The Impact On Growth of Outside-In and Inside-Out Innovation in SME Network Contexts

International Journal of Innovation Management
Vol. 18, No. 4 (August 2014) 1450023 (25 pages)

Imperial College Press
DOI: 10.1142/S1363919614500236
Int. J. Innov. Mgt. 2014.18. Downloaded from www.worldscientific.com

by INDIANA UNIVERSITY @ BLOOMINGTON on 03/16/15. For personal use only.
THE IMPACT ON GROWTH OF OUTSIDE-IN

AND INSIDE-OUT INNOVATION
IN SME NETWORK CONTEXTS
TOVE BRINK
University of Southern Denmark
Niels Bohrs vej 9, 6700 Esbjerg
tbr@sam.sdu.dk
Published 9 May 2014
The purpose of this paper is to reveal what impact the dual approaches of outside-in and
inside-out innovation have on growth in turnover in small and medium sized enterprises
(SMEs) working together in network context. This is illustrated through research in three
informal, Danish food industry networks with 60 SMEs responding. The research employs
structural equation modelling for statistical analyses.
The ndings reveal that both the outside-in and the inside-out approaches have a significant positive impact on innovation and growth. The ndings shed light on the need for
combined dual organising of both to enable innovation and growth. Moreover, the network
context does not signicantly utilise theoretical insights on loose coupled systems.
A contribution is made to innovation theory on the duality of the outside-in and the insideout approaches for a combined understanding of the impact on innovation and growth. A
contribution is also made to the SME-network for organising the loosely coupled system in
a dual approach.
Keywords:
innovation.
Open innovation; growth; networks; outside-in innovation; inside-out
Introduction
The theoretical assumptions on growth represented by the stances of neoclassical
economics, Keynesian economics and Schumpeterian innovation economics shape
the understanding of growth. The rst two conventional economic doctrines
emphasise the impact on growth from input of different resources and from price
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signals in the market. The later Schumpeterian innovation economics emphasises the innovation process through entrepreneurial action, evolving institutions
and technological change, treating each as crucial for economic growth. As
Aghion and Howitt (2006) highlight, one of the three paradigms for analysing
endogenous growth is AK theory, which is based on neoclassical and Keynesian
economics. This theory lumps different forms of capital together, representing
input resources for growth. Another branch is innovation-based theories for
growth, which split into two parallel paradigms. One paradigm is Romers
(1990) notion of aggregate productivity as a function of the degree to which
product variety creates technology spillovers, which is greater when the variety
of products that have already been developed is greater. Another branch comes
from Schumpeterian growth theory, which focuses on the value from improved
innovations that make previous knowledge obsolete with the need for creative
destruction (Schumpeter, 1942). Recently, a body of research has emerged on
the dynamics of business models (Achtenhagen et al., 2013) which notes activities from outside and inside approaches for sustained value creation. Research is called for to reveal the impact from both outside-in and inside-out
forces on innovation and growth.
Moreover, small and medium sized enterprises (SMEs) in Europe represent
about 99% of the number of enterprises, 67% of the number of persons employed
and 58% of value added.1 (EIM 2008 estimate). Therefore, the SME context is
of interest for further research. The research question aims for an enhanced understanding of what impact the dual approaches of outside-in and inside-out forces
on innovation have on growth in turnover in SMEs connected in the network
context.
In this article, growth is understood as an increase in turnover of the SMEs
based on the fact that all rms need to have turnover to survive, so they are on
common ground within this measure. The networking SMEs in this paper are
The concept of value added is based on ofcial country statistics on the share of the operating
surplus of SMEs. Certain qualications, however, are in order. A large share of the labour input (on
average 20% in SMEs) consists of self-employed and unpaid family workers (Audretsch et al.,
2009:16). These workers are not included in the wage bill of enterprises, so their labour input is not
included in labour costs. Therefore, a correction has to be made through a calculation of the number
of self-employed and unpaid family workers times the corresponding sectoral labour cost per employee. In addition, the net operating surplus should preferably be used, but unfortunately, only data
on the gross operating surplus adjusted for the imputed wage of the self-employed, as a percentage of
the gross value added, is statistically available for measurement of the protability differences
between SMEs and large-scale enterprises (LSEs), (Audretsch et al., 2009:1618)
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The Impact on Growth of Outside-in and Inside-Out Innovation
connected in three loosely coupled networks (Weick and Orton, 1990) based on
food producing activities. This means that the research is situated within the
food industry, which is generally not perceived as a knowledge intensive industry (Dosi, 1988). A network consisting of SMEs provides an informal kind of
institution from which the SME can source ideas, skills, and resources in an
open environment. All three networks aim for innovation for their memberenterprises. The networks are loosely coupled in the notion of Weick and Orton
(1990) as they are only kept together through a Board of Directors with a charter
on admission, participation fee, and the aim for innovation, but otherwise no
power is delegated to the board by the individual enterprises. The outside-in
forces emphasising the connections outside own SME-organisation are thus
situated in the SME network context. Furthermore, the complementary behaviour inside the SMEs, named the inside-out forces, are also situated within this
SME context. Both forces are noted in innovation literature e.g., by Chesbrough
(2003, 2011) on open innovation with emphasis on outside-in forces, and by
Lam (2005) on organisational innovation with emphasis on inside-out forces.
Given these two notions on innovation, it is interesting to reveal the impact on
the dual approach to innovation, which the SMEs experience in daily life, and
the impact that the dual forces have on growth. A new contribution is hereby
made to innovation theory on understanding these forces in a network context
within more traditional business settings.
As highlighted by Dosi (1988), traditional business approaches are predominant in the food industry. However, new trends on health, the variety of customer needs and technological developments and increased competition are
challenging the existing business models of food producing SMEs (WHO, 2005,
2006; Barcellos, 2009; McCorriston, 2011). The reason for food producing
SMEs to join forces in networks, according to their own claim, is to overcome
economic challenges in their own SME-organisation through a joint understanding and elaboration of innovation. This context provides an interesting
platform for research on the impact of the dual outside-in and inside-out forces
on innovation and growth.
The outline of this paper will start with a review of literature in relation to
innovation, growth, preferred behaviour, and connections in networks seen in a
business, a social and a physical context. The hypotheses are concurrently developed. Then, method and data collection are described together with a short
prole of the network population. Following this, the variables are described and
analysed. Furthermore, the analyses in the statistical model are elaborated
and ndings are analysed and revealed for discussion. A conclusion nalises the
article.
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Literature Review and Hypotheses

