Innovating in the context of an SME: Advantages and disadvantages

SMEs enjoy specific advantages in terms of innovation. But they also face some disadvantages. 

SMEs (too) often hide behind the cost argument to claim that innovation is a matter for large companies. This claim is incorrect. Innovation is not necessarily only synonymous with exceptional, expensive and complex technologies. Experience shows that this is less a mere question of technology than a philosophical approach and the determined manner with which the company defines itself in relation to its environment. In this context, an overly technological approach can sometimes produce negative results on the success of innovations. As wonderful and amazing as a technological development may be, the success or failure of an innovation depends ultimately on its acceptance by the market. 

Advantages for SMEs

SMEs often enjoy specific advantages in terms of innovation.

  • Prompt response time. On account of its structure, an SME can come up with ideas, develop them and realize them in a relatively short period of time.
  • Short and direct decision-making processes. An SME is often led by its owner and its decision-making processes are therefore short.
  • Direct motivation. Experience shows that the success of innovations depends on the commitment and motivation of influential people.
  • Advantageous structure. Because of lower overheads, a small company can usually launch innovations at lower costs than its large competitors.
  • Approach to customers. An SME is often highly specialized in technological terms, and firmly focused on its purchasers. This means it can be close to customers and have a better understanding of their requirements. 


But potential disadvantages should also be taken into account:

  • Personnel. A small company often has few specialized employees capable of fostering innovation.
  • Finances. Financial resources and limited access to appropriate sources of financing often create barriers. The innovation budget is often restricted to the point of penalizing long-term innovations.
  • Project portfolios that are too small. A small company is rarely able to carry out more than one innovation project at a time, which helps offset the financial risk.
  • Gaps in information and knowledge. The SME very often receives too little information, and methodical knowledge is too fragmentary.

Source: Innovationskompass für klein- und mittelständische Unternehmen, Linde Verlag, 2006.

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Last modification 20.07.2018

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