Innovativeness Among Small Businesses Theory And Propositions For Future Research

Industrial Marketing Management 34 (2005) 773 – 782

Innovativeness among small businesses: Theory and propositions for future research Angela HausmanT The University of Texas - Pan American, 1201 W. University Drive, Edinburg, TX 78539, USA Received 26 April 2004; received in revised form 4 November 2004; accepted 6 December 2004 Available online 2 March 2005

Abstract Small businesses represent the lifeblood of the economy. Variations in the innovativeness of these firms may help explain why some succeed, but many fail [Frambach, R. T. (1993). An integrated model of organizational adoption and diffusion of innovations. European Journal of Marketing, 25(5), 22-41; Nord, W. R. & Tucker, S. (1987). Implementing routine and radical innovations. Lexington, MA: Lexington Books.]. To understand how small businesses develop and use innovations, a series of depth interviews were conducted with small, family-owned firms in the US and Spain. Results suggest several factors affect innovativeness, including industry-specific, firmspecific, and innovation-specific factors. The study ends with a series of propositions, potential managerial implications of the study, and suggestions for further research. D 2005 Elsevier Inc. All rights reserved. Keywords: Innovation; Innovativeness; SME; Small business

1. Introduction Despite their public prominence and political influence, the economic impact of large businesses is about equal that of small businesses. For instance, nearly one-half of the US GDP in 1999 was attributable to small businesses, which employed 68.2 million people or 58% of the 1999 employment (Small Business Administration, 2001). EU countries show lower, but still substantial, economic contributions attributable to small businesses (Bednarzik, 2000). In fact, most businesses started as small ventures. These factors argue strongly for a more thorough understanding of factors influencing the success of these businesses. Among the most important aspects of success in small firms is innovativeness, as exemplified by the phenomenal growth of start-up ventures like Starbucks, Apple Computers, Dell, and Kinkos (Daily & Thompson, 1994). These firms are able to capitalize on customer

T Tel.: +1 956 381 2826; fax: +1 956 384 5065. E-mail address: [email protected]. 0019-8501/$ - see front matter D 2005 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2004.12.009

closeness and flexibility to satisfy rapidly changing customer demands, thereby creating valuable competitive advantages (Hausman & Fontenot, 1999). Problems retaining this nimbleness might help explain why such a large percentage of these businesses fail (Drozdow & Carroll, 1997). But, how do small firms remain innovative when they face scarce resources and have little market influence? The answer, while obfuscated by a relative paucity of research, is that they conceivably do it in different ways than large businesses (Yap and Souder, 1994). The purpose of this study is to fill this void by developing an understanding of factors affecting innovativeness among small businesses. Unfortunately, the literature does not provide sufficient detail for deductive model development; hence we used an inductive, multiple informant procedure similar to that utilized by Rogers and Shoemaker (1971) and Rogers (1995). A grounded theory interpretation of qualitative data was combined with extant literature to develop a series of propositions related to innovativeness in small businesses (Glaser & Strauss, 1967; Strauss & Corbin, 1994). The following sections will first review extant theories of

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innovativeness, then develop a series of propositions with suggestions for future research.

