© istockphoto.com/Rawpixel

Transform – and Innovate

An exploration of the interplay between emerging technologies, education, and innovation at SMEs

In his youth, Professor Fritz J. Neff, Steinbeis expert and author of this edition’s Steinbeis Swipe column, enjoyed watching bakers, butchers, carpenters, clockmakers, and glassblowers manufacture their products, most of which were unique. At school, children were also encouraged to participate in practical activities, and strengths and weaknesses were discovered at an early age. These days, fewer and fewer young people work in skilled trades and as a result, SMEs are suffering. What is needed right now to make innovation leaps is well-trained young people.

The influence of neoliberalism has been getting out of hand in the last two decades, leading us to a situation that is a far cry from the principles of the “social market economy” – the wrong way for our socio-economic system to be headed in. There is a drawback with this: There are no political stakeholders with the agency to establish a reasonably balanced economic system. What counts is quick growth and profit – and all the time, the pressure is mounting. Preferential treatment is given to large companies, and no one is recognizing the problems this causes for SMEs. Education is being neglected, and this is having a detrimental impact on industry and the skilled crafts sector. Given this situation, more attention should be given to SMEs, since they are where most innovations originate. Any burden placed on the SME sector negatively affects the well-being of our community as a whole and the economy, and this casts doubt on the future viability of Germany as a business location.

A miserable position to start from

For example, one major issue is failing to make proper use of emerging technology or new concepts spawned by digital transformation. Many areas should have been digitalized a long time ago – especially in administration. That said, if digitalization fails, it tends to be because of the people rather than the technology itself. Many companies already have new working models on their to-do list, but they worry about implementing them. Another problem is scientific experts wandering off (human capital flight) or important companies going elsewhere. This is being exacerbated by the conflict in Eastern Europe, major shifts in economic dynamics, climate change, and pollution caused by wasteful behavior – all of which is having a negative impact on development activities. People feel less and less motivated to do something about this. This is not the ideal starting point, which almost makes the question as to why the younger generation is not falling over itself to do specialist training superfluous.

Make way for innovators

Innovation systems and new tools with names based on fancy management buzzwords have been a dime a dozen in recent years. The reason I feel critical about this is that I have tried repeatedly to see what’s new about them. Sometimes approaches are more comprehensive in terms of the information they’re based on, but often it’s like they’re sticking new labels on old wine bottles. SMEs need utmost efficiency in every process and everything they do. Innovations need innovators – a person to come up with ideas, who in turn needs freedoms. Support – from the family behind the business and management – is also crucial. This requires acute dexterity when planning the working environment and designing work models. Carefully chosen working conditions are needed, so that those developing innovations can work without pressure. This includes a solid understanding of a company’s most important KPIs, without which development only generates costs.

Most important of all are the skills and abilities of innovators, and collaboration on specific projects in a partnership of equals with other team members. Innovation teams that work effectively do not need time pressures from superiors. They establish their own way of doing things, and when it becomes increasingly evident that a new technology or product will go well beyond requirements, they can quickly ramp up activities. Negative and thus incapacitating influences on development activities must be avoided at all costs.

The crux of the matter with innovation

Imposing deadlines and cost restrictions on developers has a destructive impact on genuine innovation. Innovation processes require capital and time. A number of surveys have shown that roughly 70% of startups cease operations after three or four years. This is a high price to pay for translating an apparently good idea into a commercially viable solution. And in any case, this is forgetting that only one in a thousand ideas tends to lead to an innovation. Many innovations are by-products of development work. An example of this is microstructure technology, which gave a real boost to microsystems technology and is now an indispensable part of automotive engineering, medical technology, robotics, and security solutions.

Entrepreneurial thinking – daring to explore new territory

Many small and medium-sized enterprises are extremely forward-thinking and innovative, but on the flip side there are those that are a lot more hesitant. Some business leaders tend to interact less with others and rely on information provided by balance sheets to make important strategic decisions. This is not enough – even in the most favorable market conditions there can be problems, the first indication of which can be a product falling behind current trends. It’s not something people want to hear (“we’ve always been so successful!”). But pointing to important landmarks in the company history is a fatal error. Although it’s only obvious that innovations tie up capital, even if not every supposedly promising concept will be a market success (and will thus raise turnover and fuel growth).

Among other things, entrepreneurial thinking means constantly questioning your actions while taking into account both current and future developments. Are we allowing ourselves to be misled by certain economic models? Must we really keep growing? How can we exploit innovative solutions to become more efficient and thus succeed as a company? One answer to these questions is provided by the example of Swiss Army knife manufacturer Victorinox, whose long-term recipe for success revolves around responsible supply chains, staff motivation, customer satisfaction, the aura around its brand, and the judicious application of resources.

SMEs need young workers and good training

Despite the current situation – with multiple crises happening at the same time – every cloud has a silver lining; there are some unique selling points about our economy and these can provide orientation. They include future (even autonomous) travel solutions in cities and rural areas, lithium production using geothermal energy, new energy storage systems, new semiconductor plants, hydrogen applications, and the introduction of sustainable practices to company activities. I do doubt whether people wandering off really helps affected companies with their innovation problems.

It’s important to look inward so that SMEs function as compact socio-economic groups. Companies will then become beacons of hope when it comes to the future, and new and meaningful working models can evolve that are specific to individual enterprises and – above all – align much more closely with the expectations of our younger generation. If you want to remain a successful market player, there’s no point increasing deadline pressure and raising salaries. SMEs need many more well-trained young people – who can then work together in making innovation leaps. Digital transformation has an extremely helpful role to play in this, provided it’s actually implemented and keeps moving forward. Every crisis is also an opportunity to explore new avenues, but innovating must not be allowed to tail away completely.


Prof. Fritz J. Neff (author)
Freelance project manager
Steinbeis Consulting Center Analysis and Expertise (Stuttgart)

Professor Fritz J. Neff is a freelance project manager at the Steinbeis Consulting Center for Analysis and Expertise, where he provides access to his personal expertise in the fields of strategy, organization, innovation management, production, and processes.