Influence of Determinants on Innovations in Small KIBS Firms in the Czech Republic before COVID-19

sustainability Article Influence of Determinants on Innovations in Small KIBS Firms in the Czech Republic before COVID-19 Veronika Bumberováand František Milichovský* Faculty of Business and Management, Brno University of Technology, CZ-61200 Brno, Czech Republic; [email protected].cz *Correspondence: [email protected].cz; Tel.: +420-541-143-782 Received: 26 August 2020; Accepted: 21 September 2020; Published: 23 September 2020   Abstract: There is still a lack of empirical evidence prevalent about innovation in knowledge-intensive business services (KIBS), and more particular, about determinants of innovations in small firms to sustain their future development. Studies in this area suggest that different determinants will affect different forms of innovation outputs of KIBS. This paper investigates the direction and the significance of these influences on propensity to innovate. The empirical evidence is based on quantitative and firm-level data gathered through an email questionnaire, which yielded 128 qualified responses from small KIBS in the Czech Republic. The analysis is based on binary logistic regression to identify the effects of determinants on the propensity to innovate. In addition to the consistent results produced by studies in this area, we found reverse relationships between innovation and selected determinants. Negatively evolving knowledge (especially lack of qualified employees) and market determinants (lack of information about the market), positively stimulated small KIBS towards the propensity to introduce organizational innovations (structural and human resources practices), followed by increasing intensity of competition positively related to introducing a new service to the firm (especially t-KIBS) and insufficient availability of business partners increasing the marketing efforts. It’s evident that some negatively evolving determinants perform as incentives or driving forces to specific types of innovations. The results of this study could also be useful for owners and managers in KIBS firms engaging in innovation activities and government support, or incentivize the propensity to innovate. Keywords: knowledge-intensive business services; determinants of innovations; small business; regression; survey; sustainable development 1. Introduction There is a growing body of empirical literature available on success/failure factors or determinants which hamper or incentivize the propensity to innovate in cross-sectional comparison with services or knowledge-intensive business services (KIBS) [ 1 – 5 ], and to lesser extent in the small business area [ 6 – 8 ]. Many authors in KIBS area research generally hypothesize that different forms of innovation outputs will be influenced by different types of determinants [ 1 – 5 , 8 , 9 ]. For example, Amara et al. [ 1 ] found that financial obstacles are negatively related to product and process innovations, while knowledge obstacles tend to be negatively associated with the delivery and managerial innovations in the sample of Canadian KIBS firms. Study of KIBS firms in Palestine by Morrar and Abdelhadi [ 8 ] considered that financial factors have negative impacts on the product and process of innovation as well as the organizational and marketing innovation, followed by the demand factor, which was reflected by the weak competition and uncertainty. On the other hand, they found that the knowledge factor had a positive impact on several firms that focus on organizational and marketing innovation. More recently , Chichkanov et al. [ 9 ] provided research results, in an emerging economy such as Russia Sustainability 2020,12, 7856; doi:10.3390/su12197856 www.mdpi.com/journal/sustainability Sustainability 2020,12, 7856 2 of 21 (based on major cities), suggesting that KIBS firms experiencing negative market and knowledge conditions are more liable to undertake non-technological innovations. The emphasis of this study is predominantly on small firms. First, the share of small and medium enterprises (SMEs) in the total number of active business entities is more than 90%, and it ´ s clear that SMEs play a major role in the structure of all companies in economies (including the Czech Republic–99.83% in 2019). Second, in KIBS firms, there are many small-sized firms with high intensity in innovation projects [ 4 , 8 ]. However, innovation in small KIBS firms is still an under-researched area [ 6 , 7 ]. This is surprising, since small firms are recognized for having particularly different innovation behavior when compared to large firms [ 6 , 7 ]. Segarra-Blasco [ 4 ] documented that small firms present higher barriers to innovation than their larger counterparts, especially in two items related to cost barriers, lack of internal funds, and high cost of innovation. Furthermore, the barriers related to the market are more important in small firms than in innovative firms. In conclusion, small and innovative firms present the highest barriers to innovation overall. A research paper of small KIS firms executed by Vermeulen et al. [ 7 ] in the Netherlands, found that external networks did not appear to be a factor that increases the likelihood of new product introductions. The introduction of new products (services)firstandforemostdependsonmarketresearchinformation. Theysuspecttheroleofemployees may be less pronounced in more radical innovations because such (discontinuous) innovations may often be initiated and implemented by the managing partners of the small firms. It could be expected, that KIBS are learning and cooperate with (larger) sophisticated clients, and innovating as a result [ 9 ]. However, there is still a lack of empirical evidence prevalent about innovation in KIBS firms as a heterogeneous category of services, and more particularly, about determinants of innovations in small-sized KIBS to sustain their advantage and future development. Based on the research results of previous papers, we are giving rise to the following research question: How do different determinants influence the propensity of small KIBS to innovate in the Czech Republic? This paper aims to investigate whether the selected determinants influence innovation activity and in which directions. Specifically, this study empirically explores the effect of financial, knowledge, and market determinants to the introduction of technological and non-technological innovations in KIBS firms. The contrasting results of conducted empirical papers from Western and emerging countries are interesting, and therefore research conducted in Central