A NEW report reveals nearly seven out of 10 small and medium-sized enterprises (SMEs) are failing to reach their full potential because their workplace culture is making it impossible for innovative ideas to flourish.
The Culturing Success report launched by Microsoft on Tuesday indicates thousands of Australian SMEs could become innovation leaders and increase their revenue growth if they knew how to successfully address workplace obstacles such as fear of change.
The report, part of Microsoft's Joined-Up Innovation initiative, provides a comprehensive analysis of what makes a truly innovative SME and contains practical advice for other businesses on how to increase growth potential by embracing innovation.
"Innovation is vital to the success of any business, no matter how big or small," said Pip Marlow, Managing Director of Microsoft Australia.
"However, our research reveals that many businesses find it difficult to develop a culture of innovation because of barriers including working in silos, fear of failure, employee distrust and poor collaboration."
The Culturing Success report was developed in partnership between Michael Henderson, a world-leading corporate anthropologist, and AMR, one of Australia's leading research agencies.
It involved a survey of more than 500 SMEs that found:
• Only 33 per cent of SMEs were considered innovation 'Leaders' - businesses that are adept at responding to change, threats and opportunities in their markets
• 43 per cent of SMEs were innovation 'Cruisers' - businesses with an interest in innovation but that tend to under-deliver in practice
• 24 per cent were innovation 'Laggards' - businesses with little or no appetite for innovation.
The research also found that SME Leaders that embraced innovation performed better than other businesses.
• 39 per cent of innovation Leaders reported that their revenue was growing at faster than the average rate for their industry, compared to 24 per cent of Cruisers and 23 per cent of Laggards
• Leaders recorded stronger performance across total revenue, business efficiency, market share, staff satisfaction and customer loyalty.
The Federal Minister for Small Business, the Hon. Bruce Billson MP today welcomed the report.
"We know small business people are time poor, but innovation within business processes can drive efficiencies.
"As the Culturing Success report shows, improving workplace culture drives innovation so it is a good investment to make.
"Innovative businesses are generally successful businesses, constantly looking at ways to improve and to grow their business," Mr Billson added.
"As the Intergenerational Report released by the Government demonstrates, we need to improve our productivity as a nation and get more small businesses to become leaders of innovation."
He said: "This report contributes to a growing body of evidence showing just how important organisational culture is to innovation and growth. It also suggests practical steps SMEs can take to reset their cultures."
Microsoft today also launched an online tool to help SMEs measure their innovation performance and receive a tailored report with actionable tips about how they can become more innovative.
According to Pip Marlow, "Microsoft's new self-assessment tool is the first of its kind to help small and medium-sized businesses identify their culture-related obstacles and then implement tangible solutions to become true innovation leaders."
Culturing Success highlights six cultural traits common to innovation Leaders that other SMEs can pursue to enhance their innovation performance:
• A high level of customer focus
• An awareness of and appetite for innovation
• A supportive working environment
• Visible and involved leaders
• Engaged employees
• Authentic internal dialogues.
Microsoft also believes every SME has the ability to enhance its level of innovation and recommends five practical strategies to help them improve:
• Evaluate current performance - the first step in improving any business's innovation efforts is to understand how it is performing today
• Establish the right culture - addressing cultural barriers and creating the right environment can improve SMEs' innovation activities
• Create innovation-oriented collaborative networks - some SMEs may need help turning their appetite for and awareness of innovation into action
• Encourage flexible work practices - flexible work practices are common at innovative SMEs
• Attract next-generation staff - create better connections, for example with tech-savvy school leaders and university graduates to help SMEs bridge any technology gaps.