Innovation of small medium enterprises for sustainability


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Clarifying the concept of innovation for sustainability.

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Innovation of small medium enterprises for sustainability

  1. 1. Innovation of Small-Medium Sized Enterprises for Sustainability Togar M. Simatupang School of Business and Management Bandung Institute of Technology Presented on “Sustainability and Innovation of Small Medium Enterprises in the Face of AFCTA (ASEAN- China Free Trade Agreement” at Faculty of Social and Political Sciences in University of Parahyangan Bandung, 17 November 2011
  2. 2. Overview• Introduction• Challenges• Innovation – Definition – 10 types of innovation – A 4Ps analysis for innovation opportunities – Innovation and Competitiveness – Innovation Adoption• Innovation for Sustainability• Absorptive Capacity• Sustainability Roadmap• SMEs in Indonesia• Barriers to innovation• Concluding Remarks 2
  3. 3. Introduction• SMEs in Indonesia represent a large share of the population of firms which grow naturally for survival.• SMEs can be flexible in adapting to the fast changing markets.• SMEs are often the main driving force for innovation which are subsequently adopted and developed by larger enterprises.• Consumers are becoming increasingly environmentally conscious.• The encouragement of such SMEs to develop innovation that can support sustainability becomes crucial in the green economy.• The readiness, willingness, and capability of SMEs to seize green business opportunities generally are generally related to resource constraints, skills deficits, and knowledge limitations.• The extent to which SMEs are involved in eco-innovation that would not only improve their overall performance but that could also have positive effects for social and environment has not been fully understood. 3
  4. 4. Challenges• What is innovation for sustainability?• How can an innovation for sustainability be encouraged in SMEs?• How do SMEs in Indonesia practice innovation? 4
  5. 5. Innovation• Innovation refers to an enterprise-wide pervasive attitude focusing on the process of converting novel ideas into something of value.• Innovation provides a way to improve overall performance through smarter ways of conducting organizational activities. 5
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  8. 8. Design Driven Innovation• Functional Innovation: • Aesthetic Innovation: “Is the product intuitive to “Is the product easily use?” recognizable?” “Has the product introduced “Is the product far from the new functions?” dominant morphological archetype?” • Meaning Innovation: “Is the product exciting?” “Can the product be defined as a status-symbol?” 8
  9. 9. A 4Ps analysis for innovation opportunitiesSource: Francis, D. and Bessant, J. (2005), "Targeting innovation and implications for capabilitydevelopment", Technovation, Vol. 25 No. 3, pp. 171-183. 9
  10. 10. Innovation and Competitiveness 10
  11. 11. A BCF (better, cheaper, and faster ) model for innovation in SMEs 11
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  13. 13. Innovation for Sustainability• Sustainability defines how countries can meet the needs of their people today without compromising those of future generations.• The definition of “innovation for sustainability” is stated as: doing something with creative, novel, or unusual ideas and solutions to problems and needs in a sustainable way: – What is economical for the company? – What is beneficial for the community? – What is sustainable for the environment?• This includes the development of new products and services, new processes, new technology, and new business model for sustaining organizational functions.• Innovation for sustainability focuses on the utilization of innovation to exploit a green business opportunity to meet market demand in an innovative manner through innovation in products, service, process, technology, and business model. 13
  14. 14. Innovation and SustainabilitySeveral ideas:• Reuse/Recycle the element• Replace the element from your production cycle• Reduce the amount of the element you use/produce• Look for ways to increase your Revenue/utilization rate of that elementSource: 14
  15. 15. Sustainable InnovationSustainable Innovation:1. The issues of building innovation as a sustainable engine of success for companies and individuals2. The practice of innovation in service of a green (or sustainability) initiative.3. The alignment of business practices and operations to address social and environmental challenges that interface with the business.Source: 15
  16. 16. A typology of sustainability innovationsSource: Tidd and Bessant (2009), pp. 581-583 16
  17. 17. Relationship between technological resources and Export Behavior 17
