Why is innovation important?

📅 17 May 2021
What is the difference between innovation types

Intelligent and admired businesses grow and succeed in today’s business climate for a myriad of various reasons. It’s pretty evident that creativity and innovation are essential pillars in driving growth.

Some companies are recognized for their products, others for their service, and others for unique processes (like the IKEA, which wants you to walk through the store like a kiddo in the labyrinth. Whether you like it or not, is a clear example of why service innovation is critical)

Why is innovation important? 

It’s because it drives specific behavior, but let’s have a closer look.

If you were to look at the companies that stand out from the crowd today as indisputable leaders within their industries, it would be evident that they all have one common factor: they have an innovation strategy in place, and they understand what is innovation in business. 

These innovative leaders include relatively new organizations such as AirBnB, Amazon, Slack, or Apple. If we compare them to dinosaurs like General Motors, P&G, or Shell Oil and Gas, they seem to be rather teenagers than grown-ups. 

All of the youngsters changed the status quo and introduced a digital innovation-driven business style. A great example is AirBnB, which made the couch sharable and rentable. AirBnB is one of my favorite answers to the question: Why is innovation important?

Yet, no matter the company’s current reputation, an institution can’t expect to maintain a market position if business innovation is not part of the DNA and strategy.

Keep reading, please, if you are keen to explore: 

  • what is innovation in business, 
  • why is innovation important to society and business
  • several compelling examples of product and service innovation.

What is innovation in business?

Innovation is the process that an individual or organization conducts to design, test, and launch new products, services or introduce new processes. Good examples could be Apple iPhone, Microsoft Word, mouse device, or Samsung Watch. All of these fantastic inventions changed our behavior. Like IKEA changed the way we experience in-store shopping, computer mouse changed the way we use computers. 

Why is innovation important? By changing the way we close tasks, it opened new opportunities. 

Disruptive innovation refers to the innovative goods or services that transform expensive or inaccessible products or services to affordable and accessible to a broader population (mainstream). Bill Gates, who introduced Personal Computers (PC), is a perfect example. PCs were accessible only to universities or wealthy organizations. Thanks to Bill and Microsoft, we all can enjoy them now. This is a great example that shows why is innovative approach is important to society as well. 

Figure 1: Breakthrough innovations that changed the world.

There are numerous types of innovations that a company might want to introduce. 

We could define them as: 

Different companies embrace some of them or all of them. 

Apple is an exceptional example of a company that effectively embraced innovation at multiple critical points since Steve Jobs and Steve Wozniak founded it. In the ’90s, for example, the company discovered that graphical interface is significantly easier to use than Microsoft DoS commands. It cemented Apple foundations which we can still experience when we open the iPad and experience iOS’s smooth and responsive design. 

Why is innovation important? Because it changes how we work. Apple introduced keyboardless phones (remove plastic keyboards) and helped the keyboard adjust to the mobile app that the user uses. Another innovation which companies like Nokia, Blackberry, or Ericsson missed. Apple was a one big innovation lab and stays like that till today. 

In one of the interviews, Tim Cook mentioned that the most challenging thing in Apple’s business is to develop a new way that empowers people to work and live differently. It needs to be an entirely new way with high quality of improvement.

The company successfully created the ecosystem of software and devices, including iPods, iPhones, Macbooks, Apple Watches, iPads, and more—alongside Music and TV+, which effectively reshaped the entertainment industry. Creativity and innovation in Apple were always more important than delivery deadlines, brand, or cash flow. 

Why is innovation necessary for business success?

According to McKinsey, 84% of managers assume that their future success is dependent on constant innovation.

You probably heard the phrase “adapt or die,” and for companies to grow the market share in today’s global and highly competitive world, this is a road sign. Take, for example, the colossal development in technological car advancements; because of this extreme growth, companies like GM, BMW, Volkswagen have been forced to adapt innovations and launch more sophisticated products than ever before. These companies had to redesign their innovation strategy and bet more on creativity and innovation than on the conservative way of doing things. 

