A model for building innovation capabilities in small entrepreneurial firms.

Alsaaty, Falih M.

INTRODUCTION

The U.S. economy is increasingly becoming a small business economy, as the role of small firms (1) is rapidly growing and their influence mounting. According to the Small Business Administration, there were 5.9 million firms in 2006 each of which employed less than 100 individuals (2). The firms accounted for more than 98 percent of total firms in the county. In the same year, these firms employed 42.7 million individuals or 35.6 percent of total employment by all firms combined. The role of small firms in the economy extends far beyond just providing employment. It includes increased investment, output, income, productivity, and exports. The firms' contributions to the nation's wealth and economic progress, however, can greatly be amplified if many more of them are active participants in innovation. Although entrepreneurial firms are often considered innovative organizations, this is not the case with small firms in general.

Innovation is a broad concept that refers to "the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations" (OECD, 2005, p. 33). As the definition indicates, the scope of innovative activities is wide and includes organizational creativity in such areas as product/service design, creation, promotion, and delivery as well as managing resources, recognizing opportunities, crafting strategies, and serving customers. Innovation is a viable growth strategy in the business world. It is interesting to note that as more firms come to realize the importance of innovation to their survival, the demand for individuals to serve in a capacity of chief innovation executive (CIO) has in recent years increased significantly (Pennington, 2008). The purpose of this paper is to highlight the benefits of innovation to small firms, explain the sources of innovative ideas, and discuss the requirements for building innovative capabilities.

BENEFITS OF INNOVATIONS

Innovation, unlike invention, is a lengthy, orderly process that involves a series of coordinated activities, beginning with the inception of an idea, to appraisal, to acceptance, to adoption, to diffusion, and finally to commercialization. The activities require planning, initiatives, skills, cooperation, knowledge, information, and funds. As Pavitt (1991) points out, innovations are firm specific, highly differentiated, uncertain, and involve intensive collaboration amongst professionally and functionally specialized groups. The spirit of innovation should be incorporated into the firm's culture, because the benefits of innovation are immense. Innovation should also be considered a continuous process, and not a once-in-a-lifetime-event. As Williams (1992, p. 29) points out "Innovation can give a company a competitive advantage and profits, but nothing lasts forever. Success brings imitators, who respond with superior features, lower prices, or some new way to draw customers away".

Innovation, particularly pioneering innovation (i.e., first in the industry) can entail enormous risk and disappointment. An innovative product, for example, might be rejected by target consumers, a situation that could lead to substantial investment loss for the firm concerned. Likewise, a major organizational policy/strategy innovation might be resisted by employees and cause internal conflict and resentment. In the majority of cases, however, innovations are worthwhile and financially rewarding, as evidenced by market leadership of such innovative organizations (3) as Apple Inc. and Nvidia Corporation.

A recent trend in the field of innovation (i.e., green operations) is articulated by Nidumolu, Prahalad, and Rangaswami (2009, p. 58) by saying that "Sustainability isn't the burden on bottom lines that many executives believe to be. In fact, becoming environment-friendly can lower your costs and increases your revenues. That's why sustainability should be a touchstone for all innovation". Indeed, the move toward environmentally-friendly production can have far reaching ramifications for small firms: it will create vast business opportunities; but it will also require huge capital outlays, especially for industrial operations, that many firms lack.

The firms' orientation toward innovation is viewed in the literature from three perspectives (Renko, Carsrud, and Brannback, 2009): (i) market orientation (customers are the focus of the firm for its innovative activities), (ii) technological capability (the firm's emphasis is on knowledge, patents, and R&D activities), and (iii) entrepreneurial orientation (the firm's emphasis is on aggressive and pioneering innovation as well as on risky projects). Because of resource limitation and its need to achieve growth, the small firm's orientation should always be concerned with the target market (i.e., market orientation). In any case, innovations are often realized as a result of management commitment, employees' dedication, as well as resource availability. Benefits of innovations include the following:

Organizational renewal. Innovations give rise to added motivation, vigor, and task fulfillment to employees, because of a sense of accomplishment and anticipated success.

