Why aren’t more SMEs innovating? (And what can we do about it?)

Innovation. It’s a word we hear constantly in business circles, frequently bold, often buzzworthy, and sometimes a bit overhyped. But beyond the motivational quotes and keynote speeches, there’s a hard truth: innovation-active firms are demonstrably more successful.

As Microsoft CEO Satya Nadella puts it, “Our industry does not respect tradition – it only respects innovation.” With benefits like higher productivity and faster growth (BEIS, 2021), innovation should be a no-brainer for businesses of all sizes, especially for the SMEs that make up 99% of the UK economy. Yet the reality tells a different story.

The innovation gap in SMEs

Despite the well-publicised benefits, innovation among SMEs remains worryingly low. According to the 2023 UK Innovation Survey (UKIS), just 38% of UK businesses are innovation active. When we zoom in on SMEs, the number drops to 36%.

But wait, what is innovation, really?

Innovation doesn’t have to mean billion-pound breakthroughs or the next AI revolution. In fact, most innovations are incremental, improving existing products or services (around 45%), while only 20% involve entering new markets.

Why Aren’t SMEs Innovating? There are a few key barriers:

• Access to finance
• Uncertainty around market demand
• Lack of support and know-how

Three Practical Steps SMEs Can Take Today

1. Expand your network
   SMEs often stick to sector or location-based networking. Instead, try connecting with businesses facing similar innovation challenges, even if they’re in different industries. This can open doors to new ideas, partners, and sources of funding.
2. Start horizon scanning
   Keep a watchful eye on trends and changes that could affect your market. If you can spot opportunities or threats early, you’ll be in a much stronger position to respond, and even benefit.
3. Partner with knowledge experts
   Over 30% of innovation-active firms collaborate with universities or research institutions. That’s because tapping into specialist knowledge can de-risk your innovation journey.

Fully funded Innovation Support for SMEs in Cheshire West and Chester

At the Centre for Enterprise at Manchester Metropolitan University Business School, we offer:

• Training in lean innovation techniques, minimising cost and risk
• Rapid prototyping: Introduction to AI tools to test ideas quickly and validate market demand
• A step-by-step process to develop your concept through iterative development
• Team and capability building – build your innovation engine
• Signposting to financial support, such as innovation grants and R&D tax credits

Our approach is built on robust scientific foundations, to help you start with the problem, explore the market, and build sustainable solutions. And thanks to current funding, all of this is available at no cost to eligible SMEs.

Learn more Cheshire Innovation Network | Manchester Metropolitan University