Innovation can be a major driver of growth for companies, but only if they’re adept at capturing new ideas and putting them into practice, researchers say.
“You need to have new products and services in order to continue growing and responding to your customers’ emerging needs,” says Jana Matthews, an expert on entrepreneurial leadership at the University of South Australia’s Australian Centre for Business Growth.
“If a company isn’t innovating, trying new things, trying new products, understanding what its either current or potentially new customers are needing, then it’s going to get left behind because there’ll be competitors, customers that go elsewhere,” she says.
Innovative organisations had shared responsibility for decision-making and build up what Matthews calls “the muscle of execution and decision- making” among staff.
“People get attracted to the organisations where they can try new things, where they aren’t punished for making mistakes because it isn’t always going to turn out right or as you expected.”
She says she has worked with one CEO who tells staff: “If it ain’t broke, we’re going to fix it anyway, because one of our competitors is going to come after us.”
However, a lot of organisations hold themselves back from innovation because they think it is confined to the tech sector.
“If you ask a whole lot of companies, they’ll say, ‘Well, we’re not innovative. We don’t make computers or we don’t do software. That’s where innovation is’, but that’s not true.”
Matthews says innovation can take many forms, such as innovation in costs and pricing, switching to a subscription model rather than a sales model for example, or innovation in the organisation itself, such as letting people work from home rather than in the office.
In fact, analysis by Innovation and Science Australia reveals that business expenditure on research and development is not a strong predictor of innovation investment.
Sectors where many firms are actively innovating are more likely to have greater productivity, whether or not they undertake R&D.
“Australian firms that invested in innovation (of any type) had higher revenue and job growth than those that did not,” the agency said in a recent report, Stimulating business investment in innovation.
Tim Kastelle, director of Entrepreneurship & Innovation at the University of Queensland School of Business, outlines six different types of innovation for organisations: product innovation; new forms of production; managerial innovation – coming up with new ways of making things happen; supply chain innovation; business model innovation – finding new niches or markets; and sales and marketing innovation.
Research shows the more types of innovation an organisation undertakes, the stronger the connection to growth. “It’s really tied together. As soon as you get good at one of those, you tend to get good at all of it,” Kastelle says.
Mindset and process
“If you come up with something that’s genuinely new and then you try to channel it through to your existing customers using the normal value proposition that you use, it often fails because, typically, new ideas usually end up needing new business models to make them work.”
An innovative company requires two things – a mindset that encourages and rewards new things and a process to support innovation, Kastelle says.
Many companies make the mistake of putting all of their resources into generating new ideas and don’t devote resources to actually executing the ideas.
“There’s nothing left for figuring out what business model do we need to make it work, to get it out the door and things like that,” he says.
“The organisations that are better at this will have a process for going from we’ve had this great idea to how do we choose which ones to invest in or to pursue or to test or to run an experiment with, all the way through to, then how do we get people to adopt that new idea?”
Innovation requires three stages – generating ideas; selecting the best ideas; and implementing the ideas – and most companies do well at the first but can sometimes struggle with the second and third, Kastelle says.
Siran Zhan, assistant professor at the School of Management in UNSW Business School, says companies need to have both a structural and cultural readiness to support new ideas and innovative processes.
“Innovation comes in many shapes and forms and it’s not just the privilege of those people who wear the innovator job titles,” she says.
But this raises a difficulty that many larger organisations face. Zhan says academic research reveals that smaller companies tend to benefit more from their employees’ creativity than larger companies, because larger companies are more hierarchical and managers are too distant from employees to hear their ideas.
“Big companies that strive to operate like small companies, that is with flatter organisational structure and with a culture that promotes close interaction between managers and employees, can still remain innovative as they grow,” she says.