on Innovative and Disruptive Change

Manual follow-up Discussions

Date: 5^th April 2024

Time: 09:30 to 11:30

Venue: Malta Employers’ Association Boardroom

The Malta Employers’ Association researched innovation and disruptive change as a follow-up to the work undertaken on the EU project ‘The Regeneration Plan for Workplaces—Resilience in a Changing World: Adapting for Success’, launched at the end of last year.

As you may recall, the Regeneration Plan for Workplaces is an innovative and concrete set of activities conceived to provide a practical response to the COVID crisis that has put pressure on employers and national social partners. The constantly changing circumstances, the onset of new disruptive technologies, the ever-intensifying competitive environment, and the social and economic crisis caused by COVID make the Regeneration Plan for Workplaces ever more relevant. Some of the overall challenges enterprises are faced with include:

1. To improve their social dialogue capacity.
2. To improve the competitiveness of enterprises.
3. To respond to new customer’s needs, including digitalisation.
4. To ensure the sustainability of the jobs they generate.
5. To be adequately capitalised to enable investments in digital and green technologies.
6. To improve the scope and the quality of service.
7. To offer the best value for citizens’ money.
8. To cope with the lower availability of public finance.

Comprehensive Report

Being innovative for disruptive change

Research Desk

April 2024

1. Overview

During the month of April, a focus group was held with industry leaders to discuss the topic of innovation and disruptive change.

Continuing its commitment to understanding and addressing the challenges of innovation and disruptive change, the Malta Employers’ Association is conducting research as a follow-up to the EU project ‘The Regeneration Plan for Workplaces—Resilience in a Changing World: Adapting for Success’ initiated at the end of last year.

This manual is an innovative and concrete set of activities conceived to provide a practical response to the COVID-19 crisis that has put pressure on employers and national social partners. The constantly changing circumstances, the onset of new disruptive technologies, the ever-intensifying competitive environment, and the social and economic crisis caused by COVID-19 make the Regeneration Plan for Workplaces ever more relevant. Some of the overall challenges enterprises are faced with include:

1. To improve their social dialogue capacity.
2. To improve the competitiveness of enterprises.
3. To respond to new customer’s needs, including digitalisation.
4. To ensure the sustainability of the jobs they generate.
5. To be adequately capitalised to enable investments in digital and green technologies.
6. To improve the scope and the quality of service.
7. To offer the best value for citizens’ money.
8. To cope with the lower availability of public finance.

Research questions

In this regard, during the focus group, the following research questions were asked:

–              What does innovation mean for smaller businesses?

–              How can smaller businesses become innovative?

–              How can smaller businesses anticipate and manage the impact of change?

–              Are businesses well prepared for disruptions and risks emerging from such?

–              What can the public sector do in this regard?

2. Introduction to the research topic 

Innovation for small businesses is a complex process that involves more than just adopting new technologies. It’s about introducing new ideas, products, or processes that create value and enhance competitiveness. Small businesses, despite their size, can become innovative powerhouses by adopting emerging technological innovations. However, the success rate of adopting such innovations in small businesses is low compared to larger counterparts, especially with regard to radical innovations (Temel & Durst, 2020). This is where understanding economic cycles comes into play. Investment in innovation and technology transfer in the small business sector is not a matter of chance, but a strategic move that depends on market conjuncture and stages of the economic cycle (Lykholat et al., 2021). This knowledge is key to unlocking the innovative potential of small entrepreneurship.

Small businesses must also anticipate and manage the impact of change, especially disruptions and risks emerging from events such as the COVID-19 pandemic (Fairlie, 2020). The pandemic has had severe implications for small businesses globally, emphasising the need for preparedness and resilience in the face of unexpected challenges (Fairlie, 2020).

The Harvard Business Review seeks further definitions of innovations. Of course, there are innovations that spring from a flash of genius. Most innovations, however, especially successful ones, result from a conscious, purposeful search for innovation opportunities found only in a few situations.

Four areas of opportunity exist within a company or industry:

1. unexpected occurrences,
2. incongruities,
3. process needs, and
4. industry and market changes.

HBR concludes that an innovation must be simple and focused to be effective. It should do only one thing; otherwise, it will confuse people.

International consultants and researchers at MC Kinsey posit that innovation is the ability to conceive, develop, deliver, and scale new products, services, processes, and business models for customers in a business context.