Financial reward. Product/service innovations enable the business enterprise to increase its revenue and improve its balance sheet, because of increased demand. Research shows (e.g., Berwig et al., 2009) that innovative firms outperform their competitors not only during economic prosperity but also during periods of economic downturns. Undoubtedly, innovations in such areas as marketing, finance, strategy, and organizational design, can also enhance the firm's performance.

Productivity gain. Innovation efforts can help increase the firm's productivity and reduce its costs.

Market dominance. Many innovative firms are dominant in their industries and are major players in the market, thereby influencing consumers' tastes and buying habits.

Securing resources. Innovative firms can easily secure external resources (De Clercq and Voronov, 2009).

Exploiting opportunities. Innovations assist firms in exploiting economic opportunities (Smith, Mattbews, and Schenkel, 2009).

Stock price. The stock price of firms that introduce new products or services is expected to increase substantially (Srinivasan et al., 2009).

Organizational competitiveness. For the reasons cited above, innovative firms can grow rapidly and gain competitive advantage.

SOURCES OF INNOVATIVE IDEAS

What are the sources of information about market opportunities that entice firms to come up with innovations? How do firms generate creative ideas for new products, services, processes, strategies, and so on? There are two sources of information that can assist firms in their innovative efforts: external (i.e., outsiders) and internal (i.e., insiders), as explained below:

EXTERNAL SOURCES

The external sources of information for innovation are events, trends, organizations, and individuals. Outsiders can provide important indications or signals concerning existing or potential opportunities that encourage the firm to pursue innovative activities. To benefit from outsiders, the firm must be in a position ready to gain access to information. This requires the creation of a systematic process by which the firm monitors and analyzes its industry environment to identify attractive opportunities. It also requires the firm to establish strategic relationships with potential contributors such as consumers, suppliers and other firms. In this respect, research shows (e.g., Freel and Harrison, 2006) that such cooperative arrangements are becoming important strategic initiatives for an increasing number of large firms. As an example, Jusko (2008) reports that Kraft Foods has adopted "open innovation" by working with external innovation partners to speed up the process of new products development and introduction. The author indicates that the company has multiple avenues of engaging with its partners (e.g., suppliers), including the deployment of the so-called supplier relationship segmentation assessment. As another example, Nambisan (2009) indicates that the Rockefeller Foundation had a question: "How can you turn a solar-powered flashlight into all purpose room light?" At the time, no one knew the answer. The desired invention/innovation was intended to be used in poor, rural developing countries that lack electricity. The Foundation, then, paired with InnoCentive, a private innovation intermediary company, to ask 160,000 independent inventors worldwide how they could transform the flashlight. The author points out that the inventors were part of a Web-based network of "solvers" that the company has established. An engineer in New Zealand finally came up with a solution for a much powerful flashlight that utilizes the solar battery and LEDs. Likewise, customers can be an important source of creative ideas for the firm. Manjoo (2009) indicates that Twitter instituted its system known as @replies only after Twitterers invented it. The author points out that the users of MySpace have also been a source for the company's innovation efforts.

INTERNAL SOURCES

By instituting proper communication and information gathering systems, firms can receive brilliant ideas form their own employees (e.g., managers, skilled workers). The suggestions might involve both gradual (incremental) and radical (novel, disruptive, pioneering) innovations. Employees have long been recognized as the most important assets for the firm, because they are the source of output and profit. They are indeed an indispensable source for new ideas about goods and services, as well as other organizational innovations. Employees should be encouraged by means of incentives (financial and nonfinancial) to participate in the initiation, diffusion, and adoption of changes through innovation. Incentives can influence the behavior of employees to become more productive, cooperative, and creative. As Rock (2009, p. 62) indicates, "Neuroscience has discovered that the brain is highly elastic. Even the most entrenched behaviors can be modified". Robertson and Hjuler (2009) points out that LEGO Group--toys and games manufacturer--established a leading team called the Executive Innovation Governance Group to guide and strategize the company's innovation efforts. The team divided the responsibilities for innovation across four areas: (a) the functional groups (to create core business processes), (b) the concept lab (to develop new products), (c) product and marketing development (to develop the next generation of existing products), and (d) community, education, and direct (to support customers and tap them for new ideas). The author says that the creation of the company-wide team has resulted in many benefits for the firm. India's Tata Group, a conglomerate organization that controls 15 large businesses, incorporates innovation as one of nine categories on which employees are evaluated (Scanlon, 2009). The company provides employees with training programs on creative thinking, so that they might think and act like innovators. As the author indicates, the company formed the so called Tata Group Innovation Forum, a 12-member panel of senior executives who oversee the conglomerate's overall innovation efforts.

