Relevance and importance

Strategic and competitive advantage can be gained through innovation. For example, novelty in product or service can allow an SME to offer something that no one else can, novelty in process and dealing with customers can allow the organisation to offer it in ways others cannot match - faster, lower cost or more customised. Innovation can result in the ability to offer something too complex for others to master, or something which you have the legal rights to supply and others must pay for. It may even offer the opportunity to "rewrite the rules" and make old processes or products redundant. However it should be noted that radical innovations are rare and often innovation reflects continuous improvement leading to minor changes in consumer behaviour. SMEs in western and eastern Europe can benefit from combining their innovative capabilities as they have different expertise and cost structure.

Therefore if the organisation chooses a strategy of innovation, it must understand its capability for innovation.

Overview

The capability for innovation can come from a number of sources. Although it is true to say it can be the result of planned and structured environments, for example a Research and Development department, more routine or unstructured activities can often be the source. Innovation can come from the bottom up, e.g. the employees who are working directly with the customer or the technology, rather than senior management. It can come from outside the company, through collaboration and networking, or through evolution of the environment or market the organisation is operating within. Innovation builds on creativity and arguably everyone in the organisation has the ability to be creative.

On a basic level there can be said to be three approaches to innovation - you have a problem and are looking for a solution, you have a solution and are seeking a problem; you identify a need and design something which satisfies that need.

SMEs engaged in research and development should seek to commercialise their know-how, whether they are looking for innovative solutions alone or in co-operation with strategic partners.

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Recommendations and practical tips

	Allow ideas to come from the bottom up, not just from the senior management down or from specific planned activities/departments.
	Senior managers, in addition to setting a clear strategic direction, should encourage variety, be aware of new ideas and be supportive.
	Be open to changes in your environment which can stimulate innovation.
	Have a market orientation - focus on what the customer wants and needs.
	Encourage collaboration and networking as a way of stimulating innovation.
	New ideas need a "champion" within the organisation.
	Not all innovative ideas will survive. Be prepared to have a system of trial and error.

Warnings and potential pitfalls

There may be resistance to change - some individuals may have a desire for the status quo.

Senior managers should be prepared to intervene where they see innovation projects out of control or failing.

You may need to explain the new ideas to make sure that people can see their relevance, otherwise the ideas can lose support and commitment. An efficient innovation process aims to reap the benefits.

The person or organisation who has the original idea may not realise where the real opportunity lies. Sometime a business partner is needed to exploit the idea.

Consider not only how to capture the value from an innovation but whether your organisation can sustain and protect it. Do not underestimate the role of patents and licences as innovative strategy tools.

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