By: Eva Diedrichs / Sabine Brunswicker
When you think about low-tech industries, you will probably think about many aspects, except for innovation. Innovation is mostly associated with innovative products and technology, but hardly ever with anything beyond R&D activities. This “myth” can now be refuted through the results of a currently published study “Gaining Competitiveness with Innovations beyond Technology and Products: Insights from IMP3rove”.
The study takes a closer look into innovations in high- and low-tech small and medium-sized enterprises (SMEs) in Europe, and proves that low-tech and innovation is not as far apart, as you might think.
Low-tech companies invest on average 10 percent of their total income in innovation. In comparison the average high-tech company puts 16 percent aside for their innovations. Expenditures for innovation include all efforts from idea generation to development, launch and successful continuous improvement of the innovation. Hence, innovation expenditures cover far more than just R&D spending.
The IMP³rove results from more than 700 companies show how ambitious low-tech companies are for innovation and how innovation expenditures contribute to their business performance.
Investment in Innovation Pays Off
Comparing low-tech companies that invest much in innovation with low-tech companies that invest little shows that there is a significant difference in income from innovation, in the yearly income growth rate, and the yearly employment growth rate.
Figure 1: Performance comparison between high expenditure on innovation and low expenditure on innovation
Income from innovation is more than double the amount in low-tech companies that spend more on innovation in comparison to their competitors that spend less. The difference in the yearly income growth rate is also considerable. With a 50 percent higher income growth rate, the low-tech companies that spend more on innovation can increase their competitive advantage.
Based on the fact that low-tech companies contribute highly to the creation of jobs if they spend more on innovation, policy makers should revise their focus which has previously been only on high-tech companies. They should stimulate innovation policies and support programs for companies in the low-tech industries that have the ambition to turn their innovation expenditures into profitable growth.
Turn Innovation into Routine
High expenditures for innovation also create more proficiency in innovation management. Launching innovations successfully is a skill that low-tech companies heavily invest in. High spenders seem to have developed their innovation management skills further than their low-tech competitors spending less on innovation. The rate of successful launches increases with the maturity of the company. Low-tech companies in the age of 11 to 25 years seem to have developed very good innovation management skills. Those with high expenditure for innovation manage achieve a rate of almost 60 percent for successful innovation launches, while their competitors with low expenditures for innovation only achieve about a 48 percent success rate. It seems that younger companies still have to develop these innovation management skills.
As a result, the operational margin of low-tech companies that invest more in innovation is with 13 percent significantly higher than that of their low-tech competitors with less expenditures for innovation that only achieve 8 percent.
Companies that would like to develop a routine for innovation quickly can identify their areas for improvement by benchmarking their innovation management with their peers. The IMP³rove online assessment www.improve-innovation.eu initiated by the European Commission will provide a thorough and effective analysis on the company’s strengths and weaknesses. Trained experts are available to support the company during the IMP³rove Assessment.
By Eva Diedrichs and Sabine Brunswicker
[1] The study is based upon the datasets of 780 low-tech and 719 high-tech SMEs, which were collected by IMP3rove from spring 2007 until spring this year. The SMEs are from different countries, age and size classes and mostly employ between 5 and 100 employees. It can be downloaded at www.improve-innovation.eu.
About the authors
Dr. Eva Diedrichs is senior consultant at A.T. Kearney, Top Management Consulting. She is Core Team member of the European Innovation and R&D Management Practice there. She is the responsible project manager for the European Commission’s flagship project on innovation management called “IMP³rove”. She has managed numerous innovation management projects in various industries such as pharmaceutical industry, medical device sector, service industries and in the aero space and defense sector. She published several articles and monographs on innovation management, benchmarking, change management and strategic topics. She co-authored a book on core competencies and gave several speeches on success factors of innovation management at international conferences. She holds a PhD from the University of Bamberg, Germany and was a lecturer at St. Thomas College, St. Paul MN, USA.
Dr. Sabine Brunswicker is a Senior Researcher Innovation Management/Coordinator Open Innovation at Fraunhofer-Gesellschaft// Fraunhofer Institute for Industrial Engineering in Germany and also representing the European Coordination of the IMP³rove project at Fraunhofer IAO. She is also a Lecturer International Management at European School of Business (ESB) and has extensive experience in applied research and consulting in the area of innovation and technology management at a national and international level.