2. Innovativeness in small firms Small firms are more than simply smaller versions of major corporations, especially when one talks about familyowned businesses. Not only do they lack the financial and human capital common in large businesses, their governance and reward structure are often entirely different. Thus, it is unclear whether theories developed to understand large firms apply to small businesses. Some characteristic features of small businesses suggest an increased ability to respond to changing environmental needs. As mentioned earlier, closeness between small business customers and managers can provide impetus for innovation due to the ease with which these managers can identify unmet customer needs. Less bureaucracy and more clannish structures, which are common in small businesses, might also improve inter-organizational trust, communication, and cooperative competency that contribute to innovativeness (Olson, Walker, & Reukert, 1995; Sivades & Dwyer, 2000). Owners also normally have more operational expertise, which, combined with superior customer knowledge, might translate into innovative solutions (Dahl & Moreau, 2002). Counteracting the benefits of these internal strengths are external weaknesses. Among the weaknesses is the somewhat parochial nature of small businesses, resulting in fewer external contacts that might otherwise increase the bseek and respondQ capability of the firm (Srinivasan, Lilian, & Rangaswamy, 2002). As a result, small businesses become less innovative over time as they become less aware of environmental changes or innovative solutions. This relative paucity of weak ties was identified by Hausman and Fontenot (1999) as a major impediment to innovativeness in small businesses. Other features of small firms support the contention that they have a difficult time adapting to changes in the economic, technological, or competitive markets (Drozdow & Carroll, 1997; Gallo & Sween, 1991). For instance, small business managers often lack the types of education and training that have been linked with innovativeness (Romano, 1990). This lack of strategic expertise prevents small firms from transforming their superior customer knowledge into new products and services (Davis, Hills, & LaForge, 1985; Gruner & Homburg, 2000; Sethi, Smith, & Park, 2001). Small businesses are also closely held, with power and decision-making concentrated in the owner/manager (Dyer & Handler, 1994). Thus, innovativeness may translate into the innovativeness of the owner/manager rather than the innovativeness of the firm (Verhees & Meulenberg, 2004). Commonly these owners reject the advice of others and are reluctant to delegate authority or decision-making to others,

which conspires to reduce innovativeness (Dyer & Handler, 1994). In addition, over-involvement by the owner in operational level decisions and family considerations might reduce their tendency to take risks (Sethi et al., 2001). Moreover, strategic decisions are often framed within the constraints of family and individual goals, rather than maximization of firm potential, which might encourage firms to reject changes due to their concomitant conflict (Davis et al., 1985; Donckels & Fro¨hlich, 1991; Dyer & Handler, 1994). Empirical and theoretical evidence linking these variables with innovativeness in small business is limited and mostly anecdotal, suggesting further study is needed to explicate their importance in small business innovativeness. Manager/owners are also risk averse and conservative (Donckels & Fro¨hlich, 1991; File & Prince, 1996). Since innovation and adoption involve risks, risk-aversion and conservativeness reduce innovativeness. From a practical perspective, small firms have limited financial capacity, suggesting they lack the financial resources to capitalize on innovative opportunities that can be very risky and costly (Davis et al., 1985; Sivades & Dwyer, 2000).

3. Description of research activity To fully understand the forces affecting innovativeness in small businesses, quantitative research is often less valuable than qualitative research mainly because there is little guidance regarding what factors to measure. Supporting this, Rogers and Shoemaker (1971) provide pages of potential variables that have been tested for their impact on either individual or organizational adoption in prior research. In fact, Rogers (1995) identifies the large number of variables and contrary findings across studies investigating them as one of the fundamental problems in this research area. In small business research, this problem is compounded by the lack of prior research and questions regarding the validity of existing measurement tools and theories in firms that differ in organizational structure and firm characteristics from the large firms used in developing the tools (Romano, 1990). To investigate the most salient features accounting for firm innovativeness, small family-owned businesses were chosen since they are the most common type, representing 90% of all US small businesses (Daily & Thompson, 1994). In-depth, qualitative analysis was used as it provided an opportunity to develop theory from observations, rather than imposing pre-determined models on the data (Huberman & Miles, 1995). Multiple sites provided both greater generalizability and explanatory ability by highlighting commonalities and particular factors affecting innovativeness (Huberman & Miles, 1995). By comparing features of innovative and less innovative firms, we were able to identify aspects that might account for this difference. This methodology is particularly useful when the underlying