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  19. 19. The IMP³rove Innovation Management Assessment process 19
  20. 20. SMEs in Indonesia 20
  21. 21. What are SMEs?No. Description Criteria Assets Sales Turnover1. Micro Enterprise Max $ 5,000 Max $ 30,0002. Small Enterprise > $ 5,000 – 50,000 > 30,000 – 0.25 M3. Medium > $ 50,000 – 1 M > 0.25 M – 5 M Enterprise 21
  22. 22. Statistics of SMEs in Indonesia• In 2008, SMEs reached 51.3 million units.• SMEs comprised of 99.99% of the total enterprises.• SMEs absorbed 90,896,270 labors or about 97.22% of 93,491,243 total labors. 22
  23. 23. Comparison of SMEs and LEs Indicator in 2005 SMEs LEsBusiness Units > 99% < 1%GDP’s contribution 53.3% 46.7%Labour Force 96% 4%Export of Non-Oil & Gas 20.3% 79.7%Investments 46.2% 53.8%Source: Kementerian KUKM and BPS 2006 23
  24. 24. From Survival to Entrepreneurs Large Enterprises 0.01% Medium Enterprises 0.24% EntrepreneurSmall Enterprises 4.05% Micro Enterprises 95.7% Survival Entrepreneurs is about 0.18%: Problems: low value added, lack of entrepreneurship, and lack of innovation 24
  25. 25. Practice of innovation for sustainability• Green Business Center (GBC) is a cooperation between Korean and Indonesian SMEs to develop green business and green technology through sharing information and best practices• Business Incubators at technological universities, e.g. ITB, IPB, UI, and ITS. ITB just launches Innovation Management System linking community’s needs and innovation (• Clean Batik Initiative (CBI) is one of 47 sustainable consumption and production projects being developed under the European Commission-funded SWITCH-Asia, a program on sustainable consumption and production. This program is set to receive about €150 billion for the period between 2007-2013. The projects include a wide variety of sectors, such as micro-electronic, construction, the rattan industry and biomass production (( more-green-products.html)• Business Innovation Center (BIC) – supported by the Ministry of Research and Technology (Ristek) – publish annual report of Indonesia Innovation or “103 Inovasi Indonesia - 2011” ( 25
  26. 26. Barriers to Innovation of SMEs in Indonesia in the face of ACFTA1. Lack of standards2. Limited access to advisory services (IP, customs, export-import, contracts, etc.)3. Low value add and not competitive4. Limited access to domestic and global market (missing market know- how) and limited marketing and promotion strategies5. Lack of training and shortage of qualified personnel6. Limited capability in managing the innovation process (R&D) efficiently and effectively7. Difficulty in obtaining financing (hindered access to external finance, high innovation costs, and high economic risks)8. Bureaucratic hurdles (long administrative procedures and restrictive laws and regulations) 26
  27. 27. Proposed Initiatives• Path dependent model of open-innovation (Strategic Innovation Agenda): efficiency-driven to innovation-driven to creative-driven• Diffusion for rapid replication of appropriate technology• Standardization, information sharing, and innovation maturity model• Awards and Rewards• Incentives for sustainable innovation• Financial support – Investment communities (private investors and venture capital) – Research funders including charities, foundations, CSR for innovation, and city, province, and national governments• Public service improvements• Advisory and coaching: marketing, product design, contracts, entrepreneurship, and project management (the creation of spin-outs, start-ups, and SMEs)• University as knowledge Hub: connect, collaborate, learn, innovate (innovative webs of excellence integrating education, technology, research, business and entrepreneurship) 27
  28. 28. Concluding Remarks (1)• The primary aim of this presentation is to investigate “innovation for sustainability” for the purpose of identifying, clarifying, and evaluating the nature of innovation in SMEs in Indonesia.• Innovation in SMEs in Indonesia has grown naturally dependent on individual capability and network to tap business opportunities.• Indonesia has potentials to develop innovation capability of SMEs for abundance of natural and human resources.• Few hindrances need to be addressed in order to sustain development based on innovation.• There is a need for political willingness and consistent programs to empower SMEs to take actions in innovation for sustainability. 28
  29. 29. Concluding Remarks (2)• Future research needs to answer the following questions: – What practices and policies that allow SMEs in Indonesia to adopt and develop innovation for sustainability? – How do SMEs reduce their own environmental and social impacts? – How do their products and services contribute to better environmental performance in other sectors, increasing profitability, efficiency and competitiveness? 29
  30. 30. Thank You •• 30