Small and medium-sized enterprises (SMEs) play a significant role in job creation and bridging the widening gap between the rich and the poor in South Africa. Several factors determine the success of SMEs. One largely-overlooked factor is innovation capacity, which is made up of different capabilities.
The aim of this study is to investigate the degree of innovation capacity in South African consulting engineering firms and to identify the differences in the innovation capabilities across firm size.
The target population for the study was consulting engineering firms operating in South Africa.
The study followed a quantitative methodology. The survey was distributed using an email invitation to participate in the study, which contained a link to access the questionnaire online.
The results show that South African engineering consulting firms reported an ‘average’ to ‘high’ innovation capacity, where medium and large-sized firms performed similarly, and small firms lagged. The study found that there exists a significant hierarchy in performance for entrepreneurial capabilities, risk management capabilities and capabilities for market and customer knowledge: larger firms reported a higher scoring than smaller firms. It also found that small firms sharply lagged behind medium and large-sized firms regarding risk management capabilities and capabilities for market and customer knowledge.
The results intend to assist policymakers in prioritising lagging capabilities as the point of departure for capability-building efforts. In addition, the results should assist entrepreneurs in being mindful of the potential blind spots that could be hindering growth.
Since 2008, the construction industry has contributed approximately 9% to gross domestic product and 9% to formal and informal employment in South Africa (Construction Industry Development Board
Small and medium-sized enterprises that grow have been considered as key contributors to job creation, poverty alleviation, equity and participation, wealth creation and social stability (Nieman & Pretorius
There exists a disconcertingly widening gap between South Africa’s total early-stage entrepreneurial activity (TEA) and that of other sub-Saharan African countries (GEM
Statistics show that, on average, 71% of all South African SMMEs will be out of business by the fifth year of operation (Willemse
Entrepreneurial SMEs have been identified as those ventures that contribute to employment and sustainable economic growth (Nieman & Pretorius
According to the Global Innovation Index (GII), South Africa’s ranking went down from 54th in 2016 to 57th in 2017 and 58th in 2018 (Dutta, Lanvin & Wunsch-Vincent
It has been found that smaller firms do not necessarily have an innovation advantage but that the type of innovation depends on the dynamics of the industry and the economy in which it operates (Forsman
A small consulting engineering firm has an annual turnover equal to or less than R11.5 million.
A medium consulting engineering firm’s annual turnover exceeds R11.5m but not R35m.
A large consulting engineering firm’s annual turnover exceeds R35m.
This study is conducted to enhance the body of knowledge available to academics on the topic of innovation development within the construction industry. The findings are to assist practitioners in identifying discrepancies in innovation capabilities in order to bridge these discrepancies and build their firms’ innovation capacity. The results would also be useful to the Sector Education and Training Authority’s (SETA). Sector Education and Training Authority’s ‘primary function is to facilitate skills development by establishing learning programmes such as learnerships, skills programmes, internships and other strategic learning initiatives’ (Services SETA
In addition, the results of the study will assist policymakers in identifying which innovation capabilities are lagging amongst consulting engineering firms within the construction industry and, therefore, require a more enabling environment. The purpose of the study is to investigate the innovation capacity of small and medium-sized South African consulting engineering firms and to identify the differences in the innovation capabilities of these SMEs. The proposed study aims to answer the following research questions:
What is the degree of innovation capacity of small, medium and large-sized South African consulting engineering firms?
Are there significant differences in the innovation capabilities of small, medium and large-sized South African consulting engineering firms?
Innovation capacity is a broad concept that highlights both the internal and external aspects of an enterprise (Smith et al.
Smith et al. (
Smith et al. (
To conclude, innovation capacity makes use of different capabilities of an enterprise to progress its resources and take advantage of the opportunities that better satisfy customer needs (Forsman
The term capability brings to the surface many conceptual definitions. However, there is consensus on capability being a capacity for the deployment of resources (Forsman
Resources are conceptualised as being a supply of features owned by the enterprise and are, therefore, controlled by that enterprise (Forsman
Small, medium and micro-sized enterprises are most likely to have limited tangible resources compared to their larger counterparts (Ates & Bititci
Forsman’s (
Knowledge exploitation refers to the ability to be aware of external knowledge relevant to current practice, to internalise and assimilate this new knowledge and to exploit it for innovation purposes as needed (Alegre et al.
