Innovation - as an applicable concept - within SMEs has been a big challenge over the past years and still is. SMEs mostly act in small markets or only in one area of the market. This is one of many challenges that SMEs face while moving forward on their innovation adventure. Firms, therefore, spend a great deal of time and energy developing the capability to innovate and one of the main ways they innovate is through new product development. Other challenges come associated with the concept of project management and portfolio management, where these companies are required to select the best project portfolio that aligns with their long-term strategy taking into consideration the resources available for each project and its priority level according to the prioritization ladder set by the company.
This is what was clearly mentioned in a scientific study published by a Swedish university discussing the issue of project portfolio selection. It is mentioned that the selection of the right set of projects is considered critical for organizations to successfully achieve their competitive advantages and corporate strategies. Due to limited resources and dynamic changes in business environment, this kind of selection is quite challenging for organizations.
Not to forget the fact that project management can play a significant role in facilitating the contribution of SMEs in their economies, but SMEs require less bureaucratic forms of project management than those used by larger, traditional organizations, and thus SMEs should apply the best they can in the field of project and portfolio management.
Getting a bit deeper into the definition of project portfolio, it is important to state what was published in 2001 regarding this matter: project portfolio management and project portfolio selection is formally defined as a dynamic decision process whereby a business’s list of active projects is constantly updated, revised. In this process new projects are evaluated, selected and prioritized; existing projects may be accelerated, killed, or de-prioritized and resources are allocated and reallocated to active projects (Cooper, Edgett, & Kleinschmidt, 2001). Project portfolio selection evidently contributes to success of project portfolio management and more importantly to the achievement of corporate strategy (Le and Nguyen, 2007). This is a main field that all SMEs should master, overcoming their barriers, and achieving the best they can out of it. Also, it happens to be one of the most important fields in our era for researchers to study, analyze, discuss, test, and finally draw new adjusted formulas, models, and frameworks in order to help support the SMEs and accordingly the whole economy.
Although the research on innovation tends to focus primarily on large firms, innovation is at least as important for small firms. The strategic position of a small company depends on its ability to offer high-quality products and services that fit the needs of the market. Therefore, a permanent flow of product innovations is significantly important for small firms (Simon et al., 2000).
Due to the increasingly difficulty for SMEs to compete with larger companies, as these companies have much lower resource costs than SMEs, attention was shed on innovation as to become a vital competitive advantage, shifting the competitive strategy from price to novel products and services that competitors cannot provide to make customers, whether end-users or intermediaries, to go the extra-mile and pay a premium price (Susman, 2007b). Developing this ability to innovate requires knowledge and competence to support a strategic and visionary framework associated with organizational structures, managerial systems, processes and mindset (Lawlor, O’Donoghue, Wafer, & Commins, 2015). Based on multiple literature, innovation can be the aftermath of multiple pathways that resulted from research that is being conducted since the late 1900s. Some of the main pathways that come in this context and show the procedures followed and processes that have been worked on include but not limited to:
1. Innovation through a firm’s basic capabilities
According to Zawislak, Gamarra, Alves, Barbieux and Reichert (2014) four capabilities contribute to a firm’s innovative performance. Innovation goes beyond development capabilities and even firms with weak development capabilities can be of superior performance if they have an advantage in other capabilities such as operations management and transaction. The latter explains how firms that emerge from countries where technological innovation is not so frequent can succeed in the marketplace. Thus, firms necessarily need a minimum of four capabilities with superiority in performance depending on the predominance in one of them. The first is development capabilities that allow a new value being imagined and built to be transacted in the market, applied to solve real problems faced by the specific market. The technological capabilities should allow generating, adapting and developing new technologies that would help differentiate the firm from its competitors. Technological ability can be defined as to use technological resources from patents, skilled engineers, databases, etc., in addition to methods, processes, and techniques for innovative offering (Afuah, 2002). The second is operational capability because although imagining and developing new products is essential for a firm’s survival in the market, any firm also needs the ability to turn the technological outcome into operations for commercial production, which is achieved using operations capabilities. A definition for operational capability is the firm's ability to produce quality products that are reliable and have a competitive cost. To make decisions for production technologies to be used, the firm has to study its operations capability and while development capability deals with technologies that are constantly changing, operations capability deals with establishing routines, stability, efficiency and standardization being the key features for production, and changes within this capability occurs by learning from doing. Even with developmental capabilities and operational capabilities, firms acquire skills that combine internal capabilities coherently and that is where management capability (the third one) arises. Management capability’s importance was noticed especially with large business enterprises emerging in the early 20th century. Through planning and coordination, managerial work has been found to be critical in driving the growth of firms, because management capability allows companies to compete with other national and international markets through integrating and coordinating the different areas, allowing for economies of scale and scope to be achieved. As operations capability depend on technical knowledge to be applied on routines, management capability depends on multiple abilities that would be applied in flexibly solving problems. Finally, transaction capability (the fourth one) is also needed for the functioning of any firm. Transaction capabilities are essential because any firm will need to transact its good in the market so despite how good a firm can be in the three prior capabilities, the absence of transaction in the market does not justify a firm being an economic agent. This capability is represented by multiple abilities that include both knowledge and routines that the firm uses to help reduce its marketing cost, trading, logistics and distribution. Therefore, transaction capability is the link between the firm and the external environment through purchasing and selling.
