INNOVATION



Innovation 459
Photo by: Kheng Guan Toh

Innovation is the act of introducing something new or doing something in a different way. Innovation in business differs from creativity in that the latter is generally associated with the generation of new ideas. In contrast, innovation refers to taking those new ideas and actually implementing them in the marketplace. Thus, creativity is simply one element of the innovation process through which new ideas lead to new products, procedures, or services. Business scholars often attribute company success to innovation. Because of growing international competition, innovation became even more vital for companies toward the end of the 20th century.

Innovation usually results from trial-and-error experimentation and sometimes occurs incidentally where researchers produce something other than what they intended. Nevertheless, because of the growth of and accessibility to knowledge and information through the technology and information revolutions, researchers of the late 20th century generally could move from ideas to innovations much more quickly than their predecessors. A confluence of factors contributes to innovation in the business setting, including the research environment, market need, company strategy, and company resources.

HISTORY OF INNOVATION IN BUSINESS

While innovation has existed as long as the species has, early innovations penetrated society and became established more slowly. For example, printing technology, various transportation innovations, and the use of gunpowder took centuries to reach most levels of society and become part of everyday life, according to Basil Blackwell and Samuel Eilon, authors of The Global Challenge of Innovation.

The penetration and acceptance of various innovations began to accelerate with the gradual collaboration and cooperation of science and assorted crafts and industries, especially in the 19th century. The partnership between science and industry allowed scientists to produce practical, reproducible technologies, which businesses could reasonably afford. Because of this collaboration, innovation grew quickly.

Despite the partnership, however, science and businesses still remained separate entities. Researchers worked either independently or as members of companies that specialized in developing, producing, and marketing innovations during this period. Consequently, many of these innovations failed to make it to the market.

Companies, however—especially power, chemical, and communications companies—began creating in-house research and development divisions early in the 20th century. In addition, they enhanced and marketed the innovations of others, breaking down the barrier between innovator and company. As a result, companies, not individuals, began controlling the patents to new inventions. Furthermore, teams of company researchers, not lone inventors, became the primary innovators.

THE INNOVATION PROCESS

While necessarily highly simplified, the "market model" of innovation highlights some of the significant steps in the development of new products and services. This model assumes that innovation arises from a market need and that the steps are not strictly linear, but recursive. Given this foundation, according to this model, developers create an invention designed to satisfy an existing market need. Next, developers assess the feasibility of the innovation in terms of both sales and production potential. If deemed feasible, they develop a prototype and obtain the technology needed to produce it in large quantities. After this step, developers conduct research in order to manufacture the product successfully and to ensure that the product will satisfy market demand.

At this point, developers hone the product's definition and seek to prove that the product specification fits. In addition, they make sure that the product complies with all relevant regulations. While the product definition process is underway, production begins along with marketing campaigns, which facilitate the movement of the product from the factories to the stores. Here, developers establish sales targets, delivery dates, and sales goals. Finally, the new product is launched and its success is gauged. If needed, the product's marketing plan can be modified or the product itself improved.

FUNCTIONS AND ATTRIBUTES OF
INNOVATIVE COMPANIES

Entrepreneurs, scientists, and other innovators in business have always assumed that creativity and innovation are necessary to succeed and advance in a constantly changing world and marketplace. Highly successful industrial pioneers, such as Henry Ford (1863-1947), support this theory. Ford achieved great success by innovating mass production techniques that boosted productivity and output. But the Ford Motor Co. also demonstrated the results of failing to innovate—because Ford's organization failed to retain its creative edge, other manufacturers (e.g., General Motors Corp.) managed to exploit Ford's manufacturing breakthroughs with additional innovations of their own, eventually eclipsing the success of Ford.

The fast-paced technological advancement of the late 20th century and the opening of markets around the world through various trade agreements motivated companies to launch a profusion of new products and services, in many cases exploiting the advancing technology. As a consequence, innovation became a crucial part of corporate strategy during this period as companies tried to remain competitive and not lose market shares to more innovative companies. To attain this level of competitiveness, companies require not only the technology, but also the management skills and corporate vision to implement the technology successfully, according to Blackwell and Eilon.

