Lean Innovation Management for SMEs

By: Dr. Bernhard Koelmel / Dr. Dirk Balfanz

The use of innovation management increases your operational margins. This was one of the key findings of a European study on Innovation Management performance within SMEs. The growth champions were reaching approximately 12% operational margins, an exceptional performance compared to the 5% operational margin of the average SME. In this article Dr. Dirk Balfanz and Dr. Bernhard Kölmel describe a lean and efficient approach to Innovation Management specifically targeted to the needs of SMEs.

The article presents an outline of this confirmed approach, it is also accompanied by a roadmap to establish an easy-to-use Innovation Management (IM) methodology.

Most Small and Medium-sized Enterprises (SMEs) succeed in installing some kind of structured management processes, because it is vital for their business success. The type and primary focus of these management instruments may vary broadly from long-term strategic planning to day-by-day operational management. The average SME lacks skilled personnel to adapt and introduce new management processes. In most cases Innovation Management (IM) is not the first instrument being established. However their future depends on their ability to offer innovative products and services and the ability to innovate in their business processes. Managing the entire process requires a clear innovation strategy, an organisational culture that supports innovation, and processes that ensure that the innovation ideas are developed adequately.

In most cases Innovation Management (IM) is not the first instrument being established

When promoting Innovation Management under these circumstances several problems can be observed: internal reluctance to “just another” management strategy and immediate request of a cost-benefit analysis. Thus, even if being of high strategic importance, internal commitment and funding for this kind of business process engineering is hard to acquire. From SME perspective an integrative and lean IM that can be established as a supplement to a given management strategy would lower the barrier for successful IM promotion.

Against this background the focus of this work has been to derive and develop a lean Innovation Management approach and methodology in particular targeted to SMEs, called SLIM (SME-centric Lean Innovation Management)¹,².

The development of SLIM followed an action research approach³ and resembles the framework used for the derivation of a fast-start roadmapping approach by Phaal, Farrukh and Probert⁴. The SLIM approach was shaped within a pilot phase and matured through a case study phase in repeated implementations.

… to develop a lean Innovation Management approach and methodology (SLIM), which is suited specifically for SMEs

Main objectives were to define a simple start for IM that easily adapts to and integrates with already established management strategies and stays extensible, define a related process for company-wide initiation, and to provide real life estimates for the related organisational efforts. An integral part of the Innovation Management approach is the close link between Innovation Management performance and business performance targeted to growth.

Who may best use SLIM – and where does it help?

In its long-term view, Innovation Management is closely related to the strategic perspective and strategic planning processes. When trying to define and implement Innovation Management in an organisation, pre-existing experiences or even mature structures stemming from strategic management approaches are highly supportive – and dedicated people driving the innovation implementation process are absolutely necessary.

Thus, SLIM-candidate enterprises should have:

• first experiences with strategic planning structures and processes
• a minimum size that allows the appointment of an innovation process responsible person or even a small team.

IM in total is seen to span the whole process chain from first ideas / basic research to market launch of a final product (phases in New Product Development see⁵,⁶,⁷).  SLIM is targeted to support the early innovation phases, namely the idea exploration and the proof of concept phase and the harmonisation of innovation decision processes along the whole innovation chain.

Elements shaping the SLIM-methodology

The Elements of SLIM consist of a small set of organisational structures, roles, processes and documents, which are defined as templates and can be adapted to company specific needs.

The minimum set of elements shaping SLIM, is:

• Documents: Innovation Plan, Innovation Backlog
• Structure / roles: company innovation manager or team, innovation circles per company unit / hierarchy level
• Processes: initiation process, periodic innovation reviews per company unit / hierarchy level

The Innovation Plan – the heart of SLIM

The central element of SLIM is the Innovation Plan. It consists of the two sections “Mission / Vision Statement” and “Roadmap”.

The Mission / Vision Statement provides a brief summary of how a company or a company unit defines its fundamental purpose, primary stakeholders, responsibilities / products / services. It outlines as well the main strategic focus, i.e. what the unit or company wants to be like. Mission and Vision are already a given element on company level in most strategic planning approaches. On company unit level they are highly useful to achieve strategic clarification. Mission / Vision Statements provide the functional and directional situation description, i.e. the strategic framework to reason against.

The Roadmap – how to choose and do the right things

The Roadmap shall follow a multilayer approach (market, products, processes, technologies, know-how), providing a condensed graphical representation of only the main strategic topics. The roadmap will already include those innovation aspects (innovation goals, gaps and needs) that undergone a discussion and evaluation process.

Roadmaps shall be accompanied by a short descriptive text pointing out the main strategic argumentation lines (“stories”). Main purpose of this textual addition is twofold:

1. Documents will never reflect all ideas and potentials that have been discussed. Thus, roadmap plus text shall be a remembering aid for the authors / editors. Text adds redundancy and a different modality which can support the mental recall of details.
2. For the same reason it improves the readability for other company units and fosters strategic exchange. Although it still does not reflect all ideas it allows asking for concrete and more details if necessary.

The Innovation Backlog

Whereas the Innovation Plan (Mission / Vision and Roadmap) is a more stable document, the Innovation Backlog is a highly living document. Important functions of it are provision of an open collection for ideas on one side and a means to organise overview and planning of next operative steps on the other side.

