The small entrepreneurial firms and the larger firms and their characteristics - Essay Example

?Innovation and Entrepreneurship Table of Contents Table of Contents 2 Introduction 3 Advantages and Disadvantages of Small Entrepreneurial Firms in Innovation of Products and Services 4 Discussion 11 “Small Entrepreneurial Firms Have Advantages Over Larger Companies In Developing Innovative Products Or Services” 11 Conclusion 14 References 15 Introduction Product or service innovation has become an integral part of almost every business these days. Most of the firms implement several strategies to improve their product range through renovation of the existing products and services to satisfy the customers. Fundamentally, product innovation or service innovation refers to the process of introducing certain new goods or products and services or the process of modifying the existing products or services to retain the present consumers or to attain certain new customers (Stokes & Wilson, 2010). Entrepreneurial firms are the firms which are being established by an individual or more than one individual. The owners of the entrepreneurial firm are comparatively more flexible to take strategies and make decisions regarding specific matters than the larger firms. The owners of the entrepreneurial firms are known as the entrepreneurs. These entrepreneurs are free to choose their business process and financial statistics. These entrepreneurs are accountable for the profit and loss of their business. An entrepreneurial firm can be a family joint venture or non family venture, where the partners are equally responsible for the profit and the loss of the company and all the partners have the equal rights to take part in any kind of decision making process (Karami, 2007). The larger firms have more exposure than the small firms with the greater amount of capital, large number of manpower, improved technology and definitely huge brand recognition in wider range among others. The large firms are either the advanced form of the small firms or these are the firms which have been established with higher amount of capital or finance in hand. These firms involve large number of investors and shareholders, who have the right to take decisions in the business matters (Kerzner, 2009). The major objective of the study is to highlight the small entrepreneurial firms and the larger firms and their characteristics. The paper would also include the advantages and disadvantages faced by a small entrepreneurial firm while making innovation in terms of their products and services over the larger firms. There would be a summative conclusion for the overall discussion. Advantages and Disadvantages of Small Entrepreneurial Firms in Innovation of Products and Services Entrepreneurial firms are the sources of opportunities where an individual or more than one individual can explore the facilities available, according to their own determined ways. Entrepreneurial firms give the owner the independence to think, to plan and to execute the plans according to the requirement. The small entrepreneurial firms are more flexible to make decisions and to choose various strategies regarding the need of the business. The entrepreneurial firms do not involve too many investors or shareholders, and they include a simple managerial structure with less possibility of hierarchy system (Hughes, n.d.). In the present scenario, most of the firms and companies are focusing on innovation of their products and services. Innovation provides the firms with the opportunity of exploring their potential and the scope of retention of the customers. The small entrepreneurial firms are more probable to make innovation of products and services as they involve a simple managerial structure and the decision making process is centralized. Comparatively, large companies face certain complexity while innovating products and services due to their complicated structure of management, large number of shareholders and stakeholders, decentralized planning system and less intervention of the employees to the decision making process (Brown & Rose, 1993). Advantages There are certain advantages of the small entrepreneurial firms regarding innovation of products and services. The advantages include culture and people, organizational structure and cost, risk, exposure, flexibility, effective interpersonal communication and rapid changes to the market needs (Vossen, n.d.). In the small entrepreneurial firms, in most of the cases the work culture is very cordial and healthy. In the entrepreneurial firms, the owner gives the opportunity to their employees to provide their own innovative inputs and to come up with new ideas. In these firms, the employees are not hired merely to lessen or share the workload rather to help the organization to cope up with the new trends, and with the changes in the present markets. These firms provide their employees the interests and incentives to enhance the scope of innovation which would make the firm better and different from the other firms in the market. The people of the entrepreneurial firms enjoy the involvement and the importance given to them by the organization (Zenger & Lazzarini, 2012). The small entrepreneurial firms involve few people in the firms. While making innovation for their products and services, they put the cost according to the need and according to their capacity. Due to the centralised managerial structure, the entrepreneurial firms easily make decisions regarding the investment for the innovation and they use rapid process to renovate services and products (Susman & et. al, 2006). Risks and liabilities are the other factor in case of innovation of products and services in any firm. There will be risk in small entrepreneurial firms as well while processing the innovation of products, but due to their small size and less capitalization the rate of liabilities would be less. The small entrepreneurial firms have quite a less probability to face major losses due to the innovation strategy of the services and the products (Susman & et. al, 2006). The small entrepreneurial firms have good exposure within their firms, as the employees are few in numbers, they have strong involvement in the decision making process. The employees have the scope of providing their own opinions regarding any organisational matter and the employees are also allowed to generate ideas regarding