Innovation Strategies: Defined
To fully understand innovation, it is necessary to distinguish between innovation and two closely related terms: creativity and invention.
Creativity is the foundation for innovation. It is the ability to make new things or think of new ideas.
Invention is the actual process of creating something new or the process of bringing an idea into existence.
Innovation, however, generally refers to the specific marketing of a new product, service, or technological process. [ref]Petkovska, T. (2015). The Role and Importance of Innovation in Business of Small and Medium Enterprises. Economic Development / Ekonomiski Razvoj, 17(1/2), 55-74.[/ref] More specifically, Joseph Schumpeter defines innovation as “the introduction of new goods, new methods of production, the opening of new markets, the conquest of new sources of supply, and the carrying out of a new organization of any industry.”
Innovation in the organizational sense introduces an organization to different pathways of thinking, acting, and producing – ones that have never been explored before. These different pathways often disrupt business as usual, and may create uncertainty in an organization’s culture. This shouldn’t be surprising since innovation requires people to change and chart previously unexplored territory. But if any organization wishes to be successful, it is important that they master innovation – no matter how risky it may seem. If organizations, whether small, medium, or large, wish to enhance growth and productivity, stay competitive, and ensure long-term existence and success in a constantly evolving and dynamic business environment, they must undertake innovative activities. [ref]Petkovska, T. (2015). The Role and Importance of Innovation in Business of Small and Medium Enterprises. Economic Development / Ekonomiski Razvoj, 17(1/2), 55-74.[/ref]
For organizations to be innovative, managers and employees must understand “how innovation works and how they can be designers who can intentionally produce innovations.” They must look for innovation opportunities, and once they find an opportunity, they must then effectively communicate that innovation opportunity in order for others to be attracted to it and adopt it as their own. [ref]Denning, P. J. (2016). How to Produce Innovations. Communications of the ACM, 59(6), 28-30. doi:10.1145/2909883.[/ref]
The Organization for Economic Cooperation and Development (OECD) has identified four types of innovations:
(1) Product innovations – the creation and introduction of a good or service that is either new or improved
(2) Process innovations – the implementation of a new or significantly improved production or delivery method
(3) Marketing innovations – the implementation of a new marketing method that involves significant changes to the product
(4) Organizational innovations – implementation of a new organizational method in the firm’s business practices, workplace organization or external relations
Organizations must decide if one type of innovation or a combination of two or more types is needed for their survival and growth. Now that we have a better understanding of what innovation is, let’s look at the first concept.
Innovation: Strategies – Performance, Challenges, and Barriers
It is not enough for an organization to want to be innovative or to talk about becoming innovative. Organizational leaders must have a plan and develop a strategy for how they will create a culture of innovation among their employees. As a popular saying that is widely attributed to Alan Lakein wisely states, “Failing to plan is planning to fail.” Organizations that fail to articulate an innovation strategy that aligns innovation efforts with the overall business strategy will find it hard to build and maintain the capacity to innovate.
An innovation strategy must address how innovation will create value for potential customers, how the company will capture a share of that value, and what types of innovation to pursue. An innovation strategy, however, is not a set it and forget it process. It requires continual experimentation and adaptation. [ref]Pisano, G. P. (2015). You Need an Innovation Strategy. Harvard Business Review, 93(6), 44-54.[/ref]
Many well-known companies have launched innovation initiatives only to end up struggling to maintain them. Why is this often the case? Well, a failure to execute is rarely to blame. The problem with failed innovation initiatives can more often than not be attributed to the fact that an innovation strategy has not been created. “Without an innovation strategy, innovation improvement efforts can easily become a grab bag of much-touted best practices…[and] different parts of an organization can easily wind up pursuing conflicting priorities.” [ref]Pisano, G. P. (2015). You Need an Innovation Strategy. Harvard Business Review, 93(6), 44-54.[/ref]
Organizations should not make the mistake, however, of copying another organization’s innovation strategy or system. There’s nothing wrong with learning from others, but what works for one organization is not necessarily going to work for another organization. Every organization has different products, consumers, and competitive needs, so different innovation strategies are needed to fit a specific organization.
