Innovation in Small and Medium Enterprises

Digitalization allows small and medium enterprises (SMEs) to improve internal processes and drive their growth potential. However, SMEs often lack the capital as well as capabilities to shift to data-driven, digital business models. By applying the concept of Exponential Organizations (ExO) SMEs can leverage external assets to drive their competitiveness.

Small and medium enterprises – engine for technological progress

SMEs are an engine for technological progress, especially in high technology areas, as they focus on specific products and often employ a highly specialized workforce. With its lean organizational structure the decision process is faster and their reaction to technological opportunities is timelier. We analyzed multiple studies regarding innovation approaches and digitalization processes in German SMEs in order to explore the opportunities and barriers.

Lack of financing and shortage of skilled labor

SMEs are constrained in their innovative activities, particularly through a lack of financing and a shortage of skilled labor.
Even though the basic infrastructural requirements for digital processes exist, for example only 11% of SMEs use cloud computing technologies. Most SMEs use only basic digital infrastructure due to issues related to infrastructure, know-how and staff.

Lessons from start-ups

The digitalization and information-enabled environment are features that lower the transaction cost of processes and services, allowing business to scale organizational factors, as well as knowledge, know-how and physical assets.
Enterprises are increasingly seeking analogies in the digital start-up industry. SMEs should not see start-ups as a threat, but as examples of business that successfully adapted in the digital age.

Advantages through Exponential Organizations

The main attributes enabling start-ups to gain exponential growth are new organizational techniques that leverage accelerating, organizational structures and technologies.
Big data analytics tools, computing power, know-how and staff-on-demand could be sourced externally. SMEs must embrace the concept of internalizing digitalization-specific production factors and turn into true exponential organizations.