By: Emma Fürniss / Eva Diedrichs
In view of creating more competitive regions and industry sectors, innovation capabilities of SMEs play a central role. SMEs are strong economic drivers in many countries, and their ability to innovate will determine the health of national and regional economies in the future. A key support for SMEs in their innovation efforts are public innovation support programmes.
As implementers of these programmes, public innovation and development agencies, consultants and other intermediaries represent the vital link between innovation policies and the beneficiary SMEs. A recent study by the IMP3rove – European Innovation Management Academy about programmes to enhance innovation management capacity of SMEs revealed three key steps that intermediaries can take to improve their support to SMEs. The study was based on a survey of 74 enterprises from 17 countries, 184 intermediary organizations and consultants from 52 countries, and 45 policy makers from 24 countries, as well as interviews with leaders from international economic and SME networks, regional development agencies and policy researchers.
Overall, SMEs who participated in the survey are satisfied with the benefits gained from innovation support programmes. As seen in Figure 1, 72 percent obtained measurable innovation output as a result of participating in innovation support programmes. However, only 17 percent of these companies stated that they would not have been able to achieve these results through other means. For these companies the public support programme was essential for their innovation activities.
Figure 1: Number of enterprises that obtained measurable innovation output results from participation in innovation support programmes
This shows that more effort is needed to increase effectiveness, efficiency and complementarity of innovation support programmes in terms of matching the nature of support with the most important needs of the SMEs. What can intermediaries do to further improve their innovation support? We see the need for a change in mind-set, for capability development, as well as for facilitating networks, enabling a better fit between innovation support and SME needs. Subsequently, a greater number of thus SMEs would achieve innovation results that they would not have been able to achieve through other means.
1. Change mind-sets
More than 36% of intermediaries stated in the survey that they do not engage in pre-selection or pro- active identification of the companies targeted for support. The absence of pre-selection coupled with a high diversity of SMEs represents the challenge of identifying each individual SME’s understanding of innovation, their level of ambition to grow by innovation, and the most important needs and level of support required.
The study revealed that many SMEs do not yet understand the holistic concept of innovation management as the organizational skills and capabilities that drive long-term competitiveness. Companies tend to adopt a short-term innovation focus and seek support from public bodies foremost for funding purposes. Appreciation for capability-building support, such as consulting and coaching is comparatively low, whereas intermediaries and policy makers see high value in consulting and coaching of SMEs as key element of innovation programmes.
Figure 2: Most important elements of innovation programmes according to 176 intermediaries, 64 enterprises and 45 policy makers. Multiple responses included.
What is the reason for this mismatch in perceived needs regarding consulting and coaching? The importance of funding for SMEs is, above all, indicative of a technology-focused mind-set that defines innovation narrowly as investment in R&D and (technological) innovation projects. It shows that public innovation support programmes are not perceived as an enabler of developing long-term innovation management capabilities to further the SME’s competitiveness. Funding is the enabler to cure the symptoms. However it is not the most suitable means to cure the root cause of low innovation management capabilities and performance.
There is a mismatch between SMEs’ demand for innovation management support and the supply of innovation support services.
This is reflected in the opinion of surveyed policy makers that increased understanding, willingness and long-term commitment to innovation as a result of innovation support programmes still remain to be achieved. An interview candidate reflected: “Without innovation management capabilities, innovation is more an incident than something systematic (…) building innovation management capabilities is directly related to the innovation culture and an organization’s ability to develop a strategic focus”.
A key task for intermediaries is therefore to promote the understanding of this holistic concept of innovation management: innovation is fostered by investing in (managerial) skills and efforts needed to embed innovation across the organization and the value chains. However, from an intermediary perspective, this also requires building a new skill set as coach and consultant.
2. Develop capabilities
Looking forward, the capacity, motivation and performance incentives of those organizations offering the services to SMEs are crucial to the success of innovation management programmes. The survey showed a gap between the perceived importance of programmes that build innovation management capacity and the corresponding availability and expertise on the intermediary side.
Figure 3: Perceived importance of innovation management capacity programmes, availability in intermediaries’ service portfolio and internal and external expertise.
Different support programmes require different capability profiles at intermediary level and collaboration between various intermediary organizations. A study by the OECD¹ (OECD 2015) shows that the role of intermediaries is changing, requiring increased collaboration with diversified patterns of stakeholders. Intermediaries surveyed within the IMP3rove study perceive collaboration with partners for implementation of programmes as increasingly challenging due to the diverging interests of stakeholders and different supranational, national and regional policy levels. We observe different levels of maturity regarding collaboration between intermediaries and other stakeholders.
