Everyone talks about innovation … but what is it really?

From manufacturing to accounting: in every sector, organizations sooner or later declare themselves ‘innovative players’. Sad but true: as a mantra for businesses far and wide, ‘innovation’ too often becomes a catchphrase devoid of meaning. So let’s break it down and get back to the nitty-gritty: what is innovation exactly, and why should you care about the word’s core meaning?

What comes to mind when you think of innovation? Ask this question to a handful of people and you’re bound to end up with answers that contain either the words ‘drone’, ‘self-driving car’ or ‘Airbnb’. Or you might just hear a random Steve Jobs quote. Although innovation surely is about these big and bold ideas as well, there is more to the word than meets the eye.

A working definition of innovation

The Latin word innovare – which means ‘to make changes’ or ‘to do something differently’ offers a partial answer to the question what innovation is. After all, doing new things is still at the heart of the matter. However, it does not cover the why. Organizations don’t make changes just because they’re fun or interesting. The key driver for all innovation is value creation and, ultimately, the long-term survival of your business.

A working definition of business innovation might look something like this:

Business innovation means making changes that add value, in terms of either revenue growth or increased operational efficiency. This value can be created by introducing new products, operational processes or business models. The ultimate goal is to safeguard the competitiveness and long-term survival of the organization.

What this means for businesses

The above definition might seem pretty simple and straightforward, but it holds two important conclusions for companies:

1. Every organization can innovate

As Scott D. Anthony puts it in his Little Black Book of Innovation (2012): “You don’t have to be Steve Jobs to succeed at innovation.” While groundbreaking and eye-catching products might stand out, a new business process can be just as innovative, as long as it creates value.

2. Every organization must innovate

Innovation is not an option, but a necessity. If you are not constantly striving to increase revenue or operational efficiency, your business is in danger of coming to a standstill. Or to put it more dramatically: companies that don’t innovate are sowing the seeds of their own destruction.

​The bad news: few companies are inclined to innovate

While innovation is crucial to survival, most businesses tend to do the exact opposite. The reason for this is simple: day-to-day operations. Answering daily client demands and sustaining excellence in operations demands time and resources. The team of employees assigned to this task is sometimes called the performance engine of a company.

They perform routine tasks and follow predictable business processes. But: they also bring in the cash right now. Especially in tough economic times, companies tend to hunker down and focus on this performance engine. At the expense of innovation.

The need for innovation teams is real

Companies that understand the innovation imperative, succeed in bypassing this ‘performance engine trap’ by building dedicated innovation teams. A study by IBM found that outperforming organizations are 79% more likely to establish such teams. These ‘dream teams’ are not hampered by rigid day-to-day operations and have the autonomy to focus on uncertain, non-routine business opportunities. They have the creativity to ideate and the management skills that are needed to convert ideas into business impact.

A common misconception is that these teams should be separated and isolated from the rest of the company. On the contrary: a versatile partnership between the innovation team and the performance engine is what propels successful companies forward.

“Outperforming organizations are 79% more likely to establish dedicated innovation teams.”

Sustaining vs. disrupting

Disruption. Yet another word that is in danger of losing its meaning. Still, addressing it offers an important final note to this post. In general, two types of innovation exist:

1. Sustaining the market

Innovation that improves a product, process or business model, without really affecting the market. These innovations are needed to compete in a crowded business environment. Think of smartphones that keep getting faster, cheaper, etc.

2. Disrupting the market

Innovation that unexpectedly creates a whole new market and ultimately displaces established market leaders. These innovations aren’t meant to compete, because competition simply doesn’t exist yet. Think of Uber’s business model and the way it has set the taxi world on fire.

For large enterprises, sustaining the market is usually not the problem. The danger lies in disruptive innovations, usually developed by outsiders. This is why gradual improvements or slight changes in operational efficiency won’t guarantee the survival of your business. True innovation demands constant attention to an irregular stream of uncertain, non-routine and – almost by definition – non-profitable business opportunities.

Conclusion

Innovate or die: every company, large or small, must and can innovate. Sustained innovation, making the ‘easy money’ by gradually improving the offering, is usually no problem – and, during rough economic weather, the preferred option. Until a disruptor comes around and turns old business models upside down.

To stay ahead of competitors and – ultimately – to survive, innovation is fundamental. It requires constant attention to sometimes initially non-profitable business opportunities. Dedicated innovation teams are the best way to rise to that challenge.