Entrepreneurial capabilities describe the ability to be aware of new opportunities to seize the new opportunity for developing new solutions and to exploit opportunities for creating new profit (Forsman & Rantanen
Risk management capabilities describe the ability to assess risk, being willing to take risk and the actual ability to take risk (Forsman & Rantanen
Networking capabilities refer to whether or not the enterprise adopts a networking orientation, and whether the enterprise is able to create collaborative relationships and exploit the networks in the existing enterprise (Forsman
A system of networks that impact on relationship outcomes
People have opportunities to send and receive information and have knowledge of the correct communication channels
The timing is appropriate
Referral is allowed and encouraged
It has appropriate social organisation.
Social capital is beneficial when the society is diverse because enterprises learn from each other and collaborate and assist each other in the achievement of goals (Martínez-Fernández & Molina-Morales
The benefits of networking are categorised into two classes, namely, tangible and intangible benefits (Forsman
Development capabilities refer to the ability to create new innovations that are different from what the competition is offering customers, being able to improve on existing products and services offered by the enterprise and being able to exploit the innovations that have been developed by others (Forsman & Rantanen
Change management capabilities, which also include market and customer knowledge capabilities, are the abilities to implement change quickly. Market and customer knowledge is the capability to acquire new customers, expand into new markets and increase sales to current customers (Forsman & Rantanen
The purpose of the study is to explore the innovation capacity of small, medium and large-sized South African consulting engineering firms. Basic (pure) research is undertaken with the primary objective of producing new knowledge and understanding specific phenomenon. This study is basic in nature as it is undertaken to produce new knowledge and understanding of the degree of innovation capacity present in South African consulting engineering firms. This is achieved by observing and measuring the innovation capabilities of South African consulting engineering firms as is, without manipulating these variables. These capabilities are, namely, knowledge exploitation, entrepreneurial capabilities, risk management capabilities, networking capabilities, development capabilities, change management capabilities, and market and customer capabilities. Through the observation and measurement of the capabilities, the degree of innovation capacity has been gauged. This research is non-experimental (ex post facto) because of its quantitative descriptive status, which compels the researcher to simply observe and measure without intervening and manipulating variables to test the cause–effect relationships. This cross-sectional study created a snapshot of the reality of innovation capacity at the point in time when the survey was conducted. Therefore, the study does not intend to examine changes in the degree of innovation capacity over time as a longitudinal study would.
The study was conducted in field conditions; no artificial environments were created for the study. Participants’ completed questionnaires that generated raw, unanalysed quantitative data. The researcher collected this primary data and analysed it to deduce the degree of innovation capacity of small, medium and large-sized South African consulting engineering firms.
The rationale for using a quantitative research approach is based, predominantly, on other leading researchers having used a similar approach. Forsman and Rantenan (
The target population for the study was consulting engineering firms operating in South Africa. Consulting Engineers South Africa defines SMEs based on only the total annual turnover. Consulting Engineers South Africa’s definition of SMEs has been adopted for the purpose of this study (CESA
A small consulting engineering firm has an annual turnover equal to or less than R11.5m.
A medium consulting engineering firm’s annual turnover exceeds R11.5m but not R35m.
A large consulting engineering firm’s annual turnover exceeds R35m.
The study made use of a probability sampling method because every participant had a known and equal chance of being included in the sample. In order to provide adequate data for uncovering and analysing differences in the innovation capabilities of the sub-populations or strata – namely small, medium and large-sized consulting engineering firms – a comparison of these two categories of firms was required (Cooper & Schindler
Ethical approval to conduct the study was obtained from the University of Pretoria (ethical clearance number: EMS041/71).
Composite scores were calculated for overall innovation capacity by calculating the average scores of innovation capabilities, which are sub-dimensions of innovation capacity (
Innovation capacity and sub-dimension composite scores.
