How SMEs can become more innovative

Wednesday, 13 July 2016

Andrew Klapka GAICD photo
Andrew Klapka GAICD
CEO, Trans Chem

    Have you always wondered how some businesses seem to innovate so readily and easily? Andrew Klapka GAICD considers three steps SMEs can take to be innovation ready.

    How SMEs can build a culture of innovation1:51

    When speaking about innovation in the mid-19th century, Louis Pasteur famously stated that ‘fortune favours the prepared mind’. We can extend on this reflection and add that ‘innovation favours the prepared organisation’.

    While chance discoveries in innovation do happen – recently Australian researchers ‘stumbled across’ a treatment halving the time for wounds to heal – such discoveries are usually the outcomes of an organisation with a well-prepared innovation capability; a state of innovation-readiness.

    As Australia’s resources boom softens, the government is starting to drive policy initiatives for industry value-creation. Important topics – such as startup funding, regulatory barriers, collaboration and knowledge-clustering – are high on the list of items receiving attention on the national agenda. But how confident and prepared are small and medium-sized enterprises to implement innovation?

    What is needed for innovation readiness?

    Innovation is often talked about, yet businesses often have trouble implementing it. According to recent reports from the Department of Industry, Innovation and Science, only 16 percent of Australian businesses have an innovation capability that performs well and almost 40 percent have none at all.

    Organisations in technology industries are more innovation-ready than other industries. Continuous innovation is their lifeblood and they have competencies to support this. Even for startups, young innovative entrepreneurs have access to the support of university incubator models. However, for many SMEs, which make up the larger part of Australia’s business landscape, it’s a different story.

    While most SMEs understand that innovation entails more than just the generation of a new product or service idea, they may not have a clear idea of how to:

    • develop an innovative culture and capability;
    • initiate processes that reveal profitable new service or product opportunities;
    • mitigate risks when developing new products where demand is uncertain.

    Organisations should develop an innovation framework to suit its style and objectives. This framework should define the steps of innovation implementation from discovery to commercialisation to risk-balancing of an innovation portfolio.

    Three steps towards building innovation readiness

    As with many matters of governance, an innovation framework is about focusing the right questions on the right topics. Here is a selection of discussion points to consider when determining innovation readiness.

    1. Culture and communication
      How does a business embed innovation as a wall-to-wall, top-to-bottom culture and capability?

    2. Portfolio structuring and management
      How do you structure a balanced and measurable innovation growth portfolio? What determines a particular choice of innovation direction or platform?

    3. Successful implementation
      How can you utilise your current and future customers to form innovative ideas?

    Given the complexity and inherent project risk, it is not surprising that many businesses are daunted by the prospect of pursuing a program of innovation. But if businesses continue to baulk at innovation because of process and risk uncertainty, Australia’s substantial SME sector risks stagnation.

    How boards and management can help

    Just as the board calls on external strategic advisers to steer an organisation’s strategic review, so too can the board recognise the need to engage innovation expertise for guidance. In this way, boards and management can apply proven and stable innovation practices that stimulate confidence throughout the business and have the best chance of delivering outcomes that customers genuinely value.

    Innovation should be a standing item on board and management agendas – just like safety – that prompts updates from different functional areas within the business. This will reinforce innovation as an overarching organisational capability that touches all functions.

    Boards can facilitate benchmarking with businesses and organisations who deal with similar research challenges. Such knowledge sharing will often be surprisingly useful. Innovation benefits greatly from the sharing of experience between companies from completely different industries.

    Finally, the risk-averse business must approach innovation with greater confidence. If risk is properly managed valuable outcomes are possible and good fortune will indeed favour the innovation ready organisation.

    Andrew Klapka GAICD is CEO of Trans Chem, an importer and distributor of raw materials. Previously he spent 10 years in Paris managing global innovation for Lafarge France, a leading European multinational.


    Andrew Klapka GAICD will be speaking on how private enterprise can embrace intrapreneurship and innovation at the 2017 Australian Governance Summit.

    Want to find out more about the Australian Governance Summit? View the program here.

    Watch highlights from the sell-out 2016 Australian Governance Summit

    The Australian Governance Summit 20162:10

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