Multicriteria Analysis for Improving the Innovation Capability in Small and Medium Enterprises in Emerging Countries


In this paper we describe an analytical model to determine the innovation capability of a small and medium enterprise (SME) as the first step towards the continuous improvement of performance in such a dimension of an organization. The model first assesses organizational variables and classifies companies by using the Flowsort? multicriteria method. As second step, the classification module categorizes SMEs into four classes of companies: passive, reactive, proactive, proactive. From this sorting and the subsequent analysis of the variables measured by the survey, it is determined the set of best management practices for innovation that the company needs to implement in order to increase their level of performance. The application of the model to nine companies in Chile is shown along with numerical results. Evaluations show that the classification is consistent with expert judgment and that effectively identifies those areas that contribute most to the increase of the innovation capability in the SMEs.

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Sepúlveda, J. and Vasquez, E. (2014) Multicriteria Analysis for Improving the Innovation Capability in Small and Medium Enterprises in Emerging Countries. American Journal of Industrial and Business Management, 4, 199-208. doi: 10.4236/ajibm.2014.44027.

1. Introduction

In many countries, research organizations are devoted to the phenomenon of innovation and they have given courses of action to be followed by the companies in their regions in order to reach profitable and competitive innovation levels. Monitoring of management processes in organizations which are characterized by outstanding levels of innovation, particularly in tangible products, combined with the observation of best business practices, has shown to be a convenient task to fulfill since global innovation does play a key role in the growth and advance of nations. Today, experts agree that the widening gap between developed and emerging countries is not due to differences in capital investments, but to their development in the area of technological innovation. This paper aims to provide a tool for augmenting innovation in emerging countries.

This work began with an adaptation of a measurement tool for national application [1] preceded by the original research of Boly [2] in a group of French SMEs, where a number of 13 selected management practices based on survey data were found to be positively correlated with the good performance in traditional innovation output variables, such as patents of new developments. Progressively, several other works [3] [4] and national applications [5] have been designed to quantify, synthesize and to incorporate new practices, thus giving origin to the work reported in this article. In this work, special attention is given to other studies seeking to establish patterns of innovative companies as measured through surveys. We compare and integrate other three methodologies in order to detect similarities and rescue the positive aspects to be added to an inventory of good practices of innovation. The common denominator in all four methodologies (three former studies and the present one) is the compliance to the indications and suggestions proposed by the OCDE in the collection and analysis of data on business innovation, indications that are published in the “Oslo Manual” [6] . The new measurement tool was applied in 2011 to nine companies in order to conduct an exploratory study and allow their classification according to the innovation performance level.

2. Theoretical Background of the Multicriteria Analysis of the Innovation Dynamics

The assessment of the innovation capability of a SME based on the performance analysis of various business management areas or dimensions that are known to have a positive impact in enhancing innovation, is the starting point for performing further studies about what practices are more effective out of a set of possible ways for improving innovation capability. The approach followed in this work identifies enterprise innovation profiles by using multicriteria decision making (MCDM) models. The criteria are related to the most significant factors that explain the innovation capability in an organization. Based on [2] , in [4] thirteen management practices that are most used by innovative enterprises are listed; these practices include aspects or dimension such as: product design planning, innovation project follow up, strategic level involvement, portfolio management, team control and feedback, infrastructure, competence-based management, incentives and support, collective learning, knowledge management, technological surveillance and business intelligence, networking, and worker’s participation in innovative ideas. These practices can be assessed by quantitative and qualitative variables and incorporated in a measurement instrument. However, the practices and their intensity need adaptation to the local o regional context due to differences in organizational culture and characteristics of the national system of innovation.

From the theoretical point of view, given a set of criteria or dimensions and a set of choices or course of actions, the problem is to classify or sort a company into one of those possible categories based on the values obtained for the evaluation criteria.

The classes or categories of SMEs can be: “Passive”, “Reactive”, “Preactive” and “Proactive” by following the characterization of their innovation strategies as given by several authors [3] [7] . By Passive SME we mean a company with little or none innovation activity, by Reactive one that acts only as a response to a serious threat, by Preactive, one that shows some innovative performance, and by Proactive a leading company with a recognized performance in innovation.

