What does innovation mean to you? 

This is part of a series of questions on innovation that will be put to business owners across Singapore, when StrategiCom, in partnership with Singapore Business Federation kicks off its nation wide study on branding innovation in the small and medium-sized enterprises (SME) sector in January 2010.  This national research study is designed to delve into the understanding of innovation as both a concept and function among business owners of SMEs in Singapore. 

A positive and direct relationship exists between innovation and productivity.   Singapore SMEs contribute largely to productivity growth in Singapore.  Productivity growth determines the living standards and wealth of nations; therefore it is an area of concern as labour productivity growth has decreased continually since 2005. 

SMEs also contribute to employment, promoting innovation, engendering competition and cresting economic wealth.   According to Singapore Statistical Data, SMEs contributed significantly to the Singapore economy employing nearly six out of every ten workers and generating almost half of the total enterprises’ value-added.   In 2007, Singapore SMEs comprised 99% of the total number of enterprises.  The value-added contribution to the economy had increased from 46% in 2003 to 49% in 2007; employment share maintained at about 60%.  These figures indicate the critical role that SMEs play in the economy.

Innovation is vital for the survival of SMEs and for profitability.   To secure a higher rate of innovation, innovation as an activity must form part of the company’s strategy and this involves branding.  Branding helps cultivate corporate culture when it encourages innovation.  It further strengthens existing brands and increases corporate credibility.   

Invention as a direct result of innovation through new product development is a very common understanding of innovation.  However, innovation can also offer new ways of serving already established products and mature markets.  For established products, innovation capitalises on a variety of non-price factors to achieve competitive advantage – design, customisation and quality.   Innovation is also about frequent replacement of products with better versions.   Innovation however, is not confined to the realm of creating or improving new manufactured products – it also exists in the form of process innovation, which is about being able to do something in ways that surpass the competition, by providing faster, cheaper and higher quality service .

Innovation success is measured by product innovation as defined by market novelty and product line novelty.  It is also measured in terms of process innovations as defined by a decrease in unit costs and an increase in quality.   Process innovation would be efficiency innovation, which would increase price competitiveness of firms, or quality improving process innovation, which would allow for product differentiation.

Group Principal Consultant & CEO, Dr. Wilson Chew states, “Innovation is the key instrument for achieving competitive advantage, and it was first emphasised by management gurus such as Tom Peters, Rosabeth Moss, and Gary Hamel in the 1980s, then by governments.  Innovation is also the prime driver for differentiation and achieving competitive advantage.  As such, our research study is targeted at identifying innovation management areas among SMEs that need attention and improvement to help SME’s productivity growth.”

The research objectives of this project are as follows:

1. to explore the meaning of innovations to SMEs;
2. to investigate the extent of innovation management and innovation successes in SMEs; and
3. to investigate the extent of branding efforts for these innovation successes

During the research, the qualitative views of 150 CEOs running SMEs in Singapore will be obtained, and this will in turn be corroborated with a rigorous desktop research on other branding innovation studies and research papers in the SME context, both locally and internationally. 

Mr Teng Theng Dar, Chief Executive Officer of Singapore Business Federation states, “There is a general view that innovation is a process only large multinational corporations can undertake because it involves high risks and costs due to intensive research and development.  This study will seek to find out if this is an opinion that is jointly held and perpetuated by SME owners.  Only by understanding what SME owners define to be innovation, can we evaluate the extent of their success in the context of innovation, not just in products, but through processes and most of all the continuous discovery of new ideas to meet constantly changing market needs.  Through this, we will be able to see if we can address any shortfalls or misconceptions about innovation that will help SMEs improve their businesses and productivity.”

The purpose of innovation in SMEs is the same as large ones, which is to create a firm-specific innovative advantage.   The difference between bigger corporations and SMEs in innovating is that SMEs generally enjoy the advantages of ease of communication, rapid decision-making and flexibility.  SMEs however, have narrower technological competencies and a greater dependence on suppliers, customers, as well as the senior manager’s strategies and competencies to drive innovation.

Sophisticated innovation management tools can help SMEs to innovate successfully if applied effectively.  Innovation is becoming a corporate-wide task involving production, marketing administration, purchasing and many other functions which provide strong pressure for widespread organisational change.

Innovation management can be measured from four aspects: human resource management, team work, seeking out external sources of innovation and co-operation in innovation.  Human resource management aims to increase incentives for staff to engage in and develop skills needed for innovation efforts.  These includes recruiting right people to promote innovation, training to handle related challenges and reward systems, performance engagement and career development tools to help the formulation of innovation ideas among staff.

Team work will facilitate knowledge sharing, mutual trust and overcome organisational barriers.  Creating cross-function teams, joint workshops, knowledge information systems for open communication will all accelerate innovation success from R&D to marketing.

Searching for external resources in relation to innovation aims at identifying a direction to drive innovation efforts. Such sources would include customers, suppliers, competitors, universities and other public research organisations.  The introduction of new products and processes onto the market depends largely on the firm’s ability to build strong links with external agents.      This will only be effective if the organisation is well prepared and open to external ideas, and has skilled scientific and technical staff.   The greater the internal capabilities of the firm, the greater the effects of strategies to acquire external knowledge on innovation performance.

Co-operation refers to partnering in relation to external knowledge acquisition to help share the costs and the risks of innovative activities.    Innovation management includes measures to facilitate both internal and external processes for innovation.  Innovation success therefore lies in the ability of SMEs to introduce “challenging” innovations that are likely to alter an SME’s market position significantly.

In order to own, control and fully benefit from innovation, firms need to build a brand.   Brand competition and the existence of strong brands play a key role in innovation systems due to their part in the transfer of new ideas to consumers.  Branding an innovation, improves or creates the perception that the product or service is different from its competitors; it creates sub-markets within existing markets, capturing markets that were once absent; and create the perception that the company is innovative, adding credibility to new products the company introduces.  Strong brands help innovations to reach the market.

The research study will draw upon the above definitions of innovation management in the development of the questionnaire for the participants in the study.

Group Principal Consultant & CEO Dr. Wilson Chew states, “Innovation can take place in the form of improving administration or marketing processes to enhance an organisation’s efficiency.  It is not necessarily costly, nor plausible only for large multinational corporations.  It should in fact be a must for SMEs to innovate to gain competitive advantage.  Innovation alone, however, is not enough.  The next step is branding the innovation – to commercialise it and tell consumers about the innovation, so as to spread the word about your firm’s competitive edge.  Then only can you fully reap the benefits from innovation.”

The study will be completed by the first quarter of 2010 and results from the study will be presented at the annual Singapore Brand Conference 2010 on 25th March 2010.

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