Innovation Is Not the Same as Inventing

As they aim to build sustainable, high-growth companies -- and to avoid growth stalls -- companies need to invest in innovation. It is not enough to rely on yesterday's products, services, or even historically competitive advantages. Even the most advanced technologies will eventually be copied, imitated, or become outdated. Companies that neglect innovation are often the first to fail during bleak economic times, or they get acquired for a fraction of the market cap they once enjoyed.

Fostering continuous innovation provides inherent challenges to an organization. In a KPMG study, 60 percent of respondents said their companies were still engaging in ad hoc innovation, or still had emerging programs, while only 2 percent thought that their innovation programs were optimized.

So how can business leaders embrace innovation to ensure the future success of their companies? Here are six lessons to keep in mind.

Innovation Is Not the Same as Inventing

Invention is the creation of something new, yet innovation is the creation of something that sells. This is why companies like Apple and Google are recognized as highly innovative, even though Apple didn't invent computers and Google didn't invent search engines. Instead, both brands have used the power of innovation to dominate their markets. 

To focus resources efficiently, it is critical to understand this distinction between invention and innovation. It is not necessary for companies to invent something new. Instead, they can embrace innovation by looking for ways to make a product, process, or service better through applying new techniques and processes to create incremental value.

Being a First-Mover May Be a Disadvantage

Advantages of first-movers imply that they would gain market share at a pace that no competitor could reach. However, first-movers often find it harder to achieve success than fast-followers. As a first-mover, you may have to create a new market and educate consumers while at the same time pouring resources into research and development. But this leaves room for fast-followers to leverage the work that has already been done. Most of the world's most successful companies are fast-followers that invested in innovation; they took products, processes, and categories that were already developed and made them better. This includes brands like Spotify, Netflix, and Starbucks.

There are advantages to first-mover companies, including establishing themselves or their products as the industry standard, developing economies of scale, and creating high switching costs for consumers. But being a first-mover is no guarantee of success. 

Innovation Requires Agility

When industry leaders are leapfrogged by younger, smaller firms, it is often because they lacked agility. McKinsey senior partner Aaron De Smet defines agility as "the ability of an organization to renew itself, adapt, change quickly, and succeed in a rapidly changing, ambiguous, turbulent environment." Startups understand this intuitively -- to succeed, adjustments are needed to innovate the right product-to-market fit. But as companies grow and become successful, bureaucracy and a sense of "we've always done it this way" can impede the organization's agility.

To encourage a culture of agility in your organization, encourage an agile organizational structure by changing the way teams work. A successful and agile team will be guided by flexible leaders with open minds and a keen ability to listen, learn, and grow. Agility also requires providing better resources. Companies should audit current processes and tools, streamline, simplify, and then introduce new technologies as needed. 

Pursue Global Open Innovation

John Chambers, former chairman and CEO of Cisco, once called his senior management team into a conference room and reminded them, "We have some of the smartest people here at Cisco, but we do not have all of the smart people." It is a mistake for an organization to restrict ideas to internal research and development. The most successful companies engage in what UC Berkeley Haas professor Henry Chesbrough calls open innovation by investing in entrepreneurs and innovators around the world. 

He stated: In a world of widely distributed knowledge where the boundaries between a firm and its environment have become more permeable, companies cannot afford to rely entirely on their own research but should instead buy or license processes or inventions from other companies.

Through global open innovation, Cisco was able to decrease R&D expenses, increase corporate development, and partner with and invest in entrepreneurs and startups to acquire new technologies and business models that would otherwise have been unavailable to the company.

Businesses need to engage with their innovation ecosystem to foster an innovative culture within their organization.

Failure Is Good

The spirit of innovation is often crushed by the fear of failure. In the corporate world, there is little room for failure, so great minds are deterred from thinking outside of the box. But people learn from mistakes, so it is important to create a culture at your organization in which failure is acceptable and even encouraged. Progress is earned through experimentation, but in the real world, most experiments fail. Persistent innovation requires iterative experimentation and spontaneous attitude. Failure needs to be understood as an important aspect of learning.

Cass Phillipps took this concept to a new level with the FailCon conference series, during which speakers were encouraged to share their biggest failures along with their lessons learned. Learning from failures builds trust within the organization, helps gain more insight into how the company is operating, and increases the chances of innovating successfully. 

The Best Innovations Are Customer-Centric

People, not products, should drive your innovation process. Instead of looking for the next big thing, companies should be obsessed with customer needs, and create a culture in which everyone -- from the leadership team down to the frontline worker -- is tasked with understanding the customer and is seeking to fulfill customer needs today and in the future.

Airbnb and Uber figured out how to use technology in new ways to create value for customers, and simply used innovation to solve the trust problem that people had in their markets. If they had focused on launching a product instead of meeting a real need, neither would have seen the kind of disruptive success they have had.

Driving continuous innovation is an organization's process for introducing new ideas, workflows, methodologies, services, or products. Each organization is different in most aspects -- from the technologies used to the policies implemented, from the culture and staff demographics to creating new organizational structures. Even organizations producing similar products and services are often uniquely different in their business model, in the way they execute their internal processes, or how they target their designated market.

Most incremental value is created when companies develop new products and services through superior end-user understanding, which puts the customer right in the middle of the innovation process. Customers need to be part of the value creation process from the beginning, which will allow businesses to make better decisions in the long run.

Martin Tantow

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