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theoretical framework is not well understood, as was the case here (Babbie, 1998). To understand the factors affecting adoption in small businesses, depth interviews were conducted with six multigenerational businesses (Table 1), three in the US and three in Spain. Each firm was between two and five generations old, having been passed down from one family member to another. These businesses were particularly appropriate for this study, since the continuity of management over many years suggested a stable management philosophy and supported the notion that observations made at a single point reflect the accumulated management philosophy over many years. Paired industries across counties enabled a more nuanced understanding of country differences, while controlling for industry effects. The rationale for including Spanish firms in the analysis was partly based on wide cultural differences recorded in prior research (Hofstede, 2001) and access to Spanish firms. Data collected included taped, semi-structured interviews with multiple informants in each business, pictures of the business operation, financial and other secondary data contained in company records, and media accounts of the business. Interviews used a standard question guide to ensure adequate coverage of the topic. This was translated into Spanish by a bi-lingual Spaniard to ensure accurate understanding given regional dialects. Spanish interviews were conducted by the same bi-lingual Spaniard, involving abbreviated translation of the answers to allow follow-up questioning and elaboration. The Spanish tapes were later translated and all interviews were transcribed by a second bi-lingual Spaniard from the same region, resulting in 57 single-spaced pages. Since this technique does not utilize rigid questioning, but encourages more natural discourse between informant and researcher, complex translation/back translation procedures were deemed unnecessary. Each interview began with a discussion of the history and current operations of the business. Then, following a phenomenological focus, interviews proceeded based on the topics introduced by the informant, as recommended by Thompson (1997). Rather than following an invariant set of questions, the interviewer allowed the business owner to determine the course of the interview, while still making sure to cover the broad topic areas of interest to the researchers. Questions addressed issues of how they first

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became aware of innovations, how the adoption process was accomplished, innovations introduced by the firms, and why innovations might have been discarded as inappropriate. To avoid social desirability bias, questions were framed in terms of managing change within the organization, since terms like innovation and adoption may play into the proadoption bias noted by Rogers (1995). The goal was to illuminate key factors that influenced the innovativeness within the firm. Supplementing this, observational data were collected by touring facilities and talking to employees as they performed daily tasks. Depending on the amount of access allowed by the owner, observations might have been as short as onehalf hour or as long as several hours. In two cases, the need for repeated interviews allowed observation of the operation over several different times. Discrepancies between observations and reports were noted and, when possible, were later discussed with the business owner. Photographs were also used both as a form of observation and an aid to later recall the observations. A more subtle analysis was also possible through these recordings, as they represent btruth-revealing mechanismsQ and provide perspectives in action to complement the perspectives of action supplied by informants (Snow & Anderson, 1987). Photographs were also effective in identifying intangible aspects imbedded so deeply within the culture and experience of the business that they remained unarticulated during interviews (Harper, 1994). A final data source was secondary data. The types and amount of secondary data varied greatly from one business to the next. In some cases, firms had been the subject of several newspaper and magazine reports including more photographs of the operation. The study protocol involved asking managers for information including organizational charts, brochures, catalogs, price lists, menus, press clippings, and samples of advertisements. These data were mainly used to corroborate and expand on information supplied by the owner. For instance, secondary data were particularly useful in validating the timing of innovations. As is customary with qualitative data collection, key informants were not representative of the population from which they were drawn in the bstatistical senseQ. Instead, a purposive sampling technique was used whereby informants were selected for their variability to provide a broad range of

Table 1 Characteristics of respondents Number

InnovativeT

Industry

Country

Type of business

Number generations

1 2 3 4 5 6

No Yes No No Yes Partially

Service Industrial manufacturer Consumer manufacturer Service Industrial supplier Consumer manufacturer

U.S. U.S. U.S. Spain Spain Spain

Fast food restaurant Oil drilling and truck brake equipment Glassware and stained glass Bakery and ice creamery Produce broker Soft drinks and water

3 2 4 5 2 2

T Examples of criterion used to classify include offering different products than competitors, introducing new products recently, using automated production techniques, automated accounting and logistics, use of computers (other than as cash registers).

