the multiple roles played by owners-managers as compared to larger firms. In departing from the linear progression of innovation toward the more encompassing view of the innovation process, these models start to point to the complex nature of activities, use of resources, and interaction of actors, which can happen simultaneously, overlap, or even restart again in the middle of the process. Although the interactive aspect of innovation processes has gained acknowledgement, application of the integrated/interactive type of innovation process models is still limited. There has also been limited discussion on the applicability of these process models for microenterprises. Pavitt (2005) suggestion provides a possibility in considering innovation processes at the firm level in the microenterprises’ context. This described three overlapping sub-processes: cognitive, organizational, and economic. These processes can be related to the operational and collaborative aspects of microenterprises for example with other firms, their capacities and abilities, and also how innovation is driven in a desired direction. Hence, a combination of these understanding with an aim to examine the operational and collaborative aspects, capacity, and ability of microenterprises during the innovation process will be discussed with reference to related literature further in section 2.4.
2.2 To Be New, To Be Small, To Be a Microenterprise
To have a complete idea of the innovation process for microenterprises means there are necessary areas that need to be addressed in this study. What does it mean to be a microenterprise? What are the characteristics of microenterprises that can make it challenging for them in the innovation journey? It should be acknowledged that in understanding microenterprises, it is a field of study that can be contributed to from a wide range of research on entrepreneurship, small business in connection with innovation, small firms growth, etc. The aim of
this section is not to provide a summary of these researches, but rather to draw from these studies and focus on aspects relevant to microenterprises.
Microenterprises are often included under the definition of SMEs.6 Most studies agree with the definition by the European Union that is based on having less than 10 employees in the firm. Entrepreneurial studies defined microenterprises as small businesses that employ less than ten people, and often only one or two (Honig, 1998). These studies also listed the characteristics of microenterprises as often having owners/managers or family members who may work for free, being highly efficient but also having a high rate of failures (Liedholm and Mead, 2013). There have been plenty of post-mortem studies on how start-ups or microenterprises failed to survive (Witt, 2004, LeBrasseur and Zinger, 2005), but it remains unclear what factors in their innovation processes contributed to the failure of innovating microenterprises (Zinger et al., 2001, Monahan et al., 2011). There is, however, a need in innovation studies to differentiate between SMEs (as a generic group of small business) and microenterprises.
A study from Baum et al. (2000) provided an inkling of some characteristics of microenterprises when forming alliances that may help reduce the number of casualties (Aldrich and Auster, 1986) in microenterprises. Past literature (Mintzberg, 1979, Johannisson, 1987, Miller, 1987, 1990, Johannisson, 2000) suggests that new and small ventures (which include microenterprises) tend to adopt simple structures such as a family-based business or having a small number of employees with most of the tasks being performed by the owner/managers themselves. Miller (1990) argued that firm configurations and relationships are affected by four imperatives, namely structure, environment, strategy and executive personality. Four types of configurations of formal organizations were suggested: bureaucracy, adhocracy, simple form and diversified form. The simple type of configuration is used to describe most small, young firms which are dominated by a chief executive or a founder (Miller, 1990). This type of organizational structure may still be continued even as small businesses grow due to the advantages recognized by these owner-managers through informal communication that can lend to the effective operations within the firm. The coordination of such small businesses are influenced largely by direct supervision, but decisions are done through an
6 Definition of SMEs in European Union Report EUROPEAN COMMISSION, E. 2013.
Small and medium-sized enterprises (SMEs) What is an SME? [Online]. Available:
http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/ [Accessed 29/05/2013 2013].
informal structure and decision-making style (Miller, 1990). In this respect, the combination of direct actions combined with a large degree of flexibility to adapt to unexpected contingencies can be seen as a characteristic of these small businesses, particularly for microenterprises. However, this simple type of configuration might also mean domination under the leadership of the owner-managers and hence changes to the leadership of the owner-owner-managers (Miller, 1990) may have unpredictable consequences. The study of individual traits of entrepreneurs has been addressed in entrepreneurship studies and related fields.
This thesis focused on how these individual traits characterized and influence the development of microenterprises’ innovation-related characteristics during the innovation process. The characteristics of microenterprises have also been described as number of employees or the value of the assets and organizational/leadership structure (O'Dwyer and Ryan, 2000). Traits of the owner-managers such as education level, managerial management skills, and entrepreneurialism (Simpson, 2001) have also been associated indirectly as equivalent to the characteristics of microenterprises (O'Dwyer and Ryan, 2000).
Some other characteristics of this simple structure include having a low degree of formalized behavior (rules, procedures, and job descriptions), a loose division of labor, and strong entrepreneurial leadership to get things going.
Since the internal knowledge base is dependent on the competencies of owner-managers in small firm (Johannissson, 1998), Johannisson (1987, 2000) theorized on the benefits of a network in effectuating entrepreneurial activities, where the trust carried by personal networks may bring legitimacy and help in mediating human, as well as financial, capital. Social ties are often included in the networks of small and young firms, where they are more enthusiastic at networking, with the primary network often located locally (Johannissson, 1998). The ‘reciprocal and multi-faceted interdependencies’ of relationships with actors that are considered both ‘friend and business colleagues’
(Johannissson, 1998) can mean that even as these relationships might have discontinued, it may have ‘enough thematic, structural or strategic cohesion left to regenerate’ at a later point in time (Miller, 1990).
