The specific features of the SME

The notion of specificity refers to a condition that has an original and exclusive characteristic. In the scope of this book, the SME is specific because it differs from other organizational forms⁹. We refer here to non-profit organizations (associations, trade unions, non-governmental organizations), or public organizations (public administrations, local authorities). On the other hand, it should be recalled that the concept of SMEs’ results arise, above all, from the need to classify companies into categories. The reasons for this ranking are twofold. First, they are very operational: they make it possible to apply accounting standards and define tax levels. Second, they are analytical: the ranking reflects the companies’ situations. This allows international comparisons to be made and differences to be explained.

In France, Decree 2008-1354¹⁰ specifies the current criteria for defining categories of companies. It applies the law of August 4, 2008 on the modernization of the economy and in line with the recommendations of the European Commission. This decree includes the category of intermediate-sized companies. In this context, three classification criteria are used to define SMEs:

• – the number of employees is less than 250, in accordance with European Commission criteria¹¹;
• – the annual turnover is less than 50 million euros;
• – the balance sheet total may not exceed 43 million euros.

In France, the SME category includes microenterprises that employ fewer than 10 people and have an annual turnover not exceeding 2 million euros. However, they represent 96% of SMEs, and some of them are not active. Thus they are often analyzed separately.

In addition, it must be recognized that the classification of companies by size is very useful for reflecting the economic structure of a country or territory. For example, the French economic structure is characterized by a small number of large companies, a large number of SMEs, a very large number of very small companies (or MICs for microenterprises), and a shortage of EIT companies¹². In Germany, intermediate-sized companies (or Mittelstand) are twice as large as those in France. However, this typology does not really allow us to understand the originality of SMEs. By way of illustration, let us take the criterion of the number of employees, which is mainly used to characterize the SME. We have to admit that it does not reflect reality. Indeed, some people are not included in the total workforce (trainees, apprenticeship contracts, the SME manager’s family members, and spouses). In addition, SMEs are increasingly outsourcing some of their tasks.

Thus, since the 1990s, scientific research has highlighted several other variables of a more qualitative nature that are specific to SMEs (Julien 1993; Marchesnay 2015). They mainly underline:

• – the centralization of the manager’s decision-making;
• – a low organizational structure (see the simple structure in Henry Mintzberg’s typology of organizations);
• – a high dependence on access to resources (human, financial, material and immaterial, etc.);
• – limited resources.

In addition, Olivier Torrès (2015) develops a stimulating approach to the specific nature of SMEs. They can easily develop close relationships at several levels: in terms of space (spatial proximity), hierarchy (hierarchical proximity); work organization with the division of tasks (functional proximity) and coordination (coordination proximity). They can also control the way information is shared (proximity information systems) or the decisions to be taken (temporal proximity).

However, SMEs are not static. They have evolved a lot. Some of these specific features should therefore now be revisited, as encouraged by Marchesnay (2015)¹³. First, the leader is not as lonely as one might imagine. Family, partners, such as accountants, bankers, suppliers, customers, but also employees, are important actors in the decision-making process. Leaders are increasingly trained. Some of them choose to join business leaders’ associations, such as the Centre des jeunes dirigeants¹⁴ in France. These groups can influence decision-making through advice, sharing of experiences, specific training and even mutualization of activities. Second, the SME is increasingly well structured and several factors explain this. We note a greater diffusion of management tools; digital technology contributes to this phenomenon (for example, remotely accessible and shared planning). Employees are themselves increasingly better trained and informed and are pushing for more structuring of the organization. Finally, partners (customers, suppliers, bankers) lead to more structuring and organization taking place. This is particularly the case when SMEs are in subcontracting relationships. Third, the issue of access to resources remains, of course, a major challenge, but it is much easier. However, difficulty is no longer specific to SMEs: non-profit organizations and large companies face relatively similar situations. But economic, social and technological changes offer them new access to resources, inter alia through the development of a digital and collaborative economy¹⁵. Fourth, resources remain limited, but they can be increased by exploiting the opportunities offered by the sector, the territory, inter-organizational relations, but also (and still) digital means (see crowdfunding).

On the basis of these conclusions, and respecting the quantitative variables retained in the institutional documents, we propose, as specific features of SMEs, to focus essentially on the qualitative variables. We formulate them, however, taking into account the above conclusions:

• – decision-making by the leader, but under the influence of the closest stakeholders;
• – a simplified (and not “simple”) organizational structure;
• – a dependence (and not “high dependence”) on access to resources;
• – limited resources, but easily mobilized, in particular thanks to the multiple local relationships fostered by SMEs.

