Small and Medium Enterprises/Businesses [SMEs/SMBs] constitute an estimated 95.9 per cent of the total businesses/enterprises operating in Australia, employing about 42 per cent (4.1 million) of the employed workforce and contributing about 46 per cent of the Gross Domestic Product in 2006 to the Australian economy (ABS, 2013; ABS, 2010). Apparently due to small organisational size, less business complexity and high flexibility of working with large organisations, SMEs have shown resilience despite the volatility of the global business environment (Gunasekaran, Rai, & Griffin, 2011).
SMEs, however, face a number of challenges to survive. These challenges include, but are not limited to, availability of financial and human capital; expertise and diversity of business management; technological infrastructure and competencies in maintaining and managing such infrastructure; capacity to embrace, integrate and capitalise on innovations; competitive threats from ever-increasing numbers of small businesses; dependence on large organisations; and the ability to attract and retain a skilled workforce (Malhotra & Temponi, 2010). SMEs adopt a variety of strategies to deal with these challenges. The commonly cited strategies include implementing the latest available technologies and systems; aligning to the needs of large organisations so as to be an effective partner/member of the value chain; improving the business processes; enhancing the staff skills; and being ready to adapt to the dynamics of market-based economies (Gunasekaran et al., 2011).
The high dependence of SMEs on larger enterprises for their business survival has led to SMEs adopting innovative technologies and systems which facilitate improved business and relationship management and better communication with their supply chain partners (Gunasekaran et al., 2011; Malhotra & Temponi, 2010). Enterprise Resource Planning [ERP] is one such system that has attracted significant acceptance by SMEs since 2000 (Huin, 2004). ERP is used as a means of automating and standardising business operations, improving information visibility and facilitating supply chain integration. The structural changes brought about by the introduction of ERP lead to innovative practices and ways of operating in today's dynamic business environment. However, the organisational innovation process of ERP is considered a complex endeavour and poses significant challenges to organisations of all sizes, particularly to SMEs (Morabito, Pace, & Previtali, 2005).
The purpose of this chapter is to explore concepts of complex systems and how these can be instrumental in generating entrepreneurial opportunities. The focus is on how opportunities are created by changing stability levels within our social systems, of which many have occurred and are continuing to occur. The chapter includes sections on the application of complexity theory to entrepreneurship. It further discusses the resilience of natural systems and the lessons that can be learned in terms of the breakdown of systems.
The world has undergone a number of changes to its complex systems which provide context for individuals and enterprises, and with each change to the level of stability it produces entrepreneurial opportunities. A consideration of complex systems in the operation of the world and society demonstrates these changes of stability levels and highlights the dynamic state of dominant systems in society and business. An example of natural system changes can be drawn from observing the biosphere, starting with 540 million years ago through to the present. In more recent times there have been changes to socio-technical systems which provide entrepreneurial opportunities. This chapter will propose a model of stable and unstable systems; it will model both smooth changes and catastrophic changes and will provide an explanatory model from resilience of the natural world; it will propose tools to model social and business systems; and it will recognise some of the key parameters which affect stability and change.
The analysis in this chapter will assist entrepreneurs as they continually search for opportunities. Social breakdown and changes in business can be studied from the perspectives of a system experiencing changing stability levels. Gunderson and Holling (2002, pp. 93-4) illustrate this. The chapter develops this idea by arguing that entrepreneurial opportunities are generated by addressing emergence as a reconfiguration of complex systems after adaptation due to environmental changes. This section sees entrepreneurial opportunities being released by the process of complex systems adapting, and hence moving from one level of stability to another in their adjustment to environmental pressures. Such pressures can be induced by external systems including financial and economic, technological, political, social and cultural, legal, religious and any other major external forces, or a combination of these forces.
Industrial clusters are geographic concentrations of interconnected companies and institutions in a particular field (Porter, 1990). In recent decades, researchers have paid much attention to the important role played by industrial clusters in inspiring regional entrepreneurship, economic competitiveness and productivity. In the field of entrepreneurship research, sources of opportunity and the entrepreneurial behaviours to exploit these opportunities are considered as two main research areas (Shane & Venkataraman, 2000). Judging from the success of some industrial clusters in various parts of the world and existing research outcomes, industrial clusters and entrepreneurship are closely related phenomena (Rutherford & Holmes, 2007; Wennberg & Lindqvist, 2010). However, most of the research on the impacts of industrial clusters on entrepreneurship focuses on innovation, firm creation or firm growth effects of clusters at the regional level. Limited research has been found in the literature to explore the interaction between industrial clusters and entrepreneurial processes systematically at the firm level.