INNOVATION AND INVENTION

According to Webster's New World dictionary (2006, p, 751) invention is "something thought up or mentally fabricated". As the definition implies, invention is a concept, model, theory, or idea that has not been operationalized (i.e., put commercially into use). As Rossi (2005) says, inventions are meant to appeal to end-users; some solve problems, others improve ways of doing things, still others promise a better life style. There are probably millions of inventions worldwide that are in the pipeline pending their transformation into economically valuable products. Some inventions could take years to become commercially viable. Many inventions, however, may not ever be translated into practice for a number of reasons, including their impracticability or cost consideration. For example, in the field of energy generation, Morse (2009) points out that an invention to produce green crude, that is, to engineer algae to create a "biocrude', cannot yet be economically done. Other inventions that the author mentions in the field of alternative energy that are desired to be translated into innovations are (a) next wave (wave-motion energy), (b) star power (nuclear-fusion), (c) deep heat (enhanced geothermal systems), and (d) eternal Sunshine (orbiting solar cells to capture the Sun's energy). Quite a few inventions have happened accidently. Jones (1991) discusses 40 familiar inventions that came about without prior planning. They include Coca-Cola, chocolate chip cookies, aspirin, penicillin, and x-rays. Eisen (1999) maintains that some inventions and discoveries are suppressed by government agencies, corporations, and the scientific community, because they threaten the dominance of entrenched interest groups. Among the examples the author provides are alternative medical treatment of cancer, Alzheimer's, and other diseases.

As compared to invention, innovation, as indicated earlier, is a process that results in some economically useful output or outcome. Both innovation and invention are essential activities for achieving rapid growth particularly in high-technology fields, as is the case in biotechnology, pharmaceutical, petrochemical, engineering, food processing, and the Internet. Renko, Carsrud, and Brannback (2009, p. 332) point out that "Innovation is the lifeblood of virtually every successful technology-based business". In the high-technology, innovations are often the translation of inventions. This is not the case for many other organizational innovations, say, in marketing, finance, management, and strategy. Similarly, in low-technology firms, such as insurance, home building, and retailing sectors, innovations are crucial for the business firm but not inventions. Although high technology firms are expected to produce inventions internally on their own, inventions, like innovations, can be outsourced, that is, can be bought or licensed from other organizations or individuals. In some cases, firms arrive at inventions through close cooperation arrangements with outsiders, as is the case with Kraft Foods mentioned earlier.

Some innovations are made popular because of the existence of other innovations or inventions. For example, the car-sharing service called Zipcar is made increasingly desirable for many people (a) with the use of the iPhone or the Internet to enable the company's community members to make reservation, (b) the use of the iPhone to locate the car in a parking lot, and (c) the use of the iPhone or the Zipcard to open the car's door. As Keegan (2009) points out, the Zipcar community consists of 324,000 members as of August 2009, and the innovation, because of its success throughout the United States, is attracting imitators such as car rental companies.

For many products, the relationship between invention, innovation, and market adaptability is inextricably linked. To succeed, innovation must be workable, adaptable, and profitable. Lilienthal--the German builder of gliders who lived during the 1848-1896 period, said "To invent an airplane is nothing. To build one is something. But to fly it is everything", as quoted by Caillavet (2009).

TYPES OF INNOVATIONS

The process of innovation is not uniform across all industries and economic sectors. It differs from industry to industry and from firm to firm. This is partly due to the fact that the outcomes of creative ideas vary among industries, and partly because organizations follow different paths in pursuing innovations. For example, the outcomes of innovations in the pharmaceutical field are medical drugs, while the outcomes in the Internet arena are often software. Moreover, the methods, procedures, and resources required for innovations differ in both industries. Because of differences of outcomes as well as approaches employed, it is imperative for the forward looking small firms to understand (a) the business they are in, (b) the market they serve, (c) the attractiveness of opportunities, (d) the kinds of innovations needed, and (e) best innovation practices.

