The Definitive Guide to Business Innovation

Understanding how and why companies innovate is crucial to growing your business. Innovation is a key component of the Pragmatic Framework. That’s because without innovation, you risk slow or no growth—and you may find your competitors leapfrogging ahead of you in your industry. 

When you foster a corporate culture of innovation and combine it with focus and discipline, you tap into the vast pool of creativity and ideas your employees can offer. With innovation, you can delight your existing and potential customers with products and services that solve problems—sometimes problems they didn’t even know they had. 

Creating an environment that welcomes and encourages innovation can springboard your company toward smart, rapid growth and position your business as an industry leader. With this guide, you’ll learn why innovation is so important, how to foster it and how to make it part of your corporate culture.

Defining Innovation

Innovation is a process where you tap into your creativity and generate ideas so you can discover new ways to do things. In the business world, those things are usually new or improved goods or services. But they can also be other aspects of your business.

Innovation is subtly different from invention, but the difference is important. With invention, you create something that’s entirely new. With innovation, you build on existing ideas, or use existing ideas in new ways.

Innovation is also different from improvement. With improvement, you make a change that’s incrementally faster, cheaper or more efficient. Improvement generally leads to slow, steady gains. With innovation, your changes take you in a fundamentally different direction. Innovation can lead to rapid growth.

In her book, Secrets of Silicon Valley, Deborah Perry Piscione writes, “Innovation refers to the notion of doing something differently rather than doing the same thing better.” Your company can use innovation to develop new and better products, processes, workflows, marketing strategies and business models. Ultimately, the goal of business innovation is to earn your company more money.

Why is
innovation important?

In Innovation and Entrepreneurship, Peter Drucker wrote, “Of course innovation is risky. But so is stepping into the car and driving to the supermarket. All economic activity is by definition ‘high risk.’ And defending yesterday—that is, not innovating—is far more risky than making tomorrow.”

If you don’t innovate—if you depend on steady, incremental improvements to grow your business—you risk losing customers to another company that disrupts your industry. It happened to the taxi industry with Uber and Lyft, to retailers with Amazon and to hotels with Airbnb and VRBO.

market problem vs needs

Innovation can help your company grow and thrive. Your customers, prospects, shareholders and potential employees all expect you to innovate. Across industries today, the companies that lead are all innovators. And research shows that companies that innovate based on their customers’ needs outperform other companies.

Innovation also adds value to your company. Piscione writes that innovation is responsible for the share of your company’s market value that you can’t attribute to the value of your cash flow that comes from your current products. Companies can capitalize on their innovative thinking. For example, during Steve Jobs’ second tenure at Apple, the company’s innovation premium was 52 percent.

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If you don’t innovate—if you depend on steady, incremental improvements to grow your business—you risk losing customers to another company that disrupts your industry.”

What does fostering
innovation mean?

Pragmatic innovation answers this question: How can my company deliver more value to the right customers? When you innovate, you solve problems in ways you can afford and can replicate. Thinking innovatively can position you to move into new markets quickly.

Without this understanding, it’s difficult to achieve success and sustain long-term sales. Because customers will either decide not to buy or buy and then not use the product, hurting your chances of repeat business.

A business that fosters innovation takes the right steps in three crucial areas:

  • They create a corporate culture where employees are empowered to be innovators. Innovation requires a focus on solving your customers’ problems. So, a company that’s designed to foster innovation will create opportunities for employees to interact directly with customers. That means you reward employees for the time they spend outside the office, rather than the time they spend answering emails and attending meetings. You can set a quantifiable goal to encourage employees to connect with customers. For example, you may ask them to target 10% of their time to conversations with people in the markets you serve. 
  • They focus on opportunities that have the best return on investment. Steve Jobs said, “Innovation is saying no to one thousand things.” It’s tempting to chase after your competition or the latest new idea. But to keep your focus, ask yourself these two questions: Who are you trying to delight? And what will you build to delight them? Your answers will guide you toward the opportunities that will provide the highest returns. 

They have the discipline to maintain focus on the things that matter the most. You need the discipline to keep your corporate culture oriented toward innovation and to stay focused on the opportunities that will bring you the greatest return.

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Innovation is saying no to one thousand things.”

