The fruit flies of innovations: A taxonomy of innovative small firms
Introduction
Fruit flies are a favourite object of study in evolutionary biology because things happen fast in their world. Their evolution can be observed over short time periods (Maynard Smith, 1996).1 By analogy, small firms operating at the margins of the business population may also be useful, in this case for the study of innovation. There is lots of “room” for innovation at the bottom of the size distribution, because new small firms are continually entering the market with new ideas for new products and processes (Audretsch, 1995). To be sure, often these new small firms are short-lived, exiting the market within few years of their entry. There is a high turnover of such firms (Caves, 1998). However, the small firms that do innovate successfully increase their chances of survival (Cefis and Marsili, 2003) and growth (de Jong et al., 2004). The new small firms that survive contribute to a large proportion of growth at the economy-wide level, in fact (Foster et al., 1998).
The behaviour of small firms can vary substantially. Some small firms survive by competing in a market niche, while others pursue more radical innovations and, eventually, themselves become market leaders. This diversity among new small firms cannot easily be reduced to a general model. Their variability demands a taxonomy, a classification system that can be used to identify the many variables that might be in play. Taxonomies are a regular part of evolutionary biology, and have contributed much to the study of fruit flies. The taxonomic approach is similarly beneficial to the study of small firms.
There has been little study done of the innovative behaviour of small and micro firms using taxonomies. The lack of an obvious taxonomy to apply in identifying the variables to be studied may be part of the problem. As well, it could be argued that there was so much variation among small firms that no clusters of common characteristics could be identified, although the validity of this assertion can easily be demonstrated by carrying out research.
The most commonly used taxonomy for identifying variables affecting innovation is Pavitt's, but Pavitt focused his study on sectors, although he examined firms. He found many commonalities amongst firms in the same sector, so much so that he spoke about industries: the chemical industry, for example. Pavitt's taxonomy focuses on large firms. Other studies that consider variables related to innovation in small firms do not pay much attention to sectors or industries.
This paper takes up the challenge of studying innovation patterns in small and micro firms. It develops a classification system for such firms, based on a study of small and micro firms in The Netherlands. The results of our research provide a useful snapshot of the innovative behaviour of small firms, but they also demonstrate that the classification system that we developed to analyse variables in the innovative behaviour of these firms is very similar to that developed by Pavitt, despite the different orientations of the research.
The paper begins with a theoretical discussion of several taxonomic schemes for studying innovation, which are summarized in a table at its conclusion. It then provides a discussion of other methodological issues that arose in developing a classification system for our study. Once these tasks have been done, the paper reports on the study. It concludes by discussing the relevance of Pavitt's taxonomy to the kind of study that we carried out, and it comments on the significance of the differences we found between his study and our own.
Section snippets
The problem of taxonomy
Taxonomy is the science of classification of organisms. Taxonomies have been widely applied to the study of technological change, because they offer a way to organize and understand the diversity of innovative patterns in firms and sectors (Pavitt, 1984, Archibugi, 2001). In Pavitt's words:
‘…[T]ruths about the real innovating firm will never be elegant, simple or easy to replicate. Certainly, it is just as wrong to criticise formal models in evolutionary economics, because they don’t help
Data
The data were collected as part of a survey performed by EIM Business & Policy Research, in April 2003, over a period of 3 weeks, by means of computer assisted telephone interviewing (CATI). All respondents were managers responsible for day-to-day business processes, usually the owner/entrepreneur, and otherwise a general manager. As the focus of the survey was on innovative firms, only respondents who had implemented at least one (product or process) innovation in the previous 3 years were
Method
Our analysis consists of three steps. We begin with a principal component analysis to reduce the number of dimensions in our dataset. Next, we apply cluster analysis techniques to build taxonomy of innovative firms. Finally, we use analysis of variance and χ2-tests to validate the taxonomy.
Descriptive statistics
Table 4 (column 1) reports the mean scores of the variables used in the analysis, for the full sample of firms. With regard to the output, process innovation is more widespread than product innovation: 92% of firms have implemented process innovations. In input, a larger proportion of firms dedicate time to innovation (69%), than those who reserve a budget for innovation (50%). The percentage is lower for firms that write down a formal plan for innovation (37%). As well, the presence of
Conclusions
Empirical taxonomies have proven to be a useful tool for understanding the diversity of innovative behaviour that can be observed across firms. In this paper, we have attempted at extending the taxonomic approach to small firms (below 100 employees), which are often excluded or under-represented in taxonomies of innovation. In particular, within this class of firms, our research covers a dominant proportion of micro firms, that is, firms with less than 10 employees. The class of micro firms is
Acknowledgements
We would like to thank Bo Carlsson, Piet Donselaar, Jan Fagerberg, Jacques Mairesse, Ammon Salter, Gerrit de Wit, two anonymous referees, and participants at the DRUID Summer Conference, June 2005, Copenhagen, for their helpful suggestions and comments.
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