J PROD INNOV MANAG 2017;00(00):00–00 VC 2017 The Authors Journal of Product Innovation Management published by Wiley Periodicals, Inc. on behalf of Product Development & Management Association DOI: 10.1111/jpim.12373 Perspective Innovation with Limited Resources: Management Lessons from the German Mittelstand Alfredo De Massis , David Audretsch, Lorraine Uhlaner, and Nadine Kammerlander German Mittelstand firms are globally recognized for their innovation, especially regarding product, process, and service innovation. So what can scholars and managers across the globe learn from the success story of German Mittelstand innovation? Drawing on information collected on innovative Mittelstand firms and extant knowledge on innovation, the resource-based view, and family firm research, the authors investigate how these highly innova- tive firms flourish and achieve high innovation performance despite the severe financial and human capital resource constraints they face as compared with larger corporations. The authors then present a model identifying and integrating six salient traits of such firms that allow them to efficiently orchestrate their resources to innovate and outcompete their competitors in the global market, enabling those firms to overcome their resource-related weaknesses and turn them into strengths. Specifically, these traits are: niche focus and customer collaboration, globalization strategy, preference for self-financing, long-run mindset, superior employee relations, and communi- ty embeddedness. The power of this Mittelstand approach takes full effect only when all six traits operate in an integrated fashion, and the proposed resource-based model serves as a starting point for a more holistic and com- prehensive understanding of firm ability to innovate and successfully compete within a specific context. The article outlines the implications of the model of German Mittelstand innovation for research conducted in different fields including innovation, entrepreneurship, strategy, dynamic capabilities, ecosystems, and family business. Finally, the article proposes a future research agenda aimed at improving current understanding of the German Mittel- stand “innovation strategy” and its transferability to other contexts, and outlines practical implications for own- ers and managers worldwide wanting to emulate the German Mittelstand innovation model. Practitioner Points innovation potential of small- and medium-sized firms within their own countries. The article: Provides a holistic and comprehensive understanding Identifies six key traits of Mittelstand firms that fos- of the ability to innovate and successfully compete ter innovation despite potential resource con- within a resource-constrained context. straints—traits that potentially may be emulated in contexts outside Germany. esources—defined as firm-specific physical, human, and organizational assets (Wernerfelt, Offers insights on potential challenges in innovating 1984)—are at the core of firm strategies and competing with limited resources. R (Barney, 1991; Sirmon, Hitt, and Ireland, 2007). They Provides policy makers both within and outside the can be tangible as well as intangible (Teece, Pisano, European Union with strategies to enhance the and Shuen, 1997) and enable companies to build valuable capabilities that lead to new or improved pro- cesses, products, or services, and ultimately provide Address correspondence to: Alfredo De Massis, School of Economics competitive advantages over other organizations and Management, Free University of Bozen-Bolzano (Italy), Piazza Uni- (Teece and Pisano, 1994). Given the scarcity of valu- versita 1, 39100 Bozen/Bolzano, Italy. E-mail: [email protected]. Tel: 139-0471-0-13303. able resources, firms must find ways of acquiring and This is an open access article under the terms of the Creative Commons efficiently deploying such resources. While recent Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, studies point to the importance of effective and effi- the use is non-commercial and no modifications or adaptations are made. cient resource deployment to achieve innovation 2 J PROD INNOV MANAG DE MASSIS ET AL. 2017;00(00):00–00 (Duran, Kammerlander, van Essen, and Zellweger, BIOGRAPHICAL SKETCHES 2016; Sirmon, Hitt, Ireland, and Gilbert, 2011; Uhla- Dr. Alfredo De Massis is full professor of Entrepreneurship and Fami- ner,van Stel, Duplat, and Zhou, 2013; Van Burg, ly Business at the Free University of Bozen-Bolzano (Italy), where he leads the platform on Family Business Management, and co-director Podoynitsyna, Beck, and Lommelen, 2012), research- of family business research at Lancaster University Management ers still know little about how firms efficiently manage