In the last several decades, we experienced a phenomenon called “winner take most.” It means a handful of companies or a specific company can take a strong market position and cement most market share in an industry. A great example is Amazon, which grew so fast and took over such a significant market share in the USA that older companies like Wal-Mart (the biggest employer in the world) or Target started to shift their strategies. Amazon blocked entrants so successfully that there is no chance now that somebody will steal Amazon’s market share. The winner takes all! Jeff Bezos, the Amazon founder, mentioned several times that innovation management can only be appropriately tackled if you accept that the customer is your boss. 

Approximately half of Americans recognize that growth in technology brought huge life improvement in the past 50 years—perfect evidence of why is innovation important to society. As a result, businesses that embrace business innovation have had a strong lead in meeting the customers’ demand and expectations. 

Companies cannot afford growth if they do not push digital innovation and ride the wave of digital change. 

Innovation and competitive advantages.

As discussed above, if managers want to grow their business, the road without innovation is not an option. Standing still will make your company obsolete and outdated. Creativity and innovation evaporate, which makes the business vulnerable like the old moose. Wolves will find you very quickly. Faster than ever. 

If it is a snail speed path forward, and you choose to walk along your current way, growing incrementally as you improve your existing offering and business models. If you pick this way, you will probably become obsolete too. Maybe a little bit later, but still. You might have an strategy, but things might not work for you if you don’t move fast.

Instead, you might decide to develop your business by merging or acquiring others (Apple acquired more than 100 companies in AI or AI-related space). It is faster and typically a much more expensive promenade for growth. Obviously, Apple drives service innovation and product innovation by merging acquired technologies, talents, and data into new (for instance: AirTags) and existing products. 

Figure 2: Apple’s innovation strategy relies on merge and acquisitions

You might choose to grow by redesign your offering or business model—or both. It is a process that can lead to fast expansion and enable you to scale your business innovation very quickly. A great example is Lemonade, an insurtech company, which generated $100M in 2.5 years (the fastest growth in the industry).  

This growth chance is likely why 79 percent of surveyed executives declared innovation strategy ranked among their top three business ambitions—the highest rate since the study launched almost a decade ago. Furthermore, the Boston Consulting Group remarks that businesses earning high rankings in the annual “top most innovative companies” all focus on technology and development. These organizations continue to boost their growth while staying one step ahead of the competition. Managers bet on different vehicles, from innovation lab to venture capital investment and acquisitions. 

Why is innovation important?

Not only innovation unlocks growth but also builds new or strengthens existing competitive advantages. 

Innovation keeps institutions relevant

The world is changing faster than ever, primarily thanks to massive digitalization. For organizations to remain relevant and profitable, it’s a must to ride the wave of change or even predict the next wave and embrace it.

Technology regularly demonstrates its value for customers. People around the world are adapting to digitalization at a rapid pace:

  • 90% of the world’s data has been produced in the last couple of years.
  • Almost 600 new websites are created every minute, which grows indexing needs and computing power demand.
  • Satellites are sending 150 terabytes of data every day.

These phenomena transformed us into a new age of innovation where products, services, business models need to be redesigned faster than ever. This situation creates new opportunities and lures new businesses to enter the market and disrupt incumbents. 

What is innovation in business? What is the name? It’s called “startups.”

Startups break into almost every industry, making executives believe that 40 percent of Fortune 500 companies will be wiped out. The top spots will be taken by companies created somewhere 10 – 20 years ago. It’s not age that is important, but the ability to innovate and disrupt the status quo. 

Just as a startup innovates to break into a cemented industry, established enterprises need to reinvent themselves to remain relevant and give customers even more reasons to stay. 

Startups make corporation life harder. Because they create so much pressure and constantly introduce service and product innovations, larger companies are experiencing shorter and shorter lifespans.

Figure 3: Fortune companies are under heavy attacks and startups are part of the artillery.

Three ways explaining what is innovation in business

At the core, innovation is about doing things differently from everyone else trying to grow in your sandpit. Southwest Airlines, a popular airline in the USA, used humor to become different. Twenty years ago, the company decided to entertain passengers at every step of the journey. They became different, and people remember why Southwest was different. It was fun to fly with the airline—what a great example of service innovation. 

This is why innovation in business needs to bring differentiation factor.

Let’s assume your company is embracing innovation in the product field. In that case, the purpose is to develop or update the products and make sure your product is a top-notch beast. A great example could be Slack. Slack is an American startup that changed the way people synchronize their project work. In the beginning, it was another project management tool. Eventually, it became so different that Salesforce paid for it almost $28bln. It’s a fantastic example of product innovation that became so important for users that its valuation skyrocketed.

