Why innovate?

"Companies cannot grow through cost reduction and re-engineering alone . . . Innovation is the key element in providing aggressive top-line growth, and for increasing bottom-line results" ( Davila et al, 2006)

“ In our company..the opposite of success is not failure, but inertia”
(James Kilts, CEO, The Gillette Company, 2002)

The rise of the global economy, the fragmentation of markets and an increasingly short-lived product life cycle means that innovation has become the lifeblood of many successful modern businesses. U.S. economist Lester Thurow found that the average lifespan of U.S. listed companies during the 1920s was 65 years; it is now less than 10 years. Of the original companies listed on the Standard and Poors Index, he found that only General Electric had survived, and in order to do so it had reinvented itself many times. Thurow’s message is clear. Only those businesses that create better products and/or services can withstand competition, takeover and obsolesence.

The most successful businesses spend a significant amount of turnover on making changes to their products, processes and services. The average investment across all types of organizations is believed to be about four percent, but innovation expenditure can range from half a per cent of turnover for organisations with a low rate of change, to more than 20 per cent for those with a high rate of change. The top 10% of electronics companies change 80% of their product range every five years. In fact, Nokia often says that its core business is not phones, but innovation.

Organisational innovation can be driven by:

1. Improved quality
2. Creation of new markets
3. Extension of the product range
4. Reduced labour costs
5. Improved production processes
6. Reduced materials
7. Reduced environmental damage
8. Replacement of products/services
9. Reduced energy consumption
10. Conformance to regulations

The above list should dispel a popular myth that innovation deals mainly with new product development and should convey that innovation can apply to any organization - from manufacturing to local government and tourism enterprises.

Innovation in the tourism sector usually involves a series of small steps leading to incremental growth; improving margins by simply finding better ways of doing what you are already doing. It is often said that those people who can take a ‘breakthrough’ idea or innovation, improve it, add value or who can deliver it to the market at a better price are the ones who become the biggest winners. They are sometimes referred to as ‘Fast Seconds’. Click here to read more about becoming a ‘Fast Second’.

You often hear people say that someone in business has had a string of good luck. It’s rarely good luck, but usually results from a systematic thinking process, through which success breeds success. Innovation should be part of a businesses investment strategy.

The innovation process is not so much about ad-hoc brainstorming or engaging consultants (though both these can help), but rather it is about learning to be open in your thinking, embracing a desire to move forward through trying new things and, within reason, not being afraid to fail. If such an approach becomes imbedded in all that you do, and an organizational culture develops as a result, the creation of one innovative product or process inevitably leads to another. Systems that encourage bottom-up innovative ideas to emerge need to be developed and fostered, particularly within larger organizations. Shop-floor solutions for new ways of operating are often overlooked or do not get to see the light of day.

A degree of risk is inherent in being innovative and for many people this risk can be enough to inhibit or kill the process. However, the risk of not innovating can mean falling behind technologically or sociologically, falling into inertia and losing ground to competitors.

The Chairman of INNOVIC and the Director of 'Swinburne Knowledge', Bruce Whan, offers the following preliminaryy checklist to assess new ideas:

1. Does/ will it meet a market need (ie economic) or a market want (ie fashion) ?
2. Is it technically feasible ?
3. Is it economically feasible ? (can it be made or delivered at a price that the market will bear ?)
4. Is it competitive (what do you have to displace from the market?, what is your big advantage?)
5. Do you know the marketplace and the industry ? (an idea needs the rifght market environment, ie timing)
6. Have you got the right business model to make money ? (and is the model practical for you to do ?)

(Delivered in a lecture for Victorian Business Week 2008, Melbourne Town Hall)