Information technology and innovation for SMEs

Information and communications technology (ICT) has a key role to play in driving innovation and competitiveness for small businesses and the IT sector itself. But equipping the labour force with the right skills and providing access to high-tech infrastructure are essential if the full potential of ICT is to be harnessed.

Innovation has become the 'mot du jour' in the debate on how the EU can work its way out of the ongoing financial crisis (EURACTIV 29/01/09). The future of European high-tech industries will depend to a large extent on small and medium-sized enterprises (SMEs), which account for around 95% of companies. 

Information technology can help reduce costs, enable more efficient development processes and bring products to market more quickly than in the past. 

From a practical point of view, this can mean simple things, like e-invoicing and electronic payments systems, as well as the use of computer-aided design programs, which can make the work of engineers and architects less labour-intensive and more creative. 

In addition, many of Europe's most creative ICT companies are smaller businesses developing niche technological solutions, and they often link up with bigger firms capable of integrating innovations into existing platforms for end-users. 

The major barriers to optimal use of ICT are limitations to broadband roll-out in member states and a workforce in need of training on how to embrace emerging technologies. 

To address this, the EU has taken a number of initiatives aimed at updating ICT skills, including the establishment of a task force on competitiveness in the ICT sector and the launch of a Communication on e-Skills. 

An expert group on e-invoicing was also put together by the Commission and the importance of having the right mix of skills to take advantage of innovation in the small business sector is written into the Small Business Act

In addition to human capital, physical telecommunications infrastructure is sorely lacking in some member states. Access to high-speed broadband Internet is now seen as essential for efficient e-business, but many regions - particularly in rural areas of Europe - do not have sufficient broadband coverage. 


ICT has revolutionised the way business is done in the manufacturing and service sectors, including transport and freight services (EURACTIV 19/02/09). The quality of companies' infrastructure has improved over the past three to four years as SMEs have invested in more advanced hardware, enabling the introduction of new business processes. 

However, there is considerable variation across the business sector in terms of technology use, with companies that have invested in computers enjoying a competitive advantage over those which have not. The lines between ICT systems and process innovation are blurring, as the distinction between product and process becomes obsolete. Businesses are also finding that ICT continues to help cut costs. 


Electronic invoicing – the electronic transfer of billing and payment information via the Internet or other electronic channels – is being embraced by the public and private sectors, and consumers alike. 

For companies, there are several advantages, such as faster transactions and easy central storage of information at low cost. In addition, the prospect of moving towards the elusive 'paperless office' fits neatly with the green agenda. 

However, an EU expert group on e-invoicing has identified a range of barriers which are holding back mass adoption of the technology. One such barrier is a lack of confidence among business managers, who are yet to be convinced of the benefits of the technology. Uncertainty also remains concerning tax administration rules. 

The group has suggested public administrations should adopt electronic invoicing systems and accelerate widespread acceptance. From a technical perspective, interoperability is the watchword, as businesses seek greater uniformity between systems. In the longer term, content standards for e-invoices are envisaged with fewer formats and expressions than currently exist. 

Broadband access

Access to high-speed Internet access for all citizens by 2010 is part of the European Economic Recovery Plan unveiled in November 2008 (EURACTIV 27/11/09). 

For SMEs to have access to global markets from anywhere in the EU, broadband is essential. In January, €1 billion was earmarked to help get rural areas online, create new jobs and help existing businesses to grow. 

Around 93% of Europeans have access to broadband at present, but this figure can be less than 50% in some rural populations. The disparity is often seen as an issue of social equality with a digital divide opening between urban and rural populations

The European Commission estimates that a million jobs can be created by investing in broadband infrastructure. The investment has been touted as a financial stimulus measure which will also help reduce carbon emissions. 

Staff and skills

Keeping up with rapidly advancing technologies has proven to be one of the greatest challenges of Europe's quest to become a knowledge economy. Equipping the workforce with the right set of skills to embrace ICT requires investment in lifelong learning

At present, business leaders are warning of a growing "skills mismatch", resulting in four million unfilled vacancies in 2008 because the available workers did not have the skills to do the jobs that were being created. 

The shortage of qualified staff is felt in the ICT sector itself, where lack of information technology professionals is slowing growth, but also in other sectors where experienced staff are often slow to adapt to changing technologies. 

'Digital illiteracy' afflicts 40% of the population, according to estimates. Key competences in using ICT – often referred to as 'e-skills' – are the focus of Europe's efforts to improve employability and enhance social inclusion. 

The EU recommends a strong focus on developing digital and entrepreneurial skills to foster innovation in the ICT sector. As well as enabling innovation in small businesses, the industry directly employs 6% of the workforce, creating 8% of EU GDP, according to the Commission.

Disruptive effect

The pace of progress in the ICT sector is not without its drawbacks. SMEs' capacity to adopt new work practices is under pressure as the lifespans of technologies are often short. This can be a source of frustration for businesses that invest in modern IT systems, only for these to be quickly replaced with still more advanced technology. 

The EU executive has said emerging technologies that result in new successful products may have disruptive effects on the markets and comparative advantages of the EU ICT industry. 

ICT task force

As part of EU efforts to deal with the changes and challenges brought by technologies, a task force was established to look at ICT uptake and competitiveness. 

The task force is one of several initiatives taken under the Commission's industrial policy, which aims to create a more favourable business environment for European businesses and is part of the i2010 plan for growth and employment in the information society. It established several working groups, including one on R&D innovation in the manufacturing and services industries, and another on SMEs and entrepreneurship. 

