The predictors of innovation

INNOVATION among small to medium enterprises (SMEs) has attracted substantial interest from governments throughout the world, as policy makers seek answers to globalisation and the loss of jobs from structural reforms in established industries.

In the US, small firms have been found to produce substantially greater levels of innovation per employee than their larger counterparts.

In the 1990s, the Australian Manufacturing Council found most innovative manufacturers tended to compete in markets where they experienced both high levels of competition and demanding customers. Not surprisingly, there was a strong link between innovation and exporting.

These firms also used networks to enhance their competitiveness as well as tapping expertise and knowledge not available in-house. Employees of innovative firms were highly valued, and there was strong interaction between skilled workers to create opportunities and generate new ideas.

Research being undertaken within the Graduate School of Management at the University of Western Australia has examined a sample of 137 small, growth oriented WA firms to explore the factors likely to predict innovation behaviour. In the study, innovation is defined in terms of the quantity of new ideas generated by staff that add real value to the firm’s products or services. Initial findings suggest that innovation is associated with seven key predictors:

p Having the right products and services – an ability to offer products or services that satisfy customers’ needs, are of high quality, and which offer distinctive qualities not found elsewhere.

p Monitoring key indicators – possessing systems to monitor and report on key indicators that monitor trends both internal (e.g. cash flows, break-even), and external (e.g. customer satisfaction).

p Owner’s values don’t dominate – innovative firms were more likely to have owner-managers who did not allow their personal values dominate the way the business operates. An owner should have a clear set of personal values through which they operate their business yet still encourage employees’ innovation.

p Positive role modelling – rather than allow personal values to dominate, the owner-manager of the small innovative firm is likely to demonstrate by action rather than word. Such owners are usually confident that their employees understand their values and they display the type of behaviours that they would like to see in their staff.

p Leadership – innovative small firms also were more likely to have owners who had a clear vision for where their business was heading. They communicated this vision to all their employees and used it as an incentive for positive action and ideas.

p Quality Assurance – top management is strongly committed to achieving formal third-party accreditation for quality standards. Quality is understood by management and employees, who have defined it and documented procedures for key areas of the business.

p Staff partnering – finally, the owners of small innovative firms were found to possess strong partnership relations with their employees. They viewed their employees as the key to achieving competitive advantage and sought to recruit and retain the ‘right’ people.

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