Synopsis: Entrepreneurship:

+46 13 281000 3 Abstract Small and medium-sized enterprises (SMES) play a vital role in the economic development of nations.

They do not directly incorporate the impact of an enterprise's innovation activities. Finally their complexity and reliance on sophisticated statistical refining methods make these models unpractical for use by SME managers.

3) How can a firm's innovation activities be enhanced in relation to the firm's external environment?

Although the SIV model focuses on the firm's internal environment it also relates to the firm's external environment via input parameters such as firm size ratio and the average firm age in a given sector.

The technology intake parameters measure both the inward as well as the outward 4 contributions of the innovation activities in the firm.

Although I did not propose a specific model to handle SME performance in relation to companies'external environments, I presented indicators, in the form of various types of capital,

human capital, financial capital, system capital, and open capital. All are aggregated under one concept: innovation capital.

and a new approach to account for innovation in relation to the external environment of the firm using the IBAM tool.

SME performance, performance evaluation, firm efficiency, SIV model, SMES, innovation capital, human capital, financial capital, system capital, open capital, open

innovation, innovation, entrepreneurship, business models 5 List of abbreviations used in the thesis ANT Actor-Networks Theory ASPEM Arena of SMES Performance Models HTSF High tech

Small Firm IBAM Innovation Balance Matrix ICTS Information and Communication Technologies IT Information technology KEV Knowledge Embedded Value KEVAM Knowledge Embedded Value Margin

Small and Medium-sized Enterprise SMES Small and Medium-sized Enterprises SPI Survival Progression Indicator 6 Parameters of the SIV Model Symbol Parameter ij

i P Profit margin i C1 Initial investment capital si C1 Self-financed initial capital i C2 Costs for the intake and absorption of new technologies a b A a,

Topology analysis of performance models of small and medium-size enterprises (SMES. Journal of International Entrepreneurship 2 (1 2), 155 177.

Paper 2: Abouzeedan, A. and Busler, M. 2005. ASPEM as the new topographic analysis tool for small and medium-sized enterprises (SMES) performance models'utilization.

Journal of International Entrepreneurship 3 (1), 53 70. Paper 3: Abouzeedan, A. and Busler, M. 2004.

Analysis of Swedish fishery company using SIV model: A case study. Journal of Enterprising Culture 12 (4), 277 301.

World Review of Entrepreneurship, Management and Sustainable Development 2 (3), 270 280. Paper 5: Abouzeedan, A. and Busler, M. 2007.

Managing innovation in a globalized economy defining the open capital. In Allam Ahmed (ed.),World Sustainable Development Outlook 2009:

The Impact of the Global Financial crisis on the Environment, Energy and Sustainable Development, Part VII, Chapter 30,287 294.

Implementing the SIV model on an intensively innovation-oriented enterprise: The case of Autoadapt AB.

I have benefited tremendously from his genuine understanding of the field of innovation and entrepreneurship. The discussions we had during the writing of the thesis expanded my knowledge in academic disciplines

Thomas Hedner, my dear friend and colleague at Innovation and Entrepreneurship, Sahlgrenska Academy, University of Gothenburg, has been very instrumental in both introducing

I start by conveying warm thanks to my colleagues at Innovation and Entrepreneurship/Sahlgrenska Academy

My deep thanks also go to my friends and colleagues at the Center of Innovation and Entrepreneurship, Linköping University:

I will have the opportunity to discuss scientific ideas with him over the coming years. I extend deep gratitude for Mats Abrahamsson for his comments on the manuscript of the thesis,

Special thanks go to all my friends at the editorial board of Annals of Innovation and Entrepreneurship for their contribution to the shaping of my science philosophy and my 10 understanding of the innovation and entrepreneurship disciplines.

My friends and colleagues at the Institute of Innovation and Entrepreneurship at University of Gothenburg have also been very supportive.

and Sverker Alänge, at Chalmers School of Entrepreneurship. There are many other colleagues and friends who have contributed in various ways,

and the intended performance evaluation model 38 Innovation capital 42 A comprehensive approach to constructing an SME performance model 43 3. Methodology 54 Research methods in social sciences

Typology Analysis of Performance Models of Small and Medium-sized Enterprises (SMES) 66 Paper 2:

ASPEM as the New Topographic Analysis Tool for Small and Medium-sized Enterprises (SMES) Performance Models Utilization 68 Paper 3:

Managing Innovation in e-Globalized Economy Defining the Open Capital 78 Paper 7: Implementing the SIV model on an Intensively Innovation-Oriented Enterprise:

The Case of Autoadapt AB 81 5. Discussion and Analysis 83 Advantages and disadvantages of existing SME performance models 83 What characterizes a model for measuring SME performance, in relation to innovation?

Small and medium-sized enterprises (SMES) 1 are crucial economic actors within the economies of nations (Stanworth and Gray 1993, NUTEK 2004, Wolff and Pett 2006.

Due to the significance of SMES to local economies, it is necessary to study and evaluate their performance (Acs 1999).

Several studies have shown that there is a clear connection between innovation and the creation of an entrepreneurial economy (Schumpeter 1934.

In their study, Mazzarol and Reboud (2008) considered innovation to be related to new products or services, new production processes, new marketing techniques,

if one wishes to incorporate the influence of a firm's external environment on that firm's performance (Jovanovic 1982, Hopenhayn 1992, Nelson and Winter 1978, Inman 1991, Peel et al. 1985,1986, Chen

and developed in isolation from the impact of the external environment and from other existing evaluation models (Caves 1998, Mcpherson 1995,

The input parameters of interest in relation to the internal environment of the firm include: the number of employees, the maximum number of employees distinguishing the different categories of enterprises, firm age,

and the average life span of firms in the business sector. These are qualitative parameters. The quantitative parameters of interest to this work are:

and absorption of new technologies indicated by investments in these technologies and total costs of production.

initial investment costs, self-financed initial capital of investment, and profit margin (a neutral percent figure).

At the external environment level, the input indicators that could be used in performance evaluation are the four components of innovation capital:

human capital, financial capital, system capital, and open capital. The overall argument is that if evaluation performance models are to be used in helping SMES plan their survival and growth activities,

Keasey and Watson 1987), profit margin, turnover, production costs, initial investment figures, and total investment (Altman 1968,1983, Altman et al. 1977,1994, Caves 1998).

Although I utilized these input indicators when constructing the intended model, I integrated them differently than the classical ones.

