What is innovation and why is it important?
Why do companies need to innovate?
Let us look at successful companies in the past 30 years to understand why innovation is important in an organization.
In the 1980s, there was Kodak and Delphi. At the time, every moment, every event was captured with film cameras typically from Kodak. It was so ubiquitous that you found a Kodak kiosk that printed pictures at every block. Where is Kodak now? In the 90s, the AOL was synonymous with the internet. Motorola was synonymous with mobile phones. They were the best at their respective industries. Similarly in 2000, Blockbuster and Nortel were leaders in their industry. Everyone rented movies from Blockbuster and you could find a branch at every block. Where are these companies now? Each of these companies has been disrupted and replaced, Kodak was replaced by digital cameras, Blockbuster was replaced by Netflix and Motorola was replaced by Nokia and then Apple. What we learn is that companies, even those great, successful companies, need to continue innovating if they want to survive.
How successful companies were disrupted. Copyright: Global Innovation Management Institute. More information at Innovation Management Body of Knowledge.
The importance of innovation for an organization can be summarized into four key benefits which we will call Innovation Premiums.
- By being more innovative, companies enjoy greater shareholder return which leads to better access to capital.
- Innovative companies also have better brand equity allowing them to charge a higher price for their products.
- Suppliers, distributors and other partners choose to go to innovative companies because their ideas will be welcomed and developed further.
- Finally, people want to work for innovative companies as they enjoy more space and time for creativity and growth.
When you look at the combination, these four premiums are very powerful. This is why companies who are pursuing innovation as a continuous strategic-thrust, keep on doing better and better. Innovation leaders create greater shareholder returns, customer loyalty, partnership preferences, and employee attraction.
Innovation Premiums. Jonash, Ronald and Sommerlatte, Tom. The Innovation Premium, Massachusetts: Arthur D. Little Inc., 1999
If there are any questions in your organization as to why innovation is important, perhaps these are the four attributes you can use to explain. One way to explore innovation premiums and identify next growth opportunities is through IXL Innovation Olympics, the world’s largest open innovation platform that leverages crowd-sourcing to find solutions for client’s innovation challenges.
Definition of Innovation
What is your definition of business innovation? And how is it different from innovation breakthroughs?
We have completed broad studies of innovation across industries and geographies to develop a concise and comprehensive definition of innovation.
When we organized all of the examples we examined, we found that innovations were distributed across the whole value chain. This goes against the more traditional assumption that innovation is around new technologies, and new products and services. Many innovations are around changes in business models, partners, experience, delivery and markets. The more successful companies innovate across multiple categories, not just one.
For example, Zipcar’s innovation was not just around changing the location and delivery model of rental cars to every parking lot within a city, the company also changed the traditional business model of rental cars to an hourly rate instead of a day rate. With these changes, Zipcar was able to attract a new customer segment and provide a new experience in renting cars. Looking at these examples, a unique combination of innovative choices is what makes an innovation successful.
Thus, business innovation is defined as the creation and capture of new value in new ways. To understand this definition better, let’s break this into two parts. Learn more…