All these variables were in our minds when writing this book, and, to begin with, when understanding its ability to innovate.

The ability of SMEs to innovate

There is no consensus on the contribution of SMEs to the economy. For some, they constitute a potential source for growth and employment (Hausman 2005; UEAPME 2015). Other researchers believe that it is actually a myth (Boccara 1998). We are convinced that, whatever their contributions, it is important to stimulate innovation within them and give them the means to succeed. Indeed, not all SMEs innovate¹⁶ and those that innovate do not systematically succeed. To approach this reality, we refer here to the concept of innovativeness¹⁷, that is the propensity of an organization to achieve innovations (Hadjimanolis 2000; Wang and Ahmed 2004; Kmieciak et al. 2012). It is the ability of an organization to implement any new feature within it, whether or not it exists elsewhere. However, this capacity is not easy to measure. Quantitative measures (such as R&D investments or patent filings), or surveys of SMEs’ innovation habits can be used. But understanding what enables SMEs to create, maintain and develop such capacity is essential to stimulate innovation. Research has also been carried out on the main brakes and drivers of innovation in SMEs (Madrid-Guijarro et al. 2009; St-Pierre et al. 2017; Seville and Szostak 2018a). One of these obstacles is that the appropriation of the value of innovation remains a key issue that is insufficiently considered in the specific context of SMEs (Le Bas and Szostak 2016; Corbel and Reboud 2018) (see Chapter 4).

This propensity to innovate concerns innovation defined in the broad sense. This is the process that leads to the creation of something new in the economy. It is common to characterize innovative activity by types of innovation. For a long time, technological innovation (product or process innovation) was at the top of the list. However, since the 2005 edition, the Oslo Manual¹⁸ has incorporated non-technological innovation through marketing innovation and organizational innovation. In sum, product innovation refers to the functionalities and/or characteristics of the product as a whole (techniques, packaging, product formula). Process innovation refers to the production or distribution method that is new or improved, involving concrete changes in techniques, hardware and/or software. Organizational innovation concerns the way in which the offer is designed and implemented in a company (practices, workplace organization and external relations). Marketing innovation involves implementing a new method of designing, packaging, placing, promoting and pricing the company’s offer.

To these traditional categories of innovations, we can add several others, typical of recent developments: market innovation, strategic innovation, business model innovation, managerial innovation, social innovation and responsible innovation. Marketing innovation involves creating a new market (new use of an existing product, new type of customers). The Blue Ocean Strategy illustrates this category of innovation (Kim and Mauborgne 2005). For example, the French SME “Les Trois Bras” offers a restaurant space on the motorway area of the Millau Viaduct. It is connected to two other markets: the promotion of regional know-how and tourism. Instead of being a technical and quick pit stop, the space is an opportunity to take time and enjoy, breaking with the traditional key success factors of the sector.

Strategic innovation involves changing the way the organization’s activity is carried out and can be achieved through business model innovation. The latter is understood as the creation of a new configuration of value for the sector, that is a new way of creating and capturing value (Eyquem 2017). For example, small video game studios have successfully differentiated themselves from large publishers by developing a multifaceted platform on the Internet by bringing together complementary and/or interdependent user groups (Parmentier and Gandia 2016). This type of innovation is currently central for SMEs (Chapter 2 explores this issue further).

Managerial innovation is a change of traditional managerial principles, processes and practices, or a change of regular organizational forms (Hamel 2006, p. 4). This change must be considered in relation to the company and/or the market (Mol and Birkinshaw 2009). These may include the Delphi method, Total Quality Management standards, Corporate Social Responsibility (CSR) strategy, lifecycle analysis, etc. Based on a qualitative study, Dangereux et al. (2017) then show that managerial innovation in SMEs can be used to legitimize actions undertaken with financiers, reassure clients, win new contracts and drive growth while remaining viable. This example thus underlines the importance of the social construction of a new idea for the legitimacy of the SME and its innovation capacity.

