Why Bother about Innovation Strategy as SMEs?

By: IMP³rove Academy

There is discussion about how much effort should be put into developing an innovation strategy especially by small and medium-sized companies (SMEs). Aren’t many successful innovative offerings just a result of trial, error and finally good luck? Insights in more than 1,500 SMEs from the IMP³rove database demonstrate that strategic focus helps secure profitable growth by innovation.

Companies that are among the top ten per cent in terms of growth in revenue, growth in profit and growth in number of employees from innovation, actively disseminate and implement their innovation strategy.

Figure 1: Innovation strategy dissemination to and implementation by top management (Likert scale 1 to 7)

Growth Champions communicate this innovation strategy more intensively to their “top management”. By doing so, they enable a better understanding of the company’s innovation strategy by these managers who then, in turn, seek to implement it better.  The difference between the growth champions and the average “supporters” is obvious. Nevertheless, the growth champions too have room for improvement. This is even more evident when taking a look at how the corporate strategy is disseminated and implemented by a company’s employees.

Figure 2: Innovation strategy dissemination to and implementation by employees (Likert scale 1-7)

Even in small firms, where one would expect that the distance between management and staff is shorter than in larger corporations, the dissemination of the innovation strategy to, and implementation by, employees is below average both at Growth Champions and at the “other” SMEs. On a Likert scale of 1-7, the growth champions hardly reach a score of 3 and above. The “other” SMEs score even below 3.

The low score in implementation of the innovation strategy results from the missing link between the strategic focus and the operational innovation activities. 25 per cent of the SMEs have not assessed their innovation projects systematically regarding their alignment with the innovation strategy; another 12 per cent concede that their innovation projects are well linked to their innovation strategy. Although about 50 per cent of the sample indicate that their innovation strategy fully guides their current product, service, process or business model development, less than 20 per cent claim that their innovation projects are fully in line with the innovation strategy.  This confirms that the implementation of the innovation strategy still shows room for improvement within SMEs.

However, growth champions still show a higher score on the Likert scale in disseminating and implementing their innovation strategy than the “other” SMEs. This indicates that the development, dissemination and especially implementation of the company’s innovation strategy has a positive effect on the profitable growth of the company.

Generating value from innovation strategy development

SMEs that have a clear innovation strategy increase the effectiveness and efficiency of their overall innovation management – especially if the company involves key staff members in the development of the innovation strategy. Assessing the core competences of the company, identifying potential new customers and white spot opportunities in the markets, developing key performance indicators and targets for innovation results as well as gaining a common understanding of the ambition for growth within the company creates buy-in of the staff members. At the same time this team approach helps to position innovation as a key topic within the company’s culture.

SMEs that have an understanding of their strategic focus can quickly decide which ideas they want to develop into an innovative offering as they have defined the focus areas and the performance criteria. In other words, they save time and start developing the selected idea into the next innovation while other SMEs still brood over which ideas might be the right ones. Furthermore, during the development phase they keep marketing and sales in the loop so that these functions can prepare for the launch of the next innovation and keep the time to market as short as possible. In short, if marketing and sales have been involved in the development of the innovation strategy they can pre-market the new offering to key customers.

Within the same industry the time-to-market hence can vary significantly. In the food and beverage sector the IMP³rove benchmarking sample represents a time-to-market (the time from beginning of the development to getting the innovation on sale) that ranges from 1 month to more than 72 months. About 45 per cent of these companies manage to launch their new offerings within less than 6 months, 35 per cent need 6 to 12 months, 14 per cent between 13 and 24 months and 6 per cent require more than 24 months. Companies can calculate the benefit of accelerating the launch of the next innovative offering by just one month.

Apart from clear financial benefits that SMEs achieve by taking a more strategic approach they also gain in terms of:

• Awareness of trends that might affect their own business;
• Improved ability to listen to the customer’s voice;
• Better understanding of the white spot opportunities and new markets;
• Better understanding of the company’s own core competences as well as lacking capabilities (core rigidities);
• Anticipating potential competitors’ moves;
• Alignment of the key staff members to strategic goals;
• Team-building and strengthening the innovation culture in the organisation.

SMEs that would like to assess their own innovation strategy dissemination and implementation can benchmark themselves with in their industry at www.improve-innovation.eu ¹)

Providing support programs to promote effective innovation strategy development at SMEs

There are many innovation support programs for SMEs aiming at technology or knowledge transfer. The objective here is often the commercialisation of research results. The impact of these programs can be significantly increased if the knowledge or technology intended to be transferred is compatible with the SME’s own innovation strategy.  Only then it will contribute and drive the sustainable growth of the SMEs. Therefore, it is highly recommended to first assess to what extend the SME has an innovation strategy that drives the future growth and whether this innovation strategy matches with the transfer of technology or knowledge. This will help the SMEs to gain a better understanding how to get and remain on the profitable growth path and it will help to focus public funds on the most promising companies.

Experience shows that SMEs that are supported in the assessments by well-trained innovation management experts gain higher value from the benchmarking. Furthermore, these entities will get useful guidance from recommendations that leverage their company’s innovation management for competitiveness and profitable growth. Experts focused on technology transfer that have participated, for example, in IMP³rove training programs on innovation management learn how to identify the drivers for growth in innovation management in SMEs and how to help SMEs improve their innovation management performance effectively.

By Eva Diedrichs

References

1) The IMP³rove Benchmarking has been developed within the European Commission’s initiative IMP³rove – better support in innovation management. The services developed within this initiative will be provided in the future by the  IMP³rove – European Innovation Management Academy (non for profit). It shall support regions to integrate the IMP³rove tools in new programs to enhance innovation management capacity of SMEs. To that end the IMP³rove – European Innovation Management Academy is supported by the European Commission, Directorate General Enterprise and Industry.