Innovation and Its Impact on Small and Medium Enterprises - Essay Example

Your name] [Name of lecturer] [Class Name] [Due date] Innovation and its impact on the performance of a business in manufacturing SMEs The article’s name is innovation and its impact on the performance of a business in small and medium enterprises (SMEs) in the field of manufacturing. The article was written by Alsagheer, from Dubai’s e-University in 2011. The article’s subject is the impact of innovation on the performance of business for SMEs in manufacturing. The article talks about innovation as the main source manufacturing firm’s competitive advantage as the technology has led to shortening of the lifecycle of products due to a rapid imitation of competitive advantages in various corporations. It discusses and analyses the impact of innovation on the performance of SMEs in the field manufacturing. The article shows the multidimensional relationship that exists among innovation, technology and competitive advantage. Although innovation positively impacts the performance of the business, manufacturing SMEs requires innovation strategies to overcome the barriers to make their production process innovative. Key learning points include; The unit and the article explains and defines disruptive innovation and technology They discuss on the factors for innovation and such as customer needs and environment They have the same perspective on definition of innovation They define the attractiveness and competiveness of the industry as dependent on the impact of innovation. Relevant statements From the article, McAdam, Keogh, Reid & Mitchell: Important reason ……. to adopt innovation is that adopting innovation enables the manufacturing SMEs to compete with large business giants and enable them to gain a sustainable competitive advantage (388-390) This shows that the main aim of innovation as explained in this article is to secure competition in a sustainable manner. This applies to the course in a way that it explains the strategies of innovation in order to produce the best products as compared to others. This shows that innovation is aimed at attaining a sustainable competitive advantage. From the article, Afuah: Innovation or “the use of new knowledge to offer a new product or service that customers want” is often the key to maintaining long-term profitability (3). This shows that satisfaction of customers needs is a process in innovation which enables an organization to maintain or obtain better markets for its products. This is reflected through competitive advantage which in turn leads to maintain the organization’s profitability. These two quotes are related in such a way that, they are aimed at maintain a competitive advantage through innovation. Thus, through innovation, a firm achieves customer satisfaction; it becomes better in terms of its products which makes the firm achieve a competitive advantage in the markets. In addition, if a firm maintains its competitive advantage, it will increase or maintain its competitive advantage. Thus innovation in these two quotes involves a process that an organization develops to design its products in such a way that it will be better and preferred in comparison with other firms’ product leading to increasing or maintenance of the firm’s profitability. Critical analysis The words and phrases that kept repeating in this article include business performance, innovation management, manufacturing SMEs and process improvement. SMEs have been faced by various challenges which have been acting as barriers to innovation in these enterprises. Some of these challenges include lack of financial resources, lack of skilled, suitable and qualified personnel. There are also internal barriers especially in marketing areas, internalization, innovative products conceptualization and others. Most of SMEs find themselves with the knowledge about the international markets most likely the challenges in management of globalization. Most of these firms end up in targeting home markets only for fears of failure in their business in relation to protection of intellectual property, knowledge and resources (Tiwari & Buse, 14). From the article various challenges faced by the SMEs have been addressed. Labor force is very essential in the success of an organization thus; the firms that have poor labor force end up being less innovative. This provides the idea that innovation in a firm will have positive impact as it makes the labor force more efficient and effective. These firms also face challenges in putting more resources on research and development that is not proportional with the earnings. Research and development in these organizations requires to be combined with innovation in order to yield more returns. Thus combination of research and development with innovation in these firms will improve the performance of the firms giving them a competitive advantage both internally and externally. Most of these firms lack qualified personnel which mean that they are spending so much on dominant personnel who lacks skills for innovation. This means that employment of qualified personnel makes the firms innovative leading gaining of profitability and competitiveness. Firms that lack the power to export their products due to fears of losses and intellectual properties are doing so due to lack of efficiency, competition, and well defined processes of manufacturing. With the same materials within the firm, the products in these firms can be improved through being innovative without changing the number of raw materials. Thus innovation improves the performance of the businesses through application of the same resources in the firm. This is reflected through achievement and maintenance of efficiency, competitive advantage and profitability. It is also evident that an important tool for knowledge base improvement in the firm, thus, the firm’s innovativeness is cooperating with partners such as higher learning institutions and other companies (Baldwin and Gellatly, 120). From this article, the innovative products and ideas are gaining importance in a very high rate in order to counter the competition that has been price oriented, thus through innovation firms with little resources have been able to produce better and competitive products at low costs. This makes it possible for SMEs to overcome the barriers such as constraints in resources in a way that they are able to commercialize new products successfully through innovation. This has led to attainment and maintenance of a competitive advantage against very large organizations. Through the idea of innovation, SMEs have the opportunities available through globalization as they are finding it easier to engage in new arenas through activities of global innovation. This has enabled them to be global through gaining, retaining and strengthening their competitive position further through innovation. In addition, the idea of innovation has also enabled SMEs to overcome the global innovation pressure through realization of skilled labor. Innovative ideas have enabled the SMEs to be more immune to these global challenges which make them to be the key players in most of the countries’ economies. The ides of innovation has also provided an opportunity for SMEs to internalize their sales in new areas, whose markets are rapidly growing leading to generation of revenues through competitive advantages created by the SMEs over large firms. Innovative ideas have also enabled the SMEs to venture into new markets with provision of competitive products and services that are adapted to the tastes and local needs in these markets. Thus, through provision of innovative products, the SMEs have been able to strengthen their positions competitively in both international and home markets. This has necessitated efforts in innovations to bring better and new products to the market while at the same time, developing processes in manufacturing through a cost effective and efficient production, after sales services and distribution (Acs and Audretsch, 232-240). Practical implications The two principles of entrepreneurs resulting from this study are; understanding the market target and setting goal for the benefit of tomorrow. Form the article, innovation requires understanding of the market targets. For the manufacturers SMEs to effectively compete with the large manufacturers, they need to identify the target markets for their products before innovating in order to attain a competitive advantage. These target markets may be specialization in a certain region, targeting a certain group or level of consumers or specializing with a certain product. This will enable them to be able to make innovations for a specific product which is based on the targeted market. Since their competitors may be having more resources to cover various market targets, the SMEs will be able to overcome them through specialized products. This will lead to effective use of the available resources and sustainability of competitive advantage which in turn results to increase or maintenance in profitability. Setting goal for the benefit of tomorrow is another principle to consider. This is because the process of innovation is not a one day plan but it is developed with an aim of benefiting the firm in future. The manufacturing SME can identify a certain goal to achieve through innovation for a certain period of time. Such goal would be introduction of the firm’s products globally. This means that the firm requires considering issues such as social values, legislations, tastes and preferences in different regions according to their market target. After identification of the various issues in other regions, the firm also needs to test identify experts in various regions in order to understand the markets for their products. In addition to that there is a need for more time to test their products before fully venturing into business in these new regions. This shows that the process of innovation takes some time and the goal is set for future benefit as the products gains competitive advantage and in turn generating more profits to the form at a later date from the initial innovation (Dash, 77). Learning reflections This article examines the impact of innovation on the performance of SMEs. First, it gives an overview of the importance of adopting innovation in SMEs. Innovation is defined as development and achievement of ideas that are better, technologies, products and processes in order to satisfy the customer’s needs and wants, society, government and relevant stakeholders in an effective and efficient manner. Different authors give their views on innovations in this sector such as giving its relationship with other factors which include competitive advantage and technology. They also noted that, technology has led to shortening of the life cycle of products in manufacturing firms which have called for innovation as a basic source for competitive advantage in these firms. This is because most firms in manufacturing find it difficult to gain or sustain a competitive advantage. Secondly, the paper discusses and analyses the impacts of innovation on the performance of SMEs through critical review of various literature such as books, research papers and journals. Thirdly, it analyses 20 research papers critically based on positive impacts that the innovation has on the performance of business in SMEs. Finally, through analysis of various research papers, the article gives a justification that innovation creates positive impacts on the performance of business in manufacturing SMEs. Conclusion The article has defined efficiently and effectively the concept of innovation, its various importance and impacts for manufacturing SMEs such as satisfaction of customers, reduction of costs, business renovation, and culture based performance, process involvement, growth, competitive advantage, improvement and exporting. The article also describes other facts of innovation that contributes to various impacts on the performance of the business such as leading to a market disruption and enabling the firms for manufacturing to add social value which end up being profitability and a sustainable competitive advantage for the firms in return. It is also essential to note that there is a basic difference between inventions or renovation and innovation where innovation involves a change that is incremental while invention or renovation involves just a substantial positive change. This article has found out that innovation is an essential factor for the success of manufacturing SMEs as it enables these firms to compete with very large giant organizations through provision of a competitive advantage that is sustainable to these small and medium manufacturing firms. Finally, the article through justifications made on critical discussion and analysis of twenty firms shows that innovation has a positive impact on the performance of small and medium enterprises in the field of manufacturing (SMEs). Work cited Acs, Z. and Audretsch, D. Innovation and Small Firms, Cambridge. 1990. Print. Baldwin, J.R. and Gellatly, G. Innovation Strategies and Performance in Small Firms, Ottawa. 2004. Print. Dash, R. 11 Principles of Entrepreneurial Leadership. September 17, 2007. Web. Accessed on 23 April 2012. McAdam, R., Keogh, W., Reid, R. S., and Mitchell, N. Implementing innovation management in manufacturing SMEs: A longitudinal study. Journal of Small Business and Enterprise Development , 2007:14,3;385-403. Tiwari, R. and Buse, S. Barriers to Innovation in SMEs: Can the Internationalization of R&D Mitigate Their Effects? In: Proceedings of the First European Conference on Knowledge for Growth: Role and Dynamics of Corporate R&D, Seville,Spain. 2007. Print. Read More