Toward a Definition of the Innovative SME: Determinants and Conceptual Framework

Abstract

This paper examines the conceptual foundations of innovation and its specific manifestations within small and medium enterprises. In an economic environment characterized by rapid technological change and shifting market expectations, innovation has become a strategic necessity for firms seeking competitiveness, adaptability, and long term growth. While extensively studied in the fields of economics and management, innovation remains a multidimensional and evolving concept whose definitions vary across theoretical and institutional frameworks. Based on an in depth review of the literature, this paper highlights the main approaches to innovation, from the seminal contributions of Schumpeter and evolutionary theories to the operational definitions proposed in the Oslo Manual. Particular attention is given to the specific context of small and medium enterprises, which differ structurally from large firms due to limited resources, centralized decision making, and strong proximity to markets. These characteristics shape both the internal and external determinants that influence their capacity to innovate. Despite the strategic importance of innovation in small and medium enterprises, the notion of an innovative small or medium firm remains insufficiently defined in prior research. This paper addresses this gap by proposing an operational definition derived from the articulation of structural characteristics, internal determinants, external determinants, and the effective implementation of innovative practices. Finally, a conceptual model is presented to synthesize these dimensions and offer a coherent analytical framework for understanding and evaluating the innovative capacity of small and medium enterprises.