Antagonistic effects of innovation proactiveness on high-tech SME performance

In this study, we analyze potential antagonistic effects of innovation proactiveness on firm performance. It is widely accepted that increased innovation proactiveness is related to more alternative innovation project proposals and to improved firm performance. But this may also lead to a more rigid innovation evaluation and selection process with negative consequences for firm performance. Consequently, we propose that positive effects of innovation proactiveness on firm performance are annihilated by negative effects of inevitable process rigidity. Furthermore, we propose that these effects are moderated by firm size. To test our hypotheses 100 high-tech SMEs were surveyed that operate within a supply chain of a large multinational manufacturer. The direct and indirect effects of innovation proactiveness on firm performance were estimated by employing structural equation modeling. A multi-group analysis was performed to test for the moderating effects of firm size. The resulting structural equation models exhibit strong explanatory power supporting our hypotheses of antagonistic effects of innovation proactiveness. We conclude that innovation proactiveness has a positive direct effect on firm performance but simultaneously it also displays an indirect negative effect resulting from a more rigid innovation evaluation and selection process. Firm size appears to be an important moderating variable.