How does Leadership Impact On Innovations in SMES - Literature review Example

Running Head: LEADERSHIP AND INNOVATION How does Leadership Impact On Innovations in SMES? (Name) (Course) (University) Date of presentation: Lecturer: Literature Review Innovations in SMEs Small and medium enterprises (SMEs) are in various dimensions considered key driving forces for modern economic development. This is due to the SMEs’ multi-faceted contributions in terms of employment generation, technological innovations and export promotions. Of all these contributions, the ability of these enterprises to innovate assumes a lot of significance because innovations lead to competitiveness and economies of scale to firms, industries and economies (Gudmundson, Tower & Hartman, 2003). In his article, Frey (2002) has asserted that continuous technological innovations are a key factor in the SMEs’ competitiveness, growth and success in the long run. Among firms of different sizes and structures, SMEs are more flexible and able to adapt to changing market and industry conditions rapidly and hence can adapt and implement new business ideas. The simple organizational structures of SMEs, their flexibility, low risk nature and receptivity are crucial features that make SMEs to be innovative. Thus, SMEs across industries and countries have innovation potentials although these potentials vary considerably depending on industry sector, firm size, resource capability and specific characteristics of the business environment in which the SMEs operate. For SMEs to optimize their innovative potentials, they should have in-house technological competencies in the form of motivated and technologically qualified entrepreneurs as well as innovative and technically skilled workers. In fact, new ideas for business innovational SMEs can be attributed to the efforts of the top management and as such, the management has the responsibility to actively explore new business ideas and the most efficient way of achieving this (Oke & Goffin, 2001). Innovation and Industry Improvement In the modern world of business, competitiveness at the industry level depends on the speed at which new products and services can be brought to the market and the new cost-saving methods that come alongside the new products. Similarly, industrial development of countries as well as creation of wealth and employment depends greatly on the extent to which technological and scientific breakthrough are converted to practical business solutions (Jansen, 2000). The ability of industries to provide innovative products with enhanced utility can help industries strengthen their competitive positions in home and international markets. This necessitates industries to bring new and innovative products to the market and also to develop manufacturing and organizational processes which enable cost-effective and more efficient production and distribution systems. Industries consider innovation as a major driving force to enhanced performance. Accordingly, many industries have focused much of their management decisions and attention to internal efficiencies of team structures, development process and cross-functional interaction (Judge, 2004). However, as more and more companies strive to make innovation part of their corporate structures, developing internal innovation capabilities is not sufficient to sustain competitive advantages. Therefore, more companies try to improve their innovation performance through close partnerships and collaboration across industry networks. To remain competitive and innovative in the long run, industries engage different sources to get access to different sources of knowledge, which is necessary for development of new business ideas. Some of these sources include employees, customers and other businesses (Frey, 2002). Attitude Attitude refers to the way a person views something or tends to behave towards something often in critical and evaluative ways. Attitudes can be positive or negative depending on whether a person likes or does not like the thing against which the attitude is formed. In the workplace, attitude is crucial for effective service delivery. Managers and supervisors try to promote employee engagement and positive attitude in order to maintain increased productivity. Moreover, positive employee attitude helps reduce turnover, increases loyalty and organizational commitment and is a key force for development of new business ideas which result in innovations. Although innovation has been approached from different perspectives, Lane (2008) believes that innovation is more about attitude and encompasses a positive outlook that stems from the ability of individuals to think differently and encourage others to take risks and overcome inhibitions. Positive attitudes in the workplace not only induce feelings of happiness and job satisfaction among employees, but also make it easier for an organization’s leadership to achieve organizational goals by securing the cooperation and commitment of employees. According to Laton (2006) the power of attitude over skills and experience is important for development of innovation-oriented work teams. This is because workers with positive attitudes, although without skills and experience can be trained to improve on their skills and experience. On the other hand, it is impossible to attain significant productivity from employees with negative attitudes about the work, even though the employees might be well skilled and experienced (Laton, 2006). Leadership, Followers and Innovation Effective leadership is necessary for innovation to thrive in organizations. According to Fernald, Solomon and Tarabishy (2005) successful leaders not only motivate their followers to think and act creatively but also ensure that necessary resources are put in place to allow for the culture of innovation to develop. However, developing a culture of innovation, in which every follower applies innovative thinking to develop new products, solve problems and execute routine responsibilities, is a great challenge for most managers. A research study by Santos, Doz and Williamson (2004) has shown that