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Proving Competitive Advantage for Small and Medium Enterprises

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The purpose of this paper is to figure out the role of creativity and innovation in a small business as competitive advantage. It focuses on the importance of creativity and innovation strategies as well as their contribution to competitive strategies. In order to achieve success and to fulfill the needs and requirements, SMEs must continuously search for the development of its product and services through innovation and creativity. This will play a very important role in achieving competitive advantage. In this paper, theoretically the approach to the connection between creativity and innovation and competitiveness were applied. In order to examine the importance of the innovation strategies, analysis and synthetic methods were used. After a discussion of the relationship between success, innovation and creativity, it was found that innovation is one of the key factors for achieving a sustainable competitive advantage. Based on analyzed theory, it should be visible that sustained and continuous innovation and creativity in all the aspects of an organization can differ an SME from its competitors in a positive way which is very important in today’s modern way of doing business. Creativity and innovation strategies are in a positive relationship with competitiveness strategies and innovation has the key role. These strategies should be observed as one of the major factors in obtaining and achieving competitiveness.

Research Objective:

Based on the recent articles on creativity, innovation and competitive advantage, we tried to find whether there is any sort of link between them or not. It was found that without a creative or innovative idea firm cannot have a competitive advantage over its competitors. Thus, the concept of innovation is valued in most organizations in order to respond to the external pressure from competition. Firms need to have creative idea in order to facilitate the innovation process. Firms are also experiencing the competition and increasingly sophisticated customers need. And, in order to be successful, firms need to implement innovation in their organization so that they have upper hand over their competitors.

Hypothesis:

1. H0: creativity and innovation can be a great competitive advantage for an SME. H1: creativity and innovation cannot be a competitive advantage for an SME.

2. H0: creativity and innovation are the ways in which an entrepreneur can search for new opportunities. H2: an entrepreneur cannot search for new opportunities through creativity and innovation.

3. H0: there is a connection between creativity and entrepreneur ship H3: there is no connection between creativity and entrepreneurship.

4. H0: innovation strategies to be followed by SMEs differ from each other according to the need of using them. H4: all the SMEs should use a common set of innovation strategies regardless of the need and type of the firm.

Introduction:

In today’s global business, sustaining a competitive position is a supreme concern. Competition within the small and medium business industry is intense with many competitors. The ability of a firm to survive depends on how the firm takes advantage of the opportunities in the market place to satisfy its customers. Many companies have demonstrated their capabilities of being been sensitive to their customers by trying to understand customers‚Äô needs and customers‚Äô complaint taking initiatives to meet those needs.

Barringer and Ireland (2006) defined creativity and innovation as the creation of something which is new and also which is considered as the ‚Äúcentral to the entrepreneurial process‚ÄĚ (p. 15). In some cases we cannot separate creativity and innovation from entrepreneurship and it is very obvious in the starting up and running process in an SME. Pretorius, Millard and Kruger (2005) maintain that ‚Äúcreativity is clearly part and parcel of the entrepreneurial skills required to successfully start a venture.

Bosma & Harding considered entrepreneurs and setting up process as very important agents of innovation (Bosma & Harding, 2007, p.16) and also in terms of the technologies and processes that are utilized by them rather just focusing on products and services provided by them (Bosma & Harding; Watson et al., 1998). Entrepreneurs of small businesses are naturally possess the essence of creativity and innovation.

By definition, ‚Äúcompetitive advantage is the facet of a business that is better than the competition. A competitive advantage can be built from many different factors.‚ÄĚ Hatten says, ‚ÄúThe heart of your company‚Äôs strategy and reason for being in business is your competitive advantage. You must do something better than everyone else; otherwise, your business isn‚Äôt needed. If it can be easily copied by competitors, you have to find a new way to stay ahead‚ÄĚ (Hatten, 2006, p. 15).

To describe the importance of competitive advantage in any business, especially in Small and Medium Enterprises (SMEs), Hatten (2006, p. 85) narrated, ‚Äúcompetitive advantage as a core of small business strategy is critical because small business cannot rely on the interia of the market place for their survival.‚ÄĚ

To introduce innovative products or services, the entrepreneurs give their innovative ideas a proper shape. They also show innovation in deliver their products or services in a new and more well-organized way. Larsen & Lewis (2007) included upgradation of an existing product and building up a brand new idea or concept in creating an original product in innovation in the development of a product. Abraham & Knight (2001); Kuczmarski (1996) state that the presence of innovation should be in all the facet of a firm and it should be the attitude or a way of life. So, it already states how important creativity and innovation is for the success of an organization. And, it certainly provides a competitive advantage to the small firms if it can be utilized properly.

