Impact of Cooperation Flexibility on Innovation Flexibility in SMEs

Equilibrium. Quarterly Journal of Economics and Economic Policy Volume 17 Issue 2 June 2022 p-ISSN 1689-765X, e-ISSN 2353-3293 www.economic-policy.pl Copyright © Instytut Badań Gospodarczych / Institute of Economic Research (Poland) This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. ORIGINAL ARTICLE Citation: Tomášková, E., & Kaňovská, L. (2022). Impact of cooperation flexibility on innovation flexibility in SMEs. Equilibrium. Quarterly Journal of Economics and Economic Policy, 17(2), 533–566. doi: 10.24136/eq.2022.019 Contact to corresponding author: Eva Tomášková, [email protected] Article history: Received: 14.05.2021; Accepted: 2.05.2022; Published online: 25.06.2022 Eva Tomášková Masaryk University, Czechia orcid.org/0000-0002-0579-4976 Lucie Kaňovská Brno University of Technology, Czechia orcid.org/0000-0003-2797-7973 Impact of cooperation flexibility on innovation flexibility in SMEs JEL Classification: M14; L94 Keywords: cooperation flexibility; innovation flexibility; electrical engineering companies; hightech manufacturers, SMEs Abstract Research background: Flexibility has become a possible means for manufacturing companies to better compete in competitive markets. Furthermore, innovations are perceived as an important factor in company strategy, which can differentiate the company from the competition. Purpose of the article: This present study investigates the problems of cooperation flexibility and innovation flexibility in manufacturing companies among electrical engineering companies in the Czech Republic. The aim of this paper is to identify the impact of cooperation flexibility on innovation flexibility in small and medium-sized manufacturing companies. Methods: A questionnaire addressed to SMEs in the form of the Likert scale was prepared to gather information about cooperation flexibility and innovation flexibility. All parts of the questionnaire were tested using Cronbach Alpha. Spearman correlation and regression analysis were used for analysis. Findings & value added: The results of the research show that external cooperation flexibility and internal cooperation flexibility is related to innovation flexibility in SMEs. Results of the research show that there is a positive relationship 1) between external cooperation flexibility and innovation flexibility and 2) between innovation flexibility and business performance at SMEs. The findings of the research contribute to an understanding of the relationship between cooperation flexibility, innovation flexibility and also innovation performance. The novelty value of this paper lies in its perception of flexibility as having two parts, namely external (with suppliers and Equilibrium. Quarterly Journal of Economics and Economic Policy, 17(2), 533–566 534 customers) and internal cooperation flexibility. In addition, innovation flexibility was investigated in two fields, product, and accompanying services to products. The view mentioned provides a complex view of flexibility. Introduction A changing environment brings new approaches to management. Managers are confronted with a high level of complexity and continual technological changes in a globalised world. New technologies bring new opportunities for companies. However, it is an administrative challenge as well. Kovacova and Lăzăroiu (2021) show the need to increase digitisation of administrations for reducing corruption. Companies try to use more developed best practices or training practices because of their ability to facilitate higher business performance. Companies have to change their behaviour because they have to be in accordance with the business environment (Ionescu, 2021). Smith and Machova (2021) stress that current research focuses especially on Internet of Things-based decision support systems, industrial big data analytics, and autonomous production processes in sustainable smart manufacturing. Gaining competitiveness is an important topic and more widely business success for a lot of present companies (Zadykowicz et al., 2020). Cooperation, innovation, and flexibility are often mentioned in these new approaches. Zinecker et al. (2022) focused their research on the area of cooperation between business angels, where a high level of cooperation between business angels was found. Bhatti et al. (2020) adopted in their research three dimensions of organisational culture: innovative, supportive, and bureaucratic, where innovative culture is also known as an exciting and dynamic culture. Pellicelli (2018) notes that flexibility is more important than ever, as relationships with suppliers are managed through networked companies and multinational global supply chains. Flexibility enables the establishment of a global supply chain. Beraha et al. (2018) noticed a positive association between innovation and strategic flexibility. Companies with high coordination flexibility are likely to foster radical innovation under high uncertainty together with resource acquisition, rather than with