Proceedings of the International Conference for Entrepreneurship, Innovation and Regional Development ICEIRD 2008 1 INNOVATION DECISION-MAKING IN SMALL AND MEDIUM-SIZED FIRMS: The Case of the Portuguese Firm Alexandra Braga 1 ,Carla Marques 2 , Vitor Braga 3 1 UTAD, Avenida Almeida de Lucena, n.º1, Vila Real, Portugal, abraga@utad.pt 2 UTAD, Avenida Almeida de Lucena, n.º1, Vila Real, Portugal, smarques@utad.pt 3 ESTGF – IPP, Casa do Curral,Felgueiras, Portugal, vbraga@estgf.ipp.pt This study aims at identifying the importance of economical and financial ratios in innovation entrepreneurial decision-making process. We propose a conceptual model based in five dimensions: Obstacles; sources; cooperation; funding; and innovation decision-making process. The data was collected through the administration of questionnaires to a sample of firms which have submitted innovation projects to the Portuguese Innovation Agency. The results show that the economical and financial ratios that influence the innovation decision-making are profit related. In fact, entrepreneurs see profit as the ultimate result of innovative processes. It was also clear that firms motivated by different aims also prefer different mechanisms of funding, and accessing to different institutions. Keywords Competitive advantage, decision-making process, decision making strategy, economic and financial indicators, Entrepreneurial innovation, SMEs. 1. Introduction It’s widely accepted that innovation plays a major role in enterprises, as far as economic and financial performance is concerned. However, several firms face important financial constraints that hinder firms from engaging in real projects. To that extent, there is a very close and obvious relationship between finance and the entrepreneurial capacity to enter R&D projects. Decision-making processes are characterised by purposeful coordination of interrelated activities of pre-decision, decision and post-decision stages. Exploring the firms’ decision making regarding R&D projects seems to be very relevant in the context of understanding the constraints to the motivation of entrepreneurial innovation and to evaluate in a concise manner what are the factors that play a role in the process. In the modern-day globalized and competitive world, it is difficult to conceive of any firm being continuously successful without innovation. The urgent introduction of innovation is a strategic imperative for increasing the competitiveness not only of firms, but also of the country itself. In this context, the various players and institutions with specific responsibilities in this area must be coordinated in a way to create a system that is favours the environment needed for the development of genuine innovation practices. This is particularly relevant in so far as the analysis we have just begun also led to the conclusion that most firms are either not very well informed of the innovation development support programmes or they do not know how to access these programmes. Furthermore, it became clear that most firms do not