20031202 - Radical Product Innovations in SMEs - The Dominance of Entrepreneurial Orientation.pdf

8/13/2019 20031202 - Radical Product Innovations in SMEs - The Dominance of Entrepreneurial Orientation.pdf

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94 CREATIVITY AND INNOVATION MANAGEMENT

Volume 12 Number 2 June 2003

Radical Product Innovations in

SMEs: The Dominance ofEntrepreneurial Orientation

Helen Salavou and Spyros Lioukas

The present study focuses on strategic factors underlying the adoption of radical product inno-vations in SMEs. It investigates whether market focus, technological posture and entrepre-neurial orientation lead to the adoption of more radical product innovations. The studyprovides some new evidence on this issue drawing upon data collected from Greek SMEs in

the food and beverages industry. More specifically, a logistic regression model is applied toanalyse the choice between radical as against incremental product innovations. Empiricalresults appear to support the claim that it is mainly entrepreneurial orientation thatfavours the choice of radical product innovations. This suggests that in SMEs the notion ofentrepreneurial-push outweighs both market-pull and technology-push arguments. Thefindings are discussed in the context of Greece, taking into account the specific conditionsprevailing. Apart from providing some new evidence in the important area of SMEs, they havealso important implications for managers and policy-makers. In addition, they encouragefurther theoretical and empirical investigation.

in the context of SMEs will enrich ourunderstanding of the relative importance ofthese strategic forces in explaining innovativeperformance.

SMEs are generally considered to havebehavioural advantages that may justify theirsignificant share in innovation (Dutta andEvrard, 1999). Despite their disadvantages,most often attributed to resource constraints(Freel, 2000), SMEs are somehow forced toutilize product innovations as a means ofcompetitive strategy to a higher degree thanlarge firms (Fritz, 1989; Sweeney, 1983).

Product innovations, however, vary in a rangefrom incremental improvements to radicalchanges. Radical product innovations maytake a prominent place in the case of SMEs intheir efforts to compete with large firms. Itwould be interesting, therefore, to focus ouranalysis on the above mentioned strategicfactors as potential determinants of radicalproduct innovation adoptions.

The present study draws upon data fromfood and beverages, a traditional sector of theGreek economy that includes many domesticfirms. This industrial sector of Greece, like the

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Introduction

The present paper focuses on strategic orien-tation of small and medium-sized enter-prises (SMEs) and its effect on productinnovations. In particular, it explores theimportance of strategic aspects related tomarket orientation, technology policy andentrepreneurial orientation in adopting radicalas against incremental product innovations.

There is prior empirical evidence that thesestrategic factors are important contributors toinnovation at large. This is mainly based on

investigations built on perspectives, such asmarket-pull, technology-push and strategicchoice respectively, as well as on relatedextensions. It appears that all these factors are,in general, drivers to innovation. However,almost all previous evidence comes from largeenterprises. We do not know if similar effectshold for SMEs. More specifically, existingknowledge is not sufficient to verify which ofthe strategic variables related to market orien-tation, technology policy and entrepreneurialorientation make SMEs select radical productinnovations. Exploring such relationships


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respective sectors of most economies in theEU, is undergoing rapid transformation. Therise of new technologies, new ways to addcustomer value and localization of globa-lized trends (often called glocalization) havecreated a state of flux. The results of thisnew competitive landscape are often mirrored

in never-ending introductions of productinnovations.Greece presents an interesting case given

the dominance of SMEs (more than 95% offirms) and the processes of integration in theeuro area which are under way. The traditionalbehaviour of semi-protected family-typeSMEs is challenged as they confront bothEuropean integration and global competition.As such, competitiveness through radicalproduct innovations is an important concernfor both SMEs and policy-makers, especiallywhen it relates to traditional sectors, such asfood and beverages, with a vital contribution

to economic growth.Survey data were collected by a struc-

tured questionnaire through personalinterviews with top managers in 69 randomly-selected manufacturing SMEs. A logisticregression model was applied to the samplein order to empirically test the effects ofmarket orientation, technology policy andentrepreneurial orientation on the decisionon whether or not to adopt radical productinnovations.

In order to assist in the formulation ofhypotheses and the interpretation of results,

additional evidence was collected related tothe specific conditions prevailing in the Greekbusiness environment in which our sampledfirms operate. To this purpose, interviewswere conducted with experts in a sector-specific support organization.1 The opinionselicited provide further qualitative informa-tion concerning Greek SMEs strategicorientation and its impact on product-relatedinnovative activity.

The present study would also contribute totheory as the strategic determinants consid-ered are related to the traditional debate aboutthe market-pull vs. technology-push question.

On top of that, the present analysis helpsto broaden this debate by adding the notionof entrepreneurial push, which is oftenassumed to be a driving force of strategicimportance, particularly in SMEs.

The article is organized as follows. First, thegroundwork is laid out by presenting the the-

oretical model and hypotheses. This is fol-lowed by a brief presentation of the researchmethodology and the survey. Research find-ings and their implications are discussednext, and a concluding section summarizesthe results.

