Developing the Capacity of Innovation for Small and Medium Sized Enterprises Background

Developingthe Capacity of Innovation for Small and Medium Sized Enterprises


Theconditions of the evolving world present themselves as a significantchallenge to the social and economic conditions of the modern worldfor which the society must be concerned about. To businessorganizations, these problems mainly imply there is a need to changethe operation strategies to keep abreast the market dynamics. Indeed,it is indisputable that the underlying challenges are varied and havefar-reaching consequences on their success. One of these encountersis increasing competition that requires firms to seek the creation ofedging competitive advantages through cost-efficiency. Anotherchallenge is economic uncertainties that demand companies to adoptcommensurate risk management and survival techniques. Marketregulations, characterized by tax laws and the calls to uphold socialand environmental responsibility, have also increased, implying firmsmust now be cautious about their practices more than ever lest theyare penalized.

Thesituation has elicited discussions on just what firms should do to besuccessful amidst all these challenges. While suggestions forbusinesses to achieve success are varied, the recommendation forcreativity and innovativeness is perhaps the most popular of all.Indeed, literature discussions supporting creativity andinnovativeness are all too familiar. For instance, IfMnotably asserts that organizations, regardless of whether they arefor-profit or non-profit, do not have any choice to survive marketwars other than embracing innovation (IfM2).In the same vein, Laforethas discussed innovation will enable the firms to create edgingcompetitive advantage, reduce costs, enhance efficiency and reduceenvironmental pollution. In this regard, innovation is the surest wayto sustainability.

However,despite the call for innovation, many enterprises are far fromrealizing the capacity for innovation. The statistics by Griffithand Kickul (176)are perhaps not only the most documented, but also highlights howpoorly positioned firm are to achieving sustainability goals.According to these statistics, only 4 percent of the Small and MediumSized Enterprises (SMEs) have attained desirable levels of innovationcapacity (Griffithand Kickul 178).Considering the view that SMEs are the pillars of the economicsustainability, this low level of innovativeness is a worrying andinvites the question of how to develop their capacity effectively.This paper aims at developing recommendations to increase thecapacity of innovation for SMEs.

Understandingthe Factors Impeding Innovativeness

Understandingthe factors impeding innovativeness is imperative to devisinginformed strategies for developing the capacity of innovation forSMEs. The step understanding the innovation barriers is accomplishedby a brief online literature survey guided by the keywords,“challenges/impediments/barriers/innovativeness, innovativeness,Small and Medium Sized Enterprises”. These keywords were enteredinto Google search Engine. While many, different results weregenerated, only the sources published within less than 5 years wereconsidered because of their ability to be relevant and mirror thecurrent market situation. In the end, six sources (i.e. GaliaWolf,Stephanie, and JensO`ReganFarrukhPullen,Petra, Aard, and OlafVande Vrande, de Jong, Wim and de Rochemont)were considered for the review. A look at these sources highlightsvarious themes that are relevant to conceptualizing the causes forthe low levels of innovation capacity among SMEs, which can be seento broadly revolve around leadership and management, the lack ofknowledge, and the cost inherent in innovation processes.

Leadershipand management is the most cited barrier to innovativeness in SMEs(i.e. GaliaWolf,Stephanie and JensO`ReganFarrukh).Galia(23), for instance, notes that many SMEs are lagging behind ininnovativeness because of the lack of commitment from the leaders andmanagers. Leaders and managers tend to have different priorities thatare far removed from embracing innovativeness. Many leaders andmanagers lay emphasis on traditional techniques of optimizing the useof resources, rather than seeking new, innovative ways to maximizethe use these resources. Wolf,Stephanie and Jens (32)discuss that many SMEs have a weak organization culture that are notelaborate for innovativeness. Some of the notable areas of weaknessesinclude poor body structures that limit open communication, inhibitcreativity and sharing of ideas, and fail to motivate the staff togive its best for benefit of organizations. O`Regan(87)cites fear of risks. Ideally, managers are often afraid of embracinginnovation because they perceive all forms of innovations to be riskyand would not want to be part of the decision-making processes thatcause failure (Farrukh134).The plausibility of these discussions is indisputable because therole of leadership and management in organization is boundless.Indeed, as opposed to the past in which managers could be excused forcertain forms of organization failure, the shift in paradigm nowexpects all the managers to be all-knowing and be accountable for allorganization failures. Therefore, leaders and managers must be blamedfor the capacity of innovation in SMEs.

