| Summary: | The research carried out aimed to illuminate how innovation arises and spreads within an SME internal environment. SMEs are an area where innovations can be readily identified and the company size makes tracking the spread of innovations possible. B2C e-commerce was chosen because the sector is smaller and thus more manageable than B2B. The period chosen (1997-2003) was a period where companies, especially SMEs, had to deal simultaneously with technological change, market change and organizational change and this called for a good deal of innovation and innovation management. Since IT is used to enable both business and marketing innovations it provides a good thematic link between the areas of innovation and Internet marketing. Thus innovations, especially in Internet marketing and advertising, were analysed further and compared to popular predictions. An empirical analysis of nineteen innovations from SME case companies in several EU nations revealed the importance of a hitherto underrated type of innovation similar to inspiration and here called 'Diversity Innovation'. It is postulated that it is 'Diversity Innovation' which is the major driving force in SMEs, because SMEs are typically cut off from invention innovation. Furthermore - by using simple algebra - it was seen that it is the transaction costs associated with communication that are the limiting factor for 'Diversity Innovation'. The logical consequence of this is that the major management challenge for growing SMEs occurs around size 50 employees. This is in stark contrast to conventional nomenclature, which ignores this important division and lumps all 10-99 employee companies together as 'small enterprises'. The analyses also showed innovation nuclei - the persons around whom the innovations crystallized - to be individuals with multiple specialist backgrounds. This is interpreted as again pointing towards the importance of transaction costs for communication between specialists, because transaction costs are lower when the individual is multiply specialized. Trans-nationals (trans-migrants, 'foreigners', here called CED's; people ,culturally and/or ethnically dífferent from the people in the SME's home nation) were especially prominent amongst innovation nuclei and it {s speculated that this group had been exposed to especially high retraining pressures. CED's in small companies active in immature markets experienced little difficulty in gaining acceptance for their innovations. Conversely, CEO's in companies within mature markets experienced great difficulty in spreading innovations within their environment, and the most likely explanation is because of the large distance (the 'Innovation Gap') between the CEO involved and the leadershlp/consensus group, as defined by Adaption-Innovation theory. Indeed, 'in mature markets, initial innovations by CEO's provoked a Trickle Down effect, this rebound often taking the form of disenfranchisement of the CED involved, who saw their ideas transformed into a consensus group concept, from which they were excluded, resulting in de-motivation and the consequent restriction in the generation and spread of innovation in the corporate environment. Whilst qualitative and semi-quantitative techniques were used in research into innovation, research into Internet Marketing were analysed by quantitative techniques and showed that many generally assumed popular concepts are misleading. Results at variance with accepted wisdom included: • Market transparency on the Internet is quite restricted and open to manipulation by suppliers. • There was no evidence that URL submissions to web search engines will improve sales. • There was no evidence that communication between the company and those clients requesting information, improved sales. • There was no evidence that 'chat' or other peer-to-peer web facilities improved sales. • Returning customers are few and it is their satisfaction with the product, not with the web site, that determined if they return. • A very high background rate of random hits, as opposed to customers, makes analysing web statistics a fruitless task. Conversely sales statistics can be used to prioritise which products are given good web coverage. • Bulk e-mailing of offers may be a less successful method for achieving sales than a web site is. • On-line payment is not a great advantage because third-party payment gateways and even the company bank, mostly fail to support the small merchant. • Intemiedlatlon amongst SME partners lacks adequate support, but dis- and re-intermediation is not rapid. 1997-2003 was a time when Internet knowledge was scarce and popular predictions from this period were chillingly wrong for SMEs. Those companies where such knowledge was part of their core competencies - and thus may have relied less on popular predictions - succeeded most, but overstepping core competencies, or where the leadership/consensus group kept them rigidly partitioned from the necessary technical knowledge, resulted in potentially serious negative consequences. To avoid this it is suggested that SME management should include a two-way 'innovation pipeline' for companies with around 120 employees or more.
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