Innovation in SME's: The Missing Link

: The economics of innovation has addressed two main issues, respectively regarding the types of knowledge (scientific, technological) required in innovation, and the organisation of R&D. Drawing heavily on the central significance of R&D activities, such premises do not provide convincing explanations of other kinds of innovation that do not systematically draw on R&D efforts. We argue that innovation in SME's is critically related to individual members of the firm. Indeed, individuals embody two types of competencies, respectively component and architectural ones. While component competencies are linked to specific scientific or technological skills, architectural competencies deeply shape the innovation process by enhancing new combinations of existing component competencies. We further develop this framework by applying it to both high tech and low tech sectors. We show that architectural competencies are essential in the sense that they allow low tech SME's to innovate without per...