Literature Review:

Because of the variation in the nature of SMEs (Small and Medium Enterprises) is such that there no officially recognized single definition of SME. This difference in definition and its attendant problem was noted in earlier studies (Walters, 2002). Bolton (1971) says it may be appropriate to define size by the numbers of full-time employees or their equivalent in some sectors, it would be more appropriate to use turnover in others.

To describe the importance of SMEs (Small and Medium Enterprises), OECD (Organization for Economic Co-operation and Development) says in its article that SMEs will continue to represent a large part of the economic sector and will generate most of the profit. Even so the sector of Small and Medium Enterprises is characterized by highly dynamism and a powerful entrepreneurial activity; it must be kept in mind that many of them are small mature enterprises that serve the local market, many of them struggling to remain competitive (OECD, 2002).

According to Drucker (1985) and Hills and Morris (1998), entrepreneurship has three central underlying dimensions: * creativity or innovation,
* risk-taking and
* pro-activeness

Creativity or innovation is the manner in which the entrepreneur searches for new opportunities or the way in which he or she makes profit through his or her ideas. The test of creativity or innovation lies in its success in the marketplace of ideas, rather than in its novelty alone. Risk-taking refers to the manner in which innovation is implanted in the organization, society or community. It also relates to the willingness of people to allocate significant amount of resources to opportunities that are calculated to succeed. Pro-activeness is concerned with making things happen by perseverance, adaptability and by breaking with the established ways of doing things (Fillis, 2006).

Creativity/Innovation in SMEs:

Creativity or innovation is the process in which the small and medium enterprises look for new opportunities, or the way in which ideas are brought to a profitable conclusion. The test of innovation lies in its success in the marketplace of ideas, rather than in its novelty alone. Different types of creativity distinguishes the businesses from their competitors in a better way giving advantage of providing something new to the consumers for attracting and retaining them (Fillis, 2006).

According to Amabile (1996, quoted in Fillis, 2006), Creativity can be defined as ‚Äúthe production of novel and useful ideas‚ÄĚ while innovation refers to the implementation or ‚Äútransformation of a new idea into a new product or service, or an improvement in organization or process‚ÄĚ (Heye, 2006, p. 253). Innovation can be defined as ‚Äėthe successful implementation of a creation‚Äô (Heunks and Ross, 1992, p. 6). This innovation seems to foster growth, profits and success (Hyv√§rinen, 1990, p. 73). If creativity as a matter of divergent thinking has to result in innovation, it should be followed by convergent thinking (Nystr√∂m, 1979, p. 40). According to West and Farr (1990, p. 252) innovation is the conception of a new idea, transformed into an invention, and exploited as much as possible, whereas creativity is only the conception of the idea. Ivancevich et al. (1994) and Kao (1991) agree with this strict definition of creativity.

Creativity and innovation are considered to be overlapping constructs between two stages of the creative process; both are necessary for successful enterprise (Martins & Terblanche, 2003). Amabile (1988, quoted in Fillis, 2006) says creativity has been viewed as the construction of ideas or products which are new and potentially useful. These ideas can be internally or externally located, although the entrepreneur will tend to search and identify potential solutions which are able to compete in the both local and international market. Creativity allows the organization to take advantage of opportunities which develop ideas as the result of changing environmental conditions (Shalley, Zhou and Oldham, 2004). According to Fillis (2006), creativity is a central element in problem solving and there are a number of ways in which creative thinking can facilitate decision making. In an investigation, it has also been shown that creativity for creativity’s own sake can result in profitable outcomes.

Creativity is influenced by thinking styles, motivation and culture (Sternberg and O’Hara 1999). Amabile (1983, quoted in Fillis, 2006) says creativity is best achieved when flexible, exploratory, non-predetermined paths of discovery are possible. Fillis and Rentschler (2006) show that creative solutions need not to be complex, especially in the business field where relatively basic responses are capable of resulting in success for the organization.

Creativity involves a perceptual response to the environment which may induce a high or low frequency of creative endeavor‚ÄĚ (Fillis, 2006). The term ‚Äėcreative intensity‚Äô is used by Morris, Schindehutte and LaForge (2003) to illustrate the combined effects of the degree and frequency of creative behavior at the individual, organizational or societal levels.

