Innovation Management and Market Orientation in Brazilian Technology-based MSMEs

Master thesis for the attainment of the academic degree of Master of Business Administration in Small and Medium-Sized Enterprise Development

International SEPT Program, University of Leipzig

Written by: Fernanda Vilela Ferreira Students ID No.: 2107504

First supervisor: Prof. Dr. Utz Dornberger Second supervisor: Dr. Noor Un Nabi

Date of assignment of topic: 15th April 2011 Date of submission: 29th August 2011

CONTENTS 1 Introduction ................................................................................................ 114! 1.1! Context ............................................................................................................ 16! 1.2! Justification ..................................................................................................... 17 1.3! Objectives ....................................................................................................... 19! 1.4! Research questions .......................................................................................... 19 1.5! Relevance of the study ..................................................................................... 21! 1.6! Limitation of the research ................................................................................ 21! 2! Theoretical Framework .............................................................................. 22

2.1! Brazilian micro, small and medium-sized companies ....................................... 22! 2.1.1! Brazilian technology-based MSMEs ................................................................ 24 2.2! Support for technology-based MSMEs ............................................................ 26! 2.2.1! Venture Capital ............................................................................................... 26! 2.2.2! Venture Capital in Brazil ................................................................................. 29! 2.3! Innovation Management .................................................................................. 30! 2.3.1 Technological Innovation: concepts ................................................................. 30 2.3.2! Innovation process ........................................................................................... 32! 2.3.3! Managing Innovation ....................................................................................... 37! 2.3.4! Measuring Innovation Management ................................................................. 38! 2.4 Market Orientation .......................................................................................... 41

2.4.1! Definition of market orientation ....................................................................... 42! 2.4.2! Measuring Market Orientation ......................................................................... 44 3! 3.1 Methodology............................................................................................... 48 Research design ............................................................................................... 48

3.2! Variables of the study ...................................................................................... 49 3.3 4! Methods of data collection ............................................................................... 50 Field research ............................................................................................. 51

4.1! Areas of the study ............................................................................................ 51 4.2 Target group and research sample .................................................................... 52

4.3! Research partners ............................................................................................ 52 4.4 Established contact .......................................................................................... 53

4.5! Encountered problems ..................................................................................... 53 5! 5.1 Data analysis .............................................................................................. 54 Introduction ..................................................................................................... 54

5.2! Personal background information .................................................................... 55 5.3 Company information ...................................................................................... 58

5.4! Innovation Management .................................................................................. 60 5.4.1 Innovation strategy .......................................................................................... 60 5.4.2! Organization and culture .................................................................................. 76 5.4.3 Innovation life cycle management ................................................................... 93

5.4.4! Enabling factors for innovation management ................................................. 115 5.5 Market Orientation ........................................................................................ 126

5.5.1! Intelligence generation ................................................................................... 126 5.5.2 Intelligence dissemination ............................................................................. 132 5.5.3! Responsiveness.............................................................................................. 137 5.6 Firm performance .......................................................................................... 146

5.6.1! Innovation Management performance ............................................................ 146 5.6.2 Market Orientation performance .................................................................... 160 6 Main results ................................................................................................ 168! 7 Conclusion ............................................................................................................ 179 References....................................................................................................... 190! Annex I ............................................................................................................ 197 Annex II .......................................................................................................... 208 Annex III ......................................................................................................... 211 Appendix A...................................................................................................... 212

LIST OF TABLES
Table 2.1: Examples of industrial firms classification according to their size.......... Table 2.2: Base of definition IBGE/Sebrae ............ Table 2.3: Examples of innovation studies. Table 2.4: Scales measuring Market(ing) orientation ... Table 3.1: Variables of the study Table 6.1: Main differences found between VC backed and Non supported firms ... 22 23 36 44 50 176

LIST OF FIGURES
Fig 2.1: Phases of the innovation process Fig 2.2: Actions concerning the Innovation Management Fig 2.3: A.T. Kearneys House of Innovation Fig 2.4: Status of SMEs on IMP3rove Platform Figure 5.2.1: Age of entrepreneur Figure 5.2.2: Age of entrepreneur X Category of respondents Figure 5.2.3: Sex of entrepreneur Figure 5.2.4: Sex of entrepreneur X Category of respondents Figure 5.2.5: Educational background Figure 5.2.6: Educational background X Category of respondents Figure 5.3.1: Number of employees Figure 5.3.2: Number of employees X Category of respondents Figure 5.3.3: Years in operation Figure 5.3.4: Years in operation X Category of respondents Figure 5.4.1: Visions attribute: documented for all staff to see Figure 5.4.2: Documented for all staff to see X Category of respondents Figure 5.4.3: Visions attribute: clearly linked to innovation Figure 5.4.4: Visions attribute: well understood by customers and suppliers 5 34 38 39 41 55 55 56 56 57 57 58 59 59 60 61 61 62 62

Figure 5.4.5: Well understood by customers and suppliers X Category of respondents Figure 5.4.6: Visions attribute: well understood by innovation partners Figure 5.4.7: Well understood by innovation partners X Category of respondents Figure 5.4.8: Innovation strategy Figure 5.4.9: Innovation strategys attribute: result of the analysis of potential business opportunities activities Figure 5.4.10: Innovation strategys attribute: setting clear objectives for innovation management activities Figure 5.4.11: Setting clear objectives for innovation management activities X Category of respondents Figure 5.4.12: Innovation strategys attribute: guide to the idea management Figure 5.4.13: Innovation strategys attribute: setting clear objectives for project management in each innovation project Figure 5.4.14: Innovation strategys attribute: guide to the improvement of current product/service or process development Figure 5.4.15: Innovation strategys attribute: basis for organizational changes and business model development Figure 5.4.16: Basis for organizational changes and business model development X Category of respondents Figure 5.4.17: Innovation strategys attribute: Focused on the development of innovation capabilities Figure 5.4.18: Innovation Strategy: degree of communication Figure 5.4.19: Degree of communication X Category of respondents Figure 5.4.20: Innovation Strategy: degree of understanding Figure 5.4.21: Degree of understanding X Category of respondents Figure 5.4.22: Innovation Strategy: degree of implementation Figure 5.4.23: Degree of implementation X Category of respondents Figure 5.4.24: Innovation projects: alignment with innovation strategy Figure 5.4.25: Innovation projects: balance between incremental and radical innovation Figure 5.4.26: Balance between incremental and radical innovation projects X Category of respondents Figure 5.4.27: Innovation projects: balance with respect to risk and return Figure 5.4.28: Balance with respect to risk and return X Category of respondents Figure 5.4.29: Innovation projects: balance with respect to long and short-term perspectives Figure 5.4.30: Balance with respect to long-term and short-term perspectives X Category of respondents Figure 5.4.31: Innovation projects: balance between low and high cost Figure 5.4.32: Balance between low and high cost X Category of respondents Figure 5.4.33: Staff attitudes towards innovation: excited about innovation Figure 5.4.34: Staff attitudes towards innovation: open rather than skeptical towards new ideas Figure 5.4.35: Staff attitudes towards innovation: able to think out -of-the box Figure 5.4.36: Able to think out-of-the box X Category of respondents 6

63 63 64 64 65 65 66 66 67 67 68 68 69 69 70 70 71 71 72 72 73 73 74 74 75 75 76 77 77 78 78

Figure 5.4.37: Staff attitudes towards innovation: Imaginative Figure 5.4.38: Imaginative X Category of respondents Figure 5.4.39: Staff attitudes towards innovation: reluctant to try out new methods Figure 5.4.40: Reluctant to try out new methods X Category of respondents Figure 5.4.41: Staff attitudes towards innovation: able to sell ideas internally Figure 5.4.42: Able to sell ideas internally X Category of respondents Figure 5.4.43: Staff attitudes towards innovation: Focusing on business impact Figure 5.4.44: Focusing on business impact X Category of respondents Figure 5.4.45: Capacity for innovation viewed by customers Figure 5.4.46: Capacity for innovation viewed by customers X Category of respondents Figure 5.4.47: Capacity for innovation viewed by competitors Figure 5.4.48: Capacity for innovation viewed by competitors X Category of respondents Figure 5.4.49: Capacity for innovation viewed by suppliers Figure 5.4.50:Capacity for innovation viewed by suppliers X Category of respondents Figure 5.4.51: Capacity for innovation viewed by the entrepreneur Figure 5.4.52:Capacity for innovation viewed by the entrepreneur X Category of respondents Figure 5.4.53: Degree of partnerships support and enhance: idea management phase Figure 5.4.54: Support to the idea management phase X Category of respondents Figure 5.4.55: Degree of partnerships support and enhance: development phase Figure 5.4.56: Support to the development phase X Category of respondents Figure 5.4.57: Degree of partnerships support and enhance: launch phase Figure 5.4.58: Support to the launch phase X Category of respondents Figure 5.4.59: Number of external partners participating in innovation projects Figure 5.4.60: Number of external partners participating in innovation projects X Category of respondents Figure 5.4.61: Number of external partners that have cooperated in the last 3 years Figure 5.4.62: Number of external partners that have cooperated in the last 3 years X Category of respondents Figure 5.4.63: Number of people current working on innovation projects with external partners Figure 5.4.64: Number of people current working on innovation projects with external partners X Category of respondents Figure 5.4.65: Time for the most profitable from the development until product/service on sale Figure 5.4.66: Time for the most profitable from the development until product/service on sale X Category of respondents Figure 5.4.67: Time for the most profitable product/service from the project authorization until the breakeven point Figure 5.4.68: Time for the most profitable product/service from the project authorization until the breakeven point 7

79 79 80 80 81 81 82 82 83 83 84 84 85 86 86 87 87 88 88 89 90 90 91 91 92 92 93 94 94 95 95

Figure 5.4.69: Number of incremental innovation projects started in the last 4 years Figure 5.4.70: Number of incremental innovation projects started in the last 4 years X Category of respondents Figure 5.4.71: Number of incremental innovation projects that showed success within the last 4 years Figure 5.4.72: Number of incremental innovation projects that showed success within the last 4 years X Category of respondents Figure 5.4.73: Number of radical innovation projects started in the last 4 years Figure 5.4.74: Number of radical innovation projects started in the last 4 years X Category of respondents Figure 5.4.75: Number of radical innovation projects that showed success within the last 4 years Figure 5.4.76: Number of radical innovation projects that showed success within the last 4 years Figure 5.4.77: Assessment of new ideas by an interdisciplinary team Figure 5.4.78: Assessment of new ideas by an interdisciplinary team X Category of respondents Figure 5.4.79: Assessment of new ideas by a set of predefined criteria applied to all innovation projects Figure 5.4.80: Assessment of new ideas by a set of predefined criteria applied to all innovation projects X Category of respondents Figure 5.4.81: Assessment of new ideas by criteria tailored per project Figure 5.4.82: Assessment of new ideas by criteria tailored per project X Category of respondents Figure 5.4.83: Assessment of new ideas by criteria derived from innovation strategy Figure 5.4.84: Assessment of new ideas by criteria derived from innovation strategy X Category of respondents Figure 5.4.85: Provision of feedback to the suppliers Figure 5.4.86: Provision of feedback to the suppliers X Category of respondents Figure 5.4.87: Provision of feedback to the direct customers Figure 5.4.88: Provision of feedback to the indirect customers Figure 5.4.89: Provision of feedback to the indirect customers X Category of respondents Figure 5.4.90: Provision of feedback to marketing and sales personnel Figure 5.4.91: Provision of feedback to product/service development personnel Figure 5.4.92: Provision of feedback to research institutes and universities Figure 5.4.93: Provision of feedback to research institutes and universities X Category of respondents Figure 5.4.94: Provision of feedback to experts on intellectual property rights Figure 5.4.95: Provision of feedback to experts on intellectual property rights X Category of respondents Figure 5.4.96: Provision of feedback to network partners Figure 5.4.97: Formal system for generating and assessing ideas Figure 5.4.98: Formal system for generating and assessing ideas Figure 5.4.99: Percentage of generated ideas taken to the development stage

96 96 97 97 98 98 99 99 100 100 101 101 102 102 103 103 104 104 105 105 106 106 107 107 108 108 109 109 110 110 111 8

Figure 5.4.100: Degree of formalization of development processes Figure 5.4.101: Percentage of innovation projects with well defined targets Figure 5.4.102: Percentage of innovation projects with well defined targets X Category of respondents Figure 5.4.103: Percentage of innovation projects that met launch-specific targets Figure 5.4.104: Percentage of innovation projects that met launch-specific targets X Category of respondents Figure 5.4.105: Frequency of customer data and feedback analysis Figure 5.4.106: Frequency of customer data and feedback analysis X Category of respondents Figure 5.4.107: Definition of indicators to measure innovation activities Figure 5.4.108: Definition of indicators to measure innovation activities X Category of respondents Figure 5.4.109: Incentives to stimulate innovation: extra money Figure 5.4.110: Incentives to stimulate innovation: extra money X Category of respondents Figure 5.4.111: Incentives to stimulate innovation: direct recognition Figure 5.4.112: Incentives to stimulate innovation: direct recognition X Category of respondents Figure 5.4.113: Incentives to stimulate innovation: innovation award Figure 5.4.114: Incentives to stimulate innovation: permission to use companys facilities for free to test own ideas Figure 5.4.115: Incentives to stimulate innovation: permission to use companys facilities for free to test own ideas X Category of respondents Figure 5.4.116: Incentives to stimulate innovation: provision of administrative support to get external fund Figure 5.4.117: Incentives to stimulate innovation: provision of administrative support to get external fund X Category of respondents Figure 5.4.118: Number of patents generated within the last 5 years Figure 5.4.119: Number of patents generated within the last 5 years X Category of respondents Figure 5.4.120: Number of patents turned into market success Figure 5.4.121: Number of patents turned into market success X Category of respondents Figure 5.4.122: Percentage of innovation projects with defined targets Figure 5.4.123: Percentage of innovation projects with defined targets X Category of respondents Figure 5.4.124: Percentage of innovation projects that met targets Figure 5.4.125: Percentage of innovation projects that met targets X Category of respondents Figure 5.4.126: Partnership with universities or research institutes Figure 5.4.127: Partnership with universities or research institutes X Category of respondents

111 112 112 113 113 114 114 115 115 116 116 117 117 117 118 118 119 119 120 120 121 121 122 122 123 123 124 124 9

Figure 5.4.128: Human research policy to stimulate staff qualification Figure 5.4.129: Human research policy to stimulate staff qualification X Category of respondents Figure 5.5.1: Meeting with customers to find out future needs Figure 5.5.2: Meeting with customers to find out future needs X Category of respondents Figure 5.5.3: In-house market research Figure 5.5.4: In-house market research X Category of respondents Figure 5.5.5: Detection of changes in customers preferences Figure 5.5.6: Detection of changes in customers preferences X Category of respondents Figure 5.5.7: Poll of end users to assess the quality of products and services Figure 5.5.8: Poll of end users to assess the quality of products and services X Category of respondents Figure 5.5.9: Detection of fundamental shifts in the industry Figure 5.5.10: Detection of fundamental shifts in the industry X Category of respondents Figure 5.5.11: Review of the likely effect of changes in business environment on customers Figure 5.5.12: Review of the likely effect of changes in business environment on customers X Category of respondents Figure 5.5.13: Interdepartmental meetings to discuss marketing trends and development Figure 5.5.14: Interdepartmental meetings to discuss marketing trends and development X Category of respondents Figure 5.5.15: Discussion of customers future needs between marketing personnel and other departments Figure 5.5.16: Discussion of customers future needs between marketing personnel and other departments X Category of respondents Figure 5.5.17: Dissemination of information about important events with customers Figure 5.5.18: Dissemination of information about important events with customers X Category of respondents Figure 5.5.19: Sharing of data on customer satisfaction at all levels in the firm Figure 5.5.20: Sharing of data on customer satisfaction at all levels in the firm X Category of respondents Figure 5.5.21: Dissemination of information about competitors Figure 5.5.22: Dissemination of information about competitors X Category of respondents Figure 5.5.23: Time to respond to competitors price changes Figure 5.5.24: Time to respond to competitors price changes X Category of respondents Figure 5.5.25: Tendency to ignore changes in customers product/service needs Figure 5.5.26: Tendency to ignore changes in customers product/service needs X Category of respondents Figure 5.5.27: Review of product development efforts to be in line with what

125 125 126 126 127 127 128 128 129 129 130 130 131 131 132 132 133 133 134 134 135 135 136 136 137 137 138 138 139

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customers want Figure 5.5.28: Review of product development efforts to be in line with what customers want X Category of respondents Figure 5.5.29: Periodical meetings to plan a response to changes in business environment Figure 5.5.30: Periodical meetings to plan a response to changes in business environment X Category of respondents Figure 5.5.31: Speed of response to competitors intensive campaign Figure 5.5.32: Speed of response to competitors intensive campaign X Category of respondents Figure 5.5.33: Coordination between the different departments Figure 5.5.34: Coordination between the different departments X Category of respondents Figure 5.5.35: Attention to customer complaints Figure 5.5.36: Attention to customer complaints X Category of respondents Figure 5.5.37: Ability to implement a marketing plan in a timely fashion Figure 5.5.38: Ability to implement a marketing plan in a timely fashion X Category of respondents Figure 5.5.39: Efforts to make changes in products/services Figure 5.5.40:Efforts to make changes in products/services X Category of respondents Figure 5.6.1: Income data for 2009 Figure 5.6.2: Income data for 2009 X Category of respondents Figure 5.6.3: Income data for 2010 Figure 5.6.4: Income data for 2010 X Category of respondents Figure 5.6.5: Contribution of public research grants to total income Figure 5.6.6: Contribution of public research grants to total income X Category of respondents Figure 5.6.7: Contribution of exports to gross income Figure 5.6.8: Contribution of exports to gross income X Category of respondents Figure 5.6.9: Percentage of total income from innovations not older than 3 years Figure 5.6.10: Percentage of total income from innovations not older than 3 years X Category of respondents Figure 5.6.11: Companys expenditures on innovation over the last 2 years Figure 5.6.12: Companys expenditures on innovation over the last 2 years X Category of respondents Figure 5.6.13: Companys operational profit data over the last 2 years Figure 5.6.14: Companys operational profit data over the last 2 years X Category of respondents Figure 5.6.15: Companys operational profit data generated from innovation Figure 5.6.16: Type of innovation with more impact in the operational profits Figure 5.6.17: Type of innovation with more impact in the operational profits X Category of respondents Figure 5.6.18: Reduction in operational costs attributed to process innovation

139 140 140 141 141 142 142 143 143 144 144 145 145 146 146 147 147 148 148 149 149 150 150 151 151 152 152 153 153 154 154

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Figure 5.6.19: Reduction in operational costs attributed to process innovation X Category of respondents Figure 5.6.20:Growth driver with highest impact on profit growth over the last 4 years Figure 5.6.21: Growth driver with highest impact on profit growth over the last 4 years X Category of respondents Figure 5.6.22: Number of people employed over the last 4 years Figure 5.6.23: Number of people employed over the last 4 years X Category of respondents Figure 5.6.24: Current impact of innovation management on business success Figure 5.6.25: Current impact of innovation management on business success X Category of respondents Figure 5.6.26: Future impact of innovation management on business success Figure 5.6.27: Future impact of innovation management on business success X Category of respondents Figure 5.6.28: Degree of current innovation management performance improvement Figure 5.6.29: Degree of current innovation management performance improvement X Category of respondents Figure 5.6.30: Firms market share growth in primary market Figure 5.6.31: Firms market share growth in primary market X Category of respondents Figure 5.6.32: Firms sales growth Figure 5.6.33: Firms sales growth X Category of respondents Figure 5.6.34: Firms success in achieving customer satisfaction Figure 5.6.35: Firms success in achieving customer satisfaction X Category of respondents Figure 5.6.36: Firms success in retaining current customers Figure 5.6.37: Firms success in retaining current customers X Category of respondents Figure 5.6.38: Firms success in attracting new customers Figure 5.6.39: Firms success in attracting new customers X Category of respondents Figure 5.6.40: Firms success in building a positive image Figure 5.6.41: Firms success in building a positive image X Category of respondents Figure 5.6.42: Time to market Figure 5.6.43: Time to market X Category of respondents

155 155 156 156 157 157 158 158 159 159 160 160 161 161 162 162 163 163 164 164 165 165 166 166 167

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LIST OF ABBREVIATIONS
MSMEs - Micro, small and medium-sized enterprises IBGE - Brazilian Institute of Geography and Statistics IPEA - Institute of Applied Economic Research IPEA PDP - Productive Development Policy FINEP - Brazilian Research Project Financing Institution CNPq - National Research Conseul SEBRAE - Brazilian Service to Support Micro and Small Enterprises BNDES - National Bank of Economic and Social Development RAIS - Annual Social Information R&D Research and Development VC - Venture Capital GDP - Gross Domestic Product

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ACKNOWLEDGEMENT
I give my heartfelt thanks to my supervisor Prof. Utz Dornberger, who gave me great support to do this thesis. I am grateful to the Deutscher Akademischer Austausch Dienst German Academic Exchange Service (DAAD) for granting me the scholarship to take part in this master course. I also confirm the support of the Center for Studies and Research in Entrepreneurship, Innovation and Venture Capital from the Catholic University of Rio de Janeiro (NEP Genesis). I am particularly grateful to Prof. Jose Antonio Pimenta Bueno for the assistance, useful information and contacts available to complete my thesis. I would like to thank all the people, firms, and other organizations, who have assisted me in their own capacities in during the different phases of this research. I also would like to thank my classmates and friends, in special Javier Changoluisa who has always supported and encouraged me during my time in Germany. My special thanks to my husband and my family. Their love, support, and encouragement are the most precious things for me. !

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ABSTRACT
This work aims to contribute with the understanding about the level of Innovation Management and Market Orientation in Brazilian technology-based MSMEs. In order to reach the levels of usage of both Innovation Management and Market Orientation practiced by Brazilian technology-based firms and the performance levels attained by such firms, a field research was carried out in Brazil to collect primary data through structured interviews. For doing this, survey instruments were used as the basis for structured interviews structured interviews personally conducted with the entrepreneurs form the target firms. More specifically, the IMP rove Assessment tool, developed by A.T. Kearney and supported by the European Commission under the Europe INNOVA Initiative, was the basis to gauge Innovation Management practices of firms. The MARKOR scale was the basis applied to gauge Market Orientation information. Personal background information and company information were also included. At the end, an overview about the behavior of the Brazilian technology-based firms with respect to each dimension of Innovation Management and Market Orientation was available. It was also possible to highlight the main differences presented between VCbacked firms and Non-supported firms, emphasizing those differences that were profound or classified through chi-squares tests as statistically significant. As conclusions, the research results have revealed that, in general, Brazilian technologybased MSMEs are practicing each dimension of Innovation Management to a different level, with the Enabling factors for innovation management practiced at the highest level among all. Market Orientation has been practiced slightly well by these firms, with de component Responsiveness effectuated as the best. The main weaknesses showed by Brazilian technology-based firms can be addressed to activities related to: implementation and idea management and launch phases, regarding to Innovation Management; and dissemination and marketing issues, regarding to Marketing Orientation. Comparing the two groups of firms, Non-supported firms are performing better the dimensions Innovation strategy, Enabling factors and Responsiveness, while VC-backed firms Innovation Life Cycle Management, Intelligence generation and Intelligence dissemination. The results presented in the performance of the two groups of firms reflect these differences. 15

1 Introduction
1.1 Context
Micro, small and medium-sized enterprises (MSMEs) have been for a long time the subject of attention from economic analysts because of their potential for income generation and employment (La Rovere, 2001) and, more recently, for their role in the reduction of regional inequalities. Statistics about the importance of industrial MSMEs in Brazil, according to data from 2005 of the Brazilian Institute of Geography and Statistics (IBGE)1, show that they account for 99% of the total number of companies in Brazil and are responsible for 56% of formal employment, generating around 24% of the gross value of the industrial production. A study hold by the Institute of Applied Economic Research (IPEA) (De Negri and Salerno, 2005), involving 72,000 industrial enterprises which account for about 95% of Brazilian industrial production, showed that companies that innovate and differentiate products generate higher quality jobs, employing better skilled workforce, better paid and more stable employment. Innovate and differentiate products allow companies to export more value-added products, obtaining price premium on its exports. Besides, research in administration confirms that innovative firms outperform their competitors in terms of market share, profitability, growth or market capitalization (Garvin, 1991). In this new economy, a private group of companies has been increasing due to its important contribution to economic growth and job creation the technology-based MSMEs. In fact, the sector where the company operates has an important role in the process of technological innovation: in the higher technological content sectors there are more opportunities for individual and collective innovations, while in those with a low content these opportunities have been more restricted (IBGE, 2007).
1

All the acronyms used in this work are referent to the names in Portuguese, excepted by MSMEs.