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perspectives regarding the topic of interest (Lincoln & Guba, 1985). Selection of companies in the US was accomplished by obtaining a list of firms fitting the profile (i. e., multi-generational small businesses) from the Small Business Institute and selecting firms from very different industries – a service business, a manufacturer of consumer products, and a manufacturer of industrial products. Firms from the same types of industries were selected in Spain based on a list obtained from the Family Business Center in Seville, Spain. Owners or other highly placed family members were contacted by telephone, the general purpose of the research was explained, and an appointment made for an interview. All informants were assured confidentiality and were offered a copy of the report to insure their cooperation. After arriving in Spain, a substitution was made for the industrial manufacturer based on unavailability of the originally scheduled business owner. In this case an industrial supplier was used instead. Since analysis was built on a relatively small number of firms, questions regarding the likelihood of reaching saturation existed (Glaser & Strauss, 1967). Therefore, only propositions derived from the data are presented with suggestions for future testing, rather than using the data for both theory development and testing, as suggested by Strauss and Corbin (1994). These findings are therefore specific to these individuals at this time and are not meant to be generalizable to other contexts or even other individuals employed in the same industry. These participants are providing exploratory insights into the issues they face. The analyses of the interview transcripts and other data were completed using the hermeneutic procedure outlined by Thompson (1997). Analysis proceeded through a series of part-to-whole iterations; first comparing within the text followed by comparisons across texts to identify patterns and differences across utterances (Thompson, 1997). The interpretive process was similar to its hermeneutic cousins, involving iterative analysis to develop a holistic understanding of the data. Earlier readings of the text inform later readings, and reciprocally, later readings allow the researcher to recognize and explore patterns not noted in the initial analysis. As the analysis proceeds, textual interpretations broaden, with the resultant thematic structure reflecting the understanding of the broadest text. As described, the development of a holistic understanding of the participants’ experiences must be developed over time. The next step involved creating individual descriptions, or summaries of the researchers’ understanding of the text. The descriptions were sent to the participants for review and evaluation. This, in essence, served as an additional interview with each participant. It provided direct feedback on the equality between the participants’ own understanding and that deriving from the researchers’ analysis of the transcript. This procedure is referred to as member checking (Lincoln & Guba, 1985).

4. Theory development Wide variation existed across firms in the number and complexity of innovations developed and adopted by them, remembering that innovation reflects the newness of the product to the adopting unit, not absolute newness of the product. In reviewing the history of the firms, all appeared to have been innovative during their early years. For instance, the Spanish baker invented a pastry named for Pope Pious the Ninth that can be traced to 1935 – Piononos. The US industrial manufacturer began his business with an innovative gas well drilling apparatus. The current state of the business reflects several were still innovative – either inventing or adopting new technologies or practices. However, several of the businesses had lost the innovative spark over the generations. For example, the US consumer manufacturer, who was once known worldwide for their unique designs, was rapidly losing their market edge. The goal of this study was to identify similarities between more innovative firms and, using extant theory, propose factors that distinguish them from less innovative firms. Although it is difficult to trace the reason for the differences in innovativeness and the propositions presented here are not designed to be exhaustive, several issues bear further study. Analysis suggested a model of small business innovativeness containing the contributing factors of market intensity, owner/manager factors, organizational culture, and channel network effects (Fig. 1). The next sections will present empirical support from the case studies and extant literature to support each proposed relationship in the model. 4.1. Market intensity In certain markets, disparities in market access may hinder small businesses trying to compete against much larger ones. Specifically, competitive intensity, commonly defined as the market share controlled by the largest businesses, might negatively affect potential rewards and increase innovative risks (Sebora, Hartman, & Tower, 1994). For instance, in industries dominated by oligopolies, like Coke and McDonalds, new consumer products present high potential rewards based on the number of potential customers. But small businesses, with their regional customer base, might be ill-prepared to capture a substantial portion of this market, thus reducing anticipated rewards for their innovativeness (Daily & Thompson, 1994). Meanwhile, large businesses are poised to capitalize on the innovativeness of these small businesses through their ability to mimic innovations and their enormous distribution capacity. At low levels of competitive intensity it is conceivable that new products would provide sustainable competitive advantage to the innovator, while in industries dominated by oligopolists, innovations might quickly be matched, thereby reducing the attractiveness of being innovative (Sorescu,

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Industry Concentration

777

Innovative products and services

Manager factors Education/ experience Share Control Manage Conflict

Innovativeness Network Effects

Adoption of Innovative products, practices or ideas Tangibility of Products

Fig. 1. Model of small firm innovation and adoption.