product and service innovation (Susman & et. al, 2006 ). In the small entrepreneurial firms, the owner and the employees have a strong internal or interpersonal communication process, which helps the firm to maintain a good relationship among the employees and the owner and it also helps to share different ideas for product innovation, they also have the flexibility to change their process and the work culture according to the present trend and to the present scenario of the market need as well as according to the customers’ need. Small entrepreneurial firms have a shorter chain of the decision making process due to reduced people involvement (Susman & et. al, 2006). These are the advantages which a small entrepreneurial firm obtain while processing the innovation of products and services within the firm. Disadvantages Along with the advantages, there are certain disadvantages of the small entrepreneurial firms regarding innovation. Essentially, the advantages of the larger companies are the disadvantages of the small entrepreneurial firms. The small firms are flexible towards innovation but they face a number of issues while making innovation in their products and services. Product and service innovation refers to the process of renovating or introducing new products and services, which needs proper planning and strategic alliances. The major disadvantages which a small entrepreneurial firm faces in product and service innovations encompass research and development department (R&D), cost allocation, networking, resource allocation, technological support and recognition (Palmer & Wright, 2010). Each and every firm, be it a small or a large one, relies on the research and development department in case of innovation of products and services. This is the department which helps a firm to generate the idea regarding the present scenario and present trends in the market. It also helps to get the idea about the need of the consumers and the market. According to that the firms bring changes in the process. Small firms have lesser manpower within the firms and they generally manage their R&D by themselves and in large firms the R&D is managed by the large R&D departments consisting of large number of people, which gives a better and effective outcome of the research done by the departments and it covers a wider range of samples where the small firms can cover a particular and a limited area (Palmer & Wright, 2010). The other disadvantage is cost allocation, as in case of the large companies, they have greater scope of setting aside cost for the innovation process, starting from the research till the final changes as compared to the smaller firms. Small firms have poor cost investment capacity due to the size of the firm. Budget is one of the major factors to bring changes to the services and the products of the firms, which small entrepreneurial firms lack at times (Palmer & Wright, 2010). Networking is the other important factor which small firms fail to manage at times. Networking is important in innovation as it helps to gather the idea and the information regarding the customer choice and the need of the consumers as well as of the market. This networking process involves R&D as well, which has been proved to be limited in the small firms. Thus, networking is the other disadvantage of the small entrepreneurial firms in innovation of products and services (Palmer & Wright, 2010). The other significant disadvantage of the small entrepreneurial firm is resources, which is generally found to be better in the larger companies, due to their scale and the brand name. The small firms lack in terms of the additional resources, be it machineries, instruments or human resource, which can be properly made use of in case of innovation process. Due to lack of cost and small size the small entrepreneurial firms face problems regarding hiring of efficient manpower, employees with proper managerial and strategic skills. Not only managerial skills, proper product and service innovation requires efficient labours and skilfulness of the workers to execute the plans to innovate products. Hiring competent and skilful labours need finance, and proper planning, which small entrepreneurial firms lack at times (Palmer & Wright, 2010). In most of the times, small entrepreneurial firms face problems regarding technological support in innovation due to the small size and the poor financial backup. There are several advanced technologies which assist in the process of the product and service innovation, and these technologies are costly and rare. Small firms cannot afford those technologies while implementing the innovation process; rather they use the manpower to innovate products manually which is a long and time consuming process (Palmer & Wright, 2010). Recognition is the other disadvantage which a small entrepreneurial firm can face. The large companies have their brand name and recognition, through which they create networking, manage their R&D departments, allocate resources, and manpower-skills among others. With the help of the brand names the large firms can resist the entry of the competitors in the market and they can avail many other facilities, which a small entrepreneurial firm cannot avail. Therefore, these are a few disadvantages which small entrepreneurial firms face while processing the innovation of the products and the services within the firm, due to the limited financial support, limited resource management, limited technological assistance and lesser recognition in the market (Palmer & Wright, 2010). Discussion “Small Entrepreneurial Firms Have Advantages Over Larger Companies In Developing Innovative Products Or Services” Both small and large companies have pros and cons regarding innovation of products and services, but small entrepreneurial firms are more open to innovation due to the size and the flexibility of the firm as well as of the procedures within the firm. Small entrepreneurial firms have several scopes and opportunities to develop the process of product and service innovation (Baldwin & Gellatly, 2003). Small entrepreneurial firms have the opportunity and the endeavour of making progression and turning to a big firm in the coming future. Therefore, the small firms are observed to place emphasis towards the process of innovation for development. The small entrepreneurial firms can put several efforts and challenges to attain the needs of