That also goes for the initial investment which the classical performance models do not include.

I used a ratio between the self-financed initial capital and the initial investment capital.

and selecting the mentioned input parameters relates to the internal environment of the firm. As for the external environment of the firm,

I selected financial capital and human capital from the literature review. Regarding the system capital

I proposed that capital due to the realization that institutions and players'ability to promote innovation activities in society play an important role in supporting SME activities.

Meanwhile, open capital is a reflection of the emphasis on firms'networking capacities and the issue of firm performance and innovation.

Defining firm smallness SME is a holistic term that implies an ambiguity in relation to a firm's categorization and positioning,

however, due to the realities of the current, dispersed economy (Polenske 2002). In this thesis, I used the EU definition of SMES (NUTEK 2004) when

It is important to discuss smallness in the context of the new economy, since this economy is influenced by the Information technology (IT) revolution.

When assessing the current system, the numerical, clear-cut, artificial borders used in the past should be downplayed; they are confusing and probably not reflective of the economic realities of today.

17 The focus of this work is to discuss SME performance evaluation while accounting for the impact of innovation on firm efficiency in relation to both the firm's internal and external environments.

Although I did not empirically treat the technology input at the external environment of the firm in this thesis,

There is a strategic value in connecting an enterprise's internal environment to its external environment,

The first group consists of those dealing with the issue of SME performance in relation to the internal environment of the firms,

and deal with SME performance issues in relation to the firms'external environment at an aggregate level.

Politicians and administrators who are members of major institutions working with economic growth issues, such as Tillväxtverket and Näringsdepartementet,

In order to judge an economy, a firm performance model that considers the innovative input within SMES is required.

It is therefore beneficial to analyze the internal/external environment aspects of firm performance and couple that analysis with the firm's innovation activities (Mazzarol and Reboud 2008;

Analysis of the productivity concept has given a central role to knowledge in economic growth (Neale 1984.

The evidence emphasizes the significance of the external environment to the innovativeness of the firm.

How can innovation activities of firms be enhanced in relation to their external environment? To answer the above three questions,

which was meant to be a commercial broking enterprise. The company, which I started in 1993,

I call the system environment). Another component of my philosophy of science that stems from my educational background has to do with the cause-effect relationship.

and inability for any one buyer or seller to influence the price of any given commodity.

One issue that clearly shows the financial theory approach to studying firm performance is less than desirable is the fact that shareholders

Most financial theories hold that the objectives of the shareholders and the managers of firms are identical,

as shareholders and managers are identical economic agents (Crotty 1990). The assumption that managers and shareholders have identical objectives is certainly least true in the case of SMES.

There are four main differences between shareholder 24 and managerial objectives. Firstly, shareholders prefer a higher debt to equity ratio,

while managers try to reduce that ratio because higher debt decreases the worth of their financing portfolios.

Secondly, managers seek long term growth, manifested as an increase in firm size and higher capital-accumulations.

Thirdly, managers advocate longterm investments that tolerate fluctuation and short-term risks, while shareholders advocate an avoidance of any risk.

This is particularly problematic, because investments in innovation and new projects involve higher short term risks. Fourthly, managers meet competitive threats by increasing their cost-cutting investments to rationalize on the firm's resources and by pushing for innovation in management and operational aspects.

The shareholders tend to think mostly of selling the firm to get the best possible return on invested capital, especially upon the slightest indication of trouble.

In the process shareholders tend to induce failure of the firm (Crotty 1990. All the above issues indicate that the financial theory approach is not the most accurate,

and that researchers should focus on performance theory using only value creation perspectives. Research concerning SMES is placed often within the social sciences field.

Since my background is in chemical engineering, I have experienced at a personal level the differences in research methodology between natural sciences and social sciences.

verbal descriptions and explanations (i e. narrative-textual analyses) were used in a number of papers that addressed the issue of performance in relation to the external environment of the firm,

wherein the internal environment determines how resources are used and delegated in the organization. However, innovation activities can occur in cooperation among a group of firms,

and even through the economy of an entire region (Etzkowitz and Klofsten 2005) or a country.

In due course, one must also look at the innovation process in relation to the external environment of the firm.

Availability of resources and the general conditions at the external environment outside the firm have an impact on the firm's innovation activities.

This is accounted for by the introduction of the concept of Innovation Capital covered by the third part of the thesis. The thesis starts with an introductory chapter, in which

and how one can relate the innovation activities of the firm to its external environment.

and investigated in relation to building performance models for technology input in relation to the external environment of the firm.

This business ratio focus caused previous models of firm performance to be concerned mostly with the failure outcome (bankruptcy or solvency) of the enterprise life cycle (Storey et al. 1987, Keasey and Watson 1986a, b, 1987

profitability, activity, liquidity, assets balance, and cash position. Statistical techniques, such as principal component analysis, can be used to reduce that number of variables (Mcpherson 1995.

The enterprise size, as well as the enterprise growth rate, is inversely related to the probability that the firm will close (Mcpherson 1995).

SMES usually fail within the first years of their lives (Altman 1983, Castrogiovanni 1996, Monk 2000.

In their model to evaluate incubators, Bergek and Norrman (2008) discussed various approaches through which incubators choose their candidate-firms.

Klofsten (1992b) looked at the way in which technology-based enterprises progress in their development.

His focus was on the earlier stages of their lives. In that work, Klofsten (1992b) described a couple of models that he thought would give the widest possible understanding of the firm performance concept.

as often these enterprises have not reached a stable status and tend to be more dynamic than more mature firms Models used by managers of SMES should be of practical value The models must account for the nature of the modern economy,

as Information and Communication Technologies (ICTS) drive the organizations to adapt an open structure (Globerman et al 2001) The first of the second group of challenges is the necessity of attending to the issue of innovation

when constructing performance models for SMES. There is a broad agreement among scholars that SMES are an important source of innovation.

as these enterprises have reached often not yet a stable status, and they tend to be more dynamic than more mature firms.

and Steinmetz 1969.34 The fourth challenge stems from the nature of the modern economy, and has to do with the kind of enterprise structure generated in company build up.

In general, Information and Communication Technologies (ICTS) drive organizations to adapt an open structure (Globerman et al. 2001) over the classical,

closed structure that characterized the older organizations (Scott 2003). The structural nature of SMES affects the kind of model required to evaluate performance.

Therefore, it is necessary to study the environment within which SMES operate and understand how that environment is reflected in their performance (Gnyawali and Park 2009).

