How SMEs can boost innovation in 5 practical steps

There are five practical steps small and medium-sized enterprises (SMEs) can take to boost innovation, improve growth and become more successful, according to Microsoft.

“Innovation is vital to the success of any business, no matter how big or small,” said Pip Marlow, managing director of Microsoft Australia.

However, she said many businesses find it difficult to develop a culture of innovation because of barriers including working in silos, fear of failure, employee distrust and poor collaboration.

A recent research report from Microsoft said every SME has the ability to enhance its level of innovation, and recommended five practical steps to improve:

  1. Evaluate current performance: the first step in improving any business’s innovation efforts is to understand how it is performing today
  2. Establish the right culture: addressing cultural barriers and creating the right environment can improve SMEs’ innovation activities
  3. Create innovation-oriented collaborative networks: some SMEs may need help turning their appetite for and awareness of innovation into action
  4. Encourage flexible work practices: flexible work practices are common at innovative SMEs
  5. Attract next-generation staff: create better connections, for example with tech-savvy school leaders and university graduates to help SMEs bridge any technology gaps.

The research report, Culturing Success: How workplace culture drives innovation at Australia’s leading SMEs, was completed in partnership with corporate anthropologist Michael Henderson and research agency AMR, and surveyed more than 500 SMEs to understand the behaviours and traits that underpin innovative businesses.

The innovation landscape for SMEs
Seven out of 10 SMEs are failing to reach their full growth potential because their workplace culture is making it impossible for innovative ideas to flourish, according to the report, which found that SMEs fall into three main groups, the first of which are leaders.

Only 33 per cent of SMEs were considered innovation leaders, which are businesses that are adept at responding to change, threats and opportunities in their markets

This group have dynamic and flat structures that encourage employees to innovate without a fear of failure.

They are also growing faster than their peers, and report higher levels of staff retention and customer loyalty

The report found that 43 per cent of SMEs were innovation ‘cruisers’, or businesses with an interest in innovation but that tend to under-deliver in practice.

While they recognise the importance of innovation, they lack the tools and support to see innovative activities to fruition.

The third group consisted of laggards (at 24 per cent), which are businesses with little or no appetite for innovation.

Overall, innovation leaders perform better than other businesses. For example, 39 per cent of leaders reported revenue growth ahead of their industry, compared with 24 per cent of cruisers and 23 per cent of laggards reporting above average growth.

In addition, leaders reported stronger performance on factors such as revenue, business efficiency, market share, staff satisfaction and retention, and customer loyalty.

Cultural traits of innovation leaders
The report also found that there were six cultural traits common to innovation leaders that other SMEs can pursue to enhance their innovation performance:

  1. A high level of customer focus. Leaders make it their business to have a deep understanding of their customers, and the report said this extends beyond knowing their purchasing habits; leaders are aware of customers’ needs and can anticipate how these requirements will change, keeping them ahead of the competition.“Leaders aim to meet customers’ needs from the outset, not to maximise revenue or reduce costs,” said the report.“They are passionate about their product and put quality first. Sales typically follow as a natural result. When it comes to their customers, leaders understand the job is never complete.”
  2. An awareness of and appetite for innovation. Leaders showcase awareness (they are conscious of the need to innovate and put innovation at the forefront of their thinking), appetite (they have the motivation and the will to innovate, as well as a clear ‘why’ driving their innovative activities) as well as activity (they have the desire to innovate, and the knowledge and capacity to make innovation happen. They allocate resources to turn vision into reality).
  3. A supportive working environment. “Leaders have the right internal culture to drive innovation,” the report said.“They have an effective combination of awareness, appetite and activity to undertake innovative activities.”For instance, leaders tend to have flexible structures defined by open lines of communication where all ideas are welcomed, and these businesses also emphasise attributes such as collaboration, critical thinking and creativity, and have systems in place to test these ideas and potentially take them through to commercialisation.
  4. Visible and involved leaders. In practice, the report said this is manifested in four discrete ways. First, senior staff members respect their employees and value open and honest dialogue with them.Second, senior staff members work hard to support new initiatives and mentor the people behind them, and they invest time, money and resources to support promising ideas.
    Third, senior staff members make it a priority to break down silos and unite departments across their organisation. They understand that innovation requires input from people with a variety of skillsets and expertise, as well as the critical eye of people from different departments. Fourth, senior staff members take responsibility for risks. If a creative venture goes badly, the business’s leadership claims responsibility rather than placing the blame on individual employees.
  5. Engaged employees. Staff members respect their employers, and there is no ‘us versus them’ attitude in the workplace, said the report, which added that employees feel known and valued, and know that their ideas will be treated with respect and explored in detail.In addition, leaders’ staff members believe they are important to the business’s success.“They feel responsible, accountable and autonomous, and are invested in the growth of the operation as a whole – not just their own personal development.”
  6. Authentic internal dialogues. Innovative businesses value and demand open and honest communication, the report said.In leader businesses, it said all employees have the opportunity to influence the company’s strategy.“This is a real cultural commitment; leaders consistently run meaningful progress checks to seek feedback from staff members, evaluate employees’ work and ask for creative input into the business. They are also selective about which opportunities to pursue.”

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