Overcoming Deficiencies for Innovation in SMEs: IT for Closed Innovation versus IT for Open Innovation

Open and closed approaches to innovation each pose different challenges, resulting in a dilemma for firms – which should be the preferred approach to IT-enabled innovation? Challenges related to innovation are particularly salient for small and medium enterprises (SMEs), which are technologically deficient and reliant on government support. We examine how IT for Closed Innovation and IT for Open Innovation compare in helping SMEs overcome technological deficiencies and government support deficiencies to achieve innovation. Drawing on absorptive capacity theory, we hypothesize that IT for Closed Innovation has stronger attenuating effect than IT for Open Innovation on the negative influence of technological deficiency on innovation. In contrast, we hypothesize that IT for Open Innovation has stronger attenuating effect than IT for Closed Innovation on the negative influence of government support deficiency on innovation. Empirical analysis of 389 SMEs in Mexico supports our hypotheses. Implications for theory and practice are discussed.