Europe, specifically in the Czech Republic as a post-communist country, may contribute another insight in the intensity of innovations and determinants which hamper or drive the propensity of KIBS companies in a specific national context. The Czech Republic is in a situation where the main driver of the economy is industrial specialization, which is also linked to several business services. Despite the Czech economy gradually shifting towards more knowledge-intensive activities also thanks to EU funding, the proportion of innovative Czech firms is lagging behind the EU average [ 10 ]. The total percentage of the employment of knowledge-intensive services in Czechia increased from 31.8% in 2010 to 33.5% in 2019, growing at an average annual rate of 0.59%. In the EU, knowledge-based industries make up to 40% of total employment on average, and 33% in the Czech Republic [ 11 ]. One of the positive examples of KIBS in the Czech Republic is IT and software services, where the importance of the economy and export performance is increasing [ 12 ]. The IT sector especially has contributed significantly to the economic transformation of formerly industrial cities [ 13 ]. In the information and communication technology (ICT) activities sector providing products and services (during the year 2016–2018), 51% of services introduced products and 56% in process innovation [ 12 ]. The growing potential also shows advertising [ 13 ], digital marketing, and the creative sector such as graphical or web design. According to the latest analyses of the Czech Statistical Office [ 12 ], in the period from 2016 to 2018, the sector of scientific and technical activities perceived obstacles in the area of lack of internal funds 14.7% (M 70–73) , while the sector of information and communication activities (J 53–63) perceived shortcomings especially in the area of availability of qualified labor force 24.8%. The successful development of small KIBS companies can be seen as a prerequisite for further sustainable development of the national and export economy in the Czech Republic. Research results Sustainability 2020,12, 7856 3 of 21 are important for further insight into the intensity and type of innovations in small KIBS and the determinants that affect them to better explain why some firms either do not innovate or do not engage more intensively in innovations [ 1 ]. Further, the results of this study could be also useful for owners, CEOs, and managers in KIBS firms engaging in innovation activities, and government efforts to mitigate external factors hindering small business innovation; and better support of innovation systems. Thus, improving understanding of obstacles to innovation is important for theoretical and policy purposes [ 1 , 14 ]. This paper is divided as follows: The first section introduces the theoretical framework with the focus on the KIBS sector, and the subsequent methodology provides the details of data collection and analytical methods, the fourth section presents the findings of the analyses, and the final section summarizes the conclusions of study results. 2. Literature Review on Innovations and Their Determinants in KIBS Firms There are different approaches to defining KIBS (see e.g., [ 10 ]) and their classification or characteristics are still sought and not yet established. However, this type of service is characterized by the private sector of small enterprises with a high level of knowledge and orientation of their services to other private or public organizations that are predominantly non-routine [ 15 ]. KIBS is not just the major segment that is a facilitator of knowledge, external information, and an innovation facilitator for other client businesses [ 15 ], but also are innovators themselves [ 16 ]. The literature and researchers try to perform analyses and comparisons based on nomenclature classification (NACE) or the prior distinction between professional (p-KIBS) such as business and management services, legal and accounting activities, market research, etc., and technical t-KIBS such as IT related services, engineering, R&D consulting, etc., as first proposed by [ 17 ]. Over the last decade, the economic and business literature has been largely discussing competitive strategies and innovation patterns in KIBS, both from a theoretical perspective and, to a lesser extent, from an empirical point of view [ 18 – 23 ]. However, there is still a gap in the literature concerning the determinants that foster and impede innovation in KIBS firms [ 1 , 4 , 6 , 9 ]. The following text is meaningfully divided first into the nature of innovations in KIBS companies and then linked to selected determinants that affect them. 2.1. The Multifaced Forms of Innovations in KIBS Firms It is generally accepted that product and process innovations represent technological forms of innovation, while marketing and managerial innovation represent non-technological forms of innovations that largely overlap with organizational innovations since they represent their various dimensions [ 1 , 6 , 9 ]. Like previous studies [ 1 , 4 , 6 , 9 ], we therefore accept the synthesis approach to innovations in services. Product (service) innovation plays a crucial role in KIBS’ operations [ 21 , 24 ], especially in technology-oriented KIBS, even though they are generally more likely to entail and be oriented towards organizational change [ 18 ]. Avlonitis et al. [ 19 ] suggest that this group of innovations is developed to meet or outstand the offerings of the company’s competitors. The new product development literature classifies innovation into different types and captures the intensity of firms’ innovation efforts within a technological domain. One of the key criteria which have been used as the basis for establishing the typologies is the degree of the radicalness (discontinuity) of innovation. However, many of the authors are using their methodology based on continuity rather than just newness; Avlonitis et al. [ 19 ], Oslo Manual for evaluating service innovations [ 25 ], Lafuente et al. [ 21 ], or perceived micro-level data from Community Innovation Survey [ 19 , 26 , 27 ]. Generally, continuous attention on renewal and innovations stimulates KIBS for action, resulting in better innovative outcomes such as new product (service) introductions [7]. According to Corrocher et al. [ 20 ], a technology adoption source of knowledge is explained by the (ICT) technologies used in the service production and delivery process. The development of technology has implications, which concerns the modes and timing of production and makes delivery of some types of services much more possible