Do entrepreneurial knowledge and innovative attitude overcome "imperfections" in the innovation process? Insights from SMEs in the UK and Italy

Entrepreneurial knowledge spurs innovation and, in turn, generates a competitive advantage. This paper aims to explore if entrepreneurial knowledge combined with the attitude to innovate can overcome the key “imperfections” of the innovation process generated by dynamic, current technological progress in the knowledge-intensive sector. The “imperfections” identified in risk management, asymmetric information in the knowledge management process and hold-up problems can all disrupt collaborative partnerships and limit opportunities for innovation.,A theory-building approach is applied which offers a case study analysis of two small- to medium-sized enterprises (SMEs). These two SMEs operate in Europe but in two different territories: the UK and Italy. The study explores three key imperfections, risk management, asymmetric information in the knowledge management process and hold-up problems, which occur in the innovation process.,The entrepreneurs face these imperfections by adopting an open innovation model. Notwithstanding, both entrepreneurs had to deal with all “imperfections”, and their skills, attributes, attitude and aptitude allowed them to grow their business and continually develop new products. Therefore, the imperfections do not limit the innovative capacity of an entrepreneur but rather enhance their challengeable attitude. In this regard, the case studies induce a further analysis on entrepreneurial knowledge intertwined with entrepreneurial risk management and networking skills.,The empirical significance of the two cases does not allow theorisation. However, this research offers interesting results which can be strengthened by a comparative case study with other countries or deeper investigation by applying a quantitative approach.,By leveraging entrepreneurial knowledge, the imperfections noted in the innovation process can be overcome. Entrepreneurial knowledge is recognised as the main asset of an enterprise if it is combined with external talent or human resources. Entrepreneurs aim to develop innovative approaches and ideas through establishing both formal and informal collaborative partnership relationships which are used thanks to the entrepreneurs’ networking skills, knowledge and abilities.

[1]  Alberto Ferraris,et al.  How MNC's subsidiaries may improve their innovative performance? The role of external sources and knowledge management capabilities , 2017, J. Knowl. Manag..

[2]  Pratim Datta,et al.  A Qualitative Exploration of entrepreneurial Knowledge Transfer , 2011, J. Knowl. Manag..

[3]  Kari A. Lerum,et al.  Subjects of Desire: Academic Armor, Intimate Ethnography, and the Production of Critical Knowledge , 2001 .

[4]  D. Shepherd,et al.  Knowledge‐based resources, entrepreneurial orientation, and the performance of small and medium‐sized businesses , 2003 .

[5]  Peter Checkland,et al.  Soft Systems Methodology in Action , 1990 .

[6]  Brian D. Wright,et al.  Technology Transfer under Asymmetric Information , 1990 .

[7]  F. Bosch,et al.  Managing Organizational Knowledge Integration in the Emerging Multimedia Complex , 1999 .

[8]  W. Baumol.  Formal entrepreneurship theory in economics: Existence and bounds , 1993 .

[9]  Richard T. Harrison,et al.  Public policy and the development of the informal venture capital market: UK experience and lessons for Europe , 2003 .

[10]  J.-C. Spender,et al.  Limits to learning from the west: How western management advice may prove limited in Eastern Europe , 1992 .

[11]  Francesco Polese,et al.  Information Asymmetry and Co-Creation in Health Care Services , 2014 .

[12]  Staffan Jacobsson,et al.  New Technology–based Firms – an exploratory study of technology exploitation and industrial renewal , 2014 .

[13]  R. Brislin.  Back-Translation for Cross-Cultural Research , 1970 .

[14]  R. Duane Ireland,et al.  ANTECEDENTS, ELEMENTS, AND CONSEQUENCES OF CORPORATE ENTREPRENEURSHIP STRATEGY. , 2003 .

[15]  Matthew McCaffrey,et al.  On the Theory of Entrepreneurial Incentives and Alertness , 2014 .

[16]  Dylan Jones-Evans,et al.  The high technology small firm sector in the UK , 1996 .

[17]  王玲玲,et al.  How Knowledge Affects Resource Acquisition: Entrepreneurs’ Knowledge, Intra-industry Ties and Extra-industry Ties, , 2014 .

[18]  Maria Minniti,et al.  Entrepreneurial alertness and asymmetric information in a spin-glass model , 2004 .

[19]  A. Beggs.  The licensing of patents under asymmetric information , 1992 .

[20]  Ian Falk,et al.  The leadership/management conundrum: innovation or risk management? , 2007 .

[21]  David R Holmes,et al.  The business of risk. , 2018, EuroIntervention : journal of EuroPCR in collaboration with the Working Group on Interventional Cardiology of the European Society of Cardiology.

[22]  C. Lindblom.  Still Muddling, Not Yet Through. , 1979 .

[23]  Manlio Del Giudice,et al.  The causal relation between entrepreneurial ecosystem and productive entrepreneurship: a measurement framework , 2018 .

