Large Firms Are Always Better Placed To Innovate
Introduction
Over the years, firms across industries have been faced with constant transformational changes which necessitate the adoption of entrepreneurial skills to retain their competitiveness. Creativity and innovation is a critical component for every competitive firm. The process of innovation can be manipulated into four critical dimensions of an organisation that entails process, product, paradigm and position. Process innovation involves alteration of the approaches used in the production to be more productive and efficient. Product innovation involves changes in the commodities offered by an organisation. On the other hand, paradigm innovation entails changes in the organisation model used in the production of goods and services within an organisation.
In contrast, position innovation involves changes in manners in which products and services are offered. Innovation offers an organisation to provide unique and alternative approaches, offering a competitive advantage (Martín‐de Castro et al. 2011). The level of success in different levels of business has over the years raised concerns. Economists have argued that advantages vary depending on the scale of the production. The monopoly power and economics of magnitude are believed to be among the primary factors that enhance innovation among in large scale firms than in small scale businesses. The scale of production and the size of the firm has been directly correlated to the innovation advantages (Spithoven, Vanhaverbeke and Roijakkers 2013). This paper is developed to explore and elaborate on the benefits of large firms on innovation. The study examines the advantages and disadvantages of large and small scale firms in change as a critical component in the development of competitive advantages.
Firm Size and Innovation of Literature Analysis
According to Nieto and Santamaría (2010), innovation is a critical component in both small and large scale production. Globalisation aspect has, over the years, changed strategic approaches towards maintaining the competitiveness of organisations. Innovation can be witnessed in different stages of an organisation. The importance of innovation across industries has led to extensive research studies aimed at exploring close definitions and factors that fundamentally affect innovation levels. Scholars gave globally acknowledged its importance and in-depth its determinants and characteristics. Primarily, the differentiation of various types of innovation is critical. The essence of innovation has been extremely emphasised by economics as a critical factor of productivity and competitiveness of firms. Innovation plays an essential role in societal development as it offers solutions to future challenges through the introduction of new products, social processes, businesses and new products.
According to Varis and Littunen (2010), innovation entails changes in organisational operations processes and technological innovation. The term technological changes are used to elaborate changes in end products or commercialisation of end product of an organisation. Organisational innovation is developed based on alterations in the management process and administrative processes that are more related to management aspect than the firm’s activities. The correlation between innovation capacity and firm size mostly depends on the economic literature. According to financial research, creative destruction and creative accumulative are mainly used in the analysis of the firm’s size in the determination of the innovation. According to creative disruption, innovation and creativity are more intense in highly competitive industries that are dominated by small scale firms. Small scale firms are more likely to develop innovative approaches to challenge the incumbent in the industry. Innovation is viewed as the only option for the small scale business through entrepreneurial skills to have a market share in an established market. On the other hand, large scale organisations with a large pool of financial resources are monitored as innovation drivers. They create barriers of entry through innovation and creativity, protecting their market share and power (Ndubisi and Iftikhar 2012).
Based on both creative accumulation and creative destruction models, economists have identified different theories of innovation patterns. The modern approach can be used to explore the relationship between innovation capacity and level of performance. According to the method, the relationship can be explored based on the state of the industry under analysis. The role of small firms is more significant where the entry barriers are lower, and a marker exists. The correlation develops in a mature situation where a higher concentration is found both in the market and innovation. Highly competitive industries that are capital intensive are more likely to discourage entry of small scale firms through innovation. Large firms are more innovative in monopolistic market settings and concentrated industries. On the other side, small firms are more creative and effective in competitive market settings. The success of firms is developed based on innovation and creativity across all levels of productivity (Damanpour and Aravind 2012).
