Can innovation come in SMB packages?

I'm in Kuala Lumpur for a couple of days this week, serving as moderator for a panel discussion at the APEC SME Technology Entrepreneur Seminar.

Themed "Innovation and technology: the sustaining power of SMEs in the global economic crisis", most of the presentations and keynotes urged the need for small businesses in the region to continue to innovate, in spite of the economic climate.

Delegates at the conference constantly reminded that even Google, Microsoft and HP, were all once SMEs (small and midsize enterprises), and some of the biggest tech companies today were spawned out of garages and woodsheds.

To remain competitive, they stressed, even the smaller players cannot afford not to be innovative.

But, the question is, can SMEs afford to be innovative?

Most small and medium-sized businesses don't have the experience and resources to invest in R&D, much less think about innovation when all their attention is focused on simply keeping the business afloat in the dismal economic landscape.

When you're struggling to sustain a company, which your 10 employees rely on for their livelihood, and that has a yearly turnover of less than a million bucks, you're unlikely to have the pockets, luxury or even the mood to think about being creative.

Sure, Microsoft and HP grew from mere pittance, and all big companies started out small. But, I don't think we're comparing apples with apples here.

To an extent, the Microsofts, HPs and even the Googles of their time had it easy. Competitors in their field back then were few and far between because many pockets of the IT industry were still so young. They competed in a smaller marketplace.

Internet adoption--even as recent as three years ago--was just a fraction of what it is today. Today, thanks to the Web, every local market has global competitors, and there's little time to stop and think about innovation when time-to-market is the name of the game.

Venture capital funds were also abound in the late 20th century, and investors were easily persuaded to pour their money into any inkling of an idea--even those that were scribbled on a napkin. That's no longer true today.

In 2006, we interviewed Nicholas Donofrio, IBM's executive vice president of innovation and technology, who gave a very candid view of the IT industry. He boldly proclaimed that the "next big thing" no longer exists.

Donofrio said: "The fact is that innovation was a little different in the 20th century [than it is today]. It's [now] not easy to come up with greater and different things."

I guess the IBMer never saw Facebook and Twitter coming.

But, Donofrio may be right in some sense. And while Facebook and Twitter are immensely popular, neither has yet to come up with a viable revenue model.

Innovation as defined today must now come bundled with business value and the potential to be commercialized. So, it requires tedious hard work to not only come up with innovative ideas, but to also be able to sift through and identify those that are potentially marketable.

No surprises then that the likes of Microsoft, HP and IBM set aside billions of dollars each year to fund their R&D efforts, deploying teams of researchers and engineers dedicated solely to eat, sleep and dream innovation. Rumor has it that Google even has enough spare cash and time, amid the thousands of research projects it has running simultaneously, to support "fake" projects in a bid to throw its competitors off.

Clearly, tech innovation is not something in which all SMEs can afford to invest time and effort. And when an SMB does indeed develop a promising technology, it will also have to worry about tagging intellectual property rights to it...and we all know how well lawyers are paid.

Still, it's also not something they can afford to ignore completely. Amid the crowded marketplace, innovation and creative use of technology may well be just the thing some SMEs can exploit to differentiate their companies from the competition.

But, with all their limitations, how do these small league players drive innovation from the inside? Think government, or at least, that's what the delegates here are preaching--it is an APEC conference, after all.

For SMEs, at least, that's probably their best option since they'll need all the handouts and help they can get. Governments in the Asia-Pacific can play an important role in giving smaller companies the jumpstart on innovation, especially since for most of these economies, SMEs account for 60 percent to 80 percent of their country's labor force.

Spring Singapore, for example, launched a new initiative in March that aims to help local SMEs approach a selected list of established organizations--coined knowledge institutions and centers of innovation--for expertise and assistance in evaluating innovative ideas. Dubbed Innovation Vouchers, the scheme hands out coupons worth S$5,000 (US$3,470) that can be used in exchange for the centers' services.

The amount may not be much, but it's dished out with few strings attached and it'll at least push SMEs to start thinking innovation.

Major league players have little need to lend helping hands to their smaller counterparts, so governments are essential in playing matchmaker and instigating industry collaboration and mentorship.

In addition, governments are important in establishing policies and industry standards necessary to ensure interoperability. SMEs will also need the government's assistance in providing market information and identifying opportunities and niche industries in which smaller companies may have a better chance securing success.

Once governments have laid out the first steps and foundation, SMEs must then be given the room to use the knowledge they've gained and continue the rest of the journey on their own.

As James Keith, U.S. Ambassador to Malaysia, who gave an address at the conference here, said, the government is a facilitator for SMEs, to help open doors for these companies and "then get out of the way".

Can innovation come in small packages? I believe that is still possible today, though probably not to the same levels of the 20th century, and definitely not without some help from governments--but, not with the red tape that sometimes comes with bureaucracy, because speed to market is of the essence in the business technology world.