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A comparative analysis of the innovation rates between the Brazilian technology-based MSMEs and the universe of Brazilian industrial companies shows that the rates of innovation displayed by the technology-based MSMEs are almost twice (7.2% and 9.9% respectively in the periods 2001-2003 and 2003-2005) of that displayed by the universe of Brazilian industrial companies (Vilela, 2009). Conscious about the importance of technology-based MSMEs, the Brazilian Government in the context of the PDP (Productive Development Policy) is focusing on the support of these companies. The perception that MSMEs based on innovative technology couldnt find adequate mechanisms to finance their growth in the traditional credit system lead FINEP - a public company with ties to the Ministry of Science and Technology- to support this start ups together with entities such as CNPq (National Research Conseul), SEBRAE (Brazilian Service to Support Micro and Small Enterprises) and BNDES (National Bank of Economic and Social Development) filling the gap in financing for technology-based companies. But besides financial support many Brazilian technology-based start-ups face different problems such as entering in the market, expanding the market, sales difficulties, among others.

1.2 Justification
The choice of technology-based MSMEs as an object of study can be justified by two arguments: (i) related to economic order - encouraging the creation of MSMEs is seen as one of the alternatives to the high rates of unemployment and economic stagnation (Lundstrom and Stevenson, 2002) and (ii) related to technological development, which highlights the growing importance of MSMEs in the process of generation and dissemination of technological innovations (Rothwell and Zegveld, 1982, ACS and Audretsch, 1990). For the complementary character of these two arguments, scholars (De Negri and Salerno, 2005) state that companies which innovate are different from their competitors, as well as more productive, have higher market shares, pay better wages and export more. In particular, the technology-based MSMEs differ significantly

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from MSMEs in general when it comes to efforts to innovate (Fernandes and Cortes, 1999; Fernandes, Cortes and Oishi, 2000, Fernandes et al., 2000). Despite the different efforts started so far Brazilian technology-based MSMEs face difficulties of implementation. These difficulties can be approached by the fact that, traditionally, technological innovation appears to have been largely bypassed in defining the management structures of high-technology companies. Most companies build their structures around the traditional functions of finance, marketing, production, human resources and R&D (Pavitt et al., 2005). In fact, technology-based MSMEs are very particular companies that need to encompass all the activities which contribute to the commercially successful outcome of the innovation process (Martin, 1994). This includes innovation management and market orientation. A study developed by A.T. Kearney (Engel et al, 2007) shows that companies that have begun to approach innovation management in a more systematic way have achieved significantly higher success rates in terms of transforming ideas into marketable products and realizing successful innovation commercialization. But innovation management is difficult and risky: the majority of new technologies is not enough to make up products and services, and most new products and services is not a commercial success (Pavitt et al, 2005). Because of this, research on innovation has long stressed the importance of understanding user needs when developing new products (Cooper and Kleinschmidt, 1993). According to scholars (Pelham and Wilson, 1996), market orientation is significantly and positively correlated with the previous year's level of use of innovation/differentiation strategy. A high level of market orientation does seem to offer the small firm a strong source of competitive advantage and performance viability. Market orientation coupled with formalization and an innovation/differentiation strategy, positively affects new product success, which in turn influences growth/share (Pelham and Wilson, 1996). 18

To these factors that motivated the choice of research topic can be added the fact that available studies on Brazilian technology-based MSMEs focus on topics such as technology-transfer, intellectual property, cooperation with universities, local productive arrangements and funding sources for innovation. There is a lack of empirical studies related to the Innovation Management and Market Orientation in technology-based MSMEs in Brazil.

1.3 Objectives
The main objective of this research is to gain further understanding about the level of Innovation Management and Market Orientation in Brazilian technology-based MSMEs. As secondary objectives, this research aims to investigate whether there are: (1) differences in the level of such practices between firms supported and not supported by Venture Capital and (2) distinction in firm performance between companies with different levels of such practices.

1.4 Research Questions

In order to reach a target is important to know the way to go. In this case, high levels of innovation management and market orientation can be achieved by isolating problems and addressing these deficiencies in future intervention efforts. For doing this is essential to know from where to start: to establish a base line level of innovation management and market orientation. So, To what level is Innovation Management and Market Orientation practiced by Brazilian technology-based MSMEs? is a question that should be answered. In order to get data for answering the major research question, more specific questions are formulated: 19

Q1 To what level is Innovation Management practiced by the firms? Q 1.1 To what level is Innovation Strategy practiced by the firms? Q 1.2 To what level is Organization and Culture practiced by the firms? Q 1.3 To what level is Innovation Life Cycle Management practiced by the firms? Q2 - To what level is Market Orientation practiced by the firms? Q 2.1 - To what level is Intelligence generation practiced by the firms? Q 2.2 - To what level is Intelligence dissemination practiced by the firms? Q 2.3 - To what level is Responsiveness practiced by the firms? Q3 - How is the performance of these firms? Q 3.1 - How is the Innovation Management performance of these firms? Q 3.2 - How is the Market Orientation performance of these firms?

Secondary research questions are formulated based on the secondary objectives oh this research: Q4 - Are there differences in the level of Innovation Management between VC-backed and Non-supported firms? Q5 - Are there differences in the level of Market Orientation between VC-backed and Non-supported firms? Q6 Are there distinction in Innovation Management performance between VC-backed and Non-supported firms? Q7 - Are there distinction in Market Orientation performance between VC-backed and Non-supported firms? 20

1.5 Relevance of the study

The overall results of the study should: Contribute to the framework of studies related to Brazilian technology-based MSMEs in an still restricted area of knowledge; Provide significant subsidies for the formulation of policies in support of Brazilian technology-based firms; Provide information to the firms that allow them: 1) to establish a base line level of innovation management and market orientation and 2) to isolate problems and address these deficiencies in future intervention efforts.

1.6 Limitation of the research

Because of limited time and financial resource, this research only focuses on 30 technology-based companies located in 5 different Brazilian states. So, the limitation of this study is geographical location and small scale of the sample. From that point, the result of this study can not give an overall picture of the level of innovation management and market orientation in Brazilian technology-based MSMEs. But it does not prevent fulfilling the objective of this research, which is gain further understanding about the level of Innovation Management and Market Orientation in Brazilian technology-based MSMEs.

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2. Theoretical Framework
2.1 Brazilian micro, small and medium-sized firms
The concept of MSMEs constitutes an important element in the formulation of public policies aimed at economic development (Filion, 1991). Despite this, there is no single universally accepted criteria for the classification of MSMEs. Different organizations classify companies according to different concepts to meet specific purposes. Different criteria are therefore used in Brazil to establish the classification of MSMEs. For example, the simplified system of taxation (SIMPLES) adopts the criterion of gross revenue as required under the Act 11307/0622, which provides that micro enterprise is one whose annual revenue is less than or equal to R$ 240 thousand 3 and small enterprise is one whose annual revenue is between R$ 240 thousand and R$ 2.4 million. The Brazilian Service to Support Micro and Small Enterprises (Sebrae) and the National Bank of Economic and Social Development (BNDES) adopt different concepts for the classification of micro and small enterprises for the purpose of promotion. The first follows the criteria of the Statute of Micro and Small Companies, based on the number of employees and annual sales, while the second is based on gross operating revenues, as shown in Table 2.1. Table 2.1 - Examples of industrial firms classification according to their size Sebrae - Up to 19 employees - Annual revenue up to BRL 244 thousand - Up to 99 employees - Annual revenue up to BRL 1.2 million BNDES - Gross operating revenue (annual or annualized) up to BRL 1.2 million - Gross operating revenue (annual or annualized) over BRL 1.2 million and less than BRL 10.5 million

Micro

Small

2 3

Available at: http://www.jusbrasil.com.br/legislacao/95780/lei-11307-06 USD 1.00 = BRL1.80

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Medium

------------

- Gross operating revenue (annual or annualized) over BRL 10.5 million and less than BRL 60 million - Gross operating revenue (annual or annualized) over BRL 60 million

Large

-----------

Sources: Sebrae and BNDES4

In addition to the definition used for purposes of promotion, Sebrae adopted for study and research (eg: surveys on the presence of micro and small enterprises in the Brazilian economy) the concept of "employed persons"5 in business, in accordance with the IBGE criterion, as shown below: Table 2.2 - Base of definition IBGE/Sebrae Firm size Micro Small Medium Industry up to 19 employees from 20 to 99 employees from 100 to 499 employees Services up to 09 employees from 10 to 49 employees from 50 to 99 employees

Sources: IBGE and Sebrae

The concept of MSMEs proposed by IBGE/Sebrae serve the purposes of this research given that: (i) ranks the medium enterprise without the need to consider the annual revenue, (ii) is used by the IBGE in order to produce Nationwide statistical studies, (iii) is used by Sebrae to operationalize its interventions at the micro and small enterprises and to accomplish its studies, and (iv) uses the number of employed persons, which tends to be an easier information to access (available on the RAIS in the Ministry of Labor and Employment 6) than the revenue.

4 5

Available at http://www.sebrae.com.br and http://www.bndes.gov.br The concept of "employed persons" does not include only employees but also the owners. This concept does not differentiate the links between people working and businesses.
6

RAIS - Annual Social Information, available at http://www.mte.gov.br/rais/default.asp

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2.1.1 Brazilian technology-based MSMEs

There is also not a world consensus on the concept of technology-based companies. Starting with the name as known in the United States and Europe, particularly in the United Kingdom, NBTFs, which differs from "new technology-based companies" and "companies based on new technologies". According to scholars (Rickne et al., 1999), a definition for NBTFs would be "a company whose strength and competitive advantage derived from the expertise of its members in the natural sciences, engineering or medicine, and the subsequent transformation of this know-how into products or services to a market". NTBFs are said to operate in innovative and technology-intensive industries such as electronic engineering, computer science, physics engineering, industrial economics, chemical engineering, mechanical engineering, civil engineering and medicine. These industries are relatively homogeneous in terms of rapid technological changes, innovation of product, entrepreneurship, environmental uncertainty and high levels of competition (Karagozoglu et al, 1998, Preece et al, 1998). Some key characteristics of NTBFs, identified by the Bank of England (Bank of England, 2001 apud Kiederich, 2007), are: (i) the value of NTBFs is dependent on the long-term potential growth, which is derived from the amount and quality of scientific knowledge and intellectual property that they have, (ii) at the beginning, the NTBFs lack of tangible assets that can be used as collateral, (iii) initially, the products developed by NTBFs have little or no track record, in majority have not yet been tested in the market and are usually subject to high rates of obsolescence. Brazilian studies (Carvalho et al, 1998) identified as EBT (acronym in Portuguese for technology-based companies) the enterprises engaged in the design, development and production of new products or processes, also characterized by the systematic application of technical and scientific knowledge (applied science and engineering). According to Marcovitch et al (1986), high-tech companies "are those created to make products or services using high-tech." Analysing the definition originally proposed by these authors, Iron and Torkomian (1988) suggest individualize with this concept those 24

companies that "have the rare or unique expertise in terms of products or processes that are commercially viable, that incorporate high level of scientific knowledge". Stefanuto (1993), in turn, proposes to consider EBT those national companies that, in each country, are among the technological frontier of its sector. According to Fernandes et al (2004), if a profile of Brazilian technology-based MSMEs could be set, a starting point would be to consider the historical and geographical constraints to which they are exposed. This means recognizing the limits that these companies face in access to knowledge, markets and credit at a particular time, under the constraints of a given macroeconomic environment. Such limits are set in the context of a national innovation system less dynamic than that in which operate their American, European or Japanese competitors on the one hand, and a macroeconomic environment of restricted associations between financial capital and productive capital on the other. For these authors, this assumption necessarily requires the translation of the understanding of the concept of technology-based company used in developed countries for the specific conditions of a developing country. Thus, Fernandes et al (2004) suggest that there should be a differentiation between modernized and technology-based companies. According to these scholars, "the strategically critical character that technology has for this group of companies indicates that their innovative effort should be guided not exactly to the technological modernization of the production process, but essentially to the product characteristics: technology-based company introduces new products that reflect new technologies developed by the company, whether or not in partnership with other companies or research centers" (Fernandes et al, 2004). Moreover, the authors add that this product must be in the market and be economically viable, or is it just an invention, an applied scientific knowledge.

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2.2 Support for technology-based MSMEs

Micro, small and medium-sized enterprises find many difficulties to leverage due to lack of financial resources. When these organizations turn to banks, they face difficulties due to poor billing history and the low liquidity of its assets that normally are pledged as security (Pavani, 2003). A significant difference between technology-based firms and other enterprises is that, generally, there is not a marketable product either before or shortly after its formation. Because of this, the initial financing of the company can not be based on the cash flow of its anticipated sales (Pavitt et al, 2005). In this case, technology-based MSMEs need to find other sources of capital. The types of capital are aimed at businesses with different stages of development and degree of risk. The higher the business risk, the greater the potential for growth and enhanced financial returns required by investors. The investment funds seeking opportunities in startups and early-stage companies are the seed capital and venture capital. Seed Capital and Venture Capital (VC) are presented as a viable alternative for technology-based SMEs because the investor bet in these companies believing on the growth potential of these organizations, sharing the risk with the entrepreneur, seeing gains with good pay, tied to distribution of profits, dividends from the company and the effective return of capital (Pavani, 2003).

2.2.1 Venture Capital

Venture capital promotes funding for small company in exchange for part of the organization through the acquisition, aiming thus the rapid rise and high profitability. Venture capital sees high returns with big returns in excess of other assets available in the market (Soledade et al, 1997). In the process of traditional venture capital, the three main entities involved are: i) institutional investors such as pension funds, individual capitalists, corporations and 26

insurance companies, ii) the entrepreneur it receives and makes use of resources, and iii) agents or agencies intermediary, the venture capital firms, which usually identify, select, monitor and operationalize investment, and raise additional funds to companies (Brophy, 1996). The main idea is that venture capitalists appear because they develop specialized skills in selecting and monitoring projects. They are financial intermediaries with a comparative advantage in environments where there is information asymmetry. Based on this approach, Amit et alli (1998) suggest that venture capitalists act in environments in which their relative efficiency in selecting and monitoring investment give them a comparative advantage over other investors. Due to its peculiarities, venture capital has great synergy with small technology-based companies. There is evidence that support through venture capital means that young companies grow faster, create more value and generate more employment than other firms (Gorgulho, 1996). According to empirical researches (Keuschnigg, 2004), companies backed by venture capital pursue more radical innovations and more aggressive marketing strategies. It is often claimed in the entrepreneurship literature that the human capital of entrepreneurs and the (financial and non-financial) support provided by venture capital (VC) investors are key drivers of the growth of high-tech start-ups. A limited number of prior studies have analyzed the relationship between VC backing and firm growth, providing mixed evidence. Hellmann and Puri (2000) examined a stratified random sample of 149 VC and non-VC backed firms in Silicon Valley during the period 19941997 and found that VC backed firms, especially innovators, had a faster time to market. Manigart and Van Hyfte (1999) find that VC backed firms have higher asset growth than non-VC backed firms in Belgium. Engel and Keilbach (2007) use propensity score matching to identify a control sample of non-VC backed firms in Germany and find that VC backed firms generate faster employment growth. In contrast, Burgel et al. (2000) find that VC backing has no impact on the growth of firms in Germany and the UK. Other studies of the growth of VC and non-VC backed firms that went to IPO also show mixed results, with Jain and Kini (1995) and Audretsch and 27

Lehmann (2004) finding positive effects of VC on growth, while Bottazzi and Da Rin (2002) find no effect. Important problems with these studies include their often cross-sectional nature and a typical failure to address the issue of endogeneity in VC backing. Bertoni et al. (2008) using a 10 year panel study of 550 Italian high-tech start-ups show that VC backing, especially by financial VCs rather than corporate VCs, strongly spurs employment and sales revenue growth. A Spanish study of firms by Alemany and Marti (2005) using panel data analysis of VC-backed start-ups shows that both VC backing and its amount are associated with higher performance. Davila et al. (2003) show that VC backed firms have faster employment growth. Interestingly, the interdependence between VC investments and entrepreneurs human capital has gone almost unremarked in the literature. Colombo and Grilli (2008) is an exception. They examine the influence of the human capital characteristics of founders on the growth of VC backed and non-VC backed high-tech start-ups. Using a sample of 439 Italian firms and after controlling for survivor bias and the endogeneity of VC funding, they find that once a firm receives VC backing the role of founders skills becomes less important in contributing to firm growth. This result points to the importance of the coaching function performed by VC investors in enhancing the performance of portfolio firms. In addition to VC investors, technology-based firms may receive a positive contribution to growth from interaction with other institutions. Among them, universities play an important role. Colombo et al. (2009) analyze empirically under which circumstances the universities located in a geographical area contribute to the growth of a special category of local high tech start-ups, those established by academic personnel (academic start-ups, ASUs). They examine the effects of a series of characteristics of local universities on the growth rates of ASUs and compare them with the effects of the same university characteristics on the growth of other (i.e. non-academic) high-tech start-ups. They find that universities do influence the growth rates of local ASUs, while the effects on the growth rates of other start-ups are negligible.

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2.2.2 Venture Capital in Brazil

In Brazil, the activities of venture capital were institutionalized in the late '90s, after the stabilization of the currency. Brazilian Venture Capital industry is an enormously dynamic industry, whose committed capital grew 50% per year between 2005 and 2008, which invested USD 11 billion, maintains 482 portfolio companies, and doubled its participation in GDP over this period 7. In addition, 71% of the VC organizations expect to raise funds in the next years totalizing USD 20.9 billion. There is a considerable volume of business in Venture Capital with the greatest emphasis on the Early Stage (17%). This denotes an important concentration on the initial and intermediate stages of entrepreneurial development guaranteeing the consolidation of the links that permit sustained industry growth over the long term. In particular, the Brazilian Development Bank (BNDES) has made invested in 33 different investment vehicles, including Private Equity, Venture Capital, PIPE and Mezzanine investments, totalizing BRL 1.5 billion in capital commitments by the bank (on average 20% of all vehicles), of which approximately BRL 0.6 billion has already been invested. In 2007, BNDES launched a program to support seed capital called CRIATEC. Born from the BNDES initiative with a budget of BRL 80 million and managed by a consortium formed between Antera Gesto de Recursos S.A. e Instituto Inovao S.A., Criatec is a seed capital fund destinated to innovative startup companies. With investments of up to BRL 1.5 million, Criatec makes the allocation of resources in the company in exchange for equity participation. Besides investment, Criatec actively participates in the management of companies, providing strategic and managerial support to entrepreneurs, helping in the selection and training of staff, setting targets and track results8.

Overview of the Brazilian Private Equity and Venture Capital Industry, Research Report December 2008.
8

Information available at: www.fundocriatec.com.br

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2.3 Innovation Management

The literature has emphasized the central role of innovation in knowledge-based economy. At the macro level, reports a significant body of evidence that innovation is the dominant factor in national economic growth and patterns of international trade. At company level, experts point out that research and development (R&D) are perceived as the factor of greatest capacity to absorb and use new knowledge of all kinds, making innovative companies more productive and more successful than those that do not invest in the generation of innovations (OECD, 2004). Nowadays, it would be difficult to find someone willing to argue against the view that innovation is important and tends to be increasingly important in coming years. But there are still questions about the possibility to manage the complex and fraught with uncertainty innovation process. The answers to such questions may be based in the fact that despite the apparently random and uncertain nature of the innovation process it is possible to find a basic pattern of success. Not every process fails, and even in case of failure, some companies seem to have learned how to treat it and manage it in order to take advantage in favor of an effective innovation process. (Pavitt et al, 2005). In this sense, the term management is not used in this work towards the creation and implementation of complex and predictable mechanisms, but to create conditions within a company to facilitate the effective resolution of multiple challenges in high indices of uncertainty.

