**5. A framework for systemic innovation management in SMEs in the dairy industry**

According to Ackoff [18], management systems should pursue an ideal target and increase their effectiveness under constant and changing conditions. Thus, the ideal target pursued by an innovation management system is the formation of an innovation strategy that is effective, efficient, and congruent with its competitive strategy and with innovation objectives that respond to its environment and capabilities. The author defines management as: "The control of a system with purpose by a part of that system" and describes three functions of management:


#### *Innovation – Research and Development for Human, Economic and Institutional Growth*

#### **Figure 2.**

*Innovation system for SMEs in the dairy sector. Source: Own elaboration.*

Like any system, a management system is made up of several subsystems. Management starts with the observation of the organization and its environment, in order to abstract information of interest to decision-makers (information subsystem). Decision-makers process this information (decision-making subsystem) and issue instructions to the organization. The information requirement is a cycle that can be repeated several times and requires a record of the objectives and predefined conditions in order to compare what was planned and what was obtained, and thus identify the resulting differences or deviations. The identification of deviations generates changes in the information subsystem, in the decision-making subsystem, in the implementation of the instructions given to the organization, or in the recognition of unforeseen changes in the environment. Through these cycles, the company learns and adapts to the environment. In addition, a complete management system has a symptom analysis function, which assists control by generating and monitoring process performance indicators.

A framework to implement the previously described innovation management system in SMEs in the dairy sector is proposed, and divided into three phases that develop the innovation strategy: analysis, decisions, and actions. Each of these phases is described below.

#### **5.1 Phase 1: analysis**

Innovation management begins with the recognition of the company's competitive strategy: mission, vision, and general objectives in the medium and long term. Then, once the company's strategic foundations are clear, it is necessary to carry out an internal analysis of the company—components of the innovation system—and of the innovation environment—the system's environment—these two steps are linked since the company operates in a competitive environment and not in isolation. For the internal analysis, the company's operation must be known, and communication must be maintained with the functional areas of the organization, in order to evaluate the current and required innovation capabilities to carry out innovative activities. The

*Toward the Adoption of a Framework for the Systemic Management of Innovation in SMEs… DOI: http://dx.doi.org/10.5772/intechopen.112036*

external analysis includes reviewing compliance with the current regulations, assessing the current conditions of the production chain and market consumption trends, consulting suppliers and other sources of knowledge to be aware of available and emerging technologies, as well as exploring the available sources of financing, their characteristics, and conditions. This series of analyses allows decision-makers to identify innovation opportunities and explore their scope, confirm trends, and determine gaps in their relationship with the environment. As a result, the company will be able to define the type of innovation it intends to achieve and set its objectives.

#### **5.2 Phase 2: decisions**

Once the innovation objectives have been defined, the innovative activities involved can be identified to propose them in the form of projects and analyze them in three stages: management of innovative activities and innovations, financial management for innovation, and management of innovation capabilities.

#### *Management of innovative activities and innovations*

For each innovation project, it is necessary to determine the objective of the project and its scope, the timeframe required to complete it, the profit increase or cost reduction expected from the innovation, the internal and external factors that promote and hold back innovation, and the innovation capabilities involved.

#### *Financial management for innovation*

It should respond to the needs of the projects established and the financial resources required to execute them. The following should be identified: the resources available for innovation, both the company's own and those available through financing or government support; the policies for reinvesting profits and allocating resources to innovation; and, in particular, the budget and use of resources for generic innovative activities, since these are the ones that make it possible to increase innovation capabilities.

#### *Managing innovation capabilities*

This depends on three main factors: the allocation of an adequate budget so that the capabilities can be increased sufficiently to unleash the innovative activities within the established timeframe; the personnel's ability to learn by doing; and the retention of the innovation capabilities over the project's lifespan. In order to identify and quantify innovation capabilities, the required skills or specific innovative activities should be listed and rated to determine their specific weight in relation to the objectives and established timeframe for the innovation.

#### **5.3 Phase 3: actions**

The execution of the innovation should be measured according to the parameters defined during the decision-making process, to review the progress of innovation projects, implement corrective actions, and, if necessary, modify the innovation objectives. Emerging dynamics not foreseen, but identified during the execution of the project, can be addressed by the management, resulting in decision-making. The evaluation of the fulfillment of the innovation, of the benefits obtained, and of the capacities created or boosted, generates important information that will add to the history of the innovations, and in case of success, will increase the financial resources available for innovation. By reviewing and refining innovation objectives, the company will be implementing its innovation strategy.

#### *Innovation – Research and Development for Human, Economic and Institutional Growth*

#### **Figure 3.**

*Framework for the systemic management of innovation in SMEs in the dairy sector. Source: Own elaboration.*

For the innovation strategy to be effective, it must create and strengthen the innovation capabilities that allow the realization of efficient innovative activities, leading to innovations. Therefore, the policies derived from the innovation strategy imply alignment with the company's competitive strategy, an accurate analysis of the environment and the organization, the appropriate selection of innovation projects, the identification and management of control variables (internal and external factors), the management of sufficient resources for innovation projects, an understanding of the importance of maintaining and increasing the company's innovation capabilities, and an evaluation of completed innovation projects, which closes the learning cycle.

**Figure 3** shows the deployment of the three phases described above, sequentially in the form of a closed loop corresponding to the feedback of the system.