Conceptual Model and Hypotheses

Innovation researchers have, to a large extent,debated whether product innovations aredriven by market demand or by technologicaladvances. The market-pull argument suggeststhat firms innovate based on marketneeds, whereas the technology-push argu-ment claims that change in technology isthe primary driver of product innovation(Chidamber and Kon, 1994).

Extending the research into the underlyingdriving forces behind product innovations in

SMEs would be very useful. Given the strate-gic importance of innovative new products inSMEs, an interesting investigation would be toconsider whether market orientation and tech-nology policy influence the adoption of radicalproduct innovations. This investigation couldalso embody the potential effect of entrepre-neurial orientation. A rationale for includingentrepreneurial orientation would be foundby extending the strategic choice perspective(Bourgeois, 1984; Child, 1972; March andSimon, 1958) which emphasizes the role ofupper echelons or top managers or strate-

gic leadership in determining organizationaloutcomes (Guth and Ginsberg, 1990;Hambrick and Mason, 1984; Miller, Droge andToulouse, 1988). Entrepreneurial style wouldbe a key determinant of radical product inno-vations, especially in SMEs, where the topmanagement (including the CEO) appears tobe most influential.

The conceptual model adopted (see Figure1) assumes a direct linkage between marketorientation, technology policy and entrepre-neurial orientation on product innovativeness.The argument we intend to explore iswhether market-focused, technology-prone

and entrepreneurially-oriented SMEs are moreinclined to adopt radical as against incremen-tal product innovations. We define productinnovativeness along with the development ofthe hypothesised relationships in the model.

Product Innovativeness

The product innovativeness concept is animportant classifier of new products reflectinga choice, either explicit or implicit, of productstrategies (Song and Montoya-Weiss, 1998).The significance of such a classification has

PRODUCT INNOVATION IN SMES 95

Blackwell Publishing Ltd, 2003 Volume 12 Number 2 June 2003

1 ETAT S.A. is sector-specific Industrial Researchand Technological Development company of theGeneral Secreteriat of Research and Technology(Ministry of Development) for the food and bever-ages industry.


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been recently addressed (Danneels andKleinschmidt, 2001). Previously, most studiesgenerally did not make any distinctionbetween different levels of innovativeness innew products (Balachandra and Friar, 1997;Blythe, 1999; De Brentani, 2001). Instead, theyconsidered as new product anything that wasintroduced into the market by the firm, regard-

less of the extent and type of newness. Productinnovativeness, though, reflects the level ofnewness in product innovations that can varybroadly ranging over a wide spectrum(Balachandra and Friar, 1997). Such variationsmost often reflect the degree of changesrelated to product innovations (Hull, Hageand Azumi, 1985).

Our analysis considers a dichotomy of thisspectrum, namely radical and incrementalproduct innovations. These two categoriesare mutually exclusive and reflect productnewness relative to the firm, as perceived by

managers (Song and Montoya-Weiss, 1998).Therefore, the higher the likelihood of adopt-ing radical innovations, the lesser the like-lihood for incremental innovations. Productinnovativeness, the dependent variable, is,thus, a binary one expressing a choice of highas against low degree of newness in newproducts.

Under the assumed conceptual model, ouraim is to isolate and test the impact of marketorientation, technology policy and entrepre-neurial orientation on the choice among thetwo levels of product innovations, i.e. radicalversus incremental. This study is in line with

certain recent research studies positing thatthere are major differences in factors depend-ing on whether the innovation is radical orincremental (Balachandra and Friar, 1997).In addition, it responds to the need for cross-level research on organizational innovation(Atuahene-Gima and Ko, 2001; Drazin andSchoonhoven, 1996) by investigating theimpact of characteristics at the firm level oninnovativeness at the product level.

Next, the components of the conceptualmodel are discussed in more detail. Given thelack of related studies on SMEs, hypotheses

are developed taking into consideration (a)the extant research which draws mainly fromlarge firms, (b) evidence, where available,referring to the specific national context andrelated debate, and (c) the viewpoints ofindustry experts who understand conditionsand the factors at work in the specific envi-ronment of Greek SMEs in the food and

beverages sector. However, the hypothesizedrelationships will be tested statistically toconfirm if, and to what extent, they apply tothe particular case of Greek SMEs.

Effects of Market Orientation

Market orientation has attracted enhancedinterest in both management and marketingliterature. Nonetheless, little attention hasbeen paid to the relationship between marketorientation and innovation, as the marketorientation literature has only recently begun

to acknowledge the role of innovation in thecontext of market orientation (Han, Kim andSrivastava, 1998). Researchers who dealt withthis issue tried to explore the impact of marketorientation on innovation, either direct or indi-rect. Jaworski and Kohli (1996), for example,regard innovation as an outcome of marketorientation stating that innovation has beeninappropriately absent in models of marketorientation. Nonetheless, Slater and Narver(1994) suggest that the market-driven businessis well positioned to anticipate the developingneeds of customers and respond to themthrough the addition of innovative products.

In a similar vein, Gatignon and Xuereb (1997)provide support for a positive impact of thefirms market orientation dimensions on theway product innovations are marketed andacquire strong relative advantages.

