Key Findings of the Study

The results of the survey are that:

• SMEs appear to proactively pursue innovation in association with their customers
• The greatest impediment to innovative activity is in the overall approach and culture of the SMEs rather than issues such as shortage of financial resources
• The standard processes of innovation are known and largely followed, with the emphasis on idea generation, concept development and market testing
• Throughout the process of innovation, customers are extensively used to help in evaluating the viability of a project, but there are gaps in the scope of evaluation with regard to competitors, the full business analysis and with evaluation fits in the process
• The rate of projects being dropped prior to launch are around 49% and maybe this could indicate a need for sharper analysis at an earlier stage in the process
• Many aspects of marketing practice - relating to all stages of the innovation process - are not highly rated by the SMEs
• All the marketing activities which have been shown as critical to the success of product and service innovation and exemplify the skill set required for effective execution scored poorly
• Overall success rates after launch are relatively high at around 65%
• There are very few significant differences in the practices reported across industries or firms of varying sizes

Innovation

As a means of examining how more innovation might be encouraged, the research examined both the drivers and inhibitors of innovation. The firms were specifically asked to identify which factors encouraged and which inhibited firms ‘to look for new projects and product ideas’.

The drivers with most impact include: a direct request from customers, spotting a gap in the market, making use of technological advances, responding to customer satisfaction or dissatisfaction, the need for more profits and feedback from sales. Innovation drivers were seen as important in countering declining market share and market size as well as those focusing on reducing cost and challenging competitors.

As expected this is a mix of market, technological and commercial factors. Co-operation and collaboration in the innovation process is important and explains the tendency for SMEs to try to work within their networks in order to leverage resources and facilitate learning.

The key inhibiting factor - by a long way - was ‘internal firm resistance to embrace innovation’, followed closely by the recognition that a potential project was outside the firm’s current strategy and lack of expertise on technology. 

Marketing

To evaluate their marketing capabilities with regard to how they contribute to the success of innovation the firms were asked to rate their prowess – against a checklist of marketing activities - within the context of innovation.

The highest scores were for activities in sales and promotion, such as telesales, press advertising, mail shots, use of trade shows and PR.

Crucial marketing activities associated with innovation such as, tracking customer needs and wants, preliminary market assessment, monitoring competitive prices, strategic decisions regarding market segmentation, determining the price of the innovation, targeting, and positioning all scored poorly. 

Important sales activity such as negotiating with customers, closing the deal, web-marketing and providing sales support to staff and lead generation also received poor scores. 

All the marketing activities which have been shown as critical to the success of product and service innovation and exemplify the skill set required for effective execution scored poorly.

Conclusions

These findings suggest that although SMEs appear to pursue innovation proactively and in association with customers, factors that inhibit innovative activity reside within the overall approach and culture of the firm, rather than aspects such as shortage of financial resources.

SMEs broadly follow standard processes of innovation with an emphasis on idea generation, concept development and market testing. However, there is a lack of external reference with respect to the early stages of the innovative process and a haphazard approach to the importance of financial assessments.

Throughout the process of innovation, customers are extensively used to help in evaluating the viability of a project, but there are gaps in the scope of evaluation with regard to competitors, the full business analysis and its staging in the process. Kill rates prior to launch are around 49% but could be improved further by sharper analysis earlier in the process.

Many aspects of marketing practice are not highly rated by the SMEs, relating to all stages of the innovation process. Those activities that are rated best are at the selling end of the marketing spectrum, but even these are not the activities which require commitment and investment.

There is a tendency to separate development from marketing, with the marketing being seen as ‘the bit that gets done at the end’.  This would further explain the relative weakness of evaluation of projects early in the process.