This short article looks at what innovation is. Like many things, it has a different meaning to different people, businesses and markets. Indeed, the following example definitions demonstrate just how difficult it is to describe innovation. So, what is innovation?
Innovation was defined by Joseph Schumpeter, the Austrian economist as:
1. The introduction of a good (product), which is new to consumers, or one of higher quality than was available in the past;
2. Methods of production, which are new to a particular branch of industry. These are not necessarily based on new scientific discoveries and may have, for example, already been used in other industrial sectors;
3. The opening of new markets;
4. The use of new sources of supply;
5. New forms of competition, that leads to the restructuring of an industry.
(Schumpeter (1934) ‘The Theory of Economic Development’ Harvard University Press, Boston)
There are other definitions, the UK Innovation Department (part of the then Department of Trade and Industry) defines it as the ‘successful exploitation of new ideas’, Richard Branson in a DTI Lecture in 1998 defined ‘an innovative business is one which lives and breathes ‘outside the box’. It is not just good ideas, it is a combination of good ideas, motivated staff and an instinctive understanding of what your customer wants.”
Moving away from theory, from a business perspective, innovation is all about the commercial exploitation of new ideas. These new ideas could be a new, revised product or service or an extension to an existing range (think of the changes in Apple’s iPod as a good example of this). Successful innovation could be about the process of producing the good or service itself. Examples of this include improved operations or a streamlined supply chain. Innovation could be about positioning. An example of this is the low-cost airline industry or on-line customisation of products (again, Apple and its on-line store ability to configure your new Apple iMac or MacBook Pro!). More difficult to define, and indeed develop, innovation could be through a new paradigm. This is defined as ‘how we frame what we do’. Examples include new platforms, such as IBM reinventing itself as a consultancy business, or iTunes.
Innovation can further be split into incremental, radical and discontinuous. By far the most common is incremental innovation, which simply is doing something better. Radical innovation, which is slightly more elusive, is doing something different. The most difficult, and potentially threatening is discontinuous innovation. This tends to result in significant change, often through the emergence of completely new, unpredictable markets or as a result of a new technological breakthrough. The introduction of a new business model – such as Amazon – is an example of discontinuous innovation. An example of radical innovation might be the introduction of digital cameras.
Innovation is critical to the growth of an organisation. Innovation is all around us – and it does not have to be the headline grabbing breakthrough innovation of dreams. The majority of innovation is small and incremental in nature – are you/your organisation innovative? Do you/your organisation understand what innovation is?