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Driving Innovation in Middle Market Companies

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Driving Innovation in Middle Market Companies

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Today I want to focus on the value of innovation for middle market, growing companies. You may note that this is a departure from my usual approach of focusing on innovative activities and cultures within large, corporate organizations. For the purposes of this article I will consider mid-market companies as anywhere from 300 – 3,000 employees. This is just an arbitrary number, but it provides context for our discussion.

Innovation in middle market V2While the mid-market organizations may struggle for recognition and support in the US, other countries seem to do a much better job. Most notably the Mittelstand sector in Germany is seen as a central to their economy, and much innovation activity and government support is directed towards these organizations. You can read more about them in this fantastic HBR article.

Back in the US, innovation remains a priority but also a challenge for these organizations. 61% of mid-market business executives rate innovation of new products, services, or processes in their organization as highly or somewhat challenging (National Center for the Middle Market, September 2014). Improvement in this area is important for both these companies and the broader economy.

As compared to the larger, corporate market sectors, there are some unique considerations for innovation within this market segment:

  • Limited resources – Every company has some lack in resources. I once met with a CIO of an organization with a multi-billion dollar IT budget and he complained about a limitation of resources. Mid-market companies clearly work on smaller scales, and so their overall dollar and headcount investments in innovation are often more limited.
  • Need for process – Within large organizations it is well established that they need processes to support the development and implementation of new thinking. Within mid-market companies there is often more of an expectation that they can wing it and just create new ideas. While this can work, the reality is that there is often a need for processes to drive innovative activity at certain points of the life cycle. Now, this is perhaps not the depth of process support within bigger organizations, but from what I have seen, this is definitely a need.
  • Response cycles – Given that these organizations tend to remain flat, they can react and respond to changing market circumstances and conditions. This gives them a key competitive advantage against their larger colleagues.
  • Vendor opportunities – Perhaps I am biased, but I really don’t see a lot of vendor activity in this space. The vendors that I come across are either focused on the big fish, or are providing support to small-start up organizations. I don’t really see much targeted at the specific needs of mid-market organizations, which is a huge development opportunity.
  • Competitive pressures – Though these organizations have demonstrated clear signs of growth,) they face operation and economic challenges which can test their resolve around innovation. They generally need to see quick returns to justify investments, as they feel that they can’t absorb constant outflow of funds over time.
  • Engaged workforce – Employees within this organizations are generally more engaged than those in larger organizations, in part, because they are often responsible for a broader range of activity and are close to the end customer.

What are some opportunities for these organizations to drive an innovative culture and the development of new ideas?:

  • Don’t cut corners – When lacking resources, it can be easy to cut corners, especially in research around innovative opportunities. In the long-term this increases the risk profile of innovative actions and ideas which is the exact opposite of what these companies need.
  • Look for the right vendor solutions: As mentioned earlier, there appears to be a lack of vendors that are specifically focused on the needs of this marketplace. What I do see are plenty of vendor offerings that are shoehorned into this market, but really aren’t built to support their scale and needs. Innovation leaders should seek out vendors and solutions that have solutions that can be heavily tailored, or have been specifically built for the mid-market.
  • Seek incremental innovations: Incremental innovations are often seen as a dirty word, with everyone seeking disruptions. Sure, disruptions are great, but they are really rare and hard to come by. Within the mid-market, leaders should seek incremental improvements, especially early on in their efforts. This will help establish and maintain financial impact needed to justify their existence.
  • Adjacencies are great! – In line with the above point, adjacencies or extensions of existing business lines are often a good way to innovate, allowing the organization to maintain their focus on their existing business.
  • Activity over-extension – When starting new innovation efforts it is easy to be overly excited and ambitious. My advice is to keep it simple: don’t use a huge amount of resources, and build your efforts over time. These companies will want to test the waters and prove results over time. Don’t push your luck.
  • Innovation in Middle market V1Collaborate – A common goal of mid-market innovation effort is to collaborate with larger companies, often with a business development agenda. The reality is that collaborating with similar sized organizations may be more successful. Large companies often want to focus on start-ups, or other big organizations. In my experience they tend to jump over the middle market.
  • Establish processes – Again, mid-sized businesses often struggle with effective processes. Effective processes are really important within mid-market companies, as you need to run efficiently and repeat successes wherever possible.
  • Employee focus – Employees in mid-market organizations are often closer to customers than in larger organization, so they have more information that can be effectively sourced. I strongly encourage innovation leaders within this sector to focus on working with their employees from different parts of the organization.

As always, this is not an exhaustive list, and is based on personal experience. With this particular market segment, I honestly don’t work with these organizations a huge amount, so I would welcome any input that other people may have. Jump in, let me know your thoughts?

 

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