Innovation In The SME Environment: Success As A Workplace Culture And Hurdles To Innovation

Rather than being ‘nice to have’, innovation should be a vital element in the way SMEs conduct business, collaborate and deliver to their customers.”
Joined-Up Innovation: Culturing Success, p. 3; Pip Marlow (Managing Director – Microsoft Australia).

Part 1 – Barriers To Innovation For Laggard and Cruiser Companies
Just as Pip Marlow stated in the research paper preamble we at Resurg firmly believe that innovation should be at the heart of business practice. This is part of the reason that we strive to offer our clients services that will innovate their business practices and provide tangible results. We do this by offering our business coaching and work groups services that offer business owners opportunities to discuss and implement best practice and innovation with the help of experts and their peers. On top of this we also aim to arm business owners with the data and information they need to drive change and improvement in their business through our benchmarking and dash boarding services. That being said enough about us; lets talk about how workplace culture and purposeful strategic decisions can encourage and discourage innovation and growth.

In the Joined-Up Innovation: Culturing Success research paper Microsoft surveyed and interviewed over 500 SMEs and their employees. This research made them categorise 33% percent of the sample as Leaders in innovation, 43% percent as Cruisers and 24% as Laggards. These numbers while just a small sample of the Australian SME environment highlight a surprising fact, innovation is actively pursued in 76% of companies interviewed. What this means is that just wanting to innovate and having an idea or two isn’t setting you above the curve, in fact it makes companies just average. So if that is the case let’s talk about the differences between Leaders, Cruisers and Laggards as Microsoft characterises them and how they can transition between those categories.

The Laggards
Microsoft characterised a Laggard as any company that had little to no desire for innovation. These companies may be profitable and they may even have a modicum of success which gives them little perceived incentive for innovating. That being said three common factors holding the laggards back were:

  • A lack of trust between employees and leadership,
  • Business structures that are linear and traditional
  • A sense of apathy.

To begin with let’s talk about the Laggard’s lack of trust. This element is primarily to do with organisations not trusting their employees expertise and as a result not allowing them to think creatively and critically to find new solutions for fear of failure or detrimental impact. Not allowing employees time or resources to explore ‘out of the box’ solutions diminishes their self perceived value in the workplace and makes the culture of the organisation potentially one of blame sharing. What this means is that when something goes wrong (And they will when innovating!) people produce excuses out of fear rather than taking ownership and creating solutions. This lack of trust can only truly be combated by fostering an open and communicative workplace where experimentation is encouraged and where all ideas are considered and valued. A method to encourage this failure free and open environment could range from providing an employee ‘suggestion box’ to holding team or company meetings where problems and goals are discussed.

The second issue regarding linear and traditional business structures is really about companies failing to allocate resources for innovation.  What this usually looks like in companies is that budgetary funds and personnel are often given to those individuals or departments that are purely assessed on KPIs. Often these business structures will have a very top down organisation where upper management dictates methods and means for staff to fulfil their jobs, diminishing their expertise. It is often the case that these traditional structures mean that money and resources are often dedicated to purely short term benefits (current deliverables) and not to providing or improving long term benefits (future deliverables). This cultural and structural issue links directly into the last barrier to innovation within Laggard organisations which is a deep residing sense of apathy. Two methods of fighting this particular barrier is to experiment with flat and more transparent management structures, where there are high levels of communication between leadership and staff. The second method that might work is simply creating a metric or policy where small amounts of time are dedicated to innovation or self reflective job journaling. Many large and highly successful multinationals especially within the technology sector now provide employees with up to or more than an hour a day of time to work on personal projects they think might benefit the long term goals of the company. One such company that employs this non traditional business structure is Google, a company that does not suffer from apathy for innovation, that is for certain.