resource accumulation (Li at al., 2017). Innovation and flexibility are often mentioned with respect to SMEs. According to Shahmandy et al. (2012) or Sykes et al. (2014), all companies put more effort into research and development, commitment to top management and employee training and development. Trimi (2008) highlights that SMEs are more flexible and agile than larger companies. With a higher Equilibrium. Quarterly Journal of Economics and Economic Policy, 17(2), 533–566 535 level of flexibility, SMEs can offset their relative lack of financial resources. Kumar (2013) and Maditinos et al. (2014) stress the importance of new and flexible software to support innovation. Li (2015) notes that flexible new technologies and strategic management based on innovation are necessary to systematically improve overall competitive advantage. According to Martínez-Sánchez (2019), flexibility options have the potential to increase capabilities, which are important to innovate. To gain the level of flexibility that customers value (e.g., quick delivery), companies must manage different types of flexibility. Wall (2021) stresses factors which are important for improving SMEs performance. They are business strategy, process, product and organisation innovations. A research gap exists in the current research. Many authors focus solely on innovation, innovation flexibility or cooperation. Contrary, this study offers a combination of these approaches. It is supposed that cooperation flexibility and innovation flexibility are crucial for tangible products and services as well, as both are included in company offers. For this reason, innovation flexibility is divided into the part connected with products and the part connected with accompanying services to products. The part concerning accompanying services was added by the authors of the article due to the growing importance of services, possible competitive advantage, and the impact of services on the innovation itself. The aim of this study is to find out if cooperation flexibility influences innovation flexibility in SMEs. A questionnaire with application of the Likert scale was prepared to gather information about cooperation flexibility and innovation flexibility. Two categories of industry CZ-NACE 26 (Manufacturer of computer, electronic and optical products) and CZ-NACE 27 (The Production of Electrical Equipment) were selected for research as representatives of hi-tech manufacturers. The paper consists of five parts: a literature review, describing mainly the problems of flexibility from different viewpoints with hypothesis development; description of methodology; results and their discussion, conclusions with implications and limitations. Literature review According to Kaschel and Sánchez y Bernal (2006) flexibility is a complex, multidimensional and hard to capture concept. From a management point of view, flexibility refers to the capability to change with the goal to facilitate creative responses. Flexibility promotes gaining and sharing of knowledge, innovation, offering of products according to requests and wishes of cus- Equilibrium. Quarterly Journal of Economics and Economic Policy, 17(2), 533–566 536 tomers and ability to respond to market changes (Perry-Smith & Mannucci, 2017; Kumar & Singh, 2019; Shukla & Sushil, 2020). Vokurka and O'Leary-Kelly (2000) offered fifteen types of flexibility. Eleven types are based on research by Sethi and Sethi (1990), which includes distinct dimensions, namely: machine, material handling, operations, process, routing, product, volume, expansion, program, production, market. Vokurka and O'Leary-Kelly (2000) added four new types to the eleven existing ones. These new types are automation, new design, delivery, and labour. Types of flexibility are divided into categories, which signify their dependence. According to Kumar and Sharma (2014), the independent variables are machine, material handling and labour flexibilities; the dependent variables are production, volume, and product flexibilities. Kumar et al. (2017) divided types of flexibility into four categories and described them as a pyramid. There are many people at the bottom of the pyramid who are involved in flexibility. As we move up from the base of the pyramid, the number of people involved in flexibility decreases. The current literature offers various types of flexibility measurements. The first type of flexibility measurement is focused on strategic flexibility (Brozovic, 2018). The second type of flexibility measurement is based on supply chain flexibility (Das, 2011). The third one is related to information systems (Kumar & Stylianou, 2014). The last one, the fourth type, is related to manufacturing flexibility (Pinheiro et al., 2020, Gaviria-Marin et al., 2021). The fifth type of flexibility analyses human resource flexibility (Way et al., 2015). Vokurka and O'Leary-Kelly (2000) noted that flexibility is influenced by four dominant factors, namely organisational attributes, strategy, technology, and environmental factors. Some authors