Innovation refers to implementing new processes, ideas, or shifting existing ones to become more effective and increase chances of a business’ success. In recent years, innovation has become so inevitable for businesses to stay on the level of competitiveness. Businesses that embrace innovation are looking forward to get many benefits, but most enterprises don’t pay much attention to innovation’s impact on the firm performance. So, how innovation affects performance?
A new study carried by a group of researchers from Malaysia and published in a Journal of Innovation Management in Small & Medium Enterprise has investigated how innovation could influence performance in small and medium sized enterprises (SMEs). Researchers studied 284 samples and found that “product innovation and process innovation influenced firm performance significantly, where the impact of the former was stronger than the latter” as stated in the study.
To innovate doesn't mean to invent new things, but to make changes on a business model and make necessary changes to come up with new products or services. The study has stressed out that “innovation is a critical factor in today’s entrepreneurial activities." So, policy makers in SMEs should take innovation into consideration when making their business strategies and shaping their strategic visions.
To survive the intense competitiveness in global market, SMEs would need to offer something different to what other businesses are offering. The study stated “a firm would be more competitive if it is able to design, produce, and market products or services superior to those offered by its rivals… innovation is no more a luxury, but a necessity.”
However, innovating is theoretically simple but not practically. Innovation means more costs, so businesses need to consider the financial part when embracing innovation strategy. The study mentioned that “Due to high costs of innovation in terms of R&D expenditure and personnel and resource constraints facing SMEs, this move incurs a high risk to the firms.”
But ignoring innovation would in turn impact the business negatively. So businesses should find a balance that would keep them innovative and avoid any risks. Researchers suggest that “SMEs have to really spend their time and money on gathering enough information about the market demand and trend for their products, competitors and sources of innovation before any decision can be made.”
Innovation can touch every facet of a business, be that products, services or business processes and businesses that embrace innovation produce more proficient work processes and have better productivity and performance. To be innovative would help a business to survive the intense competitiveness forced in the market and more importantly lead growth.