Innovation is seen as a dynamic process with a wide span of disciplines on
different levels, ranging from the new idea to the ability of executing this new idea
in order to add value to the organisation (Schumpeter, 1932, 1942; Lam, 2005;
Tidd and Bessant, 2009, 2013). Therefore, innovation often contains an externally
inspired new idea (Jung, 1921; Csikszentmihaly, 1997; Mueller et al., 2012),
internal organisational learning (Nelson and Winter, 1982; Dosi, 1988; Woodman
et al., 1993; Weick, 1995; Lam, 2005; Czarniawska, 2008) and the internal imposed control of resources for efcient and effective operation (Weber, 1947;
Child, 2005; Modig and hlstrm, 2013). This means that the innovation process
has to cross a multitude of perceived external outside-in and internal insideout ways of doing things in the organisation. It means that boundaries formed on
ideas, learning and control have to be crisscrossed. It also means that crossing
normal ways of doing things naturally relies on a multitude of dynamic capabilities with underlying assumptions and boundaries on preferred behaviour and
collaboration partners. The innovation process consists of organising a ow of
actions to penetrate the multitude of underlying boundaries and thereby creates a
dynamic transformation of the idea into innovation and growth. The phenomenon
is noted in short by Lam (2005:139): Progress in these areas will require greater
efforts to bridge the different levels of analysis and multidisciplinary research to
add insight and depth beyond one narrow perspective. The research in this article
aims to contribute to the multidisciplinary research by shedding light on the multibridging notion of organising innovation, something which has only been limitedly touched upon in previous literature.
Organisational innovation
In this article, the term innovation is employed in accordance with the denition by
Amabile et al. (1996): Innovation is the successful implementation of creative
ideas within an organisation. In this view creativity by individuals and teams is a
starting point for innovation; the rst is a necessary but not sufcient condition for
the second. (Amabile et al., 1996:11541155).
This denition highlights both the ideation of the new creative idea and the
ability of the organisation to successfully implement it. This means using both the
new idea and an organisational learning approach (Nelson and Winter, 1982;
Argyris, 1990; Woodman et al., 1993) to execute a collective, successful implementation with as few resources as possible. Innovation, viewed as the isolated
new creative idea, is thus not enough. Innovation must provide economic development over a given period and thus underpin an organisational approach ranging
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from the new idea over organisational learning to the control of employment of
resources by the organisation.
Originally, Schumpeter highlighted the organisational issue in his book called
The Theory of Economic Development (Schumpeter, 1934), where he elaborates
the fundamentals of economic development. Schumpeter rst published the book
in German Theorie der wirtschaftlichen Entwicklung in 1911. This book was
translated into English in 1934.
Here, (Schumpeter, 1934) highlights the need for a dynamic approach separate
from the equilibrium. The equilibrium issue has been an on-going discussion
between Schumpeter and e.g., Kirzner (1973) and the evolutionary scholars of
innovation. However, the different scholars do agree on the dynamic issue contained within the notion of innovation, as well as on the fact that the organisational
learning issue is essential to innovation within organisations. Schumpeter noted
this as the difference between the terms invention and innovation and
highlighted the basic assumption: Economic activity may have any motive, even a
spiritual one, but its meaning is always the satisfaction of needs (Schumpeter,
1934:10).
Here, Schumpeter notes both the invention seen as the idea of how to satisfy
needs and the innovation seen as the organisational ability to actually satisfy the
needs. Schumpeter (1934) perceives innovation as a dynamic process. This means
that the underlying organisational approach also needs a process approach for
elaborating innovation. The process approach was highlighted by Weick (1995) in
his notion of organising.
Weick (1995:72) understands the term organising as the span between the
new ideas on an individual or team level and the learning and the control of
resources at the organisational level. As also highlighted by Czarniawska and
Joerges (1996), in an organisation, there will be a need to transfer the idea from the
individual / team to other non-participants in the ideation phase in the organisation
so that they can work on the task and contribute to the actions and aim for
fullment through their notion on travel of ideas. Organisational learning thus
has an impact on growth. Ideas also have an impact on growth and the organisational control of resources to execute the idea has a further impact on growth.
The three issues are contained within innovation and have an impact on growth,
both individually and collectively, through the innovation executed for value
creation.
The hypothesis constructed on behalf on this literature review on the impact of
innovation on growth is therefore:
H1: New ideas, organisational learning and control of resources for performance
have a positive impact on growth.
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Growth
The denition of growth from the introduction needs more elaboration to understand the theoretical limitation of the measure. The most frequently employed
growth indicator (Delmar, 1997) is increase in rm turnover. The importance of
the choice of growth indicator is demonstrated by a large-scale assessment by
Shepherd and Wiklund (2009). Essentially, they show that correlations across
various growth indicators are often low, and they therefore warn that the results are
unlikely to replicate across growth indicators. However, if the research comprises
very different operating rms, there has been a growing consensus that the increase
in turnover should be the preferred choice (Weinzimmer et al., 1998; Wiklund,
1998) because it is the most general of the alternatives to measure growth. All
commercial rms need to have turnover to survive. The networking SMEs in the
present research operate very differently, so the increase in turnover is employed as
the growth indicator. However, it is a limitation not to have a clear growth
measure, however, growth in turnover is used in the absence of a better measure.
Outside-in and inside-out approached to organisational learning
An essential issue within organising is the dynamic of capabilities. Theoretically, the notion of dynamic capabilities is relatively new and was rst elaborated on in the seminal paper of Teece et al. (1997). The notion has been
elaborated by other researchers emphasising different aspects of dynamic capability (Eisenhardt and Martin, 2000; Zollo and Winter, 2002; Teece et al., 2002;
Adner and Helfat, 2003) on the notion of dynamic managerial capabilities. The
contributions on the notion of dynamic capabilities overlap, so a more solid
foundation was created by the combined effort and work of Helfat et al. (2007).
The denition they propose is the following: A dynamic capability is the capacity
of the organisation to purposefully create, extend and modify its resource base.
(Helfat et al., 2007:4).
This short denition highlights resources as something that the organisation can
draw upon to accomplish its aims. This is understood by Helfat et al. (2007) in
very broad terms and encompasses intangible resources and access to resources
held by others. Moreover, capacity is seen here as the ability to perform in an
acceptable manner. Additionally, purposefully means that a specic meaning is
pursued as, for example, the food networking SMEs do by pursuing innovation
and growth in their network context.
The words in the elaborated denition of create, extend and modify do not
apply to operational capabilities. Unlike operational capabilities, which pertain to
the current operations of an organisation, dynamic capabilities alter the resource
base of an organisation and thereby highlight the Schumpeterian thinking of
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innovation as creative destruction. Dynamic capabilities comprise a form of generic thinking, which, in the application of the concept, has a highly context-dependent nature. The context dependency is formed by the unique access to resources
and the potential unique envisioning of new, valuable developments in the market.
The concept encompass various variables for the analysis and this theoretical
complexity is enhanced in an informal network consisting of various SMEs.
The concept of dynamic capabilities has both an outside-in approach, called
evolutionary tness, and an inside-out approach, called technical tness. Capabilities have a bundled nature with the integration of several capabilities, which
will incur some cost of integration and irreversibility, which is an important element of capability development (Dierickx and Cool, 1991). Additionally, some
capabilities in the bundle can have a negative transfer effect on the tness of
another capability. Usability of capabilities always involves some kind of cost
(Helfat et al., 2007). Moreover, capabilities are often useless without the requisite
physical assets, which also require costs. A positive value of evolutionary tness is
present if the rm is willing to pay for development and/or access to the capability
(Helfat et al., 2007). In the SME food network context, the outside-in and inside-out
approaches of dynamic capabilities frame the context for innovation and growth.
Inside-out approach preferred behaviour
The inside-out aspect is elaborated through the underlying organisational behaviour
and assumptions enacted through preferred behaviour held and moulded by individuals (March, 1991, 2008:171). The individual and group level preferred behaviour, abbreviated in the following to preferences, has been explained by notions
on creativity found in the set of psychological attitudes guiding the preferred behaviour of employees in an organisation. This is related to Jungs (1968) notion of
archetypes of personalities, which was elaborated on by Jacobi (1973) and later by
Csikszentmihaly (1997) in terms of creativity and the ability to obtain ow.
Csikszentmihaly (1997) describes ow in the following way, drawing on
nearly one hundred interviews with creative people working in many different elds:
It often involved painful, risky, difcult activities that stretched
the persons capacity and involved an element of novelty and
discovery. . . II. described the feeling when things were going well
as an almost automatic, effortless, yet highly focused state of
consciousness.
(Csikszentmihaly,1997:110).
This is an important antecedent for action on new, difcult things. The variety
of preferences in the team makes participants more certain of what and how to do
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the new, difcult things. From the research of Csikszentmihaly (1997, 2002),
Jacobi (1973), and Jung (1959), the more composite, better understood and
blended preferences of individuals and teams, the better ideas, organisational
learning, and control of resources can be obtained for growth.
The hypothesis constructed on behalf on this literature review on inside-out
forces is therefore:

H2: The more blended preferences, the more new ideas, organisational learning,
and control of resources and growth.
Outside-in approach connections in business, physical and social spaces
The outside-in aspect is theoretically elaborated through connections in a rm
network context. Within the rm networks, SMEs can organise and set the
boundaries of individual rms differently from other rms through integration,
employment or utilisation of resources. In general, these networks have an interesting potential for innovation and growth as highlighted by Castells (2005) in
general terms on the segregated areas for connections within business economics,
physical assets, and social frame. Asheim and Coenen (2005) and Asheim and
Gertler (2005) have, in a regional context, highlighted the importance of connections within systemic innovation in their analyses of regional innovation systems. Both informal and formal approaches to connections in rm networks make
a difference for innovation and growth.
Within organisational theory, Podolny and Page (1998) have dened the network form as being distinctly characterised in the following way:
We dene a network form of organization as any collection of
two or more actors that pursue repeated, enduring exchange
relations with one another and, at the same time, lack a legitimate
organizational authority to arbitrate and resolve disputes that may
arise during the exchange.
(Podolny and Page, 1998:59)
This means that networks have a degree of ux between the networks internal
abstraction of reality according to regulations and decisions of e.g., the Board of
Directors, and, on the other hand, the networking participants operate in a concrete
context with all three spaces integrated in their actions in daily life. The SME food
networks, as described in the introduction, are situated in a network context. The
networking SMEs can thus be understood as networking partners as elaborated by
Aune and Gressetvold (2011) in their research on supplier networks. Here, the
SMEs can supply to one another and/ or to a joint customer(s). From the research
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of Podolny and Page (1998); Castells (2005); Asheim and Coenen (2005); Asheim
and Gertler (2005), and Aune and Gressetvold (2011), the more economic, social
and physical connections in a network context, the more new ideas, organisational
learning and control of resources can be obtained for growth.
The hypothesis constructed on behalf on this literature review on inside-out
forces is therefore:

H3: The more economic, physical and social connections, the more new ideas,
organisational learning, control of resources and growth.
Summarisation of literature review and hypotheses constructed
This cross-disciplinary approach requires a wide span for the construction of
hypotheses and therefore a summarisation is provided for an easy overview of the
Structural Equation Modeling (SEM) constructed in the next section. The point of
origin for the hypotheses is the dependent variable on growth. Next, the examination of the innovation process embracing ideas, organisational learning and
control is conducted for the construction of the H1 impact on growth. In the end,
the dual approaches are examined outside-in and inside-out for the construction of
H2 and H3 on the impact on innovation and growth.
The literature review conducted highlights the following hypotheses:
H1: New ideas, organisational learning, and control of resources for performance have a positive impact on growth.
H3: The more economic, physical, and social connections, the more new ideas,
organisational learning, and control of resources and growth.
From the construction of these three hypotheses, a structural equation model is
built to reveal the signicance of the hypotheses. The model reveals the dual
impact in a cross-disciplinary frame on innovation and growth.
Data Gathering and Method Employed

In collaboration with a project team at CFL Danish Institute of Rural Research
and Development at the University of Southern Denmark a questionnaire was
developed for three different food networks in the spring of 2009:
.
Snderjyske Madglder 27 SMEs in the food industry in the Southern part

of Jutland. From now on, this will be referred to as Food Joys.
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.