It is the apathy for innovation which can be most difficult to remove from a Laggard company. This is for the simple fact that it requires not only changing employee’s mindset in regards to their roles but also changing the psychology of the leaders of the company. The apathy is created when the leadership of the company and its staff see no reasonable incentive to innovate (profit or reward) and they only perceive potential negatives at attempting to innovate (fear of failure and loss of resources). This barrier would be most aptly described as the “If it’s not broken, don’t fix it” barrier. Companies that operate with ‘relative’ success or profitability, control a niche market or demographic or are simply small will often suffer from this mindset. In fact it was found in regards to company size that from the paper only 35% of businesses with up to four staff conducted innovative activities in comparison to 63% of companies with 20-199 employees. These relatively successful, niche and smaller companies are missing out on potential revenue by not looking to grow and improve their services. While apathy is difficult to cure especially if the ambition isn’t there it can be diminished by simple things such as incentive programs to reward innovation.

The above summarises the major barriers to innovation for companies that have little to no interest in innovation based off Microsoft’s research, which was a minority. The largest group in the study the Cruisers face interesting challenges in their own right.

The Cruisers
While the issues of the Laggards may seem difficult even ‘successful’ innovators are faced with issues, in particular the issue of delivery.  The Cruiser companies were characterised as having significant interest in innovative practices and may even have significant plans or ideas for the business underway but struggle to execute those plans (For the phases of development for working on an innovation project read this article). The reasons that the Cruiser’s innovation and changes often fell apart were broken down into three specific issues, which were:

  • Issues with the delivery pipeline
  • A frightened workplace culture
  • A lack of transparency and stability for employees

The first barrier regarding issues with the innovation delivery pipeline was characterised as often being due to the lack of resources and commitment. To use an old adage, the Cruisers very rarely gave it “110%”. Companies that were branded as Cruiser’s often showed an unwillingness to divert resources and expertise from regular workloads and projects. They did this often because they saw only the maintaining and growing of their traditional incomes as the priority for their business models. Inextricably tied to this particular issue is the second issue regarding a frightened workplace culture. This is twofold in that it pertains not only to employees being afraid of making mistakes on potentially costly innovative undertakings but it also relates to leadership being afraid to potentially sacrifice staff and income for “potential” long term gains from ‘risky’ innovative activities.  Companies that do not surmount this one-two punch of unwillingness to commit and being afraid of failing are often eventually relegated to being Laggards, as each successive failure or budgetary blowout for a new project is seen as evidence for the failure of innovation rather than a price of being cutting edge. This then slowly but surely entrenches the “let’s stick with what we know” mentality which eventually coalesces into a deep abiding sense of apathy.

At the end of the day an unwillingness to commit and a fear of failure on a companywide level can only be combated by two things; courage and planning. Any successful innovation project will only occur if it is planned, evaluated and implemented at a high level in a holistic and macro level. As to the courage part of the solution the answer is both simple and terrifying, as Winston Churchill the famous British politician said “Success is not final, failure is not fatal: It is courage to continue that counts”.

The final barrier to innovation within Cruiser organisations from the research report is both a structural issue and a cultural issue. Employees who lack an understanding of how their roles fit into the overall strategic mission of the company or project will not feel a sense of purpose or assurance of job security. By communicating to staff the objective of any innovative undertaking and creating a clear picture for staff that they are vital in that undertaking companies are opening up a number of positive opportunities. Firstly they are confirming for staff that they are necessary and valued team members whose work has greater meaning to the company other than immediate deliverables. Secondly they are providing employees with the ability to not just look at their tasks in a micro and isolated manner, they are allowing them to look at the whole problem and potentially use their prior knowledge and expertise to solve the much larger problem or objective. Indeed some of the greatest innovations can come from employees being given greater understanding of a company’s strategic plan and allowing them the job security to explore solutions to problems without the threat of being fired or reprimanded for it. One example of this in the business world would be Google’s recent development of an interface that allows users to determine if their house is a good candidate for solar panels. This was a side project by a engineer who saw that Google wanted to expand their environmental engineering contributions and used his knowledge of their mapping technology to make this possible.

So now that you know what the Laggards and Cruisers within the domain of innovation look like, let’s have a look at the Leaders. In the next part of the article we will be briefly outlining some of the strategies used by those who Microsoft characterised as Leader’s of innovation.

