Main Street Innovation

As global corporations assess the impact of one of the worst financial meltdowns in history and feel pressure to retrench from anything new or risky, part of the solution might be looking toward a different source of innovation?the small to medium-size enterprise, or SME.

Whether you?re running a global 2000 organization or are a small business owner, the need for continuous innovation is vital. Be it a groundbreaking invention or an incremental change in process, innovation is about generating and implementing new ideas, which can help protect a company when the marketplace turns dangerous.

However, in today?s challenging economic climate?an all-but-complete freeze of credit, declining home values, an increase in unemployment claims and countless global government bailouts?business executives are likely to see more scrutiny than ever of their innovation efforts and their research and development budgets. Consequently, many Global 2000 organizations will once again turn their focus to cutting costs in a vain attempt to ?shrink to greatness.?

So, who will be the source of vitality? And why is it important now, more than ever, to innovate to foster growth and ingenuity?

Size Matters

Although there isn?t a standard definition for the SME, (also called small and medium business, or SMB, and variations thereof), both the United States and the European Union (EU) generally use the same measure: the number of employees. In either case, the headcount for an SME can range from less than 10 to no greater than 500 for small and medium-size businesses, respectively.

However, in most economies, SMEs represent the great majority of all businesses. For example, in the EU, SMEs make up approximately 99 percent of all firms and employ about 65 million people. An SME can be a significant source for driving innovation and competition and can contribute up to 50 percent of gross domestic product (GDP) for an economy.

?Classic Coke? Innovation

Innovation in SMEs affects large global enterprises as well. Buying innovation in the form of a small, young company is a tried-and-true strategy. In 1996, entrepreneur Darius Bikoff, who apparently wanted a more palatable way to get his daily nutrition, sat at his kitchen table and created Vitamin Water. In 2007, when the Coca-Cola Co. was looking to expand its water and energy drink portfolio, it found its perfect match. The world?s largest beverage maker acquired Glac?au, (the maker of Vitamin Water and other ?active lifestyle? beverages) in a cash deal valued at $4.1 billion.

The acquisition provided Coca-Cola with an off-the-shelf solution to grow its business and meet consumer demand across the entire spectrum of sparkling and still beverages. Although this may seem like just another business headline, it illustrates how one person?s invention became another?s innovation.

Why Innovation? Why Now?

This is more common than you might think. However, it is one thing to recognize the value of innovation and quite another to make it happen. Effecting change necessarily means turning established business practices on their heads and being open to experimentation and the possibility of failure. It demands creative thinkers, fearless leaders and a corporate culture that embraces change?combined with the capability to turn new ideas into winning products and services.

Without crippling legacies, young companies are better able to adapt to a changing environment. Indeed, they must: They have no proven cash cows to fall back on.

It?s as easy and as hard as it sounds. The ability to innovate in turbulent market conditions could mean the difference between disaster and prosperity. Organizations of all sizes are going to be tested for their proficiency in innovation, with the SME being at the front and center of the action. For most of these newer companies, an innovative idea is their whole reason for being. They are not a cost center on some larger giant?s balance sheet.

Beyond Borders

In today?s unpredictable markets, every enterprise must extend itself beyond its walls. There are far more bright people with new ideas on the outside than on your payroll. Remember that innovation does not just involve products. In fact, we know that innovation in business processes and business models offers a far greater payoff. The payoff may well be a process or a model that is more efficient and exposed to less risk than what you rely on now.

Organizations must develop the ability to consistently adjust as markets, competition, supply chains and customers are rearranged by the turbulent global economy. Balancing that with the need to continually innovate requires sound management practices, particularly during dramatic market changes.

Managing itself as an ?extended enterprise? enables an organization to identify and harvest innovations. To do this will require management innovation?new processes, organizational structures and information streams that create a converged enterprise, a whole-brained enterprise able to sense and respond holistically to its environment.

MICHAEL FILLIOS has been at the intersection of business and technology for 20 years. As an expert in business technology management, he has taught executives around the world how to manage business and technology as a totality. Fillios is the chief solutions officer of BTM Corporation, a provider of solutions that help organizations improve the business value of technology. ? BTMCorporation