Fueling Innovation through Information Technology in SMEs

Evidence is found that an increased emphasis on IT abets managers' perception of their firms' performance, as compared with that observed among peer firms (other SMEs), and increases on the strategic emphasis placed on innovation.

Abstract

This paper describes a study that investigates the mediating effects of information technology (IT) on the relationships among product and process innovations and firm performance (measured in multiple profitability and growth rate metrics). Using structural equation modeling on a sample of 397 small and medium-sized enterprises (SMEs), we find evidence that (1) increases on the strategic emphasis placed on innovation, both product and process, positively impact the prominence managers place on IT; (2) the impact of innovation (both product and process) on performance (both profitability and growth) is primarily indirect, felt via the mechanism of the importance managers place on IT; and (3) an increased emphasis on IT abets managers' perception of their firms' performance, as compared with that observed among peer firms (other SMEs).