Why innovation is vital for SMEs
Innovation is a word that gets bandied about a lot, especially in the corporate world and media.
But what does it mean? Why should you start thinking about developing an innovation program for your small to medium-sized business?
“Innovation is a new idea, device or method, or the act or process of introducing new ideas” according to Merriam-Webster. Innovation is different to invention because, for its part, it can refer to something new or to a change made to an existing product, idea, or field, whereas an invention is something completely new.
We often describe innovation to identify a new product or business model, new markets or segments, an extension of the existing brand or the re-designing of customer experiences or business processes.
There is no doubt that you have innovated in your business since its inception. This is especially true in the early years as you mould your business into its position in the market. After several years of success, however, for a lot of businesses innovation stops. You follow a set path or process and keep doing what you’re doing. In some cases, you plateau, in others you stagnate, and competition overtakes you.
According to recent reports from the Department of Industry, Innovation and Science, only 16% of Australian businesses have an innovation capability that performs well and almost 40% have none at all. Technology businesses are more innovation-ready than other industries, as you would imagine given that innovation is at the heart of creating new ways of using technology and Australian Startups often have access to resources from government and/or universities or private enterprises in the form of incubators or accelerators that helps them build their innovation capabilities. But for SMEs, businesses that dominate the Australian business landscape, there is no such support.
The evidence suggests though, that investment by SMEs in innovation (which is broader innovation as described above, rather than just research and development, which is often what people think innovation is) improves business performance.
In a 2020 study by AlphaBeta Advisors, they found that:
ASX200 firms that invest in innovation were more likely to survive and grow than average firms based on data from 2005-2016.
Small businesses that accelerated technology adoption grew revenue 3.5ppt more than other small businesses and those that use more business software applications grew employment over 2.2ppt faster than other small businesses.
Business to business (B2B) services sectors such as Scientific & Technical Services, Wholesale Trade, Administration & Support Services and some of Information, Media & Telecomms and Finance & Insurance Services are highly active innovators in Australia.
Although studies have yet to be concluded on the impact of innovation on SMEs during 2020-2021, we could be confident in saying that many businesses have had to adapt to different ways of working and those that have focused on innovation have had a better chance of survival. A good selection of clever entrepreneurs have used this time to innovate to thrive. A global pandemic was an unprecedented event no one could have predicted, that catapulted us from the comforts of what was known into the unknown rapidly. Yet, the business landscape continues to change, year on year, but in more subtle ways, such as the growing customer sentiment for purpose-driven and/or eco-conscious brands. Sometimes, market changes creep up on us without warning, such as the launch of Uber for the taxi industry. As business leaders, to ensure the survival of our business, dealing with change, slow or rapid, should be at the forefront of our business strategy.
Innovation, as a tool, can help create mindsets that adapt to change. Really, innovation is just like science class at school. You come up with a hypothesis (an idea based on what you know) and then you test it. Innovation in business is just the same. You come up with an idea of how to improve something or do something that could create more value and then you test it. Seeing things as an experience, rather than written in stone, means that you are always open to feedback (or data) that tells you whether your idea is wrong. Your idea could be right for many, many years, but if you’re not testing it you won’t be aware of when it’s wrong until it’s too late.
A great story of innovation during 2020 comes from StageKings, the company centred on building large-scale festival stages that pivoted to providing easy setup home office furniture when faced with the ramifications of the lockdowns on their industry. In just 48 hours their entire income and job list for the next two years was cancelled, so they had no choice but to do something. They’re a creative bunch, but the fuel that helped burn their new products was the interactions with their customers. They used social media to connect with customers and ask for feedback on what they should make. It’s a great story of Aussie innovation. (You can read more here).
So, innovation helps you survive in times of market changes, but continuous improvements, thinking of ways to improve continuously rather than in times of change, help you in so many more ways. Your survival rate increases, your productivity, revenue and job creation rate are impacted positively. Innovation can help you solve problems, connect better with your target customers, connect with more customers that will love you, it will make you more efficient and (as some studies suggest) also make your business a more attractive place to work.
You may be thinking that your particular industry, service or product doesn’t need to focus on innovation. ‘Everyone needs a lawyer/accountant/doctor/insert another professional service here’. There will always be a need for my business. That may be true, now. What happens when the competition moves in or your target audience changes (people age, needs change)? What happens if a new innovation that better meets the needs of your customer completely reinvents your industry?
Every business needs fresh thinking once in a while, to review to refine. Building an innovation strategy or program for your SME could ensure you not only survive but thrive now and in the future. It also sets up you and your team with future-ready skills and experience and a mindset that helps them adapt to changes that happen at an accelerated pace.
What is stopping SMEs from creating an innovation strategy or innovation program for their business?
We think it’s time, money and structure. That’s why we developed our Innovation Program for SMEs. You can find out more about it here.