The Art Of Innovation Management
Innovation is not just about having ideas. Innovation happens when someone has a new idea, then makes it real so that it creates value for their stakeholders.
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For many people, the concept of innovation management doesn’t make any sense at all. They think that innovation is all about having new ideas and how can having a new idea be managed? This confusion reflects a common misunderstanding of what innovation is and how it works.
Innovation is not just about having ideas. Innovation happens when someone has a new idea, then makes it real so that it creates value for their stakeholders. This view of innovation has important implications. First, it is clear that innovation is a process and processes can be managed.
The second implication is that innovation is not just about technology, as often believed. There are many different ways that ideas can create value. Yes, they can lead to the creation of new products and services. But new ideas can also improve the way we produce these goods and services, as Toyota did in creating the Toyota Production System. Innovation can be the creation of a new source of supply, as many Indian firms have done in creating outsourced IT services. And innovation can take place in the way management techniques are used, or in the way a business is structured, as the Aravind Eye Clinic did when they designed a health-care system optimised to care for cataracts.
People primarily think of innovation as something that businesses do, they create economic value. But there are other important kinds of value as well, another idea that follows from this definition of innovation. Educational institutions, not-for-profits and arts organizations all create value. This means that they can innovate too. Any organisation can. It’s a mistake to think about innovation as something that only businesses do.
The last key implication is that value can vary widely in scale. When Haloid Corporation introduced the world’s first photocopier in the 1930s, they created an entirely new product, a new product category, and ultimately a new way to organise work in the office. That is a big innovation. Ideas at this scale are often called radical innovations. These usually lead to economic growth, as they create something that didn’t exist before. At the same time, they also threaten existing businesses and industries, which is why another word for them is a disruptive innovation.
Thirty years later, Haloid Corporation had renamed itself after its product, and, like Xerox, they introduced two-sided copying. This is a feature that makes an existing product better. It’s still creative, and it generates new value, but the scale is a lot smaller. This is called incremental innovation.
It’s important to know that a radical innovation can’t always be identified as such when it first shows up. When Amazon started selling books online, many people thought of it as an incremental innovation. After all, there were many different ways that you could buy books already, what was one more? It wasn’t obvious that online sales would actually revolutionise multiple retail industries, that only became apparent ten years later.
Innovation is important both for firms and for countries and regions. There is a large body of research that compares firms that innovate regularly with similar firms that do not. The innovative firms on average are more profitable, have happier employees, and are more likely to survive changes in the business environment. Similarly, countries and regions that are relatively more innovative than others tend to have higher rates of economic growth, create more jobs, and are more resilient to macroeconomic shocks.
Because of these benefits, most organisations and governments want to be more innovative. However, it is easy to go wrong in pursuing innovation. Mistaking ideas for genuine innovation is the most common problem. Instituting initiatives that increase the stock of ideas generated do not actually lead to more innovation. It is critical to manage the entire process.
Value creation is often the missing part of the process. The best way to address this is to encourage entrepreneurs and innovators to work more closely with the stakeholders that they are trying to serve. This is the best way to ensure that their new ideas really do create value for others and that the benefits of innovation are realised.