Innovation is a broadly used term with many different interpretations. It is often easier to point to an example of innovation than try to define what made the actual innovation possible. Innovation is often defined in terms of:
“the ability to do things differently and to continuously reinvent products and services.”
We contend that this definition is too restrictive as it implies that innovation is tied to and must deliver new products and services with no consideration of the success or otherwise of these products, or of the benefits of operational improvements.
QMI Solutions’ preferred definition is that:
“innovation is the ability to convert a clever idea into commercially successful outcomes.”
Without commercial success it just remains ‘a good idea’. This good idea can relate to success in any area of the business, not just products and services, as long as it leads ultimately to competitive advantage.
In manufacturing, a minimum requirement is to innovate faster than external factors drive up costs. This fact of life results in innovation happening every day within SMEs, it is just not recognised or labelled as such. This is reflected in the ABS Annual Innovation Survey which stated that, in 2007-2008, 45% of surveyed businesses indicated that they were “innovation-active”. For the manufacturing sector, this figure was 53%[1]. Our experience gathered from working with manufacturing SMEs for the last 17 years indicates that the true figure is higher, but that there is a lack of understanding as to what constitutes an innovation activity.
This can be partly explained by referring to QMI Solutions’ preferred definition of innovation. Companies satisfy clients’ diverse needs by being responsive and finding new solutions and new delivery methods in order to meet those needs. If commercial success includes growth, even modest growth, these companies can be considered as innovators.
Understanding what knowledge exists within a company is a critical first step in understanding how it can be applied to achieve enhanced competitiveness and productivity. This is a significant shift in thinking from measuring what an organisation produces to considering the processes it adopts to sustain a competitive advantage within its marketplace.
For manufacturing and other mature or stable industries that may not typically consider themselves to be knowledge intensive, redefining how they capture and value knowledge is essential. This facet of manufacturing is of increasing importance due to the steady attrition of the skills base driven by the aging manufacturing workforce.
This embedded knowledge usually resides in a few key individuals rather than in a formal or documented knowledge management system. Hence, these SMEs are frequently vulnerable to the loss of know-how, skills and experience held by these staff. This mechanism is an important factor in knowledge transfer within many SME sectors, but as witnessed during the recent mining boom driven skills shortage, the loss of experienced staff can strip SMEs of key or scarce knowledge resources.
Manufacturing is all about knowledge, and established practices and experience in process and product development provide a firm foundation of evolutionary or incremental innovation on which to build. Improvements in productivity also release precious resources in terms of capacity and revenue that can be used to fund enterprise-wide innovation activities.
At the practical level, companies need to understand ‘knowledge’ in fundamental areas:
- What do customers really want and how to deliver value?
- What suppliers can do to help and deliver value?
- What are their real capabilities/skills?
- With what products/services/alternatives are they really competing?
- What are their strengths/weaknesses?
- How to use this information to help them grow and generate a sustainable competitive advantage?
To gain maximum competitive advantage companies need to be aware of the intrinsic knowledge they create and how they apply that as a competitive advantage. To do so, often the company needs to move beyond steady state (incremental) innovations which offer short term benefits to higher order innovations which focus on management and business model enhancements, as well as major new product or service platform developments.
In summary, SMEs need to increase their ability to create new sources of distinctive and competitive advantage, which go well beyond price competition. If this is achieved, significant sustained economic growth can be maintained. To make such a transition however, SMEs must be willing to undergo significant cultural and organisational change.
[1] 8166.0 – Summary of IT Use and Innovation in Australian Business, 2007-2008