Improving small firm innovation

In July 2018, the Federation for Small Businesses (FSB) released a “Spotlight on Innovation” on the state of innovation amongst small businesses in the UK. The report is a welcome policy intervention on behalf of small businesses, who have traditionally been less likely to innovate than their larger counterparts.

The FSB survey was conducted in 2017 consists of 1279 responses from its members, who range from sole traders to those employing up to 250 staff. The FSB sample is smaller than that of the 2017 UK Innovation Survey (13,194 responses) and the 2017 Longitudinal Small Business Survey 2017 (6619 responses); unlike the two government surveys, the FSB surveys is not stratified by region within the United Kingdom, nor by industry. Also, the FSB’s survey is not longitudinal, meaning that it cannot report on trends, such as the UKIS’ evidence that, across most nations, industries and firm sizes, innovation levels fell from 2015 to 2017. Given that innovation trends vary considerably by nation and by industry, this is a limitation of the FSB’s survey.

Finally, there is no data available on the gender, ethnicity, sexuality or other characteristics of small business owners in the survey. Given that underprivileged groups are likely to start businesses because they are denied access to mainstream employment (Marlow et al. 2017. Ram et. al, 2017), it is important for researchers to consider how regulation, market processes and discrimination affect innovation in small businesses.

However, the FSB survey is detailed, informative and throws up some interesting findings.

  1. Avoid the term “innovation” which alienates small business owners

“Innovation” was felt by small business owners to be a technocratic term which did not apply to small business owners. Instead small improvements, also known as incremental innovation, are more likely to the type of innovation practiced by small business owners. In addition, small business owners do not always consider their non-technological innovations to be an innovation. Policy-makers should therefore highlight that new or improved processes, services, organisational changes, and new marketing strategies also count as innovation.

  1. Leadership challenges remain a barrier to innovation

43% of small business owners did not innovate because they had a lack of time. Another 27% could not decide whether or not it was worth the effort. Both time management and decision-making are key aspects of successful leadership. Small business owners would benefit from tax credits to help them take time out of their business for leadership and skills training. Programmes which include tailored mentoring will be crucial to improve leadership skills, such as “Be the Business” from Lancaster University or the Mercia Centre for Innovation Leadership.

  1. Knowledge transfer and innovation diffusion are crucial for success

Sole traders and micro-businesses, which make up the vast majority of SMEs, are more likely to adopt ideas from those around them. Transferring knowledge from customers and suppliers to small business owners will help busy business owners to consider which innovations their firm could adopt. Organisational innovations and improvements to customer experience can be more readily adopted by very small firms than technological innovations .

In summary, the FSB report highlights the importance of using inclusive language when talking about innovation, improving leaderships skills, and sharing knowledge from business networks to be important if small businesses are to improve their rate of innovation. Given that nearly ¼ of small businesses have made no significant business improvement in the last 3 years, there is clearly work to be done.