Selected aspects of innovation policy for small and medium sized enterprises

Increasing market competition encourages companies attract and retain customers. To achieve the mentioned objectives company managers have the following tools: marketing and innovation activity of the company. We fi nd it important to explore the innovation activity of SMEs. Determined by their size, creativity and innovation can be the key factors to survive under competition. Th e study deals with the in novation process and factors infl uencingit . Based on theoretical background and research results the study presents the factors infl uencing innovation activity of SMEs. Th e research results show that management’s attitude, employees’ motivation and positive relationship built with suppliers have positive impacts on successful operation of SMEs.


INTRODUCTION
SMEs are a very important part of the economy, an economy based on market principal. Th eir importance in the national economy lies in the fact that the driving force behind its development, particularly its fl exibility in the adoption and use the most progressive technologies, innovation, job creation. A thriving economy is based on the eff ective functioning business sector, the most important actors are tradesmen, enterprises individuals, small and medium enterprises (Mura, 2012). Innovative SMEs have a very important role in the economy of each country, since they signifi cantly contribute to the development of new products, technologies, services, and cooperating with large enterprises, their fl exibility allows them to introduce innovation into practice relatively quickly (Kačírková, 2007).
Innovative entrepreneurship appears not only in the creation of new products, services or technologies, but also in cre ating previously unknown, unused ways to organize production and management using traditional factors of production and their new combinations (Dobai Korcsmáros -Seres Huszárik, 2013).Experts agree that an innovative enterprise is a small or medium sized enterprise supporting new ideas which are transformed to new products and services through innovation, and then they are launched in the market (Zemplinerová, 2010). Innovation is a term used for the source of business ideas, while innovative business refers to targeting high profi ts. Th e main objective is to maximally satisfy the needs and requirements of customers (Bartes, 2008). Th e purpose of business is to gain customers. To achieve this objective business organizations have the following tools: marketing and innovation. Business should monitor whether the products satisfy the need of customers. Process innovation is linked to task, that should be carried out. It requires the presence of the following criteria: the process, the problem, clear defi nition of objectives and specifi cations, as well as the general belief about the existence of better solution (Drucker, 2002).

THEORETICAL FRAMEWORK
Competitive advantage of business can be gained by the size of business, ability to mobilize intellectual capital, technological skills and ability to off er completely new products or services (Pitra, 2006). Tidda, Bessant and Pawitt (2001) recognized a strong relation between the market power and the new product. New products enable to maintain market share, ability to replace obsolete products as well as innovation process can decrease production time and development of new products at faster rate than competitors. Th erefore, the innovative activity of the business infl uences the competitiveness. Achieving higher level of competition through innovation results in cheaper products and higher quality than competitors have. Unless the organization is able to innovate constantly it can risk to lack behind and competitors will take the initiative (Mura, 2012).
Nowadays businesses are forced to develop and introduce new products and services. Each member of the economic chain should understand and have an overview about the innovation process as well as see the part of work they did. Key skills are quality and the speed customer needs are satisfi ed. It is necessary to make changes in performance of all business activities. It means changes in organizational arrangements, establishing new relations between diff erent departments, management changes, develop creative skills of employees and specifying the mission and new objectives of the organization. To activate the innovation potential the management must function properly and should concentrate on the performance of the economic chain (Drucker, 2002).