One stream of literature that has provided another potential area of discussion on the characteristics of microenterprises that are more related to the constraints faced by small firms under the hypothesis of the “liabilities of age and size” (Bruderl and Schussler, 1990, Aldrich and Auster, 1986, Baum et al., 2000, Freeman et al., 1983, Stinchcombe and March, 1965). The term
“liability of newness” originated from Stinchcombe's (1965) seminal study and has become associated with limitations that firms that are new to the market
but also small in size are confronted with in various situations. These liabilities can refer to general problems faced by small and young firms and are highly applicable to the specific context of innovation for microenterprises. There are three main constraints recognized for new organizations regardless of their size (Stinchcombe, 1965): learning new roles (due costs involved), inventing new roles (conflict with capital or creativity), and establishing new social relations (lack in trust and structure) (Bruderl and Schussler, 1990). In the words of Freeman et al. (1983) and with reference to Stinchcombe (1965): “new organizations suffer a liability of newness, a greater risk of failure than older organizations, because they depend on the cooperation of strangers, have low levels of legitimacy and are unable to compete effectively against established organizations.” The common denominator in these challenges is that they all required investment from the firm in terms of time and efficiency, which are scarce resources in the context of microenterprises.
Baum et al. (2000) and Pe'er et al. (2014) related these concepts of the liabilities of newness and smallness to the environmental structure of small firms. Baum et al. (2000) explored this in the context of alliance network, emphasizing the importance of small firms overcoming these liabilities through enhancing their performance via an efficient network. Alliances were seen to provide benefits to small, young firms who had resource limitations by mimicking the forming of relationships to gain access to required resources.
Small firms often form strategic alliances to address these challenges through their organizational and environmental conditions. Baum et al.'s (2000) review showed that besides the ties formed with different types of organizations, there were also benefits to be gained through the experiences shared by actors in the network. Small firms that had prior established working relationships with various partners in the network showed impacts on the firms’ performance in terms of sales, innovation, and commercialization efforts in various industries (Baum et al., 2000).
Aldrich and Auster (1986) observed that challenges that small firms faced stemmed largely from pressures of fending off market competition while needing to establish a niche market. This is an apt description that can be applied to microenterprises, which, while being touted as being flexible and adaptable, are subjected to the double-edged sword of being small and new.
This combination can increases the risk of dissolution in the early stage of formation of the organization (Aldrich and Auster, 1986). The hypothesis of the liability of smallness and newness is in many ways related to the barriers that microenterprises face when innovating, as it points to both internal and external obstacles that can make survival difficult for microenterprises (Fackler
et al., 2013). External obstacles refer mostly to market entry barriers that can make introducing a new product challenging due to various aspects such as manufacturing, competition, and regulations. Internal liabilities of age and size, on the other hand, have been seen to be largely related to roles of the workforce and structure of the firm, in relation to external obstacles that are related to market and regulatory factors (Stinchcombe, 1965, Bruderl and Schussler, 1990). Aldrich and Auster (1986) also cited experiential obstacles as challenges small firms could be confronted with. Through applying experience gained by older firms or experienced actors, small firms who could draw lessons from the failures they had withstood constitute a potential way in which small firms can compensate for the liability of their age. The application of this understanding in the microenterprises’ context can be related to the interaction with allied partners as a way to mitigate the liabilities of newness and smallness.
This is firstly established through creating a stable environment and secondly by establishing relationships with a network of experienced actors. Pe'er et al.
(2014) cautioned against this type of growth and survival strategy, as the benefits were dependent on the type of local economic activity and local competitive structure. Growth is often seen as a solution or outcome when small firms prevail over the liability of smallness (Aldrich and Auster, 1986), but microenterprises should also take the innovation context in which they are situated into consideration to explore other alternatives that can help them overcome these obstacles (Pe'er et al., 2014). In addition, if growth is pursued as the primary aim, it can lead to issues of cost and risk such as not developing new capabilities and managerial resources in time to handle resource management demands (Pe'er et al., 2014). To quote Hyvärinen (1990):
It is conceivable that the smaller the enterprise, the nearer its innovative behaviour is to that of an individual. The bigger the enterprise the more the personal traits of the manager are replaced by the characteristics of the enterprise, such as products, strategies, resources and organisational behaviour.
(1990)
In this study, the focus is placed on examining the manifestation of capabilities that will be discussed in Section 2.4 and how firms could overcome the limitation of their size or age when innovating by adopting strategies that harness resources outside of the organization. For example, choosing to engage in interactions through alliances is a recognized strategy used by small firms to overcome limitations, which, in the context of microenterprises should prompt further consideration in terms of other complementary factors and to have an
au courant understanding of how microenterprises should innovate in their current context.