Innovation of small medium enterprises for sustainability

• 1. Innovation of Small-Medium Sized Enterprises for Sustainability Togar M. SimatupangSchool of Business and ManagementBandung Institute of TechnologyPresented on Sustainability and Innovation of Small Medium Enterprises in the Face of AFCTA (ASEAN-China Free Trade Agreement at Faculty of Social and Political Sciences in University of Parahyangan Bandung, 17 November 2011

2. Overview Introduction Challenges Innovation Definition 10 types of innovation A 4Ps analysis for innovation opportunities Innovation and Competitiveness Innovation Adoption Innovation for Sustainability Absorptive Capacity Sustainability Roadmap SMEs in Indonesia Barriers to innovation Concluding Remarks 2 3. Introduction SMEs in Indonesia represent a large share of the population of firms whichgrow naturally for survival. SMEs can be flexible in adapting to the fast changing markets. SMEs are often the main driving force for innovation which aresubsequently adopted and developed by larger enterprises. Consumers are becoming increasingly environmentally conscious. The encouragement of such SMEs to develop innovation that can supportsustainability becomes crucial in the green economy. The readiness, willingness, and capability of SMEs to seize green businessopportunities generally are generally related to resource constraints, skillsdeficits, and knowledge limitations. The extent to which SMEs are involved in eco-innovation that would notonly improve their overall performance but that could also have positiveeffects for social and environment has not been fully understood.3 4. Challenges What is innovation for sustainability? How can an innovation for sustainability beencouraged in SMEs? How do SMEs in Indonesia practiceinnovation?4 5. Innovation Innovation refers to anenterprise-wide pervasiveattitude focusing on theprocess of convertingnovel ideas intosomething of value. Innovation provides a wayto improve overallperformance throughsmarter ways ofconducting organizationalactivities.5 6. 6 7. 7 8. Design Driven Innovation Functional Innovation: Aesthetic Innovation:Is the product intuitive to Is the product easilyuse?recognizable?Has the product introducedIs the product far from thenew functions?dominant morphological archetype? Meaning Innovation: Is the product exciting? Can the product be defined as a status-symbol?8 9. A 4Ps analysis for innovationopportunitiesSource: Francis, D. and Bessant, J. (2005), "Targeting innovation and implications for capabilitydevelopment", Technovation, Vol. 25 No. 3, pp. 171-183. 9 10. Innovation and Competitiveness 10 11. A BCF (better, cheaper, and faster )model for innovation in SMEs 11 12. 12 13. Innovation for Sustainability Sustainability defines how countries can meet the needs of their peopletoday without compromising those of future generations. The definition of innovation for sustainability is stated as: doingsomething with creative, novel, or unusual ideas and solutions toproblems and needs in a sustainable way: What is economical for the company? What is beneficial for the community? What is sustainable for the environment? This includes the development of new products and services, newprocesses, new technology, and new business model for sustainingorganizational functions. Innovation for sustainability focuses on the utilization of innovation toexploit a green business opportunity to meet market demand in aninnovative manner through innovation in products, service, process,technology, and business model.13 14. Innovation and SustainabilitySeveral ideas: Reuse/Recycle the element Replace the element from your production cycle Reduce the amount of the element you use/produce Look for ways to increase your Revenue/utilization rate of that elementSource: http://www.innovationexcellence.com/blog/2010/10/26/innovation-and-sustainability/ 14 15. Sustainable InnovationSustainable Innovation:1. The issues of building innovation as a sustainable engine of success for companies and individuals2. The practice of innovation in service of a green (or sustainability) initiative.3. The alignment of business practices and operations to address social and environmental challenges that interface with the business.Source: http://www.innovatingtowin.com/innovating_to_win/2008/12/what-is-in-a-word-sustainability.html 15 16. A typology of sustainability innovationsSource: Tidd and Bessant (2009), pp. 581-583http://www.managing-innovation.com/ 16 17. Relationship between technologicalresources and Export Behavior 17 18. 