Vadehav 85 SMEs, of which 49 are food producing SMEs located in

Southwest Jutland. From now on, this will be referred to as Waddensea.
Smernes Fdevarenetvrk 17 SMEs within the food industry located on
the smaller islands of Denmark. From now on, this will be referred to as Small
Islands.
The three food networks were chosen out of 20 possible food networking SMEs
in Denmark because the three networks are partly geographically overlapping as
all three networks, to some extent, have SME participants from the Southern part
of Denmark.
The questionnaire was constructed to reveal information on basic economic
data, growth, connections, preferences, organisational culture as well as on innovation in the participating SMEs in the network. The theories used for the
construction of the questionnaire are partly mentioned in the previous literature
review in this paper and are enhanced by the cross-disciplinary research team with
their overlapping theoretical interest in innovation within the rural/ regional eld.
This paper deals only with the questions relating to the theory called upon in the
literature review on preferences, connections, new ideas, learning, control and the
participants growth, and perception of future growth.
Data are collected through an online questionnaire with frozen quantiable
responses combined with open comments for each question, which provides primarily quantitative data with a supplement of qualitative comments. In the
quantitative part, a seven point Likert scale is used which makes it easy for the
respondents to take a stance on the statements and provide a scale for statistical
analyses. In order to ensure an adequate response rate, we tried to make the stances
easy to relate to. The stances were worded so they could be easily understood, and
respondents were encouraged to respond impulsively. Tests of questionnaires are
conducted with the wider research team and three participants of the committee of
each of the three networks. In regard to the validity and reliability, the questionnaire must be accessible and understandable to all relevant respondents. The response rate for the data collection is satisfactory. In total, 60 respondents answered
and they form the basis for the further analyses.
Five members overlap in the different networks, meaning that they participate in
two of the three networks. In the data analysis, the ve companies participate in each
of the networks they are members of, and thus are double counted in the basis data of
the analysis. This method is applied to be able to generally show the networks
independently of other afliations the members may have. The afliation is relevant
in the understanding of the single network and their growth and perception of growth.
All hypotheses have direction and are therefore one-tailed. The data for the test
of the hypotheses are grounded in 60 observations. The sample is, on the one hand,
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satisfactory. Maximum likelihood estimation (MLE) is employed, and simulation

studies suggest that, under ideal conditions, MLE provides valid and stable results
with sample sizes as small as 50 (Hair et al., 2010:661). On the other hand, the
test has many variables and therefore the level for signicance for a one-tailed
hypothesis is held on the p value < 0:05 for signicance.

Description of Data and Construction of Data Variables

A short description of the network prole in economic terms provides an understanding of which nancial resources are available in the networks. The three
networks represent an estimated total turnover, which corresponds to about 100
million Euro calculated on average gures from the responses. A similar calculation can be carried out on the total workforce of fulltime staff, which shows about
700 employees in total in the networks. All in all, around twenty equivalent SME
food networks exist in Denmark. The networks are therefore a considerable resource in the Danish economy. The data were collected in the period from April to
May 2009 when the nancial crisis had a marked impact on Danish companies.
The GNP development in Denmark was registered by Statistikbanken to be 1.8%
in 2007 and 0.3% in 2008 which are the two years covered in this research. The
negative development in 2008 is dominated by the nancial crisis in which the
fourth quarter alone had a negative GNP growth of 2%. In comparison, the EU
had a negative growth rate in the fourth quarter of 2008 of 1.5%, and the United
States had a negative growth rate of 1% during this same period. The food
industry is usually more stable than other industries during a crisis because of the
continuous need for food in the population. The nancial crisis has, however, had
a serious negative impact on the food sector. The negative impact is shown by a
review from the Danish Industrial Food Association, which reported that the
turnover from June 2008 to January 2009 was reduced by 8.5%. The serious
negative effect is also evidenced by the Nielsen survey on Global Consumer
Condence, Concerns and Spending in the rst half of 2009 which reported that
41% of global customers had begun to switch to less expensive grocery brands.
The pricing of the products in the three networks are average or slightly above
average due to their own self-reporting in the questionnaire. The scene for growth
and growth expectations are therefore set in a negative frame.
Growth
The description of growth from the data collection in the networks is shown in
Fig. 1. Here, the companies average growth rate for the past two years and what
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Turnover - Growth Percentages
15
Growth % Last two years
10
Growth % Next two years
5
0

Snderjyske Vadehav
Smerne Total
Fig. 1. Growth rates for the past two years and anticipated growth for the next two years.
they expect the growth rate to be in the coming two years are shown. When we
look at the growth rates so far, it reveals that they are very high in comparison to
the general growth in Denmark in terms of GNP per year at current prices. A high
growth is revealed in all three networks in Fig. 1.
Figure 1 shows that despite the nancial crisis, the network members expect to
continue to grow at almost the same high level. Overall for the three networks, the
companies expect the same or a moderate increase in growth. This implies a
continued high level of growth of between 7% to 10%.
From the qualitative comments on growth rate, it can be seen that the members
are aware of the nancial crisis, but also set about new initiatives which they
expect will offset the impact of the crisis and lead to growth for their businesses
over the next two years. This reveals a very strong commitment to innovation and
growth in turnover in the SME network companies even though conditions for
growth are extremely difcult.
Data variables
A statistical factor analysis was conducted on the data collected. The data variables
with clear overlap according to the analyses were combined in indexes providing a
more broad understanding of the variable. The analyses resulted in the following
measurement of data:
(1) Growth variable called I-growth, is dened as the average combination of
growth in turnover for the past two years with the expected growth in turnover
for the next two years in standardised form. The growth variables are skewed
with many observations around the mean growth rate and some observations
on very high growth rates. Therefore, a logarithm of LN is taken to reduce the
weight of the very high observations and takes a diminishing impact into
account.
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(2) Preferencepreferred behaviour-variable called I-preferences, is dened as

the average combination of the four variables on personality types in standardised form.
(3) Connection variables dened and constructed in two indexes: One index is
called I-economic connections, the other index is called I-social and physical
connections.
(4) Innovation variables intermediate between preferences/connections and
growth.
(i) Ideas
Two variables called employee ideas and manager ideas
(ii) Learning
Two variables called action learning and I-other learning.
(iii) Control
Two variables called I-employee control and I-quality control in standardised
form. Control in the analysis is thereby dened as the average combination of
the variables in I-employee control and in I-quality control.
For information on the bivariate correlation between variables Table 1 reveal
the calculations. It can be seen that correlation is present between variables from
one level to another e.g., from preferences, social and physical connections, and
economic connections to different innovation forms and to growth. No or limited
correlation are detected between variables on same level e.g., between preferences,
social and physical connections, and economic connections or between the different innovation forms. It means that the model is constructed on different
measures for the analyses.
Causal Modelling and Path Diagram Analyses