Overall, however, results of those studiesdealing with the impact of market orientationon different types of product innovations arerather contradictory, failing to yield consistentconclusions. Davis (1993), for example, founda positive effect of market orientation onradical but not on incremental product inno-vations. On the contrary, Atuahene-Gima


Volume 12 Number 2 June 2003 Blackwell Publishing Ltd, 2003

Strategy-related Characteristics: Product

Innovativeness:

Radical/Incremental

Product

Innovations

Market Orientation

Technology Policy

Entrepreneurial Orientation

Firm

Figure 1. Conceptual Model


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(1995) concluded that the impact of marketorientation was greater on incremental ratherthan on radical product innovations. Similarly,Christensen and Bower (1996) suggest thatmarket orientation stifles the development oforiginal new products, instead encouragingthe development of product modifications. A

more recent study, on the other hand, foundpositive effect of market orientation on bothproduct innovations, i.e. radical (new tothe market) and incremental (imitations)(Sandvik, Grnhaug and gaard, 2000).

Because researchers views are not uniform,this relationship is explored here in the light ofempirical data. However, the prevailing viewbased mainly on evidence from large firms inthe relevant literature is that market-orientedfirms may be more innovative, because theyare more responsive to rapidly evolvingcustomer needs. To our knowledge, very fewstudies have explored the same argument in

the context of SMEs. So, in the absence of suchevidence it is useful to resort to qualitative evi-dence from the Greek context. The industryexperts believe that the adoption of the marketorientation concept is necessary for SMEs,given the strong competition within the foodand beverages sector. When interviewed, theyargued in favour of market orientation asan enabling factor of product innovations inSMEs. In their view, persistence in satisfyingtheir customers changing needs and wants isa source of radical product innovations whichis nurtured by SMEs inherent advantages of

flexibility, adaptability and closeness to theircustomers.Taking all the above into account the

following hypothesis can be advanced:

H1: Market orientation is likely to lead to radicalas against incremental product innovations.

Effects of Technology Policy

Many empirical studies have interpreted theirresults pinpointing the impact of technologypolicy on firms innovative behaviour. To thisdirection, Ettlie (1983) asserts that technology

policy becomes a central variable in the emerg-ing modification of existing innovationtheories. Firms strategic orientation includingtechnology policy has often been investigatedas an innovation determinant (Wilson,Ramamurthy and Nystrom, 1999). Technologypolicy undoubtedly affects the developmentof new ideas, new processes and new prod-ucts. Ettlie and Bridges (1983), for example,suggest that technology policy reflects theinnovative attitude of an organization and itscommitment to innovation. It involves suchthings as recruiting technical personnel, com-

mitting funds to new technology developmentand building or maintaining a tradition ofbeing at the forefront of a technological area ina particular industry.

Innovative firms may be proactive in acquir-ing new production technologies, and employsuch technologies for developing new prod-

ucts (Cooper, 1984, 1994). To this direction,Ettlie, Bridges and OKeefe (1984) assertthat an aggressive technology policy isrequired for supporting the adoption ofradical innovations. In a similar vein, Ettlieand Rubenstein (1987) suggest that changes intechnology are more likely to lead tomore radical product innovations. In anempirical study, Gatignon and Xuereb(1997) investigated the way that technologicalorientation affects product innovations, andmore particular their characteristics. Theyfurther supported the view that the moretechnology-oriented the firms are, the more

radical their product innovations.The aforementioned discussion supports

the argument that technology policy signifi-cantly affects product innovations, and in par-ticular the more aggressive it is, the moreradical the product innovations marketed byfirms. However, it remains unclear whetherthis argument holds true for all firms, irre-spective of size. Additional evidence relatedto the specific national context and relateddebate is partially in line with this viewpoint.On the one hand, industry experts believe thatresource constraints may direct SMEs efforts

towards innovations that require less capitalinvestment and a lesser reliance on qualifiedstaff. As such, they argue that SMEs oftenintroduce innovations based not so much oncore production technology which requireshigh R&D budgets, but on other aspects (e.g.delivery tuning, value-added services, etc.)along the value chain. On the other hand,European Community technology and inno-vation policy initiatives, in conjunction withnational policies in support of SMEs, are inten-sively working on the creation of a fertilebreeding ground for innovative ways of doingbusiness.2 The business environment, aided

by the Community Support Framework pro-grammes, is making aggressive technologypolicies easier for SMEs.

Therefore, despite reservations expressedby the industry experts, we think that thedominant argument prevailing in large enter-prises would also be transferred in the contextof SMEs. Hence, we hypothesise that:



2 Recent evidence indicates that among themember states Greece showed one of the highestgrowth rates in R&D investments (European Com-mission Research, 2002).


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H2: Aggressive technology policy is likely tolead to radical as against incremental productinnovations.