As the modern economy becomes increasingly diffused (Polenske 2002), the agility and flexibility of SMES gives them a competitive edge over larger firms.

Organizations can benefit from utilizing information technologies (IT) in their daily operations (Fink and Kazakroff 1997.

The business models in this group focus on how firms proceed from their inception period to become fullygrown, functioning entities.

These models are mostly qualitative in nature (Table 2. 2). The second group of business models focuses on performance prediction,

As each period passes, a firm revises its beliefs about its true performance based on the previous period's profits and costs.

The first subgroup is concerned more with the external environment of the firm, while the second group is focused more on the internal environment of the firm.

Actually, a majority of the prediction models deal with financial failure. The stochastic theories are based on the fact that firm growth is independent of firm size.

The term innovation Innovation is regarded as the instrument through which entrepreneurial economies are realized (Drucker 1985.

OECD (2004, p. 9) defined innovation as, The introduction of new or improved processes, products or services based on new scientific or technical knowledge and/or organizational know-how.

Mazzarol and Reboud (2008) saw innovation as the realization of new products or services, new production processes, new marketing techniques,

p. 9). The innovativeness of an economy can be augmented through a system of specialization where larger

To connect societal input to innovation in relation to the external environment of the firm, early studies assumed that growth in the short run was driven largely by capital investment,

while long-term growth was attributed to exogenous technological change 40 (Corley et al. 2002). Higher productivity of economies was attributed to investment in capital,

which is mainly related to knowledge (Schultz 1959). Romer (1986) postulated that R&d leads to the creation of knowledge,

but it may indirectly influence the introduction of products or services, or the process of producing them (Kimberly and Evanisko 1981).

Open innovation is linked to the usage of open business models (Chesbrough 2003, Melese et al. 2009. Hedner el al.

including innovative environments (Aydalot 1985), clusters (Porter 1990), innovative milieu (Camagni 1991), regional innovation systems (Cooke 2001),

where enterprises commercialize their internal and external ideas, and their technologies and use, to improve both their external and internal capacities.

Teirlinck and Spithoven 2008). 42 Innovation capital Two types of capital are mentioned often in relation to innovation capacity:

human capital and financial capital (Abouzeedan and Busler 2004. In addition to these two, there is also a third:

system capital (ibid. System capital should not be confused with structural capital. Structural capital, in its classical context, is embedded an component in the intellectual capital concept (Allee 1999, Zangoueinezhad and Moshabaki 2009, Depablos 2004, Sveiby 1997.

Intellectual capital relates to the intangible assets of an enterprise (Sveiby 1997, Sveiby and Risling 1986, Edvinsson and Malone 1997, Roos et al. 1997.

Structural capital, as well as human capital and external capital, may be discussed in respect to an enterprise's intangible assets (Allee 1999).

Allee (1999, p. 126) defined structural capital as, Systems and work process that leverage competitiveness.

According to him, it is delivered the competencies as codified knowledge in the internal environment of the firm

and that is why it is referred also to as internal capital (ibid). Based on the definition above, it is evident that structural capital is different from the system capital used in papers 4, 5,

and 6 of this thesis. There are two main aspects of that difference. Firstly, system capital is more related to existing input from the external environment.

Such input comes from societal and governmental organizations and institutions. Secondly, system capital indicates both tangible as well as intangible assets supplied to the firm as external input.

Technical change may increase the relative productivity input of human capital if education and other skills assist in rapidly applying new technology within the firm (Adams 1980,

Nelson and Phelps 1966, Welch 1970, Schultz 1971. One way to express the quality of human capital in a country is to look at labor productivity (Adams 1980.

Mankiw et al. 1992) introduced human capital explicitly in his production function. People constitute any organization's core resource for competitiveness (Rastogi 2000.

On the other hand, if an increase in labor-productivity is related only to an increase in working hours and not to a net production output,

then the increase in productivity will add little or nothing in respect to competitiveness as measured by income per capita (Corley et al. 2002).

In knowledge management literature, R&d and human capital are merged typically under the categories of receiver competence (Eliasson 1990), knowledge base,

and absorptive capacity (Cohen and Levinthal 1989,1990). In general, human capital is transferable and facilitates the accumulation of specific human capital (Ballot and Taymaz 1997).

Such mechanisms lead to competence-building, thus emphasizing to the researchers the importance of receiver competence (Eliasson 1992).

Abouzeedan and Busler (2004) 43 argued that innovation expressed as R&d can be incorporated with human capital in relation to intangible assets.

Financial capital is coupled often with R&d and innovation activities. Lichtenberg's (1992) study of the manufacturing sector's productivity in relation to R&d investments did not consider cross-country effects.

This contrasts with other studies, which have shown that even when tangible and intangible investments are considered,

there are still cross-country differences in productivity. These differences indicate the effects of the firm's external environment.

Hall and Jones (1999) found that such tangible and intangible factors may be institutional and relate to differences in social structures.

Jorgenson and Griliches (1967) focused on issues related to measuring tangible investments in an attempt to reduce the size of the unexplained portion of growth due to exogenous changes.

Later studies attempted to explain the determinants of growth by taking intangible investments, such as R&d, into consideration (Corley et al. 2002.

Acs and Yeung (1999) indicated that product and process improvements in SMES can be attributed directly to increased creativity and innovativeness in the firm.

The closed system approach looks at the organization in isolation from its environment. This is in contradiction to the open system view

which involves the interaction of the organization with its external environment in the analysis. The rational aspect focuses on the operational and administrative functions of the organization

and neglected any interaction that might occur between an organization and its external environment (Shenhav 1995,1999, Cole 1994,1999).

The bureaucratic theory was postulated by one of the most influential sociologists and political economists of the modern era, the German writer Max Weber.

rather, they are designed power systems to maximize control and profits (ibid. Collins (1975) combined Weberian and Marxian themes on social conflict to arrive at a general critical theory of organizations.

as well as the interdependence and exchange between the organization and its environment. Within the bounded rationality theory, March and Simon (1958) called for a view of the organization that showed it being more open to its environment.

The theory emphasizes the need to take that in consideration when taking decisions and called for the institutionalization of the innovation activities of the firm.

The contingency school of organizational analysis 46 emphasizes the existence of multiple numbers of environments corresponding to different types of organizations (Lawrence and Lorsch 1967.

and decisions to correspond to the different types of environments. An organization's adaptability to its environment is the core concept in this theory (ibid.

