Service innovation and performance in SMEs

Purpose – The purpose of this paper is to examine the relationship between exploration and exploitation innovation, and business performance in small and medium enterprise (SME) service firms. Furthermore, the paper also examines the interaction between the two innovation orientations in predicting business performance, and the influence of size in the effectiveness of each of them in enhancing business performance. Design/methodology/approach – Using empirical data drawn from 180 managers in Australian service organisations, this study also compares the effect of ambidextrous innovation on business performance within these SMEs. Findings – The findings show that, controlled for size, neither of the innovation orientations show significant, direct relationships with firms' performance. However, ambidextrous innovation was positively associated with business performance, indicating a synergy between exploration and exploitation. Further examination indicates the relationship between exploration/exploitation innovation and performance is moderated by size within the authors' sample of small firms. Research limitations/implications – Taken together, the results point to an interesting and complex relationship within SMEs relating to innovation orientation, size, and performance. This relationship suggests that service SMEs are best served by the simultaneous pursuit of both exploitive and exploratory innovation. Originality/value – This research is original in that it deliberately focuses on innovation in service SMEs, an area that has not seen significant research previously. As such, the authors' insights into the relationship between ambidextrous innovation and performance suggest the need for creating balance and synergy between the two innovation types.