[24]  Stanton G. Cort,et al.  Information Asymmetry and Levels of Agency Relationships , 1998 .

[25]  A. Shleifer,et al.  A Survey of Corporate Governance , 1996 .

[26]  O. Williamson.  Markets and hierarchies, analysis and antitrust implications : a study in the economics of internal organization , 1975 .

[27]  Sang-Bing Tsai,et al.  An Empirical Study on Entrepreneurial Orientation, Absorptive Capacity, and SMEs’ Innovation Performance: A Sustainable Perspective , 2018 .

[28]  Douglass C. North,et al.  Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England , 1989, The Journal of Economic History.

[29]  D. Leonard-Barton,et al.  Wellsprings of Knowledge: Building and Sustaining the Sources of Innovation , 1995 .

[30]  S. Premaratne,et al.  Networks, Resources, and Small Business Growth: The Experience in Sri Lanka , 2001 .

[31]  O. Hart,et al.  Property Rights and the Nature of the Firm , 1988, Journal of Political Economy.

[32]  Gérard P. Cachon,et al.  Perspective: Complexity Theory and Organization Science , 1999, Organization Science.

[33]  R. Hoyt,et al.  The Determinants of Enterprise Risk Management: Evidence from the Appointment of Chief Risk Officers , 2003 .

[34]  Audley Genus,et al.  Firm Strategies For Risk Management In Innovation , 2006 .

[35]  Elias G. Carayannis,et al.  The microlevel actions undertaken by owner-managers in improving the sustainability practices of cultural and creative small and medium enterprises: A United Kingdom–Italy comparison , 2017 .

[36]  Alexander G. Kelly.  Review of: Srikantaiah, T. Kanti & Koenig, Michael E.D. (Eds.). Knowledge management in practice: connections and context. Medford, NJ: Information Today, Inc., 2008 , 2008, Inf. Res..

[37]  W. Dugger.  The Economic Institutions of Capitalism , 1987 .

[38]  F. Hayek.  The counter-revolution of science : studies on the abuse of reason , 1953 .

[39]  Kevin L. Johnson,et al.  Are you an innovator or adaptor? the impact of cognitive propensity on venture expectations and outcomes , 2008 .

[40]  Thomas J. Housel,et al.  An approach for identifying value in business processes , 2003, J. Knowl. Manag..

[41]  Greg Laugero,et al.  Managing Knowledge , 1998 .

[42]  Trudie Aberdeen.  Yin, R. K. (2009). Case study research: Design and methods (4th Ed.). Thousand Oaks, CA: Sage. , 2013, The Canadian Journal of Action Research.

[43]  N. Smith,et al.  Appraisal, Risk and Uncertainty , 2003 .

[44]  A. Eisenschitz,et al.  The politics of local economic policy: The problems and possibilities of local initiative , 1993 .

[45]  Fenio Annansingh,et al.  Knowledge management issues in knowledge-intensive SMEs , 2006, J. Documentation.

[46]  C. Lindblom.  THE SCIENCE OF MUDDLING THROUGH , 1959 .

[47]  M. C. Jensen,et al.  Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit , 1976 .

[48]  Robin Yeates.  Knowledge Management for the Information Professional , 2002 .

[49]  Thomas Kaiserfeld.  Clusters, Systems and Blocks , 2015 .

[50]  S. Zahra,et al.  The Evolving Firm: How Dynamic and Operating Capabilities Interact to Enable Entrepreneurship , 2009 .

[51]  Veland Ramadani,et al.  Entrepreneurial Risk Management , 2017 .

[52]  Manlio Del Giudice,et al.  Influences of cognitive dimensions on the collaborative entry mode choice of small and medium-sized enterprises , 2017 .

[53]  Richard T. Herschel,et al.  Using "knowledge champions" to facilitate knowledge management , 2003, J. Knowl. Manag..

[54]  Manlio Del Giudice,et al.  Knowledge-driven preferences in informal inbound open innovation modes. An explorative view on small to medium enterprises , 2017, J. Knowl. Manag..

[55]  Sandy Q. Qu,et al.  The qualitative research interview , 2011 .

[56]  Lars Øystein Widding,et al.  Building entrepreneurial knowledge reservoirs , 2005 .

[57]  Anne Marie Doherty,et al.  Explaining international retailers' market entry mode strategy: internalization theory, agency theory and the importance of information asymmetry , 1999 .

[58]  G. Huber.  Organizational Learning: The Contributing Processes and the Literatures , 1991 .

[59]  J. Yuen,et al.  A Senior Manager's Guide to Integrated Risk Management , 2002 .

[60]  Craig Prichard,et al.  Managing knowledge : critical investigations of work and learning , 2001 .

[61]  Alberto Ferraris,et al.  Management control in Italian SMEs , 2017 .

[62]  Maria Rosaria Della Peruta,et al.  The performance implications of leveraging internal innovation through social media networks: An empirical verification of the smart fashion industry , 2017 .

[63]  G. Zsidisin,et al.  An Agency Theory Investigation of Supply Risk M anagement , 2003 .

