Small business employs around half of the private sector workforce and creates between 60-80% of private sector jobs. But how can it compete with large corporations regarding innovation?
Very well. In the short term, innovation will assist some SMEs and Western economies in getting through the current recession. In the longer term, some of these innovations will spawn whole new industries. For example, canned food became prevalent in the recession of the 1870s, enabling the settlement of the American West, the Australian Outback, and feeding the British Navy in patrolling its empire.
Business entrepreneurs are perfectly positioned to innovate:
1) Because they can: Entrepreneurs are opportunistic by nature and are closer to their customers. This means that they can anticipate customer needs, identify new opportunities and iterate and fine tune new products and services quickly. Decreased speed to market lowers both risk and cost.
2) Because they have to: Smaller businesses operate in competitive and dynamic markets, often on the ‘fumes of an oily rag’. Competition is ever present and resources are limited. SME success hinges on continually adapting and making changes to their business.
These businesses innovate both reactively and proactively. They innovate reactively in response to customer, market and competitive pressures. But they can also be proactive, scanning for new business opportunities. Often, such companies blend the two processes by reacting to a need but often creating something bigger and better – or altogether different. For example, in the recession of the early ‘90s Nokia, a timber to boots conglomerate, abandoned 90% of its businesses to concentrate on telecommunications equipment, particularly a new segment within it: mobile phones.
With no fortress walls separating them from the market, nor functional silos impeding their ability to respond to it, nimble businesses can quickly and easily adapt their business practices, change course or even pursue entirely new directions. Because of this agility, innovation consumes fewer resources, requires fewer ‘sign offs’ at successive levels in the bureaucracy and is easier to implement than for larger corporations.
In a six year study focusing on how entrepreneurs think, Professors Jeff Dyer of Brigham Young University and Hal Gregersen of INSEAD interviewed over 3,000 executives. In explaining how the “Innovator’s DNA” works, they highlighted six skills, of which two are most important: The first: "Associating." It's a cognitive skill that allows creative people to make connections across seemingly unrelated questions, problems, or ideas, says Dyer. The second skill is questioning – an ability to ask "what if", "why", and "why not" –questions that challenge the status quo and open up the bigger picture.
Most business innovation focuses on the commercialisation of new ideas, methods and processes and not patentable, scientific research. Because of this, the impact of small business innovation is often overlooked. But despite being silent innovators, most business success hinges on innovation and is an important driver of economic growth.
Just as the growth of canned food in the 1870’s depended on the ‘infrastructure’ of canning factories, mechanised agriculture and nascent rail and canal transport, so too does small business rely on its IT infrastructure.
A dynamic infrastructure can deliver three benefits across a business while also laying a solid foundation for the future:
• Improved service: Internal and external customers, and employees expect superior service – not only regarding the high availability and quality of existing services; they also have rising expectations for new ones.
• Reduced cost: Bottom-line cost reduction is important, but a dynamic infrastructure can also help achieve breakthroughs in productivity gains through, for example, virtualisation, optimisation, energy stewardship and flexible sourcing.
• Managed risk: Security, resiliency and compliance are already expectations in today’s environment. All businesses need to prepare for the new risks posed by an even more connected and collaborative world.
With a dynamic infrastructure, any business is better positioned to exploit opportunities – like Nokia in the early ‘90s, when it made the leap into a completely new line of business.