Responsible Innovation Toward Sustainable Development in Small and Medium-Sized Enterprises: a...

Responsible Innovation Toward SustainableDevelopment in Small and Medium-SizedEnterprises: a Resource Perspective

Minna Halme* and Maria KorpelaAalto University Business School, Department of Management and International Business,

Helsinki, Finland

ABSTRACTWhat resources do small enterprises need to develop responsible innovations that enhancesustainable development? Does lack of resources prevent innovation toward sustainability insmall and medium-sized enterprises (SMEs) or can innovations be created with scarceresources? This study investigates environmentally and socially responsible innovations ofSMEs from a resource perspective, based on empirical data from 13 Nordic SMEs. The findingsindicate that SMEs can create responsible innovations with very different resource combina-tions. The most common resource combination comprises equity, research and developmentcooperation, networks, industry knowledge and reputation. Except for financial capital in theform of equity, which appears a necessary condition for responsible innovation from SMEs,resource needs vary between technological and business model innovations. Creatingbusiness model innovations appears to be possible with scarce resources, at the very least withequity and social capital. Environmental technology innovations call for more abundantresource combinations. In particular industry knowledge appears to be a key resource for suchinnovations. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment

Received 6 February 2013; revised 28 February 2013; accepted 11 March 2013

Keywords: corporate responsibility; innovation; SME; resources; sustainable development; small enterprise

Introduction

IN THE INTERNATIONAL DISCUSSION OVER RECENT YEARS THE IDEA THAT CORPORATE RESPONSIBILITY (CR) CAN BE STRATEGIC

has gained ground (Porter and Kramer, 2006, 2011). The idea of strategic responsibility entails the idea thatresponsibility can drive innovation. While large companies are often the focus of the strategic CR debate andresearch (Jenkins, 2006; Jamali et al., 2009) the idea of innovative responsibility is particularly interesting

in the context of small and medium-sized enterprises (SMEs) for a number of different reasons (Rodgers, 2010).For one, due to their flexibility and adaptability, SMEs are more agile innovators than their larger counterparts(Rothwell and Dodgson, 1991; Almeida and Kogut, 1997; Jenkins, 2009). In the situation of an ailing economy,much faith is put on them as agents of creation of new employment. For instance, 85% of net new jobs in the

*Correspondence to: Minna Halme, Aalto University Business School, Department of Management and International Business, PO Box 21230,00076 Aalto, Helsinki, Finland. E-mail: [email protected]

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment

Business Strategy and the EnvironmentBus. Strat. Env. (2013)Published online in Wiley Online Library(wileyonlinelibrary.com) DOI: 10.1002/bse.1801

EU between 2002 and 2010 were created by SMEs (the highest growth rate is in micro and small enterprises)(European Commission, 2005; European Commission, 2007). Secondly, innovation of sustainable products, servicesor business models may be a more fruitful perspective to responsibility in smaller enterprises than the typical viewof expecting they practice the formal CR management typical of large companies (Schaltegger and Wagner, 2011;Lawrence et al., 2006; Bos-Brouwers, 2010; Preuss and Perschke, 2010; Russo and Tencati, 2009; Perrini et al.,2007). Recent studies show that in their environmental and social actions a growing number of small entrepreneursare motivated by sustainability goals rather than just profits or legislation (Masurel, 2007; Rodgers, 2010).

Third, although a very important issue for society, the environmental and social responsibility of SMEs remainsan understudied research area (Moore and Spence, 2006). The main focus of previous research on responsibility inSMEs has been on values driving responsibility, barriers discouraging it and the means needed to enhance respon-sibility management in SMEs (Jenkins, 2006; Moore and Spence, 2006; Roberts et al., 2006; Parker et al., 2009;Hsu and Cheng, 2012), whereas the present understanding of sustainability innovation by SMEs is thin(Bos-Brouwers, 2010).

Small enterprises are, however, more resource-constrained than large companies, which may limit theirability to carry out innovations (Rothwell and Dodgson, 1991; Biondi et al., 2002; European Commission,2007; Parker et al., 2009). However, recent research suggests that resource scarcity is beneficial for innovation(Gibbert et al., 2007; Hoegl et al., 2009), and that responsible small innovative enterprises can find ways tocompensate for resource shortcomings (Bos-Brouwers, 2010). The above suggests that the resources behindresponsible innovation in SMEs deserve scrutiny in order to better understand the potential for such innovationby SMEs.

The focus of this paper is the resources needed for responsible innovation in SMEs. We will next elaborate thecentral concepts, responsible innovation and resources. While an unambiguous definition of responsible innovationmay be an unattainable ideal, we stepwise develop a working definition for the purposes of this paper against asbackground of the concepts of corporate responsibility (CR) and innovation. While definitions of corporate respon-sibility are abundant (Dahlsrud, 2008), it is wise to bear in mind that small (fewer than 50 employees, turnoverunder €10 million) and medium-sized enterprises (under 250 employees, turnover under €50 million) (EuropeanCommission, 2012) are much smaller and in many ways different from large companies. Therefore the appropriate-ness of the term CR in the context of SMEs has been criticized, and ‘responsible business practice’ suggested as amore suitable terminology for SMEs (Moore and Spence, 2006). We adhere to this term, and define it as the waysand means by which SMEs integrate environmental, social and long-term economic concerns in their businessoperations and in their interactions with stakeholders (cf. Dahlsrud, 2008).

As to innovation, we define it as a new or significantly improved product, service or business model which isimplemented, i.e. made available at the market (OECD, 2005), and which can be either disruptive or incremental(Zortea-Johnston et al., 2012). Building on the above notion of responsible business practice and the definition ofinnovation, a responsible innovation here refers to a new or significantly improved product, service or business modelwhose implementation at the market solves or alleviates an environmental or a social problem (Halme and Laurila,2009; cf. Bos-Brouwers, 2010).

