The term “innovation” is widely used to signal change. But the extent of that change is in the eye of the beholder-some apply the term to shifts that are modest and incremental, while others reserve it for changes that are bold and disruptive. In the corporate sphere, innovation may apply primarily to new products and services, but some executives are starting to take a broader view by creating new business models, strategies, and processes.
How are executives making the business case for greater innovation, responding to cultural issues, creating support mechanisms, organizing teams, and measuring success?
Is There an Innovation Imperative?
For the top management of the 100 firms which participated in the study, innovation has been a high priority over the past few years and will remain so in the near future.
That innovation ranks high as a senior management priority is underscored by the findings from The CEO Challenge 2003, The Conference Board’s annual survey of top executives. Improving product innovation and commercialization is the fourth ranked management concern in the current study (up from sixth in the year 2000) and it is expected to rise to third place by 2008, following “customer retention” and the “need to develop and retain potential leaders.”
In contrast, “reducing costs”, the number two priority in 2003, will drop to seventh place by 2008. Most likely, CEOs expect cost containment to become part of the fabric of the organization, and are now putting the spotlight on innovation in order to spur future growth. Respondents to the current survey were asked to write in their firms’ definition of innovation. At least 45 percent of respondents apply the term primarily in reference to new products, services, or technologies, with the remainder using it as a broader definition.
Innovation at one firm has been described as “a disciplined way of doing work and making decisions. Innovation is realized through new products and services (revenue), better business processes and partnerships (efficiency and cost savings), and decisions and strategies which define and grow the industry (leadership).”
Most survey respondents have focused on innovation for about seven years, but 40 percent report that their efforts began in the last three years. When asked if innovation has been a long-term priority, only 25 percent say it has been an objective for 20 years or more.
–To reap the benefits of new technology
–To improve interaction with customers
Innovation can lead to new categories, new services, and new channels. Today’s winners need to create a buzz around the service and shopping experience as well as the merchandise. The customer defines innovation.
–To increase revenues
Innovation has always been important, but now many companies have a corporate directive and long range plans. Everyone knows that the only way to keep our stock price up is to be innovative.
The above suggested some of the benefits of innovation at the enterprise level, but there can be important payoffs at the macro level as well. Developing countries, with lower costs and wage bases, can be expected to continue to absorb both traditional manufacturing and commoditized “knowledge” jobs as they move along the development continuum. The trick is for the most economically developed countries to ratchet-up innovation to create new industries and products that will refresh their job pool.
Driving From a Robust Strategy
Making innovation a reality starts with goals and a strategy, and 90 percent of executives responding to the strategy survey say that innovation is integrated in their firm’s current strategic goals. These principles are also included in the vision or mission statement of 60 percent of the strategy companies. The challenge for executives at the company’s corporate level is to make sure the plans are solid and that the businesses execute against their plans. Each unit’s plan must have an innovation strategy, and it must contain specific targets for new products.
Is Convergence One of the Next Big Things?
The innovation that is going to be most important is innovation around fundamental capabilities and fundamental fabrics-the kinds of innovation that weave systems and networks together. Security, mobility, and rich media would be examples.
Greater investments in R&D and design-expertise are required. But speed is another crucial ingredient in a firm’s strategy.
(Source: Conference-Board Report “Making Innovation Work: From Strategy to Practice” by Kathryn Troy.)