Why innovation matters to companies

Evidence shows that those companies who pursue innovation are likely to survive longer and provide higher returns to shareholders. Given all the potential benefits, it does not come as a surprise that innovation has become an imperative.

The bad news is that innovation is not easy: making it a replicable process is challenging and many companies struggle to make it work.

According to the BCG Innovators report , three in four companies rate their innovation capabilities as average at best. Companies aim to innovate but they lack the capabilities. One could argue that innovation has always been challenging. Since the Industrial Revolution, companies have been forced to think and reinvent the way they create new products and services in order to survive.

Subscribe By providing us with your email, you agree to the terms of our Privacy Policy and Terms of Service. Return to Blog Homepage. What is Innovation? Download Our Free Guide to Introducing Innovation into Your Organization Why innovation matters and the steps you can take to make a meaningful impact on your current company. Innovation Helps Companies Grow As mentioned above, if you want to grow your business in order to become more successful and profitable, there are a few ways that you can go about achieving that goal.

Innovation Keeps Organizations Relevant The world around us is constantly changing, and in order for your business to remain relevant and profitable, it will eventually need to adapt in order to meet these new realities. More than new websites are created every minute. Innovation Helps Organizations Differentiate Themselves At the core, innovation is about doing something differently from everyone else operating in your space.

How to Embrace Innovation In order to drive business growth, stay relevant in changing times, and differentiate from the competition, business leaders must be able to think creatively and embrace innovation into their business models.

Related Articles. EdD vs. The best of our graduate blog—right to your inbox Stay up to date on our latest posts and university events. As these examples show, a management breakthrough can deliver a potent advantage to the innovating company and produce a seismic shift in industry leadership. Technology and product innovation, by comparison, tend to deliver small-caliber advantages. A management innovation creates long-lasting advantage when it meets one or more of three conditions: The innovation is based on a novel principle that challenges management orthodoxy; it is systemic, encompassing a range of processes and methods; and it is part of an ongoing program of invention, where progress compounds over time.

Three brief cases illustrate the ways in which management innovation can create enduring success. Unlike its Western rivals, Toyota has long believed that first-line employees can be more than cogs in a soulless manufacturing machine; they can be problem solvers, innovators, and change agents.

While American companies relied on staff experts to come up with process improvements, Toyota gave every employee the skills, the tools, and the permission to solve problems as they arose and to head off new problems before they occurred. The result: Year after year, Toyota has been able to get more out of its people than its competitors have been able to get out of theirs.

As this example illustrates, management orthodoxies are often so deeply ingrained in executive thinking that they are nearly invisible and are so devoutly held that they are practically unassailable.

The more unconventional the principle underlying a management innovation, the longer it will take competitors to respond. In some cases, the head-scratching can go on for decades. While other grocery chains have been slashing costs to fend off Wal-Mart, Whole Foods has been rapidly evolving an extraordinary retail model—one that already delivers the highest profits per square foot in the industry.

Managers consult teams on all store-level decisions and grant them a degree of autonomy that is nearly unprecedented in retailing. Each team decides what to stock and can veto new hires. What differentiates Whole Foods is not a single management process but a distinctive management system. Confronted by management innovation this comprehensive, rivals can do little more than shake their heads in wonder.

Sometimes a company can create a sizable management advantage simply by being persistent. Not every management innovation creates competitive advantage, however. Innovation in whatever form follows a power law: For every truly radical idea that delivers a big dollop of competitive advantage, there will be dozens of other ideas that prove to be less valuable. Innovation is always a numbers game; the more of it you do, the better your chances of reaping a fat payoff.

A management innovation can be defined as a marked departure from traditional management principles, processes, and practices or a departure from customary organizational forms that significantly alters the way the work of management is performed. Put simply, management innovation changes how managers do what they do. And what do managers do? Typically, managerial work includes. In a big organization, the only way to change how managers work is to reinvent the processes that govern that work.

Management processes such as strategic planning, capital budgeting, project management, hiring and promotion, employee assessment, executive development, internal communications, and knowledge management are the gears that turn management principles into everyday practices. They establish the recipes and rituals that govern the work of managers. In most companies, management innovation is ad hoc and incremental.

