Eddielogic

– Thoughts on Strategy and Management

How innovative is your organization?

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In this post I would like to discuss some aspects of innovation. In doing so I will start with a definition; after this I will present some aspects that organizations should consider when focus on innovation.

Term. The term innovation puts an emphasis on the first time business application of discoveries (business application here means invention, development and introduction) to increase competitiveness, economic power and efficiency. James F. Moore described the impact of innovation this way: “Success in today’s business world is based on innovation. All organizations have the potential to gain large profits if they are able to develop processes, products and services more efficiently than their competitors.” in his book “The death of Competition” (1996).

Essence. Taking into account the scope of innovation, fundamental or radical innovations (fully new improvements) and improving innovations (systematic improvement of existing processes and products) can be distinguished. Innovations can have different objects. It is possible to innovate products (product innovation) as well as services, processes (process innovation, e.g. of production processes), organizational (structure innovation) and HR matters (social innovations, e.g. management instruments). In most cases products and processes are objects of innovation. Product innovations have the objective, to better fulfill customer needs or to enable their fulfillment at all. Opposite to this process innovations put an emphasis on increasing efficiency.

What can you do to support an innovative approach within your organization?

Innovations have a link to creativity, to synthesis of existing ideas and knowledge, and to the development of new ideas. To achieve a true innovation status it is also essential to achieve readiness for marketing using ingenuity and R & D. Hence flexibility and risk taking are further essentials to achieve readiness for marketing.

The organizational ability to learn is another important precondition. In terms of innovation, learning is important in two different ways. The organization has to have the ability to discover and to learn new interrelationships. But it is also essential that the organization has the ability to delete knowledge which has been “unquestioned” so far and to forget old knowledge.

It is also important to allow scope for developing innovations. On one hand not every innovation offers a direct benefit right away. To identify and to understand new relationships it is essential to offer room for development. On the other hand limited resources and the need to fulfill the corporate objective represent a constraint. Hence it is recommended to establish a counter balance. For this purpose work being undertaken should be monitored very strictly. The employment of these two approaches results in a duality of protected “innovation freedom” and rigorous performance review.

To allocate resources to oneself rooms for innovation is it recommended to use a gated funding approach. The consumption of resources is linked with the achievement of specified goals, milestones and hurdle rates. If an innovation does not meet a certain expectation (that can be expressed by a milestone) the activities related to it will be stopped as a general rule. Using this approach an organization can avoid to end in a sunk-cost dilemma; a situation where only the resources (money) spent so far force the organization not to stop the project and to invest more capital into the innovation.

Outlook

In the next couple of weeks I will present a very interesting paper about innovation management that highlights a large number of aspects (including how to consider innovation within your strategic planning processes) and that will also present some very interesting case studies from real organizations. Therefore I would recommend coming back to this Eddielogic.com.

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