Convincing SMEs that Innovation Management Matters
SMEs are perceived as the back-bone of most economies in Europe. Therefore, a lot of programs have been launched to support their growth. Over the past years, offering innovation support has become popular, complementing the well-known start-up financing and technology transfer programs. Despite the above, there is a level of dissatisfaction regarding the impact of these services.
The questions that arise include:
- What actually prevents SMEs from adopting innovation support services?
- What could be effective steps to reach SMEs?
- What would be value-creating offerings for SMEs to incorporate innovation management in their organisations?
Knowing your customers – the SMEs
Most SMEs have other priorities than innovation management. Therefore, the main concern is not how to introduce innovation management to SMEs, but what prevents the SME manager from sleeping at night. It is the challenge to find and retain new customers. It is the question of how to cope with the price pressure from low-cost countries. In Germany, SMEs also face the challenge of attracting qualified employees. These general observations of course need to be differentiated when thinking about effective steps to reach SMEs.
A recent analysis of SMEs’ feedback on the IMP³rove Innovation Management Assessment¹ shows that there is a difference in perceived value added between the SMEs with less than 20 employees and those with 21 to 100 employees and with 101 or more employees. Companies that are supported by a trained IMP³rove Consultant during the IMP³rove Assessment, rate the consultant’s value added on average at 5.9 on a Likert scale from 1 to 7. Companies that have more than 101 employees appreciate the consultant’s assistance even more. Their score is 6.4 on average. In the same way, the larger companies rate the value of the information provided by the IMP³rove benchmarking report higher than the smaller SMEs. This indicates that larger SMEs gain more valuable insights from the benchmarking report compared to the smaller ones. However, in the rating of the consultant’s focus on the company’s specific issue when providing feedback on the SME’s innovation management performance there is hardly any difference between the small and the larger SMEs. This feedback indicates that SMEs do value innovation management support services once they have experienced that these services deliver a positive impact on their performance. Based on these results, the question is how to convince SMEs to invest time in improving their innovation management.
Reaching your customers – the CEOs of the SMEs
Based on the results of the SME feedback on the IMP³rove innovation support it seems to be easier to start with approaching the larger SMEs for innovation support services. Independent of the size of the company, the CEO will ask “what’s in it for me?” and “what is the value that I can get out of it?” The answer here should not be an “academic” exercise but rather a very concrete value proposition. If the SME manager can see that he/she will save money or time, or that he/she will grow the business, they will become more interested. Many innovation support programs lack this kind of explicit value proposition for the SME. Access to public funds should not be the first argument as to why an SME should make use of the innovation support services offered. The key argument should be the sustainable impact on the SME’s business performance – and how this impact will be delivered.
So what is the expected business impact from the benchmarking of innovation management, for example? Here we argue that SME managers spend time on understanding what their competitors are doing differently. This time can be translated into money by multiplying the time spent with the daily or hourly rate of the person that is actually analysing the competitors’ activities, be it during visits of trade shows, or time spent on attending conferences, or researching on the internet. Usually this would take much longer than one or two days. Innovation management benchmarking, such as the IMP³rove Assessment, offers a systematic analysis of a significant number of competitors within less than two days. In this estimate, the time for internal preparation of required data and for completing the questionnaire is already included. Gaining insight into where the SME’s own strengths and weaknesses are in terms of innovation management compared to its competitors is a value in itself for the SME – especially when the assessment of the innovation management is focused on profitable growth from innovation.
The most convincing argument for innovation support is the expected value from implementing measures that the consultant recommends.
Once the SME has experienced the value of the benchmarking exercise, the interest in closing the identified gaps increases and so does the SME owner’s experience of the value-added that they received from the innovation support provider – the consultant. The benchmarks serve as a basis for discussion on what measures should be taken to improve the SME’s business performance. In other words, the most convincing argument for innovation support is the expected value from implementing measures that the consultant recommends. It might not be the public funding for an innovation project that convinces the SME to improve their innovation management. Accelerating the time to market or the time to profit might have more sustainable impact on the company’s competitiveness than the funds. An analysis shows that there is room for improvement in many SMEs.
Figure 1: Gap in time-to-market between growth champions and other SMEs
SMEs see the value if they translate the delay in launching their next innovation in loss in revenues and finally in loss in profit. SMEs that already think in these terms will continuously develop their innovation management capabilities. Yet the challenge is to convince those SMEs that are at the beginning of this process.
Figure 2: Steps of innovation management proficiency development
The first step for many SMEs is to become aware of what innovation management is and why it is important for their future success. Awareness creation can start with success stories from the SME’s own industry presented by an SME that has already achieved significant accomplishment from taking actions to look for new markets or services or business models. The first step does not necessarily have to be a new product, though. Many SMEs in the manufacturing industries generate up to almost 50 per cent of their growth in profit from innovation that is not based on innovative products but on new services, new processes, or new business models.
When SMEs gain interest in actively growing their business they might be interested in a more systematic assessment of their current innovation management capabilities and competitiveness. It is in this phase that the education in innovation management usually starts. During the completion of the benchmarking questionnaire, discussions about the various dimensions of innovation management are triggered. SMEs often realise that they have already a number of activities in place that are part of their innovation management. However, these activities need to be performed in a more systematic/regular manner. That is the time when innovation management can be implemented and further developed.
In parallel to this development from awareness creation to implementation, the focus should be placed on the increasing impact of innovation management on the SME’s business performance and competitiveness. Since there is a risk that by following the textbook approach the innovation processes or the innovation strategy is not sufficiently customized to the specific needs of the SME, the litmus test is sustainable growth.
On a final note, the awareness creation and education need to convey the message that innovation opens a wide space for sustainable growth to the SMEs, from product innovation to service, be it organisational or business model innovation. Innovation does not only mean technology driven product innovation. As much as technology transfer is important, it is by far not the only source for innovation and competitiveness.
By Eva Diedrichs
About the author
Eva Diedrichs is senior consultant at A.T. Kearney and project manager of IMP³rove and of the launch of the IMP³rove – European Innovation Management Academy (non for profit).
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.