Innovation stands out as being one of the most important factors driving the success or failure of business. The high level of importance for this factor has been evident over the past 20 years in particular. Of course, innovation has been part of commerce for centuries, possibly millennia. But never before has it been more broadly applied across so many types of businesses.
The Spread of Innovation
The spread of innovation today covers virtually every corner of commerce: communications, manufacturing, transportation, agriculture, medicine & healthcare, retail, consumer products, sports, and entertainment. Innovation has been easier to come by with advances in technology, particularly in computing power and engineering. Through the application of these technologies, it is possible to produce ever more innovative products and services.
Innovation is important in product and services marketing, both in Business-to-Business (B2B) and Business-to-Consumer (B2C) markets. Business people depend on the latest technologies to improve products and services, and add value to their offerings. Consumers buy innovative new products (like smartphones), and traditional products with innovative new features (like cars that park themselves). Consumers use services that save them time and money, and make their lives easier. Innovation is at the core of these new services.
Innovation an Element of Productivity
Innovation in manufacturing and services often leads to increased productivity. Boosting productivity, doing more with less, yields a return on investment for both the producer and the buyer. Companies and the economy can therefore expand at a faster rate than would be possible without innovation-inducing productivity.
Innovation in productivity and in features, is also being driven by competition from low-wage economies. In both products and services, if there is no differentiation by innovation, then the low-cost provider wins.
Innovation in Steps and in Bounds
Innovation can occur in small, incremental steps, and also in great leaps. Products and services that are already proven successes usually benefit from the smaller steps.
There are now many cases where giant leaps forward have occurred through innovation. Recent examples include cloud computing, social media, smartphone apps, etc. The leaps that occur usually render great benefits upon the innovators and the customers, be they businesses or consumers.
The Downside of Innovation
Unfortunately, some innovations in business economics incommensurately reward scale and power. Examples include Concentrated Animal Feeding Operations (CAFO) monoculture agriculture, and the financial tomfoolery of 2008. Innovation has made lowering costs through scale much easier, which has led to concentrations of market share. Bigger has been better. You name the industry and that has been the case. Unfortunately, the hidden costs, often called externalities, that result from scale are rarely accounted for.
The downside of this trend toward bigness can be seen all around: the concepts of “too big to fail”, excessive off-shoring of production to countries with lower costs and poor human rights, reduced competition due to mergers (resulting in smaller pools of management talent and less risk-taking), insular management, and greater reliance on non-renewable energy in production and transportation. Of course, innovation is not the cause of these ills, but it is a facilitator. It speeds up the process of both good and bad effects.
The Future of Innovation
Innovation can also be used to reverse the trend toward “bigger is better”. Smaller is nimbler. When smaller enterprise proliferates, smaller also has the advantage of more minds in management positions working to solve problems, taking risks, and making a bigger economic pie.
A reversal from “bigger is better” can also take place through heavy-handed government action, of course. However, reducing or eliminating tax loopholes and subsidies for established businesses, and recognizing and pricing externalities (such as with a carbon tax) are market-based and inherently fairer. When the system is fairer, there is less reason for individuals or businesses to try to game the system.
Being Mindful and Acting on Innovation
An organization that has a culture of innovation is one that consciously supports risk-taking. Human resources must be mindful of the importance of risk-taking, and hire employees who are willing to take prudent risks. When a company actively seeks out innovation from it’s employees, then innovation is much more likely to take place. On the other hand, if a corporation’s management is insular, and primarily trying to please its board through the management of quarterly expectations, then it is much less likely to be innovative.
Any organization seeking to be more innovative might consider the taking on the following as creed: frequently think about what can be done to make the product or service better. As a group, agree on it, write it down and commit to act. The results will likely make the effort worthwhile.