The combination of rationality and openness in organizational systems is made clear in James D. Thompson's (1967) work.

Thompson was among the first to recognize the importance of the environment for the structure and performance of organizations.

p. 197) defined the task environment as those features of the environment relevant to the organization when viewed as a production system.

Several theoretical frameworks provided guidance to empirical studies of how organization relates to the task environment.

Earlier works on the competitive advantage of organization emphasized tangible resources, such financial capital and location (Scott 2003.

The institute developed a typology of organizational environments and used that typology to study larger firms (Miller and Rice 1967).

The approach of adaptation to environment has been labeled resource dependence (Pfeffer and Salancik 1978), political economy (Zald 1970, Wamsley and Zald 1973),

The Institutional Theory approach is a major natural open system theory that uses the natural analogy concerning the interaction of an organization with its external environment (Scott 2003.

and the general beliefs predominant in the economic system (Burgess 2009, Commons 1924, Cooley 1956, Weber 1968, Powell and Dimaggio 1991).

including established larger organizations, small enterprises, and 48 entrepreneurial start-ups. Secondly, networks are complex and there is no clear evidence to suggest specific network configurations that more effectively support innovation in a particular context.

The concept of external environment is intended to include those forces and elements external to the organization (Covin and Slevin 1991.

The external environment is affected by an organization's actions as well as more general economic, sociocultural, political-legal,

Innovations tend to increase in open environments (Malinen et al. 2009. Modern production requires a new approach to management,

Several scholars have conducted research that demonstrates the inseparability of the external environment from the entrepreneurial processes (Covin and Slevin 1991.

Environmentally-focused population ecology diagrams (Hannan and Freeman 1977) have been used to explain new venture creation and survival (Penings 1982.

Similarly, researchers have found dynamic environments to encourage entrepreneurial firm-level behavior (Miller et al. 1988.

Organizations often respond to challenging environmental conditions, 49 such as those present in high-tech or dynamic environments,

In a highly competitive environment, entrepreneurial postures appear to promote high levels of firm performance (Covin and Slevin 1989.

or may even be negative in nonhostile environments (Miller and Friesen 1983). Laforge and Miller (1987) studied the moderating effects of firm size on the relationship between several environmental and strategic variables.

as enterprises may reduce their size in the shortterm to boost profitability for a subsequent market expansion (Paasio et al. 1994).

including profitability, activity, liquidity, assets'balance, and cash position (Libby 1975). Keasey and Watson (1987) used financial ratios, such as profitability, liquidity,

and gearing, to cover various aspects of company performance. I used the financial parameters most commonly reported by Swedish small firms (Abouzeedan 2001.

The theory-driven approach Existing performance models treat firms as closed systems in isolation from their external environments.

The way I approached the usage of the two core parameters was to relate them to the external environment of the firm through two concepts:

maximum number of employees distinguishing the different categories of enterprises (for the firm size parameter)

and the average life span of the business sector (for the age of enterprise). The reason for this is that firm efficiency is isolated not from the firm's external environment.

Classical firm performance models were built at a time when the closed perspective of organizational structure was the dominant theorem (Scott 2003, p. 108,

the initial investment cost and the self-financed initial capital of investment. One does not find these parameters in the classical models,

when it comes to financing their ventures. The ratio of self-financed initial capital of investment to initial investment costs provides a good indication of the degree to

which the entrepreneur relied on his or her self in establishing the company. Ideally that ratio would be a unity

At this stage, the enterprise has the potential to grow or it may stay at the same level of performance for an extended period (Klofsten 1992a,2010).

The second subset of parameters includes the initial investment costs and the self-financed initial capital of investment;

The second part of the intended model looks at firm efficiency outside of its investments in innovation activities and its innovation acquirements.

The intake and absorption of new technologies are indicated by the ratio between investment in innovation and technology acquirements and the total costs of production,

The first point is that investments in innovation and technology intake should be treated as positive inputs into the efficiency of the firm rather than as cost figures that exhaust the firm (as they are treated often in the classical approach of finance and accountancy).

The second point is that such investment needs to be related to the production costs to reflect the true utilization of the firm's resources.

A higher ratio is an indication of the firm management's high level of commitment to investment in innovation and absorption of 53 new technologies,

In China, small manufacturing enterprises have launched the country into its new economic era. Without SMES, China could not have developed the export-based economic model that transformed the country.

The importance of accounting for the firm's external environment in models and theories of entrepreneurship is evident (Covin and Slevin 1991, Cooper 1986, Bruno and Tyebjee 1982.

and enhances the networking possibilities between enterprises. Furthermore, I evaluated the way the parameters were selected for the intended model based both on the literature review and the theory-driven approach.

I use the term internal environment to mean the internal conditions of the firm as concerns the issue of business performance.

By external environment, I mean the conditions surrounding the firm that impact its performance. The same logic is also applicable to my analysis of a population of firms,

for this is also embedded in the concept of the external environment of a single firm.

Information about the initial investment in the firm as well as the extent to which the firm was financed self is not hard to find.

and discussing the components that impact innovativeness in relation to the firm's external environment. The IBM analysis was performed on Arab countries where the level of differentiation between the intensity of innovation capital components is exaggerated.

although a very good conceptual platform, does not quantify the levels of the various components of the innovation capital (a). The IBAM was developed out of the existing literature.

Same as in (d) above. 6 The discussion about open capital stems from the open innovation concept advanced by Chesbrough (2001,2003.

because it is a review of existing literature that discusses the components that impact innovativeness in society in relation to the external environment of the firm.

These components are human capital financial capital, and system capital. The validity is enhanced also, as the group of countries analyzed using the IBAM tool are located in the Arab World.

The countries of that region have wide variations in the availability of the three components of innovation capital.

Paper 5 connects the discussion of innovation to the entrepreneurial policies needed to enhance such activities in relation to the external environments of the firm.

because the difference between the levels of the three components of capital is exaggerated highly. The level of differentiation between the intensity of innovation capital components enhanced the validity of the study's analysis. The discussion about open capital originated in paper 6

through its introduction of the open innovation concept advanced by Chesbrough (2001,2003. The paper also drew from the general discussion about the impact of information and communication technologies on firm activities.