Innovation in Small and Large Scale Firms
According to Jiménez-Jiménez and Sanz-Valle (2011), innovation serves different purposes in small and large scale companies. In small scale enterprises, change is mainly used as an entry approach to get a market share in an already established industry. The strategies are developed with market analysis at hand with a primary objective of getting a market share from existing companies. On the other hand, large scale companies employ innovation in the creation of barriers to prevent new entries into the industry. Large scale companies primarily entail the use of financial assets while on the other side, entrepreneurial skills are used as the primary innovate aspect among the small scale businesses. Both small scale businesses and large scale businesses have different advantages in the application of innovation as a competitive advantage (Nieto and Santamaría 2010).
Innovation requires adequate motivation for employees or the entrepreneur. Based on management aspects, small scale organisations are at an added advantage compared to the large scale firms. Small firms are mainly developed on fewer employees with little bureaucracy. The nature of the management allows quick management whose results are easy to measure and evaluate compared to large scale organisations. However, one of the significant limitations to small scale business operators is the lack of managerial skills critical in the development of innovative approaches. Although the entrepreneurs are highly creative and willing to develop new strategies in the production of goods and services, they lack the much needed managerial know-how critical in the utilisation of creativity and innovation. Additionally, small scale businesses have effective communication processes that ensure the innovation ideas are easily incorporated in the management process. The lack of a well-structured communication approach in small scale businesses also hinders uptake of innovation aspect compared to large scale businesses (Dereli 2015).
According to Nieto and Santamaría (2010), market niche plays a critical role in the determination of the level of innovation uptake in an organisation. SMEs are associated with fast reaction to changes in market niches, although the capital limitations critically affect the absorption of innovation aspects. Innovation in the small scale businesses can be easily be employed although lack of innovational technical skills limits their growth in the general productivity of an organisation (Sen and Haq 2010). To small scale businesses, full-time research and development department is too costly to maintain. Additionally, innovation entails financial risks that possess a more significant loss to the involved business. The ability of an organisation to spread risk is limited; the sources of the finances are highly limited, restricting chances of innovation within an organisation compared to large scale organisations. Although small scale businesses are placed to benefit based on niche strategy, they face critical challenges in accessing external finances essential in the financing of innovations and approaches that can enhance productivity compared to the medium and large scale companies (Varis and Littunen 2010).
Large scale businesses have high chances of innovations compared to medium and large scale firms. Entrepreneurial skills are developed based on the innovation of the owner to occupy an existing market gap. However, small scale businesses are faced with various limitations that hinder their potential to exploit innovation and creativity to the business level (Ndubisi and Iftikhar 2012). Across economies, governments have established incentives to promote innovation in SMEs; however, access to the resources have been primarily hindered, making the process one of the significant challenges in the development of the economy. Majority of SMEs cannot cope with complex established regulations limiting their chances of accessing much-needed resources in the development of innovative ideas. The chances of innovation in SMEs in competitive industries are limited. Access to resources, human resources, technological know-how, and the ability to finance the approaches are primarily limited, making it impossible to compete in established industries (Dereli 2015).
Exploration of why Large Firms are Always Better Placed to Innovate
According to Sen and Haq (2010), innovation advantage cannot be classified based on the scale of production. Two decades ago, SMEs were analysed as the best-placed innovators compared to large scale companies. Over time innovation has been more significant in large scale companies compared to SMEs changing the notion. Small scale enterprises are always associated with behavioural innovations, while large scale firms are analysed based on material. Their level of success differs across industries depending on the level of competition and capital required to enhance innovation. However, based on the critical analysis of various economic studies, large scale companies are better placed to innovate compared to SMEs. The importance of large scale production scales and monopoly substantially contributes to the development and enhancement of production levels as analysed by Schumpeter school of thought. According to his ideology, monopolisation of industry makes it less costly for an organisation to plan for its daily activities. Monopolists can develop strategies based on their ability without competition and eliminate risks that firms are likely to face in competitive markets. For instance, advertisement costs are lowered as monopolists does not have to spend a lot of resources establishing advertisement strategies counter their competitors (Ndubisi and Iftikhar 2012).
