The importance of SMEs in New Zealand has been highlighted by information gleaned from a report issued by the Ministry of Economic Developments (MED) entitled “SMEs in NZ: Structure and Dynamics”. MED defines SMEs as an enterprise with 19 or fewer employees; however, the NZ Centre for SME Research at Massey University categorises SMEs into the following:
- micro-enterprises (fewer than five staff)
- small enterprises (six - 49)
- medium enterprises (50 - 100)
Key facts from the MED reports include:
- 97% of enterprises employ 19 or fewer people
- SMEs increased 2% in the year to 2007 (4% in the year to 2006)
- SMEs account for 31% of all employees
- SMEs accounted for 39% of the economy’s total output
- From 2001 to 2006, SMEs accounted for 59% of all new net jobs in the economy
- From 2001 to 2007, the total number of people employed in SMEs increased by 18%
This report reinforces the notion that New Zealand is a nation of entrepreneurs and SMEs. The purpose of this document is to explore the linkages or relationships between innovation, technology and business performance (i.e. revenue growth and/or profitability) in SMEs in New Zealand.
In a recently published article, it was suggested that innovation stimulates growth and provides a source of competitive advantage in the absence of economies of scale. Another article discussing entrepreneurism suggests that traits of an entrepreneur include propensity for risk, competitive aggression, proactive action, and reliance on innovation. According to the MED, 47% of SMEs have engaged in innovative practices. In a nation of entrepreneurs and SMEs, there is a consistent school of thought that would suggest innovation is an important strategy to improving business performance.
Process innovation refers to the changes made to processes or technologies used by the company for the delivery of goods or services, while product innovations are defined as new goods and services introduced to market. Both are considered potentially significant sources of competitive advantage. If SMEs fail to invest in either product or process innovation it is less likely they will be able to respond to the rapidly changing market conditions. These changes could include new market opportunities or competitive threats.
Not only does the use of technology in SMEs level the competitive playing field when competing with larger companies, it also complements the core competencies of the company to successfully create competitive advantage. If the company accepts the innovation strategy is essential to creating competitive advantage then investment in technology cannot be ignored. Investment in technology should be viewed as a key facilitator of innovation in companies.
It is generally accepted there is a relationship between technology and business performance – companies that invest in technology will tend to outperform companies that do not. Technology should be used not only to support innovation but also support other strategic initiatives such as improving customer responsiveness. Irrespective of the strategic initiative to create competitive advantage, technology has an important role of complementing other core competencies. This is a case of where ‘the whole is greater than the sum of the parts’. Alternatively, the strategic alignment or fit of technology with innovation and other competencies provides the company with competitive advantage that is valuable, rare, inimitable, and non-substitutable. In more simple terms, if we consider how the various components of a business combine to allow a company to create value then ideally this unique combination becomes difficult for competitors to replicate.
With the above assumptions in mind, SMEs in NZ should enthusiastically embrace technology to support innovation as well as be in a better position to adopt a customer intimate strategy. It could also be suggested that this will position SMEs to better take advantage of the ‘Long Tail’ effect. Finally, the adoption of broader technologies may allow SMEs in NZ to lower the barriers to internationalisation, although this is another discussion to be had.