Thelack of knowledge is the second most cited after leadership andmanagement (i.e. O`ReganFarrukhPullen,Petra, Aard, and Olaf).O`Regan67,for instance, discusses that innovations and technologicalenvironment is a rapid one and often tends to find the marketunprepared in terms of skills. Therefore, by the time the marketstarts adapting and embracing the innovations, it is often late. Theauthor mainly reports that as significant as 32 percent of SMEs inthe world lag in innovativeness because of the lack knowledge.Besides, Farrukh34)notes that many SMEs are always slow to bring their staff to thespeed of innovation through training. The reception of innovations isoften a skeptical one — only until the idea has been proven to workdo the SMEs move ahead to train their staff. Nevertheless, Pullen,Petra, Aard, and Olaf (12)note that not all firms respond by training their employees aboutinnovation and so many continue fearing embracing the innovationsbecause they lack experience. In addition, the author notes that SMEsare limited in terms of knowledge about what works because they donot want to become victims of unscrupulous market exploits, whileother slack updates on emerging, potentially beneficial innovations,too. In reflecting on these views, it is also plausible to argue thatavailability of knowledge is a crucial driver for innovations.Logically, the SMEs need to have a technical expertise and experienceto not only overcome the substantial feelings of apprehension aboutinnovations, but also be able to adapt to the innovationseffectively.

Thecost of innovation features in the discussions just as many times asthe lack of knowledge (FarrukhPullen,Petra, Aard, and OlafVande Vrande, de Jong, Wim and de Rochemont).Farrukh(36)notably discusses the costs of innovations are always prohibitivelyexpensive for SMEs. By virtue of their size, many SMEs have limitedfinance to dedicate to innovations. Their prohibitive, expensivenessnature is exacerbated by the fact that innovations also tend to beexpensive to adopt at the initial stages because they might requiretraining, change management and even recruitment — all of which area costly affair. Secondly, Pullen,Petra, Aard, and Olaf (14)discuss that no one knows always how long an innovation could stay.The author explains that innovation and technological environment isalways changing so fast so that a change that happened to be new maynot last any longer than a month before another one quickly replacesit. Thus, the SMEs are only left to watch because they are unable todecide how much they should keep changing to appease the marketfilled with rivaling technologies. Lastly, Vande Vrande, de Jong, Wim and de Rochemont(378) bring into light the risks of failure, discussing that many ofthe innovations are often abandoned along the way because of theirfailures. The author expounds that the problem innovation capacitymight also stem from the changes themselves. In this regard, it alsoturns out that the cost of innovation also another significantconstraint for developing the capacity of innovation for the SMEs.Indeed, the fact that it has been cited as many times as the lack ofknowledge implies it is a critical challenge, too.

Therefore,the impediments to innovation capacity can be categorized into threemanagement and leadership problem, the cost of innovation, the lackof knowledge. The chart below summarizes common themes on barriersfor innovation capacity in SMEs.

Expensive innovations


Innovation failure

Ascan be inferred, the leadership challenge is characterized by thelackof commitment, weak organization culture, and fear of risks. Theknowledge problem is evidenced by the lack of skills, the lack oftraining, the lack of experience and the lack of awareness. The issueof the cost of innovation is manifested in term of expensiveinnovations, obsoleteness and innovation failure.