Effects of Entrepreneurial Orientation

Previous research studies suggest that entre-

preneurial orientation drives innovative activ-ity (Covin and Slevin, 1991; Kitchell, 1995;Russell and Russell, 1992). Moreover, innova-tive firms exhibit a greater willingness for risk-taking and proactive market leadership (Khanand Manopichetwattana, 1989). In a similarconceptualization, being reactive is not suffi-cient to compete successfully in a dynamicworld of aggressive innovators, and mostinnovative firms are more willing to look hardat risky opportunities and confront them(Souder, 1987). However, few research studieshave empirically explored the influence ofentrepreneurial orientation on product inno-

vation. Among them, Miller and Friesen (1982)argue that entrepreneurial firms innovateboldly and regularly while taking consider-able risks in their product-market strategies.In a similar vein, Miller, Kets de Vriesand Toulouse (1982) suggest that substantialproduct innovations require greater amount ofrisk-taking and proactiveness from compa-nies. Saleh and Wang (1993) support the viewthat more innovative compared to less inno-vative companies would take more risks andadopt a proactive strategy (leading ratherthan following competitors) in anticipating the

need for change and new opportunities.Whilst the preceding literature suggests thatentrepreneurial orientation promotes innova-tive activity by affecting the introduction andimplementation of product innovations withinfirms, there is no explicit empirical evidenceconcerning the influence of this organizationalphenomenon on product innovativeness. Itis interesting, therefore, to explore whetherenhanced entrepreneurial orientation demon-strated by greater amount of proactiveness, andrisk-taking assumed by top management influ-ence the level of newness in product innovationsmarketed by SMEs. Besides, top-management

style is frequently playing an important role indetermining strategic directions while shapingoutcomes (Hambrick, 1989). This is particularlytrue for Greek SMEs characterized by concen-tration of power and control in the hands of topmanagement, which is most often identical withfamily ownership (Lioukas and Makridakis,1996). The industry experts interviewed alsobelieve that entrepreneurial attitude is salient inSMEs, and accounts for initiatives related toradical product innovations.

Recent research also indicates that during1980s and 1990s significant changes occurred

in the Greek management practices, especiallyas a new generation of well-educated owners-managers takes responsibility (Bourantasand Papadakis, 1996; Makridakis et al., 1997;Spanos, Prastacos and Papadakis, 2001). Thetradition of entrepreneurship in the food andbeverages sector, coupled with enhanced

emphasis on creativity exhibited by newtop managers (Makridakis, Papagiannakisand Calogirou, 1996) is likely to amplify thecapabilities needed for implementing aggres-sive innovative behaviour.

Given the above considerations, we wouldhypothesise that in the case of SMEs:

H3: Enhanced entrepreneurial orientation is likelyto lead to radical as against incremental productinnovations.

Control Variables

In considering control variables for SMEs,experience and size come as obviouscandidates for inclusion. The former can beexpressed through firm age. Several studiessupport a negative relationship between firmage and innovative behaviour. It is argued thatthe older the firm, the more bureaucratic andthe less receptive it is to innovation (Hurleyand Hult, 1998). On the contrary, recentlyestablished firms are more inclined to innova-tion, probably due to the necessity of con-quering space in the market (Garvin, 1983).Based on the above, the relationships between

product innovativeness and firm-specificstrategic characteristics are re-examined aftercontrolling for age. Size was finally excludedfrom the analysis, because it was highly corre-lated with firm age.

Research Methodology

Sample and Data Collection

The data pertain to one of the most dynamicindustries of the Greek economy, namely foodand beverages, in which the vast majority areSMEs. This choice is dictated by (1) the impor-tance of this sector for the Greek economyin terms of manufacturing employment andGDP share (23% and 25% respectively), and (2)the opportunity it provides for studying theproclivity of firms within a traditional sectortowards the adoption of radical product inno-vations in the new competitive scene.

Following the EU definition of SMEs,3 therelevant population is defined as all inde-



3 Published by the Official Newspaper of theEuropean Communities on 30 April 1996.


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pendent firms with less than 250 employeesand less than million annual turnover.

According to these criteria, a population of745 SMEs was identified using ICAP database(Gallups subsidiary). Subsequently, 69 firmswhich have introduced at least one newproduct (or new product category) during the

last three years (19951997) were selected byrandom sampling.4

Data were collected by a structured ques-tionnaire through personal interviews withthe top management (42% managing directors,26% marketing & sales managers, 17% finan-cial managers and 15% others). All interviewswere carried out personally by the authorsduring 1998. The estimation data set included66 firms that provided complete data for allnecessary variables.

With respect to the type of new products (ornew product categories) introduced by thesampled firms, 28% were described as incre-

mental product innovations (i.e. improve-ments and modifications of existing products)while 72% as radical product innovations(i.e. new product lines, new-to-the-marketproducts).

Additional Qualitative Information

In order to help the hypothesis developmentand explain the results of this study, qualita-tive data were collected through semi-structured interviews with experts. Morespecifically, experts from the food and bever-

ages sector support organization (ETAT S.A.)were asked to express their opinions concern-ing Greek SMEs strategic posture in termsof market orientation, technology policy andentrepreneurial orientation as well as itsimpact on product-related innovative activity.Although these viewpoints are confined in thecontext of Greece, they nevertheless are usefulin understanding the conditions prevailingand the particularities of the effects foundregarding the food and beverages industry.Thus, opinions expressed by experts are sup-plementary and shed additional light onthe extent to which specific dimensions of

strategic importance affect (or not) the adop-tion of radical product innovations. Thisevidence is embodied both in hypotheses for-mulation and the discussion following theempirical findings.

