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Antecedents of Service Innovation in SMEs: Comparing the Effects of External and Internal Factors


Address correspondence to: Daniel Prajogo, Monash University, Department of Management, PO Box 197, Caulfield East, Vic 3145, Australia. E-mail:


Increasing attention has been paid of late to the importance of effectively developing both exploratory and exploitative innovation in firms. Small and medium-sized enterprises (SMEs) play a significant role in the growth of economies and in job creation, yet at the same time they can differ significantly from larger firms with respect to effective management. Recent research has examined the effects of environmental and organizational characteristics on the effective development of exploratory and exploitative innovation. SMEs differ from larger firms in many ways, such as the availability of resources, and it is unclear whether findings based on studies in larger firms will also hold true for SMEs. As such, it is important to explore and understand the extent to which SMEs differ from large firms in this important area. Specifically, this paper empirically examines the extent to which organizational factors (connectedness, centralization, formalization) and business environment (dynamism and hostility) are associated with different types of innovation orientations (exploratory and exploitative) among SMEs.