and easier. This process can introduce some distance between service development and utilization. This group of variables characterizes firms that are at the frontier Sustainability 2020,12, 7856 4 of 21 in terms of adoption and use of new technologies, but that are also likely to rely upon external drivers of innovation, such as specialized suppliers of tangible technological inputs. Technology innovation emphasizes the newness of the service’s operating/delivery process (i.e., hardware, software) to the company, the technological newness of the service’s delivery process and its subsequent newness to the customer, and the newness of the new service development and marketing process to the company [ 27 ]. This theoretical evidence suggests that technology development reflecting companies’ orientation towards product innovation and improvement of service’s operating/delivery process [28,29]. Marketing innovations involving in new or significant improvement in strategy and tactical actions such as design, placement, promotion, pricing activities changes in sales or distribution methods, advertising, or permanent exhibitions [ 30 ] (we excluded the packaging and we replaced it with a brand due to the specific feature of services). The objective is to increase the appeal for the firms’ products in terms of market penetration and/or to enter new markets [ 28 ]. These actions focus on customer’s needs, opening new markets, or repositioning a company’s product with the intent to increase sales. KIBS managers/owners are tasked with using various communication levels to determine which consumer populations are most likely to talk about a company brand to help influence quantifiable ways to sales and profitability [ 31 ]. The issue of customer retention is also extremely important, because the ability to retain customers in a highly competitive environment often plays a crucial role, especially for the SME category, which constantly delivers services to larger and individual business clients. A specific feature of KIBS is its labor-intensive nature. It is especially in KIBS that highly qualified human capital represents a key strategic asset. Corrocher et al. [ 20 ] talking about the organizational changes and non-technological innovations, which is explained by human capital competencies and organizational structure, and reflects an innovative pattern that is oriented towards changing organizational variables such as the firm internal structure and personnel skills and profiles. Perhaps one of the best arguments for the sustainable development of SMEs is the potential to attract and retain employees [ 31 , 32 ]. Development of human resource management is a critical innovation strategy, particularly for high-tech or knowledge-intensive firms. Human development strategies reflected the strategic importance placed on recruiting knowledgeable employees, training existing ones, and developing functionally diverse teams [25]. However, despite a high level of innovation activity the KIBS sector demonstrates in some of the research results [ 33 ], many of these firms do not adopt any form of innovation. Some of these firms may have little incentive to innovate. They are in comfortable niches with little competition [ 9 ], or sometimes they are primarily engaged in rather basic technology or knowledge transfer and, perhaps, in some minor customization activity for standard products to meet specific client needs [ 34 ]. The non-innovatory category of KIBS do not carry out any relevant activity and probably rely upon established reputation and/or economic upturn in terms of growing customer demand to compete in the market. This type of non-innovative KIBS has been identified throughout European studies and studies from emerging economies (see [9,20,34]. 2.2. Explanation of Determinants in Connection with KIBS Innovation Activities Determinants to innovation are usually thought of by owners, CEOs, or managers of firms as external and internal factors which either negatively or positively influence their decision to innovate [ 1 , 4 , 8 , 9 ]. External determinants to innovations are, for example, availability of an external source of financing innovation activity, cost of innovation, pay-back period, access to technological information or skilled personnel to the labor market, and when there are factors related the market conditions such as customer demand, market structure, and size, etc. [1,4]. Internal determinants are those factors over which the firm has control or are related to the firm’s abilities [ 8 ], such as of availability of internal funds, willingness to take risks, internal costs of innovation, awareness, capabilities to implement internal changes in their managerial and organizational practices, for example, the level of firm’s internal skilled personnel, management training in innovation management, and cultural Sustainability 2020,12, 7856 5 of 21 rigidness to change [ 1 , 4 , 8 ]. For example, D’Este et al. [ 2 ] conclude that the success of innovation efforts depends on a firm’s ability to combine capabilities such as financing, recruitment, and training of high-skill employee staff, understanding of market needs, among other factors. Whether obstacles or capabilities, the characteristics and operating conditions of companies affect their decisions as to whether to proceed with innovation activities and which activities to undertake [ 9 ]. We fully respect the importance of internal determinants influencing the decision to innovate, especially in the category of SME-sized companies [ 6 , 7 ], yet this study builds primarily on the combinations of selected determinants defined by authors [ 1 , 4 , 6 , 9 ] to distinguish between three groups of determinants to innovation, namely: Financial, knowledge, and market determinants. Following researchers in this area [1,4,8,9], we hypothesize: Hypothesis 1 (H1). Different forms of innovation outputs introduced by small KIBS in the Czech Republic will be influenced by different types of determinants (i.e., financial, knowledge, and market determinants). 