As measuring what qualifies as responsible innovation is an ambiguous task (Nogareda and Ziegler, 2006),the idea perhaps becomes clearer through a thought exercise around its negation, irresponsible innovation. Anirresponsible innovation would be a product, service or business model that causes a new social orenvironmental problem or worsens an existing one. Space tourism (high energy consumption) or sub-primemortgages would be such examples. We can also think of innovations that are supposedly neutral in this respect,such as tablet computers.

For small enterprises a responsible innovation may be their main product, service or business model, and thustheir core business instead of an added part of their business or product portfolio. This makes it all the more impor-tant to investigate what resources and combinations of resources are needed for such innovation. While this otherkey concept of our study, resources, can also be classified in many ways, they are here seen as comprising of tangibleor intangible assets (Wernerfelt, 1984), the former consisting of financial and physical resources, and the latter ofhuman, social, organizational and technological resources, and reputation (Grant, 1991; Greene et al., 1997). Giventhe wide-ranging conceptual definitions in the literature, there appears to be a fine line as to whether a specificintangible resource is in fact an asset or a capability. For the purposes of this study, we adopt the approach of Hall

M. Halme and M. Korpela

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. (2013)DOI: 10.1002/bse

(1992) and Galbreath (2005), according to which intangible resources are identified as either assets (what the firmhas) or capabilities (what the firm does). Consequently, the resource constructs are conceptualized as:

1. Tangible resources; which include (a) financial assets and (b) physical assets.2. Intangible resources; assets which include (a) intellectual property assets (Hall, 1992), (b) organizational assets

(Barney, 1991) and (c) reputational assets (Roberts and Dowling, 2002).3. Intangible resources; skills which include capabilities (Hall, 1992; Amit and Schoemaker, 1993).

By resource combinationwe refer to any set of tangible and intangible resources that an enterprise has in its possession ata given time.

Against the backdrop of the above definitions, we ask the following research question and investigate it throughthree sub-questions:

With which resources can SMEs develop a responsible innovation?

• With which resource combinations can SMEs create responsible innovations?• What are the necessary resources for the emergence of a responsible innovation in a SME?• What differences are there between scarcely and abundantly resourced innovations of SMEs?

While the two first sub-questions may at first glance appear similar, the first one refers to combinations of differ-ent resources that SMEs need to create these innovations. Some resources in a combination may be replaceable withanother resource. The second sub-question on the other hand is about the necessity of a certain resource for aresponsible innovation, i.e. a resource without which an innovation cannot come about.

The paper proceeds as follows. We first discuss the data on 13 responsible innovations and the comparative casestudy methodology. We then outline the resource categories applied in this study, and turn to the empirical results.To begin, we address the resources with which the case companies were able to develop their responsible innova-tions. Within this part we also examine the resources necessary for different types of responsible innovation. As thisanalysis reveals that some innovations were created with only a few resources while others were backed by several,we thereafter scrutinize the scarcely and abundantly resourced innovations. In the end we discuss the empiricalfindings and the theoretical as well as methodological contribution.

Data and Methodology

The research design is a multiple-case approach allowing theorizing based on a ‘replication logic’ (Eisenhardt, 1989),coupled with some features of qualitative comparative analysis (QCA) (Ragin, 1987, 2000). The empirical study be-gins with a deductive step, resource categorization derived from the resource-based theory. The later parts of the anal-ysis also involve inductive elements in the analysis of resource development over time for selected cases.

Our unit of analysis is responsible innovations of SMEs. The entrepreneurs can be seen as the actors creatinginnovations, and the SMEs as the setting (Stake, 1995) where the innovating takes place. In total we have studiedinnovations from 13 firms (Appendix A). However, as the focal SMEs primarily have only one innovation (the onewe study), the study of resources behind the innovation is very similar to a fuller study the resources of these firms.Three cases each came from each of Denmark, Norway, Sweden and Finland, and one from Iceland. Appendix Adescribes the 13 firms and their innovations studied, and more information can be found in Hockerts et al. (2008).

Eligible candidates for cases had to be environmental or social innovations of SMEs. In the first phase wescreened responsible innovations from 10 enterprises from each Nordic country. From among these 50 candidateswe chose 13 cases so that they made a balanced sample according to two aspects: (i) social and environmentalinnovation and (ii) design, business model and technology innovations (see Table 3 below).

Data collection at each firm was conducted by a research team comprising one senior and one to two juniorresearchers from each Nordic country. Data were collected through document analysis (websites, product specifica-tions and news media coverage) as well as two or three interviews with decision makers in each enterprise.

Resources Behind Responsible Innovation in SMEs


Interviews lasted from 60 to 90 minutes, and the majority were recorded. Extensive notes were taken in the coupleof instances where the interviewee refused recording. While this paper focuses on the resources needed for environ-mentally or socially responsible innovation in SMEs, this was not the sole content of the research project, which alsostudied the motivations of the entrepreneurs, the relationship between financial and societal goals in the firms, andkey stakeholders in the innovation process, (Hockerts et al., 2008).

In the analysis of resources, the first step was a deductive one: we analysed the data against resource categoriesfrom previous literature. Within the later, inductive steps we also sought additional insights about resources andtheir use from the data. For instance the concept of dynamic resource role, which we discuss in the section onour findings, emerged from the data.

The analysis of resources drew on some features of the QCA method (Ragin, 1987; Rihoux and Ragin, 2009).This is partially because the sample of 13 cases is not a small number, and thus benefits from added systematicexamination. Perhaps more importantly, QCA helps to examine which multiple configurations of resources leadto the outcome of responsible innovation.

As described in the next section, we study seven different resources (derived from Barney, 1991; Galbreath,2005), focusing in particular on what kind of resources configurations lead to responsible innovation.

