Should Middle Market Innovation Be an Inside Job?

 

Homegrown innovation is a trademark of middle market firms.

Recent research by the National Center for the Middle Market shows that nearly three-quarters—or 72%—of middle market firms across all revenue segments and industries generally conduct innovation projects using internal teams, which may be dedicated R&D teams or teams within a specific business unit or function. Internal innovation teams are most likely to be involved in generating and implementing innovative ideas, though they also play a key role in helping their companies select which innovative ideas to fund.

The next most popular method of innovation, used by about one-third of firms, is to consult with other business units or functional teams elsewhere in the company. The largest middle market firms are the most likely to use this cross-functional approach, perhaps because these larger businesses are also likely to have more teams and employees to tap for ideas.

External innovation is a distant second.

Only about a quarter of middle market companies, regardless of revenue size, turn to outside consultants to drive their innovation projects. And just 7% use crowdsourcing, although the biggest middle market firms and those in the healthcare, life sciences, and technology industries are more than twice as likely to use this technique. Those that do look beyond their four walls say they benefit from the insights of industry experts and from leveraging diverse expertise and ideas they don’t have in house.

Keeping innovation close to home doesn’t hinder success.

Middle market companies and their employees appear to be quite adept at innovation. Although the vast majority of mid-sized businesses innovate without the assistance of outsiders, the middle market overall enjoys a respectable success rate for its innovation projects, with 57% of innovative ideas making it to market last year. Over the past five years, 54% of implemented ideas have been considered successful. On average, the most recent innovation project returned a healthy profit of 27%.

Engaging the whole firm—and top leaders in particular—is smart business.

Clearly, middle market companies and their staffs can hold their own when it comes to the innovation arena. And it isn’t necessary to engage outside consultants or get input from the “crowd” to enjoy innovation success.

However, the most effective innovators—or those that rate themselves the best at innovation—do look beyond their dedicated innovation teams or their own business units. They are more likely to talk to employees from other areas of the business. They are also more likely to seek input from senior managers including the Chief R&D Officer, Chief Marketing Officer, Chief Innovation Officer, and/or Chief Technology Officer. These leaders can bring to the table perspective about technologies and about customer wants and needs that can factor into an innovation project’s ultimate success.

Open innovation may be worth the extra effort.

Even though it’s not essential or even common to include outside sources in the innovation process, those firms that do so are likely to count themselves among the middle market’s top innovators. These businesses make more of an effort to get input from suppliers, outside consultants, and the “crowd” of interested individuals and their peers. Since top innovators are also more likely to be among the fastest-growing middle market companies, getting an outside perspective may not be mandatory, but it could be wise.

Include as many people as you’re comfortable asking.

Bottom line? When it comes to where your company innovates and who’s involved in the process, the choice comes down to where your business feels the most comfortable. Don’t feel obligated to get outsiders engaged. But if you do keep the process entirely in-house, try to include a wide range of employees, and especially business leaders, to help validate ideas.


To learn more about the habits of top middle market innovators, see the Center’s full research report, Organizing for Innovation in the Middle Market.


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