In its report, the task force recommended investing in next-generation networks and services, more online public services and a charter of consumer rights in the digital environment. Boosting training in entrepreneurial skills and connecting 100% of European schools to broadband Internet were also recommended. 


A significant amount of public procurement should be dedicated to innovative products and services to underpin R&D in the ICT sector, while incorporating SMEs in government procurement programmes, according to the task force. 

Concerns abound that emerging economies, and particularly China, will be in a position to overtake Europe's technology industries in the next decade. China will have caught up with the EU by 2010 in terms of GDP allocated to research and innovation. China's telecommunications companies have recently entered the global ICT market and will use their lower cost-base to challenge European and US players at the cutting edge of high-tech markets. 

Keeping pace with global competitors will require great cooperation at EU level. Europe has been criticised for being slow in exchanging best practice between member states, and a European Innovation Agency has been proposed as a possible remedy to strengthen links between European projects and provide leadership in key sectors. 

Some critics in the innovation policy arena allege that Europe is wasting billions by needlessly repeating work that has already been done elsewhere in Europe. Better information sharing and use of existing patent databases would help avoid wasting a proportion of R&D spending. 

SMEs and entrepreneurship

Investing in innovative product development and starting new businesses was a problem prior to the global financial crisis, but has been exacerbated by the ongoing credit crunch. 

Releasing capital to SMEs has been a priority for the European Investment Bank since late 2008, and a number of member states offer tax incentives to companies who can demonstrate investment and entrepreneurship. 

The 'dot com bubble', which burst spectacularly in the early years of this decade, may have had a dampening effect on the willingness of venture capitalists to take on risk in ICT start-ups. 

However, perhaps a greater barrier to entrepreneurship in the ICT sector is the general lack of business training available to technologically savvy citizens. In the US, MBA students are taught how to become entrepreneurs, with the result that more than 80% of graduates intend to develop innovative products and take them to market. It has long been lamented that Europe's entrepreneurial culture lags behind the US. 

The solution, it is widely agreed, is to inject entrepreneurial education into school curricula. Practical financial incentives such as tax breaks and maternity pay for female entrepreneurs have also been proposed. 

Emerging trends

The Commission has highlighted investment in ICT as a driver for economic recovery. The future of innovation in the information technology sector may lie in sustainable development. 

'Greening ICT' has become a buzz word in industry circles as businesses seek to develop more environmentally-friendly product lines to meet customer demand, as well as reduce the carbon footprint of their business. 

Rising energy costs and the political imperative of tackling climate change will also provide additional incentives for a green ICT revolution. ICT will have a central role in other businesses by helping to implement new energy management systems and develop greener factories. 

A high-level group on the future of the manufacturing sector highlighted the importance of integrating enabling technologies, including ICT, in order to adapt to technological developments. A research budget of €1.2 billion has been made available to help EU manufacturers, particularly SMEs. 

There is broad consensus that SMEs are key to future job creation and that ICT will be an essential driver of future innovations if Europe is to become a knowledge-based economy. 

EU Industry Commissioner Günter Verheugen said "Europe needs to ensure that the knowledge, skills, competences and creativity of the European workforce and citizen meet the highest standard and are constantly updated". 

Graham Vickery, principal administrator of the information, computer and communications policy division at the OECD  in Paris, said ICT will be central to high-end product development. "Development and use of information and communication technology has become a basic infrastructure for all economic activity. Europe must develop new ICT applications and use them effectively to remain competitive and boost productivity as new firms and developing countries move up international value chains." 

UK Conservative MEP Malcolm Harbour said the digital economy offers huge opportunities for innovative SMEs. "Web2 applications give small enterprises access to huge database, software and processing resources. Public policy must encourage innovators and help them scale up a successful business idea. We want more fast growing companies to create the future jobs that Europe needs." 

Aviana Bulgarelli, director of the European Centre for the Development of Vocational Training (Cedefop), highlighted the importance of skills in embracing technology. "Education and training are essential for growth, jobs and social cohesion in Europe, and e-skills are a key competence to make lifelong learning a reality." 

EU Information Society and Media Commissioner Viviane Reding described ICT as "a new source of economic growth". "The European Commission is making it an integral part of its economic recovery initiatives," she added. 

The president of DigitalEurope, Erkki Ormala, said member states need to make a stronger commitment to deploying high-speed internet across the EU in order to stimulate demand. National governments will have a key role to play, particularly at a time when private investment may not be a realistic option, she explained. 

Jean-Noël Durvy, director of innovation policy at the European Commission's enterprise and industry department, said "e-skills are central in formulating policy designed to ensure that Europe can boost the productivity and the employability of its workforce and respond to global competitive challenges". 

  • 19 April 2007: EU task force on ICT sector's competitiveness and ICT uptake established. 
  • 7 Sept. 2007: European Commission launches communication on fostering e-skills for the 21st century.
  • 31 Oct. 2007: European Commission sets up expert group on e-invoicing. 
  • February 2008: Establishment of expert group on e-invoicing. 
  • 19 June 2008: Small Business Act points to need for upgrading ICT skills to maximise innovation in the SME sector. 
  • 6-14 May 2009:  European SME Week.
  • Dec. 2009: Publication of European Commission's e-Business sector studies and cross-sectoral ICT studies on greenhouse gases, industrial policy and e-skills. 

Subscribe to our newsletters