Keep in mind that innovating doesn’t mean creating new ideas from scratch. Sometimes the most innovative ideas come from existing ideas that are used in a new way, applied to a new problem or tested in a new industry.

Who is responsible for driving innovation?

Everyone in your organization can—and should—be thinking innovatively, even people who might not think of themselves as creative, such as product managers, project managers, accountants and IT professionals. Psychological tests have found that creative talent is widely distributed. That means you’ll find creative people throughout your organization, even (maybe especially) among people who don’t think of themselves as creative.

In Secrets of Silicon Valley, Piscione writes, “IDEO’s CEO, Tim Brown, believes that the best innovators are T-shaped—they need to have deep expertise in one area and a broad interest in many others.” People innovate when they first take information, data and opinions from throughout their lives, both at work and outside of work. Then, when their brain is quiet—as they are showering, washing dishes, walking, etc.—their brains subconsciously play with their thoughts. New ideas spring to the surface.

Your employees are a wellspring of knowledge, experience and creativity. Creating and fostering a corporate culture that taps into their potential for innovation is crucial for long-term success.

Register for Pragmatic Institute’s Foundations class today

How to Foster Innovation In
Your Organization

In their book, The Innovator’s DNA, authors Jeff Dyer and Hal Gregersen found that innovators share five characteristics. Innovators are:

  • Associating
  • Questioning
  • Observing
  • Networking
  • Experimenting

Innovators have a mindset that is oriented toward change. When they see a product, service or business model, they imagine how it could be better. Best Practices for Uncovering Market Problems, “There’s just no substitute for talking to people.”

When conducting market research, Mace says, you need to focus on two things:

  • Be sure you’re talking to people who are representative of your core customers.
  • Make sure you’re using the right methodologies to gather information. That includes asking the right questions and being really careful about how you interpret the answers

one set of questions for solution

The authors believe that innovative companies have the same characteristics as these individuals. These companies work to attract creative people and to give their employees space to innovate. To help people think innovatively, you can encourage them to:

  • Talk to different people every day
  • Take time to relax, so their brains can connect unrelated ideas
  • Go to new places such as museums, parks and restaurants
  • Create art or write a short story
  • Listen to music
  • Change their work schedule

One technique that companies can use to foster innovation is job swapping—moving employees between divisions or even between businesses. Employees who are working in a new area are less likely to have preconceptions or make assumptions. So, they can view the work processes, products and services with fresh eyes and bring new ideas to the team.

Embracing diversity can also encourage innovation. That’s because people who come from different backgrounds and who have different life experiences will view problems differently, and will generate different ideas about how to solve them.

Conversations with your customers can also be rich grounds for innovation. If you can, meet your customers where they use your product or services and observe their challenges. Customers can’t always recognize or conceptualize the ways you can help them. A quote attributed to Henry Ford drives home the point: “If I had asked my customers what they wanted, they would have said a faster horse.”

You can also encourage innovation by challenging your employees to come up with a solution to a specific challenge. For example, you could ask them how they would improve profitability, pull ahead of the competition or move into a new market. Asking these questions shows your employees that you value innovative thinking. You also can give your employees tools like brainstorming and mind-mapping, and the time to explore those tools, so they can focus on developing their ideas.

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If I had asked my customers what they wanted, they would have said a faster horse”

When you innovate, you’ll face barriers and constraints. Use them to your advantage—think of barriers like lanes on a road, or constraints like the frame of a painting. Dig deep into them, so you can understand how to work with them. It can help to list your constraints so you can address them head-on. For example, maybe you need to upgrade your hardware or software. Maybe you need to train your employees. Recognizing your constraints can help you come up with workable solutions.

Once you create a culture that fosters innovation, you’ll find that innovative ideas and solutions snowball. Innovation doesn’t just come from disruptive startups—established businesses are built on a foundation of innovation. Think of companies like Apple that consistently bring innovative solutions to the market over decades.

What can
stall innovation?

The same key factors that can foster innovation—culture, focus and discipline—can kill innovation if they aren’t executed properly.

Corporate culture includes formal structures like organizational charts and job descriptions, and informal aspects like social relationships and the ways people manage communication and confrontation. The wrong corporate culture can work against innovation. For example, your corporate culture could send the message that failure is not an option, when in fact failure gives you the opportunity to learn quickly. Or your corporate culture may reward perfection, when you would be more innovative if you got your products and services in front of your customers as early as possible despite minor imperfections.