Chandy, & Prabhu, 2003). Although Sorescu and colleagues (2003) did not test these variables in small businesses, they found competitive intensity was important in explaining innovativeness in larger firms. Several situations faced by small businesses suggest an exaggerated effect of competitive intensity on innovativeness. For instance, small businesses face more limited rewards for innovativeness and greater risks, making innovativeness less appealing (Gallo & Sween, 1991; Sorescu et al., 2003). Limited rewards come through the limited distribution capacity of small firms. Greater risks come through the inability of small businesses to capitalize on brand equity and product diversification that reduces the downside of a single new product failure in large businesses. In contrast, more competitive markets might offer higher incentives for innovation, due to the reduced dominance of a few firms (Sorescu et al., 2003). Empirical evidence belies this proposed relationship (Gatignon & Robertson, 1989). Their argument is based on notions that intense competition fuels increased environmental scanning by competitors and more rapid adoption of innovations. However, their study specifically excluded small businesses, making application to the small business context questionable. Reconciling these disparate findings, the prevailing variable may be the amount of resources allocated for scanning. Thus, combining competitive intensity with limited resources that can be allocated for environmental scanning, small businesses might face substantial roadblocks in their efforts to be innovative. In small businesses, competitive intensity appeared to be a prevailing factor with firms operating in the shadow of several behemoths being less innovative. For instance, Firm 1 had recently introduced french fries to their menu, which is hardly innovative since nearly every other fast food operation counts this product as an indispensable part of their product mix. Similarly, Firm 6’s products were standard fair – soft drinks and water – and most of the

elements leading to its classification as partially innovative were automated filling equipment mandated as part of their licensing agreement. Both these firms operate in businesses where a few major firms control most of the market share – an oligopoly. The more innovative businesses operated in industries characterized as more openly competitive. For instance, Firm 2 was developing new products in response to increased saturation for its original product in the marketplace. Thus, the following proposition is presented: P1. Small businesses operating in competitive environments will be more innovative than firms operating in oligopolistic environments. 4.2. Manager factors 4.2.1. Demographic factors Managers and owners of small businesses have an exaggerated impact on the strategic direction adopted by their firms and their resulting performance (Donckels & Fro¨ hlich, 1991). Thus, unlike other studies of firm innovativeness, any effort to understand the innovativeness of small businesses must look at the characteristics of these individuals. Among the variables associated with individual innovativeness in consumer adoption are demographics such as age, income, education, etc., although these have not been studied in the small business context. Variables identified in consumer adoption studies appeared to have little effect on innovativeness in our study. With respect to adoption of innovations, several, including Firms 2 and 5, appeared more technologically advanced than the other businesses comprising this study. For instance they employed statistical process control and relied heavily on computers to manage and market their operations, while others, like Firm 3 and Firm 4 were fundamentally manual operations. Given that they came from entirely different industries, it appeared unlikely this variable affected the