the customers and the market according to the present trend, where the large companies with their brand name and recognition in the market cannot take rapid decisions towards certain changes within the company, as it can result in a huge loss or a disaster if the plan fails (Baldwin & Gellatly, 2003). The small entrepreneurial firms have the advantage of having less liability due to their small size. These firms can take risk of innovation of products and services, as the small entrepreneurial firms have not much to lose, where the large companies have more chances of raising liabilities and risks while implementing the process of innovation. The large companies have their brand name, recognition, wealth, division and distribution of shares; therefore it would be real tough for the large companies to bring a rapid change within the organization (Baldwin & Gellatly, 2003). The small entrepreneurial firms have centralized planning system, which refers to the process where the single owner or the partners together can take the decision with the concern of the employees of the firm. In most of the small entrepreneurial firms, there are few members or employees who are associated to the firm, which helps to reduce the conflicts and the confusions. The decisions taken are clear and agreeable to everyone, whereas the larger companies follow decentralized planning system, where the decisions taken are complex and at times generate confusions, as the large companies have huge number of employees and they also have several investors, shareholders and stakeholders. In the large companies, the key decisions are taken by the managers but the final decisions are taken by the Board of Directors and the Chief Executive Officer. These shareholders and stakeholders also have their say while taking any decision. Too many opinions make the process complex and unreachable (Baldwin & Gellatly, 2003). The managerial structure in the small entrepreneurial firms is simple and easy to manage. Few employees and an owner handle all the matters within the firm, be it innovation of products and services or anything else. The managerial structure in the small entrepreneurial firms provide their employees with ample exposure to intervene and to participate almost in every decision making process. Even if the decision has already been taken, they at least ask for the employees concern. This is rare in large companies, where the employees are generally not allowed to take part in the managerial decision making process and in the company matters. In large companies, the employees are observed to merely follow the provided instructions (Baldwin & Gellatly, 2003). In small entrepreneurial firms, the employees are hired to generate different ideas and skills from different people to differentiate the firm and the products and the services from others, whereas in the larger companies the employees are predominantly hired to reduce the work pressure or work load. The large companies do not allow the employees to give their opinion or to generate their ideas to innovate products or services in the organization. The small entrepreneurial firms can provide a rapid response to the change of the market and consumer need, as these are small in size and flexible in nature, whereas the large companies would think twice before implementing or before bringing any change within the company as they have brand recognition, intervention of various factors and share distribution in the market (Baldwin & Gellatly, 2003). These are the factors which makes the small entrepreneurial firms more advantageous towards innovation of products and services over the larger companies. Conclusion In relation to the above discussion, conclusively it can be stated that both small and large firms have various advantages and disadvantages towards the development of the innovation process of the products and services. The small entrepreneurial firms are more advantageous towards the innovation process with all its facilities and opportunities. No firm, be it a small or large can run without difficulties and threats, but they do have certain opportunities and scope as well. Regarding innovation the small entrepreneurial firms have more opportunities to imply innovation than the larger companies. The reasons to be more advantageous towards innovation for small entrepreneurial firms include flexibility, rapid responses towards changes, effective communication within the firm, simple managerial structure, good exposure and centralized planning system among others. All these factors together have made the small entrepreneurial firms better than the larger companies to develop the innovation of products and services. References Baldwin, J. R. & Gellatly, G., 2003. Innovation Strategies and Performance in Small Firms. Edward Elgar Publishing. Brown, J. & Rose, M. B., 1993. Entrepreneurship, Networks, And Modern Business. Manchester University Press ND. Hughes, A., No Date. Innovation and Business Performance: Small Entrepreneurial Firms in the UK and the EU. Introduction. [Online] Available at: http://62.164.176.164/d/257.pdf [Accessed February 25, 2012]. Karami, A., 2007. Strategy Formulation In Entrepreneurial Firms. Ashgate Publishing, Ltd. Kerzner, H., 2009. Project Management: A Systems Approach to Planning, Scheduling, and Controlling. John Wiley & Sons. Palmer, J. C. & Wright, R. E., 2010. Product Innovation in Small Firms: An Empirical Assessment. Introduction. [Online] Available at: http://www.na-businesspress.com/JABE/Wright2Web.pdf [Accessed February 25, 2012]. Stokes, D. & Wilson, N., 2010. Small Business Management and Entrepreneurship. Cengage Learning EMEA. Susman, G. & et. al., 2006. Product and Service Innovation in Small and Medium-Sized Enterprises. Executive Summary. [Online] Available at: http://www.smeal.psu.edu/cmtoc/research/nistnpd.pdf [Accessed February 25, 2012]. Vossen, R. W., No Date. Combining Small and Large Firm Advantages In Innovation: Theory And Examples. Abstract. [Online] Available at: ftp://ns1.ystp.ac.ir/YSTP/1/1/ROOT/DATA/PDF/INNOVATION/98B21.PDF [Accessed February 25, 2012]. Zenger, T. R. & Lazzarini, S. G., 2012. Compensating for Innovation: Do Small Firms Offer High-powered Incentives That Lure Talent and Motivate Effort? Introduction. [Online] Available at: http://apps.olin.wustl.edu/faculty/zenger/compensating%20for%20innovation.pdf [Accessed February 25, 2012]. Read More