Successful innovation has historically occurred at the intersection of several elements, which can guide prioritisation efforts. The three most important elements are the who, the what, and the how:

1. An unmet customer need (the ‘who’): Who is the customer, and what problem do they need to solve? Are macro trends such as automation driving changes in customer needs?

2. A solution (the ‘what’): Is the solution compelling, and can it be executed?
3. A business model allowing the solution to be monetised (the ‘how’): How will the solution   create value? What is the business model?

Successful innovation requires answers to each of these questions.

2.1.        Quality management

Quality management (QM) has been identified as a means for small businesses to improve their competitive position and attain high goods or service quality, contributing to their ability to manage disruptions and risks (Murphy & Leonard, 2016).

Quality management is a comprehensive approach that focuses on continuous improvement, customer satisfaction, and the involvement of all employees in the organisation. It encompasses various management practices intended to improve business performance, mainly through achieving productivity and revenue gains (Elshaer & Augustyn, 2016). Small businesses can benefit from quality management by improving their competitive position and attaining high goods or service quality, contributing to their ability to manage disruptions and risks (Murphy & Leonard, 2016). For example, implementing a quality management system is directly linked to performance and business activity relative to competition (Miletić et al., 2020). Additionally, research has shown that the informal nature of human resource management in small businesses contributes to difficulties in recruiting and retaining employees, highlighting the importance of formal human resource management practices in small, growing firms (Kotey & Slade, 2005).

In conclusion, quality management is crucial for small businesses to improve their competitive position and attain high goods or service quality. By implementing QM practices, small businesses can enhance performance, manage disruptions and risks, and achieve sustainable growth and success.

2.1.        Key issues faced by small business

Small enterprises and businesses often encounter unique challenges when trying to become actors in innovative changes. These challenges can stem from resource constraints, limited capabilities, and the dynamic nature of innovation ecosystems.

2.1.1.    Resource Constraints

Small enterprises often face limitations in financial resources, human capital, and R&D budgets, hindering their ability to invest in research and development. This constraint may restrict their capacity to explore and implement innovative solutions.

2.1.2.    Limited Access to Capital

Small businesses may struggle to access external funding, such as venture capital, which is crucial for supporting innovative projects. This lack of capital can impede

2.1.3.    Risk Aversion

Small enterprises may be more risk-averse compared to larger counterparts, as they often cannot afford the potential financial losses associated with failed innovation attempts. This risk aversion can stifle experimentation and the pursuit of disruptive ideas.

2.1.4.    Lack of Innovation Culture

The absence of a culture that promotes and rewards innovation can hinder small businesses. This includes a lack of awareness, training, and incentives for employees to contribute to and embrace innovative practices.

2.1.5.    Market Access and Networking

Small enterprises may struggle to establish valuable networks and collaborations with other firms, research institutions, and industry players. This limited connectivity can impede access to knowledge, partnerships, and market opportunities.

2.1.6.    Regulatory Barriers

Regulatory complexities and bureaucratic hurdles can disproportionately affect small enterprises, hindering their ability to navigate and comply with regulations related to intellectual property, product development, and market entry.

2.1.7.    Technology and Knowledge Gaps

Small enterprises may lack the necessary technological infrastructure and knowledge to adopt and integrate cutting-edge technologies. This gap can limit their ability to keep pace with industry advancements.

2.2.        Business suited towards innovation

Due to their inherent characteristics and industry dynamics, certain types of small businesses are often more conducive to embracing innovative and disruptive changes.

2.2.1.    Technology Startups – Startups in the technology sector are inherently focused on innovation. Whether developing new software, hardware, or technological solutions, these businesses thrive on staying at the cutting edge of advancements.

2.2.2.    Biotech and Healthcare Innovation – Small businesses in the biotechnology and healthcare sectors are often at the forefront of disruptive changes. Innovations in medical devices, pharmaceuticals, and healthcare technologies can significantly impact the industry.

2.2.3.    Green and Sustainable Businesses—Businesses that focus on sustainability, renewable energy, and environmentally friendly practices often have a natural inclination toward innovation. This includes companies involved in clean energy, eco-friendly products, and sustainable practices.

2.2.4.    Fintech and Financial Innovation – Small businesses in the financial technology (fintech) sector are well-positioned for disruption. These companies often leverage technology to create innovative solutions in digital payments, blockchain, and financial analytics.

