By Praveen Gupta

Developing a systematic innovation strategy from scratch is a challenge many companies are facing in today’s fast-paced world. This series of articles will focus on the steps a company should take in creating its own innovation practice, one that is developed specifically for its product, process or service. Step one is identifying the company’s type of innovation. Step two is scouting and strategizing for innovation. Step three is committing to, and cultivating, an innovation environment. Step four is to innovate disruptively. The fifth, and final, step is to sustain innovation.

Once a company has invested in deploying innovation through cultural transformation, it is important that the culture of innovation is sustained. Any company should begin its innovation journey with the end in mind; in this case, an effort to sustain innovation must be carefully planned and practiced to perpetuate the culture of accelerated introduction of new products or solutions.

Return on Innovation

Most studies show that it has been difficult to establish a correlation between innovation and corporate performance. Even worse, surveys of CEOs have found an adverse relationship between investment in innovation and corporate performance. Such existing situations and executive perceptions may be a contributing factor for the confusion concerning the topic of innovation, and for a lack of commitment to systematic innovation. The best way to sustain innovation is to ensure there is return on innovation.

Innovation Intent

Many companies consider growth in revenue as return on innovation; many times growth in revenue, however, does not translate into more money for the organization – so there is no return on innovation. Though the revenue growth will somewhat reflect the role of a company’s innovation, it does not say anything about the effectiveness of innovation. To ensure return on innovation, profit growth must also be ensured. Innovative products not only provide more opportunities for revenue growth, they also enable better margins on sales.

Innovation can have multiple dimensions of impact on corporate performance and can beanalyzed by the following categories:

• Most innovative: revenue growth (so named in Business Week in a 2006 analysis of the “most innovative companies”)
• Best innovative: profitable growth due to innovation
• Managed innovation: a causative relationship exists between the innovation and the resulting outcome
• Return on innovation: the financial return on investment in innovation

The following table shows a ranking of companies using the above four various methods – the rankings differ based on the particular classification of the innovative company.

In order for a company to sustain innovation, it must regularly introduce new products and services with significant innovation components, and emphasize the commercialization of its innovations in order to maximize its return on innovation. As the table above shows, even a look at five companies shows that return on innovation (measured in dollars) is far from being maximized. It highlights the need for institutionalizing innovation, and improving efficiency and effectiveness of the innovation process.

Linking Innovation to Corporate Strategy

Deploying innovation with a clear mandate for expected outcomes will yield random results. In many organizations, research and development and innovation become the end rather than the means to achieve business objectives. Innovation must create value, excitement and return on investment through leadership, planning and execution for innovation.

Corporations have objectives to be profitable on a quarter by quarter basis. The challenge in managing profit by quarter leads to decisions for a quarter that require mostly actions and little thinking. This leads to no room for innovation, while taking actions to cut costs. Such an approach is counterproductive to creating a culture of innovation. Organizations prioritize research and development projects for their importance to provide returns in the short-term. This strategy will haunt these organizations in the long-term.

Organizations must apportion resources for long-term research for fundamental and platform innovations, and for short-term development for derivative and variation innovations. Large organizations that sacrificed longer term technological research and development in favor of shorter term design innovations step into sudden crashing moments. Intel and Motorola are good examples of perennially successful companies in economic trouble due to a lack of fundamental innovations for developing new platform products. Intel needs fundamental innovations in process and manufacturing, while Motorola could benefit from breakthrough innovations in communication technologies.

Linking the corporate strategy to profitable growth will lead to planning for innovation at all levels. Successful companies continually look at their innovations from annual to ten- or twenty-year outlooks in order to perpetuate the culture of innovation. Maintaining profitable growth through innovation will bring purpose to innovation activities.

Accelerate Innovation

In the technology age information has become a commodity, with intelligence a competitive advantage. The ability to continually mine information to extract unique intelligence and create new knowledge must become routine activities. Continual analysis and interpretations of market, process, product and business information can be used to identify new areas of revenue growth and innovation. Corporate leadership must develop plans to introduce innovative products, services or solutions to generate achieve margins and revenue growth. Expectations for introducing new products, solutions and services create a schedule for efficient and predictable innovation – requiring a process that works for the organization consisting of inspiring leadership, creativity culture, idea management, engineering skills, optimization tools, operations capability, marketing resources and economic mindset.

Every organization is an innovative organization to a varying extent. The challenge, however, is to innovate better and faster. Accelerating innovation requires formalizing and optimizing the innovation process by understanding its components, committing resources to the various types of innovations, and driving the success of the innovation process. The leadership must not question whether innovation works, but instead challenge the organization for more innovation.

Continual Renewal of Innovative Practices and Behaviors

The innovation focus must not become only a chief executive officer-level initiative. The culture of innovation requires the establishment of a compelling vision, clear direction and credible challenge for employees to be engaged and collaborate. The leadership must set the tone for positive behaviors in the organization for success that celebrates every employee’s strength rather than look for poor performing employees in the organization. Innovative organizations must aim to enable every employee to excel rather than create a bureaucracy to identify excellent people that could stifle their creativity.

It is the responsibility of the corporate leadership to promote intellectual participation of employees by sincerely listening to employee ideas and rewarding value creation. Setting periodic challenges for employees to overcome, recognizing creativity and rewarding economic success through innovation will drive employee-driven innovative practices.

Most successful organizations also define their corporate values relative to their leadership and employee engagement. The values define decision making and prioritization on a daily basis. These values must incorporate intellectual involvement of employees for creating value for the organization, partners and society. The culture of innovation flourishes where thinking without constraints, execution within resources and celebration with success are practiced. Innovation is an investment that should – and must – pay dividends if led and managed with care.

Conclusion

Every organization must integrate organic innovation in its fundamental strategy of sustained profitable growth. Growth through mergers and acquisitions is more risky and expensive than in-house innovation if the innovation process is managed efficiently. Setting the innovation dependent strategy, and instilling values to trust employee strengths can lead to meeting most of the corporate objectives leadership establishes and challenges the leadership throws at its employees. Managing business by cost can lead to a downward spiral and has limited potential for success. Instead business dedicated to growth can lead to a culture of innovation and offers unlimited potential for success. Managing by cost constricts employees’ freedom to think, while leading for growth opens minds. Leading employees for growth is a positive experience for everyone – there should be no other choice.

About the Author:

Praveen Gupta is the lead author of Business Innovation in the 21st Century that organizes various aspects of innovation from concept to commercialization. He is the president of Accelper Consulting, which provides training and consulting services in innovation and teaches business innovation at Illinois Institute of Technology, Chicago. Contact Praveen Gupta at praveen (at) accelper.com or visit http://www.accelper.com.