Resources Behind Case Innovations

In this section we first briefly present the analytical framework used for the empirical study of resources behind thecase innovations. Then we proceed to examine the resources of all 13 innovations, after which we narrow the scopeand scrutinize the scarcely resourced innovations. Finally these are contrasted with the group of abundantlyresourced innovations in order to learn through this comparison of opposites.

Analytical Framework

We investigated resources that fall into four categories: financial capital, capabilities, social capital and reputation.Each was operationalized through one or two concrete resources (Table 1)

This typology is based on the above discussed resource categorization by Galbreath (2005). It contains fewertangible resources than intangible ones. This is firstly because intangible resources are argued to influence companysuccess more than tangible ones (Galbreath, 2005), and secondly because they are more essential for small startingcompanies than are tangible resources (Lichtenstein and Brush, 2001). Our justifications for the selection of theindividual resource items are the following. Some financial capital is usually needed to implement an innovation.By dividing capital into equity and liabilities we want to study whether the source of financial capital influences thecreation of a responsible innovation. Under equity we grouped any capital that does not involve a pay-back obligation.

We were also keen to understand whether the capabilities of the SME are a condition for the creation of respon-sible innovation. Industry knowledge and IPR were chosen as the concrete proxies for capabilities (c.f. Galbreath,2005). Resource literature emphasizes the importance of networks and collaboration (Birley, 1985; Baum et al.,2000), and accordingly they were chosen as proxies for social capital. As to the inclusion of reputation, bothGalbreath (2005) and Khaire (2010) point out its importance as a resource that influences whether a firm is ableto acquire other resources (e.g. capital from external sources, networks).

Resource Combinations of Case Innovations

Table 2 shows which resources each case company possessed (1) or not (0). We give each resource a value of 1 whenit is present and 0 when it is absent from the innovation case (Rihoux and Ragin, 2009). When marking theresource configurations later on, we use an uppercase letter (A) for presence of a resource and a lowercase letterfor its absence (a). It appears that equity is the only necessary resource for a responsible innovation. Under equity(A) we classified financial capital that did not involve a requirement for pay-back. Such capital could stem fromdifferent sources: owner’s own funds, parent company’s investment, venture capitalists or government subsidy.



Appendix B shows that none of the innovations was started with only the help of venture capital or governmentsubsidy. Clewer, SmartUs, OceanSaver and Think Global were owned by a parent company when they wereestablished. EkoLådan was owned by the Swedish National Fund of Organic Produce. These parent organizationsfunded the early development of responsible innovation. In addition, eight companies received funding fromventure capitalists. Government subsidized the innovations in seven companies. The owners invested money inDurat, Fair Unlimited, OceanSaver and Think Global (Appendix B). It is noteworthy that only two of 13 firms tookout loans (B; liability in Table 2).

Most enterprises in the sample also had networks (E, 10/13) and access to research and development (R&D)cooperation (F, 11/13), which were proxies for social capital in this study. The entrepreneurs’ personal networksor enterprise’s networks can either be individuals or groups, which afforded a form of value to the SME. Networkswithout a utility value were not considered to qualify as a resource. It would have been possible to categorize R&Dcooperation (together with other enterprises, public organizations or research institutes) under networks, but giventhe research task (in which resources are conditions for the creation of a responsible innovation), we wanted toscrutinize R&D cooperation as a stand-alone condition.

Two capability types investigated here were industry knowledge (C) and intellectual property rights (IPR) (D). Weconsidered the enterprise having industry knowledge if at least one of its owners had previous experience in thesame industry. This was the case for eight SMEs. Registered trademarks and patents were recorded as IPR. Clewer,Marorka and OceanSaver had both patents and a trademark, and Parans had patents. This is not surprising giventhat all of them are enterprises with a technological environmental innovation (as opposed to business model ordesign innovations). Durat had a registered trademark.

Financial capital Capabilities Social capital Reputational assets

Equity (A) Industry knowledge (C) Networks (E) Reputation (G)Liabilities (B) Intellectual property rights (D) R&D cooperation (F)

Table 1. Resource categories applied in this study

Financial capital Capabilities Social capital Reputationalassets

Outcome

Enterprise Equity(A)

Liabilities(B)

Industry knowledge(C)

IPR(D)

Networks(E)

R&D cooperation(F)

Reputation(G)

Responsibleinnovation

Clewer 1 0 1 1 1 0 0 1DURAT 1 1 0 1 0 1 0 1Ekolådan 1 0 1 0 1 1 1 1Fair Unlimited 1 0 0 0 1 1 1 1FIN 1 0 1 0 1 0 1 1SmartUs/Lappset

1 0 1 0 1 1 1 1

Marorka 1 0 1 1 1 1 1 1MyC4 1 0 0 0 1 1 0 1NOIR 1 0 1 0 1 1 1 1Ocean Saver 1 0 1 1 1 1 1 1Parans 1 1 1 1 1 1 0 1Think Global 1 0 0 0 0 1 1 1Zealand Care 1 0 0 0 0 1 0 1No.of companies

13/13 2/13 8/13 5/13 10/13 11/13 8/13 13/13

Table 2. Resources of the studied small to medium-sized enterprises (1 = presence of a resource; 0 = absence of a resource).IPR, intellectual property rights.



For the purposes of this study only the presence of reputational assets (F) at the time of innovation developmentwas considered to qualify as (1). By the time of the study all companies in the sample had received prizes or otherforms of recognition for their responsible innovation. However, by then the innovation had already been created,and as we study the innovation as an outcome it would not make sense to include reputation that emerged afterthe innovation had been commercialized. Thus we investigate the reputation in retrospect, during the period whenthe innovation was in development. On this basis eight companies’ innovations can be considered to have benefitedfrom a reputation asset. Ekolådan, for instance, benefited from the good reputation of its parent organization, andMarorka’s founders were respected experts in the field of marine energy systems.

As should be apparent by now, the responsible innovations of the sample differ considerably with regard tothe resources needed for their creation. To scrutinize this aspect Table 3 illustrates the resource combinationsbehind the responsible innovations of the case companies. An uppercase letter indicates the existence of aresource while a lowercase one refers to an absent resource. In other words, existing resources are marked asA, B, C, D, E and F, while a, b, c, d, e and f refer to absent resources. Thus, the uppercase letter correspondsto value 1 and a lowercase letter to value 0 in Table 2. Combinations of these letters show the resource combi-nations with which the case enterprises created a responsible innovation. Tables 2 and 3 form the basis of ourfurther analysis.

We can detect from Table 3 that some enterprises have had access to and utilized multiple resource types forcreating a responsible innovation, whereas some responsible innovations have only a few resources in theirbackground. Based on this, we separated the responsible innovation cases into three categories:

Table 3. Innovation types and resource combinations in case enterprises. An uppercase letter indicates presence of a resourcewhile a lowercase letter refers to its absence (IPR, intellectual property rights)



1. Abundantly resourced innovation (six or seven resources), n = 3, i.e. the category contains three innovations.2. Averagely resourced innovation (four or five resources), n = 7.3. Scarcely resourced innovation (one to three resources), n = 3.

We consider an innovation as scarcely resourced if it has been implemented with only three resources or fewer. In thisscheme, innovations with four or five resources at their background represent the average group, while abundantlyresourced innovations are those created with six resources (none of the enterprises had all seven focal resources to hand).

Instead of merely comparing the resource combinations in the above static view, we want to scrutinize in moredetail the resource combinations needed for the emergence of a responsible innovation in selected cases, and askwhat kinds of dynamic relationships there are between the resources.

How should we select the cases for more detailed analysis of resources?We chose to first scrutinize scarcely resourcedinnovations because of contradictory views on whether lack of resources prevents responsible business practices in SMEs(European Commission, 2007; Spence, 2007) and hinders innovation (Rothwell and Dodgson, 1991; Biondi et al., 2002)or whether scarcity is a source of innovation (Gibbert et al., 2007; Hoegl et al., 2009). Consistently with the QCAmethod,after scrutiny of the scarcely resourced innovations we contrast them with the opposite group, abundantly resourcedinnovations in order to pursue further findings through the contrast of opposites.

Comparison of Scarcely and Abundantly Resourced Innovations

Before turning to short case narratives that help us to scrutinize the selected responsible innovations, let us discussan insight that emerged from the data in an inductive step of our analysis. It appears that resources have differentroles in making the innovation possible. For instance, some original resources make it possible to acquire others,and thus implement responsible innovation. This insight led us to the notion of a dynamic resource role, definedas the part a resource plays in the creation of responsible innovation. The three emergent categories of ‘dynamicresource role’ are the following:

1. an igniting resource,2. a realized resource;3. an independent resource.

An igniting resource is a sort of energizing resource, with which an enterprise is able to access another resource. Forinstance, R&D collaboration helps an enterprise to acquire reputational assets. A realized resource refers to a dependentresource that an enterprise can develop with the help of an igniting resource. An independent resource is one that is notinfluenced by other resources, and directly contributes to the creation of the innovation. Provided that no resource leadsto the acquisition of another, it is possible that an enterprise has only independent resources. In such a situation thereare neither igniting nor realized resources, only resources that have been acquired independently of each other.

Scarcely Resourced Innovations

MyC4, Think Global and Zealand Care had only two to three resources for bringing about responsible innovations.All of the firms had financial capital (Equity, A) and social capital (R&D Collaboration, F). In addition, MyC4 hadNetwork Resources (E) and ThinkGlobal had Reputational Assets (G) (see Tables 2 and 3). Let us next turn to thecase narratives and ask how these enterprises were able to develop a responsible innovation with only a fewresources available.

Think Global – Electric Vehicles

The enterprise was originally founded in January 1991 in Norway, as PIVCO, which launched the first version of anelectric car the following year. The chassis and frame of the first prototype were developed by a Danish company,Hydro Aluminium Tonder. The first prototype was revealed to the public in connection with the Lillehammer



Olympics in 1994. The first 80 cars were sold within Norway and to San Francisco (the mayor of the city had beenimpressed by the vehicle when visiting the Olympic Games). This provided to PIVCO the cash flow needed forfurther development work.

The successor model, PIV4, intended for actual production resulted from collaboration between PIVCO andLotus Cars. PIVCO, however, run into financial troubles and was taken over by Ford in 1999. Ford invested overUSD150 million into R&D, but sold Think to KamKorp Group in 2003. KamKorp was not a long-standing ownereither. In 2006 it sold the enterprise to a Norwegian investment group, InSpire. The company was named THINKGlobal. In 2007 R&D for the new THINK City vehicle started. The company collaborated with General Electric (GE),which invested USD4 million in the development of the new model, and USD20 million in the firm A123, whichdevelops batteries for electric cars.

The case innovation of this study is the Think City model from Think Global, which was launched in 2008 in theUK. A number of causal relationships behind the development of Think City can be observed. Firstly, the firm wasable to acquire reputational resources from its appearance at the Lillehammer Olympics. This made it possible togenerate cash flow, which in turn enabled the development of a more progressive model. Later the R&D cooperationwith Lotus Cars made possible the entry of Ford, which provided capital input. Eventually the cooperation with GEprovided financial capital and reputational assets to Think Global. Figure 1 depicts the relationship of resources be-hind Think Global’s responsible innovation.