Th e Innovation Process and Factors Infl uencing Innovation
Innovation is a key process for organization to survive. Th is process can be divided into fi ve phases. Th e fi rst phase monitors the internal and external environment and possible opportunities are looked for. In the second phase decision is made about which opportunity to use in accordance with the strategy of organization. Th e third phase is about the introduction of new idea. Th is phase is followed by realization of ideas under uncertain conditions, market launch and managing initial adoption. Th e penultmiate phase is about feedback on diff erent innovation cycles and improvement of innovation process management. (Drucker, 2002;Pitra, 2006).
Th e key business processes are formed by those progressions, which maintain high level of competitiveness in long term. Th ese are mainly the following areas: sales and marketing, production and organizational processes, product innovation. We focus on the following areas: innovation process, product innovation and business innovation systems. Innovation should target the end-user. It is important to achieve high quality at increasing level of services and speed of service. Th e organization should follow the requirements of all interest groups. Th ese interest groups have infl uence on the whole business process (Tidd, Bessant, Pavitt, 2007).
Innovation represents a special kind of change -changes deliberate, new and prosperous (West and Sacramento, 2008;Drucker, 1993;Franková, 2011). Innovation means radical change in production technologies. Th e earlier used manufacturing technologies are already outdated and replacement of these technologies is needed (Ivanička and col., 2014). Developers think about innovation in organizational resp. team context and defi ne it as a modifi cation in the existing or creation of new products and services. (Grossman and King, 1990;Peters and Waterman, 1993;Pietrasiński, 1977, Franková, 2011.
Sources of innovation from internal environment of organization can be identifi ed by employees of organizaton from the same industry or sector of services. Whithin an organization we can identify four areas of innovation sources. Th e fi rst is the area of unexpected events -unexpected events as well as innovation setbacks fall into this category. Th is category is a prolifi c source of innovation. Th e innovation to succeed an expertise and skills in particular sector are essential. Th e unexpected external event provides a possibility to apply the existing expertise on a new frontier. Th e second area is the incosistency, which means discrepancy between the existing condition and the anticipated change as well as innovation activities. Into this category fall the contradictions of economic reality, contradictions between the existing and the expected reality as well as contradictions between the expected and real values.
Th is is followed by the area of process needs as a source of innovation. Th is category is based on the assumption of the existence of the need to solve specifi c tasks. Th e necessity to fi nd solution -to improve the process, replace weak or outdated process -is usually recognized by entrepreneurs. Emerging needs of the process are often based on contradictions and demographic factors of the research programme. Th e last area is the change in industry or market structure. Sectoral characteristics of market structures are very susceptible to changes and directly call for innovation. Th ey are an important source of business opportunities (Drucker, 1993).
Th e following categories form the external environment of the organization. First demographic factor is discussed. Th is category deals with the change of population in terms of number, age structure, composition, employment, educational attainment and income level.Th e second category is formed by changes based on worldview, changes the importance of existing facts and reality. Th is value can be considered concrete: can be defi ned, tested and used. Th ird category is formed by knowledge based innovations, which are diff erentiated by basic characteristic features: time span, number of unsucessful attempts and predictabilities as well as expectations towards entrepreneurs (Drucker, 1993). Innovations are categorized according to level of originality and content (Franková, 2011). According to level of originality innovations can fall into two categories: (Pietrasiński, 1977, Franková, 2011 imitations -implementation of changes and novelties already tested somewhere; original innovations -implementation of completely new ideas (Franková, 2011). According to prevailing content the following types of innovation can be specifi ed: technological innovations; product innovation; innovation of services; organizational innovations -regarding changes and innovations in the fi eld of corporate strategy, structure and culture, socio-psychological atmosphere of the organization; managerial innovations-related to changes and innovations in work abilities and skills of managers (Franková, 2011).
