Innovation is considered as a topic of interest among both academicians and practitioners. Right from Schumpeter till current day researchers have worked extensively in the area of innovation yet the topic appears to be fresh and new. Henry Chesbrough coins the word 'open innovation' and 'closed innovation' in his pioneer work. Small and Medium Enterprises (SMEs) are very much essential for the growth of any economy. In India, SMEs plays a vital role in the development and growth of the economy. Indian SMEs adopt innovation for sustaining rather than for transforming. A rigorous review of literature identifies the research gap to study the innovation approach adoption and its influence on firm performance among SMEs.
The research adopts a mix research approach to examine the SMEs of Bangalore region. A structured online survey is administered to 213 survey participants who are identified through criterion based snowball sampling method. The results indicate that firm-level factors such as age, size, experience and culture have a significant influence to adopt innovation approach whereas investment in Research and Development do not influence SMEs to adopt Innovation. Whereas external factors such as ecosystem and competition have a significant influence to adopt an innovation. Customers influence to adopt an innovation is minimal, technological advances and government policies do not play any role in innovation adoption. Further, the Open Innovation practices such as collaboration, Spin-offs, and alliances positively influences firm performance. Intellectual Property Rights trading is still not encouraged by the SMEs in the Indian context. Closed Innovation approach does influence the firm performance. Hence the decision makers of SMEs should cautiously choose the innovation approach that is suitable for their firm at that point in time. The SMEs must consider adoption of innovation approach as a strategic choice for their growth and sustainability.