Innovations are typically classified into categories mainly to assess the contribution of each type to the firm's performance. Two widely used classifications are indicated below. First, Damanpour and Evan (1984) distinguish among three groups of innovations:

Technological innovations (resulting from the use of technology); Technical innovations (related to the primary function of the organization); and Administrative innovations (that take place in the social system of the organization).

Second, the OECD (2005) classifies innovations into four groups:

Product innovations (significant change in goods or services' capabilities); Process innovations (significant changes in production or delivery methods); Marketing innovations (implementation of new marketing methods); and Organizational innovations (implementation of new organizational methods).

The classification of innovations into different categories is a useful scheme particularly for the purpose of developing strategies for individual organizational functions. For instance, management might want to craft a strategy for product/service innovation, a strategy for marketing innovation, and so on. To simplify the discussion, however, no distinction is made in this paper among the different categories referred to above. The term 'organizational innovation' is used here to indicate all kinds of innovative activities that take place within the business enterprise. This is because it is difficult, if not impossible, to precisely calculate the impact of each kind of innovation on the performance of the enterprise. After all, internal innovations are interrelated and intertwined activities.

WHEN AND WHAT TO INNOVATE

In general, creative efforts of small firms should be directed toward gradual rather than radical innovations during the early stage of formation. The reasons for a cautious approach to innovation are the following:

The great majority of small firms are constrained by limited funds, skills, experience, as well as market horizon.

The cost of innovation failure, especially for a new product introduction, can be prohibitive and demoralizing to the firm.

Radical innovations can jeopardize the firm's success, because it will divert critical resources, including management attention, from the more immediate and urgent tasks.

Radical innovations usually come about as a result of a lengthy process of learning, networking, information gathering, and knowledge creation. Many newly established firms are yet to go through the cycle of building organizational creativity, competency, and devotion

What type of innovation should a small firm pursue? What should the innovation priority be? Let us point out first that some firms are born to be doomed soon after birth. According to the U.S. Department of Commerce (2009, p. 492), the number of 'firms death' was 565,700 firms during the 2004/2005 period, as compared to 553,300 firms during 2000/2001, an increase of 2.2 percent. This means that about 1,550 firms went out of business every day of the week during the 2004/2005 period. The low survival rate implies the absence of innovation practices for a large number of small firms. Some of these firms could have survived had they become proactive in the sense of being forward-looking, opportunity-seekers, and acting in anticipation of future demand (Rauch, Wiklund, Lumpkin, and Frese, 2009).

In addition to the lack of innovations, the disappearance of firms from the marketplace can also be attributed to the following reasons:

Lack of funds; Intensity of competition; Poor planning; Unsuitable products or services; and Mismanagement of resources.

To clarify the call for a cautious approach to radical innovations, it is worthwhile to refer to the five stages model of small business growth introduced by Churchill and Lewis (1983). In this model, the authors believe that small firms go through five states:

Existence (owners' emphasis is on creating customers and delivering the product); Survival (emphasis is on the relationship between revenue and spending); Success (emphasis is on growth); Take off (emphasis is on financing rapid growth); and Resource maturity (a company with such advantages as size, managerial talents, and financial strength).

Within the framework of this model, it would be a good idea for the firm to begin its (gradual) innovative efforts during the survival stage (i.e., the second stage) in order to increase its chances of staying in business. As the firm moves toward the third stage (i.e., success), gradual innovations should be an essential component of its strategic initiatives. In the final stage, (i.e., resource maturity), radical innovations could occupy a central stage in the firm's overall strategy.

Now, which aspect of the firm's functions should be the subject of innovation? How are resources to be allocated among day-to-day tasks and those functions that need to be substantially improved? It is recognized in the literature that, for small firms, owner's intentions play the dominant role in his/her innovation strategy. Owner's intentions refer to the individual's "states of mind that direct attention, experience, and action toward a business concept" (Bird, 1988, p. 442). It is crucial that owner's intentions be guided by a systematic approach as indicated below (also depicted in figure 1):

First, analyze the firm's internal strategic resources (e.g., skills, technology) and its industrial environment (e.g., competition, consumer demand). The purpose of the analysis is to identify the firm's strengths, weaknesses, and market opportunities (e.g., David, 2009).

