Business innovation is the part of the business that protects the future prospects of a company. It is all about paying it forward, with a strategy that says –
“We know we’re successful now but what about in a few years? Let’s make sure we can sustain that success.”
The business climate is changing all the time. The kind of businesses we thought would be around forever a few short years ago don’t exist any longer. Some of the biggest companies globally operate a business model that we don’t recognise from the past. I’m sure taxi companies didn’t see Uber coming. They thought that they would be able to continue operating with business as usual, but they can’t. They have competition from a source they never anticipated.
This is a perfect example of why business innovation is important. But it isn’t the only one. And we will look at more of these in more detail later in this article.
But just innovating for the sake of innovation does nothing for the world – and really does nothing for your business either. With this in mind, you need to know just what innovation is and how it can transform your organisation.
Who Innovates? What Does It Bring Them?
We’d all be forgiven for assuming that the only companies who innovate are those with either very deep pockets or those that have just started up. After all, if you are established why do you need to innovate? If cash is in short supply, then why would you invest some of your precious resources on your future when the present is a pressured environment?
The kind of companies that innovate are those that have a keen eye on the future. They can’t predict what might happen in a few years from now – none of us can. But they can shape their own future by –
- Bringing out new products and services that will increase sales
- Improve the products and services they already have
- Making processes more efficient and save on production costs
- Embedding new technologies that save time and money
This means that when the next threat comes along, they are ready. It means that when one market falls in demand they have diversified so another can take its place. Innovation is the friend of progressive businesses. And it should be the friend of every single business that wants to survive and thrive.
Evolution is a brilliant thing. In the business world, evolution means constantly changing, constantly getting better. So, let’s take a look at the different types of innovation.
The Different Types Of Innovation
There are 4 main types of business innovation. When we look at why business innovation is important, we need to look a little deeper. It maybe isn’t vitally important to your organisation to understand exactly what sector your innovation lies in, but it can help when you look at the issues you face to see where you might need to innovate.
There are a couple of questions to answer here:
- How well is the problem defined?
- How well is the domain defined?
Once you have the right answers here then you can see where you might need to think long and hard about which kind of innovation works best for you.
Sustaining innovation is where the vast majority of innovation happens. This is simply because we are all trying to get better at what we already do. If we can improve what we do, then we have happier customers and bigger margins. These are the keys to success. We also have the benefit of knowing exactly what the problems are because it is where we already operate.
Sustaining innovation is most often solved by conventional innovation strategies such as planning and standard research & development work. Knowing what the issues are means that the work can be structured along certain lines.
Breakthrough innovation is the work involved in dealing with a problem that has been well defined as an attempted in the past but has always proven to be incredibly difficult to solve. Many businesses operate an open innovation strategy for solutions such as these.
Open innovation is where companies allow outside agencies and even the man on the street to submit ideas. For example, LEGO had the issue of their customer base growing older. This meant they needed to replace them every few years or so. Encouraging open innovation meant they were exposed to the kind of LEGO sets and accessories that older customers wanted. They ended up with a thriving business.
It can take people from outside a business to make a breakthrough in this area of innovation.
Disruptive Innovation has probably gained more exposure than the others on this list over the last few years. Disruption is a buzzword, so don’t end up being drawn into disruptive innovation for the sake of innovation. It must move the company forward. When we ask why business innovation is important, this is the kind of answer we are looking for – one that adds value.
This can be described as innovation where the basis of standard competition is altered. Think Airbnb as a way of disrupting the normal market for accommodation. Hotels have had to adapt what they offer to deal with the competition. It is true that Airbnb is the biggest hotel company in the world. And they don’t own a single hotel. In this form of innovation, you don’t innovate in terms of your products, you innovate in terms of the way your business model functions.