Variables Measurement

Product innovativeness, our dependent vari-able, has been operationalized by many previ-ous empirical studies from an internal, firmperspective in terms of products newnessrelative to the firm, as perceived by managers

(Booz, Allen and Hamilton, 1982; Brouwerand Kleinknecht, 1996; Cooper, 1979; Songand Montoya-Weiss, 1998). Likewise, productinnovativeness is measured in the presentstudy using a dichotomous categorisation asdefined from the firms perspective, i.e. basedon managers perceptions of newness (Songand Montoya-Weiss, 1998). In particular,respondents were asked first to identify themost important, in terms of sales turnover,new product (or new product category) intro-duced by their firms in the last three years(19951997) and then to classify it according toits newness (i.e. radical or incremental). Thus,

in the binary construct, 1 represents radicalproduct innovations (i.e. new product lines,new-to-the-market products) while 0 refersto incremental product innovations (i.e.improvements and modifications of existingproducts). Product innovativeness is,therefore, a perceptual measure reflectingthe degree of similarity of the new productwith those already marketed by the firm.

Market orientation is measured in this studyby a version of the scale developed by Ruekert(1992). This version is similar to the instru-ments proposed by Kohli and Jaworski (1990),

Narver and Slater (1990) and Shapiro (1988).This modified instrument is defined as a set ofspecific behaviours and activities reflected bythe extent to which a firm understands andresponds to customer needs. More specifically,market orientation captures in this study fourdimensions, i.e. customer information, cus-tomer responsiveness, market-driven strategyformulation, market-driven pricing policy (seeAppendix A).

Technology policy is tapping the degree ofthe firms long-term commitment to activitiesinvolving technological issues. This variable ismeasured in this study by a scale proposed by

Ettlie (1983), based on the earlier work of Ettlieand Bridges (1982) (see Appendix A).

Entrepreneurial orientation is measured bya multi-item, semantic differential scale sug-gested by Naman and Slevin (1993) reflectingtop-managements behaviour in taking strate-gic decisions and operating managementphilosophies. In the present study, thisvariable captures two dimensions, i.e. proac-tiveness and risk-taking. More specifically,proactiveness is conceived by top manage-ments willingness to carry out actions beforecompetitors, while risk-taking is compre-



4 Given that such a criterion required phone callsto 745 firms and the related cost was extremelyhigh, a sample was randomly selected from thewhole population. Firms not meeting this criterionwere replaced by others that were not selected inthe first run.


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hended by top managements preference toundertake activities of (high/low) risk (seeAppendix A).

Finally, firm age, the control variable, ismeasured by the number of years passed sincethe firms foundation (Da Rocha, Christensenand Paim, 1990; Heunks, 1998).

Estimation and Results

Appendix A presents inter-item reliabilitycoefficients of the scales adopted which areacceptable according to standards suggestedby Van de Ven and Ferry (1980). All multi-itemscales measuring independent strategy-relatedvariables were factor-analysed (see AppendixA) in order to assess their factorial validitywhich is a form of construct validity (Allen

and Yen, 1979). Then, averages of items per-taining to factors extracted were used to formindependent variables for further statisticalanalysis. Tables 1 and 2 report descriptive sta-tistics of all the independent variables,together with their correlation coefficients.

As mentioned above, product innovative-

ness, the dependent variable, is dichotomous.In a way, it expresses the likelihood that a newproduct will suggest radical as against incre-mental innovation. Alogistic regression modelwas therefore employed to deal explicitly withthat type of dependent variable (Kleinbaum,1994). So, the estimated model takes the fol-lowing form:

Prob radical product innovation( )

= +( )-1 1 e Z ,



Table 1. Descriptive Statistics of Independent Variables

Variable Min. Max. Mean SD

Market Orientation:Customer Information 3.33 7.00 5.78 0.79Customer Responsiveness 4.50 7.00 6.34 0.65Market-driven Strategy Formulation 3.67 7.00 5.48 0.83Market-driven Pricing Policy 2.00 7.00 5.40 1.05

Technology Policy 2.00 7.00 5.25 1.17

Entrepreneurial Orientation:Proactiveness 2.00 6.60 4.82 1.07

Risk-taking 1.50 6.25 3.93 1.12Firm Age 1.00 136.00 27.25 23.77

Table 2. Spearmans rho Correlations among Independent Variables

Variable Variable

1. 2. 3. 4. 5. 6. 7. 8.

1. Customer Information 1.002. Customer Responsiveness 0.34** 1.003. Market-driven Strategy Formulation 0.41** 0.39** 1.004. Market-driven Pricing Policy 0.32** 0.31* 0.18 1.005. Technology Policy 0.19 0.34** 0.28* 0.28* 1.006. Proactiveness 0.07 0.23 0.30* -0.00 0.52** 1.007. Risk-taking 0.15 -0.00 0.13 -0.04 0.37** 0.47** 1.008. Firm Age -0.11 0.16 -0.10 0.26* -0.17 -0.02 -0.12 1.00

Notes:**Correlation is significant at the 0.01 level (2-tailed).* Correlation is significant at the 0.05 level (2-tailed).


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where Z =f(Xi, C), i.e. a linear combination ofindependent variables (Xi) and a constant (C).