2.2.5.    FoodTech and AgTech Ventures – Businesses in the food and agriculture technology sectors are increasingly incorporating innovation. This includes companies involved in precision farming, alternative proteins, food delivery technologies, and sustainable agriculture.

2.2.6.    Educational Technology (EdTech) – EdTech startups focusing on online learning platforms, educational software, and innovative teaching methods are well-suited for disruptive changes in the education sector.

2.2.7.    Artificial Intelligence (AI) and Machine Learning—Businesses that leverage AI and machine learning technologies can bring about significant innovations in various industries, from healthcare and finance to marketing and manufacturing.

2.2.8.    Renewable Energy and Cleantech – Companies involved in renewable energy, energy storage, and cleantech solutions are crucial in disrupting traditional energy models and fostering sustainable practices.

It is important to note that the potential for innovation and disruption is not limited to these sectors, and innovative ideas can emerge in almost any industry. The key is often a combination of an entrepreneurial mindset, a willingness to embrace change, and a strategic approach to leveraging emerging technologies and business models. Additionally, the regulatory environment, market dynamics, and customer needs all play roles in determining the suitability of a small business for innovative and disruptive changes.

2.3.        Management and Innovation

Research has explored the relationship between the characteristics and background of small business management and their likelihood of driving innovation and disruptive change. Here are some key findings from relevant studies:

2.3.1.    Entrepreneurial Orientation – Research has consistently shown that firms with management teams displaying a higher entrepreneurial orientation are more likely to engage in innovative activities. Entrepreneurial orientation encompasses risk-taking, proactiveness, and a willingness to experiment.

2.3.2.    Managerial Characteristics—Individual managers’ characteristics, such as their education, experience, and prior exposure to innovation, have been found to influence a firm’s innovation performance. Managers with diverse backgrounds and experiences are often better positioned to drive innovation.

2.3.3.    Top Management Support – Studies emphasise the importance of strong support for innovation from top management. When leaders actively champion and support innovative initiatives, small businesses are more likely to overcome challenges and successfully implement disruptive changes.

2.3.4.    Educational Background – Managerial education, especially in science, technology, engineering, and mathematics (STEM) fields, is often associated with a higher likelihood of innovation. Managers with technical backgrounds may better understand emerging technologies and their applications.

2.3.5.    Networking and Collaboration – Small business managers who actively network and collaborate with external partners, such as other businesses, research institutions, and industry associations, are more likely to access valuable resources and knowledge that can drive innovation.

2.3.6.    Leadership Style – Transformational leadership, characterised by vision, charisma, and the ability to inspire and motivate employees, has been linked to higher levels of innovation within organisations. Leaders who encourage creativity and experimentation contribute to a culture of innovation.

2.3.7.    Adaptability and Learning Orientation – Management teams that exhibit adaptability and learning orientation are better equipped to respond to changing market conditions and adopt new ideas. This adaptability is crucial for small businesses operating in dynamic environments.

2.4.        Public Sector Involvement

In the context of public sector involvement, the public sector can play a crucial role in fostering innovation ecosystems. Higher education institutes, for example, can contribute to public sector innovation ecosystems by bringing new and fresh ideas to the market, challenging old services, products, and businesses, thus opening the way for development (Luojus & Kauppinen, 2021). Additionally, state support for small and medium-sized businesses is relevant for innovative economic development, as a healthy small business sector leads to innovation, jobs, and a healthy overall economy (Kookueva & Tsertseil, 2020; Glukhov et al., 2015). Furthermore, there is a need to investigate business model innovation in the public sector, as the literature on business models can explain the outcomes of innovation attempts in the public sector (Lewandowski & Kożuch, 2017; Axelson et al., 2017).

3. Focus Group

The focus group targeted the following interviewees:

–              Executives or managers with decision-making authority who have played a significant role

in shaping the direction of the business.

–              Leaders with experience in implementing innovative initiatives or managing projects

related to disruptive change.

–              Leaders with a strong understanding of the industry in which the business operates,

as industry context can significantly impact innovation strategies.

–              Leaders who have demonstrated adaptability, a willingness to learn, and openness to

change within their organisations.

–              Leaders who have actively collaborated, networking, or partnerships with other

businesses, research institutions, or industry associations.