Firms are becoming more of entrepreneurial firms encouraging innovation at all levels. Innovations have been ranked as the only strategy for large scale companies to retain their market shares and competitiveness, having learnt a lesson from the dotcom revolution of 1990. Large firms have more staffs increasing chances of holding innovative employees in the workforce. People in large firms are endowed with extensive experience from other companies and offer a critical opportunity to be more innovation and creative compare to SMEs. Large firms bring a pool of experience from other companies to the current organisation allowing innovation and creativity in the long run. Experienced employees are more likely to be innovative, giving large firms an added advantage compared to the rivals (Casadesus and Zhu 2013).
Innovation entails capital intensive processes. Large scale companies have a comprehensive source of resources compared to small scale companies. The firms can offer competitive remunerations and motivational incentives for innovative employees. Motivation plays a critical role in the determination of the level of innovation in an organisation (Sen and Ha 2010). Large companies can foot the perk bills for the employees like development programs, in house training and educational programs. The availability of resources enables employees to be more innovative by looking into production challenges in different angles. The ability of large firms to access a large pool of resources offers a critical opportunity to nurture and remain competitive compared to SMEs (Chang 2011).
Nieto and Santamaría (2010) elaborate that, the aspect of the innovation and creativity in general organisation productivity depends on established laws and regulations. Large firms have well-developed structures that allow protections of intellectual property rights and shepherd them to completion. Innovation in big firms is experimented on scientific approaches through established structures, making them more realistic compared to SMEs. The supply chain management is well established making the impact of innovation approach predictable upon establishment, increasing their chances of the success in the long run.
Conclusion
In conclusion, the success of organisation largely depends on exploration of business chances that have not been perceived by rivals in the industry. Through a critical analysis of economic literature, although innovation is possible to all scales of productions, large firms are better placed to innovate compared to SMEs. Innovation and competitive advantage mostly correlation depend on the organisation in which the concept is adopted and the market needs of the chosen approach to remain sustainable without imitation from competitors. Large firms have access to experienced employees, a large pool of financial resources and established legal framework compared to SMEs, offering them an added advantage in access to innovation its implementations. The study has explored based on existing literature on various aspects of innovation based on the scale of production. Through the analysis, it is evident large firms are better placed to innovate compared to SMEs.
Bibliography
Casadesus‐Masanell, R. and Zhu, F., 2013. Business model innovation and competitive imitation: The case of sponsor‐based business models. Strategic management journal, 34(4), pp.464-482.
Chang, C.H., 2011. The influence of corporate environmental ethics on competitive advantage: The mediation role of green innovation. Journal of Business Ethics, 104(3), pp.361-370.\
Damanpour, F. and Aravind, D., 2012. Managerial innovation: Conceptions, processes, and antecedents. Management and organisation review, 8(2), pp.423-454.
Dereli, D.D., 2015. Innovation management in global competition and competitive advantage. Procedia-Social and behavioural sciences, 195, pp.1365-1370.
Jiménez-Jiménez, D. and Sanz-Valle, R., 2011. Innovation, organizational learning, and performance. Journal of business research, 64(4), pp.408-417.
Martín‐de Castro, G., López‐Sáez, P., Delgado‐Verde, M., Quintane, E., Casselman, R.M., Reiche, B.S. and Nylund, P.A., 2011. Innovation as a knowledge‐based outcome. Journal of knowledge management.
Ndubisi, N.O. and Iftikhar, K., 2012. Relationship between entrepreneurship, innovation and performance. Journal of Research in Marketing and entrepreneurship.
Nieto, M.J. and Santamaría, L., 2010. Technological collaboration: Bridging the innovation gap between small and large firms. Journal of small business management, 48(1), pp.44-69.
Sen, A. and Haq, K., 2010. Internationalisation of SMEs: Opportunities and limitations in the age of globalisation. International Business & Economics Research Journal (IBER), 9(5).
Spithoven, A., Vanhaverbeke, W. and Roijakkers, N., 2013. Open innovation practices in SMEs and large enterprises. Small business economics, 41(3), pp.537-562.
Varis, M. and Littunen, H., 2010. Types of innovation, sources of information and performance in entrepreneurial SMEs. European Journal of Innovation Management.