Innovation: Eight Simple Rules for SMEs
by Katalin Eibel-Spanyi

Innovation drives growth and Small and Medium sized Enterprises (SMEs) are generally perceived to be the growth engine of the economy. The European Commission recently reported that in Europe SMEs account for 66% of private sector employment. The comparable statistic in the US has been estimated at 46%.

There's no shortage of advice on innovation. Just type in "innovation" into any search engine and you will get virtually millions of 'results.' The common theme is for companies to move beyond 'old' models of innovation, where the focus is purely on taking creative ideas to new products. It's true that in today's business environment, companies seeking to innovate must go far beyond the product. That applies to both large corporations and SMEs. Much of the literature on innovation has been directed at large corporations. Yet SMEs, by definition, do not have the resources of larger corporations.

They are often significantly influenced by the skills, passion and capabilities of the founder and are frequently characterized by low levels of capital, relatively inefficient technologies, and high labor intensity. Nonetheless SMEs must also move from the old 'product centric' models of innovation to a more robust, alternative driven model.

Precisely how to do it is what has attracted a great deal of attention. This article presents eight simple rules for innovation that can assist SMEs in this respect. While the rules are simple to understand, they are by no means easy to implement, and therein lies the challenge.

Rule#1: Foster Market Orientation

"Build a better mousetrap and the world will beat a path to your door." This popular dictum may have been true in the past, but it is no longer. The leaders of many SMEs, engineers and inventors themselves, are particularly vulnerable, because the idea itself seems so logical.

Understanding the needs and wants of customers has become a fundamental aspect of satisfying customers. Indeed, in many markets, the customer is no longer just the king, but has become the dictator.

While SMEs may not have the resources that larger corporations dedicate to conducting customer satisfaction surveys, there is no question that SMEs also need to find ways to collect and disseminate data on customer preferences and trends as part of an overall effort to systematically create customer value.

Generally, this involves finding means to collect market information about needs of customers, disseminate such information among the organization and build the means to develop and implement strategies in response to this information. In this respect, SMEs need to be creative in their interaction with other companies and leverage their links to opinion leaders, universities, and industry associations to source market intelligence.

Rule #2: Think Beyond the Product

Closely related to the requirement for higher levels of market orientation is the need to think beyond the product. SMEs can hardly become market oriented if they do not think beyond the product. Customers no longer make purchasing decisions based mainly product features. Instead they are looking for responsiveness, service and the overall experience. The move towards providing customers with total solutions is particularly noticeable in industries characterized by complex and high-value products and services, where SME's frequently play a dominant role. These are industries such as telecommunications, computer technology, aerospace, transportation networks and medical devices.

Thinking beyond the product requires a new way of thinking for those SMEs where a traditional goods-dominant view is prevalent, combined with a science or technology push perspective of business. SMEs need to leverage the nimbleness attributable to their small size in anticipating and responding to customer requirements on performance factors such as building relationships with customers and developing a range of value added services that customers appreciate in areas like technical and user support.

Rule #3: Learn to Forget

SMEs wishing to foster and sustain innovation also need to learn to forget. New business approaches call for a sort of a split personality. On one hand SMEs need to leverage the key competencies which have contributed to their success. On the other hand they must also learn to rely less on assumptions around the elements of old business models.

Innovation will increasingly require not only new technology and products or services, but new ways to organize and deliver value. This implies changes in a broad array of factors including structure, systems, and culture. Clinging to old business models can have a significant adverse impact on the introduction of new products or services. That's why it's important to have selective organizational memory and learn to forget.

Rule #4: Reach Out

In the past decade, the World Wide Web has fundamentally changed the way in which business is conducted. It has provided SMEs with unprecedented global reach. It has also changed the way in which ideas are generated. No longer can a firm afford to look exclusively within its boundaries for breakthrough ideas. Everybody knows that with a mouse, a modem and access to the Internet, these days you can point-and-click anywhere on the entire planet, unrestricted by time or space or even long-distance phone charges.

This ability to launch a search engine and enquire about practically anything has changed the way in which new ideas are generated and disseminated forever. Now, SMEs can use the Web to find people around the globe whose passion matches their problems or aspirations. This provides SMEs, who are willing to 'reach out,' with unparallel access to information and knowledge and the means to engage in collaborative problem solving at virtually no cost and at an unprecedented speed.

