For 14 years, Switzerland has topped the rankings of the world’s most innovative countries. The high level of innovation is driven primarily by universities and corporations. SMEs, on the other hand, are being increasingly challenged by the topic of innovation.

“The proportion of Swiss companies that conduct their own research and development has declined markedly since the turn of the millennium,” says Franz Barjak, Professor of Empirical Social and Economic Research at the School of Business of the University of Applied Sciences and Arts Northwestern Switzerland (FHNW). Research and development must be profitable, but this is rarely the case for SMEs: “It is often cheaper to buy know-how and technologies from others than it is to develop an innovation in-house.”

The main reason for this decline in innovative strength is the growing complexity of innovation activities: “Innovation processes have become more complex. SMEs have to do more and more to make a product marketable,” Franz Barjak explains. The social and economic researcher has observed a structural change in the conditions for innovation across all sectors. Discussions with Swiss executives revealed five trends that pose challenges for SMEs in innovation processes.

Personalised products and services are becoming increasingly important. “The ability to offer tailor-made solutions to meet customers’ needs is becoming more and more important,” points out Franz Barjak. Today, both consumers and corporate customers have high demands – and in the era of e-commerce, they are also able to find alternatives more easily. Companies that make intelligent use of customer data for innovations are the ones that come out on top.

The focus on customers is driven strongly by digitalisation and topics such as big data. At the same time, the Internet of Things (IoT) is revolutionising processes in industry and in the logistics sector. By intelligently analysing data streams, companies are able to optimise production planning or maintenance, for example. “However, digital skills are required for this – and SMEs are being hit hard by the shortage of skilled workers,” notes Franz Barjak.

Sustainability is subject to increasingly stringent regulation, and the ecological requirements for products are on the rise. In innovation processes, the focus is therefore on reducing CO2 emissions, extending life cycles and recycling materials. A two-pronged challenge, as Franz Barjak explains: “In addition to the sustainability requirements for production in Switzerland, it is also important to meet the standards in the target markets at home and abroad.”

It is not only with respect to sustainability that regulation impacts innovation processes. SMEs are also increasingly having to deal with safety and confidentiality issues, such as in the food industry and in medical technology. “Whether or not an innovation can be implemented in practice is therefore not just a technological or economic question, but often also a regulatory one,” says Franz Barjak.

Sectors such as precision engineering and the electronics industry have long been the domain of Swiss SMEs. The technological lead in these areas is being lost, however: “Asian companies, as well as US tech companies, are increasingly threatening the dominance of European companies,” Franz Barjak observes. Swiss companies are therefore faced with the challenge of how they can differentiate themselves from their often less expensive counterparts through new innovations – such as in the service sector, for example.

Adapting to the changed framework conditions is crucial for the future success of the Swiss economy: “Without innovation, there is no growth,” emphasises Franz Barjak. “On the one hand, process innovations are needed to ensure that business models remain profitable. On the other, product innovations are also necessary so that SMEs are able to finance Swiss wages, which are high by international standards.”

A new approach to innovation processes is therefore required: “Predictability is decreasing, which is why agility is becoming increasingly important,” says Franz Barjak. What is needed are not only more flexible processes, but also interdisciplinary approaches, since today innovation goes hand-in-hand with collaboration: “SMEs are not able to integrate cross-sectional technologies such as artificial intelligence on their own,” Barjak concludes. This makes the transfer of knowledge between research and industry – and thus also innovation promotion for SMEs – all the more important.