Product innovation processes in small manufacturing firms : the logic of effectuation

This paper reports on a study of how product innovation unfolds in small manufacturing firms. Research on small firms‘ product innovation efforts has largely taken a variance approach. Few studies have investigated in detail the process dynamics of product innovation within small firms. Based upon research in large firms, a formal new product development (NPD) process with well-planned activities and decision points is usually considered part of NPD best practice. Yet, case study evidence indicates that formalized process structures are seldom used by small firms. This questions the assumption that new product development in small firms should mimic larger enterprise NPD. Therefore, we aim to advance theoretical understanding of the actual dynamics of product innovation processes in small firms. This paper deploys effectuation theory, which contrasts effectuation and causation as two distinct logics of decision making. Causation processes take a desired effect as given and focus on selecting between means to create that effect. Effectuation processes take a set of means as given and focus on selecting between possible effects that can be created with that set of means. In an effectuation approach resources precede goals, whereas in a causation approach goals drive the commitment of resources. The principles of effectuation seem to fit the resource constraints faced by small firms. Our empirical study adopted a process research approach to investigate the unfolding of product innovation projects in five small manufacturing firms. Based on interviews and documentation, an event sequence file was created as detailed process reconstruction of each case. Validated and coded event sequence files were then used in quantitative and qualitative process analyses. First, gamma analyses were conducted to establish quantitatively whether effectual or causal processes were underlying the innovation projects, by determining the sequence and separation of goal events, idea events, and resource events. The findings suggest a clear pattern: product innovation in small firms starts according to an effectuation logic and turns towards a causation logic. A more detailed analysis of resource events confirms the dominance of effectuation in the early stages of our case histories, as well as a shift towards causation in later stages. Second, qualitative analysis shows how these small firms use effectuation principles: their product innovation processes are resource- and opportunity driven, open-ended, and step-by-step. Each step is a relatively controlled development based upon existing resources, relations and opportunities. At the same time, such a step-by-step approach allows for the re-imagination of the projects‘ future at several moments. We discuss implications for the understanding of product innovation and conclude that product innovation in small firms cannot be dismissed as unplanned, chaotic, improvisational, or ad hoc: instead, it is guided by an underlying effectuation logic. Thus, small firms should not mimic large firms‘ best practices; instead, product innovation approaches need to be differentiated for large firms and small firms.