Second, develop vision, mission, and major goals for the firm. The aim is to define the firm's business, outlook, market niche, and target market (e.g., Thompson, Strickland, and Gamble, 2010). This and the previous step can guide businesses in formulating innovations strategies.

Third, create a business strategy to plot, among other things, the firm's innovation path. The plan should be designed on the basis of:

The strengths/weaknesses of the firm; The firm's market position relative to major competitors; Intermediate goals (i.e., one to two years into future); Planned actions to reach the goals; Detailed resource requirements for the plan; An inventory of resource imbalance (i.e., the gap between existing and needed resources); Resource settlement (e.g., sources of funds to be obtained, talents to be acquired); and A timetable for translating the plan into action.

Fourth, on the basis of the firm's overall innovation strategy, develop 'mini' innovation strategies for key aspects of the business: product/service, human resources, marketing, organizational structure, and so on. Adopt at least one quantifiable objective for each mini strategy to gauge performance. Mini strategies can be developed in stages, as resources permit.

Fifth, prioritize the implementation of mini strategies. A useful criterion for prioritizing mini strategies is the anticipated influence of the strategy on the firm's performance, say, in terms of increased sales, output, market share, or productivity.

Sixth, allocate a reasonable portion of available resources to the implementation of the chosen mini strategy. More resources can be added as they become available, and as more mini strategies are selected.

Seventh, estimate periodically the influence of innovative efforts on the firm's performance. Appropriate actions can be taken in light of the estimation.

Among the ingredients in organizational innovation is an understanding of the kinds of strategic resources needed by the firm, and measures necessary to eliminate the resource imbalance, if any. As the imbalance is eliminated or considerably reduced, the next move is to generate, assess, diffuse, and adopt innovations as prioritized. Clearly, it is unreasonable to expect employees to bring forth creative ideas, and translate them into practice, while they are under tight work schedules and strict deadlines. As indicated earlier, knowledge accumulation is a vital input for innovation, and it comes with the passage of time through experience, acquisition of talents, collaborative efforts, and learning. The firm can engage in ambitious innovative projects as its strategic resources grow and become more robust.

A question might be asked: How much does it cost a small firm to innovate? It is difficult to address the question because the cost depends on a number of factors, including, the type of innovation (e.g., incremental versus radical), the firm's industry, and the source of innovation (internal, external, or cooperative). Nevertheless, Evangelista et al. (1999) provide an insight into the distribution of cost for product and process innovation for European firms of different sizes, as indicated below:

50% of innovation expenditures were spent on the adoption and diffusion of technologies such as machinery and equipment; 20% of innovation expenditures were directed toward R&D activities; 10% of innovation expenditures were absorbed be design activities; 11% of innovation expenditures were spent on trial production; and 9% of innovation expenditures were absorbed by miscellaneous activities.

[FIGURE 1 OMITTED]

MANAGING RESOURCES CREATIVELY

The purpose of innovation is to improve the firm's performance via superior competitive advantage. Innovation is therefore need-driven, customer-focused process (Moscynski, 2009). An important aspect of this process is the efficient deployment of resources. Innovative firms manage their resources wisely, and creatively. Guiding principles for resource management include the following:

Resources are acquired on the basis of their anticipated contribution to the firm's innovative efforts, and not only because of immediate needs for them. The rule of thumb is that an acquired resource is expected to add strategic value to the firm's existing resources.

Division of labor should be based on a broad array of functional specialization, rather than razor sharp specialty.

Professional interaction, cooperation, team work, and communication ought to be nurtured in the context of a flat, flexible organization structure.

The firm must espouse beliefs in professional development, collegiality, trust, honesty, customer service, and excellence.

Networking relationships with outsiders such as customers and suppliers should be encouraged and treasured.

Employees should enjoy an enviable work environment to be motivated and committed.

Job promotion should be from within and on the basis of merit as an incentive for increased employees commitment and productivity.

AUGMENTING COMPETENCIES

The road to organizational excellence for the small firm is to build its own innovative competencies gradually. Innovations are typically introduced, adopted, and carried out by individuals within organizational settings (Shane and Ulrich, 2004; Moscynski, 2009). It is imperative, therefore, that managerial decisions concerning the firm's competencies are directed toward promoting employees' abilities. This of course does not imply a minor role for technology in innovation. Methods to augment internal competencies include the following courses of action:

Hold idea generating meetings.

