The power of innovation

Innovation is an extremely hot topic. Everyone from CEOs, to IT experts and HR gurus claim that innovation is necessary for businesses to remain successful and profitable in this age of disruptive technology and commoditised services. But what exactly do people mean when they say innovation?

Innovation is more than a good idea

Despite a lot of hype to the contrary, being innovative doesn’t just mean brainstorming or coming up with weird and wacky new ideas. Those ideas are crucial of course, but without a process for implementing, testing and refining them, they are useless.

Innovation requires change, and successful innovation means measuring the impact of that change on productivity, sales or growth. Unfortunately many businesses struggle with both parts of this equation.

  • Innovate:
    Make changes in
    something established,
    especially by introducing
    new methods, ideas, or
    products

the power of innovation graph

Companies in the top quartile for innovation see a
significantly higher growth rate than other companies
do, according to research from Bain.

‘Managers who are skilled at executing clearly defined strategies are ill equipped for out-of-the-box thinking. In addition, when good ideas do emerge, they’re often doomed because the company is organised to support one way of doing business and doesn’t have the processes or metrics to support a new one,’ hypothesises the Harvard Business Review.

Almost half of the executives interviewed by PricewaterhouseCoopers said that innovation is a ‘competitive necessity’ for their organisation.

Finding the ideas

‘Remember that innovation generally comes from the people willing to challenge how things are done,’ says Matt Ballantine. The best innovators are able to stop and reframe the question rather than make incremental improvements on what already exists.


To make this out-of-the-box thinking a little more tangible, we can look at the Design Council’s approach to disruptive design, which is based on the principle of the ‘double diamond’:


The problem is that when many people try to come up with new ideas they stay within the second diamond, trying to refine an existing brief. Real innovation, however, occurs within the first diamond, when you go back and question the brief itself.

What questions to ask?

Of course, it’s all very well questioning the brief, but what questions do you ask of it? How do you interrogate a process or a product? The wealth of data and analytics now available to most companies could be the key.


‘Answering a series of questions – from “What data can we access that we’re not capturing now?” to “Can we deliver one of our capabilities as a digital service?” – will help companies find new ways to unlock business value,” argues the Harvard Business Review. Thinking of ways to digitise assets, create virtual platforms, or integrate third party data into your own can all open up new questions around what your business can do and how.

Digitising assets
The International Museum of Women hosts internet exhibitions of art created by women around the world for a fraction of what it costs a traditional museum to borrow, ship and display works. It has an online community of 600000 unique visitors who can communicate directly with the artists without ever leaving their home.

the power of innovation graph

So, we have a rough idea of what innovation is, and how you can spark it, but where in your company can you apply it to best effect?

The obvious: R&D

A recent report by Goldman Sachs found that, for technology, biotech and internet companies in particular, there is a strong correlation between R&D and sales and growth.


Since as far back as 2005, Samsung has been in the top 20 global R&D spenders, and in 2013 was second only to Volkswagen in the computing and electronics sector. And our investment in product innovation has paid off not only in terms of cutting-edge consumer and business technologies, but also in revenue for the company.


the power of innovation graph

Source: Booz &co. The Global Innovation 1000: Top 20 R&D Spenders 2005-2013

The profitable: IT

It’s not just investment in new product ideas and design that have been shown to pay off though. Research published in the MIS Quarterly has shown than investments in IT, especially those made since 1995, have a ‘significant positive impact on profitability.’

What’s more, those benefits don’t just come from savings in efficiency or operating costs, but have a big impact on revenue too. In fact, a $1 increase in IT expenditures per employee was associated in the study with a $12.22 increase in sales per employee.

The best way to innovate through IT, according to Matt Ballantine, is to be sure you know which processes absolutely cannot be changed, open IT to the whole company so that the CIO’s role is advisor rather than controller, and most importantly, ‘(re-) kindle a love of, and skill in, learning within your organisation’.

The hidden power of
innovative IT

‘Investment in IT had a greater impact on a company’s profits than comparable spending on either advertising or R&D,’ says the Information Technology and Firm Profitability: Mechanisms and Empirical Evidence report.

‘To innovate in this age we need to know that we are learning from what we are doing, and acting appropriately along the way. That's not a repeating process - it's a learning process,’ he says.

The unexpected: HR

‘Trust people, not policies. Reward candor. And throw away the standard playbook,’ says Patty McCord, former chief talent office at Netflix.

Netflix is a prime example of how innovation in HR can create a happier, more appealing place to work, where people understand what it means to put the company first. By instilling trust, and refusing to create overly rigid structures, Netflix has developed a place where people will put in the extra effort because they understand the long-term benefits for both themselves and the company.

the power of innovation graph

Why hiring right eliminates the need for costly policy
‘If you’re careful to hire people who will put the company’s interests first, who understand and support the desire for a high performance workplace, 97% of your employees will do the right thing. Most companies spend endless time and money writing and enforcing HR policies to deal with problems the other 3% might cause.’ – Patty McCord

HR is really just one example of an area of the business that many people assume should remain traditional. Simply having an innovative service, or method of product delivery doesn’t make you an innovative company; you need to be open to change and challenge in all areas of the business.

The bottom line

While we have covered the why and where of innovation, what remains is the how. It’s important to have a coherent innovation strategy, as data gathered by PricewaterhouseCoopers proves.

the power of innovation graph

The most innovative companies will more often than not have a coherent innovation strategy; something many of the least innovative are sorely lacking.

For innovation to be a success you need to engender a culture of trial and error. Matt Ballantine goes so far as to suggest rewarding failure, to ensure those with new ideas are not afraid to speak up.

Leading by example is also key; if those at the top are seen to try new things and learn from experience, those throughout the company –whether product experts or customer facing – will be encouraged to do the same.

Ultimately, companies need to implement and continuously repeat three simple steps: innovate, learn and grow.