We could also imagine that your firm is using innovation in business process. In that situation, the goal is to save time, money, or other resources and strengthen your competitive advantage. It’s an Apple Trade-In program example. Apple can break apart iPhones, iPads, and Macs and reuse parts for building new devices. The process became so different, so advanced that competitors are already late to the party. Apple’s creativity and innovation punched competitors in the face.. again. Consumers are happy to give the devices back and pay the difference to get the new model. They do it even if they don’t need the upgrade. 

I could ask again. Why is innovation important? It changes the way we live and work.

In either scenario, your organization is investing resources to experiment with a completely new approach to something. The goal is to change the market, unlock new markets or create new markets. A good example could be UBER or AirBnB. Ownership was a popular business model, and now sharing is growing. These two companies designed markets that didn’t exist before. It emerged that some people prefer to share the couch, car, or other assets. Ownership is not the option for them. Business innovation changed so much that popular chains like Marriot or Hyatt don’t have much to offer.

Innovation helps organizations differentiate themselves from the competition, which can be especially important in an oversaturated market. Also, innovations help to choose a direction for growth, which managers and CEOs didn’t realize, exists. 

While delivering value to clients should always be a firm’s main thing, doing so memorably and uniquely from everyone else can become a standout factor of the brand identity and business strategy. 

Two key strategies for success in product innovation. 

a) define the relationship between technology and product development in your firm and how they can best synch together. 

b) decode how to match technology and product development roadmap and priorities with customer requirements.

Technology and product development synchronization as an essential pillar in digital innovation

Technology development and product development are separate processes, but they are interdependent and often parallel. 

In technology development, businesses develop various paths to overcome a problem — producing, evaluating, and iterating concepts rapidly through prototyping and proof of concepts. By comparison, in product development, a single best feature is developed and launched as efficiently as possible. Both processes align with an organization’s purposes for innovation strategy performance. 

The market aspect is crucial because every innovation is just an invention until it finds a market fit. It doesn’t matter if you opened a fancy innovation lab, innovation incubator, or venture capital arm.

The first strategy for victorious product innovation is establishing how technology development and product development will synchronize together in an organization. One way is to develop independent but parallel paths for the two processes. In the technology development path, firms explore alternative answers for particular technological challenges. At the same time, the company creates new products, new product lines, or enhanced products in the product development track.

The two tracks must interpenetrate, with product development engineers scooping from the advancements in the technology and technology builders learning about new challenges from the product managers. It’s essential to integrate this effort with overall innovation strategy and innovation management practices. 

This interactive process improves the time-to-market, cost-effectiveness, and performance of the company offering.

For example, my client planned to develop a new credit scoring solution to respond to a need in the underbanked market. The technology development team worked on various artificial intelligence models, data-driven predictions for potential launch in the specific target market. Scooping from this work, the product development group soon developed and marketed a new financial product that met market expectations.

Collaboration is essential for success in the strategy outlined above. For example, product managers are critical to identifying difficulties and opportunities for technology advancement. The interactive, two-path flow recognizes the incremental nature of innovation, in which significant improvements are usually the outcome of existing technologies merged in entirely new ways.

Engaging customer and meeting customer requests

Companies implement business innovation through:

  • market research, 
  • internal ideas funnel 
  • customer requests,

Market research will help define broad customer needs or specific market demand that will create opportunities for business innovation. 

Market research is not enough, though. The critical and not replaceable part of the innovation equation is the customer. Customers express specific problems that they expect to be removed — sometimes without fully explaining the situation or visualizing a possible solution. 

Customer requests represent an external driving force, but customers need to be listened to with empathy. Succeeding in customer-driven product innovation can be made a reality only if companies develop and follow a standard that makes the co-creation possible

Co-creation actively engages customers in the innovation management process. As I mentioned before, innovation changes the way we live and work. But another reason, why is innovation important? It’s because it gives the customer a feeling they have an impact. By sharing data with Google Maps, you and me, we both influence product innovation. Google listens to how we use, what we do with the app. Part of the innovation strategy needs to be rooted in actively listening to customers’ voice. 

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