An innovative culture looks outward, toward current and potential customers. Too much focus on tactical work rather than strategic work—on internal emails and meetings rather than face time in the market—thwarts innovation.

Without focus, you allow yourself to chase every idea that sounds promising or every rumor about something your competitor is doing. You’re not thoughtful about where you spend your time and energy. You don’t take the time to create a target and aim for it. You might create solutions that help an individual customer without evaluating whether they’ll benefit a large portion of your customer base.

A lack of discipline can also kill innovation, since it can lead to situations where you never finish your projects. Without discipline, you don’t take your idea through testing before you get sidetracked with new ideas or changes.

You can also stall innovation by not thinking about the bigger problem you’re solving. If someone hires you to build a bridge, the problem isn’t necessarily that you need a bridge. The problem is getting people and things from one place to another. Maybe a bridge isn’t the answer. Perhaps a ferry, a cable car or even a zip line is a better solution.

Bridge or Air ballon to cross the gap

 

You can also stall innovation by not thinking about the bigger problem you’re solving. If someone hires you to build a bridge, the problem isn’t necessarily that you need a bridge. The problem is getting people and things from one place to another. Maybe a bridge isn’t the answer. Perhaps a ferry, a cable car or even a zip line is a better solution.

Innovative ideas lose their value if they can’t find their way to the people who can implement them. You need systems for capturing and reviewing ideas. You might create spaces like chat rooms or Slack channels where people from across the company can share ideas.

In addition, you need to be prepared to refocus your ideas when they don’t work in the way you anticipated. Otherwise, you risk abandoning a great idea when you hit the first challenge in evaluating or implementing it.

For a more in-depth look at innovation killers, listen to the Pragmatic Institute podcast.

Examples of
Innovation

Innovators collect, borrow and adapt existing solutions to suit their needs. Here are a few innovation business case examples:

Häagen-Dazs was looking for new ice cream flavors it could introduce in North America, since new flavors keep people interested in ice cream and drive sales. The company considered getting a group of chefs together to develop new flavors. Instead, they looked to the global reach of their company and borrowed the caramel and vanilla-based flavor dulce de leche from Argentina. It became one of their top sellers in North America.

A company called TelePizza took the Domino’s pizza model and brought it to Spain in 1987, when takeout and delivery meals were less common there. It adapted the flavors, delivery speeds, pricing and other factors for the Spanish market, but used the core idea it borrowed from Domino’s. TelePizza now has more than 1,000 stores in Europe.

Band-Aid watched how its customers used its product and observed that people cleaned the wound, treated it with an antibiotic ointment and applied a bandage. So, Band-Aid introduced a bandage with an antibiotic already added, so customers could combine two of the steps. And its customers were willing to pay more for this premium product.

When Innovation
Goes Wrong

Pragmatic Marketing instructor Diane Pierson uses the word “sinnovation” to describe innovation gone wrong. Sinnovation usually occurs when a company increases prices or changes a product in the belief that it’s adding value for their customers, when in fact it is serving its own interests. Customers see through it, and it erodes trust.

For example, hotels save money by not washing towels every day. But when they put signs up that claim they are helping the environment by taking this step, and they aren’t taking any other eco-friendly actions, customers know they are only cutting costs.

Charges like resort fees or restocking fees also fall under the sinnovation umbrella. That’s because with these charges, companies often claim they are offering their customers convenience, when in fact they are simply increasing fees.

And companies sometimes find themselves in the sinnovation trap when their products mature and growth begins to slow. They don’t want to accept 1% or 2% annual growth, so they reverse-engineer growth by adding features customers might not need or want in order to justify a price increase.

Pierson points out that it’s fine to give your customers the option to purchase upgrades or features. You just need to make it clear that you’re providing a certain product or service for a certain price. If your customers feel you’re not being honest with them, you’re in sinnovation territory.

For a deeper dive into innovation gone wrong, listen to the Pragmatic Institute podcast.

Learn More About How to Foster Innovation

By fostering innovation, you can boost your company’s profits and propel your business to a position as an industry leader. Register for Pragmatic Institute’s Focus class today to learn more about why and how to drive innovation in your workplace.

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