SMEs Risk Becoming Collateral Damage in "Innovation Wars"

In my recent speech titled “How SMEs Can Exploit New Digital Technologies To Invent Winning Business Models” at CommunicAsia 2014 in Singapore, I raised the prospect of SMEs around the world and across industries becoming collateral damage in the “Innovation Wars”, or to put it more mildly, “Global Innovation Rat Race”. SMEs are helplessly squeezed between tech start-ups and global corporations in this battle. The stakes are high because in this game, the winner takes all and the victor takes no prisoners.

Bubbly tech entrepreneurs, scattered across continents but united by common visions, are driving the worldwide start-up movement that is frantically re-imagining century-old status quo (i.e. inventions of industrial revolution) and disrupting one industry after another. Successive home-runs in mostly content-driven industries (think shopping, music, books, photography, travel, movies, advertising) have emboldened the start-up community and its investors to pursue bigger ambitions.

The game has barely started; next in line for digital disruption are the more mainstream and more lucrative industries of education, healthcare, telecoms, television, manufacturing, transport, finance, automotive, defense and more. For every fallen giant (Borders, Circuit City, Blockbuster, Kodak, Polaroid, HMV, Towers) of digital disruption, there are probably thousands of smaller enterprises and mom-and-pop stores that suffer the same fate. And explosive start-ups (Airbnb, Whatsapp, Netflix, Flickr, Spotify, etc), with billion dollar valuations, are minted in this creative destruction process.

To quote one of the most respected names in Silicon Valley, Marc Andreessen, “Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not –

Companies in every industry need to assume that a software revolution is coming. Over the next 10 years, the battles between incumbents and software-powered insurgents will be epic.”

Now, global corporations are fighting back on multiple fronts. These include transforming themselves to be more innovative across various business functions and executive levels, developing new innovation centers, adopting lean start-up practices, harnessing crowd power through Open Innovation, setting up global accelerators and acquiring / incubating / partnering / investing in promising disruptive start-ups. In PwC’s “Unleashing the power of innovation” report, 61% of global CEO surveyed rated innovation as the primary focus or one of the priorities of the organisation. This is a significant step up from the last survey.

By definition, large corporations have the most to gain and lose through innovation. Most to gain because of scale; a new innovation or productivity gain can potentially add up to billions of additional value when applied to millions of units produced or customers served each year. Most to lose because of the magnitude of revenues, market share, customers, and workers at risk, should there be a failure to innovate.

So, where does this leave SMEs? Here’s a clue. Every time I attend an innovation event, it is packed with tech start-up entrepreneurs and executives from blue chip corporations, with a little peppering of government and trade association representatives. SMEs, though, are sadly self-excluded from this innovation dialogue.

The Economist Intelligence Unit provides another hint, predicting that “mid-sized companies will be less common in 2020. Technology advances will support a rise of micro-entrepreneurs in the decade ahead, and enable these tiny businesses to act like far larger ones. This has direct implications for mid-sized companies, which will increasingly need to choose whether to become larger to compete on scale, or smaller to compete on speed.”

I anticipate that, within the next five years, the six platform technologies of cloud computing, robotics, 3D manufacturing, Internet of Things, Big Data and smart algorithms will reach tipping point. This will create the perfect storm for innovation, new “digital blue oceans” and an explosion of novel business / revenue / profit / service models. McKinsey Global Institute estimates that US$14-33 trillion of economic value will be created annually by 2025 as a result of 12 disruptive technologies.

Hence, I urge SMEs to start their innovation engines, imagine their exciting futures and capitalise on these new disruptive technologies. The alternative is to become collateral damage in the crossfire between the faster and the mightier.

Let me leave you with a proverb that resonates well in today’s hyper-speed world: “Some people make things happen, some watch things happen, while others wonder what has happened”.

My view is that start-ups, global corporations and SMEs fall into these three groups respectively.

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Charlie Ang Founding President of  The Innovators Institute P/L, a professional development centre, peer support network and global expert resource for innovation leaders, professionals and novices. Ang spent 2013 at Singularity Institute (Silicon Valley), University of Oxford and Stanford and refers to himself as an Idea Entrepreneur | Futures Thinker | Innovation Evangelist. He is based in Singapore.