0.83 0.74

Please indicate the point that represents your opinion for each of the following pair of sentences. There is a strong emphasis on the marketing of true and tried products.

1234567

There exists a very strong emphasis on the development of new and innovative products.

0.69

There is a strong proclivity for low risk projects (with normal and certain rates of return).

1234567

There is a strong proclivity for high risk projects (with chances of very high return).

0.81

Owning to the nature of the environment, it is best to explore gradually via cautious, incremental behaviour.

1234567

Owning to the nature of the environment, bold, wideranging acts are necessary to achieve the firm’s objectives.

0.57

Typically we adopt a cautious, ‘wait and see’ posture in order to minimise the probability of making costly decisions.

1234567

Typically we adopt a bold, aggressive posture in order to maximise the probability of exploiting potential opportunities.

0.84

Typically we respond to actions which competitors initiate.

1234567

Typically we initiate actions to which competitors then respond.

0.69

We are very seldom the first business to introduce new products.

1234567

We are very often the first business to introduce new products.

0.78

We typically seek to avoid competitive clashes, preferring a ‘live-and-let- live’ posture. Total Variance Explained: 57.74%

1234567

We typically adopt a very competitive, ‘undo-thecompetitors’ posture.

0.50


Volume 12

Number 2

June 2003