We have noticed a change recently, moving from knowledge based activities to creativity, innovation, entrepreneurship and imagination (Broeck, Cools and Maenhout 2008; Oke, Munshi and Walumbwa 2009). Increasing globalization has resulted in more business opportunities but the marketplace has also become more crowded and competition has increased (McMullan and Shepherd 2006). Creativity enables the entrepreneur to act on these opportunities in ways which can result in competitive advantage for the organization. It can provide the basis for innovation and business growth, as well as impacting positively on society generally (Bilton 2007, quoted in Fillis 2006).

Before 1950s, market was not that crowded and the entrepreneurs didn’t feel to emphasize on the importance of creativity not as much as they do now. The year 1950 has been viewed as a landmark in creativity research, when J.P. Guilford first presented his creativity address to the American Psychological Association. Until then, very few articles on creativity had been published, but after the address output grew considerably. Since the 1960s research has focused on areas such as creativity as an intellectual ability, the training of creativity thinking; the creative individual, the relationship with intelligence, creative people as divergent problem solvers and scientific understanding of creativity (Roweton 1989).

Creativity has a diverse research base which can be highly complex (Mumford and Gustafson 1988). Blackburn and Kovalainen (2009) call for more critical perspectives in researching creativity in small firms. Despite its perceived importance to society, a number of factors have contributed to the neglect of creativity as a research topic including the notion that it is a mystical phenomenon involving a spiritual process which does not sit comfortably with academic scrutiny (Fillis, 2006). The early twentieth century schools of psychology such as structuralism, functionalism and behaviorism chose to ignore creativity (Blumenthal 1980), while popular creativity ‚Äėexperts‚Äô promoted creative thinking through testing the validity of their thoughts. Now-a-days we can see publications based on creativity research such as the Journal of Creative Behavior and the Creativity Research Journal which have helped to increase the popularity of creativity.

The connection between creativity and SMEs:

There is a connection between creativity and entrepreneurship (Whiting 1988; Lee et al. 2004). But Stein (1974) found that creative ability and entrepreneurial ability is a separate construct. This is now uncertain (Gilad 1984), as the effectiveness of innovative technology and artistic creation on SMEs is restricted to the final product of an innovative operation. Whiting identified independence, the drive to achieve, curiosity, self-confidence and deep interest in a task as the five main characteristics of the relatively more creative individual. Other related factors contain using one’s idea and flexibility. Thus, even though there can be seen some differences between the meanings of being creative and being entrepreneurial, there are definitely a lot of similarities.

These features also contrast positively with those which are identified by Fillis (2007a). Entrepreneurship in small business is observed as a major contributor to economic growth of a country and creation of employment, whereas understanding how creativity impacts on the innovation process (Baumol 2002). A country’s economic growth largely depends on the continuous launching of innovate product and services. Government is becoming more and more interested about innovation as it is a great weapon for the small businesses. The new products and new services create new employment opportunities and thus protect and improve the nation’s standard of living.

This difference can be observed by scrutinizing the contribution of creativity or innovation in the entrepreneurial growth, while also exploring creativity throughout the existence of the business. Lee, Florida and Acs (2004) note that entrepreneurial activity not only requires both a supportive and productive business climate, but that it also needs an environment where creativity and innovation can flourish. Having a strong and diverse knowledge base, well developed business, social networks and an ability to identify opportunities also contribute to successful entrepreneurial behavior (Harryson 2008; Ko and Butler 2007; Kijkuit and van den Ende 2007; Rosa, Fuentas and Qualls 2008); For example, irregular interactions within a social network involving individuals seeking information outside a close social circle can result in new idea generation (Perry-Smith 2006). A successful combination of creativity and technology can then lead to commercialization of the idea, product or service. Those organizations which are prepared to recognize creative achievement are consequently likely to demonstrate further innovative behavior.

Competitive Advantage in SMEs:

Individual creativity within an organization contributes to overall competitive advantage and organizational innovation to the SMEs, while teams or groups of creative individuals increase this advantage further (Hirst, Knippenberg and Zhou 2009). The contribution of creativity to today’s changing economies makes it central to businesses, especially to SMEs. Various innovative ideas and services have given an additional layer to the success of the SMEs all over the world.

