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Cyprus SMEs still lag on innovation

Innovation 4390617 1280
Cyprus SMEs need more focus on strategy for innovation.

By Dr Georgios Afxentiou – Head of Research, Assistant Professor in Business, Certified Management Consultant, CTL Eurocollege

Cyprus SMEs need to improve their focus on product and process innovation. They should also increase collaboration and communication between all stakeholders, which is imperative to the success of product and process innovation.

For now, Cyprus’s SMEs, with a score of 25 points, are below the EU average of 32 points in terms of innovation performance, according to the European Innovation Scoreboard for 2020. This puts Cyprus below Portugal on the ranking, but at the same level as Croatia, Czechia, Greece, Hungary, Italy, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, and Spain. These countries are “Moderate Innovators,” according to the terms of the scoreboard.

The management of SMEs in Cyprus should infuse the development of new products and processes into their organisations.  They need to engage employees, partners, suppliers and customers in the product and process innovations.

What is Innovation?

Innovation is the process of taking a creative idea and turning it into a useful product, service, or method of operation (Robbins, DeCenzo, Coulter, 2013).  Innovation is not just about developing new technologies, but also about adopting and reorganising business routines, and internal organisation or external relations.  The focus of process innovation can therefore be said to be a focus on internal customers, and the objectives may be reduction of production costs, higher production yields, improvement of production volumes, environment-friendly production, and improvement of flexibility in production.  The company’s product development can also be considered as an internal customer for process innovation.

About one-third of EU SMEs are innovating with products or processes

According to the European Innovation Scoreboard 2020: Annex B – Performance per indicator (European Commission, 2020), the introduction of new products (goods or services) and processes is traditionally seen as the most important type of innovation in industry.  Higher shares of product and/or process innovators reflect a higher level of innovation activities.

More than 34 per cent of EU SMEs have innovated by introducing at least one new or significantly improved product or process.  In Portugal, Norway, Finland and Montenegro, more than 50 per cent of SMEs have introduced a product or process innovation. This share is only 5 per cent in Romania, and below 11 per cent in Ukraine (For Cyprus there has been no change in this respect).

Analysis of performance

Compared with reference year 2012, performance has increased for 21 countries and decreased for 14 countries.  Performance has increased most in Norway and Lithuania, and has decreased most in Iceland, Germany and Spain.  Compared with the previous year, performance has increased for 24 countries, most strongly in Estonia, Norway and Portugal, and decreased for 10 countries, most strongly in Ireland, Cyprus and Malta.

Hervas-Oliver J.L, Sempere-Ripoll F., Boronat-Moll C. (2014) explained that a firm’s innovation strategy depends on its existing capabilities or knowledge stock. A firm’s innovation capability is highly correlated with its innovation strategy, and both depend on its repository of internally and externally generated resources and competences.  The creation and implementation of the product and process innovations are connected to the resources and competences, but they are also dependent on the business development thinking and culture of SME managements.

Cypriot SMEs need to build a culture of innovation, by developing skills and resources that feed into it. As this process improves, so will the innovation performance of Cypriot SMEs.

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