INNOVATION

Innovation is the act of developing a new process or product and introducing it to the market. It is essentially an entrepreneurial act, whether it takes place in a start-up firm, a large organization, a not-for-profit, or a public-sector agency. Innovation means change: sometimes radical change, such as the development of the computer, and sometimes incremental change, such as the modification of existing computer software. In either case, managers must develop processes to encourage and guide the changes taking place.

Sources of, and opportunities for, innovation in organizations are described below. Finally, the management principles underlying an innovative organization are identified.

SOURCES OF INNOVATION

Innovation generally stems from the purposeful search for opportunities. Management guru Peter Drucker identified that opportunities for innovation exist both within and outside a company or industry. Opportunities internal to a company include unexpected events, incongruities in processes or between expectations and results, process needs, and changes in the marketplace or industry structure. Opportunities external to a company include demographic changes, changes in perception, and new knowledge.

UNEXPECTED EVENTS.

Unexpected events can be failures as well as successes. For example, the failure of the technically superior Sony's Betamax VCR standard (and the success of the industry standard VHS format) led the firm to pay more attention to developing products in line with industry standards. Similarly, the development of the very successful Sony Walkman was the result of the CEO spending time in New York and noticing young people carrying portable radios on their shoulders. Progressive Insurance saw its business quadruple in size when it started sending claims adjusters in mobile offices to accident scenes.

INCONGRUITIES.

Incongruities result from a difference between perception and reality. Federal Express was able to capitalize on consumer dissatisfaction with the U.S. Postal Service and demonstrate that individuals and companies were willing to pay a premium for overnight delivery of packages and documents.

Likewise, Southwest Airlines provided a dramatically different approach to airline service. Its low-fare, no-frills, first come-first seated approach has garnered devoted customers. Southwest Airlines has remained profitable for 31 straight years, even during the economic downturn following the terrorist attacks of 2001, when many airlines struggled to remain in business.

PROCESS NEEDS.

Process need innovations are those which are created to support some other process or product. The development of the ATM (automatic teller machine) and now web-based and Internet banking options allow individuals to do their banking when the bank is closed and without relying on tellers being available. This has freed tellers from performing many routine functions such as cashing checks and has improved both efficiency and profit margins for banks.

MARKET AND INDUSTRY STRUCTURE CHANGES.

Industry structures change in response to growth and changes in the marketplace. One of the most dramatic changes can be seen in the health care industry. The rise of HMOs (health maintenance organizations) and the decline of the traditional fee-for-service plans have impacted the health-care industry as a whole. The development of the personal computer also had a far-reaching impact on the computer industry as a whole. Until the personal computer, manufacturers of large mainframe computers, terminals, and software developed for specific uses within a firm dominated the computer industry. With the adoption of the personal computer and advent of the laptop computer, the composition of computer sales and marketing changed dramatically.

DEMOGRAPHIC CHANGES.

Demographic changes are shifts in the makeup of the population. Increases in the Hispanic and Asian populations in the United States create opportunities for new products and services, such as cable television stations targeting these audiences. Innovations in prepared meals and takeout food are meeting the needs of busy two-income families and single-parent families.

CHANGES IN PERCEPTION.

Americans have become more health conscious and we have seen the rise in popularity of stores such as GNC which cater to the demand for vitamins and other supplements. Similarly, stores such as Whole Foods provide organic produce, meats, dairy, and fish free from additives to satisfy a growing market demand for chemical-free products.

NEW KNOWLEDGE.

New knowledge or technology is one of the strongest forces for innovation. Many companies, of all sizes and levels of sophistication, now have a web presence on the Internet with the capability of connecting their products with customers nearby or on the other side of the globe. No longer are consumers limited to the daytime hours for their activities; online stock trading, shopping, and banking are examples of services that are accessible at any time of day or night via the Internet. Other opportunities are being explored in the fields of genomics and nanotechnology. These technologies and systems will develop even further as consumers continue to demand new and innovative products and immediate access to information, goods and services.

MANAGING INNOVATION

Innovation must be seen as a process occurring within an organization, not a single event. This process can be managed. In general, the process follows five stages: (1) idea generation, (2) initial screening, (3) review, (4) seeking sponsorship, and (5) sponsorship and commercialization. At each of these stages the organization's culture must be designed to support the innovation process.

IDEA GENERATION.

Idea generation requires a supportive organizational culture. Ideas, and the people who develop them, are fragile, and if the organization does not support them they will not develop. A supportive culture requires that the organization allow for experimentation and failure. In other words, not every idea will be commercially viable, but mistakes are to be learned from and learning should be celebrated. W.L. Gore is a company that celebrates learning and innovation. Each plant is kept small and everyone in the company is allowed to experiment with the products. In addition to the familiar GoreTex polymer coating, the company also manufactures products for the medical industry, NASA, and industrial use. The company operates internationally and holds hundreds of patents.

INITIAL SCREENING.

The screening process can be made easier by assigning a facilitator from outside the organization who can help guide the initial idea through the organization's systems, as well as act as an advocate for the idea. At this stage the idea is evaluated and possibly revised before being sent on to a group to review for further development.

REVIEW.

At this stage, the idea should be sufficiently developed to present to a group within the organization who will make a decision about funding further development. 3M has a long-standing process such as this. The Post-It notepads are probably the best-known illustration of the effectiveness of the process. Although no uses for the adhesive were initially found, the researcher was allowed to continue to spend time developing the product. The review process did not initially continue direct funding, but by allowing the researcher time, the company indirectly funded the development of a very successful product.

SEEKING SPONSORSHIP.

In most organizations, an idea needs a sponsor to continue to move forward. The sponsor must be convinced of the value of the idea to the organization. Effective champions frequently are managers who know how to navigate the corporate structure for support and resources. In addition, they are effective at putting together a cross-functional team to help develop all aspects of the new idea. Both 3M and W.L. Gore have instituted systems that facilitate this process.

SPONSORSHIP AND COMMERCIALIZATION.

At this stage the champion or sponsor takes the project forward through the final phases of corporate approval to commercialization. Many organizations, including Dow Corning, PepsiCo, 3M, and Black & Decker, spend a great deal of time interacting with customers at this stage. Customer input can help with final design issues, with searching out new uses for a product, and with simplifying processes. According to N. Radjou as quoted in Industrial Management, "Customers seek innovations that enhance their life cycle experience with a product—not the product-centric improvements in functionality and reliability that R & D engineers focus on." Utilizing consumer input can help companies focus their creativity on the products and improvements that will most satisfy consumer needs and wants.

INNOVATION IS WORK.

Peter Drucker said, "Innovation is work." Successful organizations have internalized innovation as a strategic goal. As we move further into the information age, innovation, and the ability to manage it, becomes a crucial element of a successful corporate strategy. The speed at which information and ideas move throughout the global marketplace has forced organizations to internalize innovation as part of their processes and to develop cultures that encourage experimentation and new ideas.