Many economists view competitiveness as something experienced only at the firm level, and dismiss notions of ‚Äúnational competitiveness‚ÄĚ (Krugman, 1996), while others believe the lack of attention to broader national‚Äźlevel notions of competitiveness has been a glaring failure of economic research and policy (Porter, 1998).

According to the researches approximately 30-60% from the small and medium enterprises from the production sector from OECD (Organization for Economic Co-operation and Development) countries can be characterized as creative or innovative. Smaller and medium firms tend to be more and more creative or innovative, engaging in step by step efforts for research and development and innovation in fields related to commercialization of the existing technologies, creation of products and services and the implementation of the flexible working practices. The smaller innovative firms have the ability to answer quickly to the technological changes and customers’ needs. However, can experience problems in acquiring the resources needed to answer to the rapid changes; some of them solved this problem by joining to the cooperation networks in order to improve their innovative capabilities (OECD, 2002).

Generally, the business community does not welcome the entrepreneur with open arms. Competitors seek to keep the new entry business from taking market share away from them. This is especially true when the market is not growing and cannot easily assimilate new market entrants. Developing competitive advantage becomes critical at the market entry stage and continues in importance throughout the life of the business. Because of the changing nature of the world and globalization, SMEs (Small and Medium Enterprises) are constantly faced with the challenge of gaining competitive advantage over competitors.

Developing creative ideas may be seen as the path of gaining competitive advantage for some SMEs or a way to stay on top of competition for others. A critical ingredient for staying on top is innovation which comes through creativity. To be creative is seeing things from new angles, having broad perspectives, taking risks and being flexible. Promoting innovation in the workplace entails encouraging employees to become idea champions (Marshaley, 2012). To succeed in long term, organizations must compete effectively and out-perform their rivals in a dynamic environment. To accomplish this they must find suitable ways for creating and adding value for their customers (Emilia and Zuzana, 2006).

Winer (2004) states that competitive advantage is developed on the basis of three characteristics. First, competitive advantage must be able to generate customer value. Customer value may be defined by the customer in terms of speedy delivery, lower price, convenience, or other characteristics. Second, the customer must be able to perceive the increased value of the product or service. Whether or not your product is superior to the competition is not as important as whether the customer perceives your product to be superior. Third, for competitive advantage to be effective, it should be difficult for competitors to copy.

Creativity/ Innovation and Competitive Advantage:

Innovation is considered to be the key to creating competitive advantage (Stalk, 2006). A more developed service is one that provides the customer with the opportunity to gain access to the services required and execute transactions or buy policies online (Daniel 1999). Competitive strategy focuses on what firm wants to achieve on the market and its basic options to it. Competitive advantage addresses the issue of how it carries out those options (Porter, 1985). After facing globalization and competitive worldwide market, gain a sustainable competitive advantage become critical for success for a firm. To compete successfully a firm needs to obtain many goals but one of it is creativity. Because of the increasing competition in world market by globalization process, firms must find their advantage among global competition. As it was mentioned at the beginning of this paper, creativity/innovation cannot be separated from firms’ strategic and competitive context. If an SME (Small and Medium Enterprise) wants to be competitive, it needs to be proactive and to innovate themselves.

According to Veselic and Cingula (2010), to be innovative, SMEs need to have sufficient fund to finance new products or new processes. They make profit by using new techniques to offer products at lower cost than the competitors. It can be difficult for firms to recognize the potential of innovation. Even if they do recognize their potential, there is always a possibility of other firms to recognize the same and maybe they are trying to make profit from it too. According to Iuliana, Daniel and Razvan (n.d.) the sources of obtaining strategic competitive advantages can be divided in: * Characteristic capabilities: The strategic competitive advantage is obtained by constant development of new capabilities and resources using creative ideas as a response to rapid changes of the market. * Human resources: In the modern economy, the competition is a matter of goods and services. Factors that can differentiate an organization by its competitors, producers of goods or services from public or private sector, are represented by their employees. Creative employees play a important role here. This is the way a firm administrates and uses its human resources.

* Radical innovation: An SME’s long term success is related to its capacity of innovation. An SME’s investments in products and processes improvement are leading to profit, but the radical innovation is one that will lead the SME on top of the competitor. * The externalization of the competitive advantage sources: Recently, the attention of the researches moved from analyzing the firm alone toward analyzing its supply chain as a whole unit for gaining competitive advantage. The success key for Toyota seems to be the effective integration of the supply process which leads to improvement of the strategic management of the firm as well as the timing of the production process of the firm with the suppliers, creating the system just-in-time. * Organizational culture: The power of the organizational culture is another competitive advantage. A firm positioned to success can built and maintain a culture oriented toward creativity or innovation, in which employees are following the cause and the mission of the organization.

