Business innovation is not a complex concept. It simply means doing something new and different. It could look like better meeting customer needs, solving a problem, reducing costs, or increasing employee satisfaction. Certainly, there are major business innovations that take the world by storm such as the Model T Ford, personal computer, iPhone, or plant-based meat. But there are hundreds or even thousands of minor innovations being created every single day.
In this article, we’ll explore a few questions like:
- What does innovation mean?
- What is the importance of innovation?
- Why is innovation important in business specifically?
- What drives innovation?
- How to measure innovation?
Let’s dive in.
What Does Innovation Mean?
Let’s start with the question, what does innovation mean? Let’s use a dictionary definition to start. When you ask Merriam-Webster “What is innovation?” it gives a very simple – but powerful – answer. The meaning of innovation is the introduction of something new. It’s as simple as that.
When it comes to business innovation, both large and small ideas are important. A more extensive answer to the question of innovation in business might include something along the lines of: business innovation is when organizations implement new processes, services, ideas, or products with the goal of benefitting the bottom line.
Business innovation, in other words, usually involves something new that:
- Drives more revenue, such as a new product, service, or feature that a customer will pay more for
- Reduces cost, such as a new process that is more efficient
- Solves a problem for a customer in a way that creates a new profitable business opportunity
- Increases employee happiness or reduces negative impacts on society or the climate, which will be helpful to the business when taking a longer term view
In answer to the common question “What is innovation in business?” It is new ideas that improve the bottom line or the situation of its stakeholders: customers, suppliers, employees, or the society in which it operates.
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Importance Of Innovation
Why is innovation important in business? The importance of innovation in business cannot easily be overstated.
First, let’s address the importance of innovation from the perspective of an individual firm. Most markets are highly competitive – competitors are constantly looking for ways to gain market share. Unless a market is growing extremely quickly, a business that doesn’t innovate – at least in an incremental way – is unlikely to survive over the medium term. Consumer preferences will shift, new approaches will be introduced, and the business will begin to struggle.
From the perspective of the broader economy, innovation drives investment. Investment, in turn, drives economic growth. An economy that doesn’t innovate is likely to stagnate. This doesn’t necessarily mean a business needs groundbreaking ideas or to reinvent its business model. Consistent, incremental innovation is the path to success. Let’s use an example of a business that has continued to innovate over the years with Domino’s.
Domino’s has been making and delivering pizzas for a long time. At first glance, it doesn’t seem much different today from the company it was 30 years ago. But many Wall Street analysts consider it a technology company now because it has methodically continued to adopt technology as it becomes available.
You can still call up and order a pizza on the phone if that’s your preference, but now you can download an app, sign up for a rewards program, order a customized pizza on your phone, and drive to your nearest Domino’s and have GPS notify the store to bring the pizza to your car as soon as you drive up.
Of course, Domino’s has been innovating in business for years. 30 years ago, you got your pizza by going to a restaurant and eating there. The whole idea of setting up small footprint stores and delivering pizzas to people instead of having them eat them in restaurants was highly innovative at the time.
Examples Of Innovation
Examples of innovation in business abound. The types of innovation in business can be:
- Groundbreaking (the first iPhone) vs. incremental (a new feature on the iPhone)
- Creating a new industry (air travel) vs. operating within an existing industry (discount airlines)
- Revenue-focused (a company offers a new product) vs. cost-focused (a company redesigns a product to make it less costly to produce)
- Taking something from in-person to online (education, meetings, etc.)
But how to measure innovation? Measuring innovation isn’t easy in the way that measuring revenue or customers is. Although the concept of business innovation is simple, tracking it can be complex. However, the following metrics, if tracked, can indicate how innovative a company is:
- Number of patents
- New products being worked on and/or launched
- New ideas submitted by employees
- R&D budget
- R&D headcount
- Active new projects
- % of sales from new products vs old
The latest thinking on measuring business innovation involves using a “family” of metrics. “Input” metrics like “number of new ideas” and “output” metrics like “% of sales from new products” should be combined. Metrics should also cover return on investment (are new projects worth the capital invested?), capabilities (do you have evidence you are driving a repeatable innovation process?), and leadership (% of executive time spent on innovation vs. day-to-day management).
What Drives Innovation?
What drives innovation? There are a variety of answers to this question and a multitude of factors that combine to create innovative companies. To understand how innovation works, think about the process of idea generation holistically. Employees need time and capital to think about new ways of doing things. So financial investment (capital) in R&D and dedicated time to work on new projects can drive innovation.
At the same time, understanding what customers want by getting their feedback can drive innovation. And like customer feedback can drive innovation, so can employee feedback – an open culture of feedback drives innovation.
What is the Innovator’s Dilemma?
What is the innovator’s dilemma? Truly disruptive business innovation often doesn’t make a lot of sense in the near term. It may not seem logical or practical. The innovator’s dilemma is a concept that describes how difficult it is for established, successful companies to nurture disruptive innovation.
Businesses want resources focused on meeting customers’ needs and generating higher profits for them to play in big markets. But the processes that accomplish those things don’t nurture disruptive technologies. Disruptive technologies are often ones that customers reject. They are initially lower or no profit, they underperform existing technologies, and can only be sold in smaller markets. It’s critical for businesses that want to make a difference to overcome the innovator’s dilemma and to go against the grain.
Business innovation comes in a wide variety of shapes and sizes, from the incremental to the truly world-changing. Business innovation drives economies forward, creates jobs, and is what helps individual firms win in their markets. Without innovation, the world would indeed be a much more boring place!
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