Although much has been written about innovation, there is little agreement on what it is or why it is necessary. Is innovation the same as creativity? Is it synonymous with product development? Or is innovation just radical change?
I like to describe innovation through an old, yet relevant, joke. The joke begins with two men who are hiking in the mountains of Canada when they stumble upon a hungry 600-pound grizzly bear. Immediately, one of the hikers takes off his backpack and hiking boots and proceeds to put on his running shoes. The other hiker looks at him and asks, “What are you doing? You can’t outrun a bear!” The first hiker responds, “I know, but I only need to outrun you!”
This is innovation. It is not simply about new products, new processes, new services or new ideas. It is about staying one step ahead of your competition.
Why you need innovation now more than ever
Sometimes the “competition” is not another company, but rather socioeconomic shifts. Rising oil prices, a slumping housing market, the collapse of well-known financial institutions, and a looming recession have all left corporate executives on edge.
While many companies are tightening their belts due to unstable market conditions, truly successful companies use these times as a chance to outstrip their competition. My favorite company, Koch Industries, increases their investments during difficult times. They know that if they focus on innovation while others are cutting costs, they will quickly catapult past everyone else. They must be doing something right; Koch Industries has grown seven times faster than the S&P 500 for the past 40 years.
How can innovation benefit your company? It is not just about product development or radical growth. When used properly, innovation can help you achieve the following:
- Reduce costs
- Increase service levels to customers
- Improve overall employee performance and retention
- De-commoditize a commodity business
- Become recession-proof
Three levels of innovation
For innovation to become part of your organization’s DNA, changes must be made in virtually all parts of the company, from the management style to the measurement systems. Implementing a new change program without preparation would be a bit like dropping a Ferrari engine into a Volkswagen Beetle without altering the transmission, the drive train, the suspension and so forth. It can be done, but chances are the finished product won’t work very well.
It is important to recognize that even the greatest enthusiast has limits to the amount of change that he or she can tolerate. Since each company is made up of a unique bunch of individuals, each company’s capacity for change is variable. A company’s plans for innovation have to take these limitations into account. The timing of the change, the approach to it, and the people who lead it will all vary depending on an organization’s unique circumstances. There are no templates to follow here.
That caveat notwithstanding, over the years I have seen companies progress through three levels of innovation:
Level 1: Event-driven innovation (ideas)
Level 2: Process-driven innovation (a capability)
Level 3: Embedded innovation (organic)
Most organizations use level one, or event-driven innovation. At this level organizations conduct brainstorming sessions or hold contests to generate new ideas. If the idea generated is a good one, some value is added to the organization. In some cases, the idea may even lead to tremendous value. However, in this stage there is generally a huge amount of transformation that must take place between the idea generated during an event and its realization.
At a more sophisticated level, innovation can be part of a “process.” That is, the organization has a structure in place to define problems, generate and evaluate ideas, and develop action plans to implement those ideas. The result is a realistic, innovative solution based on an organizational problem.
If my clients are any indication, then most companies are now progressing from event-driven innovation to process-driven innovation. For this transition to be successful, the first step is to start treating innovation like you would treat any other part of the business. For example, your organization’s finance department has skilled experts, measures, supporting technology (e.g., Oracle or SAP), processes, an owner (the CFO), and a strategy.
Any innovation effort will require all of these elements, and more, including skilled innovation experts (e.g., an innovation center of excellence), innovation measures (e.g., return on investment for each idea), idea management technologies, innovation processes, a chief innovation officer, and a clearly articulated innovation strategy. With these fundamentals in place, you can begin to make innovation a repeatable and predictable process whereby creativity is encouraged throughout the organization and the best ideas are implemented.
After successfully moving through process-driven innovation, the final level is embedded innovation. With both the event- and process-driven levels, innovation tends to be reactionary and discrete. It occurs only when someone decides it is time to innovate. With embedded innovation, people not only innovate to deal with “problems” that are presented to them, but in everything they do. They continuously, even radically, improve their products, processes and organization.
The bottom line
The marketplace is particularly volatile right now. Change is inevitable. Innovation is critical for helping your organization adapt, evolve and grow so that you don’t become irrelevant. Remember, when the pace of change outside your organization is greater than the pace of change within, you will be devoured by competitors, overwhelmed by changing customer demands and outpaced by new technologies.