2.3.1 Technological Innovation: concepts

According to Schumpeter (1934), the concept of innovation encompasses five distinct types: (i) introduction of new products that may be new to consumers, or new items to match the quality of an existing product, (ii) introduction of new production methods, which have not been tested in the companys field of business, that is not necessarily a scientific discovery, (iii) opening new markets, where other companies in the same line of business have not yet entered, and such markets have existed before or not, (iv) 30

development of new sources providers of raw materials and other inputs, (v) establishment of a new industrial organization, either by creating a monopoly or by fragmentation of a monopoly. The concept of "technological innovation" by the Oslo Manual, in its third edition, is "the implementation of a product (or service) new or significantly improved, or a process or a new marketing method, or a new organizational method in business practices, the organization of the workplace or external relations" (OECD, 2004, p.55). Regarding to this concept, there are four types of innovation: product, process, marketing and organizational. This classification has the highest possible degree of continuity with the previous definition of product and process innovation used in the second edition of the Oslo Manual: "technological product or process (TPP Technological Product and Process) will cover deployments of products or processes technologically new and substantial technological improvements in products and processes" (OECD, 1997). In order to consider a TPP innovation implemented it is necessary that this have entered the market (product innovation) or used in the production process (process innovation). The general concept of innovation used in the second edition of the Oslo Manual refers to product or process that is new or substantially improved for the company, not necessarily new to the market or industry in which it operates. Within a more rigorous analytical perspective, Schumpeterian, should not be considered as such innovations the products and processes that are only new for the companies in which they were introduced. These products and processes should be classified as technological diffusion and absorption of innovations. Having as a research object the technology-based MSMEs, this work adopts the more stringent concept of innovation: the product (or ser vice) technologically new or significantly improved for the domestic market and/or processes that are technologically new or significantly improved for a particular industry". When compared to the generic concept, this definition has a higher meaning in their impact in terms of gains in competitiveness and accumulation of technological capabilities for technology-based MSMEs that introduced them. 31

2.3.2 Innovation process

The importance of understanding the innovation as a process is that this knowledge shapes the way that it is experienced (Pavitt et al, 2005). This changed a lot over time. Early models viewed innovation as a linear sequence of activities. The linear model, which emerged from the end of the second world war, dominated the thinking about innovation in C & T for about three decades (Bush, 1945, apud Earl and Arajo-Jorge, 2003). In this model, development, production and commercialization of new technologies are seen as a sequence of well defined steps: (i) scientific research that could lead to processes of invention, (ii) applied research, (iii) experimental development, (iv) production, (v) introduction of marketable products and processes (OECD, 1992). This could be because new opportunities arising as the result of research has resulted in applications and refinements that eventually find their way into the market (technology push), or because the market signaled needs of something new that was originated through new solutions to the old problem (market pull). The linear innovation approaches rely on two theoretical frameworks: (i) the classical theories, which treat innovation mechanistically from endogenous variables to businesses and as a product of their internal processes, (ii) the neoclassical theories, which try to incorporate the external forces and assign technical change to external factors (Ebner, 2000; Jackson, 1999 apud Conde and Araujo-Jorge, 2003). The limitations of the linear model were perceived by the finding that investments in R&D does not automatically lead to technological development, nor to the economic success of technology use. The limitations of this approach are clear: in practice innovation is a combinatorial process in which interaction is the critical element (Coombs et al, 1985; Von Hippel, 1988; Freeman, 1997). This perception reinforced the emergence of non-linear or interactive approaches. From the 1980s, the interactive model (chain-link model) proposed by Kline and Rosenberg (1986) became the model that was opposed to the linear model. Its design combines the interactions in the internal environment of business and those between

32

individual enterprises and the system of science and technology more widely in which they operate. In recent decades, the analysis of interactions between the different actors of innovation processes has become the focal point of many theoretical and empirical studies in the field of economics of innovation (Nelson and Winter, 1982; Dosi, 1988; Lundvall, 1988). These approaches (evolutionary or neo-Schumpeterian) recognize the importance of R&D in the innovation process and emphasize the central position occupied by companies in developing new technologies. Nelson & Winter (1982) consider the innovation as a process through which knowledge and technology are developed based on the interaction between various actors and factors. According to these authors, the market demand and marketing opportunities have an influence in the products to be developed and the technologies that will be successful (Meirelles, 2008). Evolutionary approaches imply a view of business organizations as collective and interactive learning, providing technological and individuals trajectories. From this perspective, organizational and learning factors (learning-by-doing) have great prominence and innovation process involves a series of scientific, technological, organizational, financial and trade activities. The central feature of the innovation process in interactive models is the existence of learning cycles between research, production and marketing activities. Based on the evolutionary approach, the following simplified model illustrates the Innovation process:

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Fig 2.1 - Phases of the innovation process

Source: Adapted from Pavitt et al , 2005

Fig 2.1 shows that the innovation process can be simplified in the following phases: Search - The innovation process begins with a survey of several indications of opportunities. These may be related to technology, market, competitive behavior, changes in policy or regulatory environment, new social trends etc. and can come from inside or outside the company. Select - Explore the environment leads to the identification of a broad spectrum of potential targets for innovation, however, even the best-equipped companies have to strike a balance as to what to explore and to leave aside. The task of making innovation happen - evolving from a simple idea to create successful products, services and processes - is essentially tied to a gradual process of reducing the uncertainty, going from the phases of search and selection to the implementation (Pavitt et al, 2005). Implement - The implementation phase can be seen as the phase that gradually combines different forms of knowledge composing with it an innovation. In the initial stages there is a high degree of uncertainty - details on technological feasibility, market demand, competitive conduct, legislation and other influences are scarce. But during this stage the uncertainties are replaced by the knowledge acquired in several attempts and a growing cost. This phase can be explored in greater detail by considering three

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key elements: (1) knowledge acquisition; (2) project execution; (3) launch and innovation support. The knowledge acquisition involves the combination of new and existing knowledge (available within and outside the organization). It can also involve both the generation of technological knowledge and the technology transfer. It represents a first draft of the solution. The result of this stage in the process may be either progress to the next stage of development or retroactive to the conceptual stage. The project execution is the core of the innovation process. A clear strategic concept and ideas to achieve it compose the initial data of this stage. The results in this stage provide a developed innovation and a ready market (internal or external) for the innovation launch. Parallel to the solution of technical problems associated with the development of an innovation there is a range of activities aimed at preparing the market where the product will be launched. The launch stage can involve a consumer test - availability of product prototype for the user, marketing test - sham sale of the new product, marketing strategy, marketing plan etc. Over the past 80 years, many studies on the innovation process, analyzing it from different angles, has been developed. Different innovations, different sectors, companies of different sizes and types operating in different countries etc. has been analyzed in many different ways. The following table gives some examples of these studies.

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Table 2.3 - Examples of innovation studies Name of the study

Central focus

Reference

SAPPHO Project

Success and failure factors in matched pairs of companies

Rothwell (1977) Langrish (1972) Georghiou (1986)

Wealth among the knowledge Performance post-innovation

Case studies of successful companies - all award winners Queens Award for Innovation Evaluation of cases, 10 years later, to analyze how they have evolved Historical review of 50 years of work funded by the U.S.

TRACES

government on key projects. The main objectives were to identify effective sources of innovation and managerial factors influencing success. Investigation of UK companies to identify why some were more innovative than others in the same industry, size, etc.. Resulted in a list of managerial factors that pointed to technical advances Detailed case studies in about 14 years of innovation. Resulted in a map of the innovation process and factors that influenced it at various stages. Long-term research on success and failure in product development

Insenson (1968)

Industrial technical progress

Carter and Willians (1957)

Minnesota Studies

Poole et al (1989)

NEWPROD Project Stanford Innovation Project

Cooper (2001) Maidique and Zirger (1985)

Case studies of product innovation with emphasis on learning

36

Ernst

Extensive literature review of success factors in product innovation An international study (17 countries) gathering data on factors that influence the success or failure of new products Case studies on service innovation and manufacturing,

Ernst (2002) Ledwith (2004) Vom Stamm (2003)

Interprod

Innovation Wave

based on experience of the London Business School Innovation exchange

Source: Adapted from Pavitt et al, 2005

From this database of information is possible to find consensus on two key factors: Innovation is a process, not an isolated event; The influences on this process can be manipulated to affect the outcome, that is, innovation can be managed.

2.3.3 Managing Innovation process

Innovation can increase competitiveness, but it requires a skill set and knowledge management different from those commonly used in commercial management (Pavitt et al, 2005). Companies have to have the capabilities to manage their process of innovation, from their innovation strategy to original idea to final product. Only then companies will know with which products, services, processes or business models they will generate their revenues and profits in the near future. Innovation is a management issue as there are choices to be made about resources and their provision and coordination. Innovation management is not just a means in itself, but is about developing and organising capabilities within companies and translating them into competitive advantages and profits. Some actions concerning the management of the innovation process are showed in the Fig.2.2.

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Fig 2.2 Actions concerning the Innovation Management

Source: Adapted from Instituto Inovao, 20109

As showed in Fig 2.2, the actions concerning the innovation management should cover the entire innovation process. Examples of these actions are: Direct the actions of innovation ensuring alignment with the innovation strategy; Equip the company through the development of internal skills and external partnerships; Support the initiatives of innovation with resources and support from top management; Sensitize all levels of the organization about the importance of innovation; Learn from the experiences at all stages of the innovation process and make necessary adjustments.

2.3.4 Measuring Innovation Management

The effective management of innovation is largely the result of design and effective routines to increase and facilitate its emergence within the enterprise (Pavitt, 2005).

Available at: http://www.institutoinovacao.com.br/internas/servicos_gestao/idioma/1

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According to Pavitt (2005), is possible to mount checklists and even simple schemes for the effective management of innovation from many studies on success and failure in innovation. In fact, a large number of models for auditing innovation was developed, models that provide a framework from which is possible to evaluate the performance of innovation management (Johne and Snelson, 1988; Chiesa et al, 1996; Francis, 2001). Some models are simple listings, others deal with structures, some with very specific subprocesses. A study developed by A.T. Kearney (Engel et al., 2007) shows that best practice innovation management begins with innovation strategy and continues through innovation development to management of the entire innovation life cycle . It covers all dimensions of Innovation Management including: Innovation strategy, Innovation organization and culture, Innovation Management processes, as well as enabling factors for Innovation Management. Based on this holistic approach to innovation management, A.T. Kearney developed the House of Innovation (Fig. 2.3). With this, SMEs, intermediaries, financial actors, policy makers and academia dispose of a framework that links innovation management with business impact. Fig 2.3 A.T. Kearneys House of Innovation

Source: Engel et al., 2007

39

As summarized by Fig.2.3, A.T. Kearneys House of Innovation addresses all relevant innovation management dimensions (IMP3rove, 2007): Innovation Strategy with regards to comprehensiveness, forward focus and communication; Organization and Culture with regards to the ability to create passion for innovation and openness for new ideas; Innovation Life Cycle Management with regards to all levers which help to accelerate idea-to-profit as well as optimize life cycle management through continuous improvement; Enabling Factors for Innovation Management with regards to Intellectual Property, Knowledge, Human Resources, Controlling- and IT Management; Innovation Management Success with regards to the right key performance indicators to monitor and measure innovativeness.
!

Based on this holistic approach, the European Commission under the Europe INNOVA supports an initiative, called IMP rove, to improve the innovation success in the European SMEs. The proof of the IMP3rove concept is provided by more than 3,500 European SMEs that have been introduced to the IMP3rove approach since the launch in 2007 (Fig. 2.4). More than 400 innovation management support service providers across Europe have been trained in the IMP3rove approach. They now constitute an international network.

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Fig. 2.4 Status of SMEs on IMP3rove Platform

Source: IMP3rove Core Team, 201010

Because of this, this study takes the IMP3rove Assessment tool as the basis to gauge information about the level of innovation management in Brazilian technology-based MSMEs.

2.4 Market orientation

Small firms are noted for their more cohesive cultures and simpler organization structures, thus diminishing the coordinating benefits of a strong market orientation culture. Small firms are also noted for their fewer numbers of product lines and customers, reducing the need for formal activities designed to gather and process market information for marketing decision making. On the other hand, these characteristics of small businesses may enhance the firms' ability to fully exploit a market-oriented culture.

10

Available at: www.improve-innovatio.eu

41

It could also be argued that other internal firm variables and external variables have such a significant effect on small-firm performance that the impact of market orientation is negligible. For instance, undercapitalization and lack of planning have commonly been cited by small-business researchers as the most significant influences on success or failure (Robinson and Pearce, 1984). Internal small-firm structure aspects such as formalization, coordination, and control systems may be such important determinants of small-firm success as to render insignificant the impact of market orientation. On the other hand, because small firms have been characterized as lacking systematic decision making, strategic thinking (Robinson, 1982; Sexton and Van Auken, 1982), and a longterm orientation (Gilmore, 1971), market orientation could be a highly significant determinant of performance. A market orientation culture could provide small firms, noted for their ad hoc and short-term decision-making patterns, with a much needed firmwide focus for objectives, decisions, and actions.

2.4.1 Definition of market orientation

Although there are some discrepancies in the way of using marketing and market orientation, it generally consists of orientation to both customers and competitors, and integration the whole companys efforts to achieve companys goals through satisfying customers needs. According to scholars (Kohli and Jaworski I990; Narver and Slater 1990), market orientation is defined as the process of generating and disseminating market intelligence for the purpose of creating superior buyer value. These authors divided market orientation into three principal components, those are: (1) Customer orientation, that means the understanding of a firm about their target market to create products/services fit to their customers need or desire; (2) Competitor orientation, means to understand about their current and potential competitors capabilities and strategies; and (3) Inter-functional coordination, that is coordinating all the companys resources of every individual function to create products/services for target customers as their need or desire. 42

Narver and Slater (1990) also suggested two decision criteria. The first criterion is a long-term focus, which includes suitable tactics and investments to prevent the ability of overcoming the firms competitive advantage of competitors. Of course, this focus is implicit in a marketing orientation. The second is short-term focus, which is seen as both a component of market orientation and a consequence of it. Consistent with Narver and Slaters view of market orientation, Day (1990) argued that: Market orientation represents superior skills in understanding and satisfying customers as well as understanding competitors. Day and Nedunggadi (1994) found that a firm operates according to market driven, balancing these two orientations, will achieve better performance than emphasis on only one orientation. Another concept is initiated by Kohli and Jaworski (1990) through a process-driven model that emphasizes the stages of generating, disseminating and responding to market intelligence as the essence of market orientation. They defined market orientation concept through three basic components (processes) dealing with marketing information, those are Generation of marketing intelligence all over the company pertaining to customer needs, the Dissemination of intelligence across functions in the company, and the organizational responsiveness to this market. Although Narver and Slater (1990) and Kohli and Jaworski (1990) used distinct theoretical bases to explain the market orientation concept, both groups agreed that the market orientation is conceded to create great customer satisfaction and organizational commitment of employees (Kohli and Jaworski, 1993). These two groups also have some commonalities with respect to customers, competitors, functional integration and market opportunities. After Kohli and Jaworski (1990) and Narver and Slater (1990), many other marketing scholars all over the world adopt their conceptual basic to develop the theory of market orientation, such as Greenley, 1995; Pelham, 1996; Chan and Ellis, 1998; Baker and Sinkula, 1999; Farrell, 2000; Shoham and Rose, 2001; Hult et al, 2003; Ellis, 2005 This creates fulfill literature reviews in terms of market orientation.

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2.4.2 Measuring market orientation

Since market orientation has been one of the most important concepts of marketing theory, many empirical researches have been carried out to measure it. Table 2.4 summarizes some studies over the last ten years that measure market orientation. Table 2.4: Scales measuring Market(ing) Orientation
Author Narver and Slatter (1990) Naidu and Narayanna (1991) Construct Market orientation Marketing orientation Measure scale 7 pt. Likert-type Categorical and Thurstonetype based on Kotler (1977) Ruekert (1992) Jaworski, Kohli & Kumar (1993) Qureshi (1993) Slater and Narver (1994) Wrenn, LaTour & Calder (1994) Day and Nedungali (1994) Greenley (1995) Pelham and Wilson (1996) Wrenn (1997) Source: Bruce Wrenn, 1997 Market orientation Market orientation Marketing orientation Market orientation Marketing orientation Market orientation Market orientation Market orientation Marketing orientation Likert Likert Thurstone-type Likert Thurstone Categorical 7 pt.Likert-type 7 pt.Likert-type Thurstone

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From table, four types of market orientation measures can be identified: Categorical, Thurstone-type, Likert and Thurstone. Each type has its own advantages and disadvantages. In order to assess the level of market orientation in Brazilian technologybased companies, this research uses Likert scale. Among many studies, the two most famous examples of using Likert scale are MKTOR and MARKOR. The first scale, MKTOR, with 21-item measure of market orientation, is given by Narver and Slater (1990). According to their literature review of market orientation, Narver and Slater operationalized market orientation as the comprising of three behavioral dimensions (customer orientation, competitor orientation and interfunctional coordination) and two decision-making criteria (long-term and short term focus). However, the measures of the two decision criteria exhibited very low levels of Cronbach's Alpha, so Narver and Slater (1990) deleted these sub-constructs. Based on earlier studies by Kohli and Jaworski (1990) and Jaworski and Kohli (1993), Kohli, Jaworski and Kumar (1993) developed the MARKOR scale (market orientation) with the purpose of creating as an instrument to measure the degree of market orientation of companies. They defined the MARKOR scale and the process of measuring as: The market orientation scale (MARKOR) assesses the degree to which a firm (1) engages in multi-department market intelligence generation activities, (2) disseminates this intelligence vertically and horizontally through both formal and informal channels, and (3) develops and implements marketing programs on the basis of the intelligence generated. As conceptualized by Jaworski and Kohli (1993), the three dimensions of market orientation (MARKOR) are: Intelligence generation: refers to the collection and assessment of both customer needs and the forces (task and macro environments) that influence the development and refinement of those needs. Importantly, multiple departments should take part in this activity because each department has a unique market point of view (Kohli and 45

Jaworski, 1993). To give a supplemental suggestion, Narver and Slater (1994) said that market orientation is a corporate culture that differentiates one business from another in its tendency to always give superior value to its customers. A business with careful market information collection and processing capabilities can predict more precisely and make rapid changes in the market place and know what the superior value to customers is (Pelham, 1996). Understanding the customer needs is critical. Failure to define current and future customer needs will result in creating products and services that do not satisfy customers. Intelligence dissemination: In order for market orientation to operate correctly, information developed in the intelligence generation stage must be shared with other functions of the company. Superior performance from market orientation can only occur when there is appropriate interfunctional coordination. Information exchange is crucial to achieving this goal (Han, Kim and Srivastava, 1998). Successful dissemination or sharing of information provides opportunity to marketers to ask questions and amplify or modify interpretations to provide new insights. To reach this aim, businesses need to provide favorable conditions for information exchange and discussion. This may include information about technology, task forces, face-to-face meetings, integrator roles, or liaison positions (Slater and Narver, 1994). Openness in communication across every business functions assists in responding to costumers needs. Information dissemination is critical to the success of the market orientation process.

Responsiveness: Superior performance can only be achieved by responding continuously to the customers changing needs. Thus, once the marketers have gathered the market intelligence, processed it by sharing it with the appropriate inter-functional groups, then it is time to develop action plans. Kohli and Jaworski (1990) and Narver and Slater (1990) emphasize that the scale of a businesss implementation of a market orientation strategy depends on its desired level of organization-wide concern and responsiveness to customer needs and competitive action. From MKTOR and MARKOR scale, other researchers developed their measures of market orientation, such as Pelham (1996). Although their initial idea is to develop a 46

better scale to measure market orientation, but in fact very little advance has been made. So MKTOR and MARKOR are still considered as the best scales of measuring market orientation. It has been argued that Narver and Slater conceptualization is too broad, with measures that do not tap specific behaviors that represent a market orientation (Kohli and Jaworski, 1993). Furthermore, Kohli, Jaworski and Kumar (1993) argued that Narver and Slaters scale gives great emphasis on the role of customers and competition, skipping to care about additional factors that drive customer needs and expectations. Narver and Slaters scale also does not tap the speed with which market intelligence is generated and disseminated within an organization, and it includes a number of items that do not tap specific activities and behaviors that represent a market orientation (Kohli and Jaworski, 1993). For those reasons, this study applies MARKOR scale to measure the level of market orientation in Brazilian technology-based MSMEs.

2.5 Business performance

Although the concept of business performance has a variety of meanings (e.g. short- or long-term, financial or organizational benefits), in the literature it is broadly viewed from two perspectives, those are subjective and objective method. The subjective method is primarily concerned with the performance of firms relative to their own expectations or assessments or relative to the competition (Pelham and Wilson, 1996). The second method is the objective concept which is based on absolute measures of performance (Cronin and Page, 1988). Objective measures relate mainly to financial measures, e.g. return on assets (ROA), return on equity (ROE), return on investments (ROI), growth in sales, growth in profits

47

This study adopts both the subjective and objective concepts in order to gauge information about the performance of Brazilian technology-based firms. The objective concept is explored in the dimension of Innovation Management Success. The subjective concept is used taken into consideration the market orientation performance of firms relative to their competitors.

3. Methodology
For the purpose, the research can be considered "descriptive" as taxonomies proposed by Vergara (2002, 2005) and Gil (1991, 1997). According to these authors, descriptive research has as its fundamental goal the description of the characteristics of a given population or phenomenon, or else the establishment of relations between variables. In descriptive research, there is no interference from the researcher, who only attempts to understand the frequency with which the phenomena occur. Such research may also establish correlations between variables and define its nature, but without the commitment of explaining the phenomena it describes (Vergara, 2002; Gil, 1991, 1997).

3.1 Research design

In order to develop this research two designs will be combined: 1) Cross-sectional because it will be involved the collection of data at one point in time and 2) Casualcomparative in order to examine the differences in the level of innovation management and market orientation between firms supported and not supported by Venture Capital and distinction in firm performance between companies with different levels of such practices.

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3.2 Variables of the Study

Components of variables are defined in Chapter 2. In the section 2.3.2 can be found the variables regarding to Market Orientation, which are: Intelligence generation, Intelligence dissemination and Responsiveness. A total of 20 items are identified to measure the level of market orientation, including 6 items for intelligence generation, 5 items for intelligence dissemination and 9 items for responsiveness (see Annex II). The variables regarding to measure the level of Innovation Management are the dimensions of the A. T. Kearneys House of Innovation (section 2.4.2): Innovation Strategy, Organization and Culture, Innovation Life Cycle Management and Enabling Factors for Innovation Management . In order to measure the level of innovation management, a total of 29 items are identified, including 4 items for innovation strategy, 6 items for culture and organization, 14 items for innovation life cycle process and 5 items for enabling factors (see Annex I). The firm performance is splited into the following variables: innovation management performance and market orientation performance. The innovation management performance is defined as the dimension Innovation Management Success of A. T. Kearneys House of Innovation, composed by 11 items (See Annex I). The market orientation performance is composed by 8 items (see Annex III). Table 3.1 summarizes the variables of the study and their respective items:

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Table 3.1 Variables of the study Variables Innovation Strategy Organization and Culture Innovation Management (Annex I) Enabling Factors for Innovation Management Intelligence generation Intelligence dissemination Responsiveness Innovation Management Performance Firm Performance
Own elaboration

Items Q 3.1.1 Q.3.1.4 Q 3.2.1 Q.3.2.6 Q 3.3.2 Q 3.3.14

Innovation Life Cycle Management

Q 3.4.1 Q 3.4.5

Market Orientation (Annex II)

Q 4.1.1 Q 4.1.6 Q 4.2.1 Q 4.2.5 Q 4.3.1 Q 4.3.9 Q 3.5.1 Q 3.5.11 Q 5.1 Q.5.7

(Annex I ) Market Orientation Performance (Annex III)

3.3 Methods of data collection

Primary data were collected through structured interviews. In order to reach the levels of usage of both Innovation management and market orientation practices by the target firms and the performance levels attained by such firms, survey instruments were developed. More specifically, the IMP rove Assessment tool, developed by A.T. Kearney and supported by the European Commission under the Europe INNOVA Initiative, was the basis to gauge Innovation Management practices of firms (see survey tool in Annex I). The MARKOR scale was the basis applied to gauge Market

50

Orientation information (see survey tool in Annex II). Finally, firm performance will be gauged through the survey tool in Annex III. In the Annex I, personal background information and company information are also included. Regarding to market orientation, all the items use 5-point Likert scale. Chosen respondents will indicate the degree of how much they agree with the statement about market orientations performance in their companies. The scale varies from number 1, which means strongly disagree, to number 5 with the meaning of strongly agree. Similar to market orientation measurement, the 8 items for business performance are measured by 5-point Likert scale. But in this case, as the items correspond to subjective measurements -relative to major competitors, number 1 means far below and number 5 means far higher. Because all of instruments are designed in English, while the survey will be conducted in Brazil, the questionnaire will be translated into Portuguese.

4. Field Research
In order to collect the primary data a field research was carried out. Data were collected through personal interviews with the entrepreneurs from the target firms in two ways: personal visits to those firms located in the State of Rio de Janeiro or via Skype (video call) to firms located in So Paulo, Minas Gerais, Recife and Santa Catarina. Concerning to time frame, the field research was undertaken within the period of October 1, 2010 and March 15, 2011.

4.1 Areas of the study

Because of limited time and financial resources, the research had to be geographically limited covering firms from five Brazilian states, namely: Rio de Janeiro, So Paulo, 51

Minas Gerais, Recife and Santa Catarina. Three of them are located in the Southeast region in Brazil. The reason for this choice is that, according to data from the Brazilian Association of Entities Promoting Innovative Enterprises (ANPROTEC) 11, in these 3 states are concentrated more than 70% of the total of Brazilian technology-based MSMEs.

4.2 Target group and research sample

The target group of the research are the Brazilian technology-based firms (as defined in Chapter 2), located in one of the 5 states that comprehend the areas of study, with at least 2 years working and 5 employees. The research sample comprises 30 technology-based firms, of whom 15 are supported by Venture Capitalists (mainly by CRIATEC) and 15 are not supported companies.

4.3 Research Partners

NEP Genesis - Center for Studies and Research in Entrepreneurship, Innovation and Venture Capital located at Catholic University of Rio de Janeiro (http://www.pucrio.br/). Antera Gesto de Recursos S.A.- private company specialized in the management of Seed Capital Funds (http://www.anteragr.com.br/). Instituto Inovao S.A. - private company, whose main objective is to bring scientific and technology knowledge to the market (http://www.institutoinovacao.com.br/). Antera Gesto de Recursos S.A. and Instituto Inovao S.A. are part of the consortium to manage the Criatec fund.