MyC4 – Micro-Finance to African Entrepreneurs Through the Internet

The responsible innovation from MyC4 is micro-loans to African micro-entrepreneurs through the internet. Withthis service, launched in 2007, any individual willing to invest €5 or more can invest in an African entrepreneur.MyC4 was started when the Kjaer Company, owned by the father of MyC4’s founder, invested in MyC4, and whenthe Danish development agency under the foreign ministry gave a subsidy of €670,000 to test the beta-version of aweb-based micro-finance platform. For almost 2 years before its launch, the founders, Mads Kjaer and Tim Wang,had discussed with hundreds of experts the problems of poverty in Africa, and their potential solutions. It isnoteworthy that they avoided using micro-finance and IT professionals, but interviewed representatives ofInternet-based companies such as eBay and Amazon. Instead of IT professionals, the micro-finance website wasdeveloped in collaboration with its users, who provided feedback through an electronic forum.

R&D Cooperation(with Ford)

R&D Cooperation(with Tonder)

Reputation

Equity(from GE)

Equity(from

InSpire)

Reputation


1. Igniting resources

2. Realized and independent

resources

Reputational assetsFinancial capital Social capital

R&D Cooperation(with Lotus)

Equity(from Ford)

R&D Cooperation

(with GE)

Capabilities

Figure 1. Resource patterns of Think Global



An integral part of MyC4’s business model is local sourcing and screening of would-be micro-entrepreneurs. Tothis end, contacts from the focal African countries were necessary. Mads had such contacts as he had previouslyworked for the Kjaer Company, which has car dealerships in African countries.

As is apparent from Figure 2, MyC4 had three types of resources that are independent of each other. These areR&D cooperation primarily with users and with Internet companies, networks of local experts who screen viableentrepreneurs and business ideas from unfeasible ones, and financial capital from the founder’s family and theDanish government.

Zealand Care (ZC) – Devices for Disabled People

In 1992 Denmark passed a new law on business collaboration of public authorities and joint-stock companies. Thisopened up the possibility for ventures between the public authorities and the private sector.

As a result, a number of municipalities, Falck and LD (a wage earners’ foundation) set up a fund forinvesting in a service that would make it easier and less expensive for municipalities to provide aid equipmentfor injured and disabled people. The key person behind the ZC innovation is Bjarne Hennemann. The ZCinnovation is an IT system that supports the municipalities with their administration of aid equipment. Theinnovation consists of well-known technologies used in a new way. The IT software was developed togetherwith customers (assistants to disabled people and home helps), as well as with the relevant authorities, whichmade it possible to take their views into account in the R&D of the service, and ascertain that the serviceresponds to their needs.

At the beginning, Zealand Care had only two types of resources, financial capital and R&D cooperation (Figure 3).

Summary of Scarcely Resourced Innovations

To summarize scarcely resourced innovations of SMEs, both MyC4 and Zealand Care had simple resource config-urations. Their scarce (two or three) resources functioned as independent resources having a direct influence on thecreation of a responsible innovation. One common factor in their innovations is that both are new business modelsbased on ICT. Neither enterprise developed a new technology, but utilized existing ICT to create a new businessmodel. Both enterprises compensated for the lack of industry knowledge with extensive R&D cooperation with usersof the service.

In contrast, Think Global involved three different resource types which cumulatively functioned in a more versatileway than the aforementioned two scarcely resourced cases. This is because Think Global was able to use someresources as igniting resources with which it acquired access to other resources. Such igniting resources were

Equity(Danish

governmentsupport)

IndependentresourcesR&D cooperation

(with users & internet

companies)

Networks(in Africa)

Equity(from Mads’

family’scompany)


Reputational assetsFinancial capital Capabilities Social capital

Figure 2. Resource patterns of MyC4



reputational resources and R&D cooperation, with which Think Global was able to acquire equity. R&D coopera-tion on the other hand led to the acquisition of further reputation resources.

Abundantly Resourced Innovations

We next examine the abundantly resourced innovations because they form quite a different group from the abovethree enterprises in terms of their innovations, and because these innovations make it possible to investigate morecomplex resource combinations and dynamic relationships between resources.

Marorka

Marorka is an Icelandic enterprise with an energy management system innovation for ocean vessels. This system,Maren 2, makes it possible for ocean vessel operators to reduce their negative environmental impact and cut fuelcosts. Marorka was established as result of R&D cooperation between its innovator, Jon Thorstein, and VSOConsulting. Thorstein had previously worked in the same industry, due to which he had both personal networksand a pioneer reputation in the field. In addition, he carried out his doctoral studies on Maren 2 technology inAalborg University in Denmark. R&D cooperation between Thorstein (long industry knowledge) and VSO, whichprovided initial funding, created trust and thereby facilitated capital inputs from other Icelandic organizations. Alsorelevant is that Icelandic ministries publicly supported Marorka, which facilitated the gaining of financial supportfor the R&D. In addition, the Nordic Energy Research programme supported Marorka’s R&D.

R&D cooperation with two fishing companies and a cargo vessel were significant for the development of Maren 2.These three companies bought the Maren 2 prototype, which not only provided the cash flow necessary for develop-ment but also the feedback needed for improving the functionality of the technology (Figure 4).

Ocean Saver (OS)

The Norwegian enterprise OS developed and provides an innovative water purification system for ocean vessels(Ocean Saver BWTS). It is a subsidiary of MetaFil AS. All four founding entrepreneurs of OS have long marineexperience, which is unique compared with its competitors in the water purification field. Unlike some of itscompetitors, Ocean Saver BWTS uses non-toxic chemicals, for example chlorine, to treat the water. OS’s BWTShas an additional advantage over more traditional water treatment, in that the treatment addresses both the problemof invading species and the issue of corrosion control.

Equity(from

munipalities,Falck, LD)

Independentresources

R&Dcooperation

(withcustomers)



Figure 3. Resource patterns of Zealand Care



Owing to the industry knowledge of its founders and the parent company, OS had a good reputation and a patentfrom early on. These helped the enterprise access networks and R&D cooperation. Ocean Saver BTWS technologyneeded 5 years of R&D work. R&D cooperation resulted in several patents and also provided access to additionalcapital (Figure 5).

