Building capabilities to enhance innovation and competitiveness: a study of Australian advanced manufacturing SMEs

Australia's prosperity is greatly dependent on its business sector's global competitiveness. At the firm level, commercial application and diffusion of ideas drive competitiveness. R&D contributes to innovation, but existing research overlooks non-R&D based innovations in technology manufacturing and service creation. Advanced manufacturing was declared a strategic strength and competitive priority in 2014. In 2020, advanced manufacturing formed a key part of Australia's COVID-19 response, including high-priority areas of: (i) medical (ii) resources technology and mining (iii) food and beverage (iv) recycling and clean energy and (vi) defence products. Manufacturing small-medium-sized-enterprises (SMEs), however, are struggling to absorb, develop and implement innovation to achieve advanced status. Australian manufacturers and knowledge-intensive businesses (KIBS) are well-positioned to succeed with innovation if they adopt / adapt new technologies. The Australian Government are, however, yet to identify a firm-level innovation implementation framework. Moreover, there is a lack of research to show how advanced manufacturing SMEs (AMSMEs) can effectively implement innovation to improve business performance. The aim of this research is to develop a theoretically grounded and empirically tested framework to implement innovation more effectively within Australian advanced manufacturing (AMSME) sectors to improve competitiveness. This study employed abductive reasoning to explore innovation implementation processes. Due to the emergent nature of this topic, the researcher opted for case research as theory elaboration. The dynamic capabilities view (DCV) was employed to examine the combination and configurations of internal and external resources required to build new capabilities and effectively implement innovation. Fifteen in-depth interviews were conducted among advanced manufacturing SME recipients of Australian Commonwealth grants to engage with the Commonwealth Scientific and Industrial Research Organisation (CSIRO) for product-process innovation development and implementation. The sample consisted of SMEs from three sub-sectors: (i) advanced materials, (ii) food and agribusiness and (iii) medical technology and pharmaceuticals. Case study interview transcripts were verified by CSIRO facilitators, in consultation with participants. Thematic analysis was used to organise and analyse the interview data, resulting in detailed case descriptions. Themes within the dataset were identified and further analysis unearthed relevant sub-themes and items.  Data triangulation was utilised and trustworthiness was ensured across all research stages. Research output identifies significant internal (technology & market-related capabilities and production-process innovation) and external factors of innovation (resource transfers provided by external public sector partners) for AMSMEs, of which no principal framework in Australia currently exists. Technological capability is required to develop and implement innovations. Marketing capability commercialises innovations into products that better serve existing markets or create new markets. Bundling technological and marketing capabilities has important implications for innovation and competitiveness outcomes. The analysis also uncovered the benefits of new technology-related capabilities, including tacit and codified knowledge possessed by researchers and practitioners. For AMSMEs, this study identifies - how to connect different forms of innovation (exploitive, exploratory, technology-driven, market-driven) to new or current technologies and markets. Further, AMSMEs are benefitting from the adoption and exploitation of existing technology, even in the showcase examples of grant recipient SMEs. The study findings indicate resource transfers, through new business capabilities, stimulate production-process and product innovation, thereby increasing production, market and financial outcomes. This study makes three broad contributions. First, it contributes by placing business capabilities at the centre stage of the innovation implementation and competitive outcome relationship. This thesis demonstrates how DCV is an important theoretical lens through which innovation implementation processes can be studied and understood. The theory of disruptive innovation is widely misunderstood and by elaborating on the DCV this study provides clarity around crucial market and technology factors, such as accessing new markets and mastering new technologies. Second, this study contributes to ambidextrous research by gaining insights into how firms within organisational and environmental AMSMEs contexts can simultaneously explore for new capabilities whilst exploiting current capabilities. This thesis departs from prior literature which posits that exploration and exploitation are at odds. AMSMEs exhibit technological ambidexterity through simultaneous exploration of new technology-related capabilities and exploitation of current technology-related capabilities. AMSMEs also display market ambidexterity involving simultaneous exploration of new markets, requiring new market-related capabilities and exploitation of current customer markets, requiring current market-related capabilities. The recognition that exploration and exploitation may take different forms, and that different levels of exploration and exploitation may coexist, reflects the complexity of advanced manufacturing. Finally, this study advances theory and research on KIBS, improving our understanding of how they affect innovation processes at AMSMEs. This is achieved by linking KIBS knowledge flows to AMSMEs in innovation research. In addition to collaborative R&D between industry and higher education, non-R&D innovation drives firm-level innovation. Practical outcome benefits exist for policy and decision makers in (1) AMSMEs, (2) government funding bodies (the Minister for Industry, Science and Technology and Industry Innovation and Science Australia), and (3) grant facilitators (CSIRO -Entrepreneurs' Programme) and (4) advisory firms. Practically, the study improves management practices of both KIBS and AMSMEs by offering more complete knowledge of ways to increase competitiveness through innovation. External resource transfers help AMSMEs innovate. But to shift Australian manufacturing to high-tech products and sustainable, advanced processes, we must support non-R&D innovation. Managers can then more effectively allocate resources. This allows for a strategic shift of market focus and the adoption of technology to capture new value in pre- and post-production activities. AMSMEs can therefore, effectively implement innovation using the innovation framework.   Findings reveal a framework to implement innovation within the AMSME sector to improve competitiveness that proved trustworthy across three advanced manufacturing sub-sectors. The findings can be generalised, not only to other high-priority areas, but also to other knowledge-based economies. This thesis supports the current discussion about diversifying our approach to innovation in Australia beyond collaborative R&D. This study has limitations as the research was conducted within one grant program within the Entrepreneurs' Programme. Further research should focus on a much larger sample size of AMSMEs who have accessed more external knowledge / partners and undertaken commercialisation. More attention should be placed on the impact of non-R&D vs. R&D innovation on product value and competitiveness. For these reasons, the generalisability of the findings in this thesis are limited.