This secured the validity of the analysis used in the paper. In paper 7, the data used in the analysis of the firm is valid for three reasons:

Actually, I have been following the development of the enterprise for years. Although other models such Z-Score and ZETA have their disadvantages,

Information about the initial investment in the firm and the extent to which the firm was financed self is not hard to find.

The IBAM tool was developed in papers 4 and 5, out of the existing literature about the components of human capital, financial capital,

the discussion about open capital is originated through the introduction of the open innovation concept advanced by Chesbrough (2001,2003.

The paper drew also from the general discussion about the impact of information and communication technologies on firm activities.

Information about the initial investment in the firm as well as the extent to which the firm was financed self is possible to deduct from the firm's accountancy information.

the most relevant difference between the two companies is that one of them works in a classical economic activity (fishery),

Typology Analysis of Performance Models of Small and Medium-sized Enterprises (SMES) This paper was published in the Journal of International Entrepreneurship 2 (1 2), 155 177, Abouzeedan, A. and Busler

The resulting working paper was presented at The Third Biennial Mcgill Conference on International Entrepreneurship which took place in Montreal, Canada on September 13 16,2002.

The theme of that conference was International Entrepreneurship: Researching New Frontiers. We used the comments from the conference participants to further develop the paper.

After a final assessment of the paper, it was submitted to the Journal of International Entrepreneurship,

Some of these models focus on the internal environment of the firm, while others consider the firm's external environment,

investigating a population of firms rather than a single enterprise. Reviewing these models and discussing their individual strengths

and weaknesses would help academic researchers as well as professional users to become more efficient and to better understand 67

while Multinational enterprises (MNES) have a higher degree of operational complexity and need stronger performance predictors.

The models of the first group are related to the external environment of the firm, making them unsuitable to the internally-focused performance evaluation of single firms.

The models of the second group focus on the internal environment of the firm, and thus are more suitable to the investigation of single firm performance.

The SIV model looks at the issue of the firm's external environment and that environment's impact on firm performance in general,

but also considers the external environment in relation to the firm's innovation activities. Such parameters as sector age, the definition of SMES and the firm's input into the innovation activities of others require that the external environment of the firm be accounted for in relation to the firm's innovation activities.

The paper makes a clear distinction between financial failure prediction (or bankruptcy) models which are focused internally,

which focus more on the firm's external environment. Paper 2: ASPEM as the New Topographic Analysis Tool for Small and Medium-sized Enterprises (SMES) Performance Models Utilization This paper was published in the Journal of International Entrepreneurship 3 (1), 53

70, Abouzeedan, A. and Busler, M. 2005. History of paper 2 The reason for this paper was need our to have a clear strategy for using the existing SME performance models in different situations related to analysis,

as well as in 69 relation to information availability about the studied enterprises. Such a strategy, to the best of my knowledge, did not yet exist in the literature;

and published in the Journal of International Entrepreneurship in 2005. Summary of paper 2 A couple of models are used to evaluate the performance of SMES.

They can be related to the external environment within which the firm resides or to its internal environment.

Hazard, stochastic, and learning models are examples of models that relate to external factors, while Z-Scores, ZETA Scores,

In both cases, the models focus on the external environment of the firm, and investigate how the firm performance of a single company relates to the general population of enterprises in a certain 70 sector or geographical area.

A third situation occurs when the researcher focuses on a single firm and has very low information availability about the firm's start-ups or pre-start-up phases.

In this last case, the focus is on the internal environment of the enterprise. Contribution of paper 2 to the purpose of the thesis Paper 2 introduces a strategic tool, the Arena of SMES Performance Models (ASPEM) diagram, for the selection of suitable performance models.

The ASPEM diagram functions as a map to indicate the extent to which the different models relate to the internal and external environments of the firm.

the analysis becomes more focused on the internal environment of the firm. Examples for such models are the ZETA model, the Neural networks model,

The difference between these is that the SIV model connects the internal environment of the firm to the external environment, due to the way in

the models have more focus on the external environment. Examples of those models include the stochastic models and Hazard modeling.

The enterprise is based a family business in the traditional fishing industry in Sweden. The enterprise was started in 2001 thus a young company then.

The tested firm worked with fish filets within a business sector defined as the fish preparation industry.

The enterprise had poor performance throughout its short life, and so the owners asked me to investigate the performance.

as it succeeded in giving a reasonable indication of the worsening situation of the enterprise.

The model was also able to account for the type of financing used to start the firm via the ratio of self-financing to initial investment.

Such an approach allows researchers to account for the firm's external environment in relation to its firm innovation activities.

An Application in the Arab Countries This paper was published in the World Review of Entrepreneurship, Management and Sustainable Development 2 (3), 270 280, Abouzeedan, A. and Busler, M. 2006.

History of paper 4 The first three papers deal with firm performance from the perspective of the internal environment of the firm.

Paper 4 shifted the focus of the performance analysis to the firm's external environment.

and concepts that can be used as technology intake indicators for performance models concentrating on the external environment of a firm.

and absorption on economies. 74 We often wondered why some countries lack entrepreneurial drive and have low innovative output,

We wanted to look at the components that present the input capital into the innovation vitality of an economy from the perspective of individual firms'needs and external environments.

In that paper, the concept of Innovation Capital was introduced first. One year later, in 2005 the paper was reworked

In 2006, the resulting paper was published then in the World Review of Entrepreneurship, Management and Sustainable Development journal.

In that paper, we argued that economies have different levels of entrepreneurial activities depending on the availability of tangible and intangible resources.

The paper introduced innovation capital as a new concept comprising three components: human capital, financial capital,

and system capital. Summary of paper 4 This work introduced a new type of capital innovation capital.

In the paper, we argued that innovation capital can be used as an indicator for the degree of richness of the entrepreneurial environment in a region,

and thus can describe the economy's general character. The paper also introduced another new type of capital as a component of innovation capital:

system capital. System capital is related to the input of the society and its institutions in support of the entrepreneurial and innovation activities of firms.

To analyze the different possible scenarios resulting from the imbalance among the components of innovation capital,

a new analytical tool was introduced: the Innovation Balance Matrix, or IBAM. IBAM is an analytical tool that classifies economies based on their entrepreneurial conditions.

IBAM was used to look specifically at Arab countries using a general knowledge and deductive approach to the issue.

We argued that the three components of innovation capital must be in balance in order for an economy to be innovative and entrepreneurial in nature.

an unbalanced external environment exists. That in turn leads to a negative impact on the total innovative environment of the economy.

