Innovation is about change and changing the norm. Not all organisations are designed for innovation and many struggle to achieve true innovation because they are encumbered with bureaucracy that doesn't allow for effective innovation. Listen to our new episode of Any.Talk about why having the right mindset is critical for innovation and why it's OK to fail.
Why do small to medium enterprises need to innovate?
Small to medium enterprises need to innovate out of necessity. Large corporations have many sources of cashflow coming in. SMEs need to be agile and be able to respond to change quickly while keeping up with rapid developments in technology.
Does innovation come easily to all organisations?
In short - the answer is, no.
We're not saying that large organisations cannot be innovative, but it's often a lot more difficult for them.
One reason for this is they are risk averse, and is counter-intuitive to what innovation is. Large organisations rely on tried and trusted methodology that is fundamentally averse to change, which makes it harder for them to adopt innovation.
These organisations have bureaucratic structures which rely upon these tried and tested methods that result in defined outcomes.
What can the Australian government do to foster genuine innovation in SMEs?
Innovation doesn't come cheap. The government should provide more opportunities for small to medium enterprises to innovate and providing tax incentives and providing them with more opportunities to gain government contracts would be a great way to achieve this.
Listen to the full episode below. You can also find us on any platform you listen to podcasts.
Full Transcript
Any.Talk
Episode #5: Innovation in SMEs
Today on the show we’re talking about innovation and why it’s crucial for small to medium enterprises to stay afloat.
So what happens if SMEs don’t innovate? And how does innovation in smaller enterprises compare to innovation in larger organisations?
We’re going to answer all those questions on the show today.
I’m Annie-Mei Forster and this is Any.Talk.
Annie-Mei: Welcome back to Any.Talk. Today I’m joined with Anywise managing director Adam Evans. Hello Adam.
Adam: Hi, Annie-Mei. It’s great to be back.
Annie-Mei: And Steven Kouloumendas. Hello, Steve.
Steve: Hi, Annie-Mei. Thanks for having me.
Annie-Mei: Thanks guys. So today we’re talking about the process of innovation. So Adam if I could start with you, I’d just like to ask: Why is it important to have innovation at the core of a company?
Adam: Thanks for the question, Annie-Mei. I think it’s a matter of survival for small companies. When a small company starts up, typically it’s to solve a particular problem. Whilst that solution to the problem might be on the shelf, it may not be. There’s a desire to change, to become something else. I think that’s core to all start-ups and all small companies because they just don’t have the corporate momentum to survive the peaks and troughs of market demand.
So we need to be constantly agile enough to respond to changes in the market or to solve new and emerging problems to keep up with the rapid changes in technology. We need to be – as the word says – make ourselves new. Make ourselves newer and better and faster. I think it’s a matter of survival really.
Annie-Mei: Yeah, you spoke about changing environment and needing to keep up with technology. What changes in innovation have you seen recently that businesses are needing to adapt to?
Adam: Yeah, another really interesting question, Annie-Mei. Now we’re mid-pandemic right? So when Anywise started six years ago now, we embraced technology as a means to promote collaboration and reduce inefficiencies. In everything that we did, from internal processes such as bookkeeping, or document generation to client-facing processes and tools, such as an outsourced project management office and project reports and score cards.
You know, we really adopted technology. Fast forward six years, the gap between companies, such as Anywise that have had that at our core DNA to see how we’re faring in the middle of a pandemic where there is a requirement that everybody works remotely in a digital environment, that’s the single biggest transformation that I’ve seen for companies ever.
There were companies that were still operating by emails and Word documents being emailed around, who suddenly had to evolve out of the physical working environment into a digital working environment and just could not keep up with the volume of communication that was part of that old way.
That’s been by far, the largest single innovation I’ve seen and the take up of digital technologies in every workplace.
Annie-Mei: Ok great. Steve, I’d like to ask you about how Anywise helps clients with innovating. Are most people open to innovation or have you seen that sometimes you have clients that aren’t as open to innovation as others?
Steve: Interesting phenomenon. When we talk about innovation and think historically the last 100 or so years, a lot of innovation has always spurred from adverse scenarios or situations of conflict. Think of the major wars that brought on significant innovation in all domains across vehicle technologies, aerospace technologies, all these things have brought out innovation and better ways of doing things.
It’s often when people, society, different groups of people are faced with these adverse conditions that we tend to challenge the norm and think about ‘is there a better way of doing things?’, ‘Can we achieve more with less?’ or ‘Is there another way that gives us the same outcome?’ All of those things are core to that innovative way of thinking.