Part 2 – The Leader’s of Innovation

So far we have talked about two of the major categorising groups presented in Microsoft’s research into innovation; these were the Cruisers and the Laggards. From now on the article will be focusing upon talking about what makes the business practices and workplace culture of the top innovators (Leaders) so successful. The Leader’s in the research paper were characterised as being companies who are actively innovating within “dynamic and open workplace cultures” (p. 7). The paper further characterises Leaders as those who have an awareness of the need to innovate, a drive to innovate for the betterment of their customer outcomes not just their profits and those who have the internal structures and resources to effectively collect and deliver on ideas from staff and customers. With that brief explanation out of the way bear with us as we explore the often nebulous and tricky world of navigating and managing and implementing workplace culture and strategies to foster success and innovation.

Whenever any business writer or consultant is looking to talk about workplace culture there are always a number of reactions these range from boredom to confusion or frustration. All of these myriad of reactions are due to the fact that workplace culture is one of the most integral factors to a business’s success and it is also one of the hardest to manage and change. Now rather than begin with a rather wordy and over complicated explanation of what an innovative workplace culture should look like, I’m just going to present some deceptively simple dot points and then discuss them. So without further ado here are just seven of the most vital elements to a workplace culture as displayed and reported by Leader’s within the SME environment in regards to encouraging success and innovation:

A SME that is characterised as a Leader of innovation will possess a culture that is/has:
1) Non traditional leadership and communication hierarchies

2) Open communication pathways

3) No fear of failure

4) Flexible work agreements and conditions

5) A business vision that is clear to employees

6) A clear innovation project planning pipeline from start to delivery

7) Employing creative and team friendly staff

All of these elements are integral to fostering a work culture which will maximise a company’s ability to safely and successfully innovate their business practices and as a result improve outcomes for themselves and customers. With that being said some of those strategies are exceptionally broad and business owners may find it confronting when planning how to enact those changes in their businesses. With that in mind the next section will now be seven dot points which will provide one suggestion for fostering that change in your business. Some of them may seem simple or even familiar  as they may have already been discussed earlier in the article or in previous articles here.

1) Flat management structures or micro structures where the staff roundtable ideas and planning with leadership. This is an innovative structure popular with smaller companies as it reduces middle management and facilitates more efficient and healthier communication with staff to those that dictate company strategy.

2) Daily or weekly micro meetings discussing objectives, goals and problems; these meetings should be upon supporting collaborative problem solving. These meetings should also be held relatively informally to foster a safe and relaxed environment to brainstorm and problem solve within. Lastly and most importantly staff should feel free to express ideas as there is no such thing as a bad idea as one of my old university lecturers was fond of saying.

3) Always start any brainstorm or problem solving meeting yourself with an idea or a question for the other members. This will engage them and show yourself as an active participant rather than a judge. It is also important to use the time tested positive-negative-positive system when providing feedback for ideas. This method will diminish the self esteem hit staff will take if an idea is off target or disruptive. It is also important to not shut down that member if possible but offer them a means to save face by posing your improved suggestion or redirect as a question that is seeking their opinion.

E.g. “Your idea for improving sales speed is great because it….But it doesn’t really take into account “X”…That being said perhaps we could move from that and look into “Y” to improve the process?,  What do you think?”

While this may seem like a lot of work the value of having staff who aren’t afraid to share their ideas cannot be underestimated.

4) Allow staff to telecommute or work at flexible hours if appropriate. For example letting employees telecommute or allowing early leave on some days for appropriate reasons can be an easy way to foster positive relationships and to motivate employees to work at optimal levels, just make sure you monitor their performance as normal.

5) Include staff of all levels in your broad strategic planning and objectives outlining, obviously they don’t need to know everything but breaking down what’s pertinent for your staff will help them identify their wider role in the company and potentially boost productivity by granting clear meaning to their work.

6) See this article

7) Aim to have a diverse workforce. Injecting some young staff fresh from high school or university while initially presents a training cost due to their inexperience it can lead to real gains from their technological knowhow and fresh perspective.

To read the original Microsoft Joined-Up Innovation: Culturing Success report go to: