Why SMEs need to innovate – or fail

Innovation is something that is original and the process of innovation can be viewed as the application of better solutions that meet new requirements. It can be applied to existing markets by creating or producing more effective products, processes, services, technologies or ideas that are readily available to markets, governments and society. In other words, innovations are novel ideas and solutions that have true commercial value.

Innovations are often based on new technologies, but an innovation can also mean a new way of conducting existing business or even solving a social problem. Innovation is regarded as the catalyst for economic growth and small to medium-sized enterprises (SME) are viewed as a significant source of innovation.

A 2013 PricewaterhouseCoopers (PwC) report on innovation and growth found SMEs that are regarded as leaders in the adoption of technology increased their revenues 15 per cent faster and created jobs at twice the rate of less progressive firms between 2010 and 2012. The report argues a major factor driving this growth is the latest wave of technological advancements, such as mobile communications, cloud computing and social media, which is providing SMEs with access to capability that was previously only affordable to large corporations.

Modelling based on data from 2012/13 conducted by PwC shows that by enhancing innovation among SMEs, the sector could increase gross domestic product by nearly $6 billion (or 0.4 per cent), lift real wages by 0.5 per cent and raise revenue in the economy by $11 billion. However, the PwC 2013 analysis emphasises technology adoption must be accompanied by business process change in order for Australia to boost innovation, competitiveness and multi-factor productivity. For starters, an innovation strategy is essential. The report found 79 per cent of the most innovative companies have well-defined innovation strategies, compared with only 47 per cent of the least innovative companies.

Further benefits are described in the Department of Industry’s “Australian Innovation System Report, 2013”, which states a high-performing national innovation system is one that delivers productivity gains and social and environmental outcomes, leading to improved living standards.

However, SMEs are lean innovators, accounting for a very small share of total investment in innovation, and are much less likely to generate new-to-the-world innovations. By contrast, large Australian businesses make up the majority of total investment in innovation, are much more likely to collaborate with the research sector and generate new-to-the-world innovations. While large Australian businesses also generally display higher levels of innovation than Australian SMEs, when compared with their European counterparts, they are below average innovators across most industries.

It is suggested we need to improve our business culture and management capacity, which will then enable us to provide innovative solutions for Asian customers and supply chains. Part of the challenge is to increase collaboration and productive linkages that will allow Australian businesses to compete based on innovation. A high-performing innovation system should ensure actors within the system are connected and able to effectively collaborate, thereby maximising the flow and exchange of resources and ideas.

As shown in the “Australian Innovation System Report”, innovation almost doubles the likelihood of productivity growth in Australian businesses. Compared to businesses that don’t innovate, innovative Australian businesses are 78 per cent more likely to report increases in productivity over the previous year. An extension of this analysis shows collaborative innovation with research organisations triples the likelihood of business productivity growth. Compared to businesses that don’t innovate, innovative Australian businesses that collaborate with research organisations (among others) are 242 per cent more likely to report increases in productivity. Despite this, and other benefits to training and exports, Australia’s overall levels of collaborative business innovation and business-to-research collaboration on innovation continue to compare poorly with other Organisation for Economic Co-operation and Development countries.

Despite all these inputs, Australia’s innovation output is not as high as it could be. Critical areas of poor performance that need attention include collaboration on innovation, business culture and business management skills. Working smarter also means improving our understanding of how major markets, such as those in Asia, operate. Unfortunately, investing in language, cultural understanding and business experience in Asia seem more important to others than they do to Australian businesses.

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital