Mention the word “innovation” and most people will think of extraordinary inventions created by solitary geniuses. But the majority of business innovations today are quite the opposite. The companies that generate them thrive on collaboration, a free exchange of ideas and regular interactions with customers and other stakeholders. They innovate not necessarily to revolutionize their industry — although that may happen to a lucky few — but to meet specific objectives and carve out a competitive edge.
Perhaps most important, however, is that innovative companies do not outsource this function to a department or committee. Nor do they hastily come up with an innovation plan when the corporate strategy calls for it. Rather, for them innovation is a way of life. It is what they do. And to do it well, they change whatever needs
to be changed, whether it’s their organizational structure, their business processes, or even their core products or services. Yet this doesn’t happen randomly: leading companies do follow a process to innovate. Our research has found that this tends to be a spiraling, iterative approach that embeds innovation in every aspect of the organization.
The circle in the middle (Innovation spiral) shows how companies can gain competitive advantage, which is typically the purpose of innovation. The following are the components of the spiral:
Areas of innovation
Organizations typically innovate in three areas: products and services, processes, and business model. Our research shows that although product and service innovations certainly help businesses obtain a competitive edge, business model innovation tends to confer more lasting benefits.
Innovation has, up to now, typically followed a three- step process — idea creation, development and exploitation. Our research reveals a major shift in how leading companies go about innovation today. Intuition is the process of obtaining ideas, from anywhere and everywhere. Socialization happens when the idea is discussed and debated with other people, formally and informally. After this process of ideation, the resulting idea goes through development and exploitation. In the spiral approach, innovation doesn’t always need to start at the intuition phase but can start anywhere in the framework. If there are unanswered challenges at any stage, then the process can go backward until the issue is resolved. For example, new products may be rolled out and tested on consumers before the next phase of development, usually involving customer feedback or user experiences.
The most innovative organizations collaborate throughout the process to access diverse internal and external expertise. This involves working with customers, investors, suppliers, governments, financial services, competitors, academics and other companies.
These are the internal factors necessary for the innovation spiral to work. At the top are leadership mindset and culture: organizational leaders must be innovative and take risks to achieve competitive advantage. Once innovation is embedded in the culture, seven other key factors need to be aligned to allow innovation to flourish: people and skills, technology, infrastructure, organization and governance, risk management, measurement and key performance indicators (KPIs), and funding.
The right column (Business outcomes) shows that companies innovate to achieve five key business outcomes: profitable growth, customer engagement, business sustainability, productivity and business agility. The challenge is to focus on all of these outcomes together, rather than favoring one over another, which compromises the ability to anticipate change and drive growth.