2.2.1. Financial Determinants Influencing Innovation Propensity of KIBS Firms Studies focusing on obstacles or barriers encountered by KIBS firms stress the importance of financial obstacles as a factor that is negatively associated with product and process innovations [ 1 , 4 , 6 , 9 ]. The first group of factors within financial determinants is associated with the cost of financing. Cost factors are also liable to be highly important for small enterprises, where innovators among KIBS may face strong challenges [ 9 ]. For example, innovation efforts require specific expenditures, some of which can be very costly for the company, especially when they decide to generate new knowledge through R&D projects [ 8 ]. This is more typical for large firms, while SMEs apply new knowledge through practice and experience utilizing the learning-by-doing process [ 8 ]. The input measures of innovations, which rely on indicators based on R&D expenditure or R&D-personnel, do not adequately capture the innovative effort by small firms [ 35 ]. KIBS companies frequently lack specialized R&D departments and place much emphasis on the role of human capital [ 34 ]. KIBS firms require more highly qualified employees who can command relatively high wages [ 9 ]. Additionally, the investment in human resources appears to increase, rather than decrease, with the introduction of more radical innovation and ICT, following the need for firms to improve their knowledge capacity [20]. The second, often mentioned factor is access to external financing. It may be difficult for small firms to find such internal financial resources for innovation, due to lack of funds within the enterprise and limited access to funding from outside sources like venture capital and public funding [ 9 ]. Besides, small firms seem to be more sensitive to access to public funding [ 4 ]. Insufficient support and a system of external financing can thus be a significant obstacle for small KIBS firms to produce more knowledge-intensive solutions based on the technology domain. The last-mentioned factor in this category is the company’s turnover as a source of financing. It is generally argued that a decline in a company’s turnover hinders all forms of innovation [ 9 ]. However, studies like [ 1 ] assume that developing service, process, and marketing innovations are more likely to rely on the use of external capital than structural and management processes in human resources, which are more likely to rely on the use of internal resources. The study by Chichkanov et al. [ 9 ] partially confirms that KIBS companies with decreasing turnover tend to significantly less frequently introduce marketing innovation than other forms. Based on the previous studies, we hypothesize the following: Hypothesis 2 (H2). Increasing costs of financing innovations are likely to negatively influence the propensity to innovate in service, process, and marketing innovations. Hypothesis 3 (H3). Lack of access to external financing is likely to negatively influence technological innovations (i.e., service and process innovations). Hypothesis 4 (H4). Decreasing of turnover is likely to negatively influence non-technological innovations (i.e., organizational and marketing innovations). Sustainability 2020,12, 7856 6 of 21 2.2.2. Knowledge Determinants Influencing Innovation Propensity of KIBS Firms The first factor among knowledge determinants is access to skilled employees. In KIBS sectors, innovation results from the capability to combine, in a new unique body of knowledge, tacit with codified knowledge, old with new knowledge, and internal with external knowledge [ 1 , 17 ]. KIBS by its nature is highly dependent on expertise and skills [ 9 , 36 ]. However, small firms are not able to match wages, career development opportunities, or job security available in large firms, leaving them disadvantaged in the market for highly skilled employees [ 7 ]. When the company does not have an opportunity to invest in high-skill employees, it may face what Oslo Manual [ 25 ] classifies as knowledge barriers to innovation. Lack of qualified staffwas reported as a factor hindering innovation by [ 37 , 38 ]. Problems with the availability of high-skilled labor may be more severe in emerging countries and even if there is a good supply of university graduates, skills for KIBS may be limited [ 9 ]. Another group of knowledge determinants is access to information about market and technology. As Amara et al. [ 1 ] pointed out, innovative firms increasingly rely on these external knowledge sources as a way of accessing the knowledge available outside their boundaries. External information does not only come from research institutes or competitors, but also from customers. Firms that can understand market needs by conducting market research are likely to be more successful in innovations [ 7 ]. The last factor among knowledge determinants is access to information about technology. Likewise, firms’ learning capabilities are also enhanced by the use of advanced technologies that embody codified knowledge, which creates new opportunities for experimentation and problem solving that would be otherwise impossible [ 1 ]. Following the logic of Amara et al. [ 1 ], we suggest that the propensity of KIBS to innovate is based on the ability to combine new external knowledge might be hindered by the lack of access to skilled employees, and lack of information on markets and technology. More specifically , we hypothesize the following: Hypothesis 5 (H5). A Lack of access to skilled employees is negatively related to all forms of innovations. Hypothesis 6 (H6). A Lack of access to information about markets is negatively related to marketing innovations. Hypothesis 7 (H7). A Lack of access to information about technologies is negatively related to process and organizational innovations (HRM practices and structural changes). 2.2.3. Market Determinants Influencing Innovation Propensity of KIBS Firms The first factor among market determinants is customer demand, identified as an important source of information for innovation behavior in KIBS firms [ 1 , 4 , 8 ]. The firm’s understanding of customer demand helps in delivering a comprehensive customer experience that is relevant for creating service innovation [ 8 ]. To become successful, firms should listen to customers’ demands while anticipating and developing innovative, value-added services that drive the marketplace [ 8 ]. The complex problem-solving involved in the service requires close interactions between the service supplier and the client [ 9 ]. Bolisani et al. [ 39 ] showed that less standardized service offerings require a wider knowledge base and make their producers more dependent on external relations. Another explanation is that KIBS clients may have low motivation to cooperate due to the lack of clarity about their role, or due to the lack of qualified staffand limited technical capabilities in the area of KIBS expertise [ 9 ]. Lack of demand for innovation from customers may lead to the low intensity of innovation or reluctance of KIBS companies to innovate, as evidenced by research in this area [ 1 , 4 , 8 ], and they produce more standardized services without