Innovation is the foundation of competition. Companies compete against each other by devising ways of doing things better. This constant search for a competitive edge is the major driver of economic growth and technological change. It is also the impetus behind new forms of wealth creation.
Through constant overuse, the term innovation has been somewhat debased and today it refers to just about any change, big or small. For managers, however, business innovation should not be about tinkering at the margins. It should be about looking for opportunities to effect fundamental positive change.
The real test of a business innovation is not its novelty, its technology, or its cleverness: it is whether or not it adds or creates significant value for customers or shareholders.
When managers try to decide what innovations are worthwhile, they should look for how proposed changes will affect the value perceived by customers.
They should also look to innovations that enhance value to a company’s shareholders as well as its partners and other stakeholders.
Set clear business innovation goals to get the best results
The idea of value innovation or a value strategy map has been proposed as a way of focusing on value. It asks four fundamental questions:
- Eliminate: which of the factors that the industry takes for granted should be eliminated?
- Reduce: Which factors should be reduced well below the industry standard?
- Raise: Which factors should be raised well above the industry’s standard?
- Create: Which factors should be created that the industry has never offered?
To take just one example, Cirque du Soleil is an extremely successful innovation despite being positioned within a market for circus-type entertainment that was in significant decline.
Cirque du Soleil deliberately shook up customer expectations by introducing not only spectacular acrobatics but also artistic music, dance and multiple theme-based productions that were the equivalent of theatrical offerings. As a result, the Cirque has become a global phenomenon and has redefined the idea of a circus.
All of this is another way of saying that innovation is related to productivity. Business innovation allows managers to lower their prices, accelerate delivery times, add features, enhance services, or improve quality. It also allows them to develop or transform their internal processes, thereby strengthening their bottom line.
Innovation can be big or small, but it must be constant
As used today, the word innovation can refer both to a specific improvement (“the new stamping machine was a significant innovation”) and to the process by which improvements are identified and pursued (“in this company, the managers practice innovation”).
This is not a trivial distinction. Innovation understood as just another improvement is not enough to achieve sustainable competitiveness. What is really needed is to transform the company into an innovating organization, one that has implemented a process for identifying, developing and implementing innovations on a continuous and ongoing basis.
Today’s reality is that business innovation never stops. The manager has to develop structures and attitudes within the organization that are geared toward continuous improvement.
Continuous improvement depends on two factors: creativity and implementation. It is perhaps obvious that innovation requires creativity in the sense of coming up with new ideas. However, it also requires acting upon those ideas in a way that makes a difference.
Innovation is not just about brilliant insights. An idea, a change or an improvement is only an innovation when it is put to use and effectively causes a social or commercial reorganization. Innovation is about how to transform insight into action – only then can the manager make a difference.
This notion has often been expressed by reference to the commercialization gap. Many observers have noted that it is not enough to have bright ideas, it is also necessary to know how to commercialize those ideas.
In other words, true innovation occurs when someone uses an invention or an idea to change how business is conducted, how it is organized, or what it tries to achieve.
Business innovation may occur regardless of whether it succeeds in generating value for its original promoters. It can still affect the business world at large. And innovation need not always lead to positive results. The recent bundling of sub-prime mortgages as asset backed commercial paper was innovative, even if its impact on the financial industry was disastrous.
Innovation is about more than just technology
Innovation does not require something wholly and entirely unprecedented. In fact, such comprehensive transformations are relatively rare and their consequences cannot be foreseen. The best recent example of this is the Internet, which was originally designed as a military communication system that could withstand nuclear attack. Today it has transformed society.
Many valuable innovations are extensions or adaptations of existing ideas, methodologies or devices. They can affect human resource management, technology development, procurement, sales and marketing, after-sales service as well as the other components of a company’s value chain.
Since innovation covers many areas and functions, it is not just about implementing advanced technology, although the use of new technologies may be part of business innovation. It is also about improving business processes with the aim of improving and sustaining profitability.
It can be difficult to differentiate change from innovation. Business literature generally argues that an idea, a change or an improvement is only an innovation when it is implemented in a way that causes a social or commercial transformation. In that sense, innovation is more substantial than just invention or marginal improvement.
Business innovation is really about the implementation of new ideas, methodologies, or devices in a way that changes the fundamental relationships of a business – the relationships between input and output, cost and price or buyer and seller.