To help identify factors that lead to creativity and inventiveness, U.S. researchers began to study innovation and creativity during the mid-1900s. A plethora of research and observation, particularly during the 1960s, served to highlight the importance of innovation in organizations, identify characteristics of innovative companies and groups of workers, and establish a framework for fostering creativity and inventiveness.

For example, Andrall E. Pearson (1925-), business analyst and former CEO of PepsiCo, argued in the Harvard Business Review that consistent innovation and constant changes to meet customers' needs distinguish the most successful companies from the rest. In order for businesses to promote consistent innovation and achieve this level of competitiveness, Pearson contended that they must engage in the following five activities simultaneously:

  1. Establishing and maintaining a business environment that values innovation or stronger performance.
  2. Creating a corporate structure where innovation is the top priority.
  3. Developing a company strategy that encourages realistic innovations that will prove successful in the market.
  4. Figuring out where to find innovative ideas and how to implement them once they are found.
  5. Pursuing innovative ideas with full company support and resources.

CHARACTERISTICS OF GROUPS THAT
PROMOTE INNOVATION

Businesses and groups of workers exhibit certain characteristics that reflect a propensity to innovate. For instance, companies in which employees are given a lot of responsibility for initiating new projects tend to be more innovative, as do companies that offer their workers a high degree of job security (i.e., the freedom to make mistakes without fear of disciplinary action or dismissal). Minimal interference from superiors also enhances creativity. The most innovative companies, however, successfully match the skills and interests of their workers to job tasks.

In general, companies in the United States that are more likely to be considered innovative are those that score highly in comparison to other firms in the following trait categories, in rough order of importance: freedom, risk taking, idea support, time to generate ideas, freedom to debate and challenge, and trust. More specifically, ten stimuli to creativity have been identified in the Handbook for Creative and Innovative Managers.

The five most commonly occurring stimuli are: (1) freedom and control to get a job done with minimal supervision; (2) good project management, including the supervisor's ability to match individuals to tasks and protect the group from destructive outside intervention; (3) sufficient resources to realize ideas; (4) encouragement, or the support of upper management and peers to take risks; and (5) a corporate climate that is generally amenable to making suggestions and trying new things. Other important organizational attributes include recognition and feedback, sufficient time to execute ideas, and a challenging environment.

In addition to these attributes of innovative company environments, various worker personality types also promote and advance innovation. Three particular personality types—risk takers, caretakers, and undertakers—are found in most groups, all of which can contribute positively to the organizational creative process. Most people lean toward one personality type but occasionally exhibit traits of all three categories.

Risk takers are the innovators in an organization. They possess the creative traits described earlier. Caretakers, in contrast, try to maintain the status quo. They tend to see changes as threats, rather than opportunities, and typically respond to outside influences only when forced to do so. Finally, undertakers are those people who are extremely resistant to change and are even willing to bury projects or sabotage ideas to maintain the status quo. They are often a detriment to the innovation process but may assume certain organizational roles that facilitate the innovation process.

WORKER ROLES IN THE INNOVATION
PROCESS

Business innovation benefits from a diversity of personality types that fill different roles. After all, if every person in a company is extremely innovative, free-spirited, and nonconformist, the company might lack balance and grounding. Thus, a multiplicity of personality types and traits can be accommodated by the innovation process, which requires at least five general personality types. The first role of the innovation process is idea generator, someone who seeks to satisfy market needs by thinking of new ideas, developing solutions to problems, and identifying opportunities. Idea generators are often experts in one or two fields and are therefore able to recognize niche opportunities. They often enjoy working alone and are able to think abstractly and conceptually.

Champions, the second role in the innovation process, sell the ideas to others in the organization and secure resources to execute ideas. Individuals who play this role sometimes are referred to as intrapreneurs. In contrast to idea generators, champions are more apt to possess a wide range of interests, have general knowledge about several areas of a company or industry, and like to work with and influence other people. They are also more likely to be very energetic and to take risks.