variances obtained in measures about the climate of creativity in organizations are attributable directly to leadership behaviours and relationship with employees. This means that an organization’s leadership must act and behave in a way that promotes and supports the culture of innovation. Successful leaders understand that innovation and creativity are the lifeblood of organizations. By developing good relationships with their followers, leaders can gain new leadership and management ideas that can lead to implementation of programs that are superior to the ones already in place and which could not have been initiated. Therefore, the mission of every leader is to search tirelessly and continually for programs and ideas that can result in improved business processes, increased productivity and good interpersonal relationships (Gudmundson, Tower & Hartman, 2003). To promote innovation and creativity in the workplace, leaders use management initiatives which create new work environments that motivate and stimulate staff to be more innovative and creative. Hence, organizations do not necessarily have to hire new employees in order to promote a culture of innovation. Leadership in the Construction Industry The construction industry is under intense pressure to improve sustainability and cost-efficiency and is thus innovating at a higher pace than other industries. The leadership’s role in encouraging innovation in the construction industry is important and is solely responsible for the growth and success of this industry. Unlike other industries, customer relationships in the construction industry are usually long term. This means that companies should develop innovative means of sustaining relationships with their customers for as long as possible without compromising quality and timely delivery of services. This is made possible through the motivating and encouraging role of the leadership. According to Jansen (2000), leaders in the construction industry need to keep in touch with latest technological advancements that add quality and cost improvement to the services provided by the industry. Moreover, the leaders need to initiative and encourage their followers to develop creative business ideas. The leadership’s role in encouraging innovation in the construction industry has been discussed by Lane (2008) who observes that strategic objectives in the industry can only be achieved when the industry’s leadership aligns innovative organizational goals with employees’ interests. He further notes that tough sustainability targets and inspirational leadership standards can reduce building costs and hence bring innovation in the construction industry. By encouraging a spirit of innovation, leadership in the construction industry can boots efficiency which will ensure that much of the work is completed off-site. Construction Firms in Australia Australia’s construction industry is highly modernized and is the most advanced in the region. While there are many firms in the industry, Australia’s construction industry is dominated by a substantial number of foreign firms, mostly American, British and Chinese. The construction industry is the 4th largest contributor to Australia’s GDP and continues to play a major role in determining the country’s economic growth (ABS, 2010). This is evidenced by the fact that a large proportion of Australia’s labor force is employed in the construction industry. Moreover, upward growth in the construction industry is one of the reasons why Australia has a large pool of expatriates and continues to import large assortments of construction materials from other countries. Australia’s construction industry operates in the private and public sectors and engages in three main areas: engineering construction; residential building and non-residential building. The demand for these services is influenced by economic factors including inflation, changes in interest rates and consumer confidence (ABS, 2010). Generally, Australia’s construction industry has experienced upward growth, save for occasional adverse economic conditions. For instance, the 2007-2010 global economic crises severely affected the industry as new constructions were frozen and many firms suspended new employments. Nevertheless, the industry has recovered and is employing more people. The rapid recovery can be attributed to the strategic, focused leadership exercised by the construction firms. In Australia’s construction industry, strategic leadership is highly valued and is a key drive of change, innovation and continued quality improvement in the construction industry (ABS, 2010). References Australian Bureau of Statistics. (2010). A Statistical Overview of The Construction Industry. Retrieved July 20th from http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1350.0Feature+Article1Oct+2010 Fernald, L., Solomon, G. T., and Tarabishy, A. (2005). A new paradigm: entrepreneurial leadership. Southern Business Review, 30(2), p. 1-10. Frey, R. (2002). Small business knowledge management success story- This stuff really works! Knowledge and Process Management, 9(3), p. 172-177. Gudmundson, D., Tower, C. B., and Hartman, E. A. (2003). Innovation in small businesses: Culture and ownership structure do matter. Journal of Developmental Entrepreneurship, 8(1), p. 1-17. Jansen, K. (2000). The emerging dynamics of change: Resistance, readiness, and momentum. Human Resource Planning, 23(2), p. 53-55. Judge, P. (2004). ‘Inspiring Leaders – Development Matters’. AIM/CMI Management Research Forum: Leadership for Innovation, DTI, London, 27th October 2004. Lane, M. (2008). The Moderating Effects of Employee Spirituality on the Relationship Between Uncertainty Management Fit and Job Satisfaction and Creative Innovation. ProQuest. Laton, D. (2006). Developing Positive Workplace Skills and Attitudes. Lulu.com. Oke, A. and Goffin, K. (2001). ‘Innovation Management in the Service Sector’. Management Focus, Cranfield School of Management, UK, Summer Issue. Santos, J., Doz, Y. and Williamson, P. (2004). ‘Is Your Innovation Process Global? MIT Sloan Management Review’, Summer, pp 31-37. Read More