Social innovation is defined as a new response to needs expressed by a specific social group, not satisfied by markets and by public institutions (André et al. 2009; Moulaert 2009). This may involve, for example, areas in difficult situations, proposing solutions for people facing unemployment, old age, illness or disability. The emblematic organizations involved in this type of innovation belong to the Social Economy. These include associations¹⁹ that are similar to SMEs (see Janssen et al. 2012). For example, Dutertre et al. (2013) study the case of the Solidarauto solidarity garage network: the objective is to cover the mobility needs of the most vulnerable households. Research shows that such organizations have a significant capacity to exploit untapped resources (i.e. donations of broken down cars), to create a network of actors with little initial connection, and thus to break out of the established framework, resulting in socially successful innovation.

Responsible innovation is a more recent category. It is founded in particular within the framework of the European Responsible Research and Innovation project. It questions the potentially harmful consequences that innovation can have on society. This concept is still vague and evolving (Gay et al. 2018). However, the authors point out that this type of innovation promotes a capacity for innovation that is, in its process, more anticipatory, more reflective, more deliberate and reactive.

In addition to these categories of innovation, the question of the intensity of the innovation, the origin and nature of the innovative process is generally raised. Traditionally, a distinction is made between incremental innovation, which consists of improving what already exists, and radical innovation, which generally results in the creation of a new product. While the first form is gradual with a risk considered low, the second implies a significant change in the conditions of use by consumers, or in the production methods or technologies used and considered more risky.

Innovation can also be distinguished according to the origin of its process. Either it is driven by technology (or technology push, resulting in particular from R&D) and offers consumers an unexpected product/service, or it is driven by the market (market pull), following the expression of consumer needs, in a perspective that we now call user-oriented.

In order to clarify the innovation process, innovation can also be approached through the prism of organizational learning. Following on from March’s work (1991), we can then distinguish between so-called exploration and exploitation innovation (Chanal and Mothe 2005; Li et al. 2008). Exploration innovation is part of a long-term vision. It is a question of highlighting the organization’s ability to discover, renew and even create new resources and skills, enabling it to adapt to the reality of its competitive environment. Exploitation innovation is more in the short and medium term. It is a matter of focusing on the operational efficiency of existing resources and skills. The former would lead more to radical innovations, while the latter would lead to incremental innovations (Chanal and Mothe 2005). It should be noted that an organization can engage in either or both. And this is also the case for SMEs. This is reflected, for example, in exploration innovation, in the experimentation of radically new ideas, in the developed ideation of the SME’s employees. In exploitation innovation, this is displayed by the company’s success in mastering and improving existing technologies (Szostak 2017).

Beyond the type and intensity of innovation in SMEs, it is especially important to remember that many SMEs have a clear capacity to innovate, whatever the form of innovation. This translates, particularly in France, into significant R&D staff: nearly a quarter of employees dedicated to innovation are employed in SMEs (23%), and this figure increased between 2014 and 2015. Several factors explain this capacity in the case of SMEs. We will focus here on three main ones:

• – the role of the manager and employees;
• – the nature of the organization;
• – the type of environment.

Concerning the first, we consider that it is the company manager (Van de Ven 1986; Hadjimanolis 2000) who should play the role of developing a corporate culture that values innovation, original ideas, experimentation and employee proactivity (Lumpkin and Dess 1996; Rosenbusch et al. 2011). The manager must engage in innovative and creative approaches, such as design thinking (Seville and Szostak 2018a), and allow their employees to do the same. Employee empowerment effectively offers SMEs the opportunity to benefit from their ideas (Carrier 1998); this managerial practice has a positive impact on the propensity to innovate (Farace and Mazzotta 2015). Concerning the second factor explaining the innovation capacity of SMEs, we refer to its ability to combine internal and external knowledge (De Oliveira Paula and Ferreira Da Silva 2017), with reference to the open innovation paradigm (Chesbrough et al. 2006; Spithoven et al. 2013; Vanhaverbeke 2017). This concerns the emergence of ideas, but also the marketing of the product for example (Lee et al. 2010; Henttonen and Lehtimäki 2017). An open and agile organization, which is the case for SMEs (Barzi 2011), is conducive to the development of the propensity to innovate. The simple structure and its proximity to customers and partners allow it to adapt quickly to market demand (Hausman and Fontenot 1999; Hausman 2005). Finally, and in addition to these factors, Mazzarol and Reboud (2009) show the importance of taking into account the formalization of SME strategy that depends on the degree of organization complexity and the level of uncertainty and risk in the environment. This is the third and final factor we want to take into consideration: the nature of the environment, its evolution and changes. The perception of this environment will differ from one SME to another depending on the degree of integration within it, via, for example, the sector, the nature of partner relations established with other environmental actors, etc.

