Innovation
Innovation is “a creative idea that has been made to work”, writes David Hussey in The Innovation Challenge. “It can be as basic as a procedural change in a distribution system or as complex as entry into a whole new market.” Everybody knows an innovative company when they see one.
In lists of such companies the same names come up again and again – 3m, Hewlett-Packard, General Electric, Sony – companies where continual innovation has produced far higher returns than ordinary business investment. 3m’s progressive policy on innovation used to commit it to earning 30% of its revenue from products that had been brought to market within the previous four years.
There are two fundamental views of what it takes to manage innovation. One, held by people like Clayton Christensen of the Harvard Business School, is that innovation is nurtured in special and highly creative environments. These environments, Christensen believes, are most easily created in small companies.
There is something about the way that decisions get made in successful organisations that sows the seeds of eventual failure … Many large companies adopt a strategy of waiting until new markets are “large enough to be interesting”. But this is not often a successful strategy.
The other view is that any company, however big or cumbersome, can make itself more innovative in a more mundane way, by changing its management structures, systems and practices. This is the “it doesn’t take a genius to do ingenious things” school of thought.
The first thing that companies do if they want to follow this approach is to encourage innovation systematically, to trawl through all types of change and assess them for potentially profitable business opportunities. Then they encourage the sorts of people who are driven to succeed at new things. As Peter Drucker has pointed out, creativity is not the limiting factor: “There are more ideas in any organisation, including business, than can possibly be put to use.” The issue is how to manage the creativity, the innovation, so that it creates economic value.
The American National Research Council found from its surveys that the main ingredients enabling the United States to capitalise on innovation, which it does better than most countries, are “sustained research leadership, a favourable business environment, increasingly flexible human resources, and new forms of co-operation between academia, industry and government. These ingredients are increasingly interactive and mutually reinforcing”.
Peter Drucker wrote that there are seven areas where companies should look for opportunities to be innovative. The first four are internal to the company and the last three are external.
- The unexpected success that is rarely dissected to see how it occurred.
- Any incongruity between what actually happens and what was expected to happen.
- Any inadequacy in a business process that is taken for granted.
- A change in industry or market structure that takes everybody by surprise.
- Demographic changes caused by things like wars, migrations, medical developments (such as the birth-control pill).
- Changes in perception and fashion brought about by changes in the economy.
- Changes in awareness caused by new knowledge.