Rule #5: Cultivate a Learning Orientation

Innovation demands that firms continuously examine the way in which business is conducted, and that requires a strong learning orientation. The extent of a firm's learning orientation is comprised of four distinct components; commitment to learning, shared vision, open-mindedness, and inter-organizational knowledge sharing.

The role of the leader in SMEs is critical here, not only in terms of the leader's management style, but also in terms of the impact on the culture of the firm. Issues of culture and trust are even more visible and meaningful within the smaller enterprise than in larger entities. There may be reluctance by SME leaders to share power and take the scope and type of action needed to promote a learning orientation.

The characteristic of promoting the value of curiosity, a habit of reaching out for ideas and help, and the display of a mixture of confidence and humility can create a highly collaborative culture within SMEs. Financial rewards and non-financial recognition can be deployed to further support collaborative behaviors.

Rule # 6: Bid and Collaborate

Public-private partnerships between government, the academic community and industry have been increasingly used as a vehicle for defining and implementing R&D activities. To take best advantage of innovation opportunities, SMEs need to nurture relationships with government, universities and associations in order to access funding for innovation, data on emerging trends, and develop broader network of contacts.

This means taking advantage of public funds available to foster innovation and bidding on such funding. It also calls for a clear and continuing focus on alliances with university research institutions and trade associations to collaborate on the development of key concepts and applications.

Rule #7: Dabble with Weird Ideas

Thinking outside the box involves sometimes dabbling with 'weird ideas.' While some of the advice on this topic applies principally to larger firms, such as 'hire people whom you (probably) don't need', others are worthwhile considering. For example, weird ideas such as 'rewarding both success and failure and punishing inaction' and 'using job interviews to get new ideas - not to screen candidates' are both intriguing concepts that apply equally to SMEs.

Such ideas represent areas of potential useful experimentation which can serve to shift traditional thinking and the 'we've always done it this way' frame of mind.

Rule #8: Rethink

Fostering and sustaining innovation requires that SMEs continuously rethink everything. Not just products, but business processes, technology and organization. Not just rethink, but reconfigure, re-sequence, relocate, reduce, reassign, and retool.

This requires challenging conventional wisdom. Examining how information sharing with supplier can improve performance for customers. Studying how decision making can be redesigned to foster responsiveness and reduce bottlenecks. Explore ways to develop new relationships with suppliers and allies. Search for the means to leverage the power of technology.


Granted, putting these 8 simple rules into action is far from simple. It requires deep commitment to the principles of customer centricity and organization learning. It requires in particular that the founder and leader of the SME organization recognize that great ideas can come from anywhere (not just from himself or herself) and that each person in the firm has a potential role to play in translating ideas into action. It also requires a broad-based examination of the way in which the firm creates value for customers and the continuous search for improving business practices, processes, and deployment of technology. If it was quick and easy, everyone would be doing it. That's why those SMEs who can apply these rules are more likely to foster innovation and achieve competitive advantage.


Calantone, R.J., Cavusgil, S.T., Zhao, Y. "Learning Orientation, Firm Innovation Capability, and Firm Performance." Industrial Marketing Management, 2002, Vol. 31: 515-524.

Govindarajan, Vijay, and Chris Trimble, Ten Rules for Strategic Innovators: From Idea to Execution, Harvard Business School Press, 2005

Lord, Michael D., and J. Donald deBethizy, and Jeffrey D. Wager, Innovation That Fits: Moving Beyond the Fads to Choose the RIGHT Innovation Strategy for Your Business, Prentice Hall, 2005

Shapiro, Stephen M., 24/7 Innovation: A Blueprint for Surviving and Thriving in an Age of Change, McGraw-Hill, 2001

Sutton, Robert I., Weird Ideas That Work: 11 1/2 Practices for Promoting, Managing, and Sustaining Innovation, Free Press, 2001

Dr. Katalin Eibel-Spanyi is an Associate Professor of Marketing at Eastern Connecticut State University [ECSU]. Previously, she taught marketing courses at Ryerson University, Toronto, Ontario, Canada and was an Associate Professor of Marketing at the Budapest University of Economics. She is a member of the American Marketing Association and a former Director of the AMA's Toronto Chapter. She can be contacted at .

Many more articles in Creativity & Innovation in The CEO Refresher Archives


Copyright 2006 by Katalin Eibel-Spanyi. All rights reserved.

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