Small Firm Innovation Performance and Employee Involvement

It is known that small firms rely mainly on the CEO's individual knowledge for developing innovations (Burton, 2001; Cook, 1999). Recent work suggests that this approach underutilizes other employees’ knowledge (Klaas et al., 2010). There is currently limited empirical evidence to support this. While the 'upper echelon' literature finds mixed evidence regarding the link between CEOs' and top managers' human capital and small firms’ innovative performance, the role of non-managerial employees for innovation performance has only been studied in large firms.

This paper therefore analyzes to which extent using CEOs', managers' and non-managerial employees ideas affects small firms' innovation performance. It relies on a large-scale survey dataset of 305 small manufacturing and service firms. Firstly, we confirm earlier findings that few small firms involve non-managerial employees in the innovation process. Secondly, we show that using ideas of managers, but also of non-managerial employees positively affects the firm’s innovative performance. Thirdly, we find that individuals' contributions depend on their functional area of expertise as well as on whether process or product innovation performance is desired.

Our findings suggest that the historical focus on the entrepreneur/CEO which was broadened more recently to the study of entrepreneurial teams does not yet fully capture small firms' innovative potential. Small firms' CEOs should involve employees in the innovation process, instead of relying solely on their own actions and ideas. However, functional differences as well as differences between product and process innovation need to be taken into account when doing so.

Andries, Petra and Dirk Czarnitzki (2012), Small Firm Innovation Performance and Employee Involvement, ZEW Discussion Paper No. 12-013, Mannheim.