The IBAM analysis produced two types of economies one in which firms and their founders are entrepreneurial and the other in

which firms and individuals in them are less entrepreneurial. The IBAM analysis suggested an additive solution in the context of the Arab 75 World firms,

Each Arab country enjoys an abundance of one of the three components of innovation capital but shows a clear deficiency in the other two components.

in order to facilitate the flow of the type of capital among these countries. Contribution of paper 4 to the purpose of the thesis The innovation capital richness of a society is determined by its availability and that society's balance of the three components of innovation capital (human, financial, and system capital.

This analysis was performed in relation to the external environment of the firm and used the Innovation Balance Matrix (IBAM).

The connection of the external environment aspects to the internal environment aspects of firm performance was made clear in our study of the categorization of firm performance models.

Existing models also lack clear connection to system capital because they do not take in consideration the societal input.

A desired SME performance model must incorporate innovation at an internal environment level. The SIV model achieves this incorporation through use of the technology intake parameter (see page 3). However,

it is also important to consider the innovation input in relation to the enterprise's external environment.

Innovation activities at the external environment level affect the firm's internal environment. The IBAM tool helps researchers to assess this input by stressing the need for balance between human capital, financial capital,

and system capital, so that the innovation capital levels can be enhanced. At the external environment level

an evaluation model of SMES that considers innovation aspects must also consider the aggregate level be it regional, national, or global.

The IBAM provides for that analysis in relation to the external environment of the firm. Although the discussion about the three types of innovation capital is meant not to provide a 76 model for measuring firm performance in relation to the external environment of the firm,

it provides potential input parameters to facilitating such analysis. Paper 5: Entrepreneurial Policies and the Innovation Balance Matrix:

History of paper 5 The issue of the connection between economic progress and entrepreneurial environment has been researched from diverse approaches.

One way to look at the question is to use deductive analysis regarding the forms of capital that contribute to the entrepreneurial external environment of firms.

It found that the best solution to the lack of individual entrepreneurial economies in that region is the additive solution.

entrepreneurship, and economic output. The paper is a good example of a policy-oriented work, and was published in a special volume entitled Science, Technology and Sustainability in the middle East and North africa.

and the entrepreneurial external environment of firms using diverse approaches. One way to look at the question is to apply deductive analysis to the forms of capital contributing to the entrepreneurial environment of a given society.

The paper solidifies the issue of knowledge's impact on the economic value of product development by proposing new concepts such as the Knowledge Embedded Value (or KEV) and the Knowledge Embedded Value Margin (or KEVAM.

Both concepts emphasize that the true value of a product is related to how much knowledge (in the form of 77 research and development effort is embedded in it.

These two concepts can be regarded as input indicators that could contribute to the development of performance models that assess the external environment of the firm.

Furthermore, the paper looked at basic factors shaping the economies of the Arab countries including the negative impact of e-globalization on Arab countries and the competitiveness of the Arab economy.

The paper considered the characteristics of the Arab world economy and compared them to the characteristics necessary for an eglobalized economy.

The paper was closed with a discussion about the best strategies to achieve the additive Balance Solution.

The recommendation was to begin a gradual assimilation process encompassing several steps in order to create a single Arab market.

The discussion about firms in the Arab World is used as a model for the discussion of innovation with focus on the external environment of the firm in other regions of the world.

the analysis suggested in the paper can be used to assess any economy or group of economies.

Contribution of paper 5 to the purpose of the thesis A model is needed that connects the performance of SMES in relation to the firms'external environments to entrepreneurial policy issues using the IBAM as the bridging tool.

A performance model that is not functioning correctly at the internal environment level can lead to misunderstandings of the nature of a society's innovation activities,

The situation in the Arab World shows how misunderstanding of a firm's situation at the internal environment level can impact the big picture.

All entrepreneurial relevant characteristics such as the nature of the local economy the high degree of fragmentation and dispersion of the economic structure, the narrow scope of some sectors, the absence of knowledge, the lack of innovativeness, the old-style

and the non-originality of the economic theory all stem, to a large extent, from negligence of the role played by SMES

not only bridge the focus on the firm's internal environment to the focus on the firm's external environment.

Understanding the entrepreneurial policy required can help us to understand the innovation dynamics in economies as relates to the external environment of the firm.

The analysis provided uses the three components of innovation capital (human capital, financial capital, and system capital) and provides input indicators to build upon models of performance that consider the external environment of the firm.

Paper 6: Managing Innovation in e-Globalized Economy Defining the Open Capital This paper was published in Allam Ahmed (ed.),World Sustainable Development Outlook 2009, The Impact of the Global Financial crisis on the Environment, Energy

and Sustainable Development, World Association for Sustainable Development (WASD), Part VII, Knowledge management and Education, Chapter 30, pp. 287 294, Abouzeedan, M.,Busler, M,

I joined the Innovation and Entrepreneurship unit at Sahlgrenska Academy, University of Gothenburg, Sweden. Before that paper,

One of the co-authors of this paper, Head of the Innovation and Entrepreneurship unit, Professor Thomas Hedner, noted 79 that researchers needed to relate innovation to the degree of the openness of the innovation system itself.

open capital. The paper was rushed into formulation and presented at the WASD conference in Manama, Bahrain during the period of November 9 11,2009.

Summary of paper 6 In the working paper of Abouzeedan and Busler (2004), we proposed a new type of capital (i e. innovation capital.

Innovation capital was meant to serve as an indicator for the degree of richness of the entrepreneurial environment in an economy.

Innovation activities in modern economies tend to be interconnected and open in their natures, and our understanding of the innovation process must reflect that.

open capital. The paper also reflected on how the four components of innovation capital are interconnected.

To distinguish the concept of open capital from the usage of open capital in classic financial management literature,

the paper introduced a number of dimensions related to open capital as a component of innovation capital.

Contribution of paper 6 to the purpose of the thesis At the external environment level, the input indicators that are candidates for performance are the four components of innovation capital:

human capital, financial capital, system capital, and open capital. Classical firm performance models were built in a period

when there was limited exposure concerning firm networking and the degree of interaction and exchange of resources and knowledge among companies.

Even the models that dealt with performance issues in relation to the external environment of the firm neglected the impact of networking and the exchange of resources and knowledge on firm survival and growth.

and were built to consider a single firm in isolation from all other enterprises. 80 Neglecting the networking nature of modern economy is a major weakness in classical performance models for SME, especially as concerns innovation issues.