Parans

Parans has innovated a system that makes it possible to get natural sunlight to indoor spaces that do not havewindows. Sunlight receivers are on the outside, cables transport the light and illuminations spread it inside. Thistechnology offers health benefits and energy savings. The two key innovations of Parans are optical fibrestransporting sunlight in and the solar panel, which captures sunlight into the optical cables.

R&D cooperation

R&D cooperation

2 Realized and independent resources

1. Ignitingresources

Industry knowledge

Networks

Equity

Equity

Reputation



Figure 4. Resource patterns of Marorka

2. Realized and independent resources


R&D cooperation

R&D cooperation

Equity

Networks

IPR

Reputation

IPR

Reputation

Industry knowledge



Figure 5. Resource patterns of Ocean Saver



The technology is a result of collaboration between two people, a construction industry professional and anoptical fibres specialist. Neither innovator, however, had sufficient resources individually nor together to realizethe innovation before they were joined by two other individuals, who also invested in the company. Jointly the fourfounders have complementary capabilities and several networks, which have made it possible to obtain furtherindustry and business knowledge. The founders’ investment would not have been sufficient to develop the Paranstechnology. A key enabler was ALMI Invest’s (a venture fund channelling Swedish government) investment in theenterprise. Since then it has received venture capital also from several private sector sources and taken on loans(Figure 6).

Summary of Abundantly Resourced Enterprises

To summarize, all abundantly resourced enterprises produced an environmental technology innovation (Table 3).Industry knowledge of innovator-entrepreneurs appears to have been a fundamental igniting resource that madeit possible to obtain the other resources needed to create a responsible innovation. This indicates that industryknowledge of founding entrepreneurs is a necessary resource for environmental technology innovations (seeTable 3). With the help of industry knowledge, Parans was able to make use of networks which directly influencedthe development of the innovation. Marorka and Ocean Saver could obtain reputational assets with the help ofindustry knowledge, and these jointly helped the company to access further resources needed for innovation.

All entrepreneurs invested in their innovation, but these investments would not have provided sufficient funding.When combined with the resources of industry knowledge and R&D cooperation or networks, the enterprises wereable to acquire additional funding (venture capital or subsidies from government sources), which in combinationmade possible the further development and commercialization of the innovation.

Discussion on Findings

The findings suggest that responsible innovations can be created with very different resource combinations – bothin terms of quantity and quality of resources. The most scarcely resourced innovations were created with only two orthree types of resources, whereas there were others that made use of as many as six types of resources for their in-

2. Realized and independent resources



Industry knowledge

Networks

R&D coopetation

Liabilities (loan from external

source)

Equity

Networks

Industry knowledge

Equity


Figure 6. Resource patterns of Parans



novation. Financial capital in the form of equity appears a necessary resource for development of a responsible innovation,but it is not a sufficient condition for the creation of such innovation. It needs to be coupled at least with social capital(R&D cooperation) in order for innovation to result. Throughout the sample, the most common resource combinationcomprised of equity, industry knowledge, networks, R&D cooperation and reputation.

Most enterprises (11 of 13), including the most scarcely resourced ones, had both financial capital in the form ofequity and social capital in the form of R&D cooperation in their resource combination. Consequently, if a responsibleinnovation is implemented with only few resources, equity and R&D cooperation appear to be necessary resources. This isconsistent with Bos-Brouwers (2010) findings that some SMEs engaging in sustainable innovation compensate forlack of resources by cooperation with external partners. In particular MyC4 and Zealand Care showed evidence ofactive collaboration with customers, and it was evident that such collaboration had a considerable effect on the creationof the innovation. This observation suggests that in the product development phase, collaboration with customers orother respective stakeholder groups makes it possible for scarcely resourced SMEs to acquire new ideas regardingtheir product or service. However, two enterprises of the 13 did not engage in R&D cooperation, which indicates thatwhen multiple resources are available, other resources can compensate for R&D cooperation.

It appears that resource needs vary between innovation types. Our sample consisted of responsible innovationsthat were either technological, design or business model innovations. The two most scarcely resourced innovationsin terms of the number of resource types were business model innovations (MyC4 and Zealand Care with two typesof resources). Think Global, which is also included in the scarcely resourced category with three resource types,produced an innovation that is a blend of technological, design and business model innovation. Most technologicalinnovations (environmental technologies) fell into the group of abundantly resourced companies. We can thusgather that responsible business model innovations can be created with fewer resources than technological ones.

The findings also indicate that SMEs wanting to address a sustainability problem with an environmental technologyinnovation need to possess industry knowledge. This is because industry knowledge appears to be an ignitingresource, which makes it possible to access other resources, which in turn are needed for developing theenvironmental technology invention into commercial offerings. In other words, industry knowledge is necessaryfor acquiring other resources such as more financial capital (venture capital investments or subsidies), networksor reputational assets, without which technological (environmental) innovations are unlikely to progress intocommercial offerings.

Conclusions

This study of resources behind responsible innovations of SMEs has a number of empirical contributions, and italso advances theory. The study shows that while lack of resources is a frequently encountered barrier to responsiblebusiness practice in SMEs, particular types of sustainability such as business model innovation can be implementedeven with scarce resources.

This finding has an important practical implication for resource-poor would-be entrepreneurs or SMEs wantingto come up with responsible innovations: they should head for business model innovations. Furthermore, theywould benefit from compensating for the lack of resources with active R&D cooperation with customers or otherrelevant stakeholders (and thus access to absent resources, e.g. R&D cooperation).

