Business innovation is an organization's process for introducing new ideas, workflows, methodologies, services or products.
Like IT innovation, which calls for using technology in new ways to create a more efficient and agile organization, business innovation should enable the achievement of goals across the entire organization, with sights set on accomplishing core business aims and initiatives. Innovation often begins with idea generation, wherein ideas are narrowed down during brainstorming sessions, after which leaders consider the business viability, feasibility and desirability of each idea.
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Business innovation should improve on existing products, services or processes; or it should solve a problem; or it should reach new customers.
Recent examples of business innovation include the introduction of the Dyson vacuum cleaner, whose creator and namesake James Dyson declared in advertisements that he set out to build a better product by applying industrial cyclone technologies to the household appliance. Ride-sharing companies (Zipcar, Uber and Lyft) represent an example of a service innovation. Gillette has billed its Mach3 razors as containing innovative technology.
Why business innovation is important
The purpose of the business innovation process is to create value for the organization. That value can come from creating new revenue opportunities or driving more revenue through existing channels; from creating efficiencies that save time, money or both; or from improvements to productivity or performance.
In short, innovation should lead to higher profits.
Additionally, the results of an organization's innovation process should yield a competitive advantage; it should help the organization to grow and reach -- or, better still, exceed -- strategic objectives.
Innovation vs. invention
Innovation and invention are closely linked, but the two terms are not interchangeable.
An invention is an entirely new creation. The process of business innovation can produce an invention, but the term is broader in scope and includes the application of an existing concept or practice in a new way, or applying new technology to an existing product or process to improve upon it.
To better understand the difference, consider this: The telephone is an invention, but the smartphone is an innovation.
Business innovation cycle
Although there's no one-size-fits-all formula for business innovation, organizations that are continually successful at business innovation have a repeatable process to generate, test and develop ideas that can lead to innovations.
The cycle is often broken down into four parts. It starts with articulating ideas around key areas (business models, marketing, process, products and service). The cycle moves through discovery then onto development and delivery.
The first phase focuses on the creation and recording of ideas as well as the preliminary evaluation of whether those ideas could produce value.
The next phase centers on testing the ideas through pilot programs or proofs of concepts, during which ideas and their value are further evaluated.
The last two phases center on scaling ideas, moving them into production and integrating them into normal business operations.
Business leaders often use different names for each of these phases. For example, some label the first phase ideation and the last phase implementation, but the steps for each phase are basically the same.
Some executives and managers further break down the cycle into even more phases, separating out items such as analysis, testing and review as separate steps.
Models of innovation
Business innovation can be grouped in various categories, or models. Some are self-explanatory, such as product or process innovations. Other types, and what they mean, include:
- Business model innovation: the development and implementation of new, unique concepts supporting an organization's financial viability, including its mission.
- Industry model innovation: the creation of a new industry or an organization's move into a new industry.
- Revenue model innovation: improvements and/or changes to an organization's framework for generating revenue, a goal also encompassed in the term, business model innovation.
Revolutionary vs. evolutionary
Business innovation can also be classified as either revolutionary or evolutionary.
Revolutionary business innovation yields a drastic change in a product, service, process, etc., which often destroys or supplants an existing business model. This is also known as radical innovation.
Evolutionary or incremental innovation involves smaller, more continuous improvements that, while important, are not drastic enough to shift a company or market into a new paradigm.
Disruptive innovation is a category that emphasizes the destructive aspect of revolutionary innovation; this term applies to business innovation that leads to the creation of a new market that displaces an existing one or, similarly, a significant upheaval in a category of products or services.
The pros and cons of business innovation
Business innovation, like most business initiatives, has both benefits and risks.
Organizations should recognize on the negative side that the business innovation process can be a costly undertaking that does not always produce a return on investment (ROI); that ideas deemed likely to succeed could still fail; and that stakeholders -- whether they're employees, customers, partners or others -- could fight the changes required to be successful.
On the other hand, organizations need to weigh those risks against the benefits of business innovation. Those benefits include the development of improved products and services, increased revenue and market share, organizational growth and new opportunities, and recognition as a leader.
Business Innovation Definition
And Which Are the Most Innovative Countries in the World
Innovation is the process of making (something) new or doing something in a new way.