Assist employees in improving their strategic thinking.

Form goal-oriented teams.

Idea generating meetings

Soliciting employees' ideas is perhaps one of the most effective methods for engendering innovations. Idea generating techniques could be carried out within the framework of de Bono's (1985) six thinking hats. This framework appears to be fruitful, time saving, and keep the discussion in meetings focused on important issues. Areas of idea generation in meetings among managers, supervisors, and others might focus on the following:

New or improved output; Productivity, revenue, and performance measures; Approaches to capture market opportunities; The firm's structure, policies, procedures, and beliefs; and Management style.

According to de Bono (1985, p. 2), "the six thinking hats is a concept that allows thinkers to do one thing at a time. He/she will be able to separate emotion from logic, creativity from information, and so on". The thinking hats have six distinct colors:

White hat--the assessment or thinking is neutral and objective in dealing with issue under consideration;

Red hat--the assessment is characterized by anger, rage and emotions;

Black hat--assessment is negative by pointing out, for instance, the drawbacks or risks associated with the issue;

Yellow hat--the assessment is positive and optimistic;

Green hat--the assessment is creative and full of new ideas; and

Blue hat--indicates the organization of thinking and control.

On the basis of the six thinking hats, and in discussing possible innovative efforts, participants can switch in and out of different hats, as directed by the group leader. For example, he/she might ask participants to put on the white hat (e.g., dealing with facts and figures of the issue under discussion), or the black hat (e.g., providing reasons for saying it cannot be done), or the red hat (e.g., participants' hunches, intuitions, and emotions), and so forth. In this way, creative ideas can be generated in a logical, orderly manner.

STRATEGIC THINKING

Strategic thinking is a mental self-empowerment that helps individuals to develop their own ability to analyze situations, solve problems, and make decisions. Strategic thinkers are creative people who can assist their firms by providing invaluable suggestions for new and improved goods and services, as well as other ideas for organizational innovation. The benefits of strategic thinking to business firms are widely recognized in the literature. For example, Graetz (2002, p. 456) points out that "Strategic thinking is seen as central to creating and sustaining competitive advantage". Methods to enhance strategic thinking of organizational members include the following (Alsaaty, 2006, p. 16):

Engage in reflective thinking; Let your imagination run freely; Avoid recycling the same solutions for different situations or problems; Assess relevant issues and assumptions; Prioritize goals, tasks, and strategies; Look at surroundings for different perspectives; Know the situational forces.

In the context of strategic thinking, de Bono (1967, p.7) believes that "The long years of education are mostly concerned with knowledge. Fact is piled upon fact and little if any time is spent with basic techniques of thinking". The author also makes a distinction between 'vertical thinking', that is, digging the same hole deeper, and 'lateral (i.e., strategic) thinking', that is, thinking in a variety of paths to generate a new or better approach to the problem under consideration. In order to improve the thinking process, de Bono recommends the utilization of a number of techniques, including (a) simplifying method--looking at the problem in different ways, (b) staging method--solving problems stage-by-stage, and (c) chance method--solving problems through trial-and-error. Other techniques that help individuals to improve their thinking power include brainstorming, blocking, what iffing, attitude analysis, morphological analysis, reversal, analogy, and trigger concepts (Harris, 2000). Indeed, the individual's ability at problem solving and decision making can greatly be increased by learning some of these techniques. The firm can assist its employees to boost their thinking capabilities through training programs and formal education designed for this purpose.

GOAL-ORIENTED TEAMS

As mentioned earlier, innovative activities are largely team efforts in the business world. Goal-oriented, well-organized, teams are believed to be highly effective in the inception, assessment, introduction, and adoption of innovations. The effectiveness of such teams comes about as a result of their ability to identify opportunities, share information, collaborate, and develop creative ways to problem solving (LaFasto and Larson, 2002). Formal teams do not exist accidently; they must be created by managerial decisions. Team formation can be facilitated if the firm's cultural environment is conducive to team building and group efforts. Management can strengthen team performance by implementing the following guidelines (Hackman, 2002):

Assemble a team that possesses the necessary skills for the task; Set a clear and challenging goal in carrying out an innovative task; Ensure organizational support for the team; and Provide appropriate coaching and resources for the team.