Project leaders perform the third role in the process. They coordinate activities such as leading teams, planning and organizing projects, and balancing project goals with available resources and organizational needs. Effective project leaders are good at working with other people and fostering group cooperation. They are also adept at company politics and have a broad knowledge of company functions, such as finance, production, and marketing.

Gatekeepers, the fourth role in the innovation process, take charge of tracking influences outside of the organization through conferences, journals, friends at other companies, and similar sources. Gate-keepers pass the information on to others and serve as an information source, and sometimes critic, to idea generators, champions, and leaders. They facilitate group communication and project coordination. Good gatekeepers typically enjoy working with other people, are personable, and have a relatively high degree of technical competence. The gatekeeper role is one in which a non-innovative personality may still function to the benefit of the group.

Finally, the coaching role of the organizational innovation process involves encouraging and assisting team members, protecting the team from destructive outside forces (e.g., undertakers in other departments or groups), and securing the support of top-level management. Employees who fill the coaching role in the innovative process are usually good listeners. In addition, they tend to be less opinionated than their coworkers, a characteristic not ascribed to the stereotypic creative personality. Effective coaches are also proficient at politicking and have proven experience sponsoring new ideas.

SOURCES OF INNOVATION

Innovation is occasionally the result of a stroke of genius. More often, though, it occurs in response to a problem or opportunity that arises either inside or outside of an organization. Management guru Peter Drucker (1909-) has identified four internal and three external impetuses for innovation. Internal prompts include unexpected occurrences, incongruities, process needs, and industry or market changes.

INTERNAL IMPETUSES.

Unexpected occurrences include mishaps, such as a failed product introduction. It is often through such unexpected failures (or successes) that new ideas are born from new information brought to light. For instance, Ford's failed Edsel gave the company new information about marketing that allowed it to achieve stellar gains with succeeding products. Unexpected occurrences can also take the form of accidents. For example, the hugely successful Nutra-Sweet artificial sweetener was created by an accident during a project completely unrelated to sweeteners.

Incongruities result from a difference in a company's or industry's perception and reality. For example, although the demand for steel continued to grow between 1950 and 1970, profits in the steel industry fell. This incongruity caused some innovators to develop the steel minimill, a less expensive method of making steel that was also more conducive to changing market demands.

Innovations inspired by process needs are those created to support some other product or process. For example, advertising was introduced to make mass-produced newspapers possible. Newspaper publishers devised ads to cover the expense of printing the newspapers on the new equipment that made such printing possible.

Industry and market changes, the fourth internal impetus to innovate, often result in the rise (and decline) of successful innovators. For example, innovation and business savvy allowed International Business Machines Corp. (IBM) to effectively dominate the computer industry during the 1970s and early 1980s. It failed, however, to respond to a market switch during the 1980s from mainframes to smaller computer systems, particularly workstations and personal computer networks. As a result, IBM's share of the computer market plummeted and profits plunged as more innovative newcomers emerged.

EXTERNAL IMPETUSES.

External impetuses to innovate include demographic changes, shifts in perception, and new knowledge. Demographic changes affect all aspects of business. For instance, an influx of Asian and Mexican immigrants into the United States has created new market niches for companies. Likewise, an increase in the level of education of Americans has resulted in a dearth of qualified workers for some low-paying jobs, causing many companies to develop new automation techniques.

Changes in perception also open the door to innovation. For example, despite the fact that health care in the United States has continually gotten better and more accessible, people have become increasingly concerned about their health and the need for better and more accessible care. This change in perception has generated a huge market for health magazines, vitamin supplements, and exercise equipment.

Finally, one of the strongest external impetuses for innovation is new knowledge, or technology. When a new technology emerges, innovative companies can profit by exploiting it in new applications and markets. For example, the invention of Kevlar, a synthetic material, has spawned thousands of new product innovations, ranging from improved canoes and bulletproof vests to better tires and luggage.