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level of adoption. Age did not appear to be a factor, since Firm 2’s owner was in his 50’s and the cousins managing Firm 5 were in their mid 30’s. Similarly, Firm 2 was a second-generation business, while Firm 5 was four generations old. Thus, these differences failed to account for similar degrees of innovativeness observed in these firms. This distinguishes theory of innovativeness in small businesses from theories in consumer adoption. Similarities between the two businesses existed, however. For instance, both firms were reliant on collegeeducated managers to control the strategic decisions of the business. In Firm 2, the owner completed an MBA early in the operation of the business and in Firm 5, only family members with requisite skills and education were brought into the management of the business. The cousins managing Firm 5 also had experience working for other firms before joining the family business. In contrast, firms managed by individuals whose experience was limited or lacked formal education were less innovative. Several of the other business owners, especially those in Firms 1 and 4, were raised in the business, having worked in the business from early childhood. This limited their experience with other management philosophies or problem solutions that were implemented effectively in other firms. Controllable factors such as these, including education and the number of outside jobs, have been theorized to affect innovativeness in other studies, although they have no empirical support (Peters & Venkatesan, 1973). These results are also suggested by findings in Rogers’ studies of adoption with respect to consumer products (Rogers, 1995; Rogers & Shoemaker, 1971). This suggests the following proposition: P2. Innovativeness in small businesses is positively related to employing managers with relevant outside training and/or formal education. 4.2.2. Control Large organizations usually have a board of directors responsible for providing strategic direction and operational managers who oversee the daily operations of the business. In small businesses, these roles may be fulfilled by a single individual or a small group. An outgrowth of this is a failure of managers to think strategically due to the overwhelming responsibility of managing tactical details. Attempts to control and micromanage firm operations have two deleterious effects of firm growth. They limit the strategic horizon by focusing management attention on operational details and they restrict the firm’s ability to attract and retain creative employees. Effective managers make the transition to a more strategic orientation and delegate responsibility to line managers once their operations grow, otherwise future growth is restricted (Timmons & Spinelli, 2004). Delegating authority to other firm members also encourages creativity and poises the firm to capitalize on diverse solutions. These features may contribute to the lack of innovativeness of these firms.

In family businesses, owners face inevitable transfer of control to successive generations. Although control might have been transferred to another family member, the prior manager can have substantial control either overtly, through the influence exerted on the new manager, legitimately, through retained voting stock, or covertly, through the new manager’s desire to continue the legacy of the old manager. Innovativeness may be hampered by the manager’s lack of effective control over strategic direction or desire to reduce conflict with family members who have relinquished the title, but not the effective control of the organization. After all, the manager cannot easily avoid seeing the old manager or other family members who might disagree with new directions. Firms, like Firms 1 and 4, who start training family members to take over the business as pre-teens, might inadvertently strengthen the power of the patriarch through socialization of these young workers into bthe way things are doneQ that clouds the new manager’s ability to see the business objectively and make strategic decisions accordingly. The owner of Firm 3, who was extremely concerned with the loss of market share experienced over the years, wanted to make changes. However, he was hampered in his efforts by not knowing what to change and his refusal to consider changes that would negatively impact long-time employee and supplier relationships. His father also still influenced decisions and was tied to these employees, as well. Similarly, many of the businesses reported having problems convincing older family members to acquiesce to changes. For instance, the owner of Firm 1 attributed their belated introduction of french fries to opposition from older family members. The owner of Firm 2 complained his father was bunwilling to give up the reinsQ and he was only allowed to make changes due to his father’s untimely death. The older brothers operating Firm 6 seemed unconcerned about growing the operation and were satisfied to support the status quo – a source of conflict between the older brothers, who retained management control, and the youngest one. Supporting this, Perry-Smith and Shalley (2003) find that role models exert a powerful influence over subsequent innovativeness. P3. Innovativeness in small businesses is related to the manager’s ability to share control and willingness to manage conflict with individuals over change. 4.3. Network effects Innovation is a social process; hence the effects of other firms or individuals on innovativeness can not be ignored. Network effects reflect the ability of other firms to provide valuable information necessary to fuel innovation and adoption and the influence exerted by these firms to direct adoption decisions. Informational transfer includes market feedback regarding the successes and failures of other firms, which informs organizational change and leads to mimicry (Haunschild & Beckman, 1997). Small firms may suffer