One way to implement the concept of indirect networking is by relating the input parameters to the internal environment of the firm.

Another way to relate input parameters to the internal environment is to relate the firm's age to the age of the sector using the average life span concept (paper 3). Networking

and openness are reflected also in the introduction of the open capital concept at the external environment level.

It is materialized even at the internal environment level, through the introduction of the technology intake parameter (paper 3). Networking's impact on firm performance is accounted also for in the input from other firms into the innovation activities of the object firm.

the paper contributes to an improved approach to building performance models that are able to focus on the external environment of the firm. 81 Paper 7:

Implementing the SIV model on an Intensively Innovation-Oriented Enterprise: The Case of Autoadapt AB This working paper is presented at the International Council for Small Business (ICSB) Conference, Stockholm, 15 18 june 2011, Abouzeedan, A.,Hedner, T. and Klofsten,

In this paper, the investment in development was not differential (meaning that it was a sum of the inward and outward technology intakes.

and 6 analyze the nature of innovation capital in relation to the external environment of the firm.

which can be used to analyze the four components of innovation capital (human capital, financial capital, system capital,

2) innovation capital and its relevance to firm performance; and 3) how the SIV model can remedy the deficiencies of the existing models.

All tend to focus on the external environment of the firm. The other group includes Z-Scores, ZETA Scores, Neural networks,

These are more suitable to the investigation of firm performance in relation to the internal environment of an enterprise.

The 84 existing models also do not take into account in their structures the variations in business sectors and other issues of significance to the external environment of the firm.

Innovation capital and its relevance to firm performance The innovation capital availability of firms is determined by their richness and their balance of the three traditional components of innovation capital (human, financial,

and system) as well as the open capital. A firm's innovation capital is analyzed in relation to the external environment of the firm by use of the Innovation Balance Matrix (IBAM.

The connection between the internal and external environments of the firm, as relates to firm performance,

must be considered in the study of the categorization of the firm performance models. Some of the models are more related to the external environment of the firm,

such as stochastic theories and hazard rate models. That relationship is less extensive in the case of the learning models.

Existing models lack a clear connection to system capital, as these neglect variations in the firms'business sectors, locations, external environment conditions,

and the age of the sector. Performance of SMES should be measured by relating the external environment of the firm to its entrepreneurial policy issues

using IBAM as the bridging tool. A performance model that does not correctly assess the internal environment can miscalculate the nature of the firm's innovation activities as they relate to its external environment.

This 85 may guide planners to enact harmful innovation policies. The Arab World shows how misunderstanding a firm's internal situation can impact the whole picture.

such as the locally concentrated nature of the economy, the high degree of fragmentation and dispersion of the economic structure, the narrow scope of economic development due to policies that focus on only a few sectors,

and the non-originality of the economic theory, stem, to a large extent, from negligence of the role played by SMES

To understand the relationship between the firm's internal and external environments, and how that is related to the innovation issue, I used a sample of firms from Arab countries to reflect on the current disadvantages of using traditional models to measure firm performance.

There exist no transparent bookkeeping reports for smaller enterprises. Classical firm performance models were built in a period of limited exposure for issues of firm networking and the degree of interaction and exchange of resources among firms.

Even the models that dealt with performance issues in relation to the external environment of the firm neglected the impact of networking and the exchange of resources and knowledge on firm survival and growth.

which are coupled to the internal environment of the firm, were structured to describe a single firm in isolation from other enterprises.

To remedy the deficiencies of the existing SME performance models The SIV model has a number of advantages over existing SME performance models.

turnover, production cost, profit margin, 86 initial total investment, self-financed initial investment, and cost of technology intake.

2) the bridging of the SMES'internal environment in relation to performance analysis with a focus on the external environment;

The bridging of the SMES'internal environment focused performance analysis to an external environment focused approach A desired SME performance model should incorporate innovation at the internal environment level in its build up.

it is important to discuss the innovation input in relation to the firm's external environment. Innovation activities related to the external environment of a firm also affect the internal environment of that firm.

Today's firms do not exist in a closed system, or in isolation from their external environments,

but rather exist in an open system with a high degree of networking that varies from one sector to another.

The IBAM tool establishes the external environment perspective of the firm by stressing the need to have a balance between the three classical components of human

the innovation capital levels can be enhanced both in relation to the external and the internal environments of the firm.

open capital. It is important that the desired SME performance model facilitate the bridging of the SME's internal environment analysis to the external environment related issues of innovation using the IBAM analysis tool.

It is also important that such bridging creates an understanding of the policies necessary to support entrepreneurial and innovative development in regions with less economic output.

Neglecting the networking nature of modern economy in relation to innovation issues is a major weakness in classical SME performance models.

The model is also able to account for the type of financing used to start the firm via the self-financed proportion of the total initial investment.

i) incorporating innovation activities in the SIV model in relation to the internal environment of the firm

and (ii) implementing the IBAM model as a tool of innovation capital analysis in relation to the external environment of the firm. 89 Incorporating innovation activities in the SIV model in relation to the internal environment of the firm

For this particular case, the investment in development was not differential. Rather, it was a sum of the two technology intakes (inward and outward.

Utilizing the IBAM model as a tool of innovation capital analysis in relation to the external environment of the firm An SME evaluation model that considers the innovation aspects of a firm in relation to its external environment needs also to look at the aggregate level

The understanding of the entrepreneurial policy required can help us to understand the innovation dynamics of economies.

One way to implement the concept of indirect networking is by relating the input parameters of the model to the external environment of the firm.

and openness are reflected also in the introduction of the open capital concept at the external environment level.

They are reflected even at the internal environment level by the introduction of the technology intake parameter.

The first three papers, together with paper 7, discussed the performance evaluation model issue in relation to the internal environment of the firm.

regardless of whether they function at the internal environment (i e. single firm) level or at the external environment (i e. aggregate of firms) level.

The discussion about innovation in relation to the single firm (internal environment-focused models) leads naturally to similar discussion at the external environment level.

and 6, focuses on the external environment of the firm and its connection to innovation as a component in the firm's general performance.

The framework binding the internally related innovation activities to the firm's 91 external environment is the Innovation Balance Matrix (IBAM.

open capital. For a single firm to engage actively in innovation it requires input from society via four important components of innovation capital (human, financial and system capital papers 4 and 5,

as well as open capital paper 6). The Innovation Balance Matrix (IBAM) played a vital role in this discussion.

and provided insight into how the different components of Innovation capital are related to each other. Although papers 4 and 5 do not discuss a specific model to assess firm performance in relation to the external environment of the firm

they present a strong analysis for how to address the issue of innovation in relation to the firm's external environment.