This chapter attempts to address the above research limitation by deriving a conceptual model articulating the integrated components of industrial clusters, entrepreneurial behaviours in established firms and types of entrepreneurial opportunities. In doing so, we illustrate two fundamental entrepreneurship research questions. What are the sources of entrepreneurial opportunities in clusters? And what are the entrepreneurial behaviours that established firms use to exploit the entrepreneurial opportunities? To respond to these questions we conduct a review of the literature and test it against a case study.
There are six sections in this chapter. In the following section we analyse eight components of industrial clusters. In the section after that we discuss the entrepreneurial process: entrepreneurial opportunities and entrepreneurial management behaviours of established firms. In the next section we present a conceptual model of the entrepreneurial process within industrial clusters and provide propositions about their dynamic interactions. On this basis, in the next section, we conduct an analysis on the case study of Yalumba in the Barossa wine region of South Australia which shows that the entrepreneurial process is active and evident in clusters and that the research in this area is worthwhile. We discuss research limitations and future research directions in the final two sections of the chapter.
Introduction: The ambition of this book
In 2011, the South Australian [SA] Government enlisted the services of Professor Göran Roos as Adelaide Thinker in Residence to examine the innovation challenges faced by the manufacturing sector. Professor Roos's brief was to work with a group of ten small- to medium-sized manufacturing firms and two government departments to guide the participants through a process that would actively engage them in business model innovation. At the time, a group of researchers were also engaged to work with the firms and government agencies to help document specific aspects and challenges confronted by the firm's leaders and managers and the government agencies that seek to facilitate regional transformation and transition.
Professor Roos's residency inspired this book and, with the support of the University of Adelaide Press, we issued a call for South Australian research that would not only demonstrate the drivers and processes of innovation but also illustrate the interdependencies of innovation across multiple levels, ranging from the individuals with innovation ideas and ambitions through to government support agencies that create the supporting context and infrastructure for innovation.
Although the manufacturing sector provided the setting for Professor Roos's work, for contributions to this book we loosened this constraint. We purposefully invited open submissions for research that dealt with innovation and correspondingly entrepreneurship from any perspective as long as it was original research based in South Australia which offered insight on the idea of integrating innovation through entrepreneurship strategies and systems. We welcomed articles that addressed relevant and related subjects pertinent to the South Australian innovation system. As a result we attracted articles dealing with both innovation and entrepreneurship that varied from not-for-profit firms with social missions to the research and development division of a pharmaceutical company; from public infrastructures such as education and intellectual property patenting systems to private infrastructures of Enterprise Resource Planning systems.
The book itself is designed as a seed for an innovative idea and its editors held three ambitions for the work. The first was to draw together initially South Australian research and researchers (later we wish to expand this collective) who are actively engaged in creating and contributing to new knowledge about innovation by adopting a systems view of entrepreneurship.
This research examines a case study of government creative industries development interventions in South Australia [SA]. The intervention was focused specifically in improving firms (such as those in advertising, art, crafts, design, fashion, film, music, publishing, video games and TV) which use digital media tools. O'Connor and Greene (2007) suggest that government intervention in entrepreneurship is grounded in two schools of thought. The first addresses information asymmetry and adopts a resource-based view (Barney, 1991), while the second relates to market failures (Parker, 2004) where government intervention substitutes for, or simulates, a market response.
The resource-based view of government intervention follows the argument that governments need to provide resource support to fill knowledge-gaps. These knowledge-gaps may include a lack of awareness of available resources or poor capabilities due to insufficient experience, skills or knowledge to undertake certain tasks or capitalise on opportunities. By contrast a market failure occurs when there is knowledge but insufficient incentive for a market response. O'Gorman and Kautonen (2004) have argued that market failure policy measures, such as those that respond to a financing market failure for early-stage ventures, for instance, are ineffective without the entrepreneurs who perceive or discover market opportunities. This suggests that there may be interdependencies between the knowledge-gaps and the market failure policy drivers. For example, knowledge-gaps or information asymmetry such as poor entrepreneurial capability may underpin the failure of a market response. That is, the market will respond without knowing there is a capability gap. Similarly, failures of market response may exacerbate a knowledge or capability gap or deficiency that remains unfulfilled while there is no market driver. This opens up the need to analyse government interventions by adopting a systems perspective.