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from the small size of their network and the relative paucity of innovative information available in this small network (Hausman & Fontenot, 1999). Small business managers might also discount the value of innovations observed in use by larger firms based on beliefs that these only benefit large firms or that the success of large firms was due to factors independent of their innovativeness. Partners also influence innovative decisions made by others within the network (Hausman & Stock, 2003). Such cooperative adoption takes advantage of network externalities or critical mass formed when customers, suppliers, and others all use the innovation (Frambach & Schillewaert, 2002). Cooperation between small companies and large firms to commercialize technologies and manage resources also provides mutual benefits to the partners (Shan, Walker, & Kogut, 1994). In a number of the firms studied, channel partners appeared to have heavily influenced adoption. Specifically, filling equipment at Firm 6 and grading equipment at Firm 5 were required to comply with specifications of channel partners. Firm 5 also referred to health requirements of his EU partners in describing his methods of food handling. Firm 2 also had to demonstrate its dedication to continuous quality improvement through ISO 9000 certification to satisfy the requirements of its customers. Channel relationships may have also played a part in the Firm 1’s slow adoption of french fries, since their current suppliers did not carry this product. Paun (1997) found a similar situation existed in the wood products business, where managers failed to adopt electronic data interchange because none of their supply chain partners asked them to do so. This suggests the following propositions: P4. Channel partnerships influence the innovativeness of small businesses. Thus, firms with innovative channel partners are more likely to be innovative than firms lacking innovative partners. 4.4. Innovation factors Various components of the innovation itself have been studied as they relate to the speed and pervasiveness of adoption, specifically observability, trialability, relative advantage, complexity, and compatibility. Product tangibility encompasses many of these aspects. For instance, tangible products have characteristics, like observability and trialability, that facilitate adoption, while intangible products have characteristics, like complexity and few short-term advantages, which retard adoption. Most prior research has focused on adoption of products, where tangibility is greater (Chiou, Lee, & Calantone, 1996). A different set of factors might impact adoption of intangible innovations. For instance, the effects of uncertainty avoidance, information exchange, and the role of consensus building may be pivotally important in the adoption of management practices, as suggested by studies of

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information technology adoption (Grover & Groslar, 1990) and agriculture (Silverman & Bailey, 1961). Given the intangibility of management practices, the role of innovation champions who spearhead adoption efforts may be even more critical (Howell & Higgins, 1990). Moreover, it seems plausible that organizational and interorganizational politics may play an increased role in the creation and adoption of intangible innovations (Maute & Locander, 1994). We looked at the adoption of ideologies or management practice innovations, such as ABC (Activity Based Costing), by study firms and found few examples. For instance, none of the firms utilized quality circles, none employed ABC, none used Electronic Data Interchange (EDI), all used dedicated storage, and none used bar coding. Most of the owners, based on observations and supported by extant research, used a bureaucratic management style (File & Prince, 1996). In fact, the only evidence of adoption of a new business practice was in Firm 1, which used an informal management training and job rotation technique to encourage employee retention. Other intangible innovations were in the early stages of development. Consider internationalization, for instance. Internationalization is a type of innovativeness where small businesses appear to lag behind their larger counterparts (Gallo & Sween, 1991). Firm 4 was considering exporting products, which was a very new concept for that business, however no concrete planning had been completed toward implementing this innovation. Based on our conversation and a letter produced by the owner, the interest in exporting was the result of inquires from a San Francisco firm rather than an innovative idea that emanated from within the organization. Firm 5, the most innovative Spanish firm, had a web page to facilitate communication with its international customers; however, the Internet site was very rudimentary and gave little more than contact information. Meanwhile, Firm 3 still used cardboard patterns rather than Computer Added Design (CAD) to design new products and he still used a manual bookkeeping system that did not allow for ABC. These facts suggest the following proposition: P5. Tangible products will be more readily adopted in small businesses than intangible ideas and management practices.