Capability | Size of firm | Mean | SD | |
---|---|---|---|---|
Innovation capacity | Total | 94 | 3.655 | 0.599 |
Small | 29 | 3.499 | 0.638 | |
Medium | 40 | 3.707 | 0.536 | |
Large | 25 | 3.752 | 0.614 | |
Capabilities for knowledge exploitation | Total | 94 | 3.713 | 0.621 |
Small | 29 | 3.575 | 0.745 | |
Medium | 40 | 3.767 | 0.519 | |
Large | 25 | 3.787 | 0.615 | |
Entrepreneurial capabilities | Total | 94 | 3.731 | 0.579 |
Small | 29 | 3.540 | 0.523 | |
Medium | 40 | 3.808 | 0.584 | |
Large | 25 | 3.827 | 0.602 | |
Risk management capabilities | Total | 94 | 3.578 | 0.579 |
Small | 29 | 3.368 | 0.686 | |
Medium | 40 | 3.617 | 0.515 | |
Large | 25 | 3.760 | 0.476 | |
Networking capabilities | Total | 94 | 3.759 | 0.658 |
Small | 29 | 3.667 | 0.787 | |
Medium | 40 | 3.758 | 0.528 | |
Large | 25 | 3.867 | 0.694 | |
Development capabilities | Total | 94 | 3.564 | 0.515 |
Small | 29 | 3.471 | 0.508 | |
Medium | 40 | 3.617 | 0.410 | |
Large | 25 | 3.587 | 0.662 | |
Change management capabilities | Total | 94 | 3.681 | 0.707 |
Small | 29 | 3.552 | 0.632 | |
Medium | 40 | 3.750 | 0.707 | |
Large | 25 | 3.720 | 0.792 | |
Market and customer knowledge capabilities | Total | 94 | 3.560 | 0.534 |
Small | 29 | 3.322 | 0.587 | |
Medium | 40 | 3.633 | 0.488 | |
Large | 25 | 3.720 | 0.458 |
SD, standard deviation.
A total of 94 responses were collected, of which 42.6% consisted of medium-sized firms which reported an annual turnover of ‘Less than R35 million, but greater than R11.5 million’. The second-largest pool of respondents is small firms which reported an annual turnover of ‘Equal to or less than R11.5 million’, representing 30.9% of respondents. Large firms represented 26.6% of respondents and reported an annual turnover of ‘Greater than R35 million’.
Furthermore, 86.2% of small firms has fewer than 20 employees, almost 50% of medium-sized firms has 5–19 employees and 60% of large firms have more than 50 employees. The majority of all small, medium and large enterprises have been in operation for more than 10 years, almost 40%, 45% and 80%, respectively. The respondents indicated that most of their operations are in civil engineering for small, medium and large-sized firms, as the respondents reported 51%, 37% and 27%, respectively. The results show that small, medium and large-sized firms operate mostly in the Gauteng province, as the respondents reported 40%, 43% and 40%, respectively. Responses show larger firms across the country, even operating outside South Africa, whereas smaller firms were not represented in each province.
The respondents comprised 92.5% men and 7.5% women. The share of respondents aged ‘up to 45 years old’ (36.6%) is the same share of respondents who were between the ages of ‘46 and 55’. The rest of the respondents reported being ‘+56 years old’, which represented 26.9% of the responses. The education levels of respondents indicate that ‘post-graduate degrees’ (39.8%) have the highest incidence. ‘Bachelor’s degrees’ have the second highest incidence with 38.7% and ‘Up to diploma’ has the lowest incidence amongst respondents (21.5%).
The results of the chi-square test for independence (
Chi-square test for association between external input and size of firm.
Investment in R&D | Small firm | Medium firm | Large firm | Total respondents |
---|---|---|---|---|
No R&D | 9 | 8 | 4 | 21 |
Less than R20 000 | 8 | 6 | 1 | 15 |
R20 001 – R50 000 | 7 | 17 | 6 | 30 |
R50 001 – R100 000 | 2 | 6 | 4 | 12 |
R100 001 or more | 3 | 3 | 10 | 16 |
R&D, research and development.
A medium-strength positive correlation was found between market and customer knowledge capability and external input (
Spearman’s correlation coefficient innovation capabilities and external input.