The SIV model is focused internally, but it does not neglect the realities of the external environment of the enterprise.

The policy discussion in paper 6 provided a good of example of how policy profiling profits from empirical work.

The last paper (paper 7) returns the discussion to the internal environment of the single firm.

It provides for an alternative approach to SME performance, in which innovation is a major component.

regardless of whether they function at the internal environment (i e. single firm) level or at the external environment (i e. an aggregate of firms) level.

The discussion about innovation in relation to the single firm (the internal environment-focused models) leads naturally to a similar discussion at the external environment level.

and also open capital see paper 6). The Innovation Balance Matrix (IBAM) played a vital role in this discussion.

The tool is used to analyze the level of each of form of capital and provides an insight into how the different components are related.

The policy discussion in paper 6 gave a good example of how policy profiling profits from empirical work.

and how they can be enhanced in relation to the external environment. This analysis is achieved by discussing the innovation activities at the aggregate level through the innovation capital concept and its components.

This is achieved in papers 4-6. The framework binding the firm's internally related innovation activities to the external environment is the Innovation Balance Matrix (IBAM.

open capital (paper 6). The analysis performed in papers 3 and 7 exemplified the approach needed in the model to address the issue of innovation impact on SME performance.

and the effect of the firm's external environment have a clear impact on innovation (Wincent and Westerberg 2005, Wincent et al. 2009).

and 3) a new approach that accounts for innovation in relation to the firm's external environment using the IBAM tool.

and the internal environment of innovation Innovation activities impact both the internal environment of the firm as well as its external environment.

The models assess firms in isolation from their external environments, and in essence considered them to be closed systems (Caves 1998, Mcphersson 1995,

I tried to account for these issues in relation to the firm's internal and external environments. The SIV model incorporates the input parameters of significance that other models lack.

The input parameters of SIV as relates to the internal environment of the firm include:

the number of employees, the maximum number of employees distinguishing the different categories of enterprise, firm age,

the intake and absorption of new technologies as indicated by investment and the total costs of production, the initial investment costs, the self-financed initial capital of investment,

These expenditures are allocated for costs of material and other accessories as well as costs of manpower involved in developing new products and services at the firm.

Innovation in SMES differs from that in larger enterprises (Rothwell 1991, Rothwell and Dodgson 1994, Vossen 1998, Hadjimanolis 2000.

in such enterprises. At the external environment level, the input indicators that are candidates for performance evaluation are the four components of innovation capital:

human capital, financial capital, system capital, and open capital. ASPEM as a new tool for strategic utilization of SME performance models To the best of my knowledge, the existing SME literature lacks a strategic approach for researchers to use the performance models.

The published works tend to avoid such discussion by focusing on alternative topics, such as business strategy models (Rasheed 2009, Cheng 2009, Steffens et al. 2009, Butler et al. 2001, Sonfield

This is important when researchers want to address particular evaluation input indicators in relation to SME performance in an economy.

Some of the models are more related to the external environment of the firm, while others are focused more on the internal environment of the enterprise.

They also require different levels of information input. The ASPEM diagram places each of the models in relation to two dimensions.

A new approach to looking at innovation in relation to the external environment of the firm Traditional SME models provided no specific focus on the role that acquiring new technologies

and establishing a connection between the internal environment of the firm and its external environment is vital to the firm's performance (Mazzarol and Reboud 2008, Vermeulen et al. 2005, Wolff and Pett 2006).

Innovation in relation to the external environment of the firm can be expressed via the capital concept. Traditionally, the discussion about different types of capital in relation to an economy's ability to be centered innovative around two basic concepts:

human capital and financial capital. In the context of this thesis, I proposed a new form of capital to cover the ability of public institutions

and private organizations to support the entrepreneurial environment in a country. This third type was designated as system capital.

This form of capital is concerned more with societal input into the innovation activities of an economy.

I also addressed the issue of firm openness and networking by proposing a fourth type of capital:

open capital. I combined the four types of capital into a new form of capital, innovation capital.

Innovation capital presents the accumulated input of technology in relation to the firm's external environment that promotes innovativeness and the entrepreneurial drive of the economy.

The optimal situation is one where the four components of innovation capital are relatively abundant at the same level.

To study the possible variations of innovation capital levels in an economy, I introduced the Innovation Balance Matrix (IBAM).

I applied the analysis tool to firms in Arab countries. In that analysis, I did not include open capital.

I only considered human capital, financial capital, and system capital. Open capital should be integrated as a fourth component of innovation capital in any future work using the IBAM tool.

The Arab countries presented a unique case, where each country has an overflow in only one component capital,

while the other two components are in poor shape. Although the concept capital is built not into the SIV model,

the SIV model can be used as a performance input indicator to build models at the aggregate level of the economy.

Implications for SME research policies The outcome from this thesis would lead I hope, to a reexamination of some of the current research practices in relation to the SME field.

A major point is that one should avoid focusing on the financial ratio approach and abstain from using sophisticated statistical methods.

A combination of literature screening and the theory-building approach would be the best practice through

which to construct SME performance models. 100 The first stage of building performance models is to study the existing performance valuation literature that discusses the impact of individual factors on performance.

Another research policy issue is need the to relate the innovativeness of a firm to its external environment

and not to restrict oneself to studying the firm's internal environment. The choice of input parameters in the SIV model can be tested further to relate to specific business sectors.

hopefully, lead to some positive implications for the internal as well as the external environments of the firm.

Aspects related to the internal environment of the firm In this thesis, I incorporated the aspects of the firm's internal environment to the issue of innovation.

I used the concept of technology-intake as a parameter to indicate the firm's level of innovation activity.

It is thus possible to use the SIV model to assess the status of SMES in a given economy,

That would enable policy-makers to study the impact of their strategies and policies on the growth of small and medium sized enterprises.

Aspects related to the external environments of the firm SME performance models that account for innovation's affect on the internal environment of the firm would be expected to reflect on innovation's relation to the firm's external environment, as well.

Such a system creates an environment that encourages SMES to innovate and thus enhance their survival, nourishment,

and the resources (or capital) available to use at the external level of the enterprise,

Further research is needed to build SME performance models focused on the external environment of the firm.

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