We analysed the case study using system perspectives to show how government interventions interlink to support the financial, relational, physical and human resource gaps/market failures. We argue that government plays a critical role in facilitating links between resource sources that would not connect without a structural system and incentive to bring them together. Further, by conducting a systems analysis we highlight the need for strategic engagement between stakeholders which provides focus, intent and competitive direction.
Creativity and support for new ideas, their experimentation and development, are key characteristics of innovativeness. Nonetheless, new ideas are not born in ‘the full glory of their potentials’ (de Bono, 1985). Research has found that for an average of 3000 raw ideas, only one of them reaches the last stage of profitable commercialisation (Kuczmarski, 1996; Stevens & Burley, 1997). It takes both effort and resources to develop and add value to these ideas so that they become marketable. However, even the allocation of additional resources to support further development may not guarantee the desired results. The degree of success of the innovation and commercialisation process is dependent on a wide variety of factors.
According to previous studies, innovation capabilities/practices can be categorised into strategy (Cooper & Kleinschmidt, 1995; Goffin & Pfeiffer, 1999), systems (Christensen, 1997; Leonard-Barton, 1992) and culture (Burgelman, Maidique, & Wheelwright, 2004; Chiesa, Coughlan, & Voss, 1996). However, each research stream looks at innovation capabilities from a narrow perspective. Previous studies have not defined a set of comprehensive innovation capabilities measures that translate innovation inputs into profitable outputs. In contrast, the relationship between innovation capabilities/practices and business performance has been extensively investigated at the industry level (Cooper & Kleinschmidt, 1991; Guan, Tang, & Lau, 2009; Huff, 1990), but not at company level (Adams, Bessant, & Phelps, 2006). Furthermore, these industry-level studies focus largely on measuring innovation capabilities/practices as monetary inputs in the form of R&D spending or staffing levels, rather than focusing on the capabilities that turn inputs/spending into profitable commercialisation.
The model of this research study captures a common set of innovation- and entrepreneurship-related competences and capabilities that support the innovation and commercialisation process. Using this model may raise the success rate of the conversion of new ideas into marketable products or services. Better still, adopting a balanced approach to this model promises to maximise the financial performance of innovation as well as achieve other strategic objectives such as quality.
Currently, many companies do not adopt a balanced approach. A personal observation, especially among many R&D research centres and laboratories that the author has worked for or visited, is that these entities usually take a biased stance towards the internal view of innovation.
In order to thrive in the twenty-first century, organisations need not only to be able to recognise complexity and sustainability as key components of business, but also to be able to foster and harness them. Those who operate successfully in such an environment go beyond organisational learning and strategy planning to building adaptive, innovative capabilities which result in sustained competitive advantage. This chapter explores how such adaptation and innovation are coupled with a capacity for strategic innovation and the ability to ‘hotwire’ across industry boundaries, and how such abilities ultimately decouple organisations from the confining need to know what is over the horizon in order to be able to deal with it.
Much has been written on how to facilitate and nurture innovation in organisations, but the concepts are often disaggregated and analysed as individual processes, practices or measures. This fails to take into account the complexity of interconnectedness and interdependence which both creativity and innovation entail, whether within the organisation or across markets and industry sectors as open innovation gains purchase. The level of interconnectivity renders it challenging to design operational structures and processes, and even organisations which embrace creative problem solving sometimes adopt essentially linear processes in their innovation labs and ‘learning gartens'. The problem-solving methods are structured around staged environments and sequential procedures, and this is often not the best format to allow abstract thought.
This does not mean that organisations cannot build structures and processes which facilitate creativity and innovation. Though novel ideas are created in informal spaces and interactions, such opportunities must still be created and facilitated. Further, it must be easy for the outcomes to be captured, and also to be brought to fruition. A level of order is required to support innovative organisations in their steerage and operation. This chapter summarises such order as the intertwined themes of space, time, diversity and interconnectedness.
Each of these themes has multiple, intertwined elements which the innovative organisation builds into their physical and procedural structures and support mechanisms in order to facilitate and nurture innovative practice and creativity. This includes aspects such as the physical layout and flexibility of spaces, and methods of capturing and applying both code-able and non-code-able tacit knowledge.
We explore innovation performance in the context of measuring and analysing patent data within the Australian state of South Australia [SA]. However, we discuss and identify the use of patent data to measure innovation performance and the underlying assumptions and any limitations of such an approach in greater detail in this chapter.
Notwithstanding that it has been possible to suggest certain conclusions concerning that state's innovation trajectory from the patent data, integral to this exploration are the economic, regulatory and constitutional features that affect and define the nation of Australia and its states. For the purpose of this research, we launch from a discussion on SA patent activity to discuss the state's regional innovation system [RIS]. The RIS has typically been examined and defined in terms of a nation state. Uniquely, this research exploration brings together the two elements of examining an innovation system unit that is smaller than a nation state — in this case a state in Australia — and linking that with an analysis of that state's innovation performance.
