Clarifying the concept of innovation for sustainability.

1. Innovation of Small-Medium Sized
Enterprises for Sustainability
Togar M. Simatupang
School of Business and Management
Bandung Institute of Technology
Presented on “Sustainability and Innovation of Small
Medium Enterprises in the Face of AFCTA (ASEAN-
China Free Trade Agreement” at Faculty of Social and
Political Sciences in University of Parahyangan
Bandung, 17 November 2011

2. Overview
• Introduction
• Challenges
• Innovation
– Definition
– 10 types of innovation
– A 4Ps analysis for innovation opportunities
– Innovation and Competitiveness
– Innovation Adoption
• Innovation for Sustainability
• Absorptive Capacity
• Sustainability Roadmap
• SMEs in Indonesia
• Barriers to innovation
• Concluding Remarks
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3. Introduction
• SMEs in Indonesia represent a large share of the population of firms which
grow naturally for survival.
• SMEs can be flexible in adapting to the fast changing markets.
• SMEs are often the main driving force for innovation which are
subsequently adopted and developed by larger enterprises.
• Consumers are becoming increasingly environmentally conscious.
• The encouragement of such SMEs to develop innovation that can support
sustainability becomes crucial in the green economy.
• The readiness, willingness, and capability of SMEs to seize green business
opportunities generally are generally related to resource constraints, skills
deficits, and knowledge limitations.
• The extent to which SMEs are involved in eco-innovation that would not
only improve their overall performance but that could also have positive
effects for social and environment has not been fully understood.
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4. Challenges
• What is innovation for sustainability?
• How can an innovation for sustainability be
encouraged in SMEs?
• How do SMEs in Indonesia practice
innovation?
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5. Innovation
• Innovation refers to an
enterprise-wide pervasive
attitude focusing on the
process of converting
novel ideas into
something of value.
• Innovation provides a way
to improve overall
performance through
smarter ways of
conducting organizational
activities.
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6. 6

7. 7

8. Design Driven Innovation
• Functional Innovation: • Aesthetic Innovation:
“Is the product intuitive to “Is the product easily
use?” recognizable?”
“Has the product introduced “Is the product far from the
new functions?” dominant morphological
archetype?”
• Meaning Innovation:
“Is the product exciting?”
“Can the product be defined
as a status-symbol?”
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9. A 4Ps analysis for innovation
opportunities
Source: Francis, D. and Bessant, J. (2005), "Targeting innovation and implications for capability
development", Technovation, Vol. 25 No. 3, pp. 171-183. 9

10. Innovation and Competitiveness
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11. A BCF (better, cheaper, and faster )
model for innovation in SMEs
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12. 12

13. Innovation for Sustainability
• Sustainability defines how countries can meet the needs of their people
today without compromising those of future generations.
• The definition of “innovation for sustainability” is stated as: doing
something with creative, novel, or unusual ideas and solutions to
problems and needs in a sustainable way:
– What is economical for the company?
– What is beneficial for the community?
– What is sustainable for the environment?
• This includes the development of new products and services, new
processes, new technology, and new business model for sustaining
organizational functions.
• Innovation for sustainability focuses on the utilization of innovation to
exploit a green business opportunity to meet market demand in an
innovative manner through innovation in products, service, process,
technology, and business model.
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14. Innovation and Sustainability
Several ideas:
• Reuse/Recycle the element
• Replace the element from your production cycle
• Reduce the amount of the element you use/produce
• Look for ways to increase your Revenue/utilization rate of that element
Source: http://www.innovationexcellence.com/blog/2010/10/26/innovation-and-sustainability/
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15. Sustainable Innovation
Sustainable Innovation:
1. The issues of building
innovation as a sustainable
engine of success for
companies and individuals
2. The practice of innovation
in service of a green (or
sustainability) initiative.
3. The alignment of business
practices and operations to
address social and
environmental challenges
that interface with the
business.
Source: http://www.innovatingtowin.com/innovating_to_win/2008/12/what-is-in-a-
word-sustainability.html 15

16. A typology of sustainability
innovations
Source: Tidd and Bessant (2009), pp. 581-583
http://www.managing-innovation.com/
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17. Relationship between technological
resources and Export Behavior
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18. 18