* Firm’s management: The manager is the one shaping a group of people into a team, transforming them in a force that allows for a firm to obtain strategic competitive advantages. Management needs to be creative in shaping group of people into a team. * Knowledge management: The growth and globalization, combined with the rapidly development of the information technology have enabled firms to create sophisticated systems of knowledge management in order to create strategic competitive advantages. * Scale economies: It represents an important quantitative factor being obtained according with the production volume, enabling to the firm to significantly reduce costs, especially the fixed ones. * The superior value offered to international clients: The competitive advantages result from the firm’s ability to achieve the activities either to lower costs than their competitors either in other ways that create value for the client and allow firms to ask for a higher price.

Innovation Strategies for Small and Medium Enterprises:

The purpose of the writing is to find out and show how SMEs can develop their competitive advantage by the use of innovative ideas and acts. Different kinds of innovative strategies followed in the SMEs can give the organization strong competitive advantages against their competitors and also can reduce their weaknesses. The strategies can be of different types, e.g. a small business can collaborate with a large business in order to enjoy the benefits of a large organization rather than competing against it. In designing innovative strategies, there are some important factors which should be considered. Firstly, it is important t understand that all the SMEs are not the same by their characteristics and functions. So, a definite set of recommendation is not applicable for all the SMEs. Next, there is a lot of innovation choice which are not applicable for all of the SMEs and also not appropriate in all the time. Different options serve different purposes in a small business at different time. And finally, it should be kept in mind that small businesses are way far different from the large businesses. So, without understanding the capability of an SME, no innovation strategy can be made which will match itself with the enterprise.

Sources of capital are great determinants of the type of strategies to be followed by any SME. The senior managers who work in the private SMEs have much better choice in setting innovative strategies than those who work in the public firms (Nooteboom, 1994). It is seen that where public stockholders show concern on the return that they will be getting on the amount of money they are investing, private stockholders (personal, family, friends, and local banks) do not have a similarly limited focus. So, a more difference in individual behavior can be found, which includes fondness of independence, casualness etc (Gray, 2002).

Types of Innovation that SMEs Undertake:

SMEs can introduce different kinds of innovation strategies which may provide significant competitive advantage to the firms. ‚ÄúRecently the SBA researched types of innovation and the role played by small businesses. It identified four types of innovation: * Product innovation: developing a new or improved product. * Service innovation: offering a new or altered service for sale. * Process innovation: inventing a new way to organize physical inputs to produce a product or service. * Management innovation: creating a new way to organize business‚Äôs resources‚ÄĚ (Hatten, 2006, p.16) The strategies which a small business wants to introduce that should be developed for their own practice. Product innovation refers to the product functions, its presentation, or the features added to the products that already exist. This kind of innovation strategy needs to be updated. This type of strategies gets obsolete with the time. So, different kinds of product innovations are needed to adopt to sustain the competitive advantage. For product innovation, an SME can show innovation in the technology to be used in the production. By doing this, they can develop their product functions.

strategy may include introducing new categories of product. SMEs can also bring innovation in providing high-quality services to their customers in order to gain more and more of them. By developing the service in a different and pleasant way, an SME can also retain its customers. A significant change in the service process of the firm will definitely provide some advantage to the firm over its competitors. Small firms can do a lot of service innovation which large firms cannot pursue. It is because the small firms are more able to contact with their customers directly than the large businesses. Personal contact with the customers let the small business owners know about their demand. So, according to their demand, the business can provide them with necessary services that would make them feel special. By working closely with the customers, SMEs might propose new services to them by observing their ‚Äúpoints of pain‚ÄĚ that they feel while using the products (Gustafsson and Johnson, 2003).

Innovation isn’t always about changing the product or service itself. Innovation can and should occur in several different areas of business development. SMEs can create innovation in processes as well. Many organizations have gained market advantage by innovating internal variables such as their production process, delivery, technical support, or customer service elements. SMEs can initiate process innovation to improve the competence of the processes of their manufacturing department. It can increase the consistency and reduce the cost. The competitors may provide the customers with the same products and services that a small business provides. In that case, change in the process of production and service can give a small business a great opportunity to grab the attraction of the customers. Sometimes how u do something is more considered than what u do. Keeping that in mind, small businesses can bring changes in their process of doing everything wherever and whenever needed.