In line with recent studies (Hoffman et al., 2012; Williams and Schaefer, 2013) our findings suggest that publicpolicies stimulating innovation among SMEs may be a more prolific approach toward improvement of this sector’senvironmental and social impact than promoting formal responsibility management. Local, national and supra-national government funding can be directed toward innovative causes. In our sample quite a few (seven of 13)innovations had received government subsidies during their development, a fact presumably reflecting the willing-ness of the Nordic governments to encourage entrepreneurial solutions to environmental and social problems. Inthis way governments can help to combat lack of funding which is often mentioned as an obstacle for developingresponsible/sustainable innovations (Diefendorf, 2000), as for instance venture capitalists often perceiveresponsibility-driven entrepreneur-innovators not to be sufficiently focused on fast growth and profits as opposedto, for instance, ICT start-ups (Teppo, 2006).



This is obviously not just a quick-fix policy step. Nordic institutional environment and policy frameworks havebeen geared toward fostering sustainability innovation for some time. The Nordic Council of Ministers has setthe vision for the Nordic region be a leading innovation region in green growth and welfare, and has launchedsix key programmes to that end (Norden, 2012a). It encourages businesses of all sizes to conduct CSR throughthe means of innovations (Norden, 2012b). For a couple of years already, two Nordic countries, Denmark andFinland, have explicitly promoted environmental and social innovation as one means of carrying out CSR, also inSMEs (Danish government, 2008; Finnish government, 2011). At the pan-Nordic level the Nordic Innovations Fundhas had programmes for environmental innovation for nearly the past two decades, and social sustainability fundinghas more recently entered the scene (NICE, 2012).

Our study also has a methodological contribution. We applied features of QCA to the study of resources neededfor responsible innovation by SMEs. This method, originally developed for political science, is only just making itsway to business studies and still calls for further applications in the field (e.g. Fiss, 2007; Greckhamer et al., 2008).Our study offers one example. In addition, our application of the method made it possible to overcome one of theweaknesses of QCA, which typically does not lend itself to research designs that involve dynamic changes over time(Schneider and Wagemann, 2010). We extended the study of resource configurations in a larger data set (here 13innovations) to scrutiny of resource behaviour over time in fewer cases (6).

With regard to limitations and future research, we only studied enterprises that had succeeded in commercializ-ing a responsible innovation. We did not include a control group of SMEs that aimed to create an environmental orsocial innovation but did not succeed. Such research design might be helpful in future studies wanting to learn whatis critical for SMEs to come up with responsible innovations (see Ragin, 2000; Fiss, 2007).

We scrutinized only seven resources behind responsible innovations in order not to complicate the compar-ative analysis (Rihoux and Ragin, 2009). This may mean that some potentially relevant resources did not makeit into the analysis. For instance, as to capabilities, we included industry knowledge and IPR but excludedbusiness knowledge of the founding entrepreneurs (previous business experience from another industry).Secondly, while our method allowed the investigations of configurations of resource types, we were not ableto examine the amount of each resource (e.g. amount of capital, the number and tightness of networks). To thatend, a fuzzy-set QCA, which would enable us to distinguish between amounts of resources, would be a potentialalternative method.

In the midst of economic recession impregnated by layoffs of large corporations and diminishing state budgetshope is increasingly put on entrepreneurship and the contributions of small enterprises to social sustainabilitysolutions. Simultaneously it is commonly believed that during bad economic times the responsibility activities ofenterprises will suffer. Our study shows that there are indeed ways to navigate within this contradiction andprovides first phase empirical findings and stepping stones for understanding how innovative entrepreneurs andsmall enterprises acquire and utilize (often scarce) resources for sustainability aims.

Acknowledgements

This research has benefited from a grant from the Nordic Innovations Centre and was a part of a pan-Nordic project ‘CSR-driveninnovation in SMEs’.

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Appendix A: Case Innovations and Small and Medium-Sized EnterprisesCompany and year Company and main responsibility element of innovation No. of

employees(in 2006)

Social (S) orenvironmental(E) innovation

Innovationtype

Clewer, 1987 Clewer’s innovation is a water purification system consisting ofprecision bacteria that rotate in a horizontallypositioned bioreactor, purifying the dirt and contaminatingsubstances from water. The technology is applicable for toxicsubstances from various industrial processes, landfill drainwater decontamination, swimming pools and car washinstallations. The Clewer system uses 90% less energy thanthat of its competitors and the purification results exceed thetraditional approaches

3 E Te



http://nordicinnovation.org/fi/hankkeet/lighthouse-projects/nordic-experiences-corporate-social-responsibility-and-innovation-strategies-in-nordic-companies/

http://nordicinnovation.org/fi/hankkeet/lighthouse-projects/nordic-experiences-corporate-social-responsibility-and-innovation-strategies-in-nordic-companies/

http://browse.oecdbookshop.org/oecd/pdfs/browseit/9205111E.PDF

http://browse.oecdbookshop.org/oecd/pdfs/browseit/9205111E.PDF

Company and year Company and main responsibility element of innovation No. ofemployees(in 2006)

Social (S) orenvironmental (E)

innovation

Innovationtype

DURAT, 1990 DURAT seeks to minimize environmental pollution throughcollecting plastic waste from manufacturing plants and turningit into bathroom items (sinks etc.) using modern technologyand moulding systems. The selection comprises over 40premium-quality items for bathrooms. The final DURATproducts can be recycled

33 E Te/De

Ekolådan, 2002 Ekolådan provides customers with high-quality biodynamicand organic products through a home delivery system.Ekolådan’s improvements for the environment at large areboth their biodynamic production methods and the energy-efficient delivery system. An additional aspect of theinnovation is the company’s idea to involve the customer asan investor. The company organizes the purchase of anentire farm with customer investments, which underlinestheir vision of bringing the customer closer to the products

3 E BM

Fair Unlimited, 2004 Fair Unlimited aims to contribute to the reduction of povertyby helping producers in the Third World develop theirbusiness potential. Its social innovation was to start sellingcorporate gift products labelled under fair trade tocompanies and organizations. When dealing directly with fairtrade producers, Fair Unlimited is bound to a code ofconduct stipulated by the fair trade communities