define flexibility according to its benefits. According to Todorut (2008), flexibility enables creativity, innovation and speed, and all these are contained in processes of coordination and organisation. Di Sivo and Cellucci (2013) stress that a local supply chain is based on the willingness of all stakeholders to initiate virtuous cooperation. According to Ivanov et al. (2018) the four main flexibility triggers include the following: firstly, risks of disruption, resilience, redundancy, and slowdown in the supply chain; secondly, digitisation, smart operations, and e-supply chains; thirdly, sustainability and sensitivity; and fourthly, supplier integration and flexibility of behaviour. The relationship between flexibility and cooperation has been analysed in many studies. Faems et al. (2005) noted that flexibility keeps innovation options open and inter-organisational cooperation is beneficial for innovative performance. Wilson and Nielson (2001) offer four types of cooperative behaviour: Information sharing, flexibility, harmony between compa- Equilibrium. Quarterly Journal of Economics and Economic Policy, 17(2), 533–566 537 nies and joint working between companies. Mesquita and Brush (2008) present three cooperative behaviours, namely shared planning, flexibility, and response. Cooperation and flexibility are mentioned in research between a company and its partners e.g., Jong and Woolthuis (2008) or Franco et al. (2014). As Jong and Woolthuis (2008) show, cooperation and flexibility are based on decreasing the cost of coordinating activities and increasing the level of knowledge transfer. Franco et al. (2014) detected that cooperation with geographically closer partners of the company increases its potential absorptive capacity. In any case, human capital positively enhances the innovation impact of potential absorptive capacity. Nordan and Tolstoy (2011) note that flexibility and cooperation with foreign customers are key strategic factors for SMEs´ technological innovation in foreign markets. The relationship between flexibility and innovation has been the subject of numerous studies. Sanchez (1995) or Beraha et al. (2018) confirm the positive relationship between strategic flexibility and innovation. According to Parker (2001), in the entrepreneurial economy, innovation and flexibility are more important than control and stability. Innovation is critically important for SMEs, whereas SMEs are important in radical innovations in new industries (Carlsson, 1996). Zhou and Wu (2010), Fan et al. (2013), Wei et al. (2014) or Kamasak et al. (2016) found out that strategic flexibility has a supportive role in product innovation. There are some studies dealing with flexibility and innovation in foreign markets. Faroque et al. (2017) identify that both forms of networking (personal and inter-firm) directly impact business process innovativeness and export performance. From the literature review, it is evident that there are many types of flexibility, which were mostly reached via research undertaken by authors focused on this topic. It is evident that the relationship between flexibility and innovation and flexibility and cooperation was analysed by authors. In studies dealing with analysis flexibility, innovation, and cooperation are missing. However, it is possible to suppose that there are some relationships among flexibility, cooperation, and innovation. For this reason, this paper tries to fill this gap. Moreover, it is expected that cooperation, flexibility, and innovation will lead to higher business performance. The research presented in different studies does not confirm this conclusion. Brito et al. (2014) state that cooperative behaviour of flexibility does not have any significant impact on profitability. By contrast, Connor et al. (2020) stress that cooperation improves a supplier´s performance regarding major customers and overall marketplace. Nham Tuan et al. (2016) or Jin and Choi (2019) state that innovations have a positive impact on business performance, in contrast to Yam et al. (2010), who reported that innovation Equilibrium. Quarterly Journal of Economics and Economic Policy, 17(2), 533–566 538 activities may not necessarily have a positive effect on business performance. Business performance, effects of flexibility, innovation and cooperation differ as presented in the previous research. From this reason, we can suppose that the relationship among flexibility, cooperation and innovation will be more complicated, and we hope that our research can extend knowledge about this topic. This study focuses on flexibility connected with innovation and flexibility related to cooperation. Flexibility is a means of expressing competitive advantage in an unstable environment. The term “cooperation flexibility” is not usually used. Authors stress that flexibility is one of the types of cooperative behaviour. Heide and Miner (1992), for example, propose four types of cooperative behaviours. According to them, flexibility assesses the level to which purchasers adjust their own behaviour to accommodate the needs of others. Johnston et al. (2004) measure three different cooperative behaviours: shared planning, flexibility, and response. Mesquita and Brush (2008) also use three cooperative norms: information exchange, flexibility, and solidarity. Brito et al. (2014) deal with cooperative behaviour of flexibility and its influence on performance. Their attitude to cooperative behaviour of flexibility is based on results by Heide and Miner (1992). They mentioned that the cooperative behaviour of flexibility does not have any significant effect on financial profitability. The term “cooperation flexibility” is based on cooperative behaviour of flexibility by the above mentioned authors and extended it. Cooperation flexibility is divided into two parts — internal and external. The internal part involves activities which relate to management and employees. The external part involves activities which relate to customers and suppliers. Stonebraker and Leong (1994) mentioned that process related to flexibility deals with changeover flexibility (the ability of the process to respond quickly to different production set-ups required for various products), scheduling flexibility (production lot sizes and variation in the sequence to accommodate required production volumes) and innovation flexibility (identification and implementation of new technologies in production processes with minimal disruption). Liao et al. (2010) stress that product innovation flexibility is crucial for building a sustainable competitive advantage in an increasingly turbulent marketplace. According to Liao and Barnes (2015) an effective external knowledge acquisition plays an important role in creating product innovation flexibility. Liu and Chan (2017) conclude that innovation flexibility is one of the key dimensions for Project-Based Enterprises organisational flexibility. Dai et al. (2018) inform that the ability to innovate is a component of flexibility capabilities. Ni et al. (2021) agree with Lund (1998) and use the term “innovative flexibility”, which is Equilibrium. Quarterly Journal of Economics and Economic Policy, 17(2), 533–566 539 defined as the ability to develop new products or services to rapidly implement them in the market with low costs. According to Pinheiro et al. (2021) innovation flexibility is defined like innovation reliability and variability strategies. Summary, innovation flexibility is flexibility with an emphasis on innovation; and is divided into two parts. The first one relates to the product and the second one is connected with accompanying services to products. Research method SMEs can exploit opportunities and overcome limitations arising from their small size via cooperation with external partners, especially customers and suppliers (Hanna & Walsh, 2002; Parida et al., 2012). Forslund et al. (2021) stress supplier flexibility. According to them, supplier flexibility is suppliers´ ability to fulfil changed customer demand. Landström et al. (2016) state that large companies in quantitative measurement do not apply measurement of supplier flexibility. It is interpreted that the companies do not know how to measure supplier flexibility. SMEs adopt an open innovation approach, which is characterised by involving employees in this process (Singh & Agrawal, 2017). Creative ideas are increasingly generated by joining external and internal sources (Scuotto & Shukla, 2015; Santoro et al., 2016). Companies have openly approached innovation through cooperation with the external environment (Vanhaverbeke et al., 2008). The hypothesis was determined as follows: H: Cooperation flexibility is related to the impact on innovation flexibility in SMEs. The research was undertaken to better understand the issue of flexibility in small and medium manufacturing companies. The online questionnaire consisted of seven parts focusing on external cooperation flexibility (with customers and suppliers) and internal cooperation flexibility, innovation flexibility (relating to both products and accompanying services), innovation performance and business performance. General information about the manufacturing companies was placed in the final part of the questionnaire and in questions detecting smart service provision as well. The items used in the questionnaire were inspired by Tomášková (2005), Liao and Barnes (2015), Obeidat et al. (2016). The items relating to innovation performance were based on Liao and Barnes (2015) and Obeidat et al. (2016). Items 1–3 measure the use of marketing performance items Equilibrium. Quarterly Journal of Economics and Economic Policy, 17(2), 533–566 540 and items 4–5 measure financial performance in the business performance section. The section focused on smart service provision was based on authors Grubic and Peppard (2016) and Bjerke and Johansson (2015) and on findings from previous qualitative research in seven electrotechnical companies (Kaňovská & Tomášková, 2018). Individual items of innovation and cooperation flexibility are measured on the ordinal scale, Likert scale 1–5. The variables innovation and cooperation flexibility were created as an average of the relevant items falling into these areas. An analysis of the relationship between external cooperation flexibility, internal cooperation flexibility and innovation flexibility was carried out for the first time. No similar study has been conducted so far. Parts of the questionnaire were taken from other studies (see previous paragraph). The questionnaire created in this way was used for the first time. The use of statistical methods (correlation and regression analysis) to analyse the relationships of individual areas, the quality of which is determined by the questionnaire, is based on the theory of relationships and the properties of the variables analysed. All parts of the questionnaire were tested using Cronbach Alpha: The level of reliability for external cooperation flexibility for customers was 0.792; for external cooperation flexibility for suppliers, 0.812; for internal cooperation flexibility, 0.814; for innovation flexibility, 0.919; for innovation flexibility relating to product, 0.832; for innovation flexibility relating to accompanying services, 0.890; for innovation development, 0.677 and for performance development, 0.673. Items of the questionnaire are mentioned in Table 2. Only companies of one certain size and related to only one industry were analysed in the research, therefore it is not possible to include variables on the size and industry of the company in the model. In examining interfunctional coordination, this area was very interesting and showed a high correlation with business performance. Before conducting the main body of research, a pre-research study in 10 manufacturing companies was undertaken (in April 2019) to check the adequacy and intelligibility of the questionnaire for respondents. Some minor modifications were made to improve the intelligibility of the questionnaire. After that, the main body of research was ready to start. The data was collected from July to October 2019. SMEs were selected for the research because large companies in the Czech Republic often have foreign investors; they are in majority foreign ownership under domestic control (Sass & Vlčková, 2019). SMEs are identified according to § 1b Accounting No. 563/1991 Coll. with the number of employees from 11 and 250. The research Manufacturers from SMEs par- Equilibrium. Quarterly Journal of Economics and Economic Policy, 17(2), 533–566 541 ticipating in the research comply with Czech industry classifications, namely CZ-NACE 26 (Manufacturer of computer, electronic and optical products) and CZ-NACE 27 (The Production of Electrical Equipment) and were contacted by email and asked to fill out a questionnaire. According to the Czech Statistical Office, there are 278 SMEs in CZ-NACE 26 and 575 SMEs in CZ-NACE 27. In total there are 853 SMEs (according to December 2019 data). Small and medium manufacturers were selected from the Amadeus database. The total number of SMEs in CZ-NACE 26 and CZNACE 27 was 730, but 22 emails were sent back. These companies had already ceased to exist or were in liquidation or contact emails were missing and the companies were no longer traceable. A total of 112 fully completed questionnaires were obtained. The questionnaire return rate corresponds to 15.8% (see Table 1). For data analysis, the software package SPSS Version 17 was used. Spearman's rank-order correlation coefficient for the measurement of the correlation of two variables and regression analysis were used. The Spearman correlation coefficient was used as a measure of the dependence between the individual items of the areas that were measured on the ordinal scale. Above all, it was interesting to find out whether (1) the items of cooperation flexibility affect the items of innovation flexibility related to products and (2) the items of cooperation flexibility affect the items of innovation flexibility related to accompanying services. Regression analysis was used to detect the dependence between cooperation flexibility and innovation flexibility. The regression analysis was calculated from the overall evaluation of the areas, which arose as an average of the relevant items. By calculating the averages, a metric variable was created, which is suitable for regression analysis. The regression analysis was to describe mainly the relationship between areas and not to be used for prediction. Linear regression was used to determine the effect of cooperation flexibility, innovation development, and business development on innovation flexibility. All these variables were created as an arithmetic average of the items of indicators, so they are numerical variables. The influence of several numerical variables on one numerical variable is solved by multiple linear regression. The analysis has found that only cooperation flexibility has a significant effect on innovation flexibility, so a simple linear regression was used to find the equation of regression function that describes the effect of cooperative flexibility on innovation flexibility. The line model came out best.   =   +   ∙   (1) Equilibrium. Quarterly Journal of Economics and Economic Policy, 17(2), 533–566 548 References Beraha, A., Bingol, D., Ozkan-Canbolat, E., & Szczygiel, N. (2018). The effect of strategic flexibility configurations on product innovation. European Journal of Management and Business Economics, 27(2), 129–140. doi: 10.1108/EJMBE02-2018-0028. Bhatti, A., Rehman, S. U., & Rumman, J. B. A. (2020). Organizational capabilities mediates between organizational culture, entrepreneurial orientation, and organizational performance of SMEs in Pakistan. 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Innovation flexibility in products and cooperation flexibility Innovation flexibility related to products We can quickly respond to changes in customer requirements and modify existing products. The company incorporates technologies into new products. We have the ability to design an extensive variety of new products. We are able to develop new products in a short time. We introduce new products in a short time. Cooperation flexibility – Customers We have many possible ways of sharing information with our main customers. 0.326 0.000 0.116 0.223 0.191 0.043 0.296 0.002 0.331 0.000 We are able to exchange all information with our main customers in a short time. 0.329 0.000 0.227 0.016 0.260 0.006 0.375 0.000 0.360 0.000 We try to apply an individual approach to customers. 0.391 0.000 0.348 0.000 0.144 0.130 0.238 0.012 0.388 0.000 We offer products in compliance with new requests and wishes of customers. 0.360 0.000 0.348 0.000 0.243 0.010 0.426 0.000 0.383 0.000 Our main customers want to cooperate with us. 0.299 0.001 0.233 0.013 0.306 0.001 0.116 0.221 0.185 0.052 Cooperation flexibility - Suppliers We have many possible ways of sharing information with our main suppliers. 0.122 0.201 -0.079 0.407 0.134 0.160 0.084 0.376 0.198 0.037 We are able to exchange all information with our main suppliers in a short time. 0.083 0.386 0.086 0.369 0.169 0.076 0.139 0.143 0.280 0.003 We solve current issues with our main suppliers regularly. 0.115 0.230 0.009 0.927 0.251 0.008 0.050 0.603 0.122 0.205 We cooperate with our suppliers in developing new technologies regularly (new components used for our products). 0.220 0.020 0.233 0.014 0.171 0.071 0.290 0.002 0.316 0.001 Table 2. Continued Innovation flexibility related to products We can quickly respond to changes in customer requirements and modify existing products. The company incorporates technologies into new products. We have the ability to design an extensive variety of new products. We are able to develop new products in a short time. We introduce new products in a short time. Cooperation flexibility - Suppliers Our main suppliers want to cooperate with us. 0.413 0.000 0.395 0.000 0.223 0.018 0.431 0.000 0.309 0.001 Internal cooperation flexibility We are able to obtain all the necessary information in a very short time. 0.397 0.000 0.283 0.003 0.211 0.026 0.339 0.000 0.395 0.000 We are able to instantly exchange all important information with all of our employees. 0.266 0.005 0.229 0.015 0.179 0.059 0.249 0.008 0.245 0.010 We emphasise teamwork. 0.300 0.001 0.315 0.001 0.250 0.008 0.185 0.051 0.343 0.000 We regularly analyse the comments of our employees. 0.270 0.004 0.143 0.133 0.249 0.008 0.299 0.001 0.320 0.001 Thanks to our mutual cooperation, we are faster to respond to customer wishes than our competitors. 0.443 0.000 0.340 0.000 0.323 0.001 0.358 0.000 0.375 0.000 Note: The first value is Spearman’s rank correlation: Spearman’s rho, the second value is p-value. If p < 0.05 then we reject the null hypothesis (H0: items are independent), i.e., accept that the sample gives reasonable evidence to support the alternative hypothesis (HA: items are dependent). Table 8. Continued Median Mode Minimum Maximum Cooperation flexibility – External - Suppliers We cooperate with our suppliers in developing new technologies regularly (new components used for our products). 3 2 1 5 Our main suppliers want to cooperate with us. 4 5 1 5 Cooperation flexibility – Internal We are able to obtain all the necessary information in a very short time. 4 4 1 5 We are able to instantly exchange all important information with all of our employees. 4 4 1 5 We emphasise teamwork. 4 4 1 5 We regularly analyse the comments of our employees. 4 4 1 5 Thanks to our mutual cooperation, we are faster to respond to customer wishes than our competitors. 4 4 1 5 Table 9. Residuals descriptive statistics Minimum Maximum Mean Std. Deviation N Predicted Value 1.1925 4.2591 3.3727 .53453 112 Residual -1.26406 1.56309 .01238 .69552 112 Std. Predicted Value -4.079 1.658 .000 1.000 112 Std. Residual -1.817 2.247 .018 1.000 112 Note: Dependent Variable: Innovation flexibility. Linear Regression through the Origin Figure 1. Normal Q-Q Plot of Error for Innovation flexibility with Cooperation flexibility from CURVEFIT Figure 2. Graphical verification of residue normality using histogram Figure 3. View dependency