19. The IMP³rove Innovation Management
Assessment process
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20. SMEs in Indonesia
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21. What are SMEs?
No. Description Criteria
Assets Sales Turnover
1. Micro Enterprise Max $ 5,000 Max $ 30,000
2. Small Enterprise > $ 5,000 – 50,000 > 30,000 – 0.25 M
3. Medium > $ 50,000 – 1 M > 0.25 M – 5 M
Enterprise
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22. Statistics of SMEs in Indonesia
• In 2008, SMEs reached 51.3 million units.
• SMEs comprised of 99.99% of the total
enterprises.
• SMEs absorbed 90,896,270 labors or about
97.22% of 93,491,243 total labors.
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23. Comparison of SMEs and LEs
Indicator in 2005 SMEs LEs
Business Units > 99% < 1%
GDP’s contribution 53.3% 46.7%
Labour Force 96% 4%
Export of Non-Oil & Gas 20.3% 79.7%
Investments 46.2% 53.8%
Source: Kementerian KUKM and BPS 2006
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24. From Survival to Entrepreneurs
Large Enterprises 0.01%
Medium Enterprises 0.24%
EntrepreneurSmall Enterprises 4.05%
Micro Enterprises 95.7% Survival
Entrepreneurs is about 0.18%:
Problems: low value added, lack of entrepreneurship,
and lack of innovation
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25. Practice of innovation for sustainability
• Green Business Center (GBC) is a cooperation between Korean and Indonesian
SMEs to develop green business and green technology through sharing
information and best practices
• Business Incubators at technological universities, e.g. ITB, IPB, UI, and ITS. ITB just
launches Innovation Management System linking community’s needs and
innovation (http://www.ims.itb.ac.id/index)
• Clean Batik Initiative (CBI) is one of 47 sustainable consumption and production
projects being developed under the European Commission-funded SWITCH-Asia, a
program on sustainable consumption and production. This program is set to
receive about €150 billion for the period between 2007-2013. The projects include
a wide variety of sectors, such as micro-electronic, construction, the rattan
industry and biomass production
((http://www.thejakartapost.com/news/2011/10/29/indonesia-told-produce-
more-green-products.html)
• Business Innovation Center (BIC) – supported by the Ministry of Research and
Technology (Ristek) – publish annual report of Indonesia Innovation or “103
Inovasi Indonesia - 2011” (http://www.bic.web.id/)
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26. Barriers to Innovation of SMEs in
Indonesia in the face of ACFTA
1. Lack of standards
2. Limited access to advisory services (IP, customs, export-import, contracts,
etc.)
3. Low value add and not competitive
4. Limited access to domestic and global market (missing market know-
how) and limited marketing and promotion strategies
5. Lack of training and shortage of qualified personnel
6. Limited capability in managing the innovation process (R&D) efficiently
and effectively
7. Difficulty in obtaining financing (hindered access to external finance, high
innovation costs, and high economic risks)
8. Bureaucratic hurdles (long administrative procedures and restrictive laws
and regulations)
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27. Proposed Initiatives
• Path dependent model of open-innovation (Strategic Innovation Agenda):
efficiency-driven to innovation-driven to creative-driven
• Diffusion for rapid replication of appropriate technology
• Standardization, information sharing, and innovation maturity model
• Awards and Rewards
• Incentives for sustainable innovation
• Financial support
– Investment communities (private investors and venture capital)
– Research funders including charities, foundations, CSR for innovation, and city, province, and
national governments
• Public service improvements
• Advisory and coaching: marketing, product design, contracts, entrepreneurship,
and project management (the creation of spin-outs, start-ups, and SMEs)
• University as knowledge Hub: connect, collaborate, learn, innovate (innovative
webs of excellence integrating education, technology, research, business and
entrepreneurship)
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28. Concluding Remarks (1)
• The primary aim of this presentation is to investigate “innovation
for sustainability” for the purpose of identifying, clarifying, and
evaluating the nature of innovation in SMEs in Indonesia.
• Innovation in SMEs in Indonesia has grown naturally dependent on
individual capability and network to tap business opportunities.
• Indonesia has potentials to develop innovation capability of SMEs
for abundance of natural and human resources.
• Few hindrances need to be addressed in order to sustain
development based on innovation.
• There is a need for political willingness and consistent programs to
empower SMEs to take actions in innovation for sustainability.
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29. Concluding Remarks (2)
• Future research needs to answer the following
questions:
– What practices and policies that allow SMEs in Indonesia
to adopt and develop innovation for sustainability?
– How do SMEs reduce their own environmental and social
impacts?
– How do their products and services contribute to better
environmental performance in other sectors, increasing
profitability, efficiency and competitiveness?
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30. Thank You
• http://www.slideshare.net/togar/
• http://www.mendeley.com/profiles/togar-simatupang/
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