Table 3 provides the statistics of the model.First, it appears that the model does a good jobin explaining variation in product innovative-ness (Nagelkerke R2 = 0.386). The classificationtable (see Figure 2) provides an additional way

to assess the model fit by comparing predic-tions to observed outcomes. More specifically,this table compares the observed and pre-dicted types of product innovations, whenfirms with a predicted probability of 0.5 orgreater are classified as having radical productinnovations. In other words, this table showsonly whether the estimated probability isgreater or less than one-half. The off-diagonalentries of the table show how many firms wereincorrectly classified. Overall, 74.24% of thefirms examined were correctly classified.

Table 4 contains the estimated coefficients(under column heading B) and related statis-tics of the logistic regression model. The modelpredicts radical product innovations fromthe variables customer information, customerresponsiveness, market-driven strategy for-mulation, market-driven pricing policy, tech-

nology policy, proactiveness, risk-taking, firmage and a constant.The 95% confidence interval of Exp (B),

which is the exponential of the coefficient, isalso reported. Intervals which include the value1 are not statistically significant at the 0.05 level.

Inspection of Table 4 reveals that only twoof the explanatory variables have significantcoefficients. These are the entrepreneurial ori-entation components, notably proactivenessand risk-taking. The first is statistically signi-ficant at the 0.01 level while the second at the0.10 level. Both these coefficients have theexpected signs. These results support H3 and

indicate that the higher the entrepreneurialorientation, the higher the probability for afirm to launch radical product innovations,and, hence, the lower the probability to adoptincremental product innovations.

On the contrary, in the light of presentempirical evidence, H1 and H2 must berejected. Also, the coefficient of the controlvariable, firm age, is not significant.

Discussion

Research findings suggest that the effect ofmarket orientation (H1) is insignificant. Thus,they support neither of the previous claims,that market orientation has a positive impacton radical product innovations (Davis, 1993;Sandvik, Grnhaug and gaard, 2000) or thatit has a negative impact on radical product



Table 3. Statistics for Model containing theIndependent Variables

-2 Log 58.454Likelihood

Goodness 54.551of fit

Cox & Snell 0.270 R2

Nagelkerke 0.386 R2

Chi-Square Significance

Model 20.778 0.007Block 20.778 0.007Step 20.778 0.007

Predicted:

Observed:

Incremental Product

Innovation

Radical Product

Innovation

% Correct:

Incremental

Product

Innovation 7 12

36.84%

Radical Product

Innovation5 42

89.36%

Overall 74.24%

Figure 2. Classification TableNote:The Cut Value is 0.50


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innovations (Atuahene-Gima, 1995; Bennettand Cooper, 1981; Christensen and Bower,1996). So, it appears that when controlling forentrepreneurial orientation, market orienta-tion appears to play a lesser role or no role at

all. The question then arises, why market ori-entation does not affect the radicalness ofproduct innovations in SMEs. Market orienta-tion has rightfully received much attention asit is based on management practices (Slaterand Narver, 1999). However, it may be that inour case negative effects, like those pointedout by Christensen and Bower (1996), maycounteract and cancel out the expected posi-tive effects of market orientation in SMEs.Another plausible explanation may be relatedto the observed limited variability across firmsas regards market orientation (see Table 1).This may be attributed to particularities in the

context of Greek SMEs in the food and bever-ages industry. It is interesting to report theopinions of industry experts, who emphasisedthat market orientation does matter for SMEsmainly because of the strong competitionwithin the food and beverages industry. Thus,Greek SMEs are challenged and somehowforced to be market-oriented to effectivelycope with demanding conditions under-pinned by European integration and globali-sation. This seems to account for high averagescores given by respondents to market orien-tation dimensions (see Table 1). In other

words, since market orientation appears to begenerally adopted by all firms, its effects maynot show up in the degree of newness incor-porated into product innovations. Despiterecent evidence (Baltas and Salavou, 2000) that

Greek SMEs tend to offer more new productswhen adopting stronger market orientation,the present study goes a step further and pro-vides additional insights on their innovativeactivity. In particular, the present findingsindicate that market orientation does nothelp to explain the level of innovativenessembodied in new products. However, futureresearch in SMEs of other sectors is neededto verify whether similar results hold true,since the market orientation concept has beenforemost based on large organizations(Appiah-Adu and Singh, 1998).

The insignificance of technology policy (H2)

contradicts previous assertions involving apositive relationship between aggressive tech-nology policy and radical product innovations(Ettlie, Bridges and OKeefe, 1984; Ettlie andRubenstein, 1987; Gatignon and Xuereb, 1997).However, this finding may be attributed toconstraints faced by SMEs, as in our case.More specifically, it is often argued that SMEscannot easily ensure resources which areusually required to implement radical productinnovations (Ettlie and Rubenstein, 1987). Thisargument appears to be strong in the case offood and beverages SMEs in Greece. The



Table 4. Parameter Estimates of the Logistic Regression Model

Variable B S.E. Sig. Exp (B) 95% CI forExp (B)

Lower Upper

Constant 1.553 0.590 0.009

Market Orientation:Customer Information 0.354 0.334 0.288 0.702 0.365 1.349Customer Responsiveness 0.440 0.378 0.244 0.644 0.307 1.350Market-driven Strategy Formulation 0.048 0.353 0.893 0.954 0.478 1.903Market-driven Pricing Policy 0.422 0.345 0.221 1.524 0.776 2.996

Technology Policy 0.132 0.371 0.722 1.141 0.551 2.361

Entrepreneurial Orientation:Proactiveness 1.494 0.477 0.002*** 4.454 1.750 11.336Risk-taking 0.673 0.403 0.095* 1.960 0.890 4.312

Firm Age 0.008 0.015 0.599 0.992 0.964 1.021

Notes:***Significant at the 0.01 level.**Significant at the 0.05 level.* Significant at the 0.10 level.