In relation to innovation performance, as assessed through patent data, this chapter specifically discusses the application of a particular approach to selecting the type of ‘patent families'. In this case we have chosen the Derwent World Patent Index [DWPI] of families (Thomson Reuters, 2012). The analysis included activity timelines (including ‘family’ expansion rate); a geographical analysis (source of innovation; destination of innovation); patent grant success rates; entity analysis (sector, portfolio size, number of inventions, entity citations); patents held by individuals; and the same analysis against the dimension of technical categories (such as pharmaceuticals, and agriculture and food), and academic intellectual property.
There is a significant body of research concerning innovation performance, and the particular role of patents as a metric. That research illustrates the strengths, weaknesses and limitations of such an approach. More broadly for example, Hagedoorn and Cloodt (2003) strongly advocate the merits of innovation performance being assessed using multiple indicators, and an example of that approach being applied is Dutta and Benavente's (2011) Global Innovation Index [GII], where patent data is only one of the inputs.
The history we experience is the result of the ideas we pursue.
Stemming from the 1990s, the work of Nelson and Winter (1977), Freeman (1985) and Lundvall (1992) on National Systems of Innovation has been used to argue for a new and more holistic perspective of the roles of policy governance and institutions for innovation. Despite this being acknowledged in South Australia's economic policy discourse at the time, this chapter considers why the state continues to struggle to apply and implement a more holistic approach to stimulating and supporting innovation across the economy. John Dryzek (2001) observes that ‘a policy discourse will always feature particular assumptions, judgements, contentions, dispositions, and capabilities’ (p. 658) and is often reinforced by the advocacy of strong industry associations and economic ideologies.
Particularly influential in regional innovation policy discourse has been the work of the Organisation for Economic Co-operation and Development [OECD], whose arguments asserting the primary importance of science and technology to regional economic growth have left an enduring legacy of investments heavily weighted towards science, technology and engineering disciplines and industries in an effort to foster innovation and develop South Australia's pool of human capital. Whilst significant immediate opportunities exist for these industries, it is clear that this focus has distracted South Australian policy makers from considering the importance of fields of knowledge within the Humanities, Arts and Social Sciences [HASS] and the valuable role they can play in the state's innovation system and longterm economic development.
Interpreting the concept of innovation
In 2000, at the time of Australia's National Innovation Summit, the OECD led the discourse and research on the role of innovation in economic development. At that time, as now, many governments viewed the OECD's work as a benchmark with which to compare policy experiences, seek answers to common problems, identify good practice (as determined by the theoretical and ideological viewpoints of the dominant member countries) and co-ordinate domestic and international policies. The growing body of research undertaken by the OECD has provided policy makers with reason to increase its support and investment in industries that rely on science and technology as their primary knowledge base and input to production.
'Innovation happens through regional, social and economic system dynamics [and] relies on a systems view of entrepreneurship’ (Chapter 1, this book). It is this systems perspective on entrepreneurship and innovation, and in particular a focus on the ways in which entrepreneurship strategies and systems work in support of integrating innovation, which best define Integrating Innovation: South Australian Entrepreneurship Systems and Strategies.
The contribution made by this collective of researchers distinguishes itself on multiple levels.
Firstly, it does so through the delineation of national, regional and firm-level innovation systems. It may be intuitively understood that stimulating innovation at the firm level leads to productivity growth, and that entrepreneurial skills at a firm level are important contributors to the innovation performance of a nation. It is another matter to clearly articulate the characteristics of, and key actors within, national, regional and firm-level innovation systems and to represent how they interact to bring about improved regional socio-economic performance. Integrating Innovation: South Australian Entrepreneurship Systems and Strategies provides an important frame of reference for an audience seeking to apply the concepts discussed to their professional and personal context as they read by maintaining an holistic perspective of the innovation systems whilst explaining the difference between and interdependencies across the national, regional and firm tiers.
Secondly, the authors address the role of innovation and entrepreneurship in building the absorptive capacity within economies. This is particularly relevant for small economies like that of South Australia seeking to shift to better diversified and more globally relevant activities. The competitiveness gains to be made through better collaboration, learning and management capability at a firm level will translate to improved competitiveness of the region.