Regarding the innovation process of products and services, the viable innovation starts with a creative idea, and implementation of idea into new products and services desired by customers (Adair, 2004;Franková, 2011). Managers should be encouraged to deal with innovation as a process which can be controlled (Adair, 2004;Franková, 2011). Th e innovation process consists of three phases: generating ideas, collecting ideas, development and implementation of ideas (Adair, 2004;Franková, 2011). It is important to tailor the process to needs and organization of the market (Roff e, 1999;Franková, 2011). Proper knowledge of the market increases the chance for high value of innovation and the value of innovation determines its success on the market. (Roff e 1999, Franková, 2011. Innovation is not always a simple process. It takes certain time until an innovation is built into the existing structure of the business. Innovation does not prevail and stirs the sector, but induces changes in the whole economy. Th e innovation process has diff erent intensity and thus it aff ects a longer period (Ivanička and col., 2014).
Innovation processes are linked in time interval. In 1967 Torsten Hägerstrand wast the fi rst to deal with the theory of innovation waves. According to Hägerstrand theory special and temporal aspects we can talk about concerning innovation. If we imagined the process of diff usion waves in space and time in simpler model, where we focus on waves, the process would have four phases. In the primary phase, where the start of the process is marked are established centres to adopt innovation and contrast is recognized between the innovation centre and the rest of the region. Th is is followed by the diff usion phase, marking the beginning of the diff usion process. Th ere is a rapid establishment of innovation centres due to strong centrifugal eff ect. In condensation phase the achieved relative increase in number of benefi ciaries of innovation is consistent with all areas of the region regardless of distance of the innovation centre. Th e saturation phase passivity occurs and the process is slowing down, alternatively the process of diff usion will stop. Innovation has been adotped throughout the territory and it shows scant signs of regional variations (Hagget, 2001).
Innovation theory of Rogers is defi ned as an idea, practice or thing, where the individual or other user is considered to be new. Characteristics of innovation are determined by the speed of adaptation. Depending on characteristics the potential adepts have, they fall into the following categories: the fi rst category is the relative advantage concerning what on the improved or new product is better compared to the previous one.
Th e category of compatibility shows, that no innovation can succeed until local values and needs of adopters are considered. Category of complexity shows the diffi culty degree of understanding and use of innovation by adopters. Th e penultimate category is divisibility, which is understood as the ability of the consumer. Innovation must be tested before it is accepted or not. Th e category of observability shows how results of innovation are clear and transparent. Th e intensity of observation and the speed of adaptation are directly proportional. Th ese categories must be examined how it is required by potential consumers. It may seem that the process used is simpler and more eff ective than the previous ones, but from the perspective of potential users it is not so clear (Rogers, 1976).
Rogers defi ned the intensity of adaptation into 5 basic groups. Th e fi rst chart shows how Rogers categorized the adopters. Th e curve shows, that at the beginning of the process only few consumers can be recognized, their number is increasing and drops fi nally. Rogers named each group of adopters, evaluates them in percentage, provides characteristics and emphasizes the most important diff erences between them. Th ose adopting innovations quickly are called innovators. About 2,5 % of adopters belong to this group. Innovators are willing to take risk and have high social status. Th ey are willing to understand and cope with a higher degree of uncertainty of innovation. Early adopters account for 13,5% and they have the highest degree of opinion leadership among the adopter categories. Early majority accont for 34 % of adopters. Despite being integrated into the system, early adopters seldom hold position of opinion leaders. Th ey adopt innovation after a varying degree of time that is signifi cantly longer then the early adopters and inno-vators. Late majority account for 34 % of adopters. Adoption of innovations for the members of this group is an economic necessity. Group members are careful, cautious and skeptical. Laggards account for 16 % of adopters. Th ese individuals are conservative, feel suspicious about innovation and changes. Early adopters are said to have advanced education, higher income and social status. Th ey depend less on traditional values and have rational thinking. Rogers noted the paradox that the last group of adopters benefi t the most from innovation (Khor-Marsh, 2006).