The hypotheses are elaborated in Analysis of Moment Structures (AMOS)
which is a program for data analyses known as SEM, also known as analysis
of covariance structures and causal modelling. A dominant prerequisite to
be able to use a tool like AMOS is the existence of a time-difference in
the occurrence between the exogenous variables having an impact on endogenous variables and again having an impact on other endogenous variables
(Hair et al., 2010:634ff). In the model constructed, preferences and connections
are perceived as deep-rooted aspects held by people within the organisation
present before the people are able to organise ideas, learning, and control
to obtain innovation and growth. Preferences and connections can be held
before people enter the organisation and are present before they can be
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I-preferences
0;
Errorx
0;
1
Error1
0;
Employee
Ideas
Error2
0;
1

Manager
Ideas
Error0
Action
Learning
Social and
Physical
Connections
IingrowthZ
I-other
Learning
1
I- employee
Control
0;
Error4
1
0;
I-quality
Control
Error3
1
0;
Errory
Economic
Connections
Fig. 2. Path diagram of preferences and connections relating to growth.
utilised. The causal path diagram for testing all three hypotheses is shown in
Fig. 2.
The hypotheses are tested in a stepwise backwards elimination of the least
signicant causal factor combination. The analyses are based on an MLE. The
signicance level revealed through this method can be seen in Table 1.
Table 2 shows a signicance level of a value of p ranging from zero to 0.03 and
below the requirement of p value < 0:05. Basic measures of goodness-of-t
represented by the comparative t index (CFI) are met with a value above 0.90 for
the model (Hair et al., 2010).
The analyses of the outside-in and inside-out impact on the innovation process
and impact on growth in the network context can now be elaborated through a test
of the stated hypotheses in the path diagram. The paths of signicance found are
revealed in Fig. 3. All three hypotheses are partly supported and partly rejected.
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Action
learning
Manager
ideas
Employee
ideas
Economic
connections
Soc. Phy.
Connections
I-Preferences
56
0.016
0.907
56
0.052
0.705
56
0.079
0.564
56
0.432 **
0.001
56
0.202
0.136
56
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
0.309
56
0.319
57
0.138
0.811
57
0.134
0.105
60
0.032
60
0.211
0.387
56
0.789
57
0.118
0.390
57
0.036
60
0.116
0.411
56
0.000
57
0.112
57
0.518 **
0.567
56
57
0.078
56
I-Preferences Soc. Phy. Economic Employee Manager Action I-other I-employee I-quality I-growth
connections connections
ideas
Ideas learning learning control
control
Correlations
Table 1. Bivariate correlations among variables.

1450023-16
0.840 **
0.000
56
0.190
0.160
56
0.449 **
0.001
56
0.095
0.499
53
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
0.742
57
0.271 *
0.047
54
0.835
56
0.045
0.708
56
0.028
0.051
0.961
57
0.317 *
0.020
54
0.618
56
0.007
0.355
56
0.068
0.126
0.995
57
0.283 *
0.038
54
0.000
56
0.001
0.798
56
0.625 **
0.035
0.097
0.000
57
0.271 *
0.047
54
0.000
56
0.448 **
0.339
56
0.215
0.122
53
0.712
56
0.130
0.016
0.476
56
56
0.651 ** 0.051
0.322 *
*Correlation is signicant at the 0.05 level (2-tailed); **correlation is signicant at the 0.01 level (2-tailed).
I-growth
I-quality
control
I-employee
control
I-other
learning
0.017
56
0.128
0.359
53
0.646
56
0.319 *
56
0.063
0.174
56
0.145
0.299
53
56
0.184
57
0.079
0.568
54
54
I-Preferences Soc. Phy. Economic Employee Manager Action I-other I-employee I-quality I-growth
connections connections
ideas
Ideas learning learning control
control
Correlations
Table 1. (Continued )

T. Brink

Table 2. Signicance level estimations in the path diagram in AMOS.

