The IT Innovation Gap in SMEs Robert B. Mellor BSc, MBA, PhD, DSc

1. The IT Innovation Gap in SMEsRobert B. MellorBSc, MBA, PhD, DSc Faculty of Computing, Information Systems & Mathematics

2. Encouraging innovation is important Most SMEs do not have formal IP/IPR (patents etc) and may not be "creative", so growth is powered by "small" innovations – especially in IT.

3. Rogersversus Moore Rogers (Diffusion of innovators. Free Press, 1962) says innovations diffuse in a population with the help of "Change Agents". Moore (Inside the tornado. Harper Business, 1995) points to the "Innovation Chasm" in product acceptance.

4. The DoI Bass Curve

5. DVD players iPods(?) Palm pilots Data mining Home cinema Sky+ boxes Electric cars Organisational web sites Nanotechnology VCRs Enthusiasts Visionaries Pragmatists Conservatives Laggards Innovators Early adopters Early majority Late majority Traditionalists

6. These 2 theories are a useful jumping-off point, but: • We are dealing here with IT-innovation & systems (not consumables/consumer packaged goods) and • Not with a homogenous population (DoI assumes people and ideas can interact in a random Brownian manner, but inside companies free space is lacking due to e.g. departmental barriers).

7. 2 sets of research data • Survey of how survivors (successes) adopt & use IT • Survey of success and failure of innovations in the use of Internet

8. 1. Survey of how survivors (successes) adopt & use IT • 2006 • 400 SMEs from SE England • Telephone survey plus 50 interviews • Samples from; transport, food & aerospace • Included IT & Internet branch as “control”

9. 1. Survey of how survivors (successes) adopt & use IT Transport: Mandatory compliance with haulage legislation (mileage etc) and tracking of goods, palettes, etc. Food: Mandatory compliance with food legislation e.g. tracking of ingredients (fuzzy). Aerospace: Obligatory documentation e.g. maintenance manuals etc. IT & Internet: “Control” where IT is part of the “core competencies” gives a convenient baseline

10. 2. Survey of success and failure of innovations in the use of Internet • 1997-2003 • 40 SMEs in the EU • Concentrated on 3 case companies having complete data sets (in-depth study) • Cases from; education, personal services & tourism • Included 3 “control” case studies

11. IT is important for SMEs • >85% say “had good value” • ~80% have their own web site • >70% say IT is essential for maintaining profitability

12. How SMEs use IT • Document management • Communication (VPN) • 50% of SMEs use IT for HRM if employee number >10

13. Internet as a sales channel • 40% report that Internet does not contribute (directly) to sales • 15% report that Internet contributes 5% to sales • 25% report that Internet contributes 25% to sales • 1% report that Internet contributes >25% to sales

14. Some characteristics of IT Dept. in an SME

15. Some characteristics of IT Dept. in an SME

16. Altogether >30% of IT installations are carried out in a DIY manner by self-taught IT staff. <15% used any evaluation methods. No support from the “official” IT industry, nor by educational lobbies (“e-skills” etc), nor Business Link, etc. “…Government-funded advice has scant use…”

17. For those SMEs where IT is not part of core competencies, IT directors think that: “…the major difficulty is locating an immediate answer to the precise technical questions that will unlock the next stage of development, from someone who understands the business needs …”

18. “… stories of great persistence and ingenuity which had achieved stable and workable systems, sometimes in the face of owners who were reluctant to invest… “ “… deployment (of IT) typically depends upon a single individual with vision who takes full responsibility for IT initiatives …” “… the most challenging aspect of implementation (was) overcoming resistance to change …”

19. For those SMEs where IT is not part of core competencies, IT directors think that good implementation advice includes: “… (do) not try to force any new technology down peoples throats but … do some active waiting … look for a problem to which your technology is a good solution …” “ … (don’t) underestimate the X factor, you can be clever, you can have such a good idea, you can be very good at business, but if the people don’t like you, you are never going to make it …”

20. For those SMEs where IT is not part of core competencies, non-IT directors typically resist starting new IT projects because: • Cost; not entirely sure how much • Trust; the IT dept may be building it for the sake of building it • Trust; the IT dept cannot check if what the consultants/suppliers say is correct. • Risk; can’t afford the disruption if it goes off the rails.

21. Some quotes from non-IT directors “… I expect the water from a tap to be clean, so I don’t expect to have to pay a lot of money for a filter…” (director commenting on lack of anti-virus SW on his connection to his ISP). “…Internet is an icon on my desktop; I double click and it opens, what’s the big deal? Why should Internet cost me so much?” (director wanting a web-site built).

22. IT-innovators feel alone and lack external support. • Non-IT directors “speak a different language”. • The major issues are “trust” and “believability”.

23. Consensus Group: A-I Theory:Kirton (Adaption-Innovation in the context of diversity and change. Routledge, 2003).

24. In “successes” Trust and/or understanding of the (technical) issues is present. The IT individual is (even perhaps nominally and isolated) part of the consensus group.

25. Trickle-Down (in A-I Theory):Simmel, G. (1904). Fashion. International Quarterly, 10, 130-150.

26. In “failures” Understanding of the (technical) issues is not present. Trust is lacking (especially if explaining with a foreign accent) Communication has broken down because the IT innovator is not part of the consensus group.

27. The Innovation Gap

28. Trickle-Down (in A-I Theory):Simmel, G. (1904). Fashion. International Quarterly, 10, 130-150. Rebound

29. Trickle-Down Rebound Persistent innovators can go directly to Director level, however: • “Change Agents” are easily transformed into “Resistance Agents” • Management may well mutate the idea into a “consensus group” project & exclude the original innovator, moving into extremely dangerous territory!

30. Trickle-Down Rebound D D M M CA CA Innovator Innovator

31. WARNING • In companies in mature markets, TD Rebound was evident at size 120 employees, and may already occur in companies even as small as 50 employees. • BUT - Trickle-Down barriers are much less apparent in firms working in immature markets.

32. “Innovation Nuclei” 1 Multi-specialists, e.g. an engineer with an MBA, or a chemist with a MSc in IT, are responsible for around 40 times more innovations (mostly incremental innovations), than people with a single specialization.

33. “Innovation Nuclei” 2 Highly educated foreigners/ex-pats in the correct environment, may be responsible for between 60 and 80 times more innovations (mostly incremental innovations), than native people with a single specialization, or around twice that of a multi-skilled native. They are often multi-skilled + have endured the Darwinist rigours of internationalism and thus are indeed fire-hardened expert and creative problem solvers.

34. Commonsense for IT people • Break large projects into smaller projects • Harvest “low-hanging-fruit” success to boost trust. • Network with people in similar positions in other firms. • Try to identify sources of cheap training, advice or support

35. Commonsense for everyone • Be open for multi-skilled/second career/ex-pats etc • Secretive or biased persons should not be allowed positions as “information gatekeepers”. • Remember TD-Rebound can start in small (50+) firms, so an impartial leader must eliminate problems before they become big problems. • Involve all parties in projects from the very beginning • Open communication is an explicit responsibility for everyone – esp. in firms in mature markets.

36. Thank you for inviting me Questions?