As the firm grows in size, it may also need to utilize social networking software and other means to facilitate collaboration and exchange of ideas among team members as well as between the firm and outsiders. The social networking software is being increasingly employed especially by mid-and large-sized companies, because of its utility and efficiency. As an example, Lamont (2009) points out that Cisco Systems, Inc. used Brightidea, a hosted service, to manage ideas submitted for its I-Prize competition. Ideas submission, discussions, and meeting were all done on the Website. Jouret (2009) provides interesting details about the I-Prize competition that owners of small firms might want to review. The author indicates that the competition called for an idea to be compatible with Cisco's Internet technology strategy. The purpose was to build a new billion-dollar business around the winning idea. The competition attracted about 2,500 individuals from 104 countries who submitted more than 1,200 ideas. In the final analysis, the idea to create a "smart" electricity grid won the contest. Its owner received $250,000 in prize money. Resorting to external sources of innovation could be a rewarding experience for the firm.

Recent years have witnessed the emergence of an increasing number of social networking sites that firms as well as individuals can use for a variety of purposes. Keely (2009) mentions some of the popular sites and says that many CPAs firms, for instance, are using Facebook for recruitment purposes. The author also discusses other Websites such as Twitter, MySpace, Meetup, Affluence, and Yelp, as means to reach out to outsiders. Reklaitis (2009), moreover, points out that analysts believe that Starbucks is a leader in getting ideas from customers via its MyStarbucksIdeas.com. As of August 2009, the company had received 80,000 suggestions about its service operations, according to the author.

Not all of the firm's innovative projects are adopted and diffused. An innovation must be subject to a rigorous test of relevance, endurance, and profitability. This is because product innovation in particular are time consuming to introduce, and costly to produce. For instance, at Whirlpool, the world's largest appliance-maker, an innovation must withstand three-pronged definition (Scanlon, 2009): it should meet consumers' need, it should have the breadth to become a platform for related future products, and it should contribute to the company's earnings. In addition to assessing innovations prior to adoption, many firms also assess the impact on the organization of innovations that were already undertaken. This is done often by the use of some sort of "scorecards" measures. Mankin (2007) summarizes the most popular sets of factors included in scoreboard, as follows:

The number of new ideas that resulted in resource commitment in the firm; Return on investment for innovations; The number of senior executives who implemented new ideas that created value; and Long-term customer of adoption the firm's innovations.

In a survey conducted by R&D Magazine about the criteria that organizations ought to use to measure innovation success, the respondents came up with fourteen factors, the most important of which are the following (Studt, 2005):

Ability of new products to solve customer's problems; Commercial success of new products introduced; Competitiveness of new products; Technological capabilities of new products; Profitability of the organization; Ability to create new markets; Number of new products introduced; and Market share of the organization's new products.

BIRD'S-EYE VIEW OF SOME RECENT INNOVATIONS

Realizing that students seek flexibility and convenience in learning, Creative Tutors--a small tutoring enterprise in Texas--adopted an innovative approach to tutoring whereby tutors meet students at their homes, libraries, sports facilities, and other public places to accommodate clients' busy schedules. The enterprise also offers online tutoring (Genn and Kestenbaum, 2008).

Atal (2009) says that, OpenTable--the online reservation service company--went public on the Nasdaq stock market in May 2009. The company's innovative business model is that, for a monthly fee of $199, restaurants can rent a computer terminal and network connection in addition to paying $1 per diner seated via the company's website. Real-time map of the restaurant's floor is provided showing how many tables are free and when other tables will be available. The initial public offering helped the company receive $60 million.

