Synopsis: Entrepreneurship:

Small and medium-sized enterprises (SMES) play a vital role in the economic development of nations.

activities be enhanced in relation to the firm†s external environment? In this dissertation, I tried to address these questions using a conceptual analysis, as well as empirical investigation

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

model to handle SME performance in relation to companies†external environments, I presented indicators, in the form of various types of capital,

which can be used to build such a model. Among these indicators are: human capital, financial capital, system capital, and open

capital. All are aggregated under one concept: innovation capital The major contributions of this thesis to the field of SME performance can be

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

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

ICTS Information and Communication Technologies IT Information technology KEV Knowledge Embedded Value KEVAM Knowledge Embedded Value Margin

SME Small and Medium-sized Enterprise SMES Small and Medium-sized Enterprises SPI Survival Progression Indicator

6 Parameters of the SIV Model Symbol Parameter ijsi Survival index oisi Operating conditions survival index

ic1 Initial investment capital sic1 Self-financed initial capital ic2 Costs for the intake and absorption of new technologies

ba AA,, and ca Proportionality coefficients Î Survivability coefficient θSurvivability angle Ï Survival factor

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.

globalized economy†defining the open capital. In Allam Ahmed (ed World Sustainable Development Outlook 2009:

Financial crisis on the Environment, Energy and Sustainable Development, Part VII, Chapter 30, 287†294 Paper 7:

model on an intensively innovation-oriented enterprise: The case of Autoadapt AB. Working paper, presented at the International Council for Small

entrepreneurship. The discussions we had during the writing of the thesis expanded my knowledge in academic disciplines and provided me with valuable tools of scientific

Entrepreneurship, Sahlgrenska Academy, University of Gothenburg, has been very instrumental in both introducing me to the Linkã ping team and in commenting and

start by conveying warm thanks to my colleagues at Innovation and Entrepreneurship /Sahlgrenska Academy, University of Gothenburg, for their continuous encouragement and

Center of Innovation and Entrepreneurship, Linkã ping University: Dzamila Bienkowska Charlotte Norrman, Erik Lundmark, and Peter Svensson

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

and Entrepreneurship for their contribution to the shaping of my science philosophy and my 10

understanding of the innovation and entrepreneurship disciplines. In particular, I wish to thank: Zoltan Acs, Roger Stough,

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

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

Innovation capital 42 A comprehensive approach to constructing an SME performance model 43 3. Methodology 54

Medium-sized Enterprises (SMES) †66 Paper 2: â€oeaspem as the New Topographic Analysis Tool for Small

and Medium-sized Enterprises (SMES) Performance Models Utilization†68 Paper 3: â€oeanalysis of Swedish Fishery Company Using SIV Model

Innovation-Oriented Enterprise: The Case of Autoadapt AB€ 81 5. Discussion and Analysis 83 Advantages and disadvantages of existing SME performance models 83

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

They are a major source of job creation (Storey et al. 1987, Castrogiovanni 1996, Clark III and Moutray 2004) and they represent the seeds for future large companies and corporations

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

creation of an entrepreneurial economy (Schumpeter 1934. Studies related to the 1 SMES are defined as firms with less than 250 employees (NUTEK 2004, p. 15

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

external environment on that firm†s performance (Jovanovic 1982, Hopenhayn 1992, Nelson and Winter 1978, Inman 1991, Peel et al. 1985,1986, Chen and Shimerda 1981, Argenti

isolation from the impact of the external environment and from other existing evaluation models (Caves 1998, Mcpherson 1995, Allison 1984, Waring 1996, Mcgahan and Porter

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.

by investments in these technologies and total costs of production. All these parameters are calculated per periodicity unit.

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 then one needs to address the above issues

The selection of the parameters mentioned above is based on an intensive literature review coupled with new thinking as to how different inputs can be expressed in

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. I tried to relate them to each other in a

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.