INNOVATION STRATEGIES

Two types of strategies for innovation in business are internal and market-based approaches. Internal strategies include programs and initiatives implemented by companies to foster a creative and innovative environment, whereas market-based strategies—such as the leader, quick follow, and slow follow strategies—refer to different approaches to delivering innovations to the market.

INTERNAL INNOVATION STRATEGIES.

Internal strategies usually seek to develop and nurture the attributes of innovative corporations, such as prioritizing and encouraging innovation. Specific approaches to encouraging innovation differ by company and industry. For example, an integral aspect of Dow Corning Inc.'s strategy is to form "research partnerships" with its customers that solicit creative input from consumers and help the company benefit from new market opportunities. Other companies that employ customer-partnering programs include Black & Decker Corp. and General Electric.

Rubbermaid, Inc. encourages innovation by requiring that 30 percent of its sales come from products developed during the past five years. An important element of its program is searching for new ideas in other industries, such as the automotive business. Similarly, researchers at Hewlett-Packard Company (HP) are encouraged to spend at least 10 percent of their time toying with pet projects. HP also keeps its labs open 24 hours each day and utilizes small divisions and decentralized decision making to promote innovation. Likewise, pharmaceutical giant Merck & Co., Inc. gives its researchers time and money to pursue high-risk, high reward projects—a strategy that has profited the company handsomely.

One of the most innovative firms in the United States, 3M Company, sustains its creative environment by following a set of simple rules. By keeping its divisions small, division managers know the first names of all their subordinates, and, moreover, the company splits up divisions before their sales surpass $250 million to $300 million. It tolerates failure by promoting risk taking and experimentation. In fact, divisions must derive at least 25 percent of their profits from products developed during the past five years. 3M also ties salaries and bonuses to the success of new ideas and allows people who generate viable ideas to recruit an action team to develop them. In addition, 3M seeks customer input, shares technology throughout its different divisions, and never "kills" a project in which an employee has faith.

One of the best illustrations of the benefits of 3M's innovation program is Post-it notepads. 3M researcher Spencer Silver (1941-) developed an adhesive that the company was unable to find an application for, for five years. Company support slipped and Silver's project was eventually abandoned. 3M allowed Silver, however, to continue to spend 15 percent of his time looking for a way to use his creation. Finally, the adhesive was used to create one of 3M's most successful consumer innovations, Post-it pads.

One of the most renowned strategies to generate innovation in organizations is the "Office of Innovation" model developed by Eastman Kodak Company in the late 1970s. It has since been implemented by several leading organizations, including Amoco Corp., Union Carbide, the U.S. Air Force, and Bell Canada. The Office of Innovation provides a mechanism for drawing people together to brainstorm on ideas that may not even be related to their departments or expertise. In fact, its chief benefit is that it promotes cross-fertilization and free-flow of ideas within a company.

Although implementation varies, the model prescribes the use of a decentralized network of individual offices located in different functional areas, such as marketing, finance, and production. Staff members are encouraged to seek employees in other sectors who will come to the office and provide feedback on new ideas. The process is founded on the importance of giving credence to workers' ideas. It involves a five-step process that mimics the five-stage innovation process detailed earlier: idea generation, initial screening, group review, seeking sponsorship, and sponsorship. Kodak estimated that in just one year its Office of Innovation program harvested ideas eventually worth more than $300 million.

MARKET-BASED STRATEGIES.

Even companies with the most innovative organizational environments will languish if they fail to effectively market their innovations. For example, just because a firm improves its product doesn't mean that it should necessarily take the improvement to the market. From a strategic standpoint, the company could lose money if it has invested a lot of resources in marketing the original product because the improved version might cannibalize sales. On the other hand, if the company waits too long to introduce the improved version, a competitor may produce such an innovation earlier and capture market share. Consider the inventors of items such as the air conditioner or electric lamp. The innovators of those concepts died before their creations were widely accepted by the marketplace.

