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Disentangling the effects of organizational capabilities, innovation and firm size on SME sales growth

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Abstract

This paper focuses on certain drivers of SME sales growth related to knowledge and innovation. Building on the dynamic capabilities literature, we test whether two organizational capabilities (external sourcing and employee involvement in renewal activities) predict sales growth, and if so, whether such effects are mediated by process and/or product innovation. Based on survey data from a panel study of Dutch SMEs, and controlling for several firm characteristics (firm size, sector, age and family business), we conclude that external sourcing has direct effects on both product and process innovation, with an indirect effect (mediated by process innovation) on sales growth. In line with our hypothesis development, we also find that employee involvement, while positively affecting process innovation, has a negative effect on sales growth. Firm size moderates the effects of two of the variables (external sourcing and product innovation) on sales growth, with more positive effects found for the smallest firms, results supporting the nimbleness (versus resource-based) view.

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Notes

  1. Eisenhardt and Martin (2000) define dynamic capabilities as the “antecedent organizational and strategic routines by which managers alter their resource base—acquire and shed resources, integrate them together and recombine them—to generate new value-creating strategies” (Eisenhardt and Martin 2000, p. 1107).

  2. The panel was not asked these questions in 2001.

  3. Despite a high correlation, low VIF scores (<2) were found when both items were included in the same regression analysis, indicating low multicollinearity. Furthermore, the contribution of each item to sales growth differed (negative for employee involvement and non-significant for process innovation, regardless of the order in which the items were entered into the model), suggesting the need to treat them as separate items. This is consistent with content analysis reflecting one item as input and the other as innovation output.

  4. Extreme values for individual periods—annual growths rates of more than 100 % or less than − 50 %—were removed. In these cases, the average annual growth rate was computed over the remaining periods. By removing outlier values, we correct for business-cycle effects (i.e., years of incidentally high or low sales growth).

  5. Data available from the authors.

  6. More detailed data on the VIF scores are available upon request.

  7. In an analysis not shown, process innovation 1999 does not explain significant variance in average sales growth. Given the lack of a normal distribution and a high correlation with employee involvement 1999, we decided it would be better to use the Process Innovation 2000 indicator in the model.

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Acknowledgments

The present paper has gone through many iterations. The authors would like to thank Mickey Folkeringa and Joris Meijaard for their contributions to earlier versions of the paper. The research has been supported by the framework of the research program SCALES, carried out by Panteia/EIM and financed by the Dutch Ministry of Economic Affairs, Agriculture and Innovation.

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  1. EDHEC Business School, 24 Avenue Gustave Delory, 59057, Roubaix, France

    Lorraine M. Uhlaner & Valérie Duplat

  2. Panteia/EIM, P.O. Box 7001, 2701 AA, Zoetermeer, The Netherlands

    André van Stel

  3. Department of Innovation Management and Strategy, University of Groningen, Nettelbosje 2, 9747 AE, Groningen, The Netherlands

    Haibo Zhou

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  1. Lorraine M. Uhlaner
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Uhlaner, L.M., van Stel, A., Duplat, V. et al. Disentangling the effects of organizational capabilities, innovation and firm size on SME sales growth. Small Bus Econ 41, 581–607 (2013). https://doi.org/10.1007/s11187-012-9455-7

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