3.1.        Attendees

The following attendees made it to the session:

Contact Person Name of Company:

1             Mr Joseph Farrugia          MEA

2             Mr Anton Vella  MEA

3             Ms Kirsten Cutajar Miller               MEA

4             Ing Anton Cutajar             Enser Ltd

5             Mr David Baldacchino     Seifert Systems Ltd

6             Mr Robert Debono          Consultant

7             Ms Tania Kasap Green Skip Services Ltd

8             Mr Martin Vella Panta Contracting Ltd

9             Mr Nicholas Schembri    Tevapharm

10           Mr Ian Pisani      J&C Pisani Limied

11           Mr Ivan Sciriha   J&C Pisani Limied

These attendees represented the wholesale and manufacturing of food, manufacturing, pharmaceuticals, waste management, consultancy and financial services, building services, mechanical and electrical design and implementation sectors.

The attendees represented a mix of small, medium and large companies and included freelance consultants, family businesses and large set-ups.

3.2.        Questions

The following questions were discussed during the session.

1. Can you provide an overview of your organisation’s innovation and

disruptive change approach?

2. What factors or motivations drive your organisation to pursue innovative initiatives or

disruptive changes?

3. What challenges has your organisation faced in fostering innovation, especially

disruptive changes?

4. How does leadership play a role in fostering a culture of innovation within your organisation?
5. Can you share an example of an innovative initiative or disruptive change that did not go

as planned? What did your organisation learn from that experience?

6. How does your organisation approach decision-making regarding the adoption of

new technologies or business models

7. How has your organisation collaborated with external entities like other businesses,

research institutions, or industry associations to drive innovation?

8. How do you involve and engage employees in the innovation process? What strategies

are in place to encourage creativity and idea generation?

9. How does your organisation assess and adopt emerging technologies that have the

potential    to disrupt your industry?

10. How does your organisation stay informed about market trends and ensure

its   competitiveness through innovation?

11. What is your organisation’s long-term vision regarding innovation and its role in the future

of    your industry?

12. How does your organisation measure the success of its innovative initiatives or

disruptive changes?

13. Based on your experience, what advice would you give to other business leaders looking

to drive innovation and embrace disruptive changes?

3.3.        Analysis

Different reasons for engaging in innovation

During the session, the scope and rationale for innovation were discussed. It emerged that for the participants attending the focus group, innovation is important for a plethora of reasons, including:

–              Better utilisation of talent and resources;

–              Growth through efficiency gains or diversification;

–              Retaining one’s position in the market;

–              Remaining relevant and agile in the competitive market; and

–              Surviving the fast-paced environmental changes, especially brought about by technology. In this regard, the innovative process is iterative as technology changes drive innovation, and innovation drives change. Aside from technology developments, ESG-related developments will also drive change.

An innovative company changes from being reactive in the market to becoming proactive.

An internal catalyst

Resistance to change goes beyond family businesses and the staff themselves. At times, the paternalistic aspect of management can hinder change. A major issue here could be the owner/leader’s fear of failure. In this regard, senior management should allow itself to receive new and innovative ideas. Hence, the business needs to have a culture of welcoming ideas, and senior management needs to lead by example.

The participants also stressed that successful innovation requires constant awareness of new developments and occurrences around you. In this regard, the business must invest in people eager to stay abreast.

An innovative company needs to have a person or more who takes on the role of idea generator.

Despite the challenges, innovation is a way of doing business

Although budgets and financial constraints may significantly restrict change and innovation adoption, the participants insisted that innovation is a process that needs to be planned to be implemented effectively. Other important factors for successful innovation are:

–              Developing and maintaining a strong network of collaborators, and

–              Robust data management

Malta has limited scalability potential; however, being small is sometimes an advantage as it allows businesses to become experts in more areas. Similarly, national and European funding opportunities are often too bureaucratic for small enterprises. The business representatives also notice how government entities suffer from an innovation and digital gap, sometimes hindering businesses from pursuing further innovation.

Education is key

Having the right skills in the company and communicating change is paramount. The right skills are also required to implement innovation and have your team adopt and accept change. In this regard, the education system was thought to be failing us and not giving our future workforce the right skills at the right time. In addition to our education institutions, for innovation to occur in business, there needs to be continuous personnel development.

Further, the focus group participants ascertained the need for problem-solving, critical thinking, and learning skills for a resilient workforce.

The participants stressed the importance of balancing academic skills with vocational skills and coaching in leadership skills.