Improvingthe Capacity for Innovativeness

Nowthat the factors impeding innovation capacity of SMEs have beenidentified, it is of particular interest to consider ways in whichthese challenges could be effectively addressed. Interestingly, alook at the nature of these factors shows they can be easilyaddressed by just taking informed strategies. The nature and scope ofthe issue is multispectral, however, which means that it will requirethe concerted effort of various stakeholders. These measures must becentered on the three mentioned areas — leadership, knowledge, andcost of innovation.


Theproblem of the lack of leadership commitment can be effectivelysolved by encouraging SMEs’ management and leadership to refocustheir priorities on innovation. There are various ways in which thiscould accomplished, but SMEs sensitization forums could workeffectively just as much as leadership training can do to awakeninterests in innovation. This recommendation is valid because manySMEs managers do not have adequate management skills (IfM5).

Asfar as the fear of risks is concerned, the SMEs leadership andmanagement will need to be encouraged to understand that success inthe current world is about taking risks and that such a step is thesurest way for firms to differentiate themselves from competitors andleverage competitive advantage. In essence, SMEs leadership andmanagement need to be made aware that fearing risks will only derailtheir success and escalate the chances of failure. Indeed, there aremany examples of how great and top-performing businesses ended upcollapsing because they failed to embrace innovations. As Griffithand Kickulexplain, the case of Eastman Kodak, which Fuji Film eventuallyovertook after it started from scratch, is a reflection of whathappens when any established firm fails to embrace innovation(Griffithand Kickul 176).

Theproblem of weak organization culture could be addressed byencouraging leadership and management reforms that are conducive toinnovation. Reforms could mainly lay emphasis on changing theorganization structures to improve communication and make thedecision-making process rapid. Since the hierarchical organizationstructures are typically associated with the highlighted problems,SMEs are encouraged to adopt hybrid or a flatter organizationstructures that allow both vertical and horizontal communication, aswell as welcomes all the members to share and participate in makingdecisions for innovations.

Eveas this is done, it will also be important for SMEs to motivateemployees to become committed to organization success. Thissuggestion is outright because many innovative SMEs are characterizedby organization culture of highly motivated employees (Laforet189).

Thelack of knowledge

Thechallenge of the lack of knowledge can be effectively solved bytraining the people whom the innovation concerns. It is particularlyrecommended that, whenever a new, potentially beneficial innovationenters the market, SMEs should respond by training its employees fastto make them suited to the change. In this case, training is aimed atimproving the capacity for understanding how the innovation works, aswell as enable them to deal with any related challenges. Training isindisputably crucial because it equips individuals with skills.

However,it should be acknowledged that the process of training the staff canbe laborious or take more time than it could be convenient. In such acase, SMEs are recommended to seek the service of consultants to helpthem adopt and manage innovations. This alternative is suitablebecause SMEs benefits from already qualified and experiencedprofessionals at an instance, and they can be sure about the successof innovation implementation, as opposed to waiting their stafffinishes the training process. Nevertheless, it will also beimportant for SMEs to weigh the costs against the benefits oftraining versus hiring consultants effectively. Ideally, consultantservices are only effective for simple and short-lived tasks such asmachine installations, but they tend to be expensive for long-lastingprojects such as routinely management and maintenance. Under such acircumstance, training the staff is the most preferable.

Itseems SMEs are also generally unaware of the existence of potentiallybeneficial innovations within the market. As noted earlier, some SMEsare skeptical about what change would work to their interests becausethe benefits of some innovations are often exaggerated to exploitthose that are unaware. There are two options to enable SMEs to riseabove this challenge. The first option is for innovators to bevibrant to reach all the SMEs in the market. The second option is forSMEs to be sensitized about the beneficial innovations within themarket.

Costof Innovation

Thecost of innovation could be addressed by availing financial supportto the SMEs to enable them to overcome the underlying economicchallenges. The government should come in handy by creating anelegant economic environment that is conducive for SMEs’innovations. The government could create financial policies that makeit easy for SMEs to access loans to support innovation from financialinstitutions. Governments could also help the SMEs by providingincentives and grants for SMEs to embrace changes. Concerning theissue of the dilemma about what innovation works, the government mayconsider funding research studies to identify the best innovations toendorse for the SMEs to adopt. This step will go a long way inpreventing SMEs to be exploited over the unscrupulous innovations.


Inconclusion, the aim of this paper has been to develop recommendationsto increase the capacity of innovation for SMEs. It has beenmotivated by the fact that despite the call for innovation, manyenterprises are far from realizing the capacity for innovation.Considering the view that SMEs are the pillars of the economicsustainability, such a low level of innovativeness is a worrying andinvited the question of how to develop their capacity. To be able toaccomplish its objectives, the paper considered that it was importantfirst to understand the barriers to innovation in SMEs, a step thatwas performed using an online literature survey centered on thekeywords, “challenges/impediments/barriers/innovativeness,innovativeness, Small and Medium-Sized Enterprises.” Six relevantsources published within the last five years were considered fo thereview.

Thesurvey finds that impediments to innovation capacity among SMEs canbe categorized into three management and leadership problem, thecost of change, and the lack of knowledge. The leadership challengeis characterized by the lackof commitment, poor organization culture, and fear of risks. Theknowledge problem is characterized by the lack of skills, the lack oftraining, the lack of experience, and the lack of awareness. Theissue of the cost of innovation is manifested in term of expensiveinnovations, obsoleteness and change failure.

Alookat the nature of these factors shows they can be easily addressed byjust taking informed strategies. The nature and scope of the issue ismultispectral, which means that it will require the concerted effortfrom various stakeholders, including SMEs themselves, the innovators,and the government. These measures must be centered on the threementioned areas — leadership, knowledge, and cost of innovation.SMEsare recommended to reform their leadership and management and providetraining to their employees to increase their capacity to understandhow innovations work, as well as how to minimize chances of failure.Innovators are required to reach the SMEs market to enable them awareof available and effective innovative solutions. Thegovernment should come in handy by creating an elegant financialenvironment that is conducive for SMEs’ innovations, includingproviding grants and incentives to SMEs, and funding research toidentify and endorse changes that would best work for SMEs.


Farrukh,Caro. Practice And Needs, Lessons From The Prisms Programme. Centrefor Technology Management working paper series.No. 8 August 2015. Print

Galia,Legros. “Complementarities between obstacles to innovation:Evidence from France”, ResearchPolicy,Vol.33, 2012:1185-1199. Print

Griffith,Goundry and Kickul and Fernandez. “Innovation ecology as aprecursor to entrepreneurial growth: Across-country empiricalinvestigation”, Journalof Small Business and Enterprise Development,Vol. 16, No. 3, (2012) pp. 375-390. Print

IfM.Stimulating growth and employment in the UK economy, Institute forManufacturing, University of Cambridge, July 2013. Print

Laforet,Tann. “Innovative characteristics of small manufacturing firms.”Journalof Small Business andEnterpriseDevelopment, Vol. 13 N3,2014: 363-380. Print

Laforet,Tann.“Effects of size, Market and Strategic Orientation onInnovation in non-high-tech Manufacturing SMEs.” EuropeanJournal of Marketing, Vol.43, N1/2,2015:188-212. Print

O`Regan,Ghobadian. “Fast Tracking Innovation in ManufacturingSMEs.”Technovation,26(2012):251-261. Print

Pullen,Annemien Petra de Weerd-Nederhof, Aard Groen, Michael Song and OlafFisscher, Successful Patterns of Internal SME Characteristics Leadingto High Overall Innovation Performance. Creativeand Innovation Management,Volume 18 Number 3 pp. 209-2232012. Print

Vande Vrande, Jeroen Jong, Wim Vanhaverbeke, Maurice deRochemont. Open innovation in SMEs: Trends, motives and managementchallenges, Technovation29 (2013) 423–437. Print

Wolf,Patricia, Stephanie Kaudela-Baum and Jens, Meissner. Exploringinnovating cultures in small and medium-sized enterprises: Findingsfrom Central Switzerland, InternationalSmall Business Journal30(2011)242–274. Print