11

Available at http://www.anprotec.org.br/

52

4.4 Established contact

The main contact established during the field research was with the National Bank of Economic and Social Development (BNDES)12. Located in the State of Rio de Janeiro, under the Ministry of Development, Industry and Trade, BNDES is the largest development bank in Latin Amer ica. With a social function, BNDES main goal is to support projects that contribute to the development of the country, with the technological innovation as one of its top priorities. Because all the VC backed firms interviewed are from the Criatec fund, which belongs to BNDES, this contact is very important. The contact was personally established with the manager of the Capital Market area in BNDES, responsible for the Criatec fund.

4.5 Encountered problems

The main problem encountered during the field research was to get in contact with the entrepreneurs from Non-supported firms. Besides to find out who are the entrepreneurs from each Non-supported firm, it was hard to convince them to take part in the research. Additionally, because entrepreneurs are too busy, some interviews were canceled more than once by the same entrepreneur. With VC backed firms was easier to get in contact because of the help from research partners: they sent the firms a letter and advised the entrepreneurs to take part in the research. Additionally they available the personal e-mails of entrepreneurs. Another point was that, because of the large number of questions, the interviews took a long time. This meant that some interviews had to be divided into two different days.

12

www.bndes.gov.br

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5. Data Analysis
Background The previous sample consisted of 30 Brazilian technology-based MSMEs, from which 15 VC-backed and 15 Non-supported firms. Contacts were made per email and phone calls with all 30 firms. The interviewees were personally (personal visit or per skype) carried out with the entrepreneurs from each firm. Each interview had in average 2 hours and 30 minutes of duration. At the end, a total of 28 firms were personally interviewed. SPSS 17.0 for Windows computer program was the main tool used to analyze collected data. At the first level of quantitative data analysis, descriptive statistical procedures involving cross-tabulations and frequencies distributions were used. At the second level of analysis, chi-square tests to find out the association between category of respondents and some variables were performed. In addition, in order to complement data and exemplify some results, qualitative information was available in some cases.

5.1 Introduction This section presents the data analysis of the research. The presentation is organized according to the questionnaire sequence and the variables of the study. The section is organized as follows: (i) personal background information; (ii) company information; (iii) innovation management; (iv) market orientation; and (v) firm performance. In each sub-section data are presented through graphics in two ways: 1) a pie chart with the results of the total interviewed firms and 2) bar chart with responses divided in the two categories of respondents (VC backed firms and Non-supported firms).

54

5.2 Personal background information Here are presented the data related to the personal information, such as age, sex and education level, of the interviewed entrepreneurs. Figure 5.2.1: Age of entrepreneur

As can be seen in the Figure 5.2.1, 75% of entrepreneurs are between 31 and 50 years old.

Figure 5.2.2: Age of entrepreneur X Category of respondents From Figure 5.2.2 can be observed that the entrepreneurs age profile is similar for both groups: concentrated between 31 and 50 years old. A curious aspect is that only VC backed firms present entrepreneurs between 20 and 30 years old.

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Figure 5.2.3: Sex of entrepreneur

This figure shows that the vast majority of entrepreneurs are man. From the 28 interviewed entrepreneurs, just 2 are women.

Figure 5.2.4: Sex of entrepreneur X Category of respondents

As Figure 5.2.4 shows the 2 women entrepreneurs are from VC backed firms.

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Figure 5.2.5: Educational background

This Figure reveals that more than 85% of entrepreneurs have Master or Doctor degree.

Figure 5.2.6: Educational background X Category of respondents When the two categories are compared, the findings show that entrepreneurs from VC backed firms in general shown to have a slightly higher educational level. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (1.53 against 7.82 at 3 degrees of freedom and 0.05 significance level).

57

5.3 Company information Here are presented the data related to the company information, such as number of employees and years in operation. Regarding to the type of ownership, all of VC backed firms are joint stock companies and all of Non-supported firms are limited companies. Among the industries in which companies operate are: software, biotechnology, pharmaceutical, oil & gas, advanced materials, agribusiness and chemical industry. More information about each interviewed company can be found in the Appendix A.

Figure 5.3.1: Number of employees

According to Figure 5.3.1, 50% of firms have between 5 and 19 employees. The majority (82%) have no more than 49 employees.

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Figure 5.3.2: Number of employees X Category of respondents Comparing both categories, it is clear that VC backed firms present in general less employees than Non-supported firms: 80% of VC backed firms have between 5 and 29 employees against 54% of Nonsupported firms. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (3.51 against 11.07 at 5 degrees of freedom and 0.05 significance level).

Figure 5.3.3: Years in operation

This figure shows that only 25% of interviewed firms are between 2 and 5 years in operation. The other 75% of firms are at least 6 years in operation.

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Figure 5.3.4: Years in operation X Category of respondents Here is possible to see that both categories total remain of the same pattern of responses from the universe surveyed companies: more than 70% of firms are older than 6 years. There is a slightly difference in the concentration of firms for both categories: while there are more VC backed firms between 6 and 7 years, there are more Non-supported firms above 10 years. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (1.51 against 9.49 at 4 degrees of freedom and 0.05 significance level).

5.4 Innovation Management Here are presented the data related to the innovation management. The data were separated into sub-sections according to the research variables: innovation strategy, organization and culture, innovation life cycle management and enabling factors for innovation management. 5.4.1 Innovation strategy This variable includes the items Q 3.1.1 Q.3.1.4 from questionnaire (see Appendix I). Regarding to the item Q 3.1.1 (Does your company have a clear vision for its future?), all interviewed firms answered it in a positive way. Figures 5.4.1 until 5.4.7 are related to the visions attributes of firms. 60

Figure 5.4.1: Visions attribute: documented for all staff to see Figure 5.4.1 reveals that

around 60% of firms have its vision documented for all staff to see. For approximately 18% of firms (which answered more or less) its but was vision it is is not to documented cases it

available for all staff. In these possible perceive that firms vision is restricted to the directors. For the other 18% answered no it means that they even have its vision documented. Figure 5.4.2: Documented for all staff to see X Category of respondents When the responses of the two categories are compared, the findings show that more VC backed than Non-supported firms (73% against 50%, respectively) present its vision documented for all staff to see. In the same way, while just around 7% of VC backed firms answered no, 33% of Non-supported firms answered that they do not have its vision even documented. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (3.18 against 5.99 at 2 degrees of freedom and 0.05 significance level). 61

Figure 5.4.3: Visions attribute: clearly linked to innovation

Figure 5.4.3 shows that vast majority of firms answered that have their visions to the clearly linked

innovation.

Figure 5.4.4: Visions attribute: well understood by customers and suppliers This Figure shows that more than 64% of firms think that their visions are well understood by customers and suppliers. Around 28% of firms answered more or less, one of these cases said: client still link our firm to the university and do not trust in our national product

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Figure 5.4.5: Well understood by customers and suppliers X Category of respondents

This Figure reveals that both categories total remain of this the same pattern of responses from the universe for In companies visions the surveyed attribute. show

addition, no

responses of the two categories almost difference between them.

Figure 5.4.6: Visions attribute: well understood by innovation partners

This Figure indicates that great majority of entrepreneurs think that their firms vision is well understood by innovation partners. In some cases this is due to the strong relationship between the entrepreneur and the university from where he came, which is until now its main innovation partner.

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Figure 5.4.7: Well understood by innovation partners X Category of respondents

This Figure reveals that both categories remain the same pattern of responses from the total universe of companies surveyed attribute. for this visions

Figure 5.4.8: Innovation strategy This Figure indicates that vast majority of interviewed firms have an innovation strategy. Because almost 90% of firms answered in a positive way, it was not necessary to construct a graph with category of respondents. Interesting here is that more than one firm adopts the concept of open innovation as the basis of its innovation strategy.

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Figures 5.4.9 until 5.4.17 are related to the innovation strategys attributes of firms.

Figure 5.4.9: Innovation strategys attribute: result of the analysis of potential business opportunities activities From this Figure can be observed that 100% of respondents said that its innovation strategy results from an analysis of potential business opportunities activities. This answer was emphasized by an entrepreneur: We have a business plan and made several trips to market. analyze international

Figure 5.4.10: Innovation strategys attribute: setting clear objectives for innovation management activities

This Figure shows that slightly more than half of interviewed firms have innovation strategy as a guide for their innovation management activities. For one of the 14% of firms that answered company's no: board innovation without any management is centralized in the methodology.

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Figure 5.4.11: Setting clear objectives for innovation management activities X Category of respondents When the responses of the two categories are compared, the findings show that more Nonsupported than VC backed firms (73% against 57%, respectively) answered that their innovation strategy sets clear objectives for their innovation management activities. In the same way, while just around 9% of Nonsupported firms answered no, 21% of VC backed firms answered that their innovation strategy does not set clear objectives for their innovation management activities. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (0.85 against 5.99 at 2 degrees of freedom and 0.05 significance level). Figure 5.4.12: Innovation strategys attribute: guide to the idea management This Figure indicates that the majority of interviewed firms that answered to this question said that their innovation strategy guides their idea management. Only 3,6% said no and 7,1% answered more or less. Because of this, it was not necessary to construct a graph with category of respondents.

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Figure 5.4.13: Innovation strategys attribute: setting clear objectives for project management in each innovation project

From this figure can be observed that the majority of interviewed firms that answered to this question said that their innovation strategy sets the objectives for their project management in each innovation project.

Figure 5.4.14: Innovation strategys attribute: guide to the improvement of current product/service or process development

This

Figure of

indicates

that

vast firms

majority

interviewed

answered that their innovation strategy guides the improvement of your current product/service or process development. Because more than 85% of firms answered in a positive way, it was not necessary to construct a graph with category of respondents.

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Figure 5.4.15: Innovation strategys attribute: basis for organizational changes and business model development This Figure shows that for the majority of interviewed firms their innovation strategy provides the basis for organizational changes and business model development. In some cases it was possible to confirm plans for the creation of a start-up aiming to develop products and services fleeing the scope of the company.

Figure 5.4.16: Basis for organizational changes and business model development X Category of respondents When the responses of the two categories are compared, the findings show that more Nonsupported than VC backed firms (91% against 71%, respectively) answered that their innovation strategy provides the basis for organizational changes and business model development. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.00 against 5.99 at 2 degrees of freedom and 0.05 significance level).

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Figure 5.4.17: Innovation strategys attribute: Focused on the development of innovation capabilities

From this Figure can be observed that 100% of respondents said that its innovation strategy focuses on the development capabilities. of their innovation

Figure 5.4.18: Innovation Strategy: degree of communication This figure shows that around 65% of interviewed firms have their innovation strategy fully or almost fully communicated to their staff. For the almost 15% of firms that answered that their innovation strategy is almost nothing communicated, it was possible to perceive that firms innovation strategy is restricted to the shareholders.

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Figure 5.4.19: Degree of communication X Category of respondents When the responses of the two categories are compared, can be observed that around 72% of both Non-supported and VC backed answered that their innovation strategy is fully or almost fully communicated to their staff. Analyzing only the higher degree of communication it is possible to see some difference between their responses: in this case, 73% of Non-supported firms answered that their innovation strategy is fully communicated against 50% of VC backed firms. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (3.08 against 7.82 at 3 degrees of freedom and 0.05 significance level).

Figure 5.4.20: Innovation Strategy: degree of understanding

This figure shows that around 68% of interviewed firms have their innovation strategy fully or almost fully understood by their staff.

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Figure 5.4.21: Degree of understanding X Category of respondents When the responses of the two categories are compared, the findings show that a little bit more Non-supported than VC backed firms (82% against 71%, respectively) answered that their innovation strategy is fully or almost fully understood by their staff. This difference is accentuated when analyzing only the higher degree of understanding: in this case 73% of Non-supported firms answered that their innovation strategy is fully understood by their staff against 43% of VC backed firms. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (4.80 against 9.49 at 4 degrees of freedom and 0.05 significance level). Figure 5.4.22: Innovation Strategy: degree of implementation This figure shows that around 65% of interviewed firms have their innovation strategy fully or almost fully implemented. For the 18% of firms answering more or less, a reason was explained by an entrepreneur: There is lack of alignment. Not all staff can understand the importance of some activities.

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Figure 5.4.23: Degree of implementation X Category of respondents When the responses of the two categories are compared, the findings show that around 72% of both Non-supported and VC backed firms answered that their innovation strategy is fully or almost fully understood by their staff. Analyzing only the higher degree of implementation it is possible to see a difference: 64% of Nonsupported firms answered that their innovation strategy is fully implemented against 36% of VC backed firms. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (4.90 against 9.49 at 4 degrees of freedom and 0.05 significance level). Figure 5.4.24: Innovation projects: alignment with innovation strategy This Figure indicates that vast majority of interviewed firms answered that their innovation projects are aligned with their innovation strategy. Because almost 100% of respondent firms answered in a positive way, it was not necessary to construct a graph with category of respondents.

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Figure 5.4.25: Innovation projects: balance between incremental and radical innovation From this Figure can be observed that the number of interviewed firms that present a balance and between radical incremental

innovation projects is equal to the number of those that do not present this balance.

Figure 5.4.26: Balance between incremental and radical innovation projects X Category of respondents When the responses of the two categories are compared, the findings show that a little bit more Non-supported than VC backed firms (50% against 40%, respectively) answered that their projects are balanced between incremental and radical innovation. Regarding to the negative answer this difference is even smaller: 47% of VC backed firms answered that there is no balance between their incremental and radical innovation projects against 42% of Non-supported firms. This is supported by chi-square test. The results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (1.32 against 3.84 at 1 degrees of freedom and 0.05 significance level). 73

Figure 5.4.27: Innovation projects: balance with respect to risk and return

From firms

this

Figure

can

be their not

observed that half of interviewed answered that are innovation return. projects

balanced with respect to risk and

Figure 5.4.28: Balance with respect to risk and return X Category of respondents

Comparing both categories, this Figure shows that only 33% of Non-supported that projects their are answered innovation

balanced with respect to risk and return, against 47% of VC backed firms. But when the chi-square test was performed the results show a calculated value less than the tabulated one (0.49 against 5.99 at 2 degrees of freedom and 0.05 significance level) implying that the difference between the two categories with respect to this question is not significant.

74

Figure 5.4.29: Innovation projects: balance with respect to long and short-term perspectives

This Figure indicates that a little bit more than half of interviewed firms answered projects that are their not innovation

balanced with respect to long and short-term perspectives.

Figure 5.4.30: Balance with respect to long-term and short-term perspectives X Category of respondents When the responses of the two categories are compared, the findings show that around 33% of both Non-supported and VCbacked firms answered that their innovation projects are balanced with respect to long and short-term perspectives. The difference here is in the negative answer: 47% of VCbacked firms answered that there is no balance between their incremental and radical innovation projects against 67% of Non-supported firms. When the chi-square test was performed the results show a calculated value less than the tabulated one (2.88 against 5.99 at 2 degrees of freedom and 0.05 significance level) implying that the difference between the two categories with respect to this question is not statistically significant. 75

Figure 5.4.31: Innovation projects: balance between low and high cost

This Figure shows that almost half of interviewed are not firms answered that their innovation projects balanced between low and high cost.

Figure 5.4.32: Balance between low and high cost X Category of respondents

Here is possible to observe that both categories remain the same pattern of response from the total universe of surveyed firms (see Figure 5.4.31).

5.4.2 Organization and culture This variable includes items Q 3.2.1 Q.3.2.6 from questionnaire (see Annex I).

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Figure 5.4.33: Staff attitudes towards innovation: excited about innovation This Figure majority of indicates that interviewed vast firms

answered that their staff is excited about innovation. This answer was emphasized by an entrepreneur: Researchers are so excited about innovation that we sometimes have trouble focusing on finalizing a product because they already want to begin to develop another. Because more than 85% of respondent firms answered in a positive way, it was not necessary to construct a graph with category of respondents.

Figure 5.4.34: Staff attitudes towards innovation: open rather than skeptical towards new ideas According to this Figure the great majority of interviewed firms answered that their staff is open rather than skeptical towards new ideas. One of the interviewed entrepreneurs said: When hiring, we adopt the criterion passion for R & D rather than the formation. In most cases, the developers bring the technical ideas. Because more than 89% of respondent firms answered in a positive way, it was not necessary to construct a graph with category of respondents. 77

Figure 5.4.35: Staff attitudes towards innovation: able to think out -of-the box

This Figure shows that majority (64%) of interviewed to think out-of-the box. firms answered that its staff is not able

Figure 5.4.36: Able to think out-of-the box X Category of respondents Comparing both categories it is possible to see that more Nonsupported firms than VC-backed firms (75% against 60%, respectively) answered that their staff is able to think out -of-the box. When the chi-square test was

performed the results show that the calculated value was slightly less than the tabulated one (5.30 against 5.99 at 2 degrees of freedom and 0.05 significance level) implying that the difference between the two categories with respect to this question was profound though not statistically significant at 0.05 level.

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Figure 5.4.37: Staff attitudes towards innovation: Imaginative

This Figure shows that majority of interviewed firms answered that their staff is imaginative.

Figure 5.4.38: Imaginative X Category of respondents Comparing the two categories, it is clear that there are no significant differences in the responses of both. Around 74% of both Nonsupported and VC-backed firms answered that their staff is the imaginative. Regarding to

negative answer: 17% of Nonsupported firms answered that their staff is not imaginative against 7% of VC-backed firms.

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Figure 5.4.39: Staff attitudes towards innovation: reluctant to try out new methods Here can be observed that half of interviewed firms answered that their staff is reluctant to try out new methods. It was possible to perceive that most of these responses are concentrated in companies in which a majority of the staff is focused on manufacturing and maintenance activities.

Figure 5.4.40: Reluctant to try out new methods X Category of respondents Comparing are the in two the While Non-

categories, it is clear that there differences of 67% of responses around both.

supported firms answered that their staff is reluctant to try out new methods, 40% of VCbacked firms answered the same. Regarding to the negative answer: 17% of Nonsupported firms answered that their staff is not reluctant to try out new methods, against 47% of VC-backed firms. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.76 against 5.99 at 2 degrees of freedom and 0.05 significance level). 80

Figure 5.4.41: Staff attitudes towards innovation: able to sell ideas intern ally This Figure shows that majority of interviewed firms answered that their staff is able to sell new ideas internally. This answer was emphasized by an entrepreneur: We seek to promote regular workshops to foster the exchange of ideas. For the 10% that answered no, one reason was mentioned by an entrepreneur: We miss bit of entrepreneur blood on our R & D staff.

Figure 5.4.42: Able to sell ideas internally X Category of respondents Comparing both categories it is possible to see that there are almost no differences between their responses: 80% of VCbacked answered that their staff is able to sell ideas internally against 75% of Non-supported firms. Regarding to the negative answer: 17% of Non-supported firms answered that their staff is not internally against 7% of VC-backed firms. able to sell

ideas

81

Figure 5.4.43: Staff attitudes towards innovation: Focusing on business impact This Figure shows that there is no predominant response to this question: it is possible to see about a third of respondent firms for each answer. For almost one third that answered that their staff is not focused on business impact, a reason is that it is restricted to management and directors of the company. For the little bit more than one third that said more or less, according to an entrepreneur, it is because: Our company presents a blend of people from the market and the academy. Figure 5.4.44: Focusing on business impact X Category of respondents Comparing both categories of firms it is clear that there are differences in their responses: while 40% of VC-backed firms answered that their staff is focused on business impact, 25% of Nonsupported firms answered the same. But when the chisquare test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (0.68 against 5.99 at 2 degrees of freedom and 0.05 significance level). 82

Figure 5.4.45: Capacity for innovation viewed by customers

This Figure indicates that vast majority of interviewed firms (almost 90%) answered that their capacity for innovation is viewed by customers to a high or very high degree.

Figure 5.4.46: Capacity for innovation viewed by customers X Category of respondents Comparing both categories it is possible to see that a little bit more VC-backed than Nonsupported firms (93% against 83%, that respectively) their is answered for by capacity viewed

innovation

customers to a high or very high degree. But when analyzing only the higher degree is possible to see a significant difference: 83% of Non-supported firms answered that their capacity for innovation is viewed by customers to a very high degree against 47% of VC-backed firms. When the chi-square test was performed the results show that the calculated value was slightly less than the tabulated one (4.75 against 5.99 at 2 degrees of freedom and 0.05 significance level) implying that the difference between the two categories with respect to this question was profound though not statistically significant at 0.05 level. 83

Figure 5.4.47: Capacity for innovation viewed by competitors This Figure shows that almost 68% of interviewed firms answered that their capacity for innovation is viewed by competitors to a high or very high degree. This answer is emphasized by more than one entrepreneur: We have some competitors, who are also partners, which are always probing pair to see where we'll get and Some competitors are interested in doing fusion and big companies want to buy our equipment. In general, firms that answered more or less argued that multinationals are beginning to worry about their capacity for innovation. The only company which responded that their capacity for innovation is viewed by competitors to a low degree argued: Competitors in this market are not able to realize our differential because they see only the final features. Figure 5.4.48: Capacity for innovation viewed by competitors X Category of respondents Comparing there are the two

categories, it is clear that significant differences in the responses of both. While around 83% of Non-supported firms answered that their capacity for innovation is viewed by 84

competitors to a high or very high degree, 64% of VC-backed firms answered the same. When analyzing only the higher degree these differences are even more significant: 75% of Non-supported firms answered that their capacity for innovation is viewed by competitors to a very high degree against only 29% of VC-backed firms. This result shows that the Non-supported firms capacity for innovation is viewed by competitors to a higher degree than VC-backed firms capacity for innovation. This finding is supported by chi-square test because the calculated value was greater than the tabulated one (8.15 against 7.82 at 3 degrees of freedom and 0.05 significance level) implying that there is a statistically significant association between category of respondents and firms capacity for innovation viewed by competitors.

Figure 5.4.49: Capacity for innovation viewed by suppliers This Figure shows that around 64% of interviewed firms answered that their capacity for innovation is viewed by suppliers to a high or very high degree. This answer was exemplified an entrepreneur: Suppliers do not keep up with our needs, we often need to import material. Another thing to be observed is that 25% of interviewed firms did not answer to this question because they think that it does not apply to their situation. In most of these cases there are no suppliers.

85

Figure 5.4.50: Capacity for innovation viewed by suppliers X Category of respondents Here is possible to see that the interviewed firms that did not answer to the question Q 3.2.2 c) belong to the category of Nonsupported firms. Because of this it is difficult to make any comparison between the responses of the two categories.

Figure 5.4.51: Capacity for innovation viewed by the entrepreneur

This Figure indicates that majority of interviewed (78%) entrepreneurs

answered that their firms capacity for innovation is viewed by them to a high or very high degree. The following testimonials from entrepreneurs illustrate some reasons for the 18% of firms that answered middle: We had to withdraw due to the lack of capacity to approve innovation projects in the FINEP and Is still missing bring products to market.

86

Figure 5.4.52: Capacity for innovation viewed by the entrepreneur X Category of respondents Comparing the two categories, it is clear that there are significant differences in the responses of both. While 100% of the entrepreneurs from VC-backed firms answered that they view their firms capacity for innovation to a high or very high degree, 58% of Non-supported firms answered the same. This result shows that entrepreneurs from VC-backed firms view their firms capacity for innovation to a higher degree than those from Non-supported companies. This finding is supported by chi-square test because the calculated value was greater than the tabulated one (7.68 against 5.99 at 2 degrees of freedom and 0.05 significance level) implying that there is a statistically significant association between category o f respondents and firms capacity for innovation viewed by the entrepreneurs.

