Workplace culture is preventing around seven in 10 Australian small-to-medium enterprises (SMEs) from realising their innovation potential, new research claims.

The research by AMR – and commissioned by Microsoft Australia – found 43 percent of a sample of 500 SMEs had an "appetite" and "interest in innovation but lack the culture, tools and leadership to make it happen".

A further quarter of respondents were said to have "little or no appetite for innovation"; they "struggle to articulate what innovation means for their business, and they do not feel motivated to innovate," the report said.

The relationship between workplace culture and innovation has been written about in detail over the past few years.

For example, a 2009 study published by the Journal of Marketing found "internal corporate culture is an important driver of radical innovation".

"Corporate culture is a factor that is unique, intangible, sticky, and difficult to change," the 2009 study authors said.

"Moreover, success in one generation of technology can breed attitudes of complacency and invulnerability with a focus on managing current products and protecting current profits that brought that success.

"These cultural traits can blind a firm to radical innovations on the frontier."

Such attitudes are reflected back in the Microsoft Australia research. Participants in a qualitative component of the research spoke of the pressure "to stick with what we know and what works, even though we need to keep innovating to be successful".

Too scared, too busy

Microsoft calls the 43 percent of SMEs whose interest in innovation is offset by workplace culture "cruisers", while those with little to no appetite for innovation considered "laggards".

Using its research, the software vendor assigned characteristics to each grouping of SMEs.
Cruisers, it said, may be unwilling to divert resources "from regular workloads ... toward innovative activities".

They may also fear failure – particularly if taking past risks on innovative projects had not worked out.

By comparison, the employees of laggards may not "feel their company is open to new ideas" at all. The business is more likely to be focused on short-term gains "rather than long-term opportunities" and – as the 2009 study suggested – may be more focused on protecting what they have rather than trying to win again.

"They may already be successful and profitable in their market, so there is little apparent incentive to innovate and undertake activities outside the norm," Microsoft's report stated.

"An example of this attitude can be seen in one comment we heard: 'We are too busy delivering to spend time on that'."

Be it on your head

Those SMEs judged innovation leaders in the report are hungry for innovation and are willing to allocate resources to make it happen.

They operate in a customer-centric fashion and have senior staff who:

  • Ask for ideas on how they can improve
  • Sponsor new initiatives and mentor the people working for them
  • Bring together cross-functional teams to innovate
  • Take responsibility for risks, creating a "climate of trust where employees are not worried about being punished if their innovative idea doesn't work."

Embedded systems maker Spansion's CEO John Kispert agrees that leaders wanting to encourage innovation should be prepared to take difficult and sometimes risky paths.

"Small failures are inevitable, but missing out on your next big opportunity could be huge," he said in an op-ed published by Bloomberg Business.

"When it comes down to it, it's how you respond to the losses and move on that will define your success."