What is the most critical factor driving success in the current competitive business environment? The unequivocal answer among business and technology leaders is innovation. The ability to bring new products, methods and technologies to commercial success has the potential to generate enormous economic benefits that can give an organization a competitive edge. Now more than ever, innovation is not an option, it's a requirement.

"In terms of innovation in today's business environment, it's more important than ever," explains Dr. Kishore Swaminathan, chief scientist at Accenture. One reason is that technology and market conditions are evolving at a more rapid pace than ever before. The challenge is to remain at the forefront of these changes. "In order for businesses to keep up, they need to be innovative," Swaminathan says.

Globalization is another important motivator for innovation. Dealing with the challenges of an increasingly global economy plays a big part in determining success. Although globalization presents opportunities, it also heightens competition that demands an emphasis on innovation. "We're seeing companies, especially when the economy takes a downturn, that are in big trouble because they haven't looked to the future in terms of innovation to put them into the next realm of competition," says Dr. Michael Goul, professor of information systems in the W.P. Carey School of Business at Arizona State University.

The global economy means organizations must deal with vastly different cultures and approaches to innovation. For example, Swaminathan points out that in the U.S., mobile phone technology has experienced evolutionary development, starting off with basic voice capabilities and evolving into more sophisticated features, such as Web browsing. However, in developing nations the mobile device has been a revolutionary technology in that many of the people in these nations never had even a wired phone or any access to the Web and suddenly they have a mobile phone with a Web browser.

"Even though some of the innovations that are going on are relatively simple, they are also really very interesting," Swaminathan says. "For example, in India, you can book a vacation with plane and hotel reservations almost entirely through SMS [short message service]. This is common in a lot of emerging countries but is not at all common in the U.S. or even in most of the rest of the Western world."

Another driver of innovation is Web 2.0. A new generation is growing up using Web 2.0 communities to interact with one another virtually. Social networking, online videos, blogging, content sharing and other means of Web-based communication are a significant part of daily life for young people, and this will affect how they do business and interact in the future. "Nobody really understands what their expectations are going to be in the workplace or from the companies that they buy goods and services from. This is an interesting unknown in terms of how the world might shape up," Swaminathan says. Web 2.0 will have a profound effect on technology and the ways companies conduct business, and innovative organizations will embrace that challenge.

Address obstacles
Companies need to do much more than develop better, less expensive products and services than their competitors. They need to add features, improve performance and be able to quickly launch new products into the marketplace. That, however, is not always a smooth process.

One of the challenges organizations face is what Swaminathan calls the "chicken and egg" problem, a predicament in which management wants to be innovative but doesn't want to take the risk without prior proof of success. "Of course, in order to prove it, somebody has to take the risk," Swaminathan says. "Companies that have a risk-taking culture, or the ability to encourage people to take risks and not seriously punish them if they fail, have the ability to break the chicken-and-egg problem."

Another cultural impediment occurs when organizations encounter resistance while attempting to embark on an open or external innovation strategy—that is, one that utilizes outside resources. Goul refers to it as the "if it isn't invented here, it's no good" mentality. "That's a culture that you have to change if you want to be more open to external partners in your innovation strategy," he says.

Organizations are also faced with the "ambidextrous innovation" hurdle, or the challenge of managing different types of innovation concurrently. "There are many different ways to implement and manage innovation, and you will probably have several types of innovation going on in your company at the same time," Goul explains.

For example, innovation can be internal, or closed; external, which involves exploring sources outside of the organization (customers, competitors, academics, firms in unrelated industries, etc.); or open, which entails investigating both internal and external sources for innovation projects. Going further, innovation can be:

	Incremental. Building or improving on current products and technologies
	Architectural. Rearranging existing components into new patterns
	Radical. Exploring new technology

Many organizations find greater success focusing on multiple methods of innovation as opposed to a single strategy. "A business that is strictly focused on internal innovation will miss out on what is happening elsewhere," says Goul. "On the other hand, if you just watch what everybody else is doing externally, then your ability to differentiate strategically is more difficult because you can't position yourself for something that hasn't already been in the external environment."

With multiple innovations emerging simultaneously comes the challenge of managing these different streams. Which types of initiatives are going to be the most important to the success of the business? Where do we allocate resources? "That's really the tough issue," says Goul. "How do we combine the different types of innovation and manage them as one big innovation strategy?"

Create the right culture
What does it take for a company to become, and stay, innovative? Experts agree that the first key is creating an organizational culture that is receptive to innovation. (See figure, above.) An organization's culture is often viewed metaphorically as an iceberg, which illustrates the importance of building an approachable culture throughout the entire enterprise. A small part of the iceberg is immediately visible, but beneath the ocean's surface it extends much deeper and can be significantly larger. In a business, the part of the culture above the surface is the visible culture, but looking below the surface reveals the hidden culture that more often supports, or inhibits, innovation.

"A major key to being innovative lies in creating a culture that's able to take risks at all levels of the company, not just at the top level, but all the way to the bottom and particularly at the middle-management level," says Swaminathan.

Top-level commitment is, of course, a necessity, but some companies, such as Accenture, have had even more success by infiltrating information into the culture as a long-term strategic project as opposed to a tactical one. "Creating a culture of innovation from top to bottom is going to take a while, but it really is key," he adds.

Creating an innovative culture also involves hiring the right people. "Creative people are not necessarily the easiest people to manage, but you have to have a culture of hiring, managing and giving enough breathing room to creative people," Swaminathan says.

Establishing a high-level centralized group that is able to make quick decisions about innovation rather than channeling through the regular hierarchy is another tactic that innovative businesses use.

"Some companies have a centralized group that keeps an eye on all the different types of innovation and manages it like a portfolio," Goul says. "If you let each innovation go its own way, you're really not implementing the strategy that you need for your company in the long term."

Swaminathan points out that in some cases, establishing a culture of innovation isn't enough to get a new product out the door. It's important for an organization to understand its limitations. If a new product or service is drastically different from what a company currently does, the best option might be to establish a new operation to handle the innovation. "A lot of companies will spin it off, either as a separate company or business unit," he says.

Businesses also need to emphasize consistent investment in research and development to successfully fuel innovation, particularly during difficult economic times. "You cannot cut down on that investment. It should be a relentless, consistent investment in innovation that will pay out in the long run," Swaminathan explains.

Goul suggests another key is recognizing the importance of developing and implementing an innovation strategy. Businesses need to make crucial decisions regarding which projects to pursue based on their value streams. One major company, for example, purchases all of the latest computer gadgets so employees can experiment with them. For another business, however, solutions that make its supply chain more efficient are higher in the value stream.

Developing a strategy also involves determining how the innovation will fit culturally into the organization and then how it will be assimilated into that culture. Finally, says Goul, you have to execute the innovation, which involves transforming processes, assigning people to see the innovation initiative through to completion and creatively marketing it.

Embrace the future
Innovation is central to developing new products, new services and new ways of doing business. With our technology-driven world and increasingly global economy, it is becoming increasingly more difficult to differentiate products and to keep up with new and changing markets. Successful organizations will embrace innovation and realize it can lead to faster growth, increased market share and better corporate positioning. T

Jackie Zack is a freelance business, marketing and technology writer based in Brighton, Mich.

Teradata Magazine-December 2008