A systematic process for producing bold management breakthroughs must include. Key changes included. Translating a novel management idea like innovation from everyone, everywhere into new and deeply rooted management practices requires a sustained and broad-based effort, but the payoff can be substantial.

I have yet to meet a senior executive who claims that his or her company has a praiseworthy process for management innovation. As with other types of innovation, the biggest challenge is generating truly novel ideas. Some of the essential components are. Chunky problems. Fresh principles. Unorthodox thinking. Wisdom from the fringe. These multipliers of human creativity are as pivotal to management innovation as they are to every other kind of innovation. The bigger the problem, the bigger the opportunity for innovation.

Nearly 80 years ago, General Motors invented the divisionalized organization structure in response to a seemingly intractable problem: how to bring order to the sprawling family of companies that had been assembled by William C.

Sloan, Jr. Thanks to this management innovation, GM was able to take advantage of its scale and scope. It takes fortitude and perseverance, as well as imagination, to solve big problems. These qualities are most abundant when a problem is not only important but also inspiring. Frederick Winslow Taylor, arguably the most important management innovator of the twentieth century, is usually portrayed as a hard-nosed engineer, intent on mechanizing work and pushing employees to the max.

Awkward, inefficient, or ill-directed movements of men, however, leave nothing visible or tangible behind them. Their appreciation calls for an act of memory, an effort of the imagination.

And for this reason, even though our daily loss from this source is greater than from our waste of material things, the one has stirred us deeply, while the other has moved us but little. To maximize the chances of a management breakthrough, you need to start with a problem that is both consequential and soul stirring.

First, what are the tough trade-offs that your company never seems to get right? Management innovation is often driven by the desire to transcend such trade-offs, which can appear to be irreconcilable. Open source development, for example, encompasses two antithetical ideas: radical decentralization and disciplined, large-scale project management. Maybe you believe that your organization has become less and less agile as it has pursued the advantages of size and scale.

Second, what are big organizations bad at? This question should produce a long list of incompetencies. Third, what are the emerging challenges the future has in store for your company? Try to imagine them: An ever-accelerating pace of change. Rapidly escalating customer power. Near instant commoditization of products and services. Ultra-low-cost competitors. A new generation of consumers that is hype resistant and deeply cynical about big business.

These discontinuities will demand management innovation as well as business model innovation. Any problem that is pervasive, persistent, or unprecedented is unlikely to be solved with hand-me-down principles. More recently, scientists eager to understand the subatomic world have been forced to abandon the certainties of Newtonian physics for the more ambiguous principles of quantum mechanics.

That was certainly true for Visa. The ensuing chaos threatened the viability of the fledgling business. Modern management practice is based on a set of principles whose origins date back a century or more: specialization, standardization, planning and control, hierarchy, and the primacy of extrinsic rewards.

Generations of managers have mined these principles for competitive advantage, and they have much to show for their efforts. The future of innovation and technology in government for the greater good. Leaders who are shaping the future of business in creative ways.

New workplaces, new food sources, new medicine--even an entirely new economic system. Innovation is the key idea that is shaping corporate life, helping leaders conceive previously unimagined strategic options. Take acquisitions, as an example. You can, however, buy earnings through acquisitions for only so long; cost-control, however necessary, is a defensive strategy.

Innovation enables you to see potential acquisitions through a different lens, looking at them not just from a cost perspective, but also as a means of accelerating profitable top-line revenue growth and enhancing capabilities.

Innovation also provides an edge in being able to enter new markets faster and deeper. Innovation puts companies on the offensive. The company that builds a culture of innovation is on the path to growth. The company that fails to innovate is on the road to obsolescence.

The U. But they all fell behind as their challengers innovated them into second place or worse. Through observing the unique needs of Indian customers, particularly in rural villages where most of the population resides, it segmented them in new ways and put new features on handsets relevant to their unique needs. In the process, it created an entirely new value chain at price points that give the company its desired gross margin.

Innovation, thus, creates customers by attracting new users and building stronger loyalty among current ones.