Can SMEs become more productive by being innovative?

Small and mid-sized enterprise (SME) owners often have a little more freedom to do things their own way. Decision makers in huge conglomerates are likely to have myriad people to answer to, which makes the process of change or development that much harder.

Rather than waste any time feeling sorry for their bigger peers, SME owners should take advantage of innovation. For those in their infancy or anyone starting a business in Australia, a bit of free thinking here and there can actually unlock more productivity.

The hard data

In-depth research carried out by the Reserve Bank of Australia (RBA) looked into the relationship between innovation and how small companies operate. It found that SME owners who strive to introduce new, alternative ways to do things can experience an annual productivity boost of around 2.7 per cent.

In short then, firms can unlock productivity – and everything that comes with it such as growth and profitability – by removing themselves from the norm and thinking a little differently.

So, what passes for innovation? Well, in the case of SMEs, the Queensland government highlighted two specific types of the practice:

Incremental innovation

This has a focus on making small improvements to the business in an effort to make bigger gains further down the road. Examples could include streamlining the company's small business accounting practices or improving the organisation's website.

Radical innovation

Radical innovation involves creating a completely new process or product in response to a gap in the market. These are often viewed as big breakthroughs and can change the internal processes of the business in a big way.

Ultimately, while there's certainly productivity benefits to be had for those that can innovate, the process should ideally take on a mixture of incremental and radical innovation. When done effectively, as the RBA found, the benefits to the business can be particularly pronounced.