The power of innovation in resource-constrained settings

Small businesses, despite their name, have proven to be significant contributors to gross domestic product bottom lines, constituting close to 85% of national economic activity in Canada. Hand in hand with their success is their ongoing struggle to balance innovation with constraints.

Resource limitations, including finances, human capital, technology and network have forced small to medium enterprises (SMEs) to innovate in a variety of ways in order to survive and compete with global businesses.

These types of innovation have been observed and researched in contexts of emerging economies where market conditions, regulatory structures and institutional environments are often unstable. Mounting universal crises like the COVID-19 pandemic, climate change and economic recession have made the exploration of constraints-based innovation in more developed contexts a rich area of research.

The case of Canadian craft brewers

In the past decade, the brewery landscape in Canada has increased 50-fold with the biggest increase in innovative craft breweries. These account for approximately 10% of all beer sales in Canada.

In a recent article published in the Journal of Small Business Management, Suchit Ahuja, an assistant professor in the Department of Supply Chain and Business Technology Management, and co-authors Nadege Levallet at Maine Business School and Corey Wood at the University of Guelph explore the driving forces behind innovation in Canadian craft breweries and shed light on how these small businesses navigate resource constraints to remain agile and creative in the face of mounting challenges.

What is driving craft breweries in Canada to innovate?

1. Constraining regulatory environment: Unleashing Organizational Creativity and Differentiation

The highly regulated liquor and beer industry in Canada poses a significant constraint for craft breweries. For example, the Liquor Control Board of Ontario wields so much control over what is produced that it can force breweries into imitating each other’s offerings. To combat this, one of the breweries in the case study focused on creating unique customer experiences and exploring different revenue streams, like a restaurant connected to the brewery. Another brewery sought out branding partnerships to expand its reach outside of Ontario. Ahuja and co-authors highlight how these regulatory limitations may spur organizational creativity, experimentation and differentiation.

Craft breweries have learned to leverage the constraints of the regulatory environment to their advantage, paving the way for innovative approaches that set them apart from their competitors.

2. Changing demographics: Meeting the Demand for High-Quality, Healthy Products

With a rise in disposable income and shifting consumer preferences towards high-quality and healthy products, craft breweries have found themselves in a favourable position. By aligning their offerings with evolving consumer demands, they can tap into a growing market segment.

3. Increasing demand for unique experiences: Crafting Authentic Connections with Consumers

Modern consumers are increasingly seeking out local and unique experiences that resonate with their identities and values. Craft breweries have recognized this trend and strategically positioned themselves to deliver exceptional experiences to their customers. By fostering authentic connections, these breweries create not only loyal customer bases but also open avenues for continuous innovation and differentiation.

Adapting in real time

The combination of ongoing agility and organizational improvisation has been instrumental in the success of Canadian craft breweries. Firstly, they prioritize ongoing agility, enabling them to swiftly and adeptly respond to both internal and external opportunities. By developing the ability to detect and seize favorable events, these breweries stay ahead of the competition. Secondly, they excel in organizational improvisation, leveraging their resources and operational capabilities to navigate unexpected events and resource constraints with creativity and speed. This improvisational approach allows them to adapt and innovate in real-time, serving as a crucial tool for sustained innovation.

This manifested in one of the studied breweries. The building next to the brewery came up for sale and top leadership decided to move fast to buy it. This had a domino effect as the brewery decided to use the new building as warehouse space and add fermentation tanks to the existing building. The brewery seized on another fortuitous event: one of their production employees did an analysis of the production data for an 18-month period and discovered that they could cut down on brewing time. Leadership called a meeting to discuss these findings and determined that they did not need to buy new equipment, valued at about $3 million.

Craft breweries thrive because their structures allow for a quick and creative response to unexpected events. This is key in sustaining innovation and creativity as a business.

Innovativeness is not one-size-fits-all and small businesses may follow different paths. Small businesses operating within constrained environments must learn to leverage their agility and improvisation capabilities to differentiate themselves from the competition. This is especially true in the craft brewing industry. They achieve this by focusing on innovation in product, process and/or marketing.

The insights presented in this article have implications for small businesses across various sectors, not just limited to the craft brewing industry. By understanding how craft breweries in Canada navigate resource constraints and drive innovation, other small businesses can gain inspiration and learn valuable lessons. Finally, leveraging the cyclical and intertwined nature of agility and improvisation capabilities enables effective mechanisms for continuous innovation to sustain long-term success in resource-constrained environments.

Read the full article, "Agility and improvisation in Ontario’s craft breweries: Capabilities for constraints-based innovation"