Management innovation is defined as the invention and implementation of a management practice, process, structure, or technique that is new to the state of the art and is intended to further organizational goals. Adopting an intra-organizational evolutionary perspective, we examine the roles of key change agents inside and outside the organization in driving and shaping four processes‚ÄĒmotivation, invention, implementation, and theorization and labeling‚ÄĒthat collectively define a model of how management innovation comes about (Julian, Gary and Michael, 2008). Marketing innovation can be considered as another innovation strategy. It is the strategy of figuring new channels and ways out for conducting marketing researches and innovating new techniques of advertising the new and existing products. By selling their products in the regional markets or by selling them to the international market or by enlarging their product lines in new categories of the market, small and medium sized enterprises can increase their revenue (Branzei and Vertinsky, 2006).

Among all the strategies mentioned above, the most common types of innovation relate to services and products. According to Nooteboom (1994), SMEs practice different kinds of strategies related to product innovation in the rising markets and other marketing related strategies in the niche markets which are already developed. Moore (2004) recommended that showing different kinds of innovation in developing business model is a very useful strategy which can be used in the later stages of a product life cycle.

Methodology:

The methodology used in this research was based on several articles, journals, e-research, books, and survey of the literature in the field. E-research helped us to get access to improved knowledge and information which made the research paper more creative, efficient and collaborative. For this research only secondary data has been used.

The limitation of this research paper is that we use secondary information, and so the information that we took may have the possibility of being bias wherever indications of creativity and innovation were concerned. There might be a possibility that the source provider may have avoided providing information which they felt would show the negativity on them. So, it would be beneficial for further research to use the primary data about creativity and innovation in order to reduce the possible biasness resulting from perceptual data that is bound to influence the results.

Findings and analysis of the research:

If we look at the real world, we can see numerous examples of the organizations that got success because of their innovations and creativity. They have used their creative attitude as their strength and sustained their position in the market. For example, Apple computers were the outcome of a great innovative mind. At first the idea of making PCs for family use that came to the mind of a member of HP was rejected by the management of HP. Later the same person explained his idea to Steve Jobs who was from Apple Inc. he took the idea and along with that person implemented that. Eventually, they got a huge success from this innovation.

Today, we find Apple Inc. and Microsoft as the big shots of their industry. But, they were actually got started as small businesses. Because of the continuous innovation, they have reached to such a position that many large organizations could not even think of.

Katz & Green (2011) talked about various innovations in small business which are showed in the table below:

Where innovation is used| Innovations from small businesses| Medicine| Heart valves(Demetre Nicoloff)|
Business Processes| Assembly lines(olds)|
Computing Hardware| Supercomputers(Cray)|
Computing Software| Relational Databases(oracle)|
Everyday Technology| Photocopier(Chester Carlson)|
Leisure| Outboard engines(Cameron Waterman)|
Fashion| Gore-Tex (W.L Gore)|

Evaluating the literature review depicted previously, we came up with certain observations. Creativity or innovation is a great competitive advantage for a small and medium sized enterprise indeed. But, some more issues related to the topic that we observed are discussed below:

* Firms that are less than 10 years, innovative similarly to the older ones. Thus suggest that the role of innovation starts earlier in the firm’s life cycle.

* Innovation in research and development is inspired by elasticity. In that sense, small firms can handle the mix of elasticity and organization of the resources.

* We found that creativity and innovation are the factors which largely depend on the entrepreneur’s personality. Creativity and innovation require great risk taking minds. The people who naturally avoid risks are not that much creative minded. In order to get creativity and innovation as competitive advantage, the small firms should hire people with risk taking and highly innovative attitude.

* The small and medium sized businesses which are highly creative and innovative consider some factors during the recruitment of their employees e.g. education, background, self confidence, leadership quality etc.

* Medium sized firms tend to do higher levels of innovation than the small firms.

We found that creativity and innovation should be done on a continuous basis. There is a term called ‚ÄúCreative destruction‚ÄĚ which seems to be a great obstacle for different kinds of innovations. For example, the companies that used to produce photographic films for cameras lost their market when the digital cameras were invented and introduced. This new creation made the older one outdated. According to Katz and Green, creative destruction refers to the way that newly created goods, services, or firms can hurt existing goods, services or firms (Katz & Green, 2011). It means that the creativities of a small firm can get obsolete by the introduction of the new version of a product. Creativity becomes a matter of competition then. The firms which can better come up with better creativity tend to rule over their competitors.