The traditional approach is to provide the defined support service, e.g. funding, without investigating what the SME might need to best valorise the funds. The more advanced level represents intermediaries that check the SMEs’ innovation management capabilities and ambition to grow by innovation first before they define the appropriate type of innovation support. The leading intermediaries take a long-term perspective in developing the SMEs’ innovation management capabilities and performance building on a clearly structured assessment, defining the appropriate measures for improvement together with the SME’s management and then provide the support actions and experts according to the SME’s very specific needs.
The importance of innovation management capacity-building programmes for SMEs is not yet fully mirrored by the availability of such programmes.
Could digital support play a role in enhancing intermediary support to SMEs? In the survey, only 15% of intermediaries indicated that offering digitized online support is an area in need for improvement to make innovation programmes more attractive for SMEs. We expect that this percentage will increase over time. Digital support, especially in terms of marketing and promotion of innovation services will gain in importance as well as in acceptance by SMEs. According to the IMP3ove study, lack of information about support services is a key barrier to participation by companies. This might result from a mismatch of preferred communication channels between SMEs and intermediaries. Intermediaries attribute most importance of communication channels to partner networks and information days, whereby SMEs deemed online communication to be the most effective channel. According to SMEs’ preference for online communication, online platforms could represent a valuable tool to increase SME-intermediary communication, enable information exchange as well as simplified, time-saving access to support services.
3. Facilitate networks
Figure 2 shows that apart from funding and consulting/coaching, support in networking and partnerships is also an important element for SMEs. At the same time, more than 50% of policy-makers surveyed in the study think that the creation of sustainable public-private structures and linkages to strengthen innovation networks still remains an unsolved issue. This reflects the trend that public bodies are increasingly acting as facilitators, putting a greater emphasis on building networks, improving co- ordination, promoting awareness and reducing reliance on government funding (OECD 2015). How should intermediaries go about facilitating the strengthening of innovation networks?
According to the intermediaries that contributed to the IMP3rove study, innovation networks can be strengthened and made more effective by aligning interests between actors whilst extending the types of actors involved. The value of an innovation network increases with the diversity of actors, promoting peer-to-peer learning by the cross-fertilization of ideas across different sectors, markets and organization sizes.
How can intermediaries help to balance and align diverse strategic goals? First, the existence of an innovation strategy in each organization is vital as the basis for identifying and aligning diverging interests. Secondly, SMEs need support in developing internal collaboration and networking interfaces and capabilities. Specifically the share of benefits and investments need to be considered; 50% of enterprises in the study indicated that share of benefits and investment was the greatest concern in innovation collaboration.
To identify and align various innovation partners, benefit and intensity of cooperation can be mapped as shown in Figure 5. On a high level, Figure 5 shows that extending the benefit of inter-company collaboration should be the focus of support to SMEs seeking to improve their innovation network benefits. Universities seem to be the partners for SMEs with the highest intensity of collaboration that also create the most value from innovation.
Figure 5: Cooperation intensity (i.e. investment of time/resources) and contribution of cooperation to innovation success based on survey data of 62 enterprises
The multi-tasking challenge that staff members of intermediaries face when providing innovation support services often is not reflected in their internal performance criteria. There are still predominantly quantitative measures in place such as amount of public funding allocated to SMEs, number of partner agreements or number of technology transfer agreements signed. Yet the more difficult part is to measure and incentivise the economic impact of the innovation support services rendered. Some intermediaries, therefore, select companies with a growth track record for their support programmes. They then measure the growth in revenue, profit and number of employees before and after a defined period following the provision of support services. Thus they identify even more specific success factors for their innovation support services. With this approach they help the right SMEs to grow profitably – in the end without further public funding. Defining and implementing the right selection criteria will increase innovation support programme’s effectiveness, efficiency and complementarity.
Spending public money more wisely in the future
With the development of competencies, intermediaries will be able to identify and select SMEs and their projects that yield the highest return on public money spend. With more knowledge in innovation management and in evaluating the business potential of an innovation project, the intermediaries will gain effectiveness in the selection process. They then will also be able to maximize the efficiency of public spending. The ratio between public support provided to return on investment achieved by the SME is expected to increase. With this approach, the number of SMEs that use public programmes to achieve innovation results that could have been achieved through other means will decline.
By Eva Diedrichs & Emma Fürniss
About the authors
Eva Diedrichs is Managing Director of IMP3rove – European Innovation Management Academy that has developed the largest international benchmarking database on innovation management in SMEs. Eva Diedrichs has developed the IMP3rove training and certification scheme and consulted large international companies and public institutions in innovation management.
Emma Fürniss provided as analyst at IMP3rove – European Innovation Management Academy research results on innovation management trends on firm level for IMP3rove policy insights and reports to public institutions.