This raises at least two important questions for directors of small organizations: (a) How can SMOs benefit from their tininess and flexibility and compete against their multi product peers and (b) What should be the form of organizing innovation activities in SMOs?
Apart from their agility and typically lean cost base small companies did not really have a competitive edge over large, established organizations which are in a better position when it comes to mobilizing resources. Apart from financial resources, access to markets and customers to test and commercialize new products has proven to be quite a challenge for SMOs. Also competing on price, which would be ideal for a boots trapped SMO is getting increasingly difficult in the face of multi-product offerings that obfuscate the value of single specialized solutions.
The above named modest advantages of SMOs have been reinforced with the emergence of ICT platforms that allow the firms to reach a far larger and more dispersed audience (of up to 2 billion Internet users) which erodes the economies of scale associated to mass production and a country spanning service offering. The access to the audience of internet users is available at an ultra low monthly cost, but allows SMOs to gain global marketing capabilities in the corporate and political world.
The explosion of media choices and platforms - from blogging to Twitter to Facebook, Flickr, and YouTube - is something SMOs did not have in any real sense a couple of years ago. Storytelling has been thrust front and centre because customers not only expect firms to exceed their expectations, but also to have the ability to tell stories, be they good or bad. This human character trait makes it easier for SMOs to conquer the minds of powerful decision makers.
Furthermore SMOs should leverage their ability to focus on certain niches and make sure they offer a sufficiently sophisticated product. Let’s take the case of a small provider of EMR (Electronic Medical Records) in Brazil wanting to sell its well designed software to small practices and private clinics. Provided that the customers are overly spoiled and used to sales persons from pharmaceutical firms knocking on their doors, it would be possible for the small software house to sell their EMR online and the potential Brazilian market would be huge and emerging. However, the firm would face fierce competition especially from ERP providers that include their (probably less sophisticated) EMR as a bonus, if the practices go for their suite of programmes.
For the second question on how to organize the innovation process in a small company there is no answer that works for all sectors and activities. One natural advantage of SMOs is that they do not have the bureaucratic processes in place that hinders innovation that you can find in larger organizations that aim for efficiency in the first place.
However small the company is, it is recommendable to raise awareness among the employees that innovation is core to the sustained success of their company. Furthermore one person should be dedicated to the role of innovation manager and spend a decent amount of her time on identifying new opportunities and managing current ones.
While most companies have plenty of creativity, they lack the skills to convert ideas into reality. Vijay Govindarajan of the Tuck School of Business points out the three basic steps for planning an innovative initiative and evaluating its progress:
- Formalize the experiment: Stick to the basic principles of learning from an experiment.
- Break down the hypothesis: Most innovation exercises are really compound experiments. There are two or more uncertain variables. SMOs should learn to test those assumptions at the lowest possible cost.
- Seek the truth: Political pressures in organizations push people towards interpretations of results that are comfortable and convenient rather then analytical and dispassionate. These organizational pressures tend to be lower and more transparent in SMOs.