Small-Firm Performance: Modeling the Role of Product and Process Improvements*

Abstract

Entrepreneurial and small and medium-sized enterprises (SMEs) firm performance is a complex, multifaceted construct that should be examined with an eye toward its complexity. Our research study seeks to accomplish this examination by proposing a conceptual model of SME performance with two distinct but related outcome dimensions-growth as one dimension and profitability as another. We propose hypotheses for relationships between four antecedent factor conditionsenvironmental hostility, firm size, innovation capability, and internationalizationand an SME's likelihood to pursue either product improvement or process improvement as their primary strategic orientation. Furthermore, we propose that an SME product improvement orientation likely has greater influence on growth and profit performance than will a process improvement orientation. The findings of the study suggest that internationalization and innovator position have a positive impact on new product and process improvements, while environmental hostility, internationalization, and product improvement have positive influences on growth as a performance dimension. In addition and as hypothesized, the product improvement orientation is positively associated with growth and in turn profitability, whereas the process improvement orientation showed no statistical relationship to growth and ultimately profitability.

Innovation Capability and Performance Of Manufacturing SMEs: The Paradoxical Effect of IT Integration

“…Based upon the effect of R&D investments on the subsequent growth of the firm, as confirmed in the literature (Co and Chew, 1997), these investments can be used as an indicator of the SME's capacity to innovate (Qian and Li, 2003;Wolff and Pett, 2006), and particularly in the context of SMEs (De Jong and Vermeulen, 2007). Investment in R&D is in fact one of the most important mechanisms that constitute the innovation system in a given sector or industry (Baldwin and Hanel, 2003).…”

“…As presented in Figure 1, the research model hypothesizes that the effect of innovation capability upon the firm's growth and productivity will be enabled by IT integration, that is, by its use of applications such as MRP-II, ERP and EDI whose ultimate aim resides in the "seamless" integration of business processes across functions and across organizations (Van Grembergen and Van Belle, 1999;Markus, 2001;Kobayashi, Tamaki and Komoda, 2003). The two dependent constructs, growth and productivity, constitute the two main dimensions of the SME's competitive performance in a globalized economy (Wolff and Pett, 2006). For certain researchers, growth, that is the increased penetration of existing markets or the penetration of new markets, be they local, national or international, is intrinsically linked to entrepreneurship (Moreno and Casillas, 2007) and even constitutes its essence (Wiklund and Sheperd, 2003).…”

Explorative versus exploitative alliances: evidence from the glass industry in China

“…Isobe, Makino, and Montgomery (2008) extended the research on these links by proving that refinement capability (exploitation) is positively related to operational (or efficiency) performance, and reconfiguration capability (exploration) is positively related to the strategic (or market) performance. However, Wolff and Pett (2006) did not find a significant link between process innovation and growth performance in their study.…”

Does service innovation matter? An empirical study on market orientation and supply chain performance

“…This is supported by the study by Wolff and Pett (2006), who asserted that firms that innovate tend to have greater returns on investment. Moreover, according to their study of 466 SMEs in Italy, Francalanci and Morabito (2008) proposed that the integration of information systems might mediate firm absorptive capacity.…”