Manager ideas I-preferences

I-growth Economic connections
I-growth Manager ideas
I-growth Social and physical connections
Estimate
S.E.
C.R.
Label
0.500
0.183
0.278
0.236
0.141
0.062
0.053
0.069
3.541
2.937
5.218
3.422
***
0.003
***
***
Below, the signicant variables with signicant impact on growth and issues in the
innovation process are listed in bold:
H1: New ideas, organisational learning, and control of resources for performance have a positive impact on growth.
H3: The more economic, physical, and social connections, the more new ideas,
organisational learning, and control of resources and growth.
In very short terms, this means that in H1, only new ideas are signicantly
accepted as having an impact on growth. The other variables in H1 are rejected.
Only preferences in H2 are signicantly accepted as having an impact on new
Fig. 3. Path diagram with signicant causal relations from preferences and connections to growth.
1450023-17

T. Brink
ideas (which again through H1 has an impact on growth). The other variables in
H2 are rejected. Only economic, physical, and social connections in H3 are signicantly accepted to have an impact on growth. The other variables in H3 are
rejected.
A direct signicant impact is revealed economic, connections and social, and
physical connections on growth. This impact is an outside-in approach. An indirect signicant impact is revealed from preferences having a direct positive
impact on manager ideas and this is again enhanced to a positive impact on
growth. This impact is an inside-out approach. It is interesting that employee
ideas, action learning, other learning, employee control and quality control are not
signicantly affected by preferences the inside-out approach and/or by
connections the outside-in approach. Furthermore, the other inside-out
approaches of employee ideas, action learning, other learning, employee control,
and quality control do not have an impact on growth. The ndings support the
focus on the manager as relevant for growth to emerge in SMEs. The notion is
highlighted by Teece (2007) of entrepreneurs who bring together and orchestrate
co-specialised and complementary assets to enable innovation and growth. The
impact of the entrepreneur on growth has been noted from the origin of innovation
theory noted in Schumpeter (1934) seminal book. In the SME network context, it
does not seem that organisational learning theory (Nelson and Winter, 1982;
Argyris, 1990; Woodman et al., 1993) and/or the control of resource utilisation
(Weber, 1947; Child 2005; Modig and hlstrm, 2013) has an important role.
However, moving from the single SME-organisation to a network context contributes to organisational complexity and provide an opportunity to utilise a
loosely coupled organisation (Weick and Orton, 1990), which requires more
enhanced organisational understanding and insight into organisational theory to
support innovative actions.
A closer examination of Fig. 3 reveals that both outside-in and inside-out
approaches have an impact in growth. The outside-in connections of physical, and
social, and economical connections do correlate to a limited extent with a proportion of 0.21. They both have a direct impact on growth as is also highlighted by
Asheim and Coenen (2005); Asheim and Gertler (2005), and Aune and Gressetvold (2011). However, no impact is signicant on the innovation process in the
SME. The connections seem to primarily be utilised as an external issue to
the organisation and only to a limited degree within the innovation process in the
organisation. Organisational learning and resource utilisation do not play a signicant role. The boundaries of the organisation seem to set a limit for collaboration also in the loosely coupled SME network context.
This means that both the outside-in and inside-out approaches need to be
employed simultaneously to obtain as much innovation and growth as possible.
1450023-18

Awareness and management of both approaches is benecial to enable innovation

and growth.
Figure 3 provides the closer picture of the relations revealed. The fact that
preferences preferred blended behaviour has a very small covariance with
both social and physical connections and with economic connections provides an
interesting insight. It means that this factor has a sole impact. Preferences have no
direct impact on growth, but the positive impact on manager ideas, which again
have an impact on growth, provides a signicant and substantial indirect impact on
growth with a proportion of (0:43*0:30) 0:13. Thus, preferences provide an
underlying assumption for growth through the precedent organising of preferred
blended behaviour to obtain growth. This inside-out approach is revealed as an
important issue to organise for innovation and growth.
In the networking companies, a standardised proportion of 0.21 co-variance
between social and physical connections and economic connections is revealed.
Both social/physical connections and economic connections have a fairly high
direct and equal impact on growth with a proportion of 0.30 for each. It reveals
that the outside-in approach on connections is important for growth to be enabled
and has a degree of spillover on each other on social and physical and economical
connections. All connections have to be considered and organised for enabling
growth.
The impact from all three areas of preferences, social/physical and economic
connections reveal a considerable impact on growth. Here, the calculations
show an external impact from the outside-in connections including a covariance
of ((0:21*0:30) (0:21*0:30)) 0:13. The impact from preferences on manager
ideas shows an internal impact on growth as calculated as a proportion
of (0:43*0:30) 0:13. It means that both approaches on outside-in open innovation and inside-out managerial innovation have to be organised in a
dual combination to enable innovation and growth. It also reveals that the
insights from cross-disciplinary organisational theory are only utilised for innovation and growth to a limited extent in the SME context of loosely coupled
systems.
Discussion of Findings
The research question on what impact the dual approaches of outside-in and
inside-out innovation have on growth in turnover in SMEs in networks has,
through the literature review, led to cross disciplinary analyses. The path diagram
model has tested the impact of economic, physical, and social connections and the
impact of preferences of behaviour on the innovation process containing new
1450023-19