5. Discussion This study used a multi-method, multi-informant process to identify more innovative small firms. By comparing more innovative firms with less innovative ones we proposed elements affecting the degree of innovativeness in small businesses. The most important impact of the study is the fertile groundwork laid here to guide future studies. As highlighted in this study, simply applying knowledge applicable to innovativeness in large firms provides

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incomplete or inaccurate understandings of innovativeness in small businesses. For instance, industry competitiveness appears to function in the opposite direction in small businesses and individual characteristics of small businesses owners have an exaggerated impact on their innovativeness compared to those identified in studies of large businesses. Wholesale application of consumer innovativeness theory also appears to inaccurately reflect the situation in small businesses, since factors, such as age appear to have little impact and other factors, such as the effect of partners, have not been studied among consumers. In addition, the study takes isolated theoretical support for individual propositions and builds a cogent model to reflect innovativeness in small business reflecting the contributions of individual, market, and channel level factors as potential moderators in the process. The study questions the role of national culture in firm innovativeness. These variables appeared to have an important impact on firm adoption decisions in other studies (Gatignon, Eliashberg, & Robertson, 1989), while in this study; culture did not appear to play a significant role. By comparing firms across cultures, the study uncovers not expected differences based on culture, but a great degree of similarity across cultures. The major difference in the degree of innovativeness observed between firms in the two cultures was the effect of outside forces on adoption. However, more research is needed to identify cultural variables that impact adoption decisions, due to the limited number of firms and innovations included in this study. Questions remain regarding whether there is a cultural level of innovativeness that influences firm adoption decisions. Do culturally accepted management styles affect adoption? Do prior adoption decisions affect future decisions? Do Hofstede’s cultural dimensions affect adoption decisions? A broader sample and more concrete hypotheses are necessary to effectively test the impact of culture or other salient national variables on adoption and innovativeness. The individual level propositions developed are not surprising given prior findings summarized by Rogers and Shoemaker (1971), although the impact of these variables with respect to firm adoption has never been systematically studied. From this study, it appears that some variables affecting consumer adoption also hold in small business innovativeness, due to the centralization of control of strategic decisions in the owner. Among the individual variables proposed here are education and experiences of the owners and their willingness to accept conflict. Other variables from consumer adoption do not appear to impact firm innovativeness, specifically age. Moreover, the potential impact of the competitive environment within the industry represents a new and interesting avenue for further testing, since these issues have not been studied in this context previously and the effects appear to be opposite those expected from studies of large firms. Another important area for future research is the moderating effect proposed for type of innovation. Much

of the existing research on innovation has focused on product innovations, rather then ideological innovations, such as new management practices. Rogers (1995) is one of the few researchers to look more broadly at ideological innovations. This study furthers that work, proposing areas for future studies.

6. Managerial implications and future research If supported in future research, these propositions suggest managerial changes to improve the survivability of small businesses. Although firms can do nothing about the relative competitiveness of their industries, many of the other factors identified are amenable to change. The propositions suggest that, in order to retain their innovativeness and remain competitive, small businesses must focus on attracting and retaining highly trained and qualified managers. Too often small businesses, as demonstrated by ones in this study, employ individuals based on familial relationships and patronage rather than those offering the best skill set available. While family and acquaintances might have motivational advantages necessary for firm success, the study suggests that when this practice becomes de rigueur, firms become less likely to adopt novel management practices and develop innovative products that might improve the efficiency and profitability of the firm. Change is not accomplished easily; it involves conflict and stresses that take a toll on managers (Rogers, 1995). This is especially true in small businesses where conflict may divide the family, disrupting both work and social environments. Thus, critical issues of succession take on a new focus based on this study. First, succession must be accomplished through a smooth transition of both authority and remuneration to the new manager. Authority transfer is necessary to empower the new manager to make necessary changes without the necessity of consensus among other owners and retiring family members. Transfer of remuneration is needed to increase the manager’s willingness to subject himself to the negative elements accompanying change. In small businesses, this is accomplished through ownership and the manager must enjoy income growth proportional to their risk to remain innovative. Second, while succession necessarily involves a period of apprenticeship to learn the business, apprenticeship in other businesses and/or formal education should precede this. Such outside experiences ensure the new manager acquires requisite skills, builds bridges to other businesses that bring innovative ideas, and encourages learning alternate methods of running the business. Channel partners appear to affect the adoption process. Not only do they act as passive information sources, they may encourage and facilitate adoption. Given the potential impact of partner innovativeness, small businesses should consider this factor in choosing new

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