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industry experts expressed their reservationsby referring to the resource constraints that themajority of SMEs face regarding their abilityto retain highly qualified and competentpersonnel in production and to afford heavyinvestments in production technology. As aresult, these firms often innovate by relying on

aspects other than technological along thevalue chain (e.g. delivery tuning, value-addedservices, etc.). Thus, the link between tech-nology policy and product innovation is lessstrong or constrained to areas outside coretechnology. This particular finding seemsto corroborate relevant evidence that Greekfirms strive to differentiate themselves byemphasising non-technological techniques tomimic the image of established foreignrivals (Droukopoulos and Thomadakis, 1993).This relationship should, in any case, besubject to more empirical scrutiny given thelittle empirical evidence on the effects of tech-

nology policy in small firms (Zahra and Covin,1993).

Results provide support of a positive effectof entrepreneurial orientation on productinnovativeness for both of its components,proactiveness and risk-taking. These findingssupport hypothesis H3. This suggests thatSMEs, in which top managers behave proac-tively and are risk-takers, favour radical asopposed to incremental product innovations.These results are in line with internationalliterature arguing in favour of a positive rela-tionship between firms entrepreneurial orien-

tation and product innovation. In particular,they corroborate the work of Miller, Kets deVries and Toulouse (1982), who suggest thatgreater amount of proactiveness and risk-taking is needed for substantial product inno-vations. They are also consistent with theempirical findings of Saleh and Wang (1993)which support broadly that more proactiveand risky postures adopted by top managersare indicative of firms behaviour displayingradical product innovations. A justificationof these results may, however, be tied to thenature of our sample consisting of SMEs inGreece, a country endued with unique capa-

bilities in the entrepreneurial act. This mayexplain why these firms preserve theirtraditional behaviour which is in generalcharacterized by family-type managementdominated by one individual or a smallnumber of individuals, usually identified withownership (Bourantas and Papadakis, 1996).That is, top-management team is permeatedby the entrepreneurial attitudes, the valuesand style of the owner(s). These findingsconverge with experts opinions. They empha-sized that entrepreneurs in SMEs, who areboth owners and managers, do play an impor-

tant role in undertaking initiatives related toradical product innovations.

Overall, our results provide support ofentrepreneurial-push as an important drivingforce of innovative behaviour. This forceseems to outweigh the traditional forces ofboth market-pull and technology-push in

guiding radical product innovation adoptionsby SMEs. This not only justifies our investiga-tion of entrepreneurial orientation but wouldalso trigger off further theoretical and empiri-cal investigation on this issue.

Conclusions

The purpose of this study was to investigatestrategic drivers of radical product innovationadoptions in SMEs. Based on extensions of themarket-pull, technology-push and strategicchoice perspectives, it considers the potential

effects of market orientation, technologypolicy and entrepreneurial orientation. So, thisarticle provides evidence on these drivers ofinnovation from the area of SMEs, which isconsiderably under-researched.

The specific findings support the domi-nance of entrepreneurial orientation. Both itsdimensions (proactiveness and risk-taking)were found to be statistically important inexplaining the choice of SMEs to adopt radicalas against incremental product innovations.Technology policy and market orientation, onthe other hand, appear to play an insignificant

role. So, it appears that radical product inno-vations are more likely to be introduced bySMEs as a result of proactive behaviour andrisk-taking posture assumed by top manage-ment. These empirical results regarding SMEsdiffer with those in the literature of largeenterprises, which give a role to all threestrategic forces investigated.

These results have wider implications forboth theory and policymaking. First, in rela-tion to the debate of whether market orienta-tion or technology policy affects the choice ofhigh-level product innovativeness, the specificfindings suggest that neither of these two

drivers is important in adopting radicalproduct innovations. On the contrary, theyjustify an extension of this debate to includethe notion of entrepreneurial-push. Thislends support to a wider argument whichunderlines that entrepreneurial orientation inSMEs may be more important than market ori-entation and technology policy in promotingaggressive innovative behaviour. Stateddifferently, the argument of entrepreneurial-push is elevated, and seems to outweighthe traditional debate of market-pull andtechnology-push.




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From a practical perspective, the results ofthis study have useful implications, especiallyfor SMEs in Greece. Given the strong entre-preneurial tradition in the food and beveragessector, policy-makers and managers need toexamine the extent to which proactiveness andrisk-taking leverage radical product innova-

tions. These capabilities appear more impor-tant than reliance on market orientationand technology policy. Thus building a fertileentrepreneurial environment would accelerateinnovativeness and adaptation to the emerg-ing new competitive landscape.

