“Innovation is the central issue in economic prosperity.

— Michael Porter

“Innovation has nothing to do with how many R & D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R & D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it

— Steve Jobs

“Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.

— Peter Drucker

“Everybody believes in innovation until they see it. Then they think, ‘Oh, no; that’ll never work. It’s too different.’

— Nolan Bushnell

Innovation is an enormously popular management topic these days. Everybody in business talks about it. And talks about it. And …

Google “innovation culture” and you get nearly a billion results. That has to cover pretty much everybody.

Even pre-COVID, accelerating technological change and industry disruption were creating enormous demands for business innovation. Technology companies of course were leaders but dominated according to one analysis by consumer goods and services companies.  

What do the top innovative companies look like?

The most innovative companies of 2020

Online publisher Visual Capitalist recently released its quite amazing, to me at least, chart on “Ranked: The 50 Most Innovative Companies”. Based on a survey by the Boston Consulting Group, the ranking used four variables:

  1. Global “Mindshare”: The number of votes from all innovation executives.
  2. Industry Peer Review: The number of votes from executives in a company’s industry.
  3. Industry Disruption: A diversity index to measure votes across industries.
  4. Value Creation: Total share return.

A clip from the chart is shown below.

  • Technology companies like Apple, Alphabet, Microsoft, Samsung, and Huawei not surprisingly almost dominate the list 18 (36%).
  • Consumer goods and services, including Amazon, Alibaba, Sony, Walmart, and Tencent, account for a dominant 20 (40%).
  • Transportation and energy, with Tesla, Volkswagen, Bosch, Airbus, and Shell, have 8 (16%).
  • Healthcare, with Phillips, Johnson & Johnson, Bayer, and Novartis trail at 4 (8%).

These are all giants and reflect the enormous resources available in the largest businesses. It is almost impossible for smaller businesses to compete with them directly and broadly but they make great targets for niche innovators.

Amazon may well be the main target for innovation targeting. Much of what it does can be copied and improved on smaller scale by businesses of almost any size.

Below is a list of products and services that created multi-billion dollar opportunities:

List of top opportunities created by COVID-19 from prnewswire.com

Many of these require significant resources to tackle but quite a number are within reach of smaller businesses, especially locally.

Most companies DO innovation

Almost every business today is constantly innovating. Survival depends upon it. These efforts create new products or services, new workflows to reduce costs, and news ways to use products.

Innovation is handled typically by dedicated resources in R&D units and product development units. Innovation is their job. The rest of the organization has other jobs that mostly don’t extend to innovation except peripherally. Innovation is a business function.

This approach to innovation works, and has worked almost forever. Most of the top innovators in the list above are set up with functional innovation units. These units DO innovation, very effectively in general.

So why is anything different needed? Of what value is an “innovation culture”?

Innovation as a full-business process

Rather than relying on R&D functions for innovation, businesses are moving toward a cross-functional innovation process. Virtually everyone in the business is involved in the process, not just a few specialists. It becomes a way of doing business – an innovation culture.

Innovation becomes part of everyone’s job. Creativity exists not just in R&D specialists but in every business function. Without an inclusive process, a huge pool of creativity present in every business remains largely untapped.

Of course, tapping creativity company-wide involves a lot more than waving a flag and encouraging everyone to innovate. It requires a carefully designed and managed process.

Innovation usually requires significant resources. A flood of ideas from everywhere can easily overwhelm available resources in even large companies. You need a way to collect ideas, to evaluate and prioritize them, and to manage the actual development process efficiently.

What might such a process look like?

Outline of an innovation process

Software company innolytics.ag offers what seems to be a very good innovation process outline:

“In this chart, you can see the typical workflow of an innovation process. Although innovation processes within companies are different, they often follow a similar logic.

  • In the beginning, the search for opportunities and solutions that others have developed elsewhere stands in the foreground. This stage is the so-called phase of the “fuzzy front-end of innovation”.
  • The phase of idea generation follows this. Employees develop ideas, concepts, and innovative solutions. Here, companies often rely on innovation challenges and utilize the so-called “swarm intelligence” of a crowd.
  • Ideas are evaluated and prioritized – often by an innovation committee or by employees and managers in an innovation network.
  • The best ideas are further developed into innovative concepts. Innovation projects are launched and listed in the form of an innovation roadmap.
  • In the implementation phase, innovation teams realize innovation successfully.
  • Constant measurement of innovation ensures that key performance indicators are achieved.”
How software company innolytics ag sees the innovation process

An innovation culture generates and captures creative ideas

The concept here is that great ideas can come from anywhere in the organization. My favorite example is the salesforce that interacts with customers daily. So many good ideas flow from salesperson-customer interactions.

