External knowledge search, opportunity recognition and industry 4.0 adoption in SMEs

Highlights

• Industry 4.0 (I4.0) adoption by SMEs is driven by how they search broadly and deeply among external partners.

• External knowledge search depth and breadth enable SMEs to recognise I4.0 opportunities.

• Depth of search enables the recognition of digital design and digital manufacturing opportunities.

• Breadth of search enables the recognition of digital servitisation opportunities.

• According to the opportunities recognised different I4.0 technologies are adopted by SMEs.

Abstract

Technologies related to Industry 4.0 require Small and Medium Enterprises (SMEs) to understand their potential applications before they are adopted. In this paper, we test empirically a framework that links SME search strategies within their ecosystem (i.e., breadth of search vs. depth of search) to the capability of SMEs to recognise digital opportunities associated with Industry 4.0 (i.e., digital design, digital manufacturing and digital servitisation opportunities). We analyse a sample of 174 manufacturing SMEs operating in Italy. Our results illustrate the distinguishing traits of the knowledge search paths required to implement Industry 4.0 technologies in an SME manufacturing setting. In particular, they indicate that the recognition of digital opportunities in both product design and manufacturing processes require a depth of collaboration in the innovation process to capture firm and industry-specific company needs and to create mutual trust among the parties. Conversely, digital opportunities in the realm of product/service platforms require a breadth of search for SMEs to invest in different information technology layers to support the digitalisation of a product. We also find that all three groups of digital opportunities positively influence the extent of adoption of information and digital technologies (e.g., IoT, big data analytics, simulation). Our findings bring finer-grained evidence on how digital opportunities are linked with the adoption of the different types of Industry 4.0 technologies, reflecting the peculiar traits of manufacturing SMEs. Moreover, they show managers how to set specific collaboration strategies with the ecosystem according to the digital opportunities they are willing to pursue.

Introduction

The fourth industrial revolution – also named Industry 4.0 – provides new types of innovation opportunities for product, process and services (Liao et al., 2017; Chiarello et al., 2018). Such opportunities are enabled by the developments of General-Purpose Technologies (GPTs) (Bresnahan and Trajtenberg, 1995; Culot et al., 2020) – such as the Internet of Things (IoT), artificial intelligence, additive manufacturing, big data and cloud computing (Frank et al., 2019a; Tao et al., 2019a). Faced with such opportunities, many Small and Medium Enterprises (SMEs) that have so far invested in such technologies have used the financial aid offered by the various national incentive plans available in Europe and have in particular substituted old machinery or have retrofitted existing equipment (Perani et al., 2019).

Previous literature on Industry 4.0 technology adoption (e.g., Raj et al., 2020) mainly treated the implementation process of such technologies as a black box, overlooking that the recognition of opportunities could favour the extent of the adoption of 4.0 technologies. In the SME context, such an adoption has mainly been described as problematic, pinning these problems on financial issues (e.g., Kamble et al., 2018; Buer et al., 2018). A few notable exceptions (Agostini and Nosella, 2019; Agostini and Filippini, 2019) have provided further nuance by highlighting a positive relationship between the adoption of Industry 4.0 technologies and the level of external social capital,¹ or between organisational practices at the supply chain level, firm process level and human resource level. In this vein, Müller et al. (2020a) have found that social capital and the sharing of benefits among partners increases their collaboration levels and the sharing of digital information among firms. However, what is still unknown is how SMEs can actively search for new knowledge in the external environment. In fact, the external environment is instrumental for firms to drive the adoption process of Industry 4.0 technologies from the feasibility study until the full adoption and use of the technologies in the operating processes. This theme is of crucial importance for SMEs. Indeed, it is well known that SMEs have to face hurdles due to limited managerial resource and financial constraints, which can limit their adoption process of Industry 4.0 technologies (Wenking et al., 2016). Even when such financial constraints are removed (e.g., thanks to public financial aid), SMEs may still be bounded in the adoption process due to the lack of clarity on the return on investments in 4.0 technologies (Benitez et al., 2020) or due to a partial capacity of seizing and implementing the radical transformation digital opportunities offered by the adoption of Industry 4.0 (Perani et al., 2019). All these barriers are clearly supported by the empirical evidence that shows a scattered -rather than systemic-impact of technology across functional areas (Martinelli et al., 2019), with a prevalence of projects that are still at the pilot stage (Behrendt et al., 2018).

In this paper, we open this black box by investigating the way by which broad and deep search strategies among the external actors (e.g., system integrators, universities and research centres, suppliers and customers) can help SMEs to adopt Industry 4.0 technologies. We do so by theorising a framework which considers the role that external knowledge sources play in triggering a phase of opportunity recognition (Attewell, 1992), through which SMEs -by understanding and assessing the benefits of 4.0 technologies - develop knowledge about how to deploy such new technologies in their operations (e.g., Zangiacomi et al., 2019; Li et al., 2019).

We empirically tested this position on a sample of 174 manufacturing SMEs operating in the north-west of Italy. Our results indicate that the recognition of digital opportunities, in both product design and manufacturing processes, requires a depth of collaboration with external actors. Conversely, digital opportunities in the realm of product/service platforms require a breadth of search that involves multiple categories of actors with different specialisations. Not surprisingly, all three groups of digital opportunities positively influence the extent of adoption of such multiple information and digital technologies as the Internet of Things (IoT), big data analytics, and simulation. We also find finer-grained evidence of how the pursuit of opportunities in the value chain are related to the adoption of single technologies. In other words, seizing digital opportunities in the design process domain is associated with the adoption of cyber security technologies, whereas recognising digital opportunities in the manufacturing process domain also favours the adoption of such automation technologies as collaborative robots, while identifying digital opportunities, aimed at introducing digitalisation logics into new products/services, favours the adoption of augmented and virtual reality technologies.

These results introduce a new perspective that provides further nuance to the literature on Industry 4.0 technology adoption in the context of SMEs (e.g. Agostini and Nosella, 2019). In particular, we show that collaboration with external partners not only exposes SMEs to complex technological challenges about product development and operation management, which force the adoption of 4.0 technologies by SMEs, as suggested by a stream of recent studies on Industry 4.0 (Agostini and Nosella, 2019; Agostini and Filippini, 2019; Garbellano and Da Veiga, 2019), but also triggers a more purposeful adoption of technologies based on the recognition and interiorisation of a firm's strategic objectives.