Innovation capability | Variable | External input |
---|---|---|
Investment in R&D | Correlation coefficient | 0.134 |
Sig. (two tailed) | 0.198 | |
94 | ||
Capabilities for knowledge exploitation | Correlation coefficient | 0.298 |
Sig. (two tailed) | 0.004 | |
94 | ||
Entrepreneurial capabilities | Correlation coefficient | 0.215 |
Sig. (two tailed) | 0.038 | |
94 | ||
Risk management capabilities | Correlation coefficient | 0.338 |
Sig. (two tailed) | 0.001 | |
94 | ||
Networking capabilities | Correlation coefficient | 0.283 |
Sig. (two tailed) | 0.006 | |
94 | ||
Development capabilities | Correlation coefficient | 0.235 |
Sig. (two tailed) | 0.022 | |
94 | ||
Change management capabilities | Correlation coefficient | 0.386 |
Sig. (two tailed) | 0 | |
94 | ||
Market and customer knowledge capabilities | Correlation coefficient | 0.406 |
Sig. (two tailed) | 0 | |
94 | ||
External input through networking | Correlation coefficient | 1 |
Sig. (two tailed) | 0 | |
94 |
R&D, research and development; Sig, significant.
, Correlation is significant at the 0.05 level (two tailed);
, correlation is significant at the 0.01 level (two tailed).
Investment in R&D, entrepreneurial capabilities, risk management capabilities and market and customer knowledge capabilities were significantly affected by the firm size (
Kruskal–Wallis test and Jonckheere–Terpstra test for ordered alternatives.
Investment in R&D | Significance | |
---|---|---|
Kruskal–Wallis test | Jonckheere–Terpstra test for ordered alternatives | |
Investment in R&D | 0.004 | 0.001 |
Knowledge exploitation | 0.177 | 0.103 |
Entrepreneurial capabilities | 0.046 | 0.019 |
Risk management capabilities | 0.044 | 0.012 |
Networking capabilities | 0.609 | 0.316 |
Development capabilities | 0.383 | 0.279 |
Change management capabilities | 0.384 | 0.206 |
Market and customer knowledge capabilities | 0.35 | 0.103 |
External input through networking | 0.103 | 0.060 |
Note: Asymptotic significance is displayed. The significance level is 0.05.
R&D, research and development.
The study results suggest that respondents’ engineering consulting firms have an ‘average’ to ‘high’ innovation capacity; medium- (
As mentioned, innovation capacity is the capability of an enterprise to progress its resources and capabilities to discover and take advantage of opportunities to better satisfy customer needs; thus, innovation capacity is driven by resources and different capabilities (Forsman
The study suggests that there is room for improvement with regard to engineering consulting firms’ innovation capacity, particularly with small and medium-sized firms. Capability building efforts of entrepreneurs, policymakers and associations or industry groups should prioritise capabilities that are lagging, namely, entrepreneurial capabilities, risk management capabilities and capabilities for market and customer knowledge. Special focus should be given to small firms with regard to risk management capabilities and the capabilities for market and customer knowledge. Smith et al. (
Given that investments in R&D improve innovation capacity, it is suggested that policymakers invest in more financial assistance for small and medium firms which also support innovation (Forsman & Rantanen
This study investigated the innovation capacity of consulting engineering firms operating in South Africa and identified the differences in innovation capabilities across these firms (i.e. small, medium and large-sized). Innovation capacity is an overall construct that generates capabilities for knowledge exploitation, entrepreneurial capabilities, risk management capabilities, networking capabilities, development capabilities, change management capabilities and market and customer knowledge capabilities (Forsman
There remains minimal available literature exploring and measuring the innovation capacity and innovation capabilities of South African SMMEs, let alone consulting engineering firms operating in South Africa (Forsman
This study adopted the precedent of Forsman (
The differences that were found, by this study, in innovation capabilities across firm size prompt the need for future research to explore why small consulting engineering firms are lagging in their innovation capabilities, and particularly in their risk management capabilities and their capabilities for market and customer knowledge.
Given that innovation capabilities provide a view on the transformative capabilities of the firms, future research should expand this view to include internal and external inputs to innovation capacity, even in the literature. Perhaps the differences in innovation capabilities across firm size can be explained by the internal and external inputs to innovation capacity, which the GII has alluded to as being critical to the innovation process.
The authors declare that they have no financial or personal relationships that may have inappropriately influenced them in writing this research article.
M.M.M. contributed to the introduction, literature review, research methodology, results and findings, and conclusion; O.S. contributed to the introduction and literature review.
This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.
The data that support the findings of this study are available from the corresponding author, O.S., upon reasonable request.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any affiliated agency of the authors.