School (UK). In September 2015, Family Capital ranked him among their resources to innovate and, in turn, successfully the world’s top 25 star professors for family business. He serves as compete in today’s global markets. associate editor for Family Business Review and on the editorial boards of Entrepreneurship Theory and Practice, Strategic Entrepreneurship To shed further light on this issue, the authors inves- Journal, and Journal of Family Business Strategy. He also serves on tigate a specific context in which certain firms, not only the Academic Advisory Board of the Institute for Family Business survive but out-“innovate” and outcompete in the global (IFB) Research Foundation based in London and is the former Chair- market—the “German Mittelstand.” The German Mit- man of the European Leadership Council and Global Board Member of the Global STEP Project for Family Enterprising at Babson College, telstand comprises a subset of owner-managed small- USA. Alfredo’s research focuses on family business and innovation. and medium-sized enterprises (SMEs) in Germany that, His work has been published widely in leading academic and profes- like SMEs in all countries, are confronted with con- sional journals and he has been guest editor of 10 special issues in journals like Strategic Management Journal, Entrepreneurship Theory straints in terms of accessing resources. However, the and Practice, Journal of Product Innovation Management, Global Mittelstand has been able to compensate for or over- Strategy Journal, California Management Review, International Jour- come such resource constraints, which has, in turn, nal of Management Reviews, and Small Business Economics. His facilitated innovation and strong economic performance. research has been featured in various media outlets including the Financial Times and Harvard Business Review. Researchers estimate that there are roughly 1000 to 1500 Mittelstand firms in Germany (Venohr, 2015; Dr. David Audretsch is distinguished professor and Ameritech Chair of Economic at Indiana University, where he also serves as director of Weissman, 2011). While constituting only 2% of all the Institute for Development Strategies. He is an honorary professor German firms with more than 50 employees in Germa- at the WHU—Otto Beisheim School of Management. He served as ny (Statistisches Bundesamt, 2016), the Mittelstand director of the Max Planck Institute of Economics in Jena between firms provide a disproportionately high contribution to 2002 and 2009, and was at the Berlin Center for Social Science Research (WZB) between 1985 and 1997, where he served as research employment (15% of all German employees; Weiss- professor and acting director. His research focuses on the links man, 2011), revenues (more than 30% of all revenues between entrepreneurship, public policy, innovation, economic devel- by German firms; Weissman, 2011), and exports (40% opment, and global competitiveness. of all exports by German firms; Venohr, 2015). Dr. Lorraine M. Uhlaner is professor of management, specialized in While a growing literature has focused on innovation entrepreneurship and family business, at EDHEC Business School on in the individual owner-managed and/or family-owned the Lille campus in Roubaix, France. Her current research interests include responsible ownership and corporate governance in family and -managed firm (De Massis, Frattini, and Lich- businesses and other privately held firms. Within the realm of SMEs tenthaler, 2013; Nijssen, Hillebrand, de Jong, and her research is wide-reaching, covering also such topics and corporate Kemp, 2012; Sciascia, Nordqvist, Mazzola, and De social responsibility, innovation and knowledge management, and business succession. A second research stream focuses on prediction Massis, 2015), scholars still lack an integrative, theory- of individual (social) entrepreneurial behavior, especially multilevel based perspective that helps explain their ability to research which examines informal (cultural) and formal institutional innovate in the face of constrained resources and guides influences. Born in the United States, she has lived in Europe, includ- future research in this area. To bridge this gap, the ing the Netherlands and France, for the past 15 years. She received her Ph.D. in organization psychology from the University of Michigan, authors apply the resource-based view (Barney, 1991) Ann Arbor, MI, in 1980. Her publications include articles in Journal together with knowledge of certain idiosyncrasies of of International Business Studies, Journal of Business Ethics, Family highly innovative family firms and SMEs (Gomez- Business Review, Corporate Governance: An International Review, Small Business Economics Journal, Journal