renewal or constant modernization requirements. Another factor refers to the intensity of competition [ 40 , 41 ]. Tether [ 18 ] and Freel [ 42 ] claim that innovation strategies of KIBS are much related to competitive circumstances, which represent more relevant objectives than industry classification or other characteristics. On the one hand, increased competition in KIBS sectors could create incentives to produce more innovation outputs and is positively related to service innovation [ 8 ], on the other side, intense competition is likely to negatively Sustainability 2020,12, 7856 7 of 21 influence the product, process, delivery, and marketing innovations, but does not influence strategic and managerial innovations [ 1 ]. It is evident that the relationship between market competition and innovation is not linear and simple, and while the intense competition promotes innovation, excessive rivalry could discourage change and innovation activities. [4]. Last but not least, factors refer to the business partners’ conditions. The establishment of relationships with partners and a subset of organizational innovation has been developed especially for services [ 8 , 43 ]. Service firms are more likely to engage in collaborations with suppliers as part of their innovation process [ 18 ]. Customers, suppliers, and competitors are major sources, while partners such as professional associations are another [ 34 ]. Customer and supplier relationship development allows for maximizing the use of their limited resources [ 44 ]. The availability of these partnerships can provide them with opportunities to acquire new skills and improve existing ones. This is particularly true for small firms due to the scarcity of material resources, as small firms collaborate with other parties, which increases their innovation success rates [7]. We hypothesize the following: Hypothesis 8 (H8). A lack of customer demand is negatively related to service, process, and marketing innovations, but does not influence organizational innovations (HRM practices, structural changes). Hypothesis 9 (H9). The increasing intensity of competition is positively related to service and marketing innovations, but does not influence organizational innovations (HRM practices, structural changes). Hypothesis 10 (H10). The lack of availability of business partners is negatively related to service and organizational innovations (structural and HRM practices). 3. Variables Definitions, Data, and Methods 3.1. Variables Definition 3.1.1. Innovation Outputs in KIBS Firms We use innovation output indexes as dependent variables derived from the literature on innovation in services [ 1 , 4 , 9 , 19 ]. Using a five-point scale (1: Strongly disagree, 5: Strongly agree), respondents were asked to indicate their degree of agreement with each innovation area implemented in the last five years (for operationalization of depending on variables see Table 1). We measure the service innovations divided into product innovation (newness to the firm and newness to the market) and product modification to distinguish continuous features of innovations in services Voss et al. [ 45 ]. We used proxy measures for the newness of service to the firm (NSF): (NSF 1 ) the service was new to the company, (NSF 2 ) the service supplemented an existing company line, (NSF 3 ) the service created a new product line for the company; proxy measures for the newness of service to the market (NSM): (NSM 1 ) the service was new to the market, (NSM 2 ) the service offered new features towards competition, (NSM 3 ) the service was in response to changing customer purchasing behavior, and finally, service modification (SM): (SM 1 ) the service was a modification of existing services, (SM 2 ) the service was a revision of existing services, and (SM3) existing services targeted at a new market. Technology adoption is explained by the adoption of the ICT technologies through the new or significant improvement of hardware (HW) and software (SW) supporting product innovation, particularly delivery and operational processes [ 19 , 20 , 27 ]. We incorporated technology adoption items such as software, hardware, and other ICT technology improving production or delivery processes. Marketing innovations involve new or significant improvement in design, placement, promotion, and pricing activities [ 30 ]. We incorporated six items, including (M 1 ) marketing strategy—territorial markets/customer segments, (M 2 ) company and product presentation, (M 3 ) distribution channels, (M4) pricing policy, (M5) communication with customers, and (M6) brand of services offered. Under organizational innovation, we incorporate structural changes as new or significantly improvement: (O 1 ) in the area of ownership, (O 2 ) in the area of decentralization, (O 3 ) in a functional Sustainability 2020,12, 7856 8 of 21 area, department, division, or teams, (O 4 ) in the area of managing staffnumber, (O 5 ) in the area of operational-level staffnumber, and (O 6 ) in step count in operational processes. Human development strategies reflected the strategic importance placed on recruiting knowledgeable employees, training existing employees, and developing functionally diverse teams [31]. We incorporated changes as new or significantly improved: Associate with the HRM system: (H 1 ) overall HRM strategy, (H 2 ) leadership style, (H 3 ) goal setting, (H 4 ) a reward and motivation system, (H 5 ) education and training system, (H 6 ) carrier growth and development, (H 7 ) staffstraining and satisfaction, (H 8 ) attract and retain new knowledge employees, and (H 9 ) developing functionally diverse teams. Table 1. Descriptive statistics and summary of variables used in statistical analyze. KIBS: Knowledge-intensive business services. Variables in Estimation Cronbach Alfa N Min Max Share Value 1 Mean Std. Dev Development strategies of KIBS Service modification 0.657 128 0 1 36.7% 0.3672 0.4839 Service innovation 0.699 128 0 1 35.9% 0.3594 0.4839 Process innovation 0.819 128 0 1 19.5% 0.1953 0.3980 Marketing processes 0.791 128 0 1 19.5% 0.1953 0.3980 Structural changes 0.780 128 0 1 16.4% 0.1641 0.3718 HRM practices 0.898 128 0 1 25.8% 0.2578 0.4392 Measured as the index on a Likert scale 1–strongly agree, 5–strongly disagree and recoded to 1–if the firm strongly or rather agree, otherwise 0 Financial determinants Cost of financing (COF) 128 0 1 30.5% 0.3047 0.4621 Access to financing (ATF) 128 0 1 21.9% 0.2188 0.4150 Development of turnover (DOT) 128 0 1 21.1% 0.2109 0.4096 Coded 1, if the firm rated significant or higher decrease (measured on Likert scale ranging from 1 =significant decrease