Basic Research is the 4th and final innovation on our list. People see a new idea and think that it sprung up overnight. This is rarely, if ever, the case. Most overnight successes were the result of years of dedication – and research. Basic research is the painstaking thing that happens when you have a good idea and it doesn’t quite happen the first time, or the 2nd, or the 3rd…
The story behind WD-40 is that it was the 40th incarnation of the product. Taking the time to perfect something can happen behind the scenes before a product or service is ever launched. Or it can be refined under the scrutiny of the paying public. If you choose the 2nd option here, then you need to act quickly to resolve any issues as your reputation will travel incredibly quickly in the internet age.
In The Real World
It is all very well and good to see the theories that answer ‘why business innovation is important’, but do these theories carry over to the real world?
In short, yes. We will look at some examples of companies that have innovated to ensure they survived and thrived. You might think that these will be brand new companies, disruptive start-ups that took on an outdated market. Well, not in all cases. There are examples all over the world in different markets. We’ve chosen a few.
The Washington Post And The Decline Of The Local Newspaper
The local newspaper is in decline all over the United States. Over the last decade and a half, the number of local newspaper titles in the States has reduced by around 20%. Research by Lehigh University has shown that the voice of local America is in decline. Of course, there are ramifications for freedom of speech and representation at a local level as well as holding local institutions to account.
The Washington Post is a 145-year-old newspaper that you might think was subject to the same threat as the other titles with declining sales and similarly diminishing advertising revenues. One of the first reactions to the rise of digital from newspapers was to fight it. Not a great idea when the technology had been embraced so widely by the rest of the planet. The Washington Post decided to embrace digital rather than try to sit like a modern-day King Canute hoping the tide would stop.
They started their own digital-only version of the newspaper with subscriptions in exchange for quality journalism. People took that on board and worked with the newspaper. While other newspapers were going out of print permanently, the Post now has over 1 million digital-only subscribers.
The Post could have seen the writing on the wall and walked away. The fact that newspapers just like theirs were crashing and burning could have told them to go and do something different altogether. But with well over 100 years of know-how and reputation, they decided to stick with what they knew – and do it in a slightly different way. In terms of the innovation we have looked at above, this falls mainly into the disruptive innovation model, as the domain was well defined (they had been a newspaper for a long time) but the problem of fighting a movement online wasn’t that well defined at the time. Nowadays getting our news online is a natural thing. Back then it wasn’t obvious for a newspaper to have an online edition, let alone a subscription service for this.
Amazon Have Been Building To This Day
It is easy to see the success that Amazon has now and think it has always been this way. They dominate the retail landscape, making Jeff Bezos the richest man in the world and a poster child for all budding e-commerce entrepreneurs out there. But you don’t have to look that far back to see a time where Silicon Valley and the rest of the world was dismissing this company as a folly. They posted huge losses year after year. The company wasn’t just not making a profit, it was racking up massive losses, not even getting close to getting out of the red and into the black.
But Bezos and the other executives played the long game. They weren’t in the business of selling books – they were in the business of building a monster. Gathering information was at the centre of the way Amazon operated. In much the same way as Tesco used their Clubcard to gather as much usable data on their customers as possible, Amazon was gathering information, testing the water and then hitting customers with offers that matched their exact needs. At one stage they said that they would be able to have something delivered before the customer had even ordered it. Their data collection was that accurate and thorough. They could see what people were going to order from their behaviours, circling a product before going in for the kill.
Amazon watched people’s buying habits and formed algorithmic models that could see how these habits were formed – and how they would predict behaviour in the future. The world became dominated by the algorithm and continues to be that way to this day.
We all know the recent story of Amazon, but here are some of the facts and figures behind the business –
- The company was founded in 1994 but didn’t turn a profit until 2001
- It went on an acquisition feast from 2008 with Audible through to others such as Goodreads, Twitch and Ring
- There are estimated to be around half a billion Amazon users globally
- This is a little upgrade on their first year when around 1.5 million people used the site
- It employs around 650,000 employees globally
- There are over 2 million sellers on Amazon Marketplace
- Their sales are in the region of $233 billion globally
All of these are remarkable statistics. The world has never seen another retailer like it, that’s for sure. Amazon as a company (as well as the brands they have acquired) have innovated in all 4 sectors of the 4 types of innovation. They are innovators in many ways. One of the main reasons for their endearing success is that they continue to innovate to this day.