Since sorting a company in a class is different from establishing a multicriteria ranking, we use an overclassification tool. A relatively new method for doing this, is FlowSort™ [8] which is utilized for assigning actions (choices) to a set of completely ordered categories; these categories are defined either by limiting profiles or by central profiles (named “centroids”). In what follows, limiting profiles will be used since they adapt better to the problem under study. The assignment of an action to a category is based on the relative position of this action with respect to the defined reference profiles in terms or incoming or outgoing net flows of the Promethee MCDM model. In Flowsort, the set A of n actions (enterprises in our application case) to be sorted, are evaluated on q criteria Gj (j = 1...q) to be maximized.

The categories C are delimited by two boundaries and they are ordered as C1 > … > Ch > Cl > … > Ck, where Ch > Ck, with h < l, which denotes that Ch is preferred to Cl. Let R = {ri ..., rK+1} be the set of limiting profiles. Thus, a category Ch is defined by an upper and lower profile, denoted as rh and rh+1 respectively. At the same time, rh is the lower profile of Ch−1 and rh+1 is the upper profile of Ch+1. Let π(x,y) be the preference of action x over an action y, as in the Promethee method. Thus, on the basis of these preferences, positive, negative and net flows of each action x in R are computed by equations (1)-(3). Where R  = R ∪ {ai} is the extended set of profiles, regardless limiting or central profiles. That is, the flows are averaged over the cardinality of set R . The rules for assigning actions ai to a category Ch are given by equations (4) and (5) when using limiting profiles. If contradiction arises between (4) and (5) then net flow is used to make final decision.






Seen as a process, once a SME has been sorted into a category, an intervention program can be put in place as to coach the innovation. A concrete experience is developed in the following section.

3. Supporting Innovative Processes in SMEs

A first model to measure the innovation management practices at industrial SMEs was designed and first tested in three companies [5] and later expanded to nine new case studies. In general, the results have shown that less than 25% of the SMEs classified in the preactive and proactive classes, or 75% were passive or reactive. Also, that the sorting tool gave an outcome consistent with an expert panel’s opinion in all of the cases. From the evaluation of the case studies and the comparisons with other methodologies for assessing the innovation performance that are being applied in Chile we decided to include two additional criteria regarding the organizational culture (Dimension N°1 in Table 1) and the ability to manage returns on the investment (ROI) in innovation (Dimension N°8 in Table 1). A new multicriteria survey was developed by integrating criteria from three other models being used in Chile and from the literature. The common denominator of all models is compliance with the indications proposed by the OECD for gathering and analyzing data on enterprising innovation [6] . The models used as a basis were:

Model 1: INE (National Institute of Statistics) “6th Survey of Innovation and 3rd of R&D Expenditures and Personnel, year 2009”, developed by the Department of Projects on Economic Statistics of INE;

Model 2: InnoScore Tool developed by the Fraunhofer IAO Institute, Germany, in 2009 [9] ;

Model 3: “Ranking of Innovative Companies in Chile, 2010”, developed by Most Innovative Companies Chile, in alliance with the IESE Business School of the University of Navarra, Spain.

The four methodologies integrated in this study are focused on the “subject”, i.e. the company, and the classification is into four categories: 1) passive, 2) reactive, 3) preactive, 4) proactive. Each category can be considered a fuzzy set to which the company as subject belongs, according to multiple criteria measured by variables that can be qualitative, through a Likert scale, or else quantitative.

The Survey

The aim of the comparative study was to obtain a synthesis of key areas in which the evaluated methodologies agree mostly, yielding a total of eight key dimensions or areas as shown in Table 1. First Model (2010) denotes our former survey and Second Model (2012) the one presented here. The 2012 survey includes a total of 20 questions all of them using a five-level Likert scale. In the survey, Level 1 means No presence of the aspect being considered or Total disagreement with the practice, whereas Level 5 means Absolute presence of the aspect being considered or Total agreement with/execution of the practice.

4. Model Application

The improved survey was placed on Internet by using a public domain survey manager: a number of 25 SMEs in

Table 1. Comparison of evaluated dimensions in different methodologies of innovation surveys.                        

different areas of business were invited during the months of November and December 2011. Nine of them were completed and evaluated in the field. Table 2 and Figure 1 show a summary of the weighted average score (boldfaced the best criteria for each company) by using the Likert scale of five levels (one to five score). Table 3 shows the final results obtained by using the Formulas (1) through (5) of the FlowSort™ method. Table 4 shows the SMEs business sectors.

