What does innovation mean? It used to relate mainly to products, and that is still important. But over the last decade or so, businesses have been putting more and more emphasis on innovating new services and business models as well. In light of this, it is time companies take another look at how they manage innovation. Most of the information about managing innovation available today is addressing specific issues such as technology or finance. But as the boundaries of innovation expand, more managers will need practical knowledge and tools that transcend these functional silos. Innovation is one of the least well-managed areas in most companies and identifies ways in which executives can approach innovation differently to achieve greater success.
The new realities of today’s business environment have shifted the boundaries of innovation, placing a renewed emphasis on creating new services and business models. In our interconnected world, now firms can keep pace by changing management practices in order to keep their innovation relevant and of value to their customers and shareholders. To survive in today’s global business marketplace, companies need to develop new products, services and business models to achieve sustainable growth. Amid the current economic downturn, the approach is highly relevant and demonstrates how companies can create opportunities to further enhance their innovation strategies by redefining value and launching new services. The approach should be to set a clear direction for innovation ‘hot spots’ within the organisation, how to position the right people into innovation teams and work with customers as partners in development.
It has been acknowledged that innovation leads to value creation, intellectual or monetary. Management expert, Peter Drucker said that if an established organisation, which in this age necessitating innovation, is not able to innovate, it faces decline and extinction. Even though efficiency is essential for business success, in the long run, it can not sustain business growth. Intensity of competition is the determinant of innovation and productivity. Innovation, besides products and services, also includes new processes, new business systems and new methods of management, which have a significant impact on productivity and growth. Today, we need innovators more than any time before. Every organisation and business is feeling the impact of globalisation, technological and knowledge revolutions. Innovation will bring added value and widen the employment base. Innovation is imperative if the quality of life in these trying circumstances is to improve. Innovation will make the world a better place for the younger generation. Innovation is exploiting new ideas leading to the creation of a new product, process or service. In context of a corporation, ‘innovation’ means the process by which an idea or invention is translated into a good service for which people will pay. It is not merely the invention of a new idea that is essential, but the act of giving it shape or “bringing it to market”, and exploiting it in a manner that leads to better products, services or systems that add value. Innovation entails employing out-of-the-box thinking in order to generate new value and to bring about significant changes in society.
Innovation may be classified as, ‘Product Innovation’ that entails the introduction of a new product or a service that has considerably improved functionalities, ‘Process Innovation’ comprising the implementation of a significantly enhanced production or delivery method, ‘Supply Chain Innovation’ in which innovations transform the delivery of output products to customers and ‘Marketing Innovation’ which results in the evolution of new methods of marketing with enhancements in product design or packaging, its promotion or pricing, among others.
Following points explain the importance of innovation in a company; throwing light on why a company has to innovate and what will happen if the company does not innovate:
n Evolving society needs advanced products. The customers demand the best possible thing for the day and the latest products are in demand. Thus, the factor ‘customer satisfaction’ is vital and it relates to innovation.
n The products, processes and services of the company need to be one step ahead of competitors; else the company loses the game.
n Innovation leads to better corporate positioning, increased market value and faster growth in the company.
n Good ideas are quickly copied and there is pressure to devise new and better products, processes and services for the customer.
n If the company doesn’t innovate, the customers stop buying the products, drops, stock price drops, shareholder returns drops, and employees leave the company and finally the company collapses.
INSEAD, the leading international business school, recently announced the findings of its 2009-2010 Global Innovation Index (GII), a study which the school has jointly published with the Confederation of Indian Industry (CII) for the past three years. The GII evaluates the progress of innovation readiness in countries, highlighting the obstacles that prevent governments, businesses, and individuals from fully capturing the benefits of innovation. “This year’s Report underlines the importance of innovation in a country competitiveness and growth particularly at a time when the global economy is recovering from one of the worst financial crises it has ever seen,” said Soumitra Dutta, Roland Berger Professor of Business and Technology at INSEAD and primary author of the study. “The results confirm the crucial need for countries to focus on directed pro-innovation policies to jumpstart growth in the medium term and lead to development in the long term.”
‘The Global Innovation Index’, featured in the Report, examines how countries benefit from innovation through the use of enablers that stimulate innovation and their ensuing outputs. There are five enabling parameters which include: ‘Institutions’, ‘‘Human Capacity’, ‘General and ICT Infrastructure’, ‘Market Sophistication’ and ‘Business Sophistication’. The two output parameters – ‘Scientific Outputs’ and ‘Creative Outputs and Well-Being’ – provide evidence of the results of innovation within the economy. Iceland topped this year’s GII ranking despite the difficult economic situation it has faced over the last two years. Sweden and Hong Kong follow in the second and third positions, respectively. Several of the most innovative countries from last year’s Report, including the U.S. (eleven), U.K. (fourteen) and Germany (sixteen) have fallen in the ranks.
Similar to the 2008-2009 Report, European economies performed particularly well, including the Nordic ones – Sweden, Denmark, Finland and Norway – which all ranked in the top 10 with Iceland. Some of the Eastern European countries such as Slovenia (26), Czech Republic (27) and Estonia (29) also performed well in this year’s rankings. Israel and the United Arab Emirates placed within the top 25 countries, followed closely by Kuwait (33) and Qatar (35). Now let’s see which is more innovative? The global conglomerate with revenue of $363 billion or the entrepreneur, whose ground-breaking DoubleClick software package revolutionised online selling and was ultimately sold to Google for more than $3 billion? The answer is that it is a tie.
The global behemoth is General Electric, represented at a Leadership Summit in Asia by Colin Low, Regional Executive of GE Growth Initiatives in Southeast Asia and President of the company’s Singapore, Philippines and Cambodia businesses. “Innovation means changing the status quo, impacting customers and really creating full value for them at the end of the day,” says Low. This, in turn, involves the “products, services and technology that the company produces, or it can be business models and leadership (within the company),” he adds. “It’s the thing that makes a consumer say, ‘I’ll use Product A versus Product B’,” says Ryan. “Providing a product or a way of doing business that hasn’t been done before; and sometimes it can be a dramatic shift and sometimes it can be quite a subtle shift.”
Both GE and Ryan have businesses with global clientele. GE has a physical footprint; while Ryan has a cyber-reach. GE puts its plants where its businesses are: research centres aimed at serving the needs of the global cities of tomorrow (a future fixed at the year 2050), based in New York State, Munich in Germany, Bangalore in India and Shanghai in China. “The big mega-trend is towards sustainable cities,” says Low. “And those cities will be developed by the rural population migrating to large cities all over the world. Bangalore and Shanghai are the world’s fastest-growing emerging markets,” he points out. “What better place to have research centres?” GE has actually developed electrocardiogram (ECG) machines in Bangalore, where they are also used by village doctors to treat patients. “Even three years ago we would have had no ability to enter this kind of marketplace,” adds Low. “We can sell to other emerging markets now, so this is a good revenue boost for a company like GE.”
Ryan is concerned about sustainability, too, especially sustaining the interest of venture capitalists in his businesses in today’s “iffy” economic climate. “We generally fund our companies ourselves for the first six months, and then we go out and raise venture capital,” he explains. “I’ve raised in the last couple of years $100 to $150 million for five or six different firms in about 10 different rounds. As a VC (venture capital) investor, you’re really counting on the fact that by 2012 or 2013 we’ll really start to be a sustainable company, and if we have a big market and a great team it’ll probably work.”
Ryan’s customers for Gilt Groupe luxury sales include the Japanese, the second largest market for luxury goods in the world, his foothold in Asia, and one of the keys to achieving his objective of growing the companies he starts as much as possible. “I never think about an exit strategy when I start a company,” he says. “I think about building it and making it as big as possible. If you can do that, you have all kinds of options: lots of people would like to buy it (for example, Google and its $3 billion purchase of DoubleClick); you can get private equity and liquidity that way; you can take it public. You don’t have to worry about it at that point. But I don’t really look actively to sell unless I think at some point it’s a business where we need more scale and we can’t do it on our own.” It’s at just about this stage that small entrepreneurial companies show up on the radar screens of big conglomerates like GE, who whip out their cheque books and start spending money from the corporate research budget. It is often cheaper and less problematic in terms of liability for large corporations to reverse outsource their R&D and buy smaller companies with proven innovative products and services. “I think the model for how we work now is learning from the experiences of companies like Kevin’s and the venture capital world where we see small start-up companies that have access to leading-edge technology,” says Low. “For example, we’ve got a $300 million fund looking for VC-type acquisitions so it allows a big company like GE to have the nimbleness of a venture capital company like Kevin’s.” A lesson we can draw from these observations is the importance of education and training in a world relying increasingly on skill and innovation and decreasingly on material resources. One reliable prediction we can make about the future that the pace of change will continue to accelerate. I feel that the revolution manifest in the age of intelligent machines is in its earliest stages. The impact of this new age will be greater than the radical technological and social changes that have come before it. It cannot be stopped. We need to understand it, live creatively with it, and harness it constructively.
