The SME Magazine Singapore. English., © Spring Singapore, IE Singapore, The Business Times, 2010.
It is fascinating how conversations turn out whenever piercing concepts are discussed. My favourite line at business events is, “Is your company innovative?” Somehow, the immediate answer is “We are an SME, innovation is a concept for big boys”.
Is this fear or ignorance? In the last decade, innovation has risen to importance and is seen as a must in sustaining a business; SMEs are not spared. But take heart, innovation can take place at many different levels – product, firm, industry, sector and economy. It is not just about new product development or opening up new markets.
Innovation can offer new ways of serving already established products and mature markets. For established products, innovation enables competitive advantage through non-price factors – design, customisation and quality. Innovation is not confined to manufactured products. Process innovation is about being to surpass competition by offering faster, cheaper and higher quality service.
The purpose of innovation in SMEs is the same as large ones, which is to create a firm-specific innovative advantage. SMEs however enjoy the ease of communication, rapid decision-making and flexibility. Their disadvantages are in narrow technological competencies and a greater reliance for innovation on suppliers, customers and the strategies and competencies of senior managers in innovation. A survey in Canada showed that the three major sources of innovation were customers, suppliers and internal management – formal R&D was considered much less important. The main factors that contribute growth for SMEs are the skills in management, labour and marketing, and innovations in product quality, flexibility and customer services.
While some SMEs conduct innovation activities through in-house R&D, a large portion refrain from these activities. They outsource their R&D, a strategy which reduces R&D costs and limits funding requirements. However, the majority rely on other ways to capitalise on potential innovation internally and access external sources for innovation.
There is no definitive conclusion that innovation can and must be equal to the discovery of something new and revolutionary. It can and does happen, giving rise to corporate behemoths, but ultimately, it is not the only definition. Here are some simple tips on how SMEs can innovate.
Firstly, inculcate innovation management practices internally through human resource management. This can be done by raising incentives for staff to engage in and develop skills needed for effective innovation. Management practices include recruiting the right people to promote innovation, training for handling innovation challenges, as well as implementing reward systems, performance engagement and career development tools to help staff think innovatively.
Secondly, work as a team to facilitate knowledge sharing, develop mutual trust and help overcome organisational barriers. Management tools for teamwork require joint workshops, knowledge information systems for open cross-functional communication and innovation circles to initiate a temporary exchange of personnel across units. Creating cross-functional teams has been identified as particularly important for accelerating innovation processes from identification of innovation to marketing. In short, think about what you do well, create teams to improve on it and think about how it can be commercialised.
Third, seek external resources of innovation. These may include customers, suppliers, competitors, universities and other public research organisations. Firms rarely innovate on their own, and introduction onto the market of new products and processes largely depends on the firm’s ability to build strong links with external agents. Don’t be afraid of external ideas – embrace skilled scientific and technical staff. The greater the internal capabilities of the firm, the greater the effects of external knowledge acquisition strategies on innovation performance. The importance of external knowledge search activities is evident; there is a substitution effect between it and internal R&D.
Finally, cooperate with partners in relation to external knowledge acquisition, to help defray the costs and the risks of innovative activities. Innovation tools is defined as all activities of the firm targeted at organising the innovation process in a way to maximise the outcome in terms of market success with new products and new processes. Innovation management includes measures to facilitate both internal and external processes with regard to innovations. The innovation success of these SMEs lies in their ability to introduce “challenging” innovations that demand particular efforts and will alter an SME’s market position significantly.
Therein lies the message for all SMEs: Innovation is not a choice but a necessity. It is not reserved for the privileged multi-national company (MNC). Big companies do not become big overnight; they pounced on innovative opportunities and commercialised them at the right time. Innovation as such, should not exist only as a concept – it should be a behaviour adopted by all business owners.
Yet innovation would yield nothing if it is not commercialised well. Commercialisation involves creating appeal and communicating that value-appeal to customers. Brand it well and you will stand a better chance of sustainability.
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