The technology intake costs are devised out of my understanding of the value of innovation in elevating firm

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, as firm size is expressed in many different ways (Atkins and Lowe 1997, Cross 1983, Ganguly 1985, Keasey and Watson 1993, Storey et al. 1987

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

It is important to discuss â€oesmallness†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

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

I did suggest some feasible input indicators that could be used to develop sound models in the future

There is a strategic value in connecting an enterprise†s internal environment to its external environment, because a firm†s efficiency relates to more than just its size and the sector

within which it is active (Abrahamsson and Brege 1997, Abrahamsson et al. 2003 The effort manifested in this thesis aims to contribute to existing firm theory

performance in relation to the internal environment of the firms, such as firm managers, SME consultants, and individual researchers.

environment at an aggregate level. Politicians and administrators who are members of major institutions working with economic growth issues, such as Tillvã¤xtverket and

Näringsdepartementet, as well as those working with innovation activities such as VINNOVA, are included in this second group Aim and overall research questions

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

has given a central role to â€oeknowledge†in economic growth (Neale 1984. Empirical evidence shows that countries with higher R&d activities per employee have higher levels of

significance of the external environment to the innovativeness of the firm Since networking was accounted not for in classical performance modeling, one

environment To answer the above three questions, one must have the correct balance between theory-building (i e. the conceptual approach) and empirical testing (i e. the case

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

seller to influence the price of any given commodity. These conditions are unfeasible to satisfy for SMES.

performance is less than desirable is the fact that shareholders and managers have different objectives. 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.

-term 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.

addressed the issue of performance in relation to the external environment of the firm, rather than quantification and statistical analysis.

within a single firm, wherein the internal environment determines how resources are used and delegated in the organization.

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

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 â€oeinnovation Capital, †covered by the third part of the thesis

activities of the firm to its external environment The first chapter ends with a discussion about the research model used in

building performance models for technology input in relation to the external environment of the firm. This can be a subject for a future thesis

solvency) of the enterprise life cycle (Storey et al. 1987, Keasey and Watson 1986a, b, 1987 and 1988.

profitability, activity, liquidity, assets balance, and cash position Statistical techniques, such as principal component analysis, can be used to reduce that

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.

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

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

•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

enterprises have reached often not yet a stable status, and they tend to be more dynamic than

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 second group of business models focuses on performance prediction, which uses a hard approach to measure firm performance.

period†s profits and costs. Inefficient firms which are unable to learn decline and exit,

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

Innovation is regarded as the instrument through which entrepreneurial economies are realized (Drucker 1985. Schumpeter (1934) identified five sources of innovation:

introduction of new or improved processes, products or services based on new scientific or technical knowledge and/or organizational know-how. â€

or services, new production processes, new marketing techniques, and new organizational or managerial structures. Innovation may also involve new technology, intellectual property, and

innovativeness of an economy can be augmented through a system of specialization where larger or more mature firms acquire innovative and successful smaller firms (Lindholm 1994

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 â€oeinvestment in

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

the introduction of products or services, or the process of producing them (Kimberly and Evanisko 1981.

the usage of open business models (Chesbrough 2003, Melese et al. 2009. Hedner el al 2011) argued that the open innovation paradigm may alter the way that drug discovery and

rise of open organizations, including innovative environments (Aydalot 1985), clusters (Porter 1990), innovative milieu (Camagni 1991), regional innovation systems (Cooke 2001), and

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

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 â€oesystems and work process that leverage competitiveness. †According to him,

it is â€oethe competencies delivered 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 â€oesystem 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 typically merged under the categories of â€oereceiver competence†(Eliasson 1990), â€oeknowledge base, â€

and â€oeabsorptive 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

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

with its external environment in the analysis. The rational aspect focuses on the operational and administrative functions of the organization while the rational aspect stresses the

might occur between an organization and its external environment (Shenhav 1995,1999, Cole 1994,1999 Parallel to the introduction of the scientific management school, a second

and political economists of the modern era, the German writer Max Weber. The bureaucratic theory is limited actually a contribution to a much more encompassing work of analysis of the

control and profits (ibid. Collins (1975) combined Weberian and Marxian themes on social conflict to arrive at a general critical theory of organizations

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

emphasizes the existence of multiple numbers of environments corresponding to different types of organizations (Lawrence and Lorsch 1967.

solutions 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.

