Under Pressure: Innovation and Process Adaptation in Financially Constrained SMEs
(2026) ENTN19 20261Department of Business Administration
- Abstract
- Small and medium-sized enterprises (SMEs) rely on innovation to remain competitive, yet their innovation processes often unfold under limited financial resources. While previous research shows that financial constraints reduce innovation activity, less is known about how such constraints shape the internal progression of innovation processes. This study examines how financial constraints influence innovation processes within SMEs.
The study adopts a qualitative multiple case study design based on 13 semi-structured interviews with respondents from SMEs across different industries, including software, biotechnology, manufacturing, hardware, medtech, fintech, ecommerce, and sustainability-related sectors. The data was analysed through... (More) - Small and medium-sized enterprises (SMEs) rely on innovation to remain competitive, yet their innovation processes often unfold under limited financial resources. While previous research shows that financial constraints reduce innovation activity, less is known about how such constraints shape the internal progression of innovation processes. This study examines how financial constraints influence innovation processes within SMEs.
The study adopts a qualitative multiple case study design based on 13 semi-structured interviews with respondents from SMEs across different industries, including software, biotechnology, manufacturing, hardware, medtech, fintech, ecommerce, and sustainability-related sectors. The data was analysed through thematic analysis and interpreted in relation to threat-rigidity theory and the dynamic capabilities framework.
The findings show that financial constraints do not simply stop innovation. Instead, they reshape how ideas are interpreted, selected, and moved forward. Customer and market input remained important sources of ideas, but firms filtered ideas through repeated demand, willingness to pay, feasibility, available resources, and revenue potential. Financial pressure also narrowed innovation by increasing prioritization and directing attention toward projects with clearer commercial value, lower risk, and stronger strategic fit. Firms responded by reducing scope, delaying larger projects, internalizing work, and reorganizing activities around available resources. Leadership and shared direction helped firms communicate priorities and manage trade-offs under financial pressure.
The study contributes to a process-oriented understanding of SME innovation by showing that financial constraints make innovation more filtered, selective, commercially oriented, and dependent on firms’ ability to align limited resources with the ideas most worth pursuing. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/student-papers/record/9240963
- author
- Parfjonova, Darja LU and Clouet, Alexandre LU
- supervisor
- organization
- course
- ENTN19 20261
- year
- 2026
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Financial constraints, SMEs, innovation processes, threat rigidity, dynamic capabilities, thematic analysis, resource constraints, innovation prioritization
- language
- English
- id
- 9240963
- date added to LUP
- 2026-06-23 16:14:15
- date last changed
- 2026-06-23 16:14:15
@misc{9240963,
abstract = {{Small and medium-sized enterprises (SMEs) rely on innovation to remain competitive, yet their innovation processes often unfold under limited financial resources. While previous research shows that financial constraints reduce innovation activity, less is known about how such constraints shape the internal progression of innovation processes. This study examines how financial constraints influence innovation processes within SMEs.
The study adopts a qualitative multiple case study design based on 13 semi-structured interviews with respondents from SMEs across different industries, including software, biotechnology, manufacturing, hardware, medtech, fintech, ecommerce, and sustainability-related sectors. The data was analysed through thematic analysis and interpreted in relation to threat-rigidity theory and the dynamic capabilities framework.
The findings show that financial constraints do not simply stop innovation. Instead, they reshape how ideas are interpreted, selected, and moved forward. Customer and market input remained important sources of ideas, but firms filtered ideas through repeated demand, willingness to pay, feasibility, available resources, and revenue potential. Financial pressure also narrowed innovation by increasing prioritization and directing attention toward projects with clearer commercial value, lower risk, and stronger strategic fit. Firms responded by reducing scope, delaying larger projects, internalizing work, and reorganizing activities around available resources. Leadership and shared direction helped firms communicate priorities and manage trade-offs under financial pressure.
The study contributes to a process-oriented understanding of SME innovation by showing that financial constraints make innovation more filtered, selective, commercially oriented, and dependent on firms’ ability to align limited resources with the ideas most worth pursuing.}},
author = {{Parfjonova, Darja and Clouet, Alexandre}},
language = {{eng}},
note = {{Student Paper}},
title = {{Under Pressure: Innovation and Process Adaptation in Financially Constrained SMEs}},
year = {{2026}},
}