The Economist (2009), in an article about the ubiquitous use of cellular telephones worldwide, points out that there are about three billion mobile phones utilized in developing countries. The devices compensate for inadequate infrastructure, help transmit critical information, and make business transactions possible. The widespread use of the devices has opened new market opportunity for innovative firms in these countries. According to the Economist, the opportunity is mobile money, whereby cash can travel as quickly as text messages. In this business model, small retailers across a country act as like bank branches; they took cash from individuals and, by sending a text message, credit it to the individuals' mobile money account. The individual then can transfer the money (again via text message) to other registered users who can withdraw it by visiting their own corner shop. The most innovative firm in developing countries that takes advantage of this market opportunity is M-PESA--a subsidiary of Safaricom of Kenya. It has about 7 million subscribers in a country of 38 million people. The company's service is used to pay for many cash transactions, including taxi fare, college tuition, and money transfer to relatives.

The practice of generating innovative products, services, and tools with the help of outsiders (e.g., customers, inventors, etc.) has become a standard policy of many growth-oriented firms. For example, Netflix--the movie rental e-tailer--awarded in 2009 $1 million prize to a group of mathematicians and statisticians for their contribution in developing a digital tool to improve the movie recommendations that the company make to its more than 10 million customers (Copeland, 2009).

In order to survive 'cut-throat' competition, some small-and mid-sized firms must come up with innovative business models. This is exactly the case with ARM, a British designer of microchip for cellular telephones and other devices. According to Fortt (2009), Intel Corporation--a formidable competitor to ARM--designs and builds all its own chips. Moreover, it uses its market dominance to influence how PCs function. Unlike Intel, ARM's business model is to license it blueprints to manufacturers of cellphones and other producers and encourage them to build whatever they desire. This kind of flexibility, coupled with quality chip design, has made the company profitable and successful.

CONCLUSION

The United States is a fertile land for millions of small firms. Entrepreneurial ventures from different countries, including China, India, the United Kingdom, and Nigeria are also enticed by the domestic market, and its high growth prospects. The county's business environment is attractive, opportunities are plentiful, and national resources are abundant. The business environment is conducive and receptive. As a result, the contribution of small firms to the nation's employment and output is impressive, and rapidly rising. Some of the firms (i.e., entrepreneurial ventures) are highly innovative, growth-oriented, and successful. They are active participants in the introduction of new or improved goods and services. The majority of firms are, however, mediocre exhibiting a lack of innovative products and organizational excellence.

Innovation is essential for business firms of all sizes. As Brown (2009) elaborates, the center of economic activity in the United States has shifted from manufacturing to knowledge creation and service delivery, innovation therefore has become a survival strategy. New ideas are the source of innovation. Encouraging employees to generate ideas to improve the performance of the firm is of critical importance. Of course, ideas need to be carefully screened and selected. For instance, a few thousands new equipment ideas and procedures were tested at McDonald's Innovative Center in 2006, but only 15 were adopted for deployment throughout the chain (Penttila, 2007).

Contrary to popular views, innovation is not confined to large, multinational organizations; it is open to all firms, industries, and economic sectors worldwide. As Studt (2004) indicates, for example, a study by Microsoft Corp. shows that the leading source of software innovation in the world is Chinese small firms. Successful innovative efforts demand a dedicated managerial leadership with a vision to transform the workplace into a team of committed, productive, and creative employees. The task is daunting because innovation is a long-term systematic process that necessitates planning, learning, and funding. In this paper, an attempt is made to build up a model that shows the basic requirements for building innovation capabilities for small firms. The model, which is also summarized in figure 2 below, consists of three main components:

Designing a broad innovation strategy for the firm as well as mini innovation strategies for its functions;

Acquiring and managing resources creatively; and

Creating internal competencies for organizational members by utilizing such techniques as idea generation and espousing values that support innovation, in addition to implementing training and professional development measures.

[FIGURE 2 OMITTED]

NOTES

In this paper, no distinction is made between small business firms and entrepreneurial firms, because of lack of statistical data in this regard.

The data provided by the United States Small Business Administration/Office of Advocacy for 2006 show that the number of firms with employment of less than 100 individuals was 5,913,496; while total firms in the economy was 6,022,127. On the other hand, employment by firms with less than 100 employees was 42, 686,395 individuals, while total employment by all firms was 119,917,165 individuals. See, www.sba.gov/advo/research

Some scholars believe that a few ostensibly beneficial innovations turn out to be very harmful to society. Peter Cebon (2009), for instance, contends that innovations in the financial sector (e.g., new ways of lending money and security creation) played a key role in the financial crisis that swept the United Stated and the world in recent years.

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