importance of the environment for the structure and performance of organizations. Using a similar approach to Dill†s (1958), Scott (2003, p. 197) defined the task environment as those

features of the environment relevant to the organization when viewed as a production system These features include the sources of input, markets for output, competitors, and regulators

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

Among these are the contingency (Thompson 1967 Donaldson 2001), strategic choice (Child 1972, Baum 1998), competitive strategy (Porter

emphasized tangible resources, such financial capital and location (Scott 2003. However recent efforts focused on the utilization of intangible resources, such knowledge, as a

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 â€oeresource dependence†(Pfeffer and Salancik 1978), â€oepolitical economy†(Zald 1970, Wamsley and Zald 1973), and â€oepower

environment (Scott 2003. The difference between it and the contingency theory is that the institutional approach is focused more on the impact of the macro institutional actors of

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

organizational contexts, including established larger organizations, small enterprises, and 48 entrepreneurial start-ups. Secondly, networks are complex

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

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

the external environment from the entrepreneurial processes (Covin and Slevin 1991. For example, Bruno and Tyebjee (1982), drawing heavily on the resource exchange model

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.

such as those present in high-tech or dynamic environments, by taking risks, innovating, and exhibiting proactive behaviors,

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

-hostile environments (Miller and Friesen 1983. Laforge and Miller (1987) studied the moderating effects of firm size on the relationship between several environmental and

as enterprises may reduce their size in the short -term 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.

external environments. One must choose the parameters in relation to their efficiency and capacity to respond to the requirements of an open system.

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, Table 5-1 The first three quantitative parameters of interest to this work are the turnover (or

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

although they are important in measuring the efficiency of the firm†s operations. When it

independent as possible 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

At this stage, the enterprise has the potential to grow or it may stay at the

includes the initial investment costs and the self-financed initial capital of investment; all the rest are clustered in the first subset

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, or the technology-intake index Innovation†s positive impact on the efficiency and performance of firms requires

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

) 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.

firm management†s high level of commitment to investment in innovation and absorption of 53

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

) 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. Organizational-level variables also appear to be essential. Various business strategies, organizational structures,

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

By â€oeexternal environment, †I mean the conditions surrounding the firm that impact its performance.

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

initial investment in the firm as well as the extent to which the firm was self-financed is not hard

external environment. The IBM analysis was performed on Arab countries where the level of differentiation between the intensity of

6 The discussion about open capital stems from the open innovation concept advanced by Chesbrough

information and communications technologies on firm activities. These parameters are need in of quantification, however The analysis based

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

environments of the firm The Arab World was chosen 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.

discussion about the impact of information and communication technologies on firm activities. This secured the validity of the analysis used in the paper.

development of the enterprise for years Although other models such Z-Score and ZETA have their disadvantages,

about the initial investment in the firm and the extent to which the firm was financed self is

about the components of human capital, financial capital, and system capital. Therefore, the same analysis can be reproduced without difficulty.

In paper 6, the discussion about open capital is originated through the introduction of the open innovation concept advanced by Chesbrough (2001,2003.

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.

Enterprises (SMES) †This paper was published in the Journal of International Entrepreneurship 2 (1†2), 155†177

Abouzeedan, A. and Busler, M. 2004 History of paper 1 The origin of this paper goes back to 2002,

Entrepreneurship, which took place in Montreal, Canada on September 13†16,2002. The theme of that conference was â€oeinternational Entrepreneurship:

Researching New Frontiers. †We used the comments from the conference participants to further develop the paper.

Entrepreneurship, where it was published in a final version in 2004. This journal version improved upon the original discussion surrounding performance theoretical models of SMES

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

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

The models of the second group focus on the internal environment of the firm, and thus

SIV model looks at the issue of the firm†s external environment and that environment†s

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

environment Paper 2: â€oeaspem 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

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

was developed and published in the Journal of International Entrepreneurship in 2005 Summary of paper 2

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, and Neural networks are

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

In this last case, the focus is on the internal environment of the enterprise Contribution of paper 2 to the purpose of the thesis

internal and external environments of the firm. As the coverage intensity (the vertical axis becomes lower,

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

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 which the different qualitative

parameters are expressed. When coverage intensity is high, the models have more focus on the external environment.

