What is innovation? While its definition has always remained the same, what it means in terms of business success has changed significantly over the past decade.
Before the dawn of the digital revolution, innovation was the pursuit of businesses within industries like tech, medical sciences and car manufacturing. These sectors had to invest in innovation if they wanted to break new ground and soar above the competition. In many other industries, you could afford to largely ignore it. If you had a business model, a solid customer base, low competition - why fix something that wasn’t broken?
The landscape today couldn’t be more different. Innovation is no longer optional for SMEs. In fact, we found that high-growth companies are 37% more likely to rely on radical innovations than no-growth companies. Fierce competition, fast-evolving technology, changing customer tastes and an unpredictable economy have turned the business vista into a jungle. Instead of eat or be eaten, it’s innovate or die.
So, what are the barriers businesses face in terms of innovation, and how can SMEs use innovation for growth? The Vistage Innovation for Growth Report has all the answers…
What is innovation?
Let’s start with what innovation isn’t. It isn’t breaking away from the crowd just for the sake of it or coming up with the most weird and wonderful idea just because you can. True innovation is purposeful and focussed. It should seek to solve a problem in a unique and tangible way.
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In order to innovate, you first need to determine what the issue is. Has a new competitor disrupted your market? Has demand for a certain product or service suddenly dropped? Have you lost a vital employee?
Your specific problems will help to determine which type of innovation you should initially be focussing on.
Incremental innovation vs radical innovation
While these two types of innovation overlap like a Venn diagram, incremental innovation and radical innovation are in fact two distinct categories.
As the name suggests, radical innovation aims to create groundbreaking or completely new products, services or technology. Incremental innovation focuses on improving and enhancing existing products or services and serving new customers or markets. Which one should you choose? In our report, Vistage speaker Paul Griffith explains why you ultimately need both:
“There is a continuum of innovation; from making modest process changes for a business through to creating a paradigm shift in products and services.... Research indicates that most business and product outcomes arise from improvement-based innovation. Ideally, companies should be looking at their innovation strategy to have a balanced set of projects that offer both incremental and radical innovation options.”
While incremental innovation is the most easily applicable type of innovation to invest in, it’s also easier for your competitors. That’s why you need to eventually include both innovation models and go further than simply doing the bare minimum.
If innovation is about out-stripping the competition, it’s vital you aim to do considerably more than your competitors, otherwise you could just end up treading water, as Mark Emmer, President of Optimize Inc., highlights:
“Innovation is usually very incremental in small and midsize companies. For example, a company might try to use innovation to increase their productivity 2-3% in a year. The problem is, if all of your competition is also seeking a 2% productivity improvement every year, you won’t achieve differentiation with that approach.”
Our Innovation for Growth Report found that SMEs heavily favour incremental over radical innovation. While 80% of respondents felt that company success was based on improvements to existing products and services, only 22% said developing new technologies was fundamental to success. It’s easy to see why this is the case.
Incremental innovation allows companies to use existing resources. It doesn’t require additional people or a shift in organisational mindset; it’s relatively simple to implement and the results are often seen quickly. However, used singularly, over time its scope is limited, as Paul Griffiths explains:
“Doing an incremental innovation project satisfactorily is not the same as implementing a well-conceived, perhaps more stretching, innovation opportunity that will have more impact on the bottom line. Identifying such innovation opportunities may require access to knowledge or skills that the organisation does not have. It may also involve using new techniques that the company is not familiar with.”
Radical innovation is the thing that will potentially set your business apart in the future. If incremental innovation is a tactical response, radical innovation is the long-term strategy. Of course you need both, but without the overarching strategy you’re likely to reach a sticking point. As Griffiths says: “The challenge for leaders is to think about achieving their goals by innovating their approach to innovation.”
Barriers to innovation
Everyone understands the importance of innovation, so why aren’t more SMEs investing in it? Our report asked MDs to list the factors which were hindering innovation in their companies. Here are the top five:
- Lack of time
- Shortage of talent/skills
- Limited capital/investment
- Resistance to cultural change/new ways of thinking
- Risk aversion/fear of the unknown
The first three of these barriers fall into the category of a perceived shortage or lack of requisite resources.
While it’s easy to imagine that in larger companies, time and resources are in plentiful supply, the truth is that nobody has time or unlimited budgets for innovation - you need to make time for it and use the resources you have. It has to be an active choice, otherwise it simply won’t happen.
A big part of this is a shift in attitude. You would never say: we don’t have time for marketing or we don’t have money for sales. Innovation needs to be seen as a business fundamental - without it you run the risk of obsolescence.
Start by scheduling a monthly meeting for your management team to focus on innovation, and then approach it in the same way you would any other business fundamental: set clear goals to work towards and put in place metrics to track your success.
Rather than a lack of skills or total shortage, you’re likely to find the opposite: your team already knows your business, the market, and the factors which are inhibiting business growth. Essentially, they’re best placed to find innovative solutions to the problems your business is facing.
When it comes to the fear of the unknown, cultural change and aversion to risk, challenging your notions of what you perceive innovation to be is often the key to breaking through these barriers.
Innovation isn’t just about creating new products or overhauling your marketing, it applies to every aspect of business - from the micro to the macro. For example, you could come up with an automation tool that increases workflow or transform your delivery service to beat the competition on delivery times. Innovation in any part of your business has the potential to positively impact on your output, your sustainability as a company and, ultimately, your bottom line.
If you’re worried about resistance from your team, find ways to incentivise innovation. Rather than using the incentives you already have, come up with something specific to innovation. This will emphasise your commitment to and belief in its importance.
In addition to this, making it a key facet of your company’s core principles will help to create a culture which embraces innovation. When you interview new employees, include questions about innovation ideas and strategies, and make it clear that the company is committed to being innovative.
Innovation stopped being a ‘nice to have’ a long time ago. In today’s business landscape it’s crucial not only to growth, but to the very survival of small and medium-sized businesses.
Understandably, for some, it’s seen as a burden; another thing to consider in a world with so much to do and so little time. Ten years ago, most SMEs didn’t have to think about it - but it’s all a matter of perspective. By viewing it as an opportunity rather than a problem, innovation can help you transform your business and achieve growth, which ten years ago, you couldn’t have imagined possible.
Have we piqued your interest? Read our full report.