Innovation in SMEs
Th e size of the company is directly linked to innovation capacity. Until the 1970s mainly big companies, so called national fl agship companies were interested in innovation. Importance to SMEs shifted in the 1970s. Th is change happened due to the fact, that SMEs created more workplaces and played a special role in economic recovery for underdeveloped regions. Th e policy of 1980s in Western Europe favoured to establishment of new companies, new technlogy-based SMEs. Rothwell introduces the advantages and disadvantages of SMEs compared to big companies in terms of innovation (Rothwell, 1991;Freitag, 1998;Dobai Korcsmáros, 2013). Table 1 Adavantages and disadvantages of small, medium-sized and big companies in terms of innovation Patents -Frequent problems of patent system, lack of fi nances, lack of know-how in dealing with patents + Specialists are able to cope with an opportunity to request patent costs before the patent protection or legal methods are associated with expenses. Legislation and regulations -SMEs are often fl ood with regulations and high costs for approval procedures. + possibility to fi nance legal department dealing with regulations. Costs are divided between products and portfolio to meet the regulations which can be fi nanced.
Source: Rothwell, 1991. According to Schumpeter innovation is a complex collective process. Common forms of cooperation are: consortia, joint ventures, strategic partnerhsip and cooperative networks. Diff erent forms of cooperation can be distinguished. Primary cooperation is formed by one or more phases/steps of the innovation process, which are intended to help members of division in the fi eld of innovation. Cooperation of these members is characterized by similar knowledge of the system and neither of the participants have signifi cant competitive advantage compared to other partners (Dobai Korcsmáros, Seres Huszárik, 2013). Reports on cooperation are submitted after results are achieved, but cannot be fully utilized and can be submitted in form of intercompany cooperation. Th e technology transfer assumes, that initiation of innovation supports the ability to provide advice that is not utilized by cooperating companies. In this case, the lack of innovation is compensated via external assistance. Process cooperation occurs, when innovation and advisory force is applied in cooperating companies (Freitag, 1998).
Defi ning and strengthening of business decision is a part of innovation activity. Lack of these abilities can bring diffi culties in competition. Th e ability to innovate is not only to ensure the future of business, but in many cases it becomes a prerequisite for successful positioning on the market and contributes to achieve a superior competitive position (Spielkamp, Rammer, 2006).
Among the competencies of SMEs belong the ability to apply the knowledge generated by another company as well as quick and intelligent interface with existing capacities to create commercial services. Strategic role of this group of companies is the role of corporate governance, refl ection on potential risks of new products on the central business market. Strategic management is about confi guration and integration of the company, while operative management is about implementation of these decisions in the best possible way (Spielkamp, Rammer, 2006).
Innovations are based on knowledge, creativity and entrepreneurial feelings. Companies apply their experience in the innovation process. Management of innovations is an integration task, in which technological skills, process skills and the culture of innovation are integrated. Th e management know-how is based on the knowledge of processes about dispositive knowledge and activities in the fi eld of research and development (Peter and Watermann, 1984;Spielkamp, Rammer, 2006).
Innovation can be a temporary or continuous task as an internal solution of the company. Depending on organizational structures the business perspective off ers to meet temporary tasks, the company creates team-oriented units. Considering the importance of technological expertise in innovation process, companies choose organizational alternative structure and institutionalize their R&D departments. Th e R&D department will provide incentives for innovation. Th e advantage of this solution is that it can use a special knowledge in organization to achieve long term economic success. Th ese sources should be clearly defi ned as well as roles and responsibilites should be assigned to them.
Research and development is an important element of innovation management. Innovation ideas are anchored by R&D department within a company. Permanent confrontations with potential improvements in products, processes and services as well as thinking about new solutions also increase the chance to respond to environmental infl uences. At the same time a chance for eff ective absorption of external technological know-how, including the cooperation ability in the fi eld of innovations (Tidd and col., 2001;Spielkamp, Rammer, 2006). However there are arguments against solid structure of R&D departments: in order to operate research and development makes sense to ensure minimum level of staffi ng and infrastructure, which will independently assess expertise as well as contributes research and development to become habit for certain groups of people. In addition, the expert makes it easy to create personal status, which together with the organization is striving to perform and in competition may cause separation of interests from the interest of the company. Th e departmental structure reduces the internal and external coordination costs in diff erent functional areas. To ensure the effi cient operation of research and development, may happen that an activity must be accompanied with further steps in innovation process. Due to this fact, transfer of information and knowledge is essential. Th ose, involved combine expertise outside the fi eld of R&D. Finally, there is a risk that innovation will not be perceived as a global issue because of clearly defi ned objectives. (Véghová, Machová, Mura, 2012). R&D departments enable further employees of the company to cover the lack of personal involvement. Companies create so called supplementary organizational structures to deal with the possible occurrence of disadvantages in fi eld of research and development. Th ese organizational forms temporarily or permanently create conditions for fl exibility in capacity for innovation. As a further characteristic of SMEs we can mention, that players of diff erent divisions and working environment cooperate productively in innovation process. Th e following supplementary structures should be mentioned: -Workshops have simple form of supplementary structure with temporary grouping of employees -Th e projects contain complex tasks, which can be eliminated during daily activities (Bullinger and Warnecke, 1996;Spielkamp, Rammer, 2006). -Considering SMEs, innovation seeks continuous external and internal innovation proposals based on the relation of labor and company management (Nebe, 2000;Spielkamp, Rammer, 2006). -Tasks will be taken from product agency, otherwise are handled by the project manager on the market or in the production area (Kieser and Walgenbach, 2003;Spielkamp, Rammer, 2006). -Innovation circles are quality circles with existing structure within the company.
-Venture teams or corporate spin-off opportunities rarely come into consideration with SMEs, because these models implement innovative ideas of employees and largely seperated from the parent company (Kieser and Walgenbach, 2003;Spielkamp, Rammer, 2006) What type of organizational form SMEs choose cannot be determined without a detailed knowledge of the specifi c situation of the company. It is necessary to mention, that formal structures -temporary or permanent-are not enough for the effi cient use of resources and skills. Crucial are further elements of innovation e.g.: management, motivation system and the organizational or innovation culture. Strategic decision in the company about the technology purchased, development of structures and allocating resources, especially employees' fi nances is always a question of company's expertise, especially the competency of research and technological know-how (Spielkamp, Rammer, 2006), (Zastempowski, Przybylska, 2015).