Furthermore, the present analysis could beused to qualify on policies, both national andin the framework of EU innovation and entre-preneurship support programmes. Enhancingdimensions of entrepreneurial environment,which amplify SMEs innovative activity,especially through radical product innova-tions, may be crucial to designing better poli-

cies. Our findings, suggesting that it is mainlyentrepreneurial orientation that favoursradical as opposed to incremental productinnovations, provide empirical support tosuch policy directions. Taking it further, thiswould lend support to the wider cultivation ofentrepreneurship in the society.

We should close, however, with a note ofcaution. Our study provides some new evi-dence drawing upon data from SMEs in thefood and beverages industry of Greece. Assuch, it helps to project to the international lit-erature a view from a national context other

than those of large countries (such as UnitedStates, Japan, Australia) which dominate theliterature. Nonetheless, it would be interestingto see whether similar relations obtain in SMEsfrom other industries and/or national contextsof similar set-up. This would help to confirmand extent the present results and to directpolicies accordingly.

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BIOGRAPHICAL SKETCH

Helen Salavou is a post-doctoral researcherat the Athens University of Economics andBusiness. Her research interests are in inno-vation management and business strategy.She holds a BSc in Business Administration,an MBA and a PhD from the Athens Uni-versity of Economics and Business.Spyros Lioukas is Professor of businessstrategy at the Athens University of Eco-nomics and Business. He received a PhDfrom the London Business School. For-

merly he was a lecturer at the LondonBusiness School. His current research inter-ests are in strategy, business transformationand entrepreneurship. He has publishedmany articles in leading academic journalsincludingManagement Science, OrganizationScience, and the Strategic ManagementJournal.


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Appendix A. Measures and items



1. Market Orientation (Cronbach Alpha Coefficient for scale: 0.73)To what extent does each of the following statements describe adequately your firm (Response format: 1 not at all to7 very much)

Variables Factor loadinga

Factor 1 Factor 2 Factor 3 Factor 4

Customer Information:Listens to opinions of customers. 0.86Uses customer information to improve quality of products. 0.70Personnel has adequate information about customers and 0.69

competitors.

Customer Responsiveness:Keeps promises made to customers. 0.82Respond to customer needs in delivery on time. 0.71

Market-driven Strategy Formulation:Company objectives are based mainly on customer needs. 0.61Uses customer information to develop new products. 0.66Company planning is organised by markets rather than products. 0.76

Market-driven Pricing Policy:Prices are determined by market conditions. 0.88Responds to customer needs in credit policy. 0.70Total Variance Explained: 67.25%

Notes:a Principal components analysis with varimax rotation.

2. Technology Policy (Cronbach Alpha Coefficient for scale: 0.87)Please rate the extent to which the following statements describe the technology policy followedby your firm (Response format: 1 strongly disagree to 7 strongly agree)

Variable Factor loadinga

Factor 1

The policy of this firm has been to always consider the most up-to-date 0.85

production technology available.We have a long tradition and reputation in our industry of attempting to be 0.88

first to try out new methods and equipment.We spend more than most firms in our industry on new product 0.83

development.We devote extra resources (i.e. time, money) to recruit the best qualified 0.72

personnel in production.We devote extra resources (i.e. time, money) to technological forecasting. 0.88Total Variance Explained: 69.60%



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3. Entrepreneurial Orientation (Cronbach Alpha Coefficient for scale: 0.81)Please indicate the point that represents your opinion by comparing your company with your main competitors, on averagefor the last three years (19951997) for each of the following pair of sentences.

Variable Factor loadinga

Factor 1 Factor 2Proactiveness Risk-taking

Less new products. 1 2 3 4 5 6 7 More new products. 0.83Changes in products have been 1 2 3 4 5 6 7 Changes in products have 0.74mostly of a minor nature (i.e. usually been radical.incremental).

Please indicate the point that represents your opinion for each of the following pair of sentences.

There is a strong emphasis on 1 2 3 4 5 6 7 There exists a very strong 0.69the marketing of true and tried emphasis on theproducts. development of new and

innovative products.There is a strong proclivity for 1 2 3 4 5 6 7 There is a strong proclivity 0.81low risk projects (with normal for high risk projects (withand certain rates of return). chances of very high

return).

Owning to the nature of the 1 2 3 4 5 6 7 Owning to the nature of the 0.57environment, it is best to environment, bold, wide-explore gradually via cautious, ranging acts are necessaryincremental behaviour. to achieve the firms

objectives.

Typically we adopt a cautious, 1 2 3 4 5 6 7 Typically we adopt a bold, 0.84

wait and see posture in order aggressive posture in orderto minimise the probability of to maximise the probabilitymaking costly decisions. of exploiting potential

opportunities.

Typically we respond to 1 2 3 4 5 6 7 Typically we initiate 0.69actions which competitors actions to whichinitiate. competitors then respond.

We are very seldom the first 1 2 3 4 5 6 7 We are very often the first 0.78business to introduce new business to introduce newproducts. products.

We typically seek to avoid 1 2 3 4 5 6 7 We typically adopt a very 0.50

competitive clashes, preferring competitive, undo-the-a live-and-let- live posture. competitors posture.Total Variance Explained: 57.74%


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