T. Brink
ideas, organisational learning, and control for utilisation of resources and on

growth in turnover.
Through the SEM analyses, both approaches of outside-in and inside-out were
revealed as important, but in different ways. Outside-in connections are basically
split in two factors, as originally highlighted by Castells (2005). One factor
represents the embeddedness of connections in physical and social contexts; another factor represents the economic connections established in the business model
of the SME. Both these outside-in connections have a direct positive impact on
growth. They also co-variate as Castells (2005) noted and thereby enable a positive
synergy creation for growth in the SME context. It means that the connections and
openness of the SME are important for growth. However, it does not seem to come
from the impact of the innovation process as was noted by Amabile et al. (1996);
Schumpeter (1934, 1942), and Weick (1995) containing new ideas, organisational
learning, and control for utilising resources. No signicance was revealed from
connections on innovation activities in the SMEs. The growth impact thus comes
from cooperation activities outside the SME organisation. The connections are
then employed in the wider value system and business model employed towards
the customer. This occurs both in relation to economic connections and in relation
to more embedded physical and social connections as highlighted by Castells
(2005); Asheim and Coenen (2005), and Asheim and Gertler (2005) within regional systemic innovation. The SMEs have to t into the value system for the
customer e.g., social activities creating relations with customers and physical
resources to draw upon near the enterprise, things which are valued by customers
e.g., plants growing in the Waddensea as ingredients for food products creating a
delicious taste.
Inside-out preferences on preferred behaviour are also signicant for enabling
growth. However, a direct impact on growth was not revealed. The impact
revealed was indirect through innovation activities and, more precisely, the activities related to manager ideas. Nearly no co-variation was revealed to the other
two outside-in approaches on connections. Preferences on preferred behaviour
thus have an isolated impact on innovation and growth, which must be dealt
with separately to get the full potential of innovation and growth for the enterprise.
This underpins the need for organising in the understanding of Weick (1995)
as a continuous process between outside-in and inside-out approaches to enable
innovation.
A contribution is provided from this research on the insight that dual processes
which organise both outside-in and inside-out activities/practices simultaneously
are necessary to enable innovation and growth. It reveals the relevance of the
employment of theory on both open innovation and organising/process innovation. Moreover, it seems due to theoretical considerations on the organisational
1450023-20

approach to innovation that the context of loosely coupled systems could be

further utilised for innovation and growth. Boundaries of the SME-organisation
seem to set limitations. This is valuable insight for both further academic research
and education of entrepreneurs and for the SME-networking practitioners to deliberately organise the dualities more openly in the network context and in their
own organisation.
This research is limited to SMEs aiming for innovation and growth in the food
sector. It means that the research is situated in a specic context were ndings
could change considerably by the change of industry, enterprise size, and the aim
of participants. Further research is thus needed to reveal the limitation of the
context on the ndings. The respondents of the questionnaire are managers of the
SMEs and this can provide too much emphasis on manager ideas in relation to
organisational learning and control of the utilisation of resources. The focus by
management seems to be on own idea-generation. Further research is needed to
reveal whether this emphasis from management is also mirrored and present in the
rest of the organisation. As mentioned earlier, the positive impact on innovation
and growth is highlighted from the early start of the innovation theory eld.
Moreover, the SEM approach is limited to only providing a snapshot on the
impact of the hypotheses. It would have been more benecial to employ a process
approach. This is not technically possible due to a lack of data on the process and a
lack of techniques to handle the data in a statistical approach. A way to handle this
is to take a new snapshot later and test the hypotheses again. The time has not been
available for this yet. Further research along this research path would be benecial
to reveal the validity and reliability of the ndings and enhance the knowledge and
understanding of the dual process of outside-in and inside-out approaches and the
impact they have on innovation and growth.
Conclusion
This paper reveals what impact the dual approaches of outside-in and inside-out
innovation have on growth in turnover in SMEs in food network contexts. This is
illustrated through the analyses of innovation and growth in three Danish food
networks with 60 networking SMEs responding. Elaboration has been done
through quantitative SEM of organising the dual outside-in economic, physical,
and social connections and the inside-out preferences of behaviour to enable innovation activities and growth in turnover.
The networking SMEs show a clear commitment to innovation and growth.
They expect to be able to continue this high growth despite the nancial crisis.
Within the networking SMEs, a positive inside-out impact is revealed from
1450023-21

T. Brink
preferences of preferred behaviour on manager ideas, which again have a positive

impact on growth. A positive outside-in approach on economic and physical, and
social connections have a direct and signicant impact on growth. It reveals a dual
impact on innovation and growth. However, it is also revealed that the opportunities of a loosely coupled organisational system is not utilised. The boundaries of
the SMEs still seem to play a role so that no signicant collaboration impact is
revealed on innovation.
A contribution is thus provided to innovation theory on how the notions on
open innovation and creativity theory represent a duality for innovation and
growth. The theoretical approach on both innovation and growth is enhanced for
the benet of research and education of entrepreneurs. A practical contribution is
made to SME-networking participants to understand the available opportunities of
organising in the loosely coupled network context.
Further research on the outside-in and inside-out approaches will be interesting
to pursue through further SEM analyses in the same three food networks and also
interesting to pursue in other informal networks within the food industry, as well
as in other contexts for revealing the transferability of the ndings revealed in this
article.
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