RESEARCH METHODOLOGY AND RESEARCH METHODS
We used a questionnaire survey to research the innovation potential of entrepreneurial network. Th e database is including answers of SMEs from diff erent districts of Slovakia. Respondents had a possibility to fi ll the questionnaire electronically or in printed form. Th e data obtained are processed and presented in graphic form and statistical analysis.
When preparing the research sample the following steps were applied: the database of enterprises was obtained from website www.zoznam.sk , the data obtained was used confi dently, solely for research purpose. In this research 5208 SMEs were addressed in the time period 2013-2015 in the Slovak Republic , 454 questionnaires were returned and the collected data was analyzed. Th is represents 8,7% return.
Questions related to innovation potential of entrepreneurial network led us to formulate questions as the following: -Characteristics of small and medium enterprises -Characteristics of membership in the entrepreneurial network and its infl uence on the researched enterprise -Characteristics of innovation activity of the company Based on the study of relevant scientifi c background we will examine whether it is possible to recognize a relationship between various factors aff ecting innovation.

RESEARCH RESULTS, VALIDATION OF RESEARCH QUESTIONS
Innovation in companies is essential to maintain competitiveness. In terms of innovation the biggest competitors of companies involved in research are those with similar character in the region they operate (41%), however foreign companies operating in Slovakia also represent a large share in innovation (25%).

Graph 1. Competitors of researched enterprises in terms of innovation
Source: based on own research.
To maintain competitiveness constant improvement and adaption to market conditions is important. SMEs of this research sample expressed their opinion about possible factors boosting their competitiveness. Respondents could mark maximum three factors on the list. Th e possibility to mark more answers the sum of each option was above 100%. More than 81% of the respondents declared that price changes would help the most. Change in price means decreasing price of materials and components, but also possible price increase of products/services, off ered to end-users, i.e. entrepreneurs are making eff ort to increase their sales while reducing costs in order to meet the requirements of the market and customers. According to respondents'answers professionality and company ethics are the least to contribute to competitiveness. It seems to be a very surprising and worrying fact.

