What is Innovation ?

Innovation usually begins with a customer problem, not a technical discovery usually started by leveraging their understanding of particular customer needs and after conceiving the potential product, an SME initiates an innovation project. Usually, SMEs endeavour to create new products by utilising their own existing capabilities; this is much the cheapest and safest route. Should they encounter problems beyond their existing expertise, however, they may launch an R&D project, whether entirely internal or partially external.
Research to identify characteristics of innovative SMEs highlights several important features, each of which appear to relate to enabling factors in innovation:

 Innovating SMEs are collaborators. Knowledge creation takes place through interaction with other enterprises, organisations, and
public institutions of the science and technology infrastructure.
 Collaboration persists over sustained periods, and that universities and research institutes are important collaboration partners.
 Innovating SMEs accumulate capability over time.
 Past developments tend to be utilised to determine future pathways of innovation. Cumulative capability acquisition underlies patterns of specialisation in economies, and creates differentiation among regional and national economies. Effective policy builds on, rather than ignores or counteracts, such accumulated capability.
 Innovating SMEs tend to cluster. Multiple studies have suggested that successful SMEs gather together geographically, either ‘horizontally’—SMEs in the same type of business—or ‘vertically’ SMEs connected in related value chains. SMEs within such clusters tend to be more successful than those standing alone, perhaps because they tap knowledge bases and related expertise that would not exist separated from the cluster. Clustering appears to help overcome limitations of scale.
 An understanding can be built of which elements of an effective innovation system are already present, which are likely to be developed by private organizations, and which might require government support. On the basis of such an understanding an effective innovation policy can be constructed.
 Many SMEs lack innovative capabilities—technical, physical, and managerial—and need access to external infrastructure, capabilities, and resources to make innovation feasible.
 The second phase of innovation-policy development should evaluate the extent to which these supports are present, and in what respects they can be strengthened—with specific attention to the high-impact
 Cooperation and collaboration among innovating SMEs and suppliers, customers, design or engineering consultants, universities or research institutes are thus frequent characteristics of modern innovation processes.
 Innovation requires sustained investment under conditions of uncertainty. They must invest in a wide range of innovation related assets—human skills, new capital equipment, design capabilities, strategic marketing, engineering development programmes, and more.
 Innovation therefore requires access to finance that both permits and encourages such investment, and that can manage the risks involved.
 Access to high-quality information and knowledge infrastructure.
 Innovating SMEs require access to high-quality physical information infrastructure (such as Internet). In a world in which vital ideas might be sourced from any corner of the earth, rapid movement of information is critical.
 Formulate priority initiatives to enhance knowledge and information, reduce risk, and strengthen innovation capability.
 Research, developing and education is to support the innovative capabilities of SMEs, it is vital to invest in fields in which industries have sufficient capability to absorb.
Australian Government Support in Accelerating Innovation
Most Australian governments undertake significant grant and finance encouragement programs aimed to encourage capital allocation to innovation, or to support SMEs.
A set of coherent initiatives can support and enhance innovation capability.
• Improve human capital. For human-resource development programs to enhance innovation
• Programs to improve human capital for innovation do not, of course, substitute for efforts in other fields, such as providing the skills any economy needs to undertake and grow its routine activities—
• This is especially so since many innovation-enhancing human resource programs will need to target an elite: those best equipped to take initiative at the frontier of markets and technologies.
Other initiatives that to meet innovation goals include:
 Support for special programs designed to encourage excellence
 Support universities to collaborate with businesses for problem solving.
 Encourage capital allocation to innovation but by tilting the playing field in favour of productive investment in innovation projects.