Defining an Innovative Firm – It is Much More Than Technology

By: Georges Haour

Innovation is very much the word of the moment. We hear it used in science, the arts, in politics, in society, and often for good reason. For example, the creation and building of the European Union, is one of the most innovative – and indeed frustrating – processes in history. So what actually is innovation? Read more in this article by IMD professor Georges Haour, IMD, one of the world’s top business schools.

Innovation is usually associated with technology, but it may not involve any technical advance. The Sony Walkman did not use any new technology, relying instead on a brilliantly innovative concept that could be turned into reality by reassembling known elements.

In business, it is something new to a particular market. It could be a lateral transfer – for example, fiber-reinforced plastics constitute an innovation in automobiles, but have been used in aircraft for many years. It could be a small improvement to an existing idea, or a radical development. The second type of innovation will have a much bigger economic impact, of course, but even the smallest improvement can increase profits, if handled well.

But, as elsewhere, not all business innovations are technical. Self-service revolutionized the retail industry without involving anything technical, while Apple’s iPod owes much of its success not to its technological elegance but to the innovative business model around the product, including the iTunes music store.

The innovative firm

Creating an innovative business is not a straightforward question of implementing an innovation strategy. The truly innovative firm has several ingredients. First, the senior leaders must show staff that they are champions of innovation. Second, the company must have an “innovative climate”; in other words, that all managers appreciate and understand the complexity of the innovation process and the risks involved.

The real catalyst behind these two factors is management development, which accelerates and guides firms on the path of becoming more innovative – what I call the “innovation journey”. This requires the company to become more open to external input and ready to learn from and work with customer, suppliers and a range of other partners.

And, crucially, every person in the business needs to think of innovation as part of his or her job.

And, crucially, every person in the business needs to think of innovation as part of his or her job. Clearly this applies to the CEO and management, as we have seen, but it is also important for board members to think in this way, as it is their job to find a balance between investing in innovation and the tyranny of short-term profits. Managers also need to understand how to encourage and enthuse all staff members if they are to get the most from them – motivated employees are more productive and will try continuously to improve and innovate.

In our hypercompetitive world, companies that want to compete and survive need an innovation process that incorporates effective decision making. It is no good to be excellent at managing projects if you manage the wrong projects. Equally, this means ensuring that you have the management in place both to make these decisions and to lead the chosen projects. In addition, this means that companies must be much more committed to developing the necessary skills in their staff.

 

The shape of the future

There are two main trends that will shape innovation processes in the months and years to come. First, companies must deal with more and more external inputs. By being aware of and accessing what universities, SMEs or start-ups can offer to complement their own internal capabilities, companies are in a much better position to develop and sell “high impact offerings”,  very differentiated, to the market. One way to tap into global talent is to use information technology – matchmaker plaftorms put solution-seekers in contact with problem-solvers worldwide.

India and China are becoming real sources of innovation in business practices and models.

Second, India and China are becoming real sources of innovation in business practices and models. Western companies must make the effort to learn from what is happening in these countries – and others, not only in terms of technical developments, but also for new business models, practices and novel approaches. Indeed, technology moves at a breakneck pace, but the non-technical component of innovation is increasingly important. Apple’s iPod is a success, indeed because of the device, but crucially as a result of the architecture of iTunes and the other platforms around it.

It’s not just about business

The main reason for my interest in innovation is the need for our society to create many more jobs, especially in Europe. Innovation is a powerful tool that can help us to achieve this by creating new opportunities and maintaining our competitiveness. Making better use of the expertise and technologies available from and developed in universities and public laboratories will help governments to do this.

However, governments must also make other major efforts in favor of job creation by removing barriers, simplifying regulations and lowering administrative hurdles. They must ensure that tax, legislation, infrastructure, telecommunications, education and so forth are all shaped in such a way that favors innovation and entrepreneurial spirit. These are crucial ingredients for creating wealth and jobs, but, unfortunately, our fierce leaders, at the national and international levels, seem to be detracted from this enormous responsibility to future generations.

By Professor Georges Haour, IMD