In business, innovation also has to include the concept of improvement; to innovate in business is not just to do something differently, but to do or make something better.
A good business innovation definition, then, would be: Business innovation involves developing new products or improving existing technologies, processes, designs and marketing to solve problems and reach new customers.
In the business world, innovation often becomes little more than a synonym for research and development (R&D) - a ridiculously limited and limiting definition. Innovation, as the OECD puts it, "goes far beyond the confines of research labs to users, suppliers and consumers everywhere – in government, business and non-profit organisations, across borders, across sectors, and across institutions".
R&D is only one contributor to innovation. In fact, in the Global Innovation Index (GII), R&D is only one factor in a list of over 50 others that contribute to a country's innovation score. (Calculated as the average of two sub-indices, the GII assesses innovation as the average of a country's innovation input and innovation output. The Innovation Input Sub-Index gauges elements of the national economy which embody innovative activities grouped in five pillars: (1) Institutions, (2) Human capital and research, (3) Infrastructure, (4) Market sophistication, and (5) Business sophistication.
The Innovation Output Sub-Index captures actual evidence of innovation results, divided in two pillars: (6) Knowledge and technology outputs and (7) Creative outputs. For more information on how the GII is calculated and to read analysis of the most recent report, see The Global Innovation Index.)
The definition of innovation the Conference Board of Canada uses is "innovation is a process through which economic or social value is extracted from knowledge—through the creating, diffusing, and transforming of ideas—to produce new or improved products, services, processes, strategies, or capabilities."
For businesses then, especially small businesses, that want to be innovative, Scott Berkun provides excellent advice;
"...simply dedicate yourself to solving problems. It’s solving problems that matters. Instead of saying “our goal is innovation”, which is vague, say “our goal is to solve THIS problem for THESE people”..."
He defines innovation as significant positive change - a good barometer for small businesses to use to evaluate their innovation efforts.
Right now, the Big Challenge for Business Innovation Is Digital
Johan Aurik, Managing Partner and Chairman of GII Knowledge Partner A.T. Kearney, the global consultancy, says: “Digital has become a primary driver of strategy development and innovation for business in almost all sectors; I am convinced we are only at the beginning. Notably for established organizations, the challenge lies in finding ways to successfully innovate by using and transforming existing resources and business practices. Realizing success in today’s new landscape requires creative, forward-thinking strategies that embrace digital and address the need to change the fundamental ways of working in the company” (Global Innovation Index 2016).
What Are the Most Innovative Countries in the World?
It depends somewhat on who's making the list and what criteria they're using but South Korea, Switzerland and Sweden have consistently led.
Global Innovation Index 2016
- Switzerland 66.3
- Sweden 63.6
- United Kingdom 61.9
- United States of America 61.4
- Finland 59.9
(Canada ranked 15th with a score of 54.7)
Bloomberg Innovation Index 2017
- South Korea 89.00
- Sweden 83.98
- Germany 83.92
- Switzerland 83.64
- Finland 83.26
(United States ranked 9th with a score of 81.44, Canada ranked 20th with a score of 71.58)
Refer to the relevant Index to see exactly how each score was compiled.
What Does a Country Need to Be Innovative?
According to WIPO (World Intellectual Property Organization) Director General Francis Gurry, Innovation requires continuous investment. Before the 2009 crisis, research and development (R&D) expenditure grew at an annual pace of approximately 7%. GII 2016 data indicate that global R&D grew by only 4% in 2014. This was a result of slower growth in emerging economies and tighter R&D budgets in high-income economies – this remains a source of concern.
“Investing in innovation is critical to raising long-term economic growth. In this current economic climate, uncovering new sources of growth and leveraging the opportunities raised by global innovation are priorities for all stakeholders.”
Innovation in countries is measured by criteria such as:
- levels of R&D spending (public and private)
- numbers of scientific papers
- venture capital investment
- new patents, trademarks
- high tech exports
- cultural and creative exports
- levels of Technology manufacturing/ density
Factors such as political stability and safety, government effectiveness, rule of law and the ease of starting a business are considered to be innovation inputs in the Global Innovation Index - obvious necessities for innovation to flourish.
See also: 7 Ways to Kickstart Innovation in Your Business