Finding good examples of open innovation in small companies is difficult. It seems it is not yet common practice and that the management tools on offer to support collaborations have been developed to suit the needs of large companies.
As a result, many SMEs are struggling to organise and manage open innovation projects. In a new book, Wim Vanhaverbeke, professor of Strategy and Innovation Management at Hasselt University, uses in-depth case studies to illustrate and explain how small companies can steer their way to success.
A Google search on ‘open innovation’ throws up 20.8 million hits. But this vast amount of information is in the main focused on large companies, giving the impression that open innovation is not relevant to smaller counterparts.
However, says Vanhaverbeke, the opposite is true: open innovation can benefit companies of all sizes, but SMEs must adopt a different approach to implementation.
Most small firms find themselves in a harsh business environment, facing increased global competition. Factors including changing market conditions and new regulations force them to reinvent themselves through new technologies or novel value propositions.
For want of the financial resources and technical competencies to develop technology in-house, they must turn to external partners – suppliers, customers, research labs, universities, large companies or networks of other SMEs, as sources of innovation.
However, the practice of open innovation is not yet common in small firms, and although innovation is critical for survival of European SMEs, few understand how to benefit from innovating through partnerships.
Vanhaverbeke’s book sets out a framework for how open innovation can be managed and implemented in SMEs. “Managing open innovation in small companies is actually quite specific, and we have to reinvent open innovation to make it useful for entrepreneurs in small firms,” Vanhaverbeke says.
Given this, the book pays a lot of attention to the role of the entrepreneur, and the integration of strategy, business model changes and open innovation. There is an in-depth analysis of open innovation practices in SMEs, based on case studies from successful European companies.
While innovation is most usually associated with high-tech industries and leading edge technology, most of the companies studied in the book are in low- or medium-tech sectors. Examples include bicycle parts, quilts and pillows, chemical treatment of textiles, barometers and radiators, that are representative of a large chunk of European SMEs.
Innovation and open innovation in these industries is not about inventing new technologies or pushing forward technology frontiers. Rather, it is a matter of finding relevant, novel, applications of existing technologies.
All cases show that whilst existing value chain partners are important in this context, open innovation connects SMEs with new partners from completely different industries.
As one exemplar, Quilts of Denmark succeeded in developing the first functional quilt with technology originally developed by NASA. Applying technologies in a new context requires considerable applied technology development, which becomes over time a valuable asset for the innovating SMEs, and can allow them to transform the company into a completely new business.
The book also shows how innovating entrepreneurs learn, and how managers of SMEs can be incentivised to start their innovation journey.
Most policy makers assume that exhortations to innovate will be sufficient to propel SME managers into the game. But says Vanhaverbeke, “Observing SMEs for eight years, in my experience entrepreneurs and SME managers only start to innovate when other SME managers show that it can be done - SME managers learn from the experience of other managers.”
As there is limited time to learn, this can only be done in local networks run by local organisations supporting SMEs.
These local networks should be at the core of the European innovation policy for SMEs, according to Vanhaverbeke. Business coaches in these networks understand the needs of, and are trusted by, the SMEs in a particular region.
But there remains the barrier that good examples of open innovation are few and far between on a local scale and managers who implemented open innovation successfully get too many requests to be a guest speaker.
In addition, many business coaches do not have professional guidelines for instructing SME managers in open innovation.
Vanhaverbeke claims that a set of short videos/multimedia case studies about best practice open innovation in European SMEs (which will to be freely available on YouTube), and a concise guideline, would strongly empower local coaches in their attempt to initiate SME managers into open innovation.
Given its potential to change the mindset of SME managers this is possibly one of the most powerful initiatives policy makers can take at the EU level to stimulate (open) innovation in SMEs, Vanhaverbeke says.
Prof dr Wim Vanhaverbeke is professor of Strategy and Innovation Management at Hasselt University and visiting professor at Esade Business School and the National University of Singapore.