Innovation Capability

Innovation Capability (INNOCAP) constitutes the first dimensions in my dependent variable (Innovation in SMEs). As mentioned, it refers to “the ability to organize and manage the innovation process” (Tidd & Bessant, 2009: 55). It is important to note that innovation capability refers to firms’ ability to manage the entire process since successful innovation depends on success in all phases (Tidd & Bessant, 2009). The innovation process is usually divided into four phases (see fig 2). Search is about finding potential ideas for innovation.

Selection is the process of choosing a particular idea. Implementation is the development of

the idea into a concrete innovation (e.g., the product development process). Capturing is the

process of reaping the benefits of the idea (e.g., getting people to buy the product). However, it is important to note that this is a simplified model and that innovation usually implies complex feed-back loops between the phases (Tidd & Bessant, 2009).

Figur 2. Simplified model of the innovation process (Tidd & Bessant, 2009). The figure describes the main phases which firms must go through in order to innovate.

The importance of innovation capability was addressed as early as in 1954, when Ducker (1954) stated that firms had to be innovative in order to survive in a volatile environment. In today’s markets characterized by increasingly shortened product life cycles, innovation capability is the key for long-term organizational survival and performance (e.g., Damanpour

& Evan, 1984; Han et al, 1998; Cavusgil et al, 2003; Menon, Chowdury, & Lukas, 2002). In fact, EU explicitly states that strengthening innovation capability through acquisition of new knowledge is a major goal for the “Research for SMEs” funding scheme (EU Commission, 2010a). Consequently, the study also serves to analyze whether the funding scheme achieves its intended effects.

As mentioned, scholars have argued that knowledge constitutes a main ingredient in firms’ innovation capability, and that firms can acquire new knowledge through

collaborations (Cavusgil et al, 2003; Arora and Gambardella, 1990, Adams & Dougherty,

1998; Moorman & Rust, 1999). In line with this view, I will assess ways in which SMEs’

innovation capability is influenced through investigation of mechanisms for knowledge transfer in the projects. Scholars have developed conceptual frameworks differing between various types of knowledge. In the following section I will briefly describe some knowledge types which are seen as central for firms’ innovation capability.

Due to space limitations I will limit the analysis of INNOCAP to mechanisms for transferring tacit knowledge. The reason is the broad consensus in the academic literature about the importance of tacit knowledge on firms’ innovation capability (e.g., Mowery, Oxley, Silverman, 1996; Nonaka, 1991; Dyer and Singh, 1998; Lam, 1997; Teece, 1988). For example, Cavusgil and colleagues (2003; 7) argue that “tacit knowledge transfer makes a significant contribution for firms to develop great innovation capability”. Polanyi (1967) described tacit knowledge as non-verbalizable, intuitive, and unarticulated. It is based on an ontological assumption that “we know more than we can tell” (Polyani, 1967). Simply put, it refers to knowledge which is difficult to codify and transfer. Tacit knowledge is contrasted with explicit knowledge, which is universally accepted, formal, and systematic (Nonaka, 1991). As a result, it can easily be articulated and transferred. It is important to note that knowledge is not either absolute tacit or explicit. Rather, the concepts should be regarded as poles on a continuum, where individual pieces of knowledge can have varying degree of

“tacitness” (Inkpen & Dinur, 1998).

2.2.1 Types of Tacit Knowledge

As mentioned, one of the goals of my study is to explore the variety of ways SMEs’

innovation capability (INNOCAP) is influenced through mechanisms for tacit knowledge transfer. Some scholars address tacit knowledge in general while others make distinctions between various types of tacit knowledge. I will draw upon these distinctions to make my

research more sensitive to different kinds of tacit knowledge the SME may acquire through the projects. In the following section I will describe the various types of tacit knowledge used as indicators of INNOCAP.

Lundvall and Johnson (1994) made the distinction between two types of tacit knowledge: know-who and know-how. Know-who is about knowing who knows what (or knowledge about who knows how to do what). Such knowledge is seen as increasingly important due to the dispersed knowledge and skills in today’s market (Foray & Lundvall, 1996). I argue that since innovation projects increasingly take on collaborative forms (e.g., Gassman, 2006; Moll, 2005, Powell et al, 1996), know-who knowledge is essential for finding partners with relevant competencies for the project at hand. For this reason acquisition of know-who will constitute the first indicator of INNOCAP.

At a general level, know-how refers to skills or “the capability to do something”

(Foray & Lundvall, 1996; 116). Researchers distinguish between various types of know-how (e.g., Simonin, 1997; Teece, 1977; Arora, 1995). Among these, I argue that technological- and collaborative know-how is especially relevant for SMEs’ innovation capability.

Collaborative know-how basically refers to the skills of collaborating efficiently with others

and being able to reap the benefits of the collaboration (Simonin, 1997). It is a multifaceted construct, which involves a variety of skills related to the different phases of collaboration cycle. These skills include: identifying and selecting potential collaborators, negotiating the terms and structure of the collaborative agreement, monitoring and managing the

collaborative process, and terminating the collaboration (Simonin, 1997). I argue that since innovation projects are done in collaboration with others increasingly more often (e.g., Gassman, 2006; Moll, 2005; Powell et al, 1996), collaborative skills are becoming progressively more important for firms’ innovation capability. For instance, Swan and Scarbrough (2005: 913) argue that since “knowledge is becoming widely distributed,

innovation needs to occur at the interstices of collaborating groups and organizations”.

Acquisition of collaborative know-how therefore constitutes the second indicator of INNOCAP.

Technological know-how refers to a technical, “hands-on” skill of some kind. An

example is an experienced craftsman who has developed expertise “at his fingertips”, but is rather unable to explicitly formulate the scientific or technical principles behind what he knows (Nonaka, 1991). Technological know-how is especially relevant for firms engaged in new product development activities, since these often require specific technical skills. SME acquisition of technological know-how therefore constitutes the third indicator of INNOCAP.

Acquisition of technological know-how is an explicitly stated goal of the “Research for SMEs”-scheme (EU Commission, 2010a). Thus, the inclusion of this indicator also serves to analyze whether the funding scheme meets its intended goals.