Linking Innovative Potential to SME Performance : An Assessment of Enterprises in Industrial South Wales

This paper examines the link between innovative activity, outcomes and the performance of SMEs in Wales. A range of European, UK and locally developed initiatives in Wales seek to encourage innovative activity in indigenous SMEs. However, it is the contention of this paper that these initiatives have often been instituted without a clear appreciation of how, if, and which innovative activities feed through to improved business performance. The paper offers a general method of assessing the innovative potential (the configuration of management practices, capabilities, internal and external linkages facilitating the generation of appropriation of ideas) of manufacturing SMEs. This then leads on to an examination of how far innovative potential is connected to operational and general business performance. The paper describes how the model was developed and used to assess the innovative potential of a sample of manufacturing SMEs in Industrial South Wales, and how far the innovative potential can be linked to improved operational and business performance using data from two case study firms.