Innovation is often the most misunderstood and misused management concepts. While common belief tends to relate innovation to product innovations alone like iPad, iPhone, Walkman, Facebook, etc. and such examples would have one believe that innovation is an extremely rare phenomenon and is very difficult to accomplish. However, innovation in organizations goes much beyond these examples of ‘Radical Innovation’.

Being the greatest source of organizational value creation in the dynamic new age economy, innovation is in fact possible either in the process or in the product. And depending on the industry, the pace and quantum of innovation may vary. In some industries, polishing existing processes might be enough, while in others one may need innovation that changes both the product and the business processes.

Some of the key areas in which innovation in product and processes can create value for the business:

Product

New product: The change in products offered can be incremental or radical. For instance, when Dettol, an antiseptic lotion, launched Dettol soap, it was an example of radical product innovation where Dettol delivered the same value proposition of antiseptic/anti-bacterial in a new product category. However, the launch of the liquid soap variation of the soap was an incremental innovation. In both cases, Dettol changed what they were selling, leading to a positive impact on revenue.

New customer: In this case, the innovation is centered around finding new users (target audience) for an existing product or service. Blackberry, which was mostly used by business users, repositioned itself as a phone for the youth with the campaign of new Blackberry Boys. The same product was sold to a new target segment leading to higher revenues.

New place: Newness can also be introduced by selling an item using new technologies to reach out to a wider audience. Product catalogs on TV, online shopping portals, sending money over mobiles, are some of the examples of innovation in this category.

Process

New delivery method: Innovation in delivering things differently to the customers aims at providing better customer experience or cost efficiency. In the training industry, delivery through a mix of VSAT based lectures and learning portals is an innovation using new delivery methods. It brings cost efficiency along with bringing better experience for the customer.
Technology leverage: The world is full of innovations in this category, starting from ERP and systems, to ATMs, and the use of robotics and automation in production. Leveraging technology is the lowest hanging innovation that can be driven easily in an organization.

Smarter processes: This is another area where incremental innovations lead to significant cost benefits and efficiencies in the organization. While there are lot of standard business processes that can be implemented across businesses, innovation with new processes needs to be industry or company specific. For instance, the concept of self-check-in by airlines led to a significant efficiency in the check-in process.

Essentially, innovations around the product category have a direct impact on revenue, whereas innovations around the process category have an impact on the cost and agility of the organization. In order to the get innovation working for an organization, following areas would need to be worked on.

Organizational strategy for innovation

The first step in the process is to create a strategy for innovation for the organization. Different industries and organizations at different stages of evolution within an industry need different levels of innovation (incremental or radical), across the parameters mentioned above. If one is an aspiring leader in an industry where the leader is well established, implementation of radical innovation would be needed in order to get to a leadership position. Similarly, certain industries where technology is part of the product offering itself, the need for innovation is very high. Once the employee understands the types of innovation that his organization needs, the next step is to structure the company for innovation.

Organization structure must support innovation

The organization needs to be structured well for nurturing innovation. One of the important steps is to capture the business value of the innovation, thereby balancing the act of creating something new and the business value.

Organizationally, individuals should be able to voice new ideas. The organization should have a mechanism to identify good concepts from all the new ideas. There can be an interdisciplinary, inter-unit team that implements this step. Since innovation involves change, there can be resistance from certain sections against the innovation. Leadership has to be conscious of the same and should avoid falling in the trap of killing an idea just because it is ‘not how we do things’. The team needs to identify the good concepts and grade them on the amount of business impact - from incremental to radical. The organization then uses transparent communication processes so that people know what innovations are underway. Clearly explain the value of the innovation so that everyone understands how innovation creates a positive impact on either the revenue or the cost.

Measure innovation

The famous philosophy by Peter Drucker applies to innovation as well - you cannot manage what you cannot measure. Metrics are essential for guiding innovation. The metrics should account for both objective as well as intangible measurements. Metrics should capture data at each stage of the innovation process, from creating ideas to capturing value. The metrics include the costs incurred at each stage and the output of each stage. The cost includes both direct as well as indirect cost of resources. While the incremental innovations are easier to quantify as the gestation cycles are smaller, the radical innovations are more difficult to measure during the development phase. However, we can capture the value in terms of intellectual property and project stages completed, rather than in terms of financial numbers alone.

Reward innovation

Four major factors feed motivation: vision, passion, recognition and economic incentives. While the employer needs to articulate a vision for innovation and create a culture that allows employees to be passionate around innovation, this alone may not be sufficient. The recognition and economic incentive is important too.

For incremental innovations, the economic incentives work better, whereas the radical innovations need to be rewarded with recognition more than just monetary rewards. Using the right blend of the rewards to motivate employees lies at the axis of innovation.

The relative weight one places on different types of innovation should match the innovation strategy that fits the organization and the industry. However, one must recognize that in order to establish a leadership position in a respective domain, innovation is a necessary condition to succeed.

ABOUT THE AUTHOR
Amit Bansal is Co-founder and Chief Executive Officer at PurpleLeap