to 5 =significant increase), otherwise 0 Knowledge determinants Access to skilled employees (ASE) 128 0 1 35.1% 0.3516 0.4793 Access to information on markets (AIM) 128 0 1 22.7% 0.2266 0.4203 Access to information on technology (AIT) 128 0 1 14.1% 0.1406 0.3490 Coded 1, if the firm rated the significant improvement in access (measured on Likert scale ranging from 1 significant improvement to 5 =significant deterioration), otherwise 0 Market determinants The demand of customers (DOC) 128 0 1 35.2% 0.3516 0.4793 The intensity of competition (IOC) 128 0 1 29.7% 0.2969 0.4587 Availability of business partners (AOP) 128 0 1 22.7% 0.2266 0.4203 Coded 1, if the firm rated significant improvement (measured on Likert scale ranging from 1 significant improvement to 5 =significant deterioration), otherwise 0 Control variables Age (AGE) 5 categories: (1) until 5 years, (2) 6–9 years, (3) 10–15 years, (4) 16–20 years, (5) up to 21 years 128 2 5 n.a. 4.1000 1.039 Industry t-KIBS 128 0 1 65.6% n.a n.a p-KIBS 128 0 1 34.4% n.a. n.a. 1 if the company belong to information technology or engineering industries (T-KIBS /P-KIBS), otherwise 0 Standardization of services (SOS) 128 3 5 n.a 4.230 0.690 5 categories: (1) Fully standardized services (FS), (2) standardized services with limited customization (LC), (3) standardized services with a higher level of adaptation (HLA), (4) customized services with standardized modules with a higher level of adaptation (CS), (5) fully customized services (FC) Sustainability 2020,12, 7856 9 of 21 3.1.2. Determinants of Innovations in KIBS Firms We use determinants as independent variables, and attempt to show how the innovation activities of KIBS are affected by various categories of determinants. The literature dealing with determinants of innovations points to three main areas: Financial, market, and knowledge that may impact KIBS’ innovation activity [ 1 , 4 , 6 , 8 , 9 ]. We incorporated a more dynamic intensity of perception of selected determinants when different types of innovation were introduced in recent years. Using a five-point scale, we ask the respondents about their opinions, and how they perceived selected determinants in terms of positive and negative development or evolution when innovations were introduced (For operationalization of independent variables, see Table 1). For financial conditions, we used three variables: (COF) cost of financing, (ATF) access to financing, and (DOT) development of turnover. For the first proxy measure, cost of financing, we used the trend decrease/increase as a change in cost development spent on innovation activities during the period. The second proxy, access to external financing, used the trend improvement/deterioration as a change in the availability of external financial funds. The last proxy is the trend of development in company turnover, which is a well-known metric that is used to indicate the financial health of the company and predict the probability of bankruptcy [ 9 ]. This indicator is believed to show how well management deals with a competitive environment. We used the trend to decrease/increase as a change in turnover or sales revenues [ 9 ]. We assume that developing product, process, and marketing innovations are more likely to rely on the use of external capital than organizational innovations, which are more likely to rely on the use of internal resources. The knowledge conditions are concerned with three variables: (ASE) access to skilled employees, (AIM) access to information on the market, and (AIT) access information on technology [ 1 , 4 ]. For the first one, access to skilled employees, we used the trend (improvement/deterioration) as a change in the availability of external skilled employees. For the second variable, access to information on the market, used the trend improvement/deterioration as a change in available information about the situation on the market. For the last variable, access information on technology, we used the trend (improvement/deterioration) as a change in knowledge about new advanced technologies. We suggest that the propensity of KIBS to innovate is based on the ability to combine new knowledge that might be hampered by the lack of access to skilled employees, lack of information on markets, and lack of information on technologies [1]. The market conditions are addressed in the survey through three variables: (DOC) the demand of customers, (IOC) the intensity of competition, and (AOP) availability of business partners. For the first proxy, demand and customer expectation, we used the trend improvement/deterioration as a change in demand for innovations from clients. For the intensity of competition, we used the trend (improvement/deterioration) as a change in intensity competitors to the market. The suppliers and business partner ´ s conditions are addressed in the survey, through a question about the availability of cooperation with suppliers and other business partners. According to prior studies [ 4 , 46 ], the barriers could be generated by the difficulties of KIBS when finding the qualified partners (collaborating companies, research public centers, technological transfers centers, universities, etc.) and seem to be the most important factors affecting innovation in KIBS firms [4,47]. We also include a set of control variables into the survey following factors that other studies have related to innovation [ 22 ], namely age [ 8 , 48 ], industry characteristics [ 1 , 4 , 9 ], and the level of standardization of service activities [ 9 ]. Suspecting that the effect of standardization could have a non-linear effect (too little and too much customization both diminishing innovative potential). Industrial differences were measured by using dummies for different types of KIBS because companies innovate in various ways and the sector displays high heterogeneity, but previous studies suggest that the groups of p-KIBS and tKIBS are useful for analysis [9,17]. Sustainability 2020,12, 7856 16 of 21 much specific knowledge. In circumstances where clients are not coproducing highly specialized solutions to their particular problems, KIBS are probably liable to move to supply more standardized services required by supporting organizational innovation, involving staffundertaking new procedures, with new management processes being associated with these [ 9 ]. After the resurgence (after the crisis period 2013–2017), probably the volume of services offered was more important [ 19 ], and this caused the propensity to innovate staffing of management, the number of new employees, and the structure itself. With the increasing intensity of competition