The Innovation Backlog is a high-level document of the referring company unit. It contains broad descriptions of innovative ideas, innovation potentials, detected innovations gaps or innovation needs. Rough estimates or outline on business value, risks, potential research / development effort and known approaches can be given. The Innovation Backlog features a collection of new unevaluated items and a prioritized list of evaluated items.

The processes supporting SLIM shall ensure a permanent harmonisation of innovative ideas and activities on company unit level (departments / divisions) with the strategic enterprise level.

Along and aligned with a given strategic management approach the enterprise and its units define their respective goals and missions in a cascaded way in different time scales:

• short-term (below 1 year)
• mid-term (approx. 1-3 years)
• long-term (>3 years).

A SLIM initiation process will bootstrap the IM structure and processes

Whereas short-term planning is in most cases covered by the existing processes (e.g. yearly goals in Management by Objectives approaches or development-related planning with Scrum), mid-term and long-term planning can be supported via means of the aligned SLIM approach. This comprises definition of Innovation Plans and Backlogs on all appropriate company levels with proper review / update cycles. A SLIM initiation process will bootstrap the IM structure and processes, and has to achieve as well the alignment of SLIM to company specifics.

Periodic reviews and evaluation

The main effort of finding and explicating innovation needs is driven by the roadmapping process. Periodic reviews shall update the planning (at least twice a year) and evaluate the Innovation Backlog (more often). Backlog evaluation is highly important. Evaluation shall prioritise the Backlog items and shall separate those which need upward propagation (e.g. to the Company Innovation Board) from those which should be actively addressed within the respective unit. “Activated” backlog items are to be integrated within the strategic planning, i.e. become part of the updated Innovation Plan.

The role of the Innovation Manager and Team

Innovation studies typically point out, that strategic (innovation) efforts absolutely need the full support of the top-level management. Beyond this a key challenge is “to keep the process ‘alive’ on an ongoing basis” as 50 % of survey respondents in⁸ reported (with respect to roadmapping). Thus the top-level management needs to plan for a continuous effort with a main promoter (Innovation Manager) and a small team (1 or 2 persons) if possible – together shaping the Innovation Team.

Strategic innovation efforts absolutely need the full support of the top-level management

The Innovation Team will guide a first pilot of SLIM within the most appropriate and “willing” entity. This initial deployment is open and adaptive, i.e. it consists of presentation, discussion and adaption of SLIM where needed and performs the detailed customisation to the needs of the specific SME.

Phases of Introduction

Implementation of SLIM in a particular enterprise can be organised in three distinct phases.

Within Phase 1 (Customisation) the Innovation Team adapts the generic SLIM approach and customises it to the specific needs and conditions of the related SME. This phase comprises the pilot implementation in a suitable department or division, providing essential support in shaping targeted company templates of the SLIM elements.

Phase 2 (Rollout) will copy this customised SLIM derivate within all relevant departments or divisions. The Innovation Team coaches this rollout and will take care for further improvements or necessary adaptations of the method.

Within Phase 3 (Consolidation) the derived strategies on department or division level will be harmonised or re-integrated with the overall company strategy. The bottom-up process allows optimal accumulation of lessons learned and provides a major step forward in strategic transparency as well for the company board.

Phase	Person weeks Innovation Team	Person weeks  division
1: Customisation	9	5
2a: Rollout small unit	1	2
2b: Rollout large unit	2	5
3: Consolidation	4	1

Table: Rough indication of SLIM implementation efforts

Extended use of the SLIM

SLIM provides by its adaptive definition as well potential starting points for IM-related extensions or harmonisation with other management processes. Potential extensions will affect SLIM template documents and processes and will make broader use of the Innovation Team.

From the organisational perspective, the Innovation Team might be the most important hub to add or harmonise strategic approaches. Examples of efforts which directly relate to innovation and fit to the role of the Innovation Team are: open innovation, technology scouting and participation in funded R&D projects. In using the different innovation boards further strategic functions can be aligned with the innovation process, examples can be product-related market analysis in single divisions or portfolio management on the company level.

Dr. Dirk Balfanz and Dr. Bernhard Kölmel

 

References and Notes

1. Balfanz, Dirk: An SME-centric and Integrative Innovation Management Core. Proceedings of the XX ISPIM Conference – “The Future of Innovation”, Vienna, Austria, 21-24 June 2009
2. Balfanz, D.; Gringmuth, C.; Sobol, S.: Schlankes Innovationsmanagement für KMU, Journal Arbeit – Jg. 9 / Nr. 1 – Sommer 2009, “Innovationsmanagement 2.0”, pp. 25/26
3. McKay, J. and Marshall, P. (2002): Action Research: a Guide to Process and Procedure, European Conference on Research Methods in Business & Management, University of Reading, April 29-30.
4. Phaal, R., Farrukh C.J.P. and Probert, D.R. (2000): Fast-Start Technology Roadmapping, Proceedings of the 9th International Conference on Management of Technology (IAMOT 2000).
5. Booz, E., Allen, J., Hamilton, C. (1968): Management of New Products, Booz-Allen & Hamilton, New York
6. Macharzina, K. (1995): Unternehmensführung, 2nd edition, Munich, p. 600.
7. Page, Albert L. (1993): Assessing New Product Development Practices and Performance: Establishing Crucial Norms, Journal of Product Innovation Management, Volume 10 Issue 4: pp. 273-290
8. Farrukh, C., Phaal, R. and Probert, D. (2001): Technology Roadmapping: linking technology resources to business objectives, University of Cambridge, p. 3