Arnia And The Bees
It is difficult to why is business innovation important without looking at the smaller scale as well as the large. It is easy to point to Amazon’s success and say – ‘that’s the way to do it!’ But none of us feel a massive connection to this behemoth of a company in terms of how they relate to our business.
So, how does business innovation happen on a smaller scale? Great question. Arnia saw a problem and decides that they were going to be the ones to solve it. Many innovations come from seeing a problem that others might talk and moan about, but only a few come up with an answer.
Bees are essential to our life. And we have known that they are in decline for several years now. Small scale initiatives such as giving away free flowers have been designed to help bees thrive in their natural habitat – the same place that we live. And these have delivered modest success, alongside a media campaign where people understand the importance of this tiny creature on our large planet.
Arnia looked to solve a problem that they were passionate about. They have developed and refined a remote beehive monitoring system for better bee health. It takes data about bee activity and processes this. The beauty of having an Arnia system is that there are thousands upon thousands of these devices crowdsource data from across the planet. The resulting information allows beekeepers to change the way they look after the bees. We can see at a glance some metrics that mean a great deal to the beekeeper, such as –
- Bee counts
- Hive weight
- Brood temperature
- Weather conditions
Together these provide the big picture of what is happening with bees across the globe. They looked at an issue that probably was well-defined and looked for a solution that most definitely wasn’t. The bulk of their work probably lies in the breakthrough innovation category because the problem was there, but the solution took some tech thinking.
The Advantages Of Innovation
Innovation in a business can bring a host of benefits. Companies that innovate are more successful, sustain growth and have happier employees. Let’s take a look at some of the advantages of innovation as we look a little closer at answering why business innovation is important.
Innovative companies solve the problems of the world. Just like Arnia above, innovative companies have the vast satisfaction that they have brought some good to the world. This will feel so much better than simply posting vast profits as we get older. GE is an old company with a modern vision. They invest heavily in research and development, having ploughed over $17 billion into this part of their business between 2006 and 2016. The result? Their revenues for that period of time were $232 billion. They employed an open innovation programme where innovative ideas could be submitted from any part of the company – and indeed anyone from anywhere in the world.
Innovative companies generate a competitive advantage where one may not readily exist. Many companies attempt to compete on price or marketing. But by looking at the market in a different way, a company can create a competitive advantage for themselves. Uber is a great example of this. They created the advantage of not having to go out there and buy a fleet of taxis. They involved people who took on a great deal of risk for themselves. On-demand means that Uber doesn’t have taxis sat waiting for the next ride. Now they have widened this with constant innovation. They have entered the food delivery market and are looking at healthcare and freight as their next target markets.
Consumers love innovation. Apple is a prime example of this. The company doesn’t have the best devices or the best systems. But they went on a marketing splurge around a decade ago, letting the world know that they were innovators. The iPod was successful. Merging this with a phone was wildly successful. Their success has been a global phenomenon. People look to Apple for their latest devices and latest innovations. Some of their slower growth over the last few years can be directly attributed to the fact that other smartphone manufacturers are innovating at a much faster rate. But the success that went before that was simply because their customers loved innovation.
And these are not the only benefits of innovation. Some of the others include -
- Productivity levels increase
- The company is more attractive to better quality recruits
- Meeting customer demand
And, of course, one major advantage of innovation (that people overlook) is the cash incentive.
That's right, you can receive cash in return for being innovative.
The UK government has set up R&D tax credits to reward companies that spend their hard-earned cash on innovation. And it isn’t just for the big boys who spend stacks of cash on their R&D programmes. In fact, more SMEs claim R&D Tax Credits than any other group of businesses.