2 S BM

FIN, 2004 FIN combines fashion with environmentally and sociallyresponsible methods of production. It operates in the high-fashion industry, producing ready-made clothing aimed atthe upper–mid price range and combines this with a focuson good labour conditions and high environmentalstandards in their globally distributed supply chain

4 E&S BM

Marorka, 2002 Marorka’s innovation enables maritime customers tominimize their fuel consumption and harmful emissions. Tothat end, Marorka has created an innovative energymanagement system, Maren 2, which provides a detailedoverview of all the energy systems used onboard the shipand makes recommendations to improve the vessel’s energyand operational performance

17 E Te

MYC4, 2006 MYC4 is an innovative online marketplace through whichindividuals or organizations can invest in microloans forAfrican small and micro-entrepreneurs. Loans range from aslittle as €5 up to €20,000. Investors can see the entrepreneurs’profiles and their business or business idea through theinternet platform, and bid for lending. The bidding processaims to make the interest rates as low as possible. An integralpart of MyC4’s innovative business model is local sourcing andscreening of would-be-micro-entrepreneurs, which takes placethrough a network of local organizations called providers

32 S BM

NOIR, 2005 NOIR’s innovation is high-fashion fair trade and environmentaldesign clothing. The NOIR fashion brand is placed in the highfashion (prêt-a-porter) category, with only one category above –

haute couture. NOIR has two main brands: NOIR and

16 E&S BM/De





innovation

Innovationtype

Illuminati. NOIR is the luxury fashion brand with productsincluding clothing, accessories, home goods and fragrance,which are made in fair working conditions in Europe, andIlluminati II is the company’s own cotton fabric

Ocean Saver, 2004 The maritime industry has an increasing problem with invasivespecies being carried aboard ships in the ballast water tanks,which causes severe biological pollution to the destinationenvironment. Ocean Saver aims to battle biological pollution,and has developed a technology that meets the above-mentioned issue through a ballast water treatment andcorrosion system (BWTS). The BWTS uses no toxic chemicals,for example chlorine, to treat the water. As nitrogen andoxygen can both be extracted directly from the atmosphere, nolarge storage tanks for chemicals are needed. Oxygen is re-injected into the discharge, thus the discharged water iscompletely harmless to the environment. The Ocean SaverBWTS has an additional advantage over more traditional watertreatment, in that the treatment addresses both the problem ofinvading species and the issue of corrosion control

9 E Te

Parans, 2003 Parans offers sunlight for indoor environments through aninnovative system that captures and directs the rays of thesun. Parans’ technology allows natural sunlight to be broughtto every room: receivers are on the outside, cables transportthe light through the property and illuminations spread thelight inside. This technology, called Fibre Optic SolarLighting, offers human health benefits as well as enablesenergy-savings. The novelty of the Parans System is thetransporting of sunlight in optical fibres, which had not beendone before. Capturing enough sunlight into the opticalcables is dependent on the Parans Solar Panel, the keyinnovation of Parans. The Parans system cuts energy costsby 25–30% and has an impact on human health through thesystem’s solar therapeutic properties

7 E Te

SmartUs, 2006 SmartUs innovation is an interactive learning environmentthat combines playground equipment and technology.SmartUs has elements from outdoor playground and videogames, which makes it a ’real life video game’. SmartUs is alearning environment that encourages exercise and supportslearning in a way that is attractive to 10–15-year-old children.Herein lies the main responsibility element of the innovation:teenagers tend to substitute exercise for computer gamesresulting in obesity and poor physical condition at a youngage. SmartUs offers a solution to this problem by appealingto the youngsters’ natural interest in technology and videogames. The parent company, Lappset’s, philosophy is asocial innovation itself: their mission is to make playgroundsthat create a meeting point for the three generations:children, parents and the elderly

8 S De/Te





innovation

Innovationtype

Think Global,originally founded1991, bought in2006

Think provides its customers with an environmental solutionfor transportation. The company’s electric car has no CO2

emissions, and the chassis is plastic and 95% recyclable(design innovation). The use of this car is supposed toreduce energy consumption by 70%. Even if Think is not thefirst electric vehicle to be developed, it is the first that hasthe right to call its vehicle a car since it satisfied all safetyrequirements and crash tests. Think provides loyaltymembership offerings making the car more accessiblethrough various car financing schemes and with batterylease. Customers can purchase a Think City by paying for thebase vehicle and subscribing a monthly fee for the batteriesas well as for the provided services. These services can relateto providing insurance, guaranteeing all maintenance for thecar, permitting additional or dropped services related to thecar or inside the car (GPS, Internet access, media player etc.)whenever they want

Unclear E Te/De/BM

Zealand Care, 1996 Zealand Care’s innovation improves conditions and choicesfor elderly and disabled people with regard to their needs forservice and auxiliary equipment. ZC addresses this issue intwo ways: (i) the company focuses its business on creatingcustomized health care products for individual citizen’sneeds, and (ii) has created and offers an advancedcontrolling IT-system for municipalities in regard to theadministration and provision of auxiliary equipment in thehealth care industry

150 S BM

Innovation types: BM, business model; De, design; Te, technological.



Appendix B: Division of Financial Capital Sources in the Case InnovationsEnterprise Equity Liabilities

Finance from parentcompany

Founder’s owninvestment

Venture capitalinvestment

Government subsidy orsimilar

Debtfinancing

Clewer xDurat x x xEkolådan xFair Unlimited xFIN x xSmartUs(Lappset)

x

Marorka x xMyC4 x xNOIR x xOcean Saver x xParans x x x xThink Global x x xZeeland Care x xNumber of SMEs 5/13 4/13 8/13 7/13 2/13



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