Graph 2. Factors infl uencing innovation
Source: based on own research.
Factor that contributes most to the development of innovation potential of enterprise was the quality of the products. Respondents could mark maximum three factors. Th e survey shows, that quality products (54,63%) target a wider range of potential customers and build resp. maintain competitiveness. Price as a factor contributing to development of innovation potential accounts for 54,19%. It means that every second enterprise involved in research fi nds the properly set price a key factor of innovation. Surprising is the fact that only 2,20% of respondents fi nd innovative marketing strategy important to develop the innovation potential of enterprise. In today's rapidly changing business environment it is necessary to respond quickly and eff ectively for the changing conditions of the market economy. Th is fact points to the ever growing potential of innovative marketing in case the innovations on the market are worn-out.
Innovative marketing is mainly based on the expansion of customers' needs on the market, revealing various options and situations the product can be used (Čimo, 2010).
Entrepreneurs are adviced to consider the options of marketing, as innovative approaches in marketing can greatly contribute to increased competitiveness of enterprises.

Graph 3. Factors contributing to development of innovation potential
Source: based on own research.
Respondents said that innovations were mainly infl uenced by competitors in the given area of business (51,54%). Innovations have been realized due to the lifestyle the customers represent (48,46%). Th e third infl uential factor based on the questionnaire survey is the change of economic condition in the region (43,17%). Besides these main initiators generating innovation activity we can also identify the legislation (26,87%), internal requirements of the enterprise (23,35%), administrative duties (16,30%) and others (see Graph 4).

Graph 4. Changes leading to innovation
Source: based on own research.
In the following phase of research we analyzed the opinion of respondents concerning those factors which help or hinder entrepreneurial innovation activity. Basic characteristics of these factors are summarized below in Table 2. Likert scale was used to investigate the factors infl uencing the innovation process. Based on the answer of respondents we can conclude, that relationship with the customer and cooperation with suppliers are the factors most supporting innovation. Stakeholders have relevant impact on realizing innovation activity in the company. Respondents considered fairly important the role of management in innovation process. Moderate importance respondents have towards the requirements of clients, motivation system, functioning team work, research and development, cooperation between production and marketing and the company structure. Factors obstructing innovative activity are the low innovation potential, taxation, legislation and regulations. Th e standard degression of factors supporting or hindering innovation activity of the company stands close to value one i. e. companies involved in research have rather unanimous opionion regarding the factors infl uencing innovation. Th e univariate analysis enables to recognize the relation between the individual factors infl uencing innovation. To identify relation we used a correlation analysis which identifi es the relation between two variables. Intensity of relations can be identifi ed with the help of Pearson correlation coeffi cient as well as we can identify the linear correlation between the variables. Potential extremes were identifi ed with the help of Boxplot, which was followed by a correlation analysis. At least 1% of signifi cance degree correlation is identifi ed.
After excluding extremes with the help of Boxplot, we analyzed 362 respondents and we had to exclude 92 answers of companies involved in research. Th e results of correlation can be found in the following table (Table3). Th e values of Pearson correlation coeffi cient at 1% signifi cance except in one case show values from 0,2 to 0,5 indicating moderate positive correlation between the variables. Moderate negative correlation can be recognized between low level of own innovation potential and customers. Based on the analysis we can conclude that correlation can be recognized between the low level of own innovation potential and taxation, legislation, regulations (r=0,245). Signifi cant relation is proved between the suppliers and the company structure, functioning teams, research and development, motivation system and relation with customers. Companies should built a positive relationship with the suppliers, because it can infl uence further functional areas of business. Support from the company's management has also a relevant infl uence on the development of innovative activity in the company. Motivation system of the company, functioning working teams, resp. research and development can also aff ect the relationship with customers, i.e. also show a signifi cant relationship.

CONCLUSION
Increasing and maintaining competitiveness of the business has key importance to operate in market economy. Competitive advantage may arise from the size of the company, ability to mobilize intellectual capital, technological skills and experience to create something completely new to off er in form of product or service. Innovation contributes in several ways to strong relation between the market performance and the new product. Formation and strengthening of business decision is a part of the company's innovation activity, without it the company would experience diffi culties in long term. In the current period there is