[64]  Tim Hall,et al.  The entrepreneurial city : geographies of politics, regime, and representation , 1998 .

[65]  R. Coase.  The Nature of the Firm , 1937 .

[66]  J.-C. Spender,et al.  Knowing, Managing and Learning , 1994 .

[67]  C. Lindblom.  Inquiry and Change: The Troubled Attempt to Understand and Shape Society , 1992 .

[68]  Israel M. Kirzner,et al.  Perception, opportunity, and profit : studies in the theory of entrepreneurship , 1981 .

[69]  B. Klein,et al.  Vertical Integration, Appropriable Rents, and the Competitive Contracting Process , 1978, The Journal of Law and Economics.

[70]  T. S. Robertson,et al.  TECHNOLOGY DEVELOPMENT MODE: A TRANSACTION COST CONCEPTUALIZATION , 1998 .

[71]  Sue Newell,et al.  Knowledge management and innovation: networks and networking , 1999, J. Knowl. Manag..

[72]  Alberto Ferraris,et al.  How SMEs Engage in Open Innovation: a Survey , 2018 .

[73]  Herbert A. Simon,et al.  Perceiving and managing business risks: differences between entrepreneurs and bankers , 1998 .

[74]  Manlio Del Giudice,et al.  Managerial practices and operative directions of knowledge management within inter-firm networks: a global view , 2014, J. Knowl. Manag..

[75]  Alireza Khorakian,et al.  Integrating risk management in the innovation project , 2014 .

[76]  David B. Audretsch,et al.  Agency and Governance in Strategic Entrepreneurship , 2009 .

[77]  Alberto Ferraris,et al.  Dual relational embeddedness and knowledge transfer in European multinational corporations and subsidiaries , 2018, J. Knowl. Manag..

[78]  Merton H. Miller.  FINANCIAL INNOVATION: ACHIEVEMENTS AND PROSPECTS , 1992 .

[79]  T. Das,et al.  The Risk-Based View of Trust: A Conceptual Framework , 2004 .

[80]  Keith Punch,et al.  Introduction to Social Research: Quantitative and Qualitative Approaches , 1998 .

[81]  I. Nonaka.  A Dynamic Theory of Organizational Knowledge Creation , 1994 .

[82]  D. Storey.  Understanding the small business sector , 1994 .

[83]  Jennifer Rowley,et al.  From learning organisation to knowledge entrepreneur , 2000, J. Knowl. Manag..

[84]  Júlio Martins,et al.  The Impact Of Intangible Assets On Financial And Governance Policies: A Literature Review , 2010 .

[85]  Charles E. Lindblom,et al.  The Policy-Making Process , 1968 .

[86]  Stefano Bresciani,et al.  Shifting Intra‐ and Inter‐Organizational Innovation Processes Towards Digital Business: An Empirical Analysis of SMEs , 2017 .

[87]  D. Harvey,et al.  The Condition of Postmodernity , 2020, The New Social Theory Reader.

[88]  Sanford J. Grossman,et al.  The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration , 1986 .

[89]  Chimay J. Anumba,et al.  Getting Started in Knowledge Management: Concise Guidance for Construction Consultants and Contractors , 2004 .

[90]  James J. Chrisman.  The Influence of Outsider-Generated Knowledge Resources on Venture Creation , 1999 .

[91]  Manlio Del Giudice,et al.  UWS Academic Portal SMEs and mass collaborative knowledge management , 2017 .

[92]  Keith Clement,et al.  Inward investment in the UK and the Single European Market , 1990 .

[93]  Dean A. Shepherd,et al.  RESEARCH NOTES AND COMMENTARIES: KNOWLEDGE-BASED RESOURCES, ENTREPRENEURIAL ORIENTATION, AND THE PERFORMANCE OF SMALL AND MEDIUM-SIZED BUSINESSES , 2003 .

[94]  Doris Gomezelj Omerzel,et al.  Critical entrepreneur knowledge dimensions for the SME performance , 2008, Ind. Manag. Data Syst..

[95]  J. Schumpeter.  The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle , 1934 .

[96]  J. Swart,et al.  Dynamic knowledge nets - the 3C model: exploratory findings and conceptualisation of entrepreneurial knowledge constellations , 2007, J. Knowl. Manag..

[97]  N. B. Eastwood,et al.  THINKING IN NUMBERS , 1962 .

[98]  Denis D. Smith,et al.  The changing nature of risk and risk management: The challenge of borders, uncertainty and resilience , 2009 .

[99]  Marialuisa Saviano,et al.  Managerial Choices between Systems, Knowledge and Viability , 2013 .

[100]  F. Knight.  The economic nature of the firm: From Risk, Uncertainty, and Profit , 2009 .

[101]  G. S. Mort,et al.  Investigating Social Entrepreneurship: A Multidimensional Model , 2006 .

[102]  J. West,et al.  Open Innovation: The Next Decade , 2014 .