The scores in Table 2 were obtained from the questions concerning the dimensions listed in Table 5. For each dimension, there were from two up to four statements for which the interviewed company’s officer had to provide his/her agreement ranging from 1 (total disagreement) to 5 (total agreement). Furthermore, we mapped the answers in the scale 1 to 5 on the [0,1] normalized interval in steps of 0.25 points. That is, Level 1 maps onto 0.00, Level 2 onto 0.25, Level 3 onto 0.50, Level 4 onto 0.75, and Level 5 onto 1.00. Recall that in the Likert scale a value 1 means “very much in disagreement”, 2 “in disagreement”, 3 “neutral”, 4 “in agreement”, 5 “very much in agreement”.

Thus, the scores in Table 2 are of qualitative nature; nonetheless the sorting method treats them as numerical scores. For example, the value 0.375 in E1-G1 (Innovation Culture) in Table 2 is the result of two questions (see row 1 in Table 5), one answered with level 3 and the other answered with level 2, each with same weight, so that 0.375 = 0.5 ⋅ 0.50 + 0.5 ⋅ 0.25. Likewise, for each of the eight criteria, the inner questions and criteria were given equal weights, but these weights of criteria and questions may be modified in other application. Due to the normalization in the scores, the limiting profiles r1 = 1.00; r2 = 0.75; r3 = 0.5; r4 = 0.25; r5 = 0.0 were equally applied to the eight criteria Gi (i = 1 ... 8). In addition, the π function used in equations (1) and (2) was a step-function, that is if x > y (x preferred to y) then π = 1 otherwise π = 0.

Figure 2 shows the example of the Company 1 and its sorting into the category Reactive according to the positive and negative flow mapping, as stated by Formulas (4) and (5).

A Service Platform

Classifying an enterprise into a category, let this be Passive (little or none innovation activity), Reactive (acts only as a response to a serious threat), Preactive (shows some innovative performance), Proactive (complies remarkably with all of the best practices) is an important mean but not the end proper. It provides the base for developing a service of measuring and benchmarking in the first place. More important, however, is providing advice to the enterprise in the specific ways the company leaders and workers can improve the performance. This gives place to a second type of service which is the change management process. This is an ongoing project at our university in the Industrial Engineering Lab, which by means of web-based information services, university workshops, student cooperative work, among other initiatives, seeks to help SMEs to continuously improve their innovation capability by enhancing the innovation management practices. Section 5 gives a summarized overview of the practices and what is measured in the survey.

5. Synthesis of Innovation Best Practices

Best practices are a coherent set of documented actions or procedures that on previous occasions have provided verifiable good or better results ; their peculiarity is that if applied again in a context as close as possible to the original, the results will be equally positive. The following recommendations and process models, deliver ways of

Table 2. Summary of the weighted average scores for the nine enterprises.                                         

Table 3. Classification of the enterprises into categories.                                                        

conducting business areas to an environment of continuous innovation. The sections are exactly the same which includes the method of assessing the level of innovation, which measures the extent to which these recommendations are addressed successfully in the enterprise.

5.1. Innovation Culture

The organization tolerates failure and encourage failing as early as possible to avoid rising costs when developing

Table 4. Surveyed companies and their lines of business.

Table 5. Evaluated dimensions.

new concepts. Top and senior managers communicate as many employees as possible that failure risks are part of the corporate strategy, so that employees live in an environment where providing new ideas is always desired by the organization, even if the results are not the expected ones. Moreover, there is fluent communication between hierarchical levels through posters, newsletters, easy access to managers or bosses concerning new ideas, the stimuli for seeking participation, and organizational meetings. The meetings involve ideally the whole organization in an environment without existence of levels of command, so that everyone can talk as equals, remembering that the sense of the meeting is to convey new ideas and discuss the existing ones; the meeting ends with summaries of the ideas discussed. In terms of communicating the objectives of the organization, this includes poster publication of mission, vision and values, or by the web and internal bulletins, allowing employees to meet the mission statements continuously so they end up being internalized. This ensures that the ideas emerge keeping in mind the intentions of the company.

5.2. Concept Creation and Generation

Organizations hold frequent meetings to promote creativity. They set in the short and medium-term, programs of mandatory meetings within the business activities where everyone may propose changes to the company (at least once every six months). The sessions are arranged within working hours to ensure full participation and consist of

Figure 1. Plot of the weighted average scores for the nine enterprises.                                             

Figure 2. Graphical view of the sorting of Company 1.

Conflicts of Interest

The authors declare no conflicts of interest.


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