We also found out that innovation depends on a mixture of flexibility and control. The key aspect of creativity remains divergent thinking which requires flexibility. From the research it indicates that a divergent thinking expects tolerance for ambiguity and lack of rigidity. Thus this assumes that great psychological safety and freedom as a base for self-confidence and an internal locus of control (Nystr√∂m, 1979, pp.41‚Äď43).

We also found that there are many restricting legislations and regulations that seem to hinder badly for most creative SMEs. Above that, many creative SMEs fail to find enough access to capital to invest in their rising innovative activities. Although governments try to stimulate investments, it appears very difficult for creative micro firms to have access to external financial funds that are often needed for innovations by young, creative SMEs. Governments should help them by providing clear communication and accessible information on supporting programs and opportunities.

Lastly we found out that the use of patents or other protection of intellectual property seems very limited in the creative SMEs. This is due to the high costs and complex procedures of IP protection but at the same time it makes creative SMEs more vulnerable for imitations of their innovations.

Limitations:

Creativity has a broad research and it is highly complex (Mumford and Gustafson 1988). Blackburn and Kovalainen (2009) found a number of mature, enduring and novel research topics about entrepreneurship in small firms, but there is no exact mention of creativity or innovation. This suggests that, although creativity does impact across a number of areas of small businesses, there is still much more potential to fulfill.

There is no universally accepted definition of creativity or innovation, although there are number of connection in its interpretation. In the preliminary analysis it was found that creativity as showing imagination and originality of thought in moving beyond everyday thinking. It can be characterized by stretching or even breaking the rules of convention, with even the smallest departure from the norm being deemed creative. A lot of Small firms face difficulties in innovating product and implementing creative ideas because they have limited experience and limited resources. Small firms in less develop countries have to face problems in addition to the liability of their size, and also due to the limitations of inadequate infrastructure, raw materials, technical expertise or management time, culture and systems related, e.g. out-of date accountancy systems. The study of innovation includes the barriers to its successful implementation, while relatively well researched in the industrialized countries and is rather neglected in less developed countries (Bell and Pavitt, 1992). Innovation, however, demands motivation, extraordinary effort and risk acceptance to proceed (Tidd et. al. 1997).

Small and Medium Enterprises (SMEs), even in industrialized countries, are expected to face relatively more barriers to innovation than large firms due to inadequate internal resources and expertise. As a result, when (SMEs) wants to develop new products, they face serious problem in proving proper financing.

Another difficulty SMEs face in innovating is because of government action. SMEs and entrepreneurs play a major role in all economies and they are the key generators of employment and income, and drivers of innovation and growth. So if a global crisis occurs, these firms face difficultly to downsize as they are already small, also they face difficulty upon financing as they have weaker financial structure (i.e. lower capitalization) and lastly they are heavily dependent on credit. So if there is a lack of government assistance and if there is a global crisis then these firms will face severe problem upon financing of innovation.

Also some of the SMEs avoid innovation due to avoid risks, conflicts and also to avoid putting a lot of financing on innovation. Firms are typically most sensitive to the needs of their closest customers. Thus taking risk by innovating product may result in decrease in demand.

In order to survive in the market SMEs wants to introduce new products and services. But they sometimes fail to do this due to limitation of resources and technology. Since majority of the SMEs are mostly credit basis, thus the biggest problem here they face is financing. And that is why SMEs, even having an innovate idea they cannot implement it.

Recommendation:

For initial survival of SMEs, creativity and innovation are important for continued growth and success. Due to Globalization of the market there are lots of firms that face lot of competition and so in order to survive in the long run, SMEs has to innovate in its product and services in order to gain a competitive advantage over its competitors. Thus a creative response represents the best opportunity of capitalizing on these opportunities. In a recent research it was found that process innovation stimulates productivity. Also it was found that in small firms success depends on innovation. But since the small firms face problem providing financing for innovation, government should provide assistance and should encourage them to innovate their product and services so that they can have an upper hand over its competitors and can survive in the long run. Also small firms should modify their strategies of innovation of products and services as with the changing environment, the strategies get obsolete.

Works Cited:

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