As we find ourselves in the middle of a pandemic, many companies have started to think about innovation once again. Certainly many large companies are chasing this elusive dream of innovation. Trying to make large bureaucratic organisations have an innovation arm. It’s really not easy.
So unless you can create an adverse environment that forces the mind or individuals or small teams to innovate. It’s typically a lot easier for smaller groups to innovate than it is for much larger entities that have been relying on having a tried and trusted methodology that fundamentally are averse to change, that don’t enjoy change.
Innovation is all about change. It’s about change, it’s about challenging the norm and it’s about, I almost find the adoption of that change is also something that’s craved for, particularly in large organisations. So not necessarily only wanting to innovate but then understanding how you can use that innovation for an actual good.
Annie-Mei: Yeah, when it comes to… you mentioned large organisations being stuck in their old ways, is that the only reason that they struggle to innovate or are there other reasons as well?
Steve: I think there’s certainly other reasons. So being big doesn’t necessarily provide a means for not being able to innovate. It does however, lend itself to typical bureaucratic structures, which rely upon and provide their strength and value in reliability that can result in defined outcomes. So you’ll regularly be filled with confidence of an expectation of a result. If you were to provide a problem to that organisation you would typically find an expectation of a result to be of a similar standard and quality every single time.
Something that large organisations have done successfully to innovate have been these little innovation cells, which aren’t subject to the same bureaucratic structures that the organisation has relied upon. They’ve done that through almost a special development projects where they’ve spun off and recruited a few people to be an arm off to the side of the entity. They have autonomous control other than being provided a budget to say “Please innovate for us”. They’re almost chasing that elusive innovation. Trying to protect fundamentally, against that next start-up that’s kicked off in the garage next door.
This has been a phenomenon since the likes of social media giants have kicked off in the early digital sphere with the likes of Napster, Google, YouTube. All of these types of activities.
Annie-Mei: Adam, as the owner of a small business in Australia, do you think the government provides enough support for small businesses to innovate? Given recently there’s been a lot of discussion about Australia’s cybersecurity and needing to improve that but there’s been a lot of talk about the government not really engaging with industry and with small businesses. So I just wanted to know, yeah, what your opinion on that is.
Adam: Ah, no. I don’t think the government does enough to foster genuine innovation in the small to medium enterprise community. I think there’s a lot of reasons for that. One of them is quite possibly because they’ve been lulled into a low set of expectations of innovation and research and development being offered to them from tier-one suppliers to the government.
These large, typically offshore operations that might have their own innovation labs or skunkworks or other large innovation programs underway. Our government has typically entered into relationships and expected innovation to happen as a by-product of the contract. I think at that scale it’s naïve to think that those companies would dip into their pockets and produce genuine innovation. I think it needs to be incentivised at the grand scale for these multinational corporations, otherwise they just fundamentally won’t do it.
At the other end of that spectrum, is the small and medium scale enterprises living hand-to-mouth, typically on fast-moving consumer goods or manufacturing. So very thin margins or living on better margins on project-based work where it’s either feast or famine.
As I said in one of the earlier questions, I think it’s organic because of a need for survival for small to medium enterprises to innovate. But I don’t see the government doing anywhere near enough to foster that innovation as a strategy or as a longer-term approach.
There are some exceptions to that. The Centre for Defence Industry Capability in Adelaide is managing a national innovation hub network and small to medium enterprises are receiving funding and contracts through that. So we are seeing some traction, some steps in the right direction.
But no, they’re not. And some of that comes down to risk. When Skunk Works was started in World War II for Lockheed Martin, they had a real problem. They needed a bomber in less than six months, so they went to Lockheed Martin, large, comfortable, bureaucratic organisation that they had a strong relationship with (this is a US case study) and said: ‘We need a bomber in less than six months’.
They had started work, they had done the prototype designs. The contract arrived four months later. A large organisation can do that because they see the incentive that comes from selling multibillion dollar bombers sole-sourced direct to a large corporation that has all its resources at its disposal.
It’s a lot harder for the government to do that with an SME. I appreciate that. But I think it’s a one-word answer and it’s, ah… no.
Annie-Mei: Ok great, well thanks for your honesty, Adam. What do you think the government can do to foster innovation in smaller businesses? Is it a matter of funding or is it more engagement with smaller to medium enterprises?