Figure 5.4.53: Degree of partnerships support and enhance: idea management phase This Figure shows that there is no predominant response to the question Q 3.2.3 a): answers vary similarly from not at all to to a high degree. Fleeing to this is just the answer to a very high degree, with a small minority of respondents. But putting together the extremes is possible to see the 87

predominance of the negative answer: 46% of interviewed firms answered that partnerships do not support and enhance the idea management phase or do this to a very low degree, while 28% answered that partnerships support and enhance the idea management phase to a high or very high degree. Figure 5.4.54: Support to the idea management phase X Category of respondents Comparing the two categories it is clear that there are almost no differences in the responses of both and that both maintain the same pattern of responses of the total universe of interviewed companies. Just in the negative answers not at all and to a very low degree it is possible to see some difference, which is not significant as can be confirmed by chi-square test. The results showed that the calculated chi-square value was less than the tabulated one (2.51 against 9.49 at 4 degrees of freedom and 0.05 significance level). Figure 5.4.55: Degree of partnerships support and enhance: development phase From this Figure can be observed that around 46% of interviewed firms answered that partnerships support and enhance the product/service development

phase to a high or very high degree, while just 18% answered that have no support or have support from partnerships to a very low degree. 88

Figure 5.4.56: Support to the development phase X Category of respondents Comparing the two categories it is possible to see that the differences in the responses of both are concentrated in the answers to a very low degree and to a low degree. While 20% of VC-backed firms answered support that and partnerships enhance the development

product/service

phase to a very low degree, none of Non-supported firms have the same answer. In compensation, 42% of Non-supported firms answered that they have some support from partnerships (to a low degree), against 27% of VC-backed firms. But these are not significant differences, as demonstrated by chi-square test in which the calculated chisquare value was less than the tabulated one (2.96 against 9.49 at 4 degrees of freedom and 0.05 significance level). Figure 5.4.57: Degree of partnerships support and enhance: launch phase This Figure indicates the

predominance of no support from partnerships to the launch phase. As can be observed, around 47% of interviewed firms answered that partnerships do not give any support and enhance to the launch phase or do this to a very low degree against 29% that answered to a high degree or to a very high degree. 89

Figure 5.4.58: Support to the launch phase X Category of respondents Comparing the two categories it is clear that there are no significant differences in the responses of both and that both maintain the same pattern of responses of the total universe of interviewed companies: predominance of no support from partnerships to the launch phase.

Figure 5.4.59: Number of external partners participating in innovation projects

According to this Figure, the majority of firms (64%) have between 1 and 6 external partners participating regularly in their innovation projects. In addition, the largest concentration of responses is between 4 and 6 external partners.

90

Figure 5.4.60: Number of external partners participating in innovation projects X Category of respondents Here is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies: the concentration of responses is between 4 and 6 external partners. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.93 against 9.49 at 4 degrees of freedom and 0.05 significance level).

Figure 5.4.61: Number of external partners that have cooperated in the last 3 years Comparing this Figure with Figure 5.4.59, almost the same numbers can be observed. This result means that the number of external partners that have cooperated in at least one innovation project during the last 3 years is the same as the number of them that regularly participate in innovation projects.

91

Figure 5.4.62: Number of external partners that have cooperated in the last 3 years X Category of respondents Here again (as shown in the Figure 5.4.60) it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies: the concentration of responses is between 4 and 6 external partners. When the two categories are compared, can be observed that 34% of Non-supported firms have more than 6 external partners against 20% of VCbacked firms. Another difference is that while 13% of VC-backed firms have no external partners cooperating in at least one innovation project during the last 3 years, none of Non-supported firms answered the same. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.30 against 9.49 at 4 degrees of freedom and 0.05 significance level). Figure 5.4.63: Number of people current working on innovation projects with external partners

This Figure shows that only 35% of interviewed firms have at least 50% of their staff working on innovation projects in which external partners are involved.

92

Figure 5.4.64: Number of people current working on innovation projects with external partners X Category of respondents Comparing the two categories, it is clear that there are differences in the responses of both. While around 31% of VC-backed firms have all their staff currently working on innovation projects in which external partners are involved, 17% of Non-supported firms have the same. When analyzing the responses from at least 50% of the staff this difference is even more significant: 54% of VC-backed firms have at least 50% of their staff currently working on innovation projects in which external partners are involved against 25% Non-supported firms. Despite of this, these are not statistically significant differences as demonstrated by chi-square test in which the calculated chi-square value was less than the tabulated one (2.97 against 9.49 at 4 degrees of freedom and 0.05 significance level).

5.4.3 Innovation life cycle management This variable includes items Q 3.3.2 Q 3.3.14 from questionnaire (see Annex I).

93

Figure 5.4.65: Time for the most profitable from the development until product/service on sale This Figure indicates that there is no predominant response to question Q 3.3.2. Answers vary similarly from less than 12 to above 48. Fleeing to this is just the answer 37-48, with a small minority of respondents. Despite of this, it is possible to see that for the majority of interviewed firms (64%) their most profitable product/service took less than 36 months from the development to getting on sale. A curious thing is that almost an equal number of firms answered less than 12and above 48. This is probably due to the variety of industries in which companies operate. Figure 5.4.66: Time for the most profitable from the development until product/service on sale X Category of respondents Comparing both categories it is easy to see some difference in their responses: 40% of VC-backed firms answered that their most profitable more product/service took

than 48 months from the development to getting on sale against only 17% of Nonsupported firms. Despite of this, these are not statistically significant differences as demonstrated by chi-square test in which the calculated chi-square value was less than the tabulated one (3.05 against 9.49 at 4 degrees of freedom and 0.05 significance level). 94

Figure 5.4.67: Time for the most profitable product/service from the project authorization until the breakeven point

This Figure shows that almost half of interviewed firms did not yet reach the breakeven point for their most profitable product/service.

Figure 5.4.68: Time for the most profitable product/service from the project authorization until the breakeven point When the two categories are compared, it is clear that there is some difference between their responses: 64% of VC-backed firms did not yet reach the breakeven point for their most profitable product/service against 33% of Non-supported firms. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (5.13 against 11.07 at 5 degrees of freedom and 0.05 significance level).

95

Figure 5.4.69: Number of incremental innovation projects started in the last 4 years

This Figure shows that half of interviewed firms have started at least 7 (seven) incremental innovation projects in the last 4 years.

Figure 5.4.70: Number of incremental innovation projects started in the last 4 years X Category of respondents Figure differences 5.4.70 between shows the

responses of the two categories. 60% of VC-backed firms have started at least 7 (seven) incremental innovation projects in the last 4 years, against 41% of Non-supported firms. This difference is accentuated when analyzing the number of firms that have started none or until 2 (two) incremental innovation projects in the last 4 years: 41% of Non-supported firms against only 7% of VC-backed firms. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (6.95 against 11.07 at 5 degrees of freedom and 0.05 significance level). 96

Figure 5.4.71: Number of incremental innovation projects that showed success within the last 4 years This Figure indicates that around 45% of interviewed firms answered that at least 50% of their showed innovation success projects

within the last 4 years against the other almost 45% that answered less than 50% or none.

Figure 5.4.72: Number of incremental innovation projects that showed success within the last 4 years X Category of respondents Comparing both categories it is clear that While there are their differences responses. between

majority are

(54%) of responses from Non-supported firms concentrated between 25% and 74% of their incremental innovation projects, around 36% of VC-backed firms answered 25%-49% and 29% of them answered 100%. In addition, only 7% of VCbacked firms have none of their incremental innovation projects showing success within the last 4 years, against 18% of Non-supported firms. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (3.52 against 11.07 at 5 degrees of freedom and 0.05 significance level). 97

Figure 5.4.73: Number of radical innovation projects started in the last 4 years

This Figure shows that majority of interviewed firms (around 60%) have started between 1 and 2 radical innovation projects in the last 4 years.

Figure 5.4.74: Number of radical innovation projects started in the last 4 years X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies: the concentration of responses is between 1 and 2 radical innovation projects in the last 4 years.

98

Figure 5.4.75: Number of radical innovation projects that showed success within the last 4 years

This Figure shows that almost half of interviewed firms have none of their radical innovation projects showing success within the last 4 years. A minority of 14% answered 100%.

Figure 5.4.76: Number of radical innovation projects that showed success within the last 4 years Here it is possible to see that both categories maintain the same pattern of responses of the total universe is in of the interviewed companies. The concentration response: none of their radical innovation projects showing success within the last 4 years. It can be also observed that around 40% of interviewed firms from both categories have at least 50% of their radical innovation projects showing success within the last 4 years.

99

Figure 5.4.77: Assessment of new ideas by an interdisciplinary team This Figure shows that the firms This

majority of interviewed interdisciplinary team.

(68%) assess new ideas by an answer was emphasized by an entrepreneur: In order to assess new ideas we are all involved: technical, following commercial areas. testimonials and The from administrative

entrepreneurs illustrate some reasons for the 18% of firms that do not assess new ideas by an interdisciplinary team: I do it alone. and We are all chemical engineers. Figure 5.4.78: Assessment of new ideas by an interdisciplinary team X Category of respondents Comparing the two

categories, it is clear that there are differences in the responses of both. While around 86% of VC-backed firms assess new ideas by an interdisciplinary team, 59% of Non-supported firms do the same. In addition, 25% of Nonsupported firms answered that they do not assess new ideas by an interdisciplinary team, against 14% of VCbacked firms. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.48 against 5.99 at 2 degrees of freedom and 0.05 significance level). 100

Figure 5.4.79: Assessment of new ideas by a set of predefined criteria applied to all innovation projects From this Figure it is possible to observe that a minority (28%) of interviewed firms assess new ideas by a set of predefined criteria applied to all innovation projects. In this case, some criteria were listed, such as: alignment with firms strategy, technical feasibility. Figure 5.4.80: Assessment of new ideas by a set of predefined criteria applied to all innovation projects X Category of respondents This Figure indicates the market and potential, economic

differences

between

responses of both categories. While around 42% of Nonsupported firms assess new ideas by a set of predefined criteria applied to all only innovation projects,

21% of VC-backed firms do the same. In addition, 33% of Non-supported firms answered no, against 64% of VC-backed firms. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.48 against 5.99 at 2 degrees of freedom and 0.05 significance level). 101

Figure 5.4.81: Assessment of new ideas by criteria tailored per project

This Figure shows that only 39% of interviewed firms assess new ideas by criteria tailored per project defined in the early development phase.

Figure 5.4.82: Assessment of new ideas by criteria tailored per project X Category of respondents This Figure shows differences between the responses of both categories. While around 33% of Non-supported firms assess new ideas by criteria tailored per project defined in the early development phase, 50% of VC-backed firms do the same. In addition, 50% of Nonsupported firms answered no, against 21% of VCbacked firms. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.35 against 5.99 at 2 degrees of freedom and 0.05 significance level).

102

Figure 5.4.83: Assessment of new ideas by criteria derived from innovation strategy

This Figure shows that the majority of interviewed firms assess new ideas by criteria derived from innovation strategy.

Figure 5.4.84: Assessment of new ideas by criteria derived from innovation strategy X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies:

majority of interviewed firms assess new ideas by criteria derived strategy. from innovation

103

Figure 5.4.85: Provision of feedback to the suppliers This Figure indicates that the majority of interviewed firms that answered to this question regularly provide feedback to their suppliers on suggestion that that they have given to them. A problem here is that a great number of firms did not answer to this question. One reason for this is that these firms did not receive any suggestions from their suppliers or there is not much interaction between them. For the 14% of firms that provide no feedback to their suppliers on suggestion that they have given to them, the following reasons were mentioned: there is low loyalty of suppliers and to train the supplier makes the project more expensive.

Figure 5.4.86: Provision of feedback to the suppliers X Category of respondents

Here it is clear that firms that did not answer to this question are mainly Non-supported firms. Because of this, it is not possible to make any comparison between both categories.

104

Figure 5.4.87: Provision of feedback to the direct customers

This Figure shows that

vast

majority of interviewed firms regularly provide feedback to their direct customers on suggestion that that they have given to them.

Figure 5.4.88: Provision of feedback to the indirect customers This Figure indicates that there is no predominant response to this question. In addition, a great number of firms did not answer to this question. Some reasons for this are: these firms did not receive from any their suggestions indirect

customers, they have no contact with them or they even have indirect customers.

105

Figure 5.4.89: Provision of feedback to the indirect customers X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. The other remark is that the responses of the two categories do not show any difference between them.

Figure 5.4.90: Provision of feedback to marketing and sales personnel

This Figure shows that vast majority firms and of interviewed provide on regularly sales

feedback to their marketing personnel suggestions that they have given to them.

106

Figure 5.4.91: Provision of feedback to product/service development personnel

Here it is possible to see that all interviewed firms that answered to this their development given to them. question

regularly provide feedback to product/service personnel on

suggestions that they have

Figure 5.4.92: Provision of feedback to research institutes and universities

This Figure shows that a little bit more than half of interviewed firms regularly provide feedback to research institutes and universities on suggestions that they have given to them. It is also possible to see a large due to non existence of partnerships with universities. For the 18% of firms that answered no, an entrepreneur argued: Our partnership with the university is hard, usually punctual with a lab or a researcher. number of missing answers. Most of them are

107

Figure 5.4.93: Provision of feedback to research institutes and universities X Category of respondents

Here it is possible to see that firms that did not answer to this question are mainly VC-backed firms. Furthermore, there are no significant differences in the responses of both.

Figure 5.4.94: Provision of feedback to experts on intellectual property rights This Figure indicates that there equal is no predominant of firms response to this question: an number answered no and yes. In addition, a large number of firms did not answer to this question. The reason for this is that these firms did not have any contact with experts on intellectual property rights.

108

Figure 5.4.95: Provision of feedback to experts on intellectual property rights X Category of respondents Comparing the two categories, it is clear that there are differences in the responses of both. While around 56% of VCbacked firms answered that they regularly provide feedback to experts on intellectual property rights, 30% of Nonsupported firms answered the same. When the chi-square test was performed the results show that the calculated value was slightly less than the tabulated one (5.03 against 5.99 at 2 degrees of freedom and 0.05 significance level) implying that the difference between the two categories with respect to this question was profound though not statistically significant at 0.05 level.

Figure 5.4.96: Provision of feedback to network partners This Figure shows that vast majority firms and of interviewed provide on regularly sales

feedback to their marketing personnel suggestions that they have given to them.

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Figure 5.4.97: Formal system for generating and assessing ideas

This Figure shows that most interviewed firms do not have a formal system for generating ideas. and assessing

Figure 5.4.98: Formal system for generating and assessing ideas

!

Here it is possible to see that, although the majority interviewed firms from both categories answered that they do not have a formal system for generating and assessing ideas, VC-backed firms showed more positive answers than Non-supported firms (42% against only 17%, respectively). But when the chi-square test was performed

on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.08 against 3.84 at 1 degree of freedom and 0.05 significance level).

110

Figure 5.4.99: Percentage of generated ideas taken to the development stage

Because most interviewed firms did not answer this question, this result will not be taken into consideration.

Figure 5.4.100: Degree of formalization of development processes

According to this Figure, all the interviewed firms that answered to this question have their development formalized or processes

successfully in place.

111

Figure 5.4.101: Percentage of innovation projects with well defined targets This Figure indicates that majority of interviewed firms (68%) had well defined targets for at least 50% of their innovation projects launched during the past 3 years. According to an interviewed entrepreneur, one of the reasons for the 39% of the firms that have 100% of their projects with well defined target is that most of their projects are on demand. Figure 5.4.102: Percentage of innovation projects with well defined targets X Category of respondents Here it is possible to see that although a same percentage of respondent categories innovation firms from both 45%) launched (around projects

answered that 100% of their during the past 3 years had well defined targets, VC-backed firms showed, in general, more positive answers than Non-supported firms: 92% of VC-backed firms had well defined targets for at least 50% of their innovation projects, against 63% of Non-supported firms. In addition, while 27% of Non-supported firms answered that none of their innovation projects launched during the past 3 years had well defined targets, no VC-backed firms answered in this way. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (5.00 against 7.82 at 3 degrees of freedom and 0.05 significance level). 112

Figure 5.4.103: Percentage of innovation projects that met launch-specific targets This missing Figure shows 46% that, of

although the large percentage of answers, interviewed firms answered that at least 50% of their innovation projects launched during the past 3 years met launch-specific targets. These missing answers are due to, besides firms that really did not answer to this question, those firms that did not answer or answered none to the previous question (Q 3.3.12 a).

Figure 5.4.104: Percentage of innovation projects that met launch-specific targets X Category of respondents Comparing both categories it is possible to see that, in general, Non-supported firms have shown more success than VC-backed firms in achieving the launch-specific targets for their innovation projects during the past 3 years. But this difference is not statistically significant because the chi-square test showed a calculated value less than the tabulated one (2.76 against 11.07 at 5 degrees of freedom and 0.05 significance level).

113

Figure 5.4.105: Frequency of customer data and feedback analysis

From this Figure can be observed that majority of interviewed 60%) firms (around and analyze data

customer feedback at least once a month.

Figure 5.4.106: Frequency of customer data and feedback analysis X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies: most of firms analyze data and customer feedback at least once a month.

114

Figure 5.4.107: Definition of indicators to measure innovation activities

This Figure indicates that

the

majority of interviewed firms have no defined indicators to measure their innovation activities.

Figure 5.4.108: Definition of indicators to measure innovation activities X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. The other remark is that the responses of the two categories do not show any difference between them.

5.4.4 Enabling factors for innovation management This variable includes items Q 3.4.1 Q 3.4.5 from questionnaire (see Annex I). Regarding to the item Q 3.4.1 (Does your company use incentives to stimulate innovation?), all of firms answered it in a positive way. Figures 5.4.109 until 5.4.117 are related to the incentives to stimulate innovation used by firms.

115

Figure 5.4.109: Incentives to stimulate innovation: extra money This Figure indicates that there is no predominant response to this question: almost an equal number of firms answered no and yes. In this sense, less firms than half of interviewed award extra

money to stimulate innovation. Among the forms of extra money mentioned by entrepreneurs who answered yes are: bonus, companys shares and royalties.

Figure 5.4.110: Incentives to stimulate innovation: extra money X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. The other remark is that the responses of the two categories show almost no difference between them.

116

Figure 5.4.111: Incentives to stimulate innovation: direct recognition

This Figure shows that a little bit more than half of interviewed firms give direct recognition to their staff in order to stimulate innovation.

Figure 5.4.112: Incentives to stimulate innovation: direct recognition X Category of respondents

Comparing both categories it is possible to see almost no difference between their responses: 69% of VCbacked firms give direct recognition to their staff in order to stimulate innovation, against 58% of Nonsupported firms.

Figure 5.4.113: Incentives to stimulate innovation: innovation award

This Figure indicates that almost all firms do not offer an innovation award.

117

Figure 5.4.114: Incentives to stimulate innovation: permission to use companys facilities for free to test own ideas

This Figure indicates that the majority of interviewed firms allow their staff to use companys facilities for free to test and develop their own ideas.

Figure 5.4.115: Incentives to stimulate innovation: permission to use companys facilities for free to test own ideas X Category of respondents Comparing both categories it is possible to see some difference between their responses: 92% Non-supported firms allow their staff to use companys facilities for free to test and develop their own ideas, against 69% of VCbacked firms. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (1.96 against 3.84 at 1 degree of freedom and 0.05 significance level).

118

Figure 5.4.116: Incentives to stimulate innovation: provision of administrative support to get external fund

This

Figure

shows

that

the with

majority of interviewed firms provide their staff support to administrative external fund. Firms included in the 18% that answered no, for one reason or another, were not interested in getting public fund. get

Figure 5.4.117: Incentives to stimulate innovation: provision of administrative support to get external fund X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. The other remark is that the responses of the two categories show almost no difference between them.

119

Figure 5.4.118: Number of patents generated within the last 5 years From this Figure can be observed that half of interviewed firms have generated none or 1 patent within the last 5 years. As mentioned by an interviewed entrepreneur, one of the reasons for the 32% of the firms that did not generate any patent within the last 5 years is that they do not see patent as a protection tool.

Figure 5.4.119: Number of patents generated within the last 5 years X Category of respondents Here it is possible to see that both categories maintain the same of of pattern the half firms of total of have responses universe companies: interviewed

interviewed

generated none or 1 patent within the last 5 years. It is possible to see some little differences between the responses of both categories, but they are not significant as can be proved by chi-square test where the calculated chi-square value was less than the tabulated one (1.61 against 9.49 at 1 degree of freedom and 0.05 significance level).

120

Figure 5.4.120: Number of patents turned into market success This Figure shows that,

although the large percentage of missing answers, 35% of interviewed firms answered that 100% of their generated patents within the last 5 years were turned into market success. These missing answers are due to, besides firms that really did not answer to this question, those firms that did not answer or answered none to the previous question (Q 3.4.2).

Figure 5.4.121: Number of patents turned into market success X Category of respondents Here it is possible to see that although a same percentage of respondent that 100% firms of from their both patents categories (around 55%) answered generated within the last 5 years were turned into market success, it is not possible to make any comparison that did not answered to this question are mainly Non-supported firms. between both categories. It is because that firms

121

Figure 5.4.122: Percentage of innovation projects with defined targets This Figure shows that the

majority of interviewed firms (79%) have at least 50% of their innovation projects with defined targets with respect to time, budget and quality. In addition, a little bit more than half of them answered 100%.

Figure 5.4.123: Percentage of innovation projects with defined targets X Category of respondents Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies: the vast majority of respondent firms have least 50% of their innovation projects with defined targets with respect to time, budget and quality. In addition the answer 100%. the largest concentration of responses is in

122

Figure 5.4.124: Percentage of innovation projects that met targets

This Figure indicates that the majority of interviewed firms (73%) have met the defined targets for at least 50% of their innovation projects.

Figure 5.4.125: Percentage of innovation projects that met targets X Category of respondents Comparing the two categories, it is clear that there are significant differences between their responses. While around 44% of Non-supported firms answered that have met the defined targets for 100% of their innovation projects, none of VC-backed firms answered the same. Besides, the majority (61%) of VC-backed firms is concentrated in the answer 50% -74% while 77% of Non-supported firms have met the defined targets for at least 75% of their innovation projects. These results show that Non-supported firms present a higher percentage of innovation projects that have met defined targets than VC-backed firms. This finding is supported by chi-square test in which the calculated value was almost the same as the tabulated one (9.18 against 9.49 at 4 degrees of freedom and 0.05 significance level).

123

Figure 5.4.126: Partnership with universities or research institutes This Figure shows that the majority of interviewed firms have universities or research institutes as innovation partners. For the almost 18% that answered no, a reason is the difficulty in the relationship with the university. entrepreneur An argued: interviewed We have

difficulty in the relationship with the university even though we are spin-off. As an incubated company we still had some support (people who understood the business, who have lived abroad), but now we do not have even access to their laboratory equipment.

Figure 5.4.127: Partnership with universities or research institutes X Category of respondents Here it is possible to see that all the interviewed firms that answered no to this question are VC-backed firms. This result shows a significant difference between both categories: 100% of respondents from Nonsupported firms have partnership with firms. This finding is supported by chi-square test in which the calculated value was greater than the tabulated one (5.77 against 3.84 at 1 degree of freedom and 0.05 significance 124 universities or research institutes against 61% of VC-backed

level) implying that there is a statistically significant association between category of respondents and partnerships with universities.

Figure 5.4.128: Human research policy to stimulate staff qualification This Figure shows that the majority of interviewed firms have some human stimulate resources staff policy to qualification.

Among the initiatives mentioned by entrepreneurs who answered yes are: training projects, recruitment of courses, flexibility in working hours and workload, provision resources, assistance in graduation and post-graduation courses. of material and

Figure 5.4.129: Human research policy to stimulate staff qualification X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. The other remark is that the responses of the two categories show almost no difference between them.

125

5.5 Market Orientation Here are presented the data related to the market orientation. The data are separated into sub-sections according to the research variables: intelligence generation, intelligence dissemination and responsiveness. 5.5.1 Intelligence generation This variable includes items Q 4.1.1 Q 4.1.6 from questionnaire (see Annex II). Figure 5.5.1: Meeting with customers to find out future needs

This Figure shows that the majority of interviewed firms meet with customers at least once a year to find out what products or services they will need in the future.

