Innovation remains high on the agenda for SMEs, according to research commissioned by top twenty accountancy firm, Kingston Smith LLP. However, one fifth of investment in innovation by SMEs, in terms of time and money, is wasted.

The research, conducted by Henley Management College highlights the lack of effective measurement by SMEs when it comes to innovation. In fact, more than one in ten managers (13%) do not know what the contribution of innovation will be to their businesses’ bottom line in 2007. One third of SMEs are dissatisfied with their return on innovation in 2007.

On a more positive note, the importance of innovation clearly shone through. A total of 62% of managers claimed innovation to be one of the top three priorities for their company and almost two thirds (64%) increased spending on innovation in 2007. According to the study, the key driver amongst SMEs was to use innovation to provide better value for existing customers. Improving existing products and services was the second most important reason for innovation.

Michael Snyder, senior partner at Kingston Smith LLP, comments, “The research clearly shows that SMEs see innovation as the route to providing a competitive edge. A thriving SME sector is fundamental to the success of any country’s economy – and it is not possible to thrive without innovation. For SMEs to compete against the larger, more established enterprises, they need to continue to invest in innovation and focus on maximising returns on their investment. It is encouraging to see that 68% of managers are satisfied with the financial returns from innovation. However, those who are not need to have a stronger measurement system in place to understand which areas of innovation are effective for them and which areas need to be reviewed.”

Kingston Smith LLP’s top three tips for maximising returns on innovation are:

1) Understand your customers – If the main driver for innovation is to offer better value for customers, then it is important to understand your customers’ needs and levels of satisfaction with your products or services. Ensure that you have regular client satisfaction surveys to measure the views of clients both before and after you implement any changes. Encourage constructive feedback from clients. Act on findings from these surveys and let customers know that you are putting changes in place as a direct response to their feedback.

2) Gain the support from senior management – The research showed that senior management sponsorship of innovation is critical to driving it forward. The senior managers are often the most influential in making innovation happen. Ask senior managers for feedback and input into innovations – involve them in the process and you will find it easier to drive the innovation forward.

3) Set up a measurement system to track effect of innovation – Plan your investment in innovation carefully. Set key metrics in terms of timings, costings and impact. Review your tracking systems on a continual basis and act quickly on any areas that are not as effective as planned. Ensure that you track competitor innovation as part of your measurement system.

George Tovstiga, Professor of Strategy and Innovation Management at Henley Management College, concludes, “Managers across all industry sectors are increasingly asking how they can most effectively exploit innovation to improve the bottom-line business result of their enterprises. It’s very encouraging to see an increase in spend in innovation by SMEs – they clearly value the differentiation that innovation can provide. Getting innovation to achieve a greater return on investment is a major and complex task – and SMEs must rise to this challenge through aligning their innovation efforts with their overall business strategy, and through effective measurement. Even small but decisive steps can be important stepping stones to becoming an innovation leader.”