18 19. The IMProve Innovation ManagementAssessment process 19 20. SMEs in Indonesia20 21. What are SMEs?No. Description Criteria Assets Sales Turnover1.Micro EnterpriseMax $ 5,000Max $ 30,0002.Small Enterprise > $ 5,000 50,000 > 30,000 0.25 M3.Medium> $ 50,000 1 M> 0.25 M 5 MEnterprise 21 22. Statistics of SMEs in Indonesia In 2008, SMEs reached 51.3 million units. SMEs comprised of 99.99% of the totalenterprises. SMEs absorbed 90,896,270 labors or about97.22% of 93,491,243 total labors.22 23. Comparison of SMEs and LEsIndicator in 2005 SMEsLEsBusiness Units> 99% < 1%GDPs contribution53.3% 46.7%Labour Force96%4%Export of Non-Oil & Gas 20.3% 79.7%Investments 46.2% 53.8%Source: Kementerian KUKM and BPS 200623 24. From Survival to EntrepreneursLarge Enterprises 0.01%Medium Enterprises 0.24% EntrepreneurSmall Enterprises 4.05% Micro Enterprises 95.7% SurvivalEntrepreneurs is about 0.18%: Problems: low value added, lack of entrepreneurship,and lack of innovation 24 25. Practice of innovation for sustainability Green Business Center (GBC) is a cooperation between Korean and IndonesianSMEs to develop green business and green technology through sharinginformation and best practices Business Incubators at technological universities, e.g. ITB, IPB, UI, and ITS. ITB justlaunches Innovation Management System linking communitys needs andinnovation (http://www.ims.itb.ac.id/index) Clean Batik Initiative (CBI) is one of 47 sustainable consumption and productionprojects being developed under the European Commission-funded SWITCH-Asia, aprogram on sustainable consumption and production. This program is set toreceive about 150 billion for the period between 2007-2013. The projects includea wide variety of sectors, such as micro-electronic, construction, the rattanindustry and biomass production((http://www.thejakartapost.com/news/2011/10/29/indonesia-told-produce-more-green-products.html) Business Innovation Center (BIC) supported by the Ministry of Research andTechnology (Ristek) publish annual report of Indonesia Innovation or 103Inovasi Indonesia - 2011 (http://www.bic.web.id/) 25 26. Barriers to Innovation of SMEs in Indonesia in the face of ACFTA1. Lack of standards2. Limited access to advisory services (IP, customs, export-import, contracts, etc.)3. Low value add and not competitive4. Limited access to domestic and global market (missing market know- how) and limited marketing and promotion strategies5. Lack of training and shortage of qualified personnel6. Limited capability in managing the innovation process (R&D) efficiently and effectively7. Difficulty in obtaining financing (hindered access to external finance, high innovation costs, and high economic risks)8. Bureaucratic hurdles (long administrative procedures and restrictive laws and regulations) 26 27. Proposed Initiatives Path dependent model of open-innovation (Strategic Innovation Agenda):efficiency-driven to innovation-driven to creative-driven Diffusion for rapid replication of appropriate technology Standardization, information sharing, and innovation maturity model Awards and Rewards Incentives for sustainable innovation Financial support Investment communities (private investors and venture capital) Research funders including charities, foundations, CSR for innovation, and city, province, and national governments Public service improvements Advisory and coaching: marketing, product design, contracts, entrepreneurship,and project management (the creation of spin-outs, start-ups, and SMEs) University as knowledge Hub: connect, collaborate, learn, innovate (innovativewebs of excellence integrating education, technology, research, business andentrepreneurship)27 28. Concluding Remarks (1) The primary aim of this presentation is to investigate innovationfor sustainability for the purpose of identifying, clarifying, andevaluating the nature of innovation in SMEs in Indonesia. Innovation in SMEs in Indonesia has grown naturally dependent onindividual capability and network to tap business opportunities. Indonesia has potentials to develop innovation capability of SMEsfor abundance of natural and human resources. Few hindrances need to be addressed in order to sustaindevelopment based on innovation. There is a need for political willingness and consistent programs toempower SMEs to take actions in innovation for sustainability. 28 29. Concluding Remarks (2) Future research needs to answer the followingquestions: What practices and policies that allow SMEs in Indonesia to adopt and develop innovation for sustainability? How do SMEs reduce their own environmental and social impacts? How do their products and services contribute to better environmental performance in other sectors, increasing profitability, efficiency and competitiveness?29 30. Thank You http://www.slideshare.net/togar/ http://www.mendeley.com/profiles/togar-simatupang/ 30