Although there are a number of product- and industry-specific strategies that companies may employ to promote their innovations, three of the most common market-based innovation strategies include the leader, quick follow, and slow follow (or no follow) strategies, according to William E. Rothschild, author of Strategic Alternatives. A company that adopts a leadership strategy for its invention becomes the first to introduce the innovation to the market. The obvious risk of such a move is that the product or service will be rejected by the marketplace at a potentially enormous cost to the company.

The leadership strategy, however, also may provide a variety of different benefits. For instance, companies often introduce an innovation to an existing product or service, calling it "new" or "improved," to breathe new life into it. Or they may bring out an improved product to discourage the competition from trying to steal market share, or to "leapfrog" their competitors. In the case of completely new products or ideas, a company may introduce the innovation in an effort to establish market dominance and attain leadership status.

The quick-follow strategy is often used by established competitors that already lead an industry or market niche. Rather than assume the risk inherent to the leadership strategy, the company will simply wait for one of its competitors to introduce an innovation. Shortly thereafter, the company will follow the leader with a substitute or improvement of the innovation. Quick followers are usually relatively sure of their ability to crush the competition with their established reputation and marketing and distribution channels.

The risk of the quick-follow tactic is that the follower will be unseated by a hugely successful introduction, or that it will lose its reputation as an innovator over time. Quick followers often include smaller competitors that are simply trying to keep up with the competition. They may try to target select market niches. For example, a company may follow with a cheaper version of a new innovation in an effort to lure buyers who can't afford the leader's product or service.

A company that adopts a slow- or no-follow strategy may do so for a number of reasons. It may feel that existing competitive pressures or lackluster market growth make an investment in following an innovation unappealing. Or, the company may realize that it simply lacks the resources or technology necessary to compete with the new innovation. Some companies refuse to introduce or adopt an innovation because they fear that they will lose customers. For instance, a manufacturer of industrial air conditioners may delay introducing a substantially different technology because it knows that its existing customers have made large capital investments in its existing product line and will be hesitant to buy new equipment. Finally, some companies are so strong in marketing or manufacturing that product innovation is simply not a chief concern—they would prefer to wait until the new innovation is accepted by the market before they follow.

[ Dave Mote ,

updated by Karl Heil ]

FURTHER READING:

Blackwell, Basil, and Samuel Eilon. The Global Challenge of Innovation. Boston: Butterworth-Heinemann, 1991.

Brown, John Seely, ed. Seeing Differently: Insights on Innovation. Boston: Harvard Business School Press, 1997.

Diebold, John. The Innovators: The Discoveries, Inventions, and Breakthroughs of Our Time. New York: Dutton, 1990.

Henry, Jane. Managing Innovation. London: Sage Publications, 1991.

Kanter, Rosabeth Moss, John Kao, and Fred Wiersema, eds. Innovation: Breakthrough Ideas at 3M, DuPont, GE, Pfizer, and Rubbermaid. New York: HarperBusiness, 1997.

Katz, Ralph, ed. Managing Professionals in Innovative Organizations. Cambridge, MA: Ballinger, 1988.

Kotter, John P. The Leadership Factor. New York: Free Press, 1988.

Kuhn, Robert L. Handbook for Creative and Innovative Managers. New York: McGraw-Hill, 1988.

Mescon, Michael H., Michael Albert, and Franklin Khedouri. Management. 3rd ed. New York: Harper & Row, 1988.

Pearson, Andrall E. "Tough-Minded Ways to Get Innovative." Harvard Business Review 66, no. 3 (May/June 1988): 99 + .

Rothschild, William E. Strategic Alternatives. New York: AMACOM, 1979.

Sayles, Leonard R. Leadership: Managing in Real Organizations. 2nd ed. New York: McGraw-Hill, 1989.

Terkel, M. Integrative Management, Innovation, and New Venturing: A Guide to Sustained Profitability. New York: Elsevier, 1991.



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