One of the more heartening aspects of this year’s Federation of Small Business (FSB) innovation survey is that SMEs know they need to innovate, particularly in the face of competition.
However, findings from 1,279 firms surveyed by the FSB during March and April 2018 are a mixed bag, from their members actively involved in innovation, to those facing barriers to innovation and those innovating without much reward.
There is nothing like a competitor breathing down one’s neck to encourage innovation and change. The survey discovered that the willingness of small businesses to innovate is high when competition is fierce and rival businesses are likely to introduce changes to their business processes, products and services or goods.
More than half of respondents were likely (42%) or very likely (14%) to innovate to counter competition, but on the flip side 20% were unlikely to introduce any changes and 8% very unlikely. Another 16% didn’t know.
Actually, most businesses don’t really know what the competition is up to. Just 32% of respondents reported that they were very aware of competitors’ innovation. However, 42% said they were only slightly aware, 14% were not very aware and 7% not aware at all. Then there is the 6% that didn’t know or weren’t sure. Maybe these business owners should get out more.
On a positive note, almost half of small businesses (44%) plan to work on product innovation in the next three years. But that also means 56% do not. In today’s competitive environment, it is concerning that so large a number of businesses are avoiding innovation.
The impact of innovation on sales is largely favourable, with 64% of businesses reporting sales increasing as a result. This breaks down to:
- 4% reporting a 100% or more sales rise,
- 3% boasting a more than 50% increase,
- 7% noting increases of up to 50%,
- 20% reporting sales up by up to 20%,
- 30% seeing increased sales of up to 10%.
Thus we can surely conclude from these numbers that innovation is the key to growing a more successful business, while also noting that the 22% who reported no change or decreased sales would appear to warrant further investigation into their methods.
Another 14% didn’t know, which could mean that the benefits of innovation are hard to value for a period of time (i.e. not directly seen on the balance sheet) before long-term gain becomes apparent
The reasons businesses innovate are clear: just under half of businesses surveyed innovated because they sought to increase turnover and accelerate their business growth.
Other prominent reasons included increasing marketing share (33.8%), improving reputation, credibility and profile (31.2%), increasing the range of goods or services (30.8%) and improving efficiency or productivity, including increasing competitiveness (30.6%).
That said, SMEs innovate for various reasons, not all profit-driven. The survey found that 11.8% sought to improve leadership and management capability in their business, 20.5% were responding to customers’ requests, 19.3% sought better business resilience, 14.6% wanted to reduce costs, 10% were meeting regulatory requirements and 5% were providing opportunities for collaboration and opening up new supply links.
Whatever the reason for innovation there is no doubt that getting it right adds value to any business and at GovGrant we have a team of experts available to walk your business through the entire process.
The cost of innovation is not insignificant and varies dramatically, usually relating to company size and the extent of any development programme. The highest group of respondents (30%) reported a spend between £1,001 and £10,000, with 25% coming in at more than £10,000. That’s why it is so important to get involved with R&D tax credits.
Conversely, 38 per cent reported a spend of less than £1,000, but these initial figures can grow, especially when continued development is in place, and this can be taken into account when making a claim.
Much of the innovation reported is ‘new to firm’, rather than ‘new to market.’ In other words, this is innovation that may have previously been implemented by other businesses and is copied by another business. Around one in three respondents planning to implement change were going to introduce new goods or services to the business.
And, in the main, the adoption of innovation was by self-design, with 44% of businesses that innovated in the past three years developing or designing the change themselves, including creating new software, services or products.
A sizeable minority of 16.5% adopted innovation from a supplier, with just 10.6% adopting it from another business or a competitor, 5.3% from their employees, and 3.5% from their customers.
Barriers to innovation are described in the survey in great detail. None are insurmountable and the fact that 44% of respondents put it down to not having enough time is a poor excuse, because management teams must always make time for business development. Leaders and decision-makers who spend all their time at the coalface and don’t take time to plan for the future are doing their employees a disservice. There should always be time for business development and at GovGrant we can step in to create help.
Other notable barriers to innovation included: ‘can’t decide if it’s worth the effort’ (28%); lack of access to finance (25%); lack of necessary skills or employees lacking right skills (24%); lack of staff (23%); concern about regulation (14%); concern about the extent of change (11%); lack of external collaborators (7%); worry about competition (6%0 and security fears (4%).
Digital technology and artificial intelligence (AI) are playing an increasing role in our business (and personal) lives. Thus, it was interesting to note responses in the survey.
Half of small businesses did not think that AI would provide value to their business. Only a minority of businesses believed that AI would provide value to their marketing or marketing strategies (16%), business process (12%) or customer engagement (12%). Just 2% of small businesses had adopted robotics or AI in the past three years.
However, for digital technologies the picture is somewhat different. Many more businesses have adopted online banking (59%), paying for goods or services via BACS (55%), cloud services (40%), online data storage or back-up (36%) and file transfer protocol (FTP) such as Dropbox) (34%).
Even those figures seem a little low. By the 2020s, digitisation will have penetrated most aspects of business processes. And therein is the underlying message – the business world is advancing rapidly and anyone not joining the digital world will be left far behind.
In linked blogs, we look at the FSB survey findings in general – Most small businesses are innovating and how innovation is paying off for SMEs and what barrier they face – Innovation the key for better business.