in the market, the production of service innovations increases, however, wedidn’tidentifysupportforprocessandmarketinginnovationsnororganizational, so Hypothesis 9 (H9) is rejected. There are t-KIBS produced new services to the firm who perceive the market environment as highly competitive in contrast to p-KIBS. However, we found a negative effect related to increasing competition in marketing innovations. While we might expect demand to increase when there is a larger number of companies in the environment, we could also suspect that competitive KIBS are likely to be more prevalent [ 9 ]. It is plausible that KIBS firms that are experiencing growing customer demand, in general, are not encouraged to engage in new marketing efforts [ 34 ]. Amara et al. [ 1 ] found the intensity of competition to be negatively related to marketing innovations, which corresponds with this interpretation. A lack of availability of suppliers and other business partners (customers, research centers, etc.) is negatively connected with service and process innovations, while there is a reverse relationship with marketing innovations, so Hypothesis 10 (H10) is rejected. The establishment of relationships with suppliers and business partners and a subset of organizational innovation is important especially for services. Engage with services in collaborations with suppliers as part of their innovation process is well documented [18,34]. The availability of these partnerships can provide them with opportunities to acquire new skills and improve existing ones [ 2 , 8 , 18 ]. This is evidenced by the marketing efforts of companies in the absence of the availability of these partners. It is also confirmation that small KIBS could learn from their business partners and cooperate in the innovation process. 6. Conclusions The goal of this paper was to explore the determinants that influence the innovation propensity of small KIBS firms in the Czech Republic. We distinguish three main types of determinants specified in the discussed literature: Financial, knowledge, and market, and apply logit models to data from a survey of the small size KIBS category in the Czech Republic to estimate the influence of determinants on innovations outputs. Due to the specific features of innovations in service firms, we have adopted a synthesis approach and divided innovation outputs into six types, such as service innovation (newness to the firm and market), modification (renewal activities of current services), process, marketing, human resource, and structural innovations. Generally, the research results confirm that different types of innovation are differentially affected by various types of determinants. The Czech small KIBS generally perceive market and knowledge factors more frequently as negatively evolving than financial determinants in recent years (pre-crisis period). In addition to the consistent results produced by studies in this area, we found reverse relationships between innovation and selected determinants. Negatively evolving knowledge (especially lack of qualified employees) and market determinants (lack of information about the market) positively stimulated small KIBS towards the propensity to introduce organizational innovations (structural and HRM practices), followed by increasing intensity of competition positively related to introducing new services to the firm (especially t-KIBS) and insufficient availability of business partners increasing the marketing efforts. It ´ s evident that some negatively evolving determinants perform as incentives or driving forces to specific types of innovations. We agree with authors Chichkanov et al. [ 9 ], that it is necessary to take into account the importance of both positive and negative conditions in future studies, and that some negative conditions may perform as incentives to specific types of innovation. In this case, the results of the activities of small KIBS companies from the Czech Republic seems to be much closer to research results Sustainability 2020,12, 7856 17 of 21 from the Eastern countries than to the Western countries. However, the results show differences due to the specific national context. Corrocher et al. [ 20 ] suggest that the relationship between KIBS’ innovation and standardization is not conclusive. On one hand, standardization should help companies increase the market size through replication as a complementary strategy for innovation [ 48 ], and on the other hand, Tether et al. [ 49 , 50 ] reported that specialization in services tends to be associated with higher levels of innovation, and a high level of investment in technology and service customization is a distinct feature of technical KIBS. We found some relationship between standardization and KIBS service innovation activities. The heterogeneity of KIBS across a priory typology also influences some types of innovation, however, wedidn’tidentifystrictlydifferencesbetweentechnologyandnon-technologyinnovationsimplemented by t-KIBS and pKIBS as reported some researchers [1,9]. Finally, we found that with increasing age, the willingness of companies to generate service and organizational innovations decreases. This is consistent with some of the previous studies [ 6 , 8 ], that younger and new firms are more able to bring innovations. Research provided by Morrar and Abdelhadi [ 8 ] found that old firms have a disadvantage in organizational innovation, which might be explained by the novelty of the KIBS sector in Palestine. De Jong and Vermeulen [ 6 ] found a negative effect of age on the new product innovations in Dutch small firms. 6.1. Practical Implications From the general point of view of ownership in the Czech Republic, companies under foreign control innovate more actively than domestic companies, and the highest share of companies that innovate their products or services are large, multinational companies [ 12 ]. Domestic small KIBS companies thus face many challenges for innovation to compete with the market with their larger and foreign-owned rivals. The results of this study suggest that the owners, CEOs, and managers of small KIBS firms have to take into account that the different types of determinants hinder or drive the various forms of innovation in small KIBS firms. We offer some recommendations in this area: (1) The owners and managers of small KIBS companies can overcome barriers (in the form of lack of access to skilled employees and market information) through increased attention to internal organization, combining existing skills and competencies in more effective ways. (2) To produce process innovations and HRM practices, it is necessary to