- Oct 15, 2019
- Oct 10, 2019
Innovation has become common sense, a kind of oasis or holy grail of the corporate world. Every company (and every manager) is in search of some insight that will revolutionize the way the business operates and open doors to a new level of results. The problem is that, in the midst of this frenzy, the understanding of what innovation really means, the real importance of business innovation is lost.
With that in mind, we have prepared this article, which will take up the basics and try to answer one question: why is innovation so important to companies? In addition, you will also discover how to invest in it.
1. What is innovation
Innovation seems an abstract term, but its definition is clear. It is a process of implementing new ideas, aiming to generate value for an organization. It may involve the creation of a new service, product, system, or process, but it can also boil down to the one that already exists.
Contrary to what many people think, innovation (especially business innovation) is not limited to a moment of solitary genius. It's not a revolutionary idea that pops up when you're alone in your living room. Instead, to innovate, you need to:
a consistent process of formulating new proposals;
direct contact with what is intended to innovate.
2. Importance of business innovation
Innovating in the business world is a matter of survival. It is it that allows a business to continue to exist and bring long term results.
Innovation offers companies the advantage of penetrating more rapidly into existing markets, connecting with developing markets, or creating their own markets. If a company does not innovate, it is putting itself in a position vulnerable to any problem that may occur in the market in which it operates.
A simple way to understand what we are trying to explain is the famous case of the photo market.
Until the late 1990s, Kodak was a market leader in the camera segment. It even developed the first prototype of a digital machine, but did not invest in that innovation. What happened was that she lost the opportunity to create this new market.
Soon after, other companies (like Canon and Nikon) ran after this new idea and the newly opened market of digital machines completely absorbed that of analogue machines, with films and revelation. In that process, Kodak disappeared from the corporate map for many years.
Notice how, by losing the chance to invest in an innovation, Kodak put itself in a position of risk because it continued to depend on a single market segment. By the time this segment collapsed, she followed. Therefore, when a company innovates, it is ensuring opportunities for its survival in the future.
3. Other benefits of innovation
Now you know the real reason to pursue business innovation. However, it is clear that there are also very significant short- and medium-term benefits.
An innovation can improve your company's financial performance by increasing revenue or reducing costs. If your idea drives customers to buy more or pay more, revenue increases. If you allow the company to develop your product from raw materials or cheaper processes, the cost drops. Either way, there will be a positive impact on profit margin.
With innovation, it is also possible to achieve differentiation. That means you're going to "leave your competitors behind." It is worth remembering that there are many factors of differentiation and that you do not need to innovate in products to achieve this result. Some companies innovate in customer service, thus offering a better customer experience and positioning themselves at an advantage against key competitors.
Another benefit of business innovation can be in improving productivity. Since productivity is the limit of the growth of a company, any idea that allows to increase this limit represents the real opportunity of growth of the business. It's as if you have a farm surrounded by a fence, and every time you increase productivity, that fence moves another meter. Scalability is gained, that is, space to grow, to do more.
4. How to invest in innovation
When we talk about investing in innovation, the reader must be careful not to think that we are simply talking about financial investment. In fact, on the contrary. Financial investment is the last step. To get to it, rather, it is necessary to invest culturally.
The main source of business innovation is the employees. It is they who are directly in touch with the minutiae of everyday operation; they are the ones who deal with the main problems and failures; they identify opportunities for improvement.
To innovate, therefore, it is necessary to encourage employees to develop and present more ideas. There are numerous methods, but they won't work if you do not foster an open management style. Managers who demonstrate a need to centralize work and a narcissistic perspective do not offer a great stimulus to spontaneous collaborations.
Another important point is that employees must be sure that their innovations will be recognized - and, more importantly, that recognition will not be taken by others. After all, nothing is as frustrating as presenting an idea, seeing that it is being used for the benefit of the company and not receiving the credit.
Now, in relation to financial investment, flexibility is also required. But that is not enough. There must also be a method.
On the one hand, it is bad that a company is not open to investing in the new ideas that appear, as it can lose great opportunities. On the other hand, it is also bad that this company is open to invest in all new ideas, because not all will bring a return that justifies this investment.
The key, then, is to establish a process for filtering ideas and identifying which innovations have the potential to bring the greatest impact. In this way, it is possible to maximize returns and reduce the risk inherent in any new endeavor.
In this article, you have seen what is business innovation because it is important and how to invest. And you have learned that we do not only innovate in creating new products, this practice is not restricted to the production sector. It is possible to innovate in any area of an organization, even in people management.