Three key questions that must be asked when developing an innovation strategy are:[ref]De Massis, A., Di Minin, A., & Frattini, F. (2015). Family-Driven Innovation: Resolving the Paradox in Family Firms. California Management Review, 58(1), 5-19. doi:10.1525/cmr.2015.58.1.5.[/ref]
(1) Where do we search for the knowledge and resources we need to innovate?
(2) How do we want to manage the innovation process?
(3) What do we want to innovate?
The “where” question seeks an answer as to the direction(s) in which an organization will search for the resources and knowledge it needs for its innovation process. The “how” question refers to the approach that an organization takes in the development and exploitation of its innovations. The “what” question refers to the different types of innovations that an organization can decide to invest in. For example, it can choose to focus innovation efforts on products (product innovations) or on changing its business model (organizational innovations).
Having an innovation strategy has a crucial impact on the financial, social, and environmental performances of organizations.
A study of nearly 100 Tunisian companies found that a positive relationship exists between innovation and the competitiveness of organizations and, thus, its performance. Investing in innovation was also found to have a significant effect on the financial performance of organizations in terms of profitability and risk. Finally, innovation positively impacts organizations’ social performance. Because the integration of innovation in an organization is most times a response to customer demands, these demands help carry out innovation within organizations. Since “the goal of every business is to meet the expectations of the customers; thus, innovation positively affects the social performance of the company.” [ref]Ezzi, F., & Jarboui, A. (2016). Does Innovation Strategy Affect Financial, Social and Environmental Performance? Journal of Economics, Finance & Administrative Science, 21(40), 14-24. doi:10.1016/j.jefas.2016.03.001.[/ref]
When an organization faces resource challenges, does its innovation performance have to suffer? The short answer is no. Challenges can actually help, not hinder, an organization’s innovation performance. Recent research affirms “that challenges, in the form of adversities and constraints, may be highly beneficial to individuals, teams and firms. In particular, research suggests that resource challenges may positively influence innovation and innovation-related performance.” [ref]Rosenzweig, S., & Grinstein, A. (2016). How Resource Challenges Can Improve Firm Innovation Performance: Identifying Coping Strategies. Creativity & Innovation Management, 25(1), 110-128. doi:10.1111/caim.12122.[/ref]
A resource challenge is defined as “a situation in which a firm experiences a level of resources lower than what the firm would have in the absence of this situation or when available resources do not meet the demand for resources.” The most common resource challenges are financial and time and human resources. [ref]Rosenzweig, S., & Grinstein, A. (2016). How Resource Challenges Can Improve Firm Innovation Performance: Identifying Coping Strategies. Creativity & Innovation Management, 25(1), 110-128. doi:10.1111/caim.12122.[/ref]
Two key strategies, simplification-focus and compensation, can help an organization cope with resource challenges and maintain innovation. The first strategy involves eliminating unnecessary or less important parts of a work process. This allows employees to work with clearer focus and makes tasks that are associated with innovation easier to handle. The latter strategy involves doing the opposite of simplification-focus. Instead of eliminating parts of a work process, managers compensate for the challenged resources by utilizing other resources that already exist.
Research also points to high failure rates of innovations, showing that most new products fail because they are rejected by consumers due to their resistance to change. If organizations wish to innovate successfully, they must develop a strategy and put new product launch tactics in place to overcome the dominant barrier of passive innovation resistance in order to get consumers to quickly adopt their new products.
Experiment results have found that marketing instruments, such as mental simulation and benefit comparison, are effective in helping organizations reduce the initial resistance that many consumers show towards new products. This then helps organizations in reducing innovation failure rates. [ref]Heidenreich, S., & Kraemer, T. (2016). Innovations—Doomed to Fail? Investigating Strategies to Overcome Passive Innovation Resistance. Journal of Product Innovation Management, 33(3), 277-297. doi:10.1111/jpim.12273.[/ref]
Check back for Part 2 of this blog series in which we will discuss the second concept – innovation management.