In these testing times, SMEs need to dial up innovation

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Innovation needn’t always be new, it can be making a change or doing something differently. Innovation is not just about inventing new things but also changing business models and adapting. It is also creating products and processes that are more efficient.

Small and medium enterprises (SMEs) need to deliver better products and services responding to the needs of the marketplace in an ever-changing landscape. An “innovation mindset” should be integral to a business’ strategy and vision.

Often it is the smaller and agile enterprises that contribute to innovative products, designs and processes. Innovation encompasses a wide range of activities and a veritable industry is around it. It is not just about research and development (R&D) departments.

Innovation is wide-ranging and also includes improved designs and processes/new technologies. Labour arbitrage used to play a major role in a competitive advantage for the IT industry in India until a few years ago. As countries such as the Philippines and Vietnam started catching up, Indian firms shifted their focus for competitive advantage.

Accumulating intellectual property 

One marker for innovation is the number of intellectual properties (IPs) that a company owns. China recently overtook the US as the top patent filing destination. South Korea is also climbing rapidly up the list.

In India, the government has taken some steps to encourage IPs. Some key initiatives included fee concession for filing (10 percent rebate on online filing, 80 percent fee concession for start-ups registered with Startup India and educational institutions) and provisions for expediting examination for MSMEs. These are good steps but patent filing statistics published by the Indian Patent office show that SMEs in India are lagging.

Promoters and some family members who hold senior positions are often the key decision-makers in SMEs. This can be a big plus for creativity and innovation. Larger firms are hamstrung by their structure—multiple layers and managers, where ideas can easily get before reaching the decision-makers.

On several occasions the bright and innovative are promoted to management positions, depriving them of the time they need to think and drive innovation. There are instances of smaller firms nurturing spurned ideas. Some large companies have spun innovation into a different SBU that is small but that requires commitment at the top like the former chairman of P&G who wanted 50 percent of new product ideas to come from outside of the company.

Indian companies need to think about innovation and also get smart with protecting their competitive advantage. Innovation management is not a complex process and can be broadly categorised into these three areas:

1 Product innovation: This is the type of innovation that gets the maximum visibility and gets its originators' name, fame, and often money.

2 Process innovation: These are the ideas that can help weed out hidden inefficiencies. These are the ones where there may be a short-term cost involved for getting long-term benefits. A fixed mindset of not wanting things to be derailed can prevent such innovations in SMEs. Lean, Six Sigma and the TOC (Theory of Constraints) are some of the tools that can trigger innovation in this area.

3 Strategic innovation: This is vital and the purpose of which is to change the direction of an entire department, a company or even a group. The usual strategy is to create a new business model that genuinely creates value for stakeholders. Strategic innovation is associated with a change in organisational architecture—a completely new market or market segment.

In the military, there is a concept of “Forward Escape Orientation”, where the only way to go forward is by meeting challenges as they come. That is the spirit of innovation, which will serve well in times like today where SMEs are fighting many battles—low demand, high input costs, regulatory roadblocks and import hassles.

The Indian concept of jugaad is not only ingenious but also innovative—making the most of limited resources, which many SMEs perhaps unconsciously practice. To quote Steve Jobs, “Innovation is the ability to see change as an opportunity – not a threat.”