Figure 5.5.2: Meeting with customers to find out future needs X Category of respondents

Here it is possible to see significant differences between the responses of both categories: 85% of VCbacked firms answered strongly agree against 58% of Nonsupported firms. This result shows that VC-backed firms are more likely to meet with customers to find out what products or services 126

they will need in the future. This finding is supported by chi-square test in which the calculated value was greater than the tabulated one (7.86 against 7.82 at 3 degrees of freedom and 0.05 significance level) implying that the difference between the two categories with respect to this question was statistically significant.

Figure 5.5.3: In-house market research

This Figure indicates that the majority (68%) of interviewed firms do a lot of in-house market research.

Figure 5.5.4: In-house market research X Category of respondents Comparing there are the two

categories, it is clear that significant between their differences

responses. While 92% of VCbacked firms answered that they do a lot of in-house market research, 58% of firms Non-supported

answered the same. These differences are even more 127

significant when analyzing the negative answers: 25% of Non-supported firms answered strongly disagree or disagree against none of VC-backed firms. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (6.88 against 9.49 at 4 degrees of freedom and 0.05 significance level). Figure 5.5.5: Detection of changes in customers preferences This Figure shows that the majority (72%) of interviewed firms answered that they are not slow to detect changes in their customers preferences. product/service

Figure 5.5.6: Detection of changes in customers preferences X Category of respondents Here it is possible to see a significant difference between the responses 75% firms of of both Noncategories: supported

answered

strongly agree against only 23% of VC-backed firms. This result indicates that Nonsupported firms a slightly 128

faster than VC-backed firms to detect changes in their customers product/service preferences. This finding is supported by chi-square test in which the calculated value was greater than the tabulated one (7.67 against 5.99 at 2 degrees of freedom and 0.05 significance level).

Figure 5.5.7: Poll of end users to assess the quality of products and services

This Figure indicates that the vast majority (78%) of interviewed firms poll end users at least once a year to assess the quality of their product and services.

Figure 5.5.8: Poll of end users to assess the quality of products and services X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. The other remark is that the responses of the two categories show almost no difference between them. 129

Figure 5.5.9: Detection of fundamental shifts in the industry

This Figure shows that the majority (74%) of interviewed firms answered that they are not slow to detect fundamental shifts in their industry.

Figure 5.5.10: Detection of fundamental shifts in the industry X Category of respondents Here it is possible to see that both categories maintain the same pattern of responses of the total universe slow to of interviewed companies: they are not detect fundamental shifts in their industry. In addition, this Figure indicates that Nonsupported firms are slightly faster firms. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.66 against 5.99 at 2 degrees of freedom and 0.05 significance level). 130 than VC-backed

Figure 5.5.11: Review of the likely effect of changes in business environment on customers This Figure indicates that the majority (72%) of interviewed firms periodically review the likely effect of changes in their business customers. environment on

Figure 5.5.12: Review of the likely effect of changes in business environment on customers X Category of respondents This Figure shows that both categories maintain the same pattern of responses of the total universe of interviewed companies. Comparing the two categories, it is possible to of see some differences firms between their responses: 25% Non-supported answered strongly disagree or disagree against none of VC-backed firms answered. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (5.30 against 9.49 at 4 degrees of freedom and 0.05 significance level). 131

5.5.2 Intelligence dissemination This variable includes items Q 4.2.1 Q 4.2.5 from questionnaire (see Annex II).

Figure 5.5.13: Interdepartmental meetings to discuss marketing trends and development This Figure indicates that the majority interviewed (68%) firms of have

interdepartmental meetings at least once a quarter to discuss marketing developments. trends and

Figure 5.5.14: Interdepartmental meetings to discuss marketing trends and development X Category of respondents Here it is possible to see that both categories maintain the same pattern of responses of the total universe the of two interviewed Comparing companies.

categories, it is possible to see some differences between their responses. But these are not significant differences, as demonstrated by chi-square test in which the calculated chi-square value was less than the tabulated one (3.78 against 9.49 at 4 degrees of freedom and 0.05 significance level). 132

Figure 5.5.15: Discussion of customers future needs between marketing personnel and other departments This Figure shows that half of interviewed spend firms answered discussing that their marketing personnel time customers future needs with other functional departments. For the 15% of firms that do not have this kind of discussion, a reason is that most of them do not have marketing personnel. The following testimonials from entrepreneurs illustrate some reasons for the 25% of firms that answered neither agree nor disagree: We promote this kind of discussion, but there is no marketing personnel in our firm and In our company marketing personnel work more as a collector than a disseminator of information. Figure 5.5.16: Discussion of customers future needs between marketing personnel and other departments X Category of respondents Comparing the two categories, it is possible to see that there are no significant differences between their responses. This can be proved by chi-square test in which the calculated chisquare value was less than the tabulated one (1.73 against 9.49 at 4 degrees of freedom and 0.05 significance level).

133

Figure 5.5.17: Dissemination of information about important events with customers From this Figure it is possible to see that the majority (71%) of interviewed firms answered that important information about their major customers are disseminated through the whole business unit within a short period.

Figure 5.5.18: Dissemination of information about important events with customers X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. remark responses is of The that the other the two

categories show almost no difference between them.

134

Figure 5.5.19: Sharing of data on customer satisfaction at all levels in the firm This Figure indicates that the majority (61%) of interviewed firms share data on customer satisfaction at all level in the business unit on a regular basis. For those interviewed firms that answered disagree a reason is that data on level customer and the satisfaction is restricted to the management directors of the company.

Figure 5.5.20: Sharing of data on customer satisfaction at all levels in the firm X Category of respondents Comparing see some the difference their two in

categories, it is possible to between responses:

while around 77% of VCbacked firms answered that data on customer satisfaction are shared at all level in the business unit on a regular basis, 58% of Nonsupported firms answered the same. But this is not a significant difference, as demonstrated by chi-square test in which chi-square value was less than the tabulated one (1.23 against 7.82 at 3 degrees of freedom and 0.05 significance level).

135

Figure 5.5.21: Dissemination of information about competitors This Figure shows that the majority (70%) of interviewed firms answered that when one department finds out something important about competitors, it is quickly to alert other departments.

Figure 5.5.22: Dissemination of information about competitors X Category of respondents Comparing the two categories, it is possible to see some their answered firms difference VC-backed of between firms

responses. While around 92% of agree or strongly agree, 75% Non-supported answered the same. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (5.77 against 9.49 at 4 degrees of freedom and 0.05 significance level).

136

5.5.3 Responsiveness This variable includes items Q 4.3.1 Q 4.3.9 from questionnaire (see Annex II). Figure 5.5.23: Time to respond to competitors price changes This Figure shows that, although the large percentage of missing answers, 43% of interviewed firms answered that it does not take them a long time to decide how to respond to their competitors price changes. For the 25% of interviewed firms that did not answer to this question a reason is that it does not apply to their situation. Figure 5.5.24: Time to respond to competitors price changes X Category of respondents Comparing the two categories, it is clear that there are significant differences in the responses of both. While 78% of Nonsupported firms answered that it does not take them a long time to decide how to respond to their competitors price changes, 42% of VC-backed firms answered the same. These differences are even more significant when analyzing only the answer strongly disagree: 78% of Nonsupported firms against 17% of VC-backed firms. These results show that Nonsupported firms are faster to decide how to respond to their competitors price changes than VC-backed firms. This finding is supported by chi-square test in which the 137

calculated value was greater than the tabulated one (11.92 against 9.49 at 4 degrees of freedom and 0.05 significance level) implying that there is a statistically significant association between category of respondents and the time to respond to competitors price changes. Figure 5.5.25: Tendency to ignore changes in customers product/service needs This Figure indicates that the majority (61%) of interviewed firms do not tend to ignore changes in their customers product/service needs. For the firms that answered neither agree nor disagree, an interviewed entrepreneur argued: It depends on the type of client requesting.

Figure 5.5.26: Tendency to ignore changes in customers product/service needs X Category of respondents Comparing the two categories, it is clear that there are differences in the responses of both. Although almost the same quantity (around 80%) of both VC-backed and Nonsupported 17% of firms answered firms ignore disagree or strongly disagree, Non-supported that in tend their to answered changes product/service needs against none of VC-backed firms. 138

customers

This result is supported by chi-square test where the calculated value was greater than the tabulated one (8.50 against 7.82 at 3 degrees of freedom and 0.05 significance level) implying that there is a statistically significant association between category of respondents and the tendency to ignore changes in customers product/service needs.

Figure 5.5.27: Review of product development efforts to be in line with what customers want

This Figure shows that the vast majority (82%) of interviewed firms periodically review their product development efforts to ensure that they are in line with what customers want.

Figure 5.5.28: Review of product development efforts to be in line with what customers want X Category of respondents Comparing the two categories, it can be observed that Nonsupported firms are more likely to periodically review their product development efforts to ensure that they are in line with what customers want than VC-backed firms. Figure shows that 92% of Non-supported firms answered strongly agree against 54% of VC-backed firms. When the chi-square test was performed the results show that the calculated value was slightly less than the tabulated one (4.66 against 5.99 at 2 degrees of freedom and 0.05 significance level) implying that the difference between the two 139

categories with respect to this question was profound though not statistically significant at 0.05 level. Figure 5.5.29: Periodical meetings to plan a response to changes in business environment

This Figure indicates that the majority (72%) of interviewed firms do periodical meetings to plan a response to changes taking place in their business environment.

Figure 5.5.30: Periodical meetings to plan a response to changes in business environment X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. The other remark is that the responses of the two categories show almost no difference between them.

140

Figure 5.5.31: Speed of response to competitors intensive campaign This Figure indicates that there is no predominant response to this question. answered Almost that an they equal would number of interviewed firms implement and that they would not implement (32% and 29%, respectively) a response immediately to a competitors intensive campaign target at their customers. Some reasons for the negative answers were mentioned by interviewed entrepreneurs: Currently our firm has little commercial structure; Our firm does not have a marketing area and For our company it is not possible to implement this kind of thing due to a lack of personnel and preparation. Figure 5.5.32: Speed of response to competitors intensive campaign X Category of respondents Comparing the two categories, it is possible to see some difference between their responses: although almost the same quantity (around 40%) of both VC-backed firms and Nonsupported answered

agree or strongly agree, 50% of Non-supported firms answered that if a competitor were to launch an intensive campaign target at their customers they would not implement a response immediately, 141

against 23% of VC-backed firms. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (3.06 against 9.49 at 4 degrees of freedom and 0.05 significance level).

Figure 5.5.33: Coordination between the different departments This Figure indicates that the majority (68%) of interviewed firms have a between One of good the the coordination departments.

activities of their different entrepreneurs who answered neither agree nor disagree argued: We are few, so people in our company do a bit of everything. Figure 5.5.34: Coordination between the different departments X Category of respondents
!

This Figure reveals that more VC-backed firms than Nonsupported (92% VC-backed firms against firms answered 58%, present agree or strongly agree respectively). It seems that more coordination between the activities of their different departments than Non142

supported firms. This finding is supported by chi-square test in which the calculated value was greater than the tabulated one (8.85 against 7.82 at 3 degrees of freedom and 0.05 significance level implying that the difference between the two categories with respect to this question statistically significant at 0.05 level. Figure 5.5.35: Attention to customer complaints

This

Figure

shows

that

all

respondent firms answered that customer complaints do not fall on deaf ears.

Figure 5.5.36: Attention to customer complaints X Category of respondents Comparing both categories it is possible to see that Non-supported firms are more likely to pay attention to customers complaints than VC-backed firms. But this is not a statistically significant difference because when the chisquare test was performed on the findings the calculated chi-square value was less than the tabulated one (1.96 against 3.84 at 1 degree of freedom and 0.05 significance level).

143

Figure 5.5.37: Ability to implement a marketing plan in a timely fashion From this Figure it is possible to see that 46% of interviewed firms think they are able to implement a marketing plan in a timely fashion. For the 18% of firms that think not to be able to implement a marketing plan in a timely fashion, one mentioned reason was that they have no structure or enough people to do this.

Figure 5.5.38: Ability to implement a marketing plan in a timely fashion X Category of respondents When the two categories are compared, the results show that Non-supported firms are more able to implement a marketing plan in a timely fashion firms. This finding is supported by chi-square test in which the calculated value was greater than the tabulated one (11.76 against 9.49 at 4 degrees of freedom and 0.05 significance level) implying that the difference between the two categories with respect to this question was statistically significant at 0.05 level. than VC-backed

144

Figure 5.5.39: Efforts to make changes in products/services This Figure shows that the vast majority (82%) of interviewed firms answered that their departments make concerted efforts to do the changes that customers would like to see in a product or service.

Figure 5.5.40: Efforts to make changes in products/services X Category of respondents Comparing both categories it is possible to see that Nonsupported firms are more likely to do concerted efforts to do the changes that customers would like to see in a product or service. As Figure 4.3.9 shows 92% of Non-supported firms answered strongly agree, against 54% of VCbacked firms. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (4.66 against 7.82 at 3 degrees of freedom and 0.05 significance level).

145

5.6 Firm performance Here are presented the data related to the firm performance. The data are separated into sub-sections according to the research variables: innovation management performance and market orientation performance. 5.6.1 Innovation Management Performance This variable includes items Q 3.5.1 Q 3.5.11 from questionnaire (see Annex I).

Figure 5.6.1: Income data for 2009 From this Figure it is possible to see that the interviewed firms income data for 2009 ranging from none to above 8000 thousand of Euros. In addition, the largest concentration of responses (32%) is in the range of 250-500 thousand of Euros.

Figure 5.6.2: Income data for 2009 X Category of respondents When both the two categories the are

compared, the results show that maintain largest concentration of responses in the range of 250-500 thousand of Euros. It is also possible to see some differences in their responses: Non-supported firms showed income data for 2009 slightly above 146

those from VC-backed firms. But these are not significant differences, as demonstrated by chi-square test in which the calculated value was less than the tabulated one (4.44 against 11.07 at 5 degrees of freedom and 0.05 significance level). Figure 5.6.3: Income data for 2010 From this Figure it is possible to see that the interviewed firms income data for 2010 ranging from less than 50 to above 9000 thousand of Euros, a little bit higher than 2009 (see Figure 5.6.1). But the largest concentration of responses (32%), as in 2009, is in the range of 250500 thousand of Euros. Figure 5.6.4: Income data for 2010 X Category of respondents When the two categories are compared, it is possible to see some differences in their responses: 27% of VC-backed firms had income data less than 50, against none of Nonsupported firms. In addition, only Non-supported firms present income data above 9000. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (5.64 against 9.49 at 4 degrees of freedom and 0.05 significance level). 147

Figure 5.6.5: Contribution of public research grants to total income

This Figure reveals that half of interviewed firms have none or less than 25% of total income coming from public research grants.

Figure 5.6.6: Contribution of public research grants to total income X Category of respondents This Figure shows that both categories the total maintain universe the of same pattern of responses of interviewed firms. Another remark is that the responses of the two categories show almost no difference between them.

148

Figure 5.6.7: Contribution of exports to gross income

This Figure shows that the majority of interviewed firms did not have any contribution coming from exports income. to their gross

Figure 5.6.8: Contribution of exports to gross income X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed responses of companies. the two

Another remark is that the categories show almost no difference between them.

149

Figure 5.6.9: Percentage of total income from innovations not older than 3 years This Figure shows that,

although the large percentage of missing answers, 35% of interviewed firms answered that 100% of their come total from income

innovations not older than 3 years. In addition, more than half of firms have at least 50% of total income coming from these innovations.

Figure 5.6.10: Percentage of total income from innovations not older than 3 years X Category of respondents When the two categories are compared, the results show that largest income years. It is also possible to see some differences in their responses: 54% of Nonsupported firms answered 100%, against 36% of VC-backed firms. But these are not significant differences, as demonstrated by chi-square test in which the calculated chisquare value was less than the tabulated one (3.07 against 9.49 at 4 degrees of freedom and 0.05 significance level). 150 both maintain the of from concentration coming

responses in 100% of total innovations not older than 3

Figure 5.6.11: Companys expenditures on innovation over the last 2 years This Figure indicates that there equal is no predominant of firms response to this question: an number answered 10%-25% and above 100%. In this se nse, despite of the large percentage of missing answers, it is possible to see the answers concentrated extremes. Figure 5.6.12: Companys expenditures on innovation over the last 2 years X Category of respondents Here it is clear the difference between both categories: while the majority of VCbacked firms invested more than 100% of their total income on innovation over the last 2 years, the majority of Non-supported firms invested only 10%-24%. But when the chi-square test was performed the results show a calculated chi-square value less than the tabulated one (2.83 against 9.49 at 4 degrees of freedom and 0.05 significance level) implying that the difference between the two categories with respect to this question is not statistically significant. in the two

151

Figure 5.6.13: Companys operational profit data over the last 2 years

This

Figure

shows

that

although the large percentage of missing answers 35% of interviewed firms answered that they had no operational profit over the last 2 years. In addition, only 14% of firms answered operational that profit their were

between 21% and 30%.

Figure 5.6.14: Companys operational profit data over the last 2 years X Category of respondents Comparing the two categories, it is clear that there are differences between their responses. While 70% of VC-backed that they had firms no answered

operational profit over the last 2 years, only 33% of Non-supported firms answered the same. In addition, another 33% of Nonsupported firms showed an operational profit of 21%-30% of total income. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (3.56 against 9.49 at 4 degrees of freedom and 0.05 significance level). 152

Figure 5.6.15: Companys operational profit data generated from innovation From this Figure it is possible to see a huge number of missing answers. This is due to the fact that only firms that answered to the Q 3.5.4 (see Figure 5.6.13) and showed some operational profit over the last 2 years were able to answer this question.

Figure 5.6.16: Type of innovation with more impact in the operational profits This Figure shows that half of interviewed firms did not answer to this question. Similar reasons to those presented in the comments of Figure 5.6.15 can be argued here. Despite of this, it can be observed that there is a predominance innovation of impacting product more

firms operational profits.

153

Figure 5.6.17: Type of innovation with more impact in the operational profits X Category of respondents This Figure indicates that both categories maintain the same pattern of responses of the total universe of interviewed companies: predominance of product innovation impacting more profits. Due to the discrepancy in the number of respondent firms from the two categories (5 VC-backed against 9 Non-supported firms), a comparison between them will not be taken into consideration. firms operational

Figure 5.6.18: Reduction in operational costs attributed to process innovation

This Figure shows that, although the large percentage of missing answers, 43% of interviewed firms be answered attributed to that any reduction in operational costs can processes innovation.

154

Figure 5.6.19: Reduction in operational costs attributed to process innovation X Category of respondents Comparing the two categories, it is possible to see some difference between their responses. While 22% of VCbacked firms answered that from 25% to 49% of reduction in operational costs can be attributed innovation, same. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.28 against 5.99 at 2 degrees of freedom and 0.05 significance level). to none processes of Non-

supported firms answered the

Figure 5.6.20:Growth driver with highest impact on profit growth over the last 4 years

This Figure indicates that there is no predominant response to this question: almost an equal number of firms answered external growth and internal growth.

155

Figure 5.6.21: Growth driver with highest impact on profit growth over the last 4 years X Category of respondents From this Figure it is clear that for VC-backed firms the external growth had the highest impact on their profit growth over the last 4 years, while for Non-supported firms the organic growth was the most striking. This finding is supported by chi-square test in which the calculated value was almost the same than the tabulated one (5.93 against 5.99 at 2 degrees of freedom and 0.05 significance level) implying that the difference between the two categories with respect to this question was statistically significant at 0.05 level.

Figure 5.6.22: Number of people employed over the last 4 years

This Figure shows that the majority of interviewed firms (65%) employed maximal 20 people over the last 4 years. From the interview, it was possible to perceive that most of these employed people have master or doctor degree.

156

Figure 5.6.23: Number of people employed over the last 4 years X Category of respondents Here it is possible to see that the responses from VC-backed firms are concentrated in 11-20 employed people over the last 4 years, while those from Nonsupported the firms test are was concentrated in 1-10. But when chi-square performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.92 against 9.49 at 4 degrees of freedom and 0.05 significance level).

Figure 5.6.24: Current impact of innovation management on business success This Figure indicates that 42% of interviewed firms answered that innovation management has a high or very high impact on their success. For the other 46% of firms that answered to this question, it was noted that the strongest motive for the responses not so high, low or very low is that firms still are not doing an efficient innovation management. An entrepreneur emphasized: We are conscious that there is still much to do about innovation management. 157

Figure 5.6.25: Current impact of innovation management on business success X Category of respondents This Figure reveals that

innovation management has a major impact on VC-backed firms success. While 62% of VCbacked firms answered that innovation management has a high or very high impact on their success, only 33% of Nonsupported firms answered the same. In addition, 33% of Nonsupported firms answered that innovation management has a low i mpact on their success, against 8% of VC-backed firms. But when the chi-square test was performed on the findings the results showed that there was no significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (3.10 against 9.49 at 4 degrees of freedom and 0.05 significance level). Figure 5.6.26: Future impact of innovation management on business success This Figure shows that the majority of interviewed firms think that innovation management will have a very high impact in their success in the future. In addition, putting the responses together, all firms that answered to this question said that innovation management will have at least a high impact in their success in the future.

158

Figure 5.6.27: Future impact of innovation management on business success X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed responses of companies. the two

Another remark is that the categories show almost no difference between them.

Figure 5.6.28: Degree of current innovation management performance improvement This Figure indicates that firms can still improve their current innovation performance in a high degree. Around 68% of interviewed firms answered that they can still improve at least quite a bit their innovation management performance.

159

Figure 5.6.29: Degree of current innovation management performance improvement X Category of respondents This Figure reveals maintain that the both same

categories

pattern of responses of the total universe of interviewed companies. In addition, it is possible to see that a little bit more VC-backed firms than Non-supported firms answered that they can still improve very much their innovation management performance. But these are not statistically significant differences because when the chi-square test was performed on the findings the results showed that the calculated chi-square value was less than the tabulated one (0.48 against 5.99 at 2 degrees of freedom and 0.05 significance level).

5.6.2 Market Orientation Performance This variable includes items Q 5.1 Q.5.7 from questionnaire (see Annex III). It is important to say that these items correspond to subjective measurements relative to major competitors. Figure 5.6.30: Firms market share growth in primary market This figure shows that a little bit more than half of interviewed firms answered that their growth in market share was higher or far higher than that of its major competitors. Regarding to this performance, one entrepreneur argued: Now it is easy to grow 160

more than our competitors because we are leaving no market share, so any participation will be achieved tremendous growth in percentage terms. Figure 5.6.31: Firms market share growth in primary market X Category of respondents This Figure reveals that more VC-backed firms than Nonsupported firms answered that their growth in market share was higher or far higher than that of its major competitors (69% against 50%, respectively). In addition, while 42% of Nonsupported firms answered below or far below, only 15% of VC-backed firms answered the same. But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (2.72 against 9.49 at 4 degrees of freedom and 0.05 significance level). Figure 5.6.32: Firms sales growth This figure reveals almost the same results showed in the Figure 5.6.30: a little bit more than half of interviewed firms answered that their growth in firms sales was higher or far higher than that of its major competitors.

161

Figure 5.6.33: Firms sales growth X Category of respondents This Figure reveals that more Non-supported firms than VCbacked firms answered that their growth in sales was below or far below that of its major competitors (42% against 15%, respectively). But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (3.08 against 9.49 at 4 degrees of freedom and 0.05 significance level).

Figure 5.6.34: Firms success in achieving customer satisfaction This figure shows that the

majority (68%) of interviewed firms answered that their success in than achieving that of its customer major satisfaction is higher or far higher competitors. Among the reasons cited by the entrepreneurs on what makes the difference are: personalized customization, quality of service and technical solution. 162 service and

Figure 5.6.35: Firms success in achieving customer satisfaction X Category of respondents This Figure reveals that more VC-backed their firms in than Nonsupported firms answered that success achieving customer satisfaction is higher or far higher than that of its major competitors (92% against 58%, respectively). But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (4.09 against 7.82 at 3 degrees of freedom and 0.05 significance level).

Figure 5.6.36: Firms success in retaining current customers This figure shows that the vast majority (78%) of interviewed firms answered that their success in retaining customers is higher or far higher than that of its major competitors.

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Figure 5.6.37: Firms success in retaining current customers X Category of respondents

Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. Another remark is that the responses of the two categories show almost no difference between them.

Figure 5.6.38: Firms success in attracting new customers This figure shows that the vast majority (82%) of firms are at least on average regarding to this question. In addition, half of interviewed firms answered that their success in attracting new customers is higher or far higher than that showed by its major competitors. An entrepreneur from one of the two firms that answered below argued: Depending on the niche market, there is a strong interference of the company size in the process of attracting new customers.

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Figure 5.6.39: Firms success in attracting new customers X Category of respondents This Figure reveals that more Non-supported firms than VCbacked firms answered that their success in attracting new customers is higher or far higher than that of its major competitors (66% against 46%, respectively). But when the chi-square test was performed on the findings the results showed that there was no statistically significant difference between the two categories of respondents because the calculated chi-square value was less than the tabulated one (1.27 against 7.82 at 3 degrees of freedom and 0.05 significance level). Figure 5.6.40: Firms success in building a positive image This figure shows that the vast majority (86%) of interviewed firms are at least on average regarding to this question. In addition, 68% of interviewed firms answered that their success in building a positive image is higher or far higher than that of its major competitors. Among the reasons mentioned by the interviewed entrepreneurs to be more successful than the major competitors in building a positive image are: flag of innovation, product

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expertise, national company and national product, sponsorship of major events in the area. For those firms that answered to be on the average, one entrepreneur argued: The problem is that our major competitors are already established in the market.

Figure 5.6.41: Firms success in building a positive image X Category of respondents Here it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. Another remark is that the responses of the two categories show almost no difference between them.

Figure 5.6.42: Time to market According to Figure 5.6.42, the majority (72%) of interviewed firms are at least on average regarding to time to market. In addition, 57% of firms

answered that their time to market is higher or far higher than that showed by its major competitors. One reason for this 166

is that their industrial competitors show little flexibility. For the 18% of firms that show a time to market below the competitors, some reasons were mentioned by the interviewed entrepreneurs: multinational competition, new team and unstructured processes, lack of investment, difficulty of finding qualified staff and solutions offered to the market more complex than that of competitors.

Figure 5.6.43: Time to market X Category of respondents From this Figure it is possible to see that both categories maintain the same pattern of responses of the total universe of interviewed companies. Another remark is that the

responses of the two categories show almost no difference between them.

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6. Main results
This section gives overview about the main results of the research with respect to each variable of the study. It also highlights the main differences presented between VCbacked firms and Non-supported firms. Additionally, it allows the identification of the interviewed entrepreneurs and firms profiles. 6.1 Entrepreneurs profile 75% of the interviewed entrepreneurs are between 31 and 50 years old. A curious aspect is that only VC-backed firms present entrepreneurs between 20 and 30 years old; The vast majority of entrepreneurs are man. From the 28 interviewed entrepreneurs, just 2 were women. The 2 women entrepreneurs are from VCbacked firms; 85% of entrepreneurs have Master or Doctor degree. Entrepreneurs from VCbacked firms in general shown to have a slightly higher educational level. But this is not a significant difference, as proved by chi-square test. 6.2 Firms profile 50% of firms have between 5 and 19 employees. The majority (82%) have no more than 49 employees. VC-backed firms present in general less employees than Non-supported firms; 75% of firms are at least 6 years in operation.

6.3 Innovation Management 6.3.1 Innovation strategy All interviewed firms have a clear vision for its future: 90% have their visions clearly linked to the innovation; 85% think that their vision is well understood by innovation partners; 64% think that their visions are well understood by customers and suppliers; 60% have its vision documented for all staff to see. 168

90% of interviewed firms have an innovation strategy: 89% said that their innovation strategy results from an analysis of potential business opportunities activities; 89% said that their innovation strategy focuses on the development of their innovation capabilities; 86% answered that their innovation strategy guides the improvement of your current product/service or process development; 78% said that their innovation strategy guides their idea management; 71% answered that their innovation strategy sets the objectives for their project management in each innovation project; 71% answered that their innovation strategy provides the basis for organizational changes and business model development; 57% have innovation strategy as a guide for their innovation management activities; 53% have their innovation strategy fully communicated to their staff; 50% have their innovation strategy fully understood by their staff; 43% have their innovation strategy fully implemented. 86% of interviewed firms answered that their innovation projects are aligned with their innovation strategy: 43% present a balance between incremental and radical innovation projects; 39% have their innovation projects are balanced with respect to risk and return; 32% have their innovation projects balanced with respect to long and short-term perspectives; 32% answered that their innovation projects are balanced between low and high cost.

6.3.2 Organization and culture 89% of interviewed firms answered that their staff is open rather than skeptical towards new ideas. 85% of interviewed firms answered that their staff is excited about innovation.

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75% of interviewed firms answered that their staff is able to sell new ideas internally. 71% of interviewed firms answered that their staff is imaginative. 64% of interviewed firms answered that its staff is able to think out -of-the box. 32% of firms answered that their staff is not reluctant to try out new methods. 32% of respondents answered that their staff is focused on business impact. 90% of the entrepreneurs answered that their capacity for innovation is viewed by customers to a high or very high degree. 78% of the entrepreneurs answered that their firms capacity for innovation is viewed by them to a high or very high degree. 68% of interviewed firms answered that their capacity for innovation is viewed by competitors to a high or very high degree. 64% of interviewed firms answered that their capacity for innovation is viewed by suppliers to a high or very high degree.

46% of interviewed firms answered that partnerships support and enhance the product/service development phase to a high or very high degree 29 % answered that partnerships support and enhance the launch phase to a high or very high degree 28% answered that partnerships support and enhance the idea management phase to a high or very high degree

64% have between 1 and 6 external partners participating regularly in their innovation projects. The number of external partners that have cooperated in at least one innovation project during the last 3 years is the same as the number of them that regularly participate in innovation projects.

Only 35% of interviewed firms have at least 50% of their staff working on innovation projects in which external partners are involved.

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6.3.3 Innovation life cycle management 64% of interviewed firms answered that their most profitable product/service took less than 36 months from the development to getting on sale. Almost half of interviewed firms did not yet reach the breakeven point for their most profitable product/service. 50% of interviewed firms have started at least 7 (seven) incremental innovation projects in the last 4 years. 45% of interviewed firms answered that at least 50% of their innovation projects showed success within the last 4 years 60% of interviewed firms have started between 1 and 2 radical innovation projects in the last 4 years. Almost half of interviewed firms have none of their radical innovation projects showing success within the last 4 years. 71% of interviewed firms assess new ideas by criteria derived from innovation strategy. 68% of interviewed firms assess new ideas by an interdisciplinary team. 39% of interviewed firms assess new ideas by criteria tailored per project defined in the early development phase. Only 28% of interviewed firms assess new ideas by a set of predefined criteria applied to all innovation projects. 93% of interviewed firms regularly provide feedback to their product/service development personnel on suggestions that they have given to them. 82% of interviewed firms regularly provide feedback to their marketing and sales personnel on suggestions that they have given to them. 79% of interviewed firms regularly provide feedback to their direct customers on suggestion that that they have given to them. 78% of interviewed firms regularly provide feedback to their marketing and sales personnel on suggestions that they have given to them.

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53% of interviewed firms regularly provide feedback to research institutes and universities on suggestions that they have given to them. 39% of firms regularly provide feedback to their suppliers on suggestion that that they have given to them. A large number of firms did not have any contact with experts on intellectual property rights.

93% of interviewed firms have their development processes formalized or successfully in place. Only 28% of firms have a formal system for generating and assessing ideas. 68% of firms had well defined targets for at least 50% of their innovation projects launched during the past 3 years. 46% of interviewed firms answered that at least 50% of their innovation projects launched during the past 3 years met launch-specific targets. Around 60% of firms analyze data and customer feedback at least once a month. Only 18% of interviewed firms have defined indicators to measure their innovation activities. 6.3.4 Enabling factors for innovation management All interviewed firms use incentives to stimulate innovation:

71% allow their staff to use companys facilities for free to test and develop their own ideas; 71% provide their staff with administrative support to get external fund; 57% give direct recognition to their staff; 46% award extra money; Only 4% offer an offer an innovation award. Half of interviewed firms have generated none or 1 patent within the last 5 years; 35% of interviewed firms had 100% of their generated patents within the last 5 years were turned into market success. 79% of interviewed firms have at least 50% of their innovation projects with defined targets with respect to time, budget and quality; 172

73% have met the defined targets for at least 50% of their innovation projects. 71% of interviewed firms have universities or research institutes as innovation partners. 75% of interviewed firms have some human resources policy to stimulate staff qualification.

6.4 Market Orientation 6.4.1 Intelligence generation - 78% of interviewed firms meet with customers at least once a year to find out what products or services they will need in the future. - 78% of interviewed firms poll end users at least once a year to assess the quality of their product and services. - 74% of interviewed firms answered that they are not slow to detect fundamental shifts in their industry. - 72% of interviewed firms answered that they are not slow to detect changes in their customers product/service preferences. - 72% of interviewed firms periodically review the likely effect of changes in their business environment on customers. - 68% of interviewed firms do a lot of in-house market research.

6.4.2 Intelligence dissemination - 71% of interviewed firms answered that important information about their major customers are disseminated through the whole business unit within a short period. - 70% of interviewed firms answered that when one department finds out something important about competitors, it is quickly to alert other departments. - 68% of interviewed firms have interdepartmental meetings at least once a quarter to discuss marketing trends and developments. - 61% of interviewed firms share data on customer satisfaction at all level in the business unit on a regular basis. - 50% of interviewed firms answered that their marketing personnel spend time discussing customers future needs with other functional departments. 173

6.4.2 Responsiveness - 90% of firms answered that customer complaints do not fall on deaf ears. - 82% of interviewed firms periodically review their product development efforts to ensure that they are in line with what customers want. - 82% of interviewed firms answered that their departments make concerted efforts to do the changes that customers would like to see in a product or service. - 72% of interviewed firms do periodical meetings to plan a response to changes taking place in their business environment. - 68% of interviewed firms have a good coordination between the activities of their different departments. - 61% of interviewed firms do not tend to ignore changes in their customers product/service needs. - 46% of interviewed firms think they are able to implement a marketing plan in a timely fashion. - 43% of interviewed firms answered that it does not take them a long time to decide how to respond to their competitors price changes. - 32% of firms would implement a response immediately to a competitors intensive campaign target at their customers.

6.5 Firm performance 6.5.1 Innovation Management Performance - The interviewed firms income data for 2009 ranging from none to above 8000 thousand of Euros. The largest concentration of firms is in the range of 250-500 thousand of Euros. - The interviewed firms income data for 2010 ranging from less than 50 to above 9000 thousand of Euros, a little bit higher than 2009. But the largest concentration of responses, as in 2009, is in the range of 250-500 thousand of Euros. - 50% of interviewed firms have none or less than 25% of total income coming from public research grants. 174

- 61% of interviewed firms did not have any contribution coming from exports to their gross income. - 35% of interviewed firms answered that 100% of their total income come from innovations not older than 3 years. - 25% of interviewed firms spent more than 100% of their total income on innovation over the last 2 years. - 35% of interviewed firms had no operational profit over the last 2 years. - There is a predominance of product innovation impacting more firms operational profits. - 43% of interviewed firms answered that any reduction in operational costs can be attributed to processes innovation. - 65% of firms employed maximal 20 people over the last 4 years. - 42% of interviewed firms answered that innovation management has a high or very high impact on their success. - 79% of interviewed firms think that innovation management will have a very high impact in their success in the future. - 68% of interviewed firms answered that they can still improve at least quite a bit their innovation management performance.

6.5.2 Market Orientation Performance 78% of interviewed firms answered that their success in retaining customers is higher or far higher than that of its major competitors. 68% of interviewed firms answered that their success in achieving customer satisfaction is higher or far higher than that of its major competitors. 68% of interviewed firms answered that their success in building a positive image is higher or far higher than that of its major competitors. 57% of firms answered that their time to market is higher or far higher than that showed by its major competitors. 54% of interviewed firms answered that their growth in market share was higher or far higher than that of its major competitors.

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50% of interviewed firms answered that their growth in firms sales was higher or far higher than that of its major competitors. 50% half of interviewed firms answered that their success in attracting new customers is higher or far higher than that showed by its major competitors .

6.6 Main differences between VC-backed and Non-supported firms Table bellow summarizes the main differences found between the two categories of firms. In order to simplify the presentation, those differences that were profound or classified through chi-squares tests as statistically significant were marked with the symbols ** or *, respectively.
Table 6.1 -Main differences found between VC-backed and Non-supported firms VCbacked firms 73% 57% 71% 50% 43% 36% 47% 60% 47% 40% 47% 29% 100% 54% Nonsupporte d firms 50% 73% 91% 73% 73% 64% 33% 75% 17% 25% 83% 75% 58% 25%

Variable

Item Vision documented for all staff to see Innovation strategy sets clear objectives for their innovation management activities Innovation strategy provides the basis for organizational changes and business model development. Innovation strategy is fully communicated to their staff. Innovation strategy is fully understood by their staff. Innovation strategy is fully implemented by their staff. Innovation projects are balanced with respect to risk and return **Staff is able to think out-of-the box Staff is not reluctant to try out new methods Staff is focused on business impact Capacity for innovation is viewed by customers to a very high degree * Capacity for innovation is viewed by competitors to a very high degree Capacity for innovation is viewed by the entrepreneur to a high or very high degree At least 50% of the staff are currently working on innovation projects in which external partners are involved

Organization and culture

Innovation Strategy

176

Reached the breakeven point for their most profitable product/service Started at least 7 (seven) incremental innovation projects in the last 4 years

36%

67%

60%

41%

Innovation life cycle management

Assessment of new ideas by an interdisciplinary team Assessment of new ideas by a set of predefined criteria applied to all innovation projects Assessment of new ideas by criteria tailored per project defined in the early development phase **Provision of feedback to experts on intellectual property rights Existence of a formal system for generating and assessing ideas Well defined targets for at least 50% of their innovation projects

86% 21% 50%

59% 42% 33%

56%

30%

42%

17%

92%

63%

Enabling factors for innovation management

Allow their staff to use companys facilities for free to test and develop their own ideas * Met the defined targets for 100% of their innovation projects. *Partnership with universities or research institutes *Meeting with customers to find out what products or services they will need in the future Do a lot of in-house market research *Slow to detect changes in their customers product/service preferences (strongly agree). Slow to detect fundamental shifts in their industry (strongly agree)

69%

92%

0%

44%

61%

100%

85% 92% 23% 38%

58% 58% 75% 67%

Intelligence generation

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Intelligence dissemination

Data on customer satisfaction are shared at all level in the business unit on a regular basis

77%

58%

*It does not take them a long time to decide how to respond to their competitors price changes * Tendency to ignore changes in customers product/service needs Periodically review their product development efforts to ensure that they are in line with what customers want If a competitor were to launch an intensive campaign target at their customers they would not implement a response immediately *The activities of the different departments are well coordinated *Able to implement a marketing plan in a timely fashion Do concerted efforts to do the changes that customers would like to see in a product or service Income data for 2010 less than 50 thousand of Euros 100% of total income coming from innovations not older than 3 years Invested more than 100% of their total income on innovation over the last 2 years Had no operational profit over the last 2 years *Growth driver with highest impact on profit growth Innovation management has a high or very high impact on their success Growth in market share within the last year was higher or far higher than that of its major competitors Growth in sales within the last year was below or far below that of its major competitors Success in achieving customer satisfaction is higher or far higher than that of its major competitors Success in attracting new customers is higher or far higher than that of its major competitors

42% 0% 54% 23% 92% 23% 54% 27% 36% 50% 70% External 62% 69% 42% 92% 46%

72% 17% 92% 50% 52% 93% 92% 0% 54% 22% 33% Organic 33% 50% 15% 58% 66%

Innovation Management

Responsiveness Market Orientation Performance Performance

* The differences between the two categories with respect to this question were statistically significant at 0.05 level. ** The differences between the two categories with respect to this question were profound though not statistically significant at 0.05 level.

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7. Conclusions
This work aimed to contribute with the understanding about the level of Innovation Management and Market Orientation in Brazilian technology-based MSMEs. According to the methodology proposed this was a descriptive research. Which means that it had as its fundamental goal the description of the characteristics of a given population with no interference from the researcher, who only attempted to understand the frequency with which the phenomena occur, without the commitment of explaining the phenomena it describes (Vergara, 2002; Gil, 1991, 1997). In this sense, the results indicated that the objectives of the research were achieved. In order to reach the levels of usage of both Innovation Management and Market Orientation practiced by Brazilian technology-based firms and the performance levels attained by such firms, a field research was carried out in Brazil to collect primary data through structured interviews. Data were collected from firms located in five Brazilian States (covering the Southeast, South and Northeast regions), namely: Rio de Janeiro, So Paulo, Minas Gerais, Recife and Santa Catarina. Structured interviews were personally carried out with the entrepreneurs form the target firms. For doing this, survey instruments were used. More specifically, the IMP rove Assessment tool, developed by A.T. Kearney and supported by the European Commission under the Europe INNOVA Initiative, was the basis to gauge Innovation Management practices of firms. The MARKOR scale was the basis applied to gauge Market Orientation information. Personal background information and company information were also included. The previous sample consisted of 30 Brazilian technology-based MSMEs, from which 15 VC-backed and 15 Non-supported firms. Contacts were made per email and phone calls with all 30 firms. But because of the difficulties to get in contact with the entrepreneurs from Non-supported firms, at the end, a total of 28 firms were personally interviewed. Each interview had in average 2 hours and 30 minutes of duration.

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After collecting data a quantitative analysis was carried out by using SPSS 17.0. At the first level of quantitative data analysis, descriptive statistical procedures involving cross-tabulations and frequencies distributions were used. At the second level of analysis, chi-square tests to find out the association between category of respondents and some variables were performed. In addition, in order to complement data and exemplify some results, qualitative information was available in some cases. In order to have a better understanding of the results, they were organized according to the questionnaire sequence and the variables of the study. For each item from the different variables a pie chart with the results of the total interviewed firms and a bar chart with responses divided in the two categories of respondents (VC-backed firms and Non-supported firms) were drawn. At the end, an overview about the main results with respect to each variable of the study was available. It was also possible to highlight the main differences presented between VC-backed firms and Non-supported firms, emphasizing those differences that were profound or classified through chi-squares tests as statistically significant.

Answers to the research questions Having a further looking into the findings it was possible to make some considerations answering to each research question:

Q1 To what level is Innovation Management practiced by the firms? In this study, entrepreneurs were asked to determine the level of their firms practices in four components of innovation management including innovation strategy, organization and culture, innovation life cycle management and enabling factors for innovation management. On the whole, innovation management in Brazilian technology-based firms has a colorful picture. There are positive activities that make clear points of the picture, but there are still some disadvantages that need to be improved. 180

Q 1.1 To what level is Innovation Strategy practiced by the firms? Innovation strategy is strongly considered in Brazilian technology-based MSMEs. But nevertheless there is a lack of implementation to be filled by these firms. All interviewed firms have a clear vision to the future and their visions are clearly linked to the innovation. In addition, the vast majority of them have their innovation strategy focused on the development of their innovation capabilities. But, according to the answers, these are still in the theoretical plan: a great number of firms did not consider innovation strategy as a guide for their innovation management activities and did not have their innovation strategy fully communicated, understood and implemented by their staff.

Q 1.2 To what level is Organization and Culture practiced by the firms? In general, Brazilian technology-based firms are comprised of a staff excited about innovation and opened towards new ideas. But the majority of them are not focused on business impact. Another point is regarding to support from partnerships: there is still low support coming from partners to the Brazilian technology-based firms. And this support is mainly in the product/service development phase. Brazilian technology-based firms present a lack of support from partnerships in the idea management and launch phases of their innovation projects.

Q 1.3 To what level is Innovation Life Cycle Management practiced by the firms? Brazilian technology-based firms are practicing this component of Innovation Management to a medium level. Although most of them already have their product/service development phase under control, it means formalized or successfully in place, their idea management phase 181

needs to be improved: only a few numbers of firms have a formal system for generating and assessing ideas. In addition, just 18% of interviewed firms have defined indicators to measure their innovation activities. Regarding to the provision of feedback, most o Brazilian technology-based firms regularly provide feedback to their product/service development and sales personnel and to their direct customers on suggestions that they have given to them. But just half of them regularly provide feedback to research institutes and universities, and a few number regularly provide feedback to their suppliers. Additionally, a large number of firms did not have any contact with experts on intellectual property rights.

Q 1.4 To what level is Enabling factors practiced by the firms? This is the component which is practiced to the highest level among the four dimensions of Innovation Management by Brazilian technology-based firms. All interviewed firms use incentives to stimulate innovation. Although just half of them give direct recognition to their staff and award extra money and almost none of them offer an innovation award, the majority of them allow their staff to use companys facilities for free to test and develop their own ideas or provide their staff with administrative support to get external fund. Besides, most of interviewed firms have at least 50% of their innovation projects with defined targets with respect to time, budget and quality and have met the defined targets for at least 50% of their innovation projects. Also, most of them have some human resources policy to stimulate staff qualification and have universities or research institutes as innovation partners.

Q2 - To what level is Market Orientation practiced by the firms? Entrepreneurs were also asked to determine their level of firms practices in three components of market orientation including intelligence generation, intelligence 182

dissemination and responsiveness. On the whole, market orientation in Brazilian technology-based firms has been performed slightly well. But despite of this, it is still possible to notice a lack of human resources, activities and skills regarding to the marketing issues. Brazilian technology-based firms are working in highly competitive environment and they do market orientation activities day by day, but in fact they do not know themselves how to explain or understand market orientation in a formal way.

Q 2.1 - To what level is Intelligence generation practiced by the firms? Intelligence generation is well considered in Brazilian technology-based MSMEs and has been performed slightly well with creating relationship with customers and generating their business environments information.

Q 2.2 - To what level is Intelligence dissemination practiced by the firms? The intelligence dissemination practices are not significantly considered by Brazilian technology-based firms. This is the component of market orientation which is practiced to the lowest level by them. Most of dissemination activities were not implemented well, especially in terms of customers and business environments information. They face problems with re stricted dissemination of information about customers and business environment. Besides, these firms present weak ability of combination between separated parts.

Q 2.3 - To what level is Responsiveness practiced by the firms? Responsiveness is the factor which is effectuated the best among three dimensions of Market Orientation in Brazilian technology-based firms.

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Although they still have to improve their ability to coordinate separated departments and develop marketing activities, like implement a marketing plan in a timely fashion and give a immediately response to a competitors intensive campaign target at their customers, these firms are significantly good at exerting themselves to satisfy customers. In the aspect of caring customers needs and complaints, Brazilian technology-based firms have acted quite well.

Q3 - How is the performance of Brazilian technology-based firms? Although the concept of business performance has a variety of meanings (e.g. short- or long-term, financial or organizational benefits), in the literature it is broadly viewed from two perspectives, those are subjective and objective method. This study has adopted both the subjective and objective concepts in order to gauge information about the performance of Brazilian technology-based firms. The objective concept was explored in the dimension of Innovation Management Success. The subjective concept was used taken into consideration the Market Orientation performance of firms relative to their competitors.

Q 3.1 - How is the Innovation Management performance of these firms? There is a predominance of product innovation impacting more Brazilian technologybased firms operational profits. With regards to the right key performance indicators to monitor and measure innovativeness, Brazilian technology-based firms are performing moderately. For example, 35% of them present 100% of their total income come from innovations not older than 3 years and 25% spent more than 100% of their total income on innovation over the last 2 years. When it comes to the firms financial results, their performances are not so bad, but still far from ideal: the largest concentration of firms income data for 2009 and 2010 is in the range of 250-500 thousand of Euros; more than half of interviewed firms did not 184

have any contribution coming from exports to their gross income and 35% of them had no operational profit over the last 2 years. In general, Brazilian technology-based firms do not see a major impact of innovation management in their current success. But the majority of them think that innovation management will have a very high impact in their success in the future. In addition, a great number of firms think that they can still improve at least quite a bit their innovation management performance. These results reveal that most of Brazilian technology-based firms are still in the phase of heavy investments, some with no product in the market and trying to solve current problems with limited financial and human resources.

Q 3.2 - How is the Market Orientation performance of these firms? Brazilian technology-based firms are performing better than their major competitors in retaining new customers, achieving customer satisfaction and building a positive image. But when it comes to the questions related to growth in market share, growth in sales and attracting new customers they are not so good. These results mean that Brazilian-technology based firms are facing difficulties to enter into the market. Once they reach a position into the market they can compete with some advantage.

Q4 - Are there differences in the level of Innovation Management between VC-backed and Non-supported firms? VC-backed and Non-supported firms behave differently regarding to each dimension of Innovation Management: - Non-supported firms are better in the aspects related to the innovation strategy and enabling factors for innovation management than VC-backed firms. 185

Regarding to the Innovation strategy, VC-backed firms are performing better just in the aspect related to the documentation. When it comes to the aspects related to the implementation of the Innovation Strategy, such as: setting clear objectives for their innovation management activities; provide the basis for organizational changes and business model development and to be fully communicated, understood and implemented by their staff, Non-supported firms are performing better. Regarding to the Enabling factors the differences are even more significant: Nonsupported firms are performing better at all items in which the two groups showed some difference between them. Especially in items: met the defined targets for 100% of their innovation projects and partnership with universities or research institutes, where the differences are statistically significant. -VC-backed firms are better in the aspects related to the innovation life cycle management than Non-supported firms. Regarding to the Innovation life cycle management, Non-supported firms are performing better just in one item: reached the breakeven point for their most profitable product/service. When it comes to the other aspects, such as: provision of feedback to experts on intellectual property rights, existence of a formal system for generating and assessing ideas, assessment of new ideas by an interdisciplinary team and more, VCbacked firms are performing better. -Although none of the two groups have excelling in relation to Organization and culture, it is important to emphasize that they presented significant differences between them regarding this dimension: staff from Non-supported firms are more able to think out-of-the box and these firms have their capacity for innovation viewed by competitors and customer to a higher degree than VC-backed firms. On the other hand, the staff from VC-backed firms are more focused on business impact and the entrepreneurs view their firms capacity for innovation to a higher degree than Nonsupported firms.

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Q5 - Are there differences in the level of Market Orientation between VC-backed and Non-supported firms? VC-backed and Non-supported firms also behave differently regarding to each dimension of Market orientation: -VC-backed firms are better in the aspects related to the intelligence generation and intelligence dissemination than Non-supported firms. The differences here are significant: VC-backed firms are performing better at all items regarding to intelligence generation and dissemination in which the two groups showed some difference between them. Especially in items: meeting with customers to find out what products or services they will need in the future and we are not slow to detect changes in our customers product/service preferences, where the differences are statistically significant. - Non-supported firms are better in the aspects related to the responsiveness than VCbacked firms. This dimension of market orientation showed the biggest number of items with statistically significant differences between the two groups of firms. VC-backed firms are performing better just in the aspect related to the coordination of the different departments, while Non-supported firms are better in the activities regarding to the marketing issues and in the aspect of caring customers needs like to be able to implement a marketing plan in a timely fashion and periodically review their product development efforts to ensure that they are in line with what customers want, respectively.

Q6 Are there distinction in Innovation Management performance between VC-backed and Non-supported firms? There are some items from Innovation Management performance where it is possible to see clear differences between the two groups of firms: 187

Regarding to income data and profit, Non-supported firms are performing better. But more VC-backed than Non-supported firms think that innovation management has a high or very high impact on their current success. The statistically significant difference here is about the growth driver with highest impact on profit growth: VC-backed firms consider de external growth, while Nonsupported firms have the organic growth impacting more.

Q7 - Are there distinction in Market Orientation performance between VC-backed and Non-supported firms? The two groups of firms also presented some differences related to Market Orientation performance: While Non-supported firms are performing better in the items related to the growth in sales and success in attracting new customers, VC-backed firms are better in growth in market share and success in achieving customer satisfaction.

Final conclusions As final conclusions, the research results have revealed that, in general, Brazilian technology-based MSMEs are practicing each dimension of Innovation Management to a different level, with the Enabling factors for innovation management practiced at the highest level among all. Market Orientation has been practiced slightly well by these firms, with de component Responsiveness effectuated as the best. The main weaknesses showed by Brazilian technology-based firms can be addressed to activities related to: implementation and idea management and launch phases, regarding to Innovation Management; and dissemination and marketing issues, regarding to Marketing Orientation. Comparing the two groups of firms, Non-supported firms are performing better the dimensions Innovation strategy, Enabling factors and Responsiveness, while VC-backed firms Innovation Life Cycle Management, 188

Intelligence generation and Intelligence dissemination. The results presented in the performance of the two groups of firms reflect these differences. At the end, this research not only confirms, from the point of view of Innovation Management and Market Orientation, the assertions of Pavitt et al., 2005: Despite the different efforts started so far Brazilian technology-based MSMEs face difficulties of implementation. These difficulties can be approached by the fact that, traditionally, technological innovation appears to have been largely bypassed in defining the management structures of high-technology companies. Most companies build their structures around the traditional functions of finance, marketing, production, human resources and R&D.; but also reveals in detail the strengths and weaknesses of the Brazilian technology-based firms. Thus the overall research was able to reach all the expectations established as relevant to the study.

Recommendations for future work As recommendations for future work of unfolding and deepening of the research results, can be proposed: - Analyze the difficulties regarding to the Innovation Management and Market Orientation presented by the technology-based firms in the Brazilian context, seeking its possible causes; - Seek solutions to the weaknesses regarding to the Innovation Management and Market Orientation practices presented by Brazilian technology-based firms; - Broaden the research scope, addressing a larger number of Brazilian technologybased firms and VC funds; - Conduct the research focusing on firms in specific sectors.

189

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ANNEX I

PART 1 - PERSONAL BACKGROUND INFORMATION 1. Function in the company: 2. Your age 20-30 31-40 3. Sex Male Female Bachelors Degree Master Degree Doctor Degree 41-50 51-60 61 or above

4. Education level Secondary High school

PART 2 - COMPANY INFORMATION 1. Name of firm: 2. Address: 3. Tel: 4. Email: 5. Number of employees: < 5 5-10 10 20 6. Years in business: < 1 year 1 - 3 3 - 5 7. Years in operation < 1 year 1 - 3 3 - 5 8. Type of ownership Private enterprise JointJoint-venture Limited company State-owned 5 - 10 5 - 10 above 10 years above 10 years

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PART 3 - INNOVATION MANAGEMENT

3.1 Innovation Strategy

Q 3.1.1 Does your company have a clear vision for its future? (What it wants to become?) If yes, to what degree the following attributes apply?

(1= not applicable and 5= fully applicable) Documented for all staff to see Clearly linked to innovation Well understood by customers and suppliers Well understood by your innovation partners

Q 3.1.2 Does your company have an innovation strategy? If yes, to what degree the following attributes apply?

(1= not applicable and 5= fully applicable) It results from an analysis of potential business opportunities activities It sets clear objectives for your innovation management activities It guides your idea management It sets the objectives for your project management in each innovation project It guides the improvement of your current product/ service or process development It provides the basis for organizational changes and business model development It focuses on the development of your innovation capabilities

Q 3.1.3 To what degree is your innovation strategy communicated to, understood and implemented through your company? (1= not at all and 5= fully) 198

Communicated Fully understood Implemented

Q 3.1.4 Does your company assess all innovation projects systematically? If yes, your innovation project(s) are: (1= not applicable and 5= fully applicable) Alligned with your innovation strategy Balanced between incremental and radical innovation Balanced with respect to risk and return Balanced with respect to long-term and short-term perspectives Balanced between low and high cost

3.2 Innovation Organisation and Culture

Q 3.2.1 To what degree would you rate staff attitudes towards innovation? (1= not applicable and 5= fully applicable) Excited/passionate about innovation Open rather than skeptical towards new ideas Able to think out-of-the box Imaginative Reluctant to try out new methods Able to sell ideas internally Focusing on business impact

199

Q3.2.2

To

what

degree

do

others

view

your

capacity

for

innovation?

(1= very low and 5= very high) Your direct customers Your competitors Your suppliers Yourself

Q 3.2.3 To what degree do partnerships support and enhance each phase of the innovation life cycle? (1= not at all and 5= to a very high degree) Idea management Product/service or process development Launch and continuous improvement

Q 3.2.4 How many external partners regularly participate in your innovation projects? Q 3.2.5 How many of these have cooperated in at least one innovation project during the last 3 years? Q3.2.6 How many people currently work on innovation projects in which external partners are involved?

3.3 Innovation Life cycle Processes

Q. 3.3.1 What is the length of time (in months) for your most profitable product/service group from the beginning of the development (project authorization) until you take (or envisage that you will take) your product/service off the market?

200

Q 3.3.2 How many months does it take for your most profitable product/service group from the beginning of the development (project authorization) to getting new product/service on sale? Q 3.3.3 How many months did it take for your most profitable product/service group from the project authorization to reach the breakeven point? Q 3.3.4 How many incremental innovation projects to improve existing

products/services/processes/organizational or business models have you started in the last 4 years? Product innovations Service innovations Process innovations Organisational innovations Business model innovations

Q.3.3.5 How many of these projects showed success (e.g. reached break even) within the last 4 years? - Product innovations - Service innovations - Process innovations - Organisational innovations - Business model innovations

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Q 3.3.6 How many radical innovation projects to develop completely new products/services/processes/organizational or business models have you started in the last 4 years? - Product innovations - Service innovations - Process innovations - Organisational innovations - Business model innovations

Q.3.3.7 How many of these projects showed success (e.g. reached break even) within the last 4 years? - Product innovations - Service innovations - Process innovations - Organizational innovations - Business model innovations

Q.3.3.8 How do you assess new ideas and ways of developing business? (1= not applicable and 5= fully applicable) - Assessment by an interdisciplinary team - A set of predefined criteria applied to all innovation projects (i.e., standards in place)

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- Criteria tailored per project defined in the early development phase (i.e., no standards in place) - Criteria derived from innovation strategy - Others, please specify

Q 3.3.9 How regularly do you provide feedback to the following groups on suggestions that they have given to you? (1= not at all and 5= highly regularly) Suppliers Purchasing Direct customers Indirect customers Marketing and sales Production/service development Research institutes and universities Experts on intellectual property rights Network partners

Q 3.3.10 Do you have a formal system for generating and assessing ideas? If yes, what percentage of the generated ideas are radical ideas and incremental ideas? From these generated ideas, what percentage is taken to development stage?

Q 3.3.11 How formalized are your development processes (with clearly defined stages, milestones, etc)? (1= not at all and 5=successfully in place)

203

Product innovations Service innovations Process innovations Organizational innovations Business model innovations

Q 3.3.12 For innovation projects launched during the past 3 years, what percentage had well defined targets (such as volume of sales within a specific time frame, turnover from theses sales, timing of first sales etc. )? What percentage of those projects met launch-specific targets?

Q 3.3.13 In the course of a year, how many times do you analyse customer data and customer feedback? Q 3.3.14 Have your company defined indicators to measure its innovation activities?

3.4 Enabling factors

Q 3.4.1 Does your company use incentives to stimulate innovation? If yes, which of the following do you offer? Awarding extra money Giving them direct recognition A company innovation award Allowing them to use companys facilities for free to test and develop their own ideas Providing administrative support to get external (public) fund 204

Q 3.4.2 How many patents have your company generated within the last 5 years?

Q.3.4.3 How many of those patents were turned into market success?

Q.3.4.4 For innovation projects in the last 3 years, what percentage had targets defined with respect to time, budget and quality?

Q 3.4.5 How many met these targets?

3.5 Innovation results

These information are closely related to the benchmarking process, please ensure that data is as complete and accurate as possible. Please give the values for each year individually. Q 3.5.1 What is your income data (income from sales and other income streams) for the last 2 years? Total income (in thousands of Euros) Contribution of public research grants to total income (%) Contribution of exports to gross income (%)

Q 3.5.2 What was the percentage from innovations that are not more than 3 years old?

Q 3.5.3 What were your companys expenditures on innovation (including personnel costs, equipment costs, outsourced services, etc.) over the last 2 years?

205

Q 3.5.4 What was your companys operational profit data (EBIT) been over the last 2 years?

Q 3.5.5 From this, what is the percentage generated from innovation?

Q 3.5.6 How were last years operational profits gained from inno vation projects distributed across different types of innovation? (please distribute 100 percentage points across de following innovation types) Product innovations Service innovations Process innovations Organizational innovations Business model innovations

Q 3.5.7 What percentage of reduction in operational costs can be attributed to processes innovation?

Q 3.5.8 Which growth drivers had the highest impact on your profit growth over the last 4 years? (please distribute 100 percentage points across de following growth drivers) External growth (mergers and acquisitions) Internal, organic growth Compliance with new standards (legal, environmental, etc.)

Q 3.5.9 How many people did you employ over the last 4 years? 206

Q 3.5.10 What is the current and future impact of innovation management on your business success? (1= very low and 5= very high) Current success Future success

Q 3.5.11 How much can you still improve your current innovation management performance? (1= not at all and 5= very much)

207

ANNEX II

PART 4 - MARKET ORIENTATION The following statements indicate the degree of market orientation in the activities described. Please write a number to indicate your attitude on each statement: (1) Strongly disagree (5) Strongly agree

4.1 Intelligence generation

Q 4.1.1 We meet with customers at least once a year to find out what products or services they will need in the future.

Q 4.1.2 We do a lot of in-house market research.

Q 4.1.3 We are slow to detect changes in our customers product/service preferences.

Q 4.1.4 We poll end users at least once a year to assess the quality of our products and services.

Q 4.1.5 We are slow to detect fundamental shifts in our industry (for example, competition, technology, regulation).

Q 4.1.6 We periodically review the likely effect of changes in our business environment (for example, regulations) on customers. 208

4.2. Intelligence Dissemination

Q 4.2.1 We have interdepartmental meetings at least once a quarter to discuss marketing trends and developments. Q 4.2.2 Marketing personnel in our business spend time discussing customers future needs with other functional departments. Q 4.2.3 When something important happens to our major customer or market, the whole business unit knows about it within a short period. Q 4.2.4 Data on customer satisfaction are shared at all levels in the business unit on a regular basis. Q 4.2.5 When one department finds out something important about competitors, it is quickly to alert other departments

4.3. Responsiveness
Q 4.3.1 It takes us a long time to decide how to respond to our competitors price changes . Q 4.3.2 For one reason or another, we tend to ignore changes in our customers product or service needs. Q 4.3.3 We periodically review our product development efforts to ensure that they are in line with what customers want. Q 4.3.4 Our personnel get together periodically to plan a response to changes taking place in our business environment.

209

Q 4.3.5 If a major competitor were to launch an intensive campaign targeted at our customers, we would implement a response immediately Q 4.3.6 The activities of the different departments in this business unit are well coordinated. Q 4.3.7 Customer complaints fall on deaf ears in this business unit. Q 4.3.8 Even if we came up with a great marketing plan, we probably would not be able to implement it in a timely fashion. Q 4.3.9 When we find that customers would like to see changes to a product or service, the departments involved make concerted efforts to do so.

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ANNEX III

PART 5 - BUSINESS PERFORMANCE Overall performance of the firm for the past 12 months relative to major competitors was: Far below (1) Far higher (5) Q 5.1 Firms market share growth in our primary market. Q 5.2 Firms sales growth. Q 5.3 Firms success in achieving customer satisfaction Q 5.4 Firms success in retaining current customers Q 5.5 Firms success in attracting new customers Q 5.6 Firms success in building a positive image Q 5.7 Time to market

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Appendix A: Interviewed firms

VC-backed firms

http://www.cvdentus.com.br/English/english.html and http://www.cvdvale.com.br/ Address: Estrada Principal do Torro de ouro, 500 - Torro de Ouro So Jos dos Campos - SP Brasil - 12229-390 Email: cvdvale@cvdvale.com.br ; Phone: +55 (12) 3944-1126 Date: 04.01.2011/ Time:09:00

http://www.daccordmusic.com/eng/site/company.php Address: Rua D. Maria Csar, n 170 - Sala 203 Bairro do Recife, Recife - PE Brazil - 50030-140 Phone: +55 (81) 3224-4386 Date: 13.12.2010/ Time:18:00

http://www.rizoflora.com.br/ Address: Parque Tecnolgico de Viosa Av. Oraida Mendes de Castro S/N Novo Silvestre Viosa/MG Brazil - 36570-000 Email:contato@rizoflora.com.br; Phone: +55 (31) 3892-2581 Date:10.12.2010 / Time:14:00

http://www.subsin.com.br/english/index.html Address: Av. Joo Lus Alves S/N Fortaleza So Joo PIRF- Urca Rio de Janeiro RJ - 2291090 Email: subsin@subsin.com.br; Phone: +55 21 22758001 Date:21.12.2010 / Time:10:30 212

http://invitrocells.site.com.br/ Address: Av. Jos Candido Silveira, 2100 Horto Belo Horizonte-MG Email: contato@invitrocells.com.br; Phone:+55 31 34861920 Date:22.12.2010 / Time:10:00

http://www.edgeit.com.br/index.php?w2l=EN_US Address: Av.Paulista, 726 - conjunto 1707 - So Paulo - Brasil - 01310-910 Phone: +55 11 3254-7660 Date: 06.12.2010 / Time:19:00

Address: Av. Jos Cndido da Silveira, 2100 Horto Belo Horizonte MG Phone: +55 31 3486.1733 Date:15.12.2010 / Time:09:00

http://www.deprocer.com.br/ Address:Estrada Adhemar Bebiano, 1660, Del Castilho Rio de Janeiro RJ Phone: +55 (21) 2467-3381 Date:05.01.2011 / Time:11:00

http://www.arvus.com.br Address: R. Coronel Luiz Caldeira, 67 - 2. Andar- Bairro Itacorubi -Florianpolis-SC Phone: +55 (48) 4009.2704 Date:14.12.2010 / Time:09:00 213

http://www.magnamed.com.br/INGindex.html Address:Rua So Paulino, 221 Vila Mariana - So Paulo - SP - Brasil CEP:04019-040 Email: magnamed@magnamed.com.br; Phone +55(11) 5081-4115 Date:05.01.2011 / Time:18:00

http://www.celer.ind.br Address: Rua Padre Eustquio,1.133 - Carlos Prates - Belo Horizonte - MG Phone +55 (31) 3413-0814 Date:06.01.2011 / Time:08:00

http://www.tmed.com.br/eng/ Address:Rua: Ricardo Hardman, 552 Tamarineira - Recife - PE Phone +55 (81) 3366-9100 Date:10.01.2011 / Time:18:00

http://www.biocancer.com.br/ Address: Av. Bernardo Monteiro, 918-Santa Efignia- Belo Horizonte- MG Phone +55 (31) 3224-2030 Date:12.01.2011 / Time:09:00

http://www.biologicus.com.br/ Address: Av. Prof Luiz Freire, 700 Curado- Recife - PE, 50740-540 Phone +55 (81) 4141-4149 Date:13.01.2011 / Time:18:00

214

Usix (Ebix): http://www.ebix-la.com.br Address: Rua So Jos, 40 - Ed. So Jos - Cobertura - Centro Rio de Janeiro - RJ Phone +55 (21) 3553.8749 Date:25.01.2011 / Time:10:00

Non-supported firms

Ntime (Movile) http://www.comperantime.com Address:Rua Lauro Muller, 116/ 704, Botafogo Rio de Janeiro - RJ Phone +55 (21) 2158.6050 Date: 20.12.2010 / Time:15:00

http://www.pipeway.com and http://www.pipeway.com.br Address:Praa Mario Nazar, 40, So Cristvo, Rio de Janeiro RJ Phone +55 (21) 3214-1600 Date:09.12.2010 / Time:10:30

http://www.fabricadigital.com.br Address: Av, Nossa Sra de Copacabana, 895/1001 Copacabana, Rio de janeiro RJ Phone: +55 (21) 2548-7877 Email: atendimento@fabricadigital.com.br Date:21.12.2010 / Time:19:00 215

http://www.cleverpack.com.br/index.php?lang=en Address:Rua Guilherme Maxwell, 547/406, Bonsucesso, Rio de Janeiro RJ Phone: +55 (21) 2573-6426 Date:06.12.2010 / Time:19:00

Bionix
http://www.bionix.com.br/ Address:Rua Lucidio Lago, 96/403, Meier Rio de Janeiro RJ Phone:+55 (21) 9805 6510 E-mail: lee@bionix.com.br Date:05.01.2011 / Time:08:00

http://www.kognitus.com.br Address:Avenida Marechal Floriano, 38/ 901 Centro - Rio de Janeiro - RJ Phone: 55 (21) 3553-5654 / 3553-4050 Date:17.01.2011 / Time:16:00

http://www.ativatec.com.br/ Address:Rua Dalcdio Jurandir, 255/ 313 -Barra da Tijuca Rio de janeiro RJ Email: contato@ativatec.com.br; Phone: +55 (21) 3594-5979 Date:19.01.2011 / Time:18:00

http://www.bioaptus.com.br/ Address:Av Antonio Carlos, 6627-Inova/114 Belo Horizonte MG Phone:+55 (31) 3409-6788 Date:21.01.2011 / Time:10:00 216

http://www.tecc2.com.br Address:Avenida Joo Luis Alves, S/N - Forte So Joo - PIRF - Rio de Janeiro, RJ Phone: +55 21 2295-9179 Date: 18.01.2011 / Time:18:00

http://www.pam-membranas.com.br/ Address:Rua Paulo Emdio Barbosa sn, Parque Tecnolgico do Rio de Janeiro, QD 6A, Edificio MP, Mdulo 1, Ilha do Fundo/Cidade Universitria - Rio de Janeiro/RJ E-mail: pam@pam-membranas.com.br; Phone: 21-3733 1980 Date:18.01.2011 / Time:08:00

INOVAX http://www.inovax.com.br/ Address:Av. Rio Branco, 4, 407/408 and 409 - Centro - Rio de Janeiro - RJ Email: inovax@inovax.com.br; Phone: (21) 2103-5550 Date:13.01.2011 / Time:11:00

MILESTONE (Affero) http://www.milestone-ti.com.br/ Address Rua Bambina, 25, Botafogo, Rio de Janeiro RJ Phone: +55 (21) 4063-9157 Date:20.01.2011 / Time:11:00

CORTEX INTELLIGENCE http://www.cortex-intelligence.com/site/english/index.php Address Rua da Assemblia, 10 3711/3712, Centro, Rio de Janeiro - RJ E-mail: contato@cortex-intelligence.com; Phone: +55 (21) 32823180 Date:20.01.2011 / Time:18:00 217

Declaration of Academic Honesty

I hereby declare to have written this Masters Thesis by my own, having used only the listed resources and tools. It is well known to me that a false declaration is deemed to be an offence against the examination regulations of the International SEPT Program and the University of Leipzig.

Place, Date ___________________ ! ! ! ! ! ! !!!! ! !

Signature ___________________!

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