Finally, there are moments in the reading of this collection where one imagines the authors’ intended audience: ‘Dear Policymaker’ might have introduced the discussion of South Australia's innovation performance. Suggested areas of focus include:
• strengthening of inter-systems relationships across the national, regional and firm levels through facilitated knowledge exchange, effective communications and strong policy/program alignment
• development of new tools and methodologies to foster and manage collaboration and competition, including instruments that promote entrepreneurship and are likely to have significant impact on the innovation performance of regional economies
• prioritisation of strategies that allow firms to share transaction costs and hedge risks associated with innovation[…]
1 — The idea of integrating innovation: Entrepreneurship and a systems perspective
Göran Roos, The University of Adelaide
Allan O'Connor, The University of Adelaide
The aim of this chapter is to set the context for the content to follow. It discusses the origin of the idea for this work and the South Australian contextual setting that has inspired the concept that innovation is integrated through firm and socio-economic levels. It proffers the ideas that entrepreneurship is a key contributor to an ecosystem that integrates innovation and that the tools of intellectual capital management are important for understanding how that ecosystem functions to integrate innovation. It then provides an overview of the chapters and outlines the structure of the book before concluding with the challenge that this endeavour undertakes.
PART I: REGIONAL-LEVEL PERSPECTIVES
2 — Moving beyond policy path dependency: An approach to fostering innovation in South Australia
Jane Andrew, University of South Australia
This chapter examines the theoretical and policy discourse that has informed South Australia's innovation policy since the 1980s. The recommendations and policy strategies to support innovation have changed little during this time, and yet South Australia's productivity improvement through innovation still lags behind other states and economic regions of similar size. This chapter considers where impediments may lie in South Australia's innovation system and argues that there is a need to move beyond the current policy path dependency that relies upon behaviours and attitudes that have traditionally served to maintain stability and control. The state needs to invest in gaining a different and more holistic understanding of the contribution and value contributed by diverse knowledge taxonomies, from both the HASS and STEM disciplines, and the multiple monetary and non-monetary transactions that inspire and support innovation across the economy.
3 — A patent perspective of South Australian innovation: An indicator within the regional innovation system story
Kym Teh, The University of Adelaide
Göran Roos, The University of Adelaide
This article explores innovation performance in the context of patent data from South Australia (SA). The analysis highlights underlying assumptions and limitations of such an approach, although certain conclusions concerning that state's innovation trajectory are suggested. Integral to this exploration are the economic, regulatory and constitutional features that affect and define the nation of Australia, of which SA is one of six states.[…]
Nonprofit social enterprises innovate their business models; however, little is known regarding why they do this, nor what capabilities they need to innovate their revenuegenerating activities. In this qualitative exploratory research, we examined five nonprofit social enterprises in South Australia, and found that these organisations consciously innovate their business models for two key reasons: to remain financially viable, and to expand the delivery of important services to the community. In addition, we identified six capabilities that enable nonprofit social enterprises to support their business model innovation.
The nonprofit sector makes a significant contribution to the Australian economy, and performs functions that government and the private sector are either unwilling or unable to provide (Australian Government, 2010; Salamon, 1993). Recognised as an outcome of social entrepreneurship (Mair & Marti, 2006), social enterprises are part of the nonprofit sector, and adopt business models (Austin, Stevenson, & Wei-Skillern, 2006; di Domenico, Haugh, & Tracey, 2010; Zahra, Gedajlovic, Neubaum, & Shulman, 2009).
Innovation in social entrepreneurship is enacted with the aim of fulfilling a primary social mission to create social value (Weerawardena & Mort, 2006), and also to remain competitive (Weerawardena & Mort, 2012). In response to the growing emergence of social enterprises globally, and the positive social impact these organisations deliver, there are increasing calls for empirical research to investigate the ‘business models’ of social enterprises (Certo & Miller, 2008; Yunus, Moingeon, & Lehmann-Ortega, 2010; Zahra et al., 2009).
Although the relevance of business models for nonprofit social enterprises has been established (Bagnoli & Megali, 2011; Weerawardena & Mort, 2012), and a business model framework for social business has been proposed (Yunus et al., 2010), the mechanisms employed by such enterprises to innovate their business models have not been clarified. This gap in the literature makes it difficult to ascertain which skills or capabilities nonprofit social enterprises must acquire in order to develop and innovate their business models, and to provide guidance to nascent nonprofit social enterprises to increase their chance of organisational survival.
This exploratory qualitative investigation of five nonprofit social enterprises in South Australia seeks firstly to discover why they innovate their business models, and secondly to identify the specific innovation capabilities that enable them to innovate their business models.
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