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SMEs in a networked world: Applying open innovation successfully

Wim Vanhaverbeke

Open innovation (OI) can be a catalyst to improve the competitiveness of European SMEs in the midst of the financial crisis. Academic Wim Vanhaverbeke explains that for OI to prove successful for SMEs, it needs to be adapted to their specific needs. To this end, coaching, awareness-raising and dissemination of best practices should be pursued by the EU and national governments.

‘Most SME entrepreneurs are people who would want to implement OI but are scared to begin,’ argues Dr Vanhaverbeke, Professor on Strategy and Organisation at Hasselt University (Belgium) and visiting professor at both ESADE Business School in Barcelona and the NUS National University in Singapore. ‘What they need is conviction, good examples and coaching.’

Dr Vanhaverbeke, a key-note speaker at the EUROSME 2013 conference in Dublin on 11-12 June, will deliver a speech on ‘SMEs in a networked world’. He emphasises: ‘I want to caution European policy-makers, managers and associations that OI as they know it is designed for large companies and is of no help to SMEs.’ He explains that according to the traditional definition, OI is about external knowledge that a company acquires from a third party and uses to develop new services and products, or improve its current ones. Furthermore, the term also refers to the technology that belongs to a company, but for various reasons remains unused and can be monetised, that is, licensed to other companies or used to set up a spinoff company.

OI: a 4-step implementation process for SMEs

The concept of OI needs to be modified when applied to SMEs, especially low- and medium-tech small companies. According to Dr Vanhaverbeke, OI is crucial for SMEs because they don’t have enough internal competences and internal technology, so they have to look to third parties if they want to develop a new product. In SME terms, OI can be understood and implemented by a four-step process:

  • SMEs need to think about and define their strategy, i.e. what they want to achieve and succeed in. They need to make strategic decisions regarding their growth techniques, strengthening of competitiveness, product differentiation, etc.
  • SME entrepreneurs need to adopt entrepreneurial insights in order to make a difference. They are the ones who will come up with the ideas of how to differentiate and gain in terms of competitiveness. Entrepreneurs themselves are crucial in the process.
  • The SME applies OI, which comes as a natural consequence of the two previous steps. Since the SME might not have the competences internally, the entrepreneur tries to cooperate with partnering organisations who can provide the know-how and/or the technology required to implement the strategy chosen by the SME.
  • SMEs need to manage their networks. This is a new management challenge, not only because entrepreneurs have to work on management internally, but because they also need to utilise the external network of partners.

OI and European SMEs

Dr Vanhaverbeke speech will emphasise that it would be a mistake to think that innovation management is only related to leading-edge technology, for instance. This counts for hi-tech companies, which constitute only 5% of the European SME landscape. The priorities for SMEs concerning OI should be different. The top priority is to ensure that companies and entrepreneurs get connected with each other. ‘Networking allows for the flow of information in a period when many SME managers in Europe are isolated,’ says Dr Vanhaverbeke. ‘They are not aware of the opportunities universities or research institutes offer, or of the privileges of networking in the value-chain.’ Building trust amongst key partners is of crucial importance. He stresses that successfully implementing OI is an issue of trust.

Another point Dr Vanhaverbeke will highlight is that European SMEs should not focus that much in developing new technology. The critical success factor is not about developing technology, but creating applications from existing technologies. ‘It’s all about developing new business models, finding the right technology, licensing it and developing the right application,’ he says.

But can OI help SMEs cope with the ongoing financial crisis? Dr Vanhaverbeke thinks that it can, as it is a vehicle for the development of innovative products in a highly competitive business environment where the traditional strategies for an SME have become really cumbersome. He argues however that there is a growing need to structure and implement an OI policy at the European level: ‘What managers really need is to become aware of the power of innovation. Too many SME managers are very preoccupied with surviving and they don’t think about strategy. All these companies that have been very successful in implementing OI have been contemplating strategy on a long-term basis. You need to make managers reflect on what is possible if they collaborate. In order to achieve that they must be aware of the possibilities they have.’

SME managers must also learn from experience and best practice examples. Dr Vanhaverbeke underlines that there are very good examples of SMEs that implemented OI successfully in Europe, but they remain unknown. He proposes to create instructive 15-20 minute videos showing what managers have been doing and then disseminate them online to provide guidance for SMEs. The EC can facilitate this effort at Union level, while local associations can help with dissemination and promotion. ‘It’s very easy and bears low cost,’ says Dr Vanhaverbeke. ‘I’d like to turn the attention of policy-makers towards education, raising awareness and promotion of good examples. That’s what SMEs need more than anything else at the moment.’

Register now for the SME conference under the Irish EU presidency in Dublin on 11-12 June.