WHAT IS INNOVATION ?

How much does your company focus on innovation, and how does it stack up against competitors? Innovation is the deciding factor in the success of a company. It’s that a-ha moment when solving a corporate challenge. It’s the approach that generates new products, new sources of revenue, and new points of contact between a company and its consumer. But it’s not easy. The term innovation derives from the Latin innovatio, the noun of action from innovare.The Etymology Dictionary further explains innovare as dating back to 1540 and stemming from the Latin innovatus, pp. of innovare “to renew or change,” from in-“into”+novus”new”.The central meaning of innovation thus relates to renewal or improvement, with novelty being a consequence of this improvement. For an improvement to take place it is necessary for people to change the way they make decisions, or make choices outside of their norm. Schumpeter c.s. (~1930) states that “innovation changes the values onto which the system is based”.

When people change their value system, the old (economic) system will change to make room for the better one. When that happens innovation has occurred. Innovation can be seen as something that does not something that is. On a lower level, innovation can be seen as a change in the thought process for doing something, or the useful application of inventions or discoveries. It may refer to incremental, emergent, or radical and revolutionary changes in thinking, products, processes, or organizations. In many fields, such as the arts, economics and government policy, something better must be substantially different to be innovative. In economics the change must increase value, customer value, or producer value. The goal of innovation is positive change, to make someone or something better. Innovation and the introduction of it that leads to increased productivity is a fundamental source of increasing wealth in an economy. Innovation is an important topic in the study of economics, business, entrepreneurship, design, technology, sociology, and engineering. Colloquially, the word “innovation” is often synonymous with the output of the process. However, economists tend to focus on the process itself, from the origination of an idea to its transformation into something useful, to its implementation; and on the system within which the process of innovation unfolds. Since innovation is also considered a major driver of the economy, especially when it leads to new product categories or increasing productivity, the factors that lead to innovation are also considered to be critical to policy makers.

In particular, followers of innovation economics stress using public policy to spur innovation and growth. Those who are directly responsible for application of inventions are often called pioneers in their field, whether they are individuals or organizations. When pioneers are followed by many others, the dominant value system may be replaced by the better one. When an innovative idea requires a new business model, or radically redesigns the delivery of value to focus on the customer, a real world experimentation approach increases the chances of market success. New business models and customer experiences can’t be tested through traditional market research methods. Pilot programs for new innovations set the path in stone too early thus increasing the costs of failure. On the other hand, the good news is that recent years have seen considerable progress in identifying important key factors/principles or variables that affect the probability of success in innovation. Of course, building successful businesses is such a complicated process, involving subtle interdependencies among so many variables in dynamic systems, that it is unlikely to ever be made perfectly predictable.But the more business can master the variables and experiment, the more they will be able to create new companies, products, processes and services that achieve what they hope to achieve. Once innovation occurs, innovations may be spread from the innovator to other individuals and groups. This process has been proposed that the life cycle of innovations can be described using the ‘s-curve’ or diffusion curve. The s-curve maps growth of revenue or productivity against time. In the early stage of a particular innovation, growth is relatively slow as the new product establishes itself. At some point customers begin to demand and the product growth increases more rapidly. New incremental innovations or changes to the product allow growth to continue. Towards the end of its life cycle growth slows and may even begin to decline. In the later stages, no amount of new investment in that product will yield a normal rate of return.

The s-curve derives from an assumption that new products are likely to have “product Life”. i.e. a start-up phase, a rapid increase in revenue and eventual decline. In fact the great majority of innovations never get off the bottom of the curve, and never produce normal returns. Innovative companies will typically be working on new innovations that will eventually replace older ones. Successive s-curves will come along to replace older ones and continue to drive growth upwards. In the figure above the first curve shows a current technology. The second shows an emerging technology that current yields lower growth but will eventually overtake current technology and lead to even greater levels of growth. The length of life will depend on many factors. The Global Innovation Index is a global index measuring the level of innovation of a country, produced jointly by The Boston Consulting Group (BCG), the National Association of Manufacturers (NAM), and The Manufacturing Institute (MI), the NAM’s nonpartisan research affiliate. NAM describes it as the “largest and most comprehensive global index of its kind”. The International Innovation Index is part of a large research study that looked at both the business outcomes of innovation and government’s ability to encourage and support innovation through public policy.

The study comprised a survey of more than 1,000 senior executives from NAM member companies across all industries; in-depth interviews with 30 of the executives; and a comparison of the “innovation friendliness” of 110 countries and all 50 U.S. states. The findings are published in the report, “The Innovation Imperative in Manufacturing: How the United States Can Restore Its Edge.” The report discusses not only country performance but also what companies are doing and should be doing to spur innovation. It looks at new policy indicators for innovation, including tax incentives and policies for immigration, education and intellectual property.