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January 1, 2004

Let Innovation Thrive

Perhaps no ingredient is more important to business success than innovation. How can your organization deploy knowledge and information management to enable it to thrive throughout the enterprise?

by Stewart McKie

Ah, the good old days, when a runaway stock market meant that just about any business model involving the Internet would receive venture funding, when double-digit growth rates were business as usual, and when rising paper wealth fueled frenetic merger and acquisition activity. In the boom years of the 1990s, you could be forgiven for thinking that innovation belonged in the back seat.

But today, businesses have cut cost to the bone by downsizing, outsourcing, offshore IT development and management, and reengineering. Growth now depends on the ability of businesses to innovate. Innovation is no longer regarded as the exclusive preserve of the research and development department. Instead, many businesses see that innovation must become part of the core competency of every part of the organization and its network of business partners.

Business leaders today put a value on activities that encourage innovation. They must foster a kind of questioning, collaborative, partner-embracing organizational culture in which innovation thrives. And, they must place value on business processes that enable the active management of innovation. A new generation of innovation management software is emerging to support these leaders, cultures, and processes. Whereas knowledge management technology encourages businesses to capture and codify the past, innovation management technology helps businesses to catalyze and create the future.

This is the first in a three-part series about innovation management. I will begin this part by considering innovation from a business perspective. Later installments will discuss specific technology emerging to support business innovation.

Defining Innovation

In Competing Through Innovation: Essential Strategies for Small and Medium-Sized Firms (see Resources), Bellon and Whittington define two types of innovation: "incremental" and "radical" — a pair that others refer to as "iterative" and "breakthrough," or "continuous" and "discontinuous." Here I will call them "new-old" and "new-new." New-old innovation is about taking what you have and innovating to improve, expand, or extend it. This would include current business models, processes, products, and services. New-new innovation is about making the leap beyond what you have into something genuinely new. In a business context, we can define innovation as leveraging more from today's assets and creating the assets of the future.

A 2003 study by Cheskin and Fitch Worldwide found that 26 percent of companies define innovation as a solution that identifies and addresses the unmet needs of consumers, while 23 percent defined it as a process for the "advancement, improvement, or better way of doing things." The same study cited competition and technology change as the key drivers for innovation.

The Value of Innovation

However you define innovation, business leaders and management thinkers are convinced of its value. A Bain & Co. study published in Harvard Business Review (Oct. 2002) found that 80 percent of its survey respondents rated "becoming more innovative" among their top three business priorities; 91 percent said that increasing their company's capacity for innovation was critical to creating future competitive advantage and earning profits. Another report published by Accenture and the Talent Foundation (Nov. 2002) found that 61 percent of executives surveyed believe that since 2001, the importance of innovation has increased. And in the Cheskin and Fitch Worldwide survey, more than 54 percent indicated that their companies have increased investment in innovation over the past two years.

Way back in 1985, leading management thinker Peter Drucker claimed that innovation is fundamental to making a profit. According to Drucker, the essential purpose of a business is to create a customer. To this end, only marketing and innovation can produce results; all other activities are simply part of the cost of doing business. In his book Innovation and Entrepreneurship: Practice and Principles, Drucker proposed "Seven Sources for Innovation Opportunities" (see the sidebar).

If you buy this customer-centric view of innovation, then the focus may be on retaining existing customers, making those customers more profitable, and gaining new customers. But another perspective on innovation is as a way to enhance and extend the intellectual capital of the business.

According to Thomas A. Stewart in his book Intellectual Capital: The New Wealth of Organizations, intellectual capital "... is the sum of everything everybody in a company knows that gives it competitive edge." Recognizing and respecting the value of intellectual capital is the hallmark of an innovative business. So innovation is also likely to be about leveraging the intellectual capital you have, what I call new-old innovation, and expanding this intellectual capital, or new-new innovation. (See the sidebar for an overview of Stewart's Ten Principles for Managing Intellectual Capital.)

Five Business Processes

J.P. Deschamps, in "Managing Innovation: From Serendipity to Process" (see Resources) suggests that the innovation process has two stages: upstream and downstream. The terms are familiar to those in the oil and gas industry. Just as oil exploration companies test drill for oil to discover new fields, the upstream process senses and creates innovation opportunities. The downstream process converts an innovation into some kind of capital (such as a business model, product, or service) much like oil is converted into gasoline and distributed to customers.

However, even within these stages, at least five business processes are fundamental to innovation management: Road-mapping, scanning, collaborating, sparking, and shepherding.

Road-mapping. This process helps to define and project the course of your business. By creating a roadmap (preferably visual), you are identifying a starting point. Like any roadmap, it should encompass multiple destinations and alternate routes. From an innovation perspective, the purpose is to get that big-picture overview in order to help identify where some innovation "tangents" might occur. Road-mapping is not about a vision statement or a dense document discussing future planning scenarios; it is a visual system that quickly communicates where the company is and could go.