constantly monitor and have access to information about technologies and to cooperate with external business partners in the co-production process for the successful implementation of innovations. Thus, KIBS should constantly make marketing efforts to map and expand their networks that are important and create a partnership to support technological innovation that could minimize the risk and maximize the impact. (3) The firms could also invest in non-technological innovation with a longer-term change, like market and organizational innovation, which will have an impact on the service and process innovation in the longer-term. The small KIBS firms that are not engaged in coproducing highly specialized solutions with their client require standardized services supported by continuous organizational renewal and innovation activities (structural and HRM practices), involving staff undertaking new procedures with new operational and management processes. (4) Regardless of the typology of KIBS companies, an important condition is the involvement of a firm ´ s employees in collaborative efforts to produce innovations and their ability to maintain relationships from experience with clients. It is necessary to produce organizational innovations that will enable KIBS to obtain and process information about clients, the problems they encounter, a solution that works for such clients from KIBS employees. (5) Firms could benchmark innovation and learn from larger and multinational firms with similar context and creating the demand for innovation as much as possible. Sustainability 2020,12, 7856 18 of 21 Concerning the Czech Republic context and the growing potential of KIBS innovations to the Czech economy, government’s efforts to support or incentive the propensity to innovate in this area by: (1) Promoting improved access to qualified employees to produce internal and client-suppliers innovation and strengthen weaknesses such as the weak link between business and academia. In this area, the Czech Republic began to introduce support efforts in 2020, for example in the form of the Knowledge Transfer Partnership program, as part of the implementation of the Operational Program Enterprise and Innovation for Competitiveness 2014–2020 [ 51 ] whose general goal is to increase interactions between companies and organizations for research and dissemination of knowledge and greater opening of universities to cooperation with the business community. (2) Supporting the financial system not only for the R&D project, but for organizational innovations requiring access to external sources of financing as a result of more financially demanding strategies such as acquisitions or internationalization strategy. (3) Contribute to minimize the cost factor impact on the small service firms by facilitating better infrastructure and providing incentives for innovative small KIBS firms. (4) Creating the awareness of the KIBS contribution to the economy could attract different actors and foreign investors to address the challenges of demand for innovations (it could be as part of the service package within the EU operational programs and innovation policy). (5) Support promoting cooperation and mutual trust between industry and local small KIBS in the Czech Republic. 6.2. Limitations and Further Research The research carried out on a sample that is rather small in size or the range corresponding to the lower limit of usability of some statistical tools, and the study has been conducted in a specific national context of the Czech Republic. Further, this research study excludes a closer analysis of perception and comparison with non-innovating small KIBS firms included in the surveyed sample, which was outside the scope of this work. This study also overlooked the importance of internal determinants influencing innovation decisions, especially in the SME category. Internal factors often play a crucial role in entrepreneurial activities, which are embodied in the owners, CEOs, and small business managers themselves. Therefore, other factors, such as the owners’ awareness or ability to take the risk, should be the focus of attention. Additionally, the relationship between the external financing approach and organizational innovations, which could be further explored, is not entirely clear. It would be interesting to find out whether organizational innovations requiring access to external sources of financing are the result of more financially demanding strategies in the form of acquisitions, joint ventures, and other more capital-intensive forms (e.g., entry into foreign markets). The research does not include a sample of start-ups or very young companies in the market (up to 5 years) whose needs could be more focused on the need for seed and venture financial capital. It should be noted that the research was conducted in the pre-crisis period of the Covid-19. Many KIBS are likely to face serious difficulties, especially if they will continue with traditional strategies and business models after the crisis period. Recently, an interesting reflection on the behavior of KIBS companies during and after Covid-19 proposed by Miles [ 52 ] points to possible directions for change in this area. KIBS must realize that their clients face similar impacts and that new and additional services are likely to be required that can help ensure immediate continuity or degradation of their operations provided by computerized KIBS and consulting companies with a special focus on IT system recovery [ 53 ]. Many KIBS firms that include predominantly B2B segments with physical contact and proximity will need to digitize their business models. KIBS in areas such as marketing can be triggered to allow clients to communicate with customers and stakeholders who require an explanation of such things as delays and difficulties in accessing client services [ 52 ]. There are likely to be opportunities for new services and possibly new markets, and there will be constant pressure to adapt to new ways of working, production, and delivery processes. It would therefore be interesting Sustainability 2020,12, 7856 19 of 21 to compare the pre-crisis and post-crisis results in terms of KIBS’s innovative flexibility and their new perceptions of determinants. Author Contributions: V.B. and F.M. contributed equally to this paper. All authors have read and agreed to the published version of the manuscript. Funding: This research received no external funding. Conflicts of Interest: The authors declare no conflict of interest. References 1. Amara, N.; D’Este, P.; Landry, R.; Doloreux, D. 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