The first job of an innovation culture is to encourage innovators anywhere in the business, to capture their ideas simply and consistently, and to move them systematically into an evaluation process. It should provide resources in small amounts to innovators so they can develop their ideas enough to move forward.

A key part of this process is the removal of obstacles. Many top creative people are so busy with their primary jobs that there is neither time nor energy to develop and pursue ideas. Some managers regard creative activities as a waste of time and work to discourage them. Even corporate budgets can be innovation-unfriendly unless modified to accommodate this process.

An innovation culture moves good ideas into a development process

Once an idea has undergone any necessary initial evaluation, including small-scale pilots, tests, and group assessments, it needs to be moved along into a more formal, project-based development process. In an innovation culture, this process can take place anywhere in the organization that has the necessary capabilities.

It is important, however, to avoid having skunkworks projects pop up everywhere like weeds. This requires development projects to be coordinated and managed, possibly through funding mechanisms. Funding can also be used to set corporate priorities for development efforts.

Innovation development processes look like good old R&D activities except that they are created and initiated throughout the organization. Once an idea gets past its source unit assessment and prioritization hurdles, it is likely to require significant resources. Centrally managing these development resources provides an effective way to manage the overall innovation process.

The entire organization is directly involved in innovation

An innovation culture decentralizes innovation efforts, at least at the idea generating and testing stages. Any and all functional units can, and often are expected, to contribute. This makes the innovation process fundamentally different than in past. It becomes an integral part of the entire organization.

In this sense, the organization as a whole is an innovation process. It has become innovation.

Is the innovation culture – being an innovation process – any better than the traditional R&D way?

Not necessarily. You still need project-based development once significant resources are involved. These projects may end up largely in specialized development units, which perform the traditional R&D function even if they are called something different.

The real advantage that I can see is that an innovation culture taps ideas from a much greater variety of sources. Many sources will be very close to markets, customers, and product uses. This diversity and nearness to customers may well be the greatest value gained from an innovation culture.

Can any organization change to an innovation culture?

Probably not. Some businesses are strongly hierarchical in structure and management. This can greatly discourage the flow of innovative ideas and source-testing.

Some management groups are simply not open to new ideas, preferring to follow or match what competitors are doing. Their source of innovation ideas is external. They may actually be very good at moving such externally-sourced innovations into the marketplace quickly. This may well be a low-risk strategy.

Other organizations may not actively recruit and motivate creative people. I have been in a couple of these, where innovators are not welcome or are even activity discouraged. Not a fun place to work if you are at all creative.

And of course there are organizations with highly productive R&D units that provide the business with a steady flow of excellent new products and services. For these, there is little incentive to change – to mess with what works just fine.

Bottom line:

An innovation culture is simply a different way to handle innovation. It is not necessarily better than traditional R&D functions. The primary value of “being innovation” comes from the much greatest variety of innovation sources and the ability to motivate truly creative individuals and groups.

Consultant McKinsey & Company addresses “Creating an innovation culture” within the context of traditional R&D functions:

“Corning’s Silicon Valley technology chief shares how to stay creative over the long haul, drawing on 40 years of experience.

Even as opportunities grow to exchange ideas and cross-fertilize innovative impulses across organizational boundaries, we’re also seeing a renaissance of something decidedly traditional: the corporate R&D department. Concentrations of scientific talent at institutions such as Bell Labs and PARC (a Xerox company) once ruled the innovation roost, but many company R&D units lost their luster as cost pressures made them less tenable and the digital revolution enabled smaller organizations to make outsized innovation contributions. Recently, though, a new generation of corporate R&D powerhouses has been emerging at technology leaders such as Amazon, Google, and Microsoft. The advance of artificial intelligence, for example, is creating a new set of innovation opportunities for these leaders.”

Publisher CIO offers some valuable advice on identifying and overcoming innovation obstacles in the article “Managing Innovation & Disruptive Technology: The 4 biggest cultural barriers to corporate innovation”:

“It’s important to be aware of the following warning signs – and to have a strategy to counter – if you want your company to be a world-class innovator.

While we can learn a lot from studying best practices, it’s also helpful – at least once in a while – to study what we might consider worst practices and what not to do as a way to avoid some of classic pitfalls for both aspiring and as well as already highly-successful innovators.

Here are four warning signs I believe are important for organizations to be aware of and to have a strategy to counter even if you consider your company to be a world-class innovator.”

Publisher The Balance Small Business provides some useful ideas for smaller businesses: “7 Ways to Kickstart Business Innovation”:

“Realize That Innovation Can Be Simple:  We tend to think of innovation as a formal and complicated process, but it doesn’t have to be. Innovation is just a fancy word for improvement and invention. When you come up with better packaging, find a supplier who will give you a better rate, or try out a new marketing idea, you are involved in innovation.”