Impact of ICT on Innovation: The Case of Japanese SMEs

The innovation process in SMEs (smalland medium-sized enterprises) is complex and in comparison with large firms the causal relationships between promoting factors and innovation have yet not been sufficiently clarified. This chapter attempts to analyze the innovation process using Structural Equation Modeling, in particular focusing on the role of ICT. Seven hypotheses are demonstrated by two models. The results obtained are as follows: (i) top management participation and employee motivation in the innovation process enhance the effect of introducing ICT; (ii) the effect of ICT use raises innovation capability, in particular the ability to connect with external linkages; (iii) ICT use, innovation capability and external linkages enhance innovation activity; and (iv) the effect of ICT use and innovation capability promote innovation directly.