SMEs and the Innovation Imperative

From Canadian Business to Forbes to Bloomberg Businessweek, pick up any business magazine these days and you'll quickly notice that the idea of "innovation" is everywhere. CB publishes its annual "Innovation Issue," Forbes has its "World's Most Innovative Companies" list, and Bloomberg takes it one step further with its "Innovation Index". Innovation, it would seem, is everything in our speed-obsessed world, and to be a company that fails to innovate is to be a company doomed to failure. 

For many journalists and business gurus, innovation is roughly synonymous with technology. Forbes, for instance, places an "innovation premium" on the companies listed in its aforementioned annual ranking, and it's probably no surprise that the 2015 company with the highest innovation premium was Tesla Motors. Other companies that are regularly labelled by the business media as boasting an innovation premium include Facebook, Apple, Google, Netflix, and Uber. These are the companies on the cutting edge of technology, and are thus best placed to face an increasingly complex business environment where an ability to innovate is fast becoming a necessity - the so-called "innovation imperative". Innovation is seen as an ability to harness and leverage new technologies, and to incorporate them into existing business models, or to build new business models based on these technologies. Or so the story goes.

There's no question that we live in an age where technology has profoundly changed almost all areas of the business world, from how and what people buy to how they pay for products. But I'm not yet convinced that success in business has now become synonymous with an ability to innovate with technology. Of course technology can be a massive enabler of any business model, but this doesn't necessarily mean that all companies must now become tech companies, or that innovation begins only with technology. As a retailer, I'm often asked how technology has changed my business, or why our company has not yet embraced e-commerce. These are valid questions that I don't mind answering, but I do take issue with a prevailing notion that a company which operates in the "old economy" is necessarily one that is not innovative. From what I see in the world of small business, innovation is everywhere, and it is certainly not limited to those companies that have singularly reinvented the use of a new technology.

To highlight my point, I'd like to suggest that innovation should be seen on a sliding scale. At a macroeconomic level, innovation is certainly an offshoot of technological advancement. Whether it's making electric car batteries better and stronger, or harnessing the value or equity in a previously non-valuable entity (the basic model of the sharing economy), at a societal level companies are using technology to change the way we live our lives. On a micro level, however, innovation is much more subtle, and is not confined to the world of companies that have changed societal patterns or behaviours. At an aggregate level, innovation is about pushing huge boundaries, but on a micro level innovation could be as simple as adopting a more efficient accounting system. Of course the implementation of such a system might not mean much if it's a massive public company that is decades behind the times, but it can mean an awful lot if it's a little mom and pop pizzeria that is competing against several other small pizzerias in the neighbourhood that have little interest in sound financial management. In other words, an innovative company is only innovative in relation to its closest competitor.

Seen in this light, the more universal and constructive way of looking at innovation would be to look at sector-, size- or even intellectually-based scales of innovation, rather than the apparently all-encompassing (yet obviously exclusionary) notion of an "innovation imperative". By focusing on scales of innovation (viewing companies or individuals through their unique contexts), a local plumbing company that utilizes a novel advertising campaign is quickly transformed from a lacklustre local business into an innovation powerhouse. Similarly, the local hair salon that has chosen to wisely invest in a cutting edge online customer booking system can reasonably boast of being the local Amazon, simply because it has harnessed a relatively basic technology better than any of its local competitors. And finally, the same can also be said of innovation in the realm of decision-making, personal motivation, or leadership. Sometimes, for instance, the only difference between a successful small business owner and an unsuccessful one is the former's ability to innovate within his or her own mental decision-making parameters, while the latter keeps hammering away at the same problems using the exact same ineffective approach.

There is no doubt that a certain innovation imperative exists at the macro level. Whether it's smart phones or electric cars, certain product categories are absolutely driven by a need to innovate in technological terms. But to say that the innovation imperative applies across the entire business spectrum is simply false. What we need to start thinking about is innovation on a relative scale, the idea that micro innovations are as important and as game-changing as innovations that occur at a macro level. By focusing on scales of innovation, managers and leaders are better positioned to understand what makes a company successful in its own context, or what might be clear signs of a company's inherent weaknesses. There will always exist companies that have made innovation a key operating characteristic, and in many cases this emphasis has led to the development of products or services that have profoundly altered areas of our economy. But to assume that these types of companies have a monopoly on innovation is to lose sight of the incredible yet subtle everyday innovations that are a fundamental part of any free market society.