What, Me Innovate?

New study finds most Canadian SMEs don't take the time to innovate in spite of the clear benefits

Written by Frank Condron

Almost two-thirds of Canadian SMEs don’t engage in innovative activities, according to the results of a new study from Statistics Canada, and that could have implications for their bottom line.

The Survey on Financing and Growth of Small and Medium Enterprises 2011 focused on the characteristics and activities of Canadian private, for-profit SMEs with between one and 499 employees and between $30,000 and $50 million in annual revenue in 2011. The study found that 62% of the Canadian SMEs surveyed had engaged in no innovative activity at all in 2009, 2010 and 2011. Among the reasons given for not making attempts to innovate in their business during that period, 50% of the respondents cited: “Business doesn’t need to innovate/innovation is not part of the business plan,” while a further 25% of respondents cited: “Market does not require new products/processes.”

Although he doesn’t find it particularly surprising that so many Canadian SMEs don’t engage in innovative activities, Kenan Jarboe, president of the Athena Alliance, a Washington, D.C.-based non-profit economic research group, says it is worrying that so many companies don’t see that as a problem. “I don’t think there is any market or sector where innovation can’t help a business,” Jarboe says. “But so many SMEs are struggling to just keep their heads above water that they feel they don’t have time to think about doing new things.” He adds that many may be innovating and not even know it. “Rearranging products or shelves in a store or reorganizing office procedures can be an innovation, but most don’t see it that way,” Jarboe says.

The survey found that the innovations implemented by the 38% of Canadian SMEs that did innovate between 2009 and 2011 fell into several categories. The most common type of innovation cited by the respondents was product innovation (24%); next was marketing innovation (17%), followed by organizational innovation (15%) and process innovation (15%).

The survey findings suggest that larger companies are more likely to innovate than smaller ones, a distinction that Jarboe puts down to the availability of resources. Only 30% of companies with between one and four employees said that they engaged in innovation activities, while 56% of companies with between 100 and 499 employees identified as innovators. Most telling, however, was the fact that among the SMEs that did innovate between 2009 and 2011, 70% said that those innovations resulted in increased sales, and 61% said that innovative activity had increased their market share.

“It can be hard to define the ROI on innovation, but the fact that almost three-quarters of the SMEs believed it helped them—during a down economy—shows that innovation does have an impact,” says Jarboe.

When it comes to protecting the innovations Canadian SMEs do develop, the survey found that most companies were found wanting. The results revealed that just 16% of SMEs hold some type of intellectual property protection. Among those, non-disclosure agreements were the most common form of protection (9%), followed by trademarks (8%), trade secrets (4%), patents (2%) and industrial designs (1%). Companies active in knowledge-based industries were the most likely to employ intellectual property protection (42%), followed by manufacturing companies (36%).

Once again, Jarboe says lack of resources is a barrier for SMEs when it comes to intellectual property protection. “Going through the patent process is expensive, especially in the tech fields,” explains Jarboe. “Lots of companies have trade secrets, but simply don’t bother to invest the time and money required to formally protect them. Most small businesses are too busy thinking about their next project or next order to think about protecting IP. But it should be in the back of their mind.”

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