How Information Technology Overcomes Deficiencies for Innovation in Small and Medium-Sized Enterprises: Closed Innovation vs. Open Innovation

Abstract

Innovation is vital for the growth of small and medium-sized enterprises (SMEs). However, SMEs face deficiencies that hinder their innovation output. This study examines how information technology (IT) helps SMEs address two salient deficiencies: technological deficiency (deficiency in internal technical knowledge and skills) and government support deficiency (deficiency in favorable government policies and incentives). Our findings suggest that SME managers can achieve greater innovation output by orienting their IT-enabled innovation efforts in an open or closed manner to address specific deficiencies. They can address technological deficiency by focusing their IT efforts on promoting innovation within the firm, that is, using IT to support closed innovation. In contrast, SMEs that face government support deficiency should give preference to IT Use for Open Innovation Activities to collaborate with external constituents such as customers and suppliers. Furthermore, because of the emergence of digital platforms (e.g., crowdsourcing), managers may be overly biased toward the use of open innovation. Our results suggest that both open and closed IT-enabled innovation have value. We exhort SME managers not to disregard either form of IT-enabled innovation but rather to tailor their approach to suit their organizational context based on specific deficiencies that their firm faces.