2. Innovation through technology
A simple, yet useful way to segment companies, based on their technological innovation, is through their level of research and engineering capability. Based on that, a simple hierarchy can be proposed as follows:
Level 4: Research Performers;
Level 3: Technological Competent;
Level 2: Minimum-Capability Companies;
Level 1: Low-Technology SMEs.
In this segmentation, suggested by suggested by Arnold and Thuriaux (1997), development of firms can allow for four distinct levels. At the bottom level (level 1), Arnold considers these companies lacking meaningful capability, and at the next level (level 2) the Minimum-Capability SMEs hire one engineer, which would be the person able to speak the technology language, to monitor and understand technological changes occurring outside the firm. SMEs at both of these levels are not likely to have much contact with universities because they do not share a common interest. Among the OECD countries, many firms belong to the third level being able to carry on development work and have a specialized innovation or development function and would hire multiple engineers. The highest level (level 4) – Research performers – includes firms of two types, the first sub-type being very large companies with research and development capabilities with the strength and vision for both the long-term and immediate future, while the second sub-type being technology-based companies such as universities and research spinoffs that mainly perform research and are usually taken by larger companies if they are successful. Both research performers sub-types tend to communicate with universities easily while third-level firms often face difficulties doing so.
Many support programs and practices for SMEs have been implemented in many countries, such as the case of the IRAP (Atkinson, 2016) in Canada. These programs focus on technology acceleration and practices that would promote technology adoption by SMEs, conducting audits to identify opportunities for improving SMEs manufacturing and operations, in addition to supporting technology transfer, performing R&D (research and development), indirect collaboration with other firms and research laboratories, and engaging SMEs in collaborative research and development. Technology acceleration funding mechanisms include providing direct research and development grants and loans and innovation vouchers to help SME manufacturers develop new products and innovative efforts in addition to funding joint research programs. Many countries, including Canada, provide innovation vouchers to helping startup innovation activities within SMEs and connect them with researchers at other companies or universities. Moreover, 70% of countries examined by the information technology and innovative foundation (Canada, United Kingdom, Japan, Germany, Australia, Korea, Argentina, Spain, Austria, China, and the United States) provide innovation related funding directly to the manufacturers. These programs also provide next-generation technical assistance for manufacturers including:
· Providing export assistance and training;
· Promoting energy-efficient manufacturing;
· Promoting continuous productivity improvement;
· Providing information about how to acquire standards and certifications;
· Teaching SMEs about the role of design and manufacturing.
For example, the MEP (Manufacturing Extension Partnership) in the United States focuses on providing formal mechanisms for coaching innovation skills and have also developed a web portal called the National Innovation Marketplace to facilitate relationships between those seeking innovations and those developing it. In Canada, as mentioned above, the Industrial Research Assistance Program, which is administered under the NRC (National Research Council), is the main technology program to support SME manufacturers, as whose mission is to generate wealth for Canada through innovation in technology. The IRAP basically provides technology advice and assistance in addition to services to aid SMEs develop their capacity to innovate. The IRAP works with SMEs in any industry sector including manufacturing and high-tech services, it delivers its services through a network of 220 industrial technology advisors located in 150 Regional Offices in 90 communities throughout industrial Canada. Technology advisors mainly focus on technology development innovation and new product development; in addition, it plays a role in connecting technologies and knowledge between SMEs and Canadian universities (Ezell & Robert, 2011).
3. Innovation through design
Beyond the technological pathway to innovation, a design-driven approach fosters organizational learning through the integration of design-thinking. It has been proven that when companies take advantage of designer-like thinking across the business model, they cultivate dynamic cultures, more desirable products and services, faster growth, and passionate customers (Lawlor et al., 2015). In addition, companies that invest and design tend to be more innovative, profitable and of fast growth than companies that do not, which is considered as a strong direct correlation between days of design and national competitiveness (European Commission, 2009).