Many top level executives are still hopelessly behind when it comes to designing an effective innovation strategy in the digital age. Below, Christoph Loch and Stelios Kavadias outline the ways in which organisations can effectively outline and implement innovation strategy.
What is Innovation?
Joseph Schumpeter defined it succinctly: innovation is “the commercial exploitation of new ideas.” This idea of innovation refers not only to new products or services, but also to new processes (such as Toyota’s production system), new structures (for example Innocentive’s open market for idea development), or new ways of approaching and interacting with customers (Uber’s novel business model for car hire). Clearly, innovation is possible in all aspects of conducting business.
Organisations innovate in a number of ways: via small steps of modification and improvement (for example, in six-sigma improvement projects or quality circles in operating departments); via larger steps by making significant improvements and updates to their products and services (this is where most of the officially declared Research and Development [R&D] money goes); and, rarely, by attempting radical innovation using revolutionary technology or entering totally unknown markets.
While the risks vary – radical innovation is much more expensive and more likely to fail – all innovation is characterised by inherent uncertainty. Indeed, innovation is an “evolutionary system” analogous to biological and cultural evolution. This means that an organisation needs to produce many diverse ideas (most of which won’t work), in order to capture the few that have the potential to become new offerings and improvements. As the Nobel-winning chemist Linus Pauling declared, “The best way to have a good idea is to have a lot of ideas.”