Examples of those models include the stochastic models and Hazard modeling. The learning model has a relatively intermediate level of coverage

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 â€oefish preparation industry. †The enterprise had

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

enterprise. During the SIV analysis of the Swedish firm, new concepts were introduced to increase the practicality and analytical capacity of the model

used to start the firm via the ratio of self-financing to initial investment. A good model for

environment in relation to its firm innovation activities Paper 4: â€oeinnovation Balance Matrix: An Application in the Arab Countriesâ€

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

internal environment of the firm. Paper 4 shifted the focus of the performance analysis to the

firm†s external environment. In the process, it introduced some ideas and concepts that can be

environment of a firm. This is an essential factor to consider when looking at the impact of

technology generation and absorption on economies 74 We often wondered why some countries lack entrepreneurial drive

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. That led me to write the first version of this work. The first draft of

this effort started as working paper, which was presented at the 7th Uddevalla Symposium at à stfold University college, Fredrikstad, Norway, June 17†19,2004.

concept of Innovation Capital was introduced first. One year later, in 2005, the paper was reworked and the analysis performed on firms located in the Arab World.

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

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. If one of the components is disproportionately larger than the other two, 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

Arab country enjoys an abundance of one of the three components of innovation capital but

common efficient market in order to facilitate the flow of the type of capital among these countries

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

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

connection to system capital because they do not take in consideration the societal input Traditional models neglect variations in the business sector such as geography, economic

environment level. The SIV model achieves this incorporation through use of the technology intake parameter (see page 3). However,

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: â€oeentrepreneurial Policies and the Innovation Balance Matrix: The Case of the Arab Countriesâ€

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. In paper 4, an IBAM analysis was performed to assess firms in the Arab World.

It found that the best solution to the lack of individual entrepreneurial economies in that region is the â€oeadditive solution. †We felt the need to

continue the arguments presented in the previous paper and develop discussion about the â€oeadditive solution. †This resulted in a paper with a focus on strategic issues in relation to the

firm†s innovation, entrepreneurship, and economic output. The paper is a good example of a policy-oriented work,

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

the external environment of the firm An analysis using IBAM was performed on the Arab World,

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 e

-globalized economy. The paper was closed with a discussion about the best strategies to achieve the â€oeadditive Balance Solution. †The recommendation was to begin a gradual

assimilation process encompassing several steps in order to create a single Arab market. The strategies presented seek to reflect a pragmatic, action-oriented sense of the possible

discussion of innovation with focus on the external environment of the firm in other regions of the world.

Thus, 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, and as thus

misunderstanding of a firm†s situation at the internal environment level can impact the big

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

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

the firm†s internal environment to the focus on the firm†s external environment. Such bridging

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: â€oemanaging 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, . and Hedner, T. 2009

Entrepreneurship unit at Sahlgrenska Academy, University of Gothenburg, Sweden. Before that paper, I performed most of my research as an external academic, in association with

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

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

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.

However, the issue of accessibility and openness in the innovation process was reflected not in the innovation

capital concept as first presented. Innovation activities in modern economies tend to be interconnected and open in their natures,

and our understanding of the innovation process must reflect that. Paper 6 considered how to incorporate the openness dimension within the

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. This showed in the way SME performance models were built.

environment of the firm neglected the impact of networking and the exchange of resources and knowledge on firm survival and growth.

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. SME performance models are less able to capture the contemporary nature of innovation processes

parameters to the internal environment of the firm. In this approach, one can relate the size of

relate input parameters to the internal environment is to relate the firm†s age to the age of the

reflected in the introduction of the open capital concept at the external environment level. It is

even materialized 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

to building performance models that are able to focus on the external environment of the firm

Enterprise: The Case of Autoadapt AB€ This working paper is presented at the International Council for Small Business

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

6 analyze the nature of innovation capital in relation to the external environment of the firm This group of papers introduces a new tool, the Innovation Balance Matrix (IBAM), which

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

Papers 3 and 7 implement the proposed model for SME performance evaluation†the Survival Index Value (SIV) model

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,

environment of an enterprise. However, with the exception of the SIV model, these models rely heavily on business ratios,

sectors and other issues of significance to the external environment of the firm Paper 2 presented a strategic tool to select suitable performance models for

Innovation capital and its relevance to firm performance The innovation capital availability of firms is determined by their richness 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.

