Idea generation and open innovation in SMEs: When does market-based collaboration pay off most?

Small- and medium-sized enterprises (SMEs) largely depend on proficient idea generation activities to improve their front-end innovation performance, yet the liabilities of newness and smallness often hamper SMEs' ability to benefit from systematic idea generation. To compensate for these liabilities, many SMEs adopt an open innovation approach by collaborating with market-based partners such as customers and suppliers. This study investigates the relationship between SMEs' systematic idea generation and front-end performance and investigates the moderating role of market-based partnership for SMEs. Drawing on a survey of 146 Swedish manufacturing SMEs, this study provides two key contributions. First, the systematic idea generation and front-end performance relationship in SMEs is non-linear. Accordingly, higher levels of front-end performance are achieved when idea generation activities are highly systematic. Second, the returns from higher levels of systematic idea generation are positively moderated by market-based partnerships. Thus, external cooperation with customers and suppliers pays off most toward front-end performance when SMEs have highly systematic idea generation processes. These results indicate a contingency perspective on the role of external partnerships. They also have implications for research into the front-end of innovation and open innovation in the context of SMEs.