‘We must encourage SMEs to innovate all the time’

Irish firms innovate all the time. It’s essential to their survival. Here’s how to encourage more innovation and why it’s needed. 

When we come to talk about innovation, it is important to agree on what innovation is to a business owner. The term ‘innovation’ is used rather interchangeably with the term ‘creativity’ when discussing individual and organisational creative activity. They are not the same, because, while creativity implies coming up with ideas, it’s the bringing ideas to life that makes innovation the distinct undertaking it is. And who better at bringing an idea to life than an SME entrepreneur?

Bringing ideas to life

I cannot tell you the number of times that an SME owner has told me they ‘don’t innovate’. But when I ask if their product is the same as it was ten/fifteen years ago they will be quick to tell me “no it’s entirely different, due to ‘modifications’.” In a large multinational firm, these innovations are classed as R&D, but in a small business they are just ‘modifications’. It is these modifications that bring ideas to life.

We all know that the SME owner/manager is forever innovating. Unlike large firms, where innovation is usually found in the R&D activity.

The SME owner is always looking for ways to improve her bottom line and trying out new ideas, whether it be in sales, product design, production processes or simply better purchasing. All these activities involve innovation, in one form or another.

small business ideas

Characteristics common to innovators and in most cases entrepreneurs

•    They are not (overly) troubled by the idea of failure.

•    They know innovation requires the knowledge that failure is a real possibility.

•    They realise that you can learn from failure and that the ‘failed’ technology can later be re-used for other purposes.

•    Innovators are curious about what is happening across a myriad of disciplines, not only their specialism.

•    Innovators are open to third-party experiments with their products.

•    They recognise that a useful innovation must be robust, flexible and adaptable.

•    Innovators and entrepreneurs delight in spotting a need that we don’t even know we have, and then fulfilling that need with innovation.

•    Innovators like to make products that are immediately useful to their first users.

•    Entrepreneurs seek the competitive advantage through innovation.

small business ideas

Successful firms are those that innovate

Innovation enables enterprises to differentiate their product and services offerings. Innovation plays a crucial role in creating competitive advantage, enhancing productivity, and ultimately increasing profitability.

It is also true that, as a result of small businesses’ fragility, it is important to have available supports such as venture capital programs to favour innovation financing, encourage patents to protect inventions, encouraging strategic alliances as a means to empower small businesses in terms of marketing and management, and, finally, governmental mechanisms to encourage innovation.

It is also worth noting that most small enterprises operate on scarce resources, and there is a temptation to cut costs by eliminating expenditure on innovation. Therefore, it is also important to raise SMEs’ awareness of the importance of investing in innovation, as this is where the roots for the business’s future competitiveness and survival lie.

For SMEs, where innovation is second nature, sometimes it can be difficult for them to avail of the supports available as it can involve reporting and form-filling. However, the rewards will outweigh the effort in the medium to long term.

Some of the barriers to SMEs investing in R&D

•    Bureaucratic processes and procedures.

•    The expense of conducting R&D.

•    Low levels of grant aid for SMEs for funding for R&D. 

•    Research vouchers of €5,000 do not cover the costs of the majority of research projects.

•    Higher education institutions lack the mandate to transfer applications of research to SME sector.

•    Ireland has a lower than average OECD rate of trained researchers.

•    Tightened economic conditions make R&D less attractive for SME owner/manager.

We need to show how innovation takes place in small businesses and how the flexible structure of these entities can contribute to the effectiveness of innovation. 

It is people who innovate, who have ideas, who build relationships. The focus from a Government policy perspective must be how we can strengthen enterprise innovation performance as a key component of a dynamic and impactful innovation ecosystem.

Despite the fact that there has been an increase in the number of enterprises engaging in R&D, the reality remains that there is a high proportion of Irish-owned enterprises across the economy that do not undertake any R&D activities. It is important that we promote the initiatives that are there.

how to be more confident

Promoting innovation among SMEs

•    Develop a campaign to increase SME awareness of the importance of innovation.

•    Provide an innovation auditing service to SMEs.

•    Provide basic skills training in innovation process management for technical and marketing staff.

•    Provide support to SMEs in identifying future innovation trends.

•    Support placement of SME innovation personnel within MNCs to learn best practice.

•    Expand the number of tailored, action-oriented, sector-specific training programmes.

•    Make innovation an integrative subject at third level.

•    Support linkages with HE institutes/universities.

•    Encourage collaboration between the innovation and marketing functions in SMEs to ensure innovation is market led.

•    Develop a portal to facilitate sharing of best practice linking marketing and innovation.

•    Develop innovation management processes tailored to SME needs. 

mark fielding ISME

So, congratulations to our SMEs. Let’s ensure that we continue to be class leaders in innovation, through support and encouragement of our entrepreneurs – the wealth creators, the job makers.

Opinion piece by Mark Fielding, former CEO, ISME.