Other models are concerned more with the internal experiences of single firms, but can also treat a group of internal analyses at an aggregate

models lack a clear connection to system capital, as these neglect variations in the firmsâ€

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

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, the

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

environments, and how that is related to the innovation issue, I used a sample of firms from

reports for smaller enterprises Classical firm performance models were built in a period of limited exposure for

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

initial total investment, self-financed initial investment, and cost of technology intake. The qualitative parameters are firm size and firm age

SMES€ internal environment in relation to performance analysis with a focus on the external environment; and 3) the extent of the SIV model†s responsiveness to the desired

characteristics The desired characteristics of the intended SME performance model Paper 1 discusses characteristics that must be considered to envision the desired

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.

The SIV model achieves that incorporation through the technology intake parameter (paper 3). However, 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

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

can be enhanced both in relation to the external and the internal environments of the firm. The same can be said of the fourth component:

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. Existing models are less able to capture the contemporary nature of innovation processes,

firm via the self-financed proportion of the total initial investment. A model for evaluating

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 Paper 1 used existing literature to stress the role of innovation in enhancing firm

case, the investment in development was not differential. Rather, it was a sum of the two

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 of firm population, whether regional, national, or global.

required can help us to understand the innovation dynamics of economies. In that sense, using an SME performance model that incorporates innovation activities in its build up is a

parameters of the model to the external environment of the firm. Such an approach can be

Networking 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.

This parameter includes also input from other firms into the innovation activities of the object firm.

environment of the firm The new approach required use of theory-driven strategy to build performance

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

Thus, the nature of the models prominent in the area of SME performance is cause for concern.

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

The second group of papers, namely papers 4, 5, and 6, focuses on the external

environment of the firm and its connection to innovation as a component in the firm†s general

external environment is the Innovation Balance Matrix (IBAM. Even the policy issues raised by paper 5 were reflective of the fact that analysis of the innovation activities at the level of a

open capital For a single firm to engage actively in innovation it requires input from society

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

components and provided insight into how the different components of Innovation capital are related to each other

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.

at the internal environment (i e. single firm) level or at the external environment (i e. an aggregate

environment-focused models) leads naturally to a similar discussion at the external environment level. For a single firm to engage actively in innovation requires an input from society via four

5, and also open capital see paper 6). The Innovation Balance Matrix (IBAM) played a vital

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.

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

innovation 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

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

and the effect of the firm†s external environment have a clear impact on innovation (Wincent

environment using the IBAM tool The Survival Index Value Model, or SIV, and the internal environment of

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

Existing SME performance models intensively utilize the financial 97 input parameters (Story et al. 1987. Generally, the models do not consider the nonfinancial

aspects of performance (Keasey and Watson 1993), and when they incorporate such aspects they do so indirectly,

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

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:

distinguishing the different categories of enterprise, firm age, and the average life span of firms in that business sector.

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, and the profit margin (a neutral percent figure

developing new products and services at the firm. R&d is incorporated in the second type of

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

complexity of innovation processes 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

performance in an economy There are wide variations in the natures of SME models. 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.

environment of the firm Traditional SME models provided no specific focus on the role that acquiring

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 â€oecapital†concept. Traditionally, the discussion about different types of â€oecapital†in relation to an economy†s ability to be centered innovative around two basic concepts:

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 â€oecapital†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

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

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 â€oetechnology-intake†as a parameter to indicate the firm†s level of innovation activity.

of SMES in a given economy, and even to study several possible progressions scenarios for

their strategies and policies on the growth of small and medium sized enterprises. Attaining such capacity is of particular importance to the innovation activities of SMES, as policy

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. The results from this thesis point to the way by which one can

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

enterprise, is a new approach to grasp the relationship between firm innovativeness and performance Further research is needed to build SME performance models focused on the

external environment of the firm. Although I did not develop a specific performance model that considers innovation at the aggregate level, the ideas related to innovation capital and the

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