Future

The focus group attendees stated that they look at innovation as a means to address future legal and reporting requirements and remain competitive in the face of unfair competition. The focus group agreed that innovation is a tool to evolve promptly in the face of rapid technological changes, such as robotics and AI, but also to mitigate against skills shortages.

4. References

–              (2020). Smes and adoption of innovative technologies. Strategic Direction, 36(10), 25-28. https://doi.org/10.1108/sd-07-2020-0138

–              Axelson, M., Netz, J., & Sandström, C. (2017). Collective action problems in public sector innovation: a business model perspective. Creativity and Innovation Management, 26(4), 370-378. https://doi.org/10.1111/caim.12250

–              Fairlie, R. (2020). The impact of covid‐19 on small business owners: evidence from the first three months after widespread social‐distancing restrictions. Journal of Economics & Management Strategy, 29(4), 727-740. https://doi.org/10.1111/jems.12400

–              Glukhov, V., Glukhov, E., Lialina, Z., Ostanin, V., & Rozhkov, Y. (2015). Social function of small business taxes in russia. Asian Social Science, 11(19). https://doi.org/10.5539/ass.v11n19p247

–              Kookueva, V. and Tsertseil, J. (2020). The role of state support for small and medium-sized businesses in the context of innovative economic development. E3s Web of Conferences, 220, 01031. https://doi.org/10.1051/e3sconf/202022001031

–              Lewandowski, M. and Kożuch, B. (2017). Public sector entrepreneurship and the integration of innovative business models. https://doi.org/10.4018/978-1-5225-2215-7

–              Luojus, S. and Kauppinen, S. (2021). The role of higher education institutes in public sector innovation ecosystems. https://doi.org/10.21125/inted.2021.0402

–              Murphy, W. and Leonard, D. (2016). Quality management (qm) leads to healthier small businesses. Journal of Small Business and Enterprise Development, 23(4), 1104-1119. https://doi.org/10.1108/jsbed-12-2015-0169

–              Temel, S. and Durst, S. (2020). Knowledge risk prevention strategies for handling new technological innovations in small businesses. Vine Journal of Information and Knowledge Management Systems, 51(4), 655-673. https://doi.org/10.1108/vjikms-10-2019-0155

–              Lykholat, S., Krykavskyy, Y., Lozynskiy, V., & Shynkarenko, N. (2021). Determination of the influence of the economic cycle stages on the innovative potential of small entrepreneurship. Economics Entrepreneurship Management, 8(1), 20-34. https://doi.org/10.23939/eem2021.01.020

–              Elshaer, I. and Augustyn, M. (2016). Direct effects of quality management on competitive advantage. International Journal of Quality & Reliability Management, 33(9), 1286-1310. https://doi.org/10.1108/ijqrm-07-2014-0086

–              Kotey, B. and Slade, P. (2005). Formal human resource management practices in small growing firms*. Journal of Small Business Management, 43(1), 16-40. https://doi.org/10.1111/j.1540-627x.2004.00123.x

–              Miletić, S., Kostov, A., & Milanović, D. (2020). Illustration an advantage assessment of the quality management system implementation into metallurgical organizations. Mining and Metallurgy Engineering Bor, (3-4), 47-56. https://doi.org/10.5937/mmeb2002047m

–              Murphy, W. and Leonard, D. (2016). Quality management (qm) leads to healthier small businesses. Journal of Small Business and Enterprise Development, 23(4), 1104-1119. https://doi.org/10.1108/jsbed-12-2015-0169

–              Shane, S., & Venkataraman, S. (2000). “The promise of entrepreneurship as a field of research.” Academy of Management Review, 25(1), 217-226.

–              Damanpour, F. (2010). “An integration of research findings of effects of firm size and market competition on product and process innovations.” British Journal of Management, 21(4), 996-1010.

–              Zenger, T. R., & Lazzarini, S. G. (2004). “Compensating, cooperating, and competing: An integrative framework.” Academy of Management Journal, 47(2), 296-308.

–              Gulati, R., & Gargiulo, M. (1999). “Where do interorganizational networks come from?” American Journal of Sociology, 104(5), 1439-1493.

–              Avolio, B. J., & Bass, B. M. (1991). “The Full Range of Leadership Development: Basic and Advanced Manuals.” Binghamton, NY: Bass, Avolio & Associates.