In the end, we note that SMEs are characterized by a major challenge. On the one hand, they have strong capacities to innovate (Hausman and Fontenot 1999; Hadjimanolis 2000; Hausman 2005). On the other hand, innovation represents risks that SMEs cannot always keep up (St-Pierre et al. 2017; Seville and Szostak 2018a). The purpose of this book is thus to propose a framework of thought dedicated to SME actors and researchers concerned, in order to meet this challenge.

Positioning of the structure

On the basis of the reminders discussed here, we propose in this book to investigate innovation in SMEs more precisely. We consider that SMEs are not the reduced version of large companies (Torrès 2017). We are convinced that, despite certain inherent difficulties, an SME is an organization that is favorable to the development of creative ideas (Carrier and Szostak 2014). The SME is seen as a unique organizational unit. The innovation activities that give substance to its propensity to innovate are, as such, specific. In this book, we therefore propose to address arguments that seem to us to be enlightening in order to understand why SMEs have the propensity to be innovative and creative, and to implement innovations, when certain characteristics should prevent them from doing so a priori. Before that, we must talk about our working method and the structure of the book.

Concerning our methodology, our purpose is based on several data sources. First, we exploit the academic reference works on the subject (articles, books and scientific conferences). Second, we draw on the expertise of researchers and professionals with whom we have discussed (and continue to discuss) specific topics for the writing of this book. Third, we call on our own expertise because of our regular work with many SME managers. This can be our research and pedagogical work, especially during collaborations with our students (study projects, internships). This is why, in addition to the traditional academic references in a scientific book, we provide boxes and appendices to give a voice to these experts in SMEs, creativity and innovation. These contributions are intended to link points of view on these topics.

Concerning the trail of thought, the book is divided into four chapters. Chapter 1 develops the relationship between SMEs and their environment, and the consequences on the nature of innovation. This report can be guided by three main approaches. The first reflects a deterministic view of the environment. The second considers the environment as a resource for SMEs and, therefore, develops an emancipatory framework for business strategy. The third suggests that it is also possible to transform the environment, particularly in the case of strategic innovation.

In Chapter 2, we consider that SMEs are proving to be an organizational form that is conducive to innovation in the face of current economic change. Thus, it seems essential to us, first of all, to set out this changing context in which these SMEs are currently challenged. Three changes are described and illustrated in the case of the platform economy: economic, technological and social. This reflection leads us to highlight lessons to be learned by SME managers.

In Chapter 3, we highlight the importance for SMEs to identify who and how to feed the creative slack or pool of new ideas (Cohendet and Simon 2015) in order to further develop innovation in response to change (Liu et al. 2017). We emphasize the role of the SME, seen as an organization that supports the development of innovation, and the environment, which is approached more as a resource than a constraint. In particular, we are discussing the role of leadership and employees further on the one hand, and the role of the territory and inter-organizational relations on the other, in response to the open innovation strategy (Chesbrough et al. 2006; Vanhaverbeke 2017).

In Chapter 4, we examine the ability of SMEs to legitimize new ideas of creative slack. Indeed, it is not enough to have ideas to develop innovation. It is necessary to make these ideas desirable and adapted to SMEs. We then discuss how the SME manages to socially construct the legitimacy of the idea, and to demonstrate its usefulness. Two avenues are explored. The first concerns tools for creativity and innovation, such as design thinking, and the second concerns the question of capturing value. It could be through traditional intellectual property rights or through new organizational forms based on the benefits provided by Cloud Computing and Creative Commons.

To conclude, we propose avenues for reflection both conceptually and managerially on the innovative capacity of SMEs. This is also an opportunity for us to offer advice to our young students, still at school and university, who want to specialize in creativity and innovation, in order to enter the professional world, which is, it should be recalled, mainly composed of SMEs. In addition, we are aware of the importance of the impact of national culture on the development of SME innovation. However, we do not directly discuss a subject in the next few pages. That is why we offer expert views from developing countries or countries undergoing restructuring due to crises (Argentina, China and African countries); they are intended as a call for studies on SME innovation in these countries.

We hope that the academic and professional reader will find stimulating ideas to meet the challenge of innovation and creativity in SMEs.