Cooling off innovation hotspots: smaller businesses need to look wide and deep

What is it about?

The conversation on innovation is often limited to a single link in the value chain - a product or service innovation. The performance outcomes of such ‘innovation hotspots’ are not always as hoped. We find that some of the most innovative products do not find success in the marketplace or are not able to improve the fortunes of the firm. This article argues that firms must innovate across multiple value chain links to achieve desired performance outcomes. Innovation in one part of the value chain spurs complementary innovation in other parts of the value chain. An imbalance in innovation investments across the value chain creates performance bottlenecks. Using the SME context, we outline an innovation management model highlighting the importance of leadership attention to innovation and the interdependence of investments across the value chain. To enhance their performance, SMEs must implement a broad learning program across the organization that provides formal and informal cross-training and takes a cross-functional approach to innovation and problem-solving.

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Why is it important?

Innovation strategy is about the allocation of resources. Conventionally, such choices were limited to the product or technology in one functional area. However, this study establishes that the scope of choice is pan-organization, and a balance of innovation across the value chain is more helpful than all innovations in just one area. This is all the more true for small businesses which need to optimize their limited resources.