Adam: I think it comes down to greater confidence in cashflow. It’s not cheap to innovate if you’re going to do it properly. You’re going to invest in people and encumber them in their normal daily constraints of employment. For people that are working on an innovation lab, we don’t expect them to fill in timesheets for how much work they’ve done on a particular project because we judge them based on the progress they’ve made, not by the amount of time that it’s taken to achieve it. So it costs money to do it.
We do that because we have to. As we grow and we start to invest into company overhead find more efficient tools, we attract the right people, then there is this tension between investing in good, new ideas and actually making sure that we can survive the trough between projects. Because we’re competing against larger companies in that mid-tier, two hundred million revenue sort of tier, who do have sufficient capacity to perform most of these jobs. They don’t have to engage. There’s not a lot of incentive for them to engage with small to medium enterprise.
So we don’t have that surety that multi-year base-level of revenue that we can guarantee in order to take that leap. Now I don’t know if it’s necessarily more money. Definitely being more assure of access to government contracts would be a great way of achieving that. And also perhaps, incentivising throughout the supply chain itself, government-funded industries or industries in which government participates. Tax incentives or incentives for inclusion and development of the SME base would go a long way.
Annie-Mei: What about you, Steve? Do you have anything to add? Do you think there are any other ways that the government can foster innovation in small to medium enterprises?
Steve: Thanks, Annie-Mei. So if you think of the larger enterprises that have some more financial and invested innovation, they typically are also encumbered with bureaucracy that doesn’t allow for effective innovation. It’s almost constrained innovation where it’s innovation with control and anti-theses of each other. In effect, they almost cancel each other out.
So going a bit off-topic, why some of the larger entities will fail with their innovation is because it’s not done with the right sort of mindset or right environment to foster true innovation. It’s almost a fallacy of innovation, if you will.
So getting back to the question, I think the government is in a really unique position. They have the ability to, it may not necessarily be the dollars, it may just be the contracting mechanisms. I know government is typically constrained in their accountabilities and have to be accountable with every public dollar spent, and as a taxpayer I hope they are accountable with every tax dollar spent.
It’s just recognising the right expectations from the right types of contracts. Innovation is one where it’s OK to fail. They may not create something that changes the world on their first time, their second time, maybe not even their 50th time. On that 51st time, they may create something that will unique change the entire world.
And if you hadn’t invested in them on that first time or that second time, they will never make it to that 51st time to create something tangible that gives Australia and the government the right to sort of say, we invested in that. We invested in these SMEs and we changed the world as a result. So I think this openness and willingness to fail with an expectations of outcomes and benefits being measured in a slightly different way. It’s OK to change the way we describe benefits and describe value for money to tangible outputs.
Annie-Mei: Did you have anything to add to that, Adam?
Adam: I like this idea of adopting and embracing the concept of failure. You should be failing. If you’re not pushing the gap between succeeding and failing then you’re not going to realise that rate of progress that you want. Again, coming back to the survival nature of small to medium enterprise innovation, it’s literally a case of if we don’t change the way we do business, if we don’t find a solution to this particular problem, then we may not be able to get through the next trough. So it is a culture.
All of those companies that don’t have an immediate need or drive to innovate, maybe don’t allow themselves the space, to think, to embrace creativity. And to stand back and just acknowledge the fact that not all good ideas will come from the boss.
So here at Anywise, we’ve got an innovation model, which goes through two gates but we did that to deliberately break the model that we had. We were successfully innovating for years and we were all quite proud of it. But we decided we’d implement this ‘maker lab’ model where across the organisation people can very efficiently present a good idea, have it reviewed by others in the company. Not necessarily the boss, not necessarily the chief engineer to get it assessed as worthy of further investment. And then the second gate, again assessed by peers, observed by the executive purely to ratify the investment in taking a product either to market or change the way that we do business.
It’s breaking away from what is traditionally considered success in a project or a business in some cases and allowing some chaos to reign. Just being humbler and being considerate of the fact that the executive or the leadership of the company probably don’t have all the ideas. Certainly don’t have all the good ideas and success is rarely delivered by the top three people in a company.
Annie-Mei: Ok great, well we might end that there. So thanks Adam and Steve for chatting about innovation and small businesses trying to innovate in Australia.
Adam: Thanks, Annie-Mei. It’s been great.
Steve: Thank you, Annie-Mei.
Annie-Mei: That’s all from us today. Thank you for listening and make sure to follow us on LinkedIn, Twitter and Instagram, or check out our website at anywise.com.au. Until next time, I’m Annie-Mei Forster and this is Any.Talk.
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