Why and how SMEs should innovate to thrive

SME owners are constantly advised to “innovate, innovate and innovate or die”. An implicit assumption exists that innovation is always good. No wonder most entrepreneurs feel overwhelmed as they search for the next game-changing innovation whilst faced with the practical costs and risks associated with innovation, competitive pressure and daily management tasks. Our research provides guidance with this dilemma.

Exceptionally execute novel combinations of existing or new ideas in your business model

Innovation is about implementing new ideas to create value. These new ideas do not have to be breakthrough products or services but rather novel combinations of new or even existing ideas applied to different business activities.

• Search for exceptional execution of ordinary ideas made extraordinary by combining elements of your business model in novel ways, which are different from the industry norm or logic to build differential advantage.
• Constantly question your logic about how business is done: how you create, deliver and appropriate value, which may lead to business model innovation.
• Apply effectual reasoning, design thinking and lean startup approaches; fail often, fast and cheap, and continuing to think like a startup.

Innovation matters but do not cast your innovation net too broadly

Research overwhelmingly suggests that innovation matters for SME growth and performance. Past innovators tend to have higher growth aspirations, invest more on future innovations and perform better than non-innovators. However, SME innovation is risky business and the assumption that every innovation is advantageous is misleading:

• Be aware that overextending the range of activities in which innovations are applied in any given year can harm your performance.
• Because SMEs have limited innovation scope, they would derive maximum performance benefits from innovation if they focused their innovation implementation on only crucial business activities.
• Refrain from being tempted into simultaneously innovating across a large number of innovation types.
• Continually implement at a moderate level of innovation to produce and maintain maximum performance benefits.

Innovation is a team sport and favours the connected mind

Building and maintaining strong network ties with diverse links provide social capital that improves SME performance. However, the network – performance link is not a direct relationship; having strong diverse network relations improves innovation output which in turn lead to improved SME performance. Think innovation in all your networking behaviour; new ideas happen at the intersection of diverse knowledge fields, and trusting relationships provide valuable access to tangible and intangible resources for making these new ideas real.

Build a culture that values knowledge sharing and tolerate failure

Information, knowledge and learning are tacit, intangible resources that have been found to have the greatest strategic potential in developing competitive advantages for SMEs. Physical resource strapped SMEs should rely more on the acquisition, development and leveraging of their intangible resources to become more innovative. Business owners should develop a culture that enables experimental learning as well as the generation, acquisition, sharing and implementation of new knowledge.

The challenge is to maintain operational efficiency while also incentivising calculated risk taking and tolerance of failure within an organic organisational structure; start by experimenting to create a game changing value proposition and business model for a small segment

Communicate in everything you do a clear vision for growth that is underpinned by a strong belief in your ability to succeed. Innovation is about people with an experimental mindset, networked teams and culture!

Dr Sarel Gronum, Lecturer, Bachelor of Business Management Program Leader, UQ Business School