Innovation Drives Business Growth

The recent turbulence in the economy has put a strain on many businesses, but it has also created opportunities for small companies who are prepared to be innovative. When times are tough, it can be tempting to circle the wagons and consolidate. But businesses that are not brave enough to change and develop run the risk of having their market share eroded by more dynamic organizations. Consider how you can introduce innovation in to your business to gain competitive advantage.

Giant Leaps or Baby Steps:

When discussing innovation, people typically think of the invention and development of brand new products. However, not all innovation is so dramatic. Businesses can derive significant benefit from incremental innovation, which identifies new ways to produce or deliver existing products or services. By offering customers the ability to pay a monthly subscription to receive DVDs through the mail and scrapping late fees, Netflix turned the DVD rental market on its head.

Innovative methods and processes that result in cost-savings and increased productivity can boost the bottom line. According to a report published by Sageworks in August 2011, profit margins in small-businesses have reached a five-year high of over 6 percent of sales turnover as a result of creative cost-reduction practices.

Innovation Requires Courage:

Business owners and senior managers need to be brave if they are to lead innovative companies. Seeking and following an innovative path requires them to balance sound corporate governance with a degree of calculated risk taking. Innovative business leaders need to be open to receiving and acting on ideas that challenge the status quo, and which may even be critical of the very products, methods, and strategies that contributed to the success of their career so far. By finding time for ongoing personal development and exposing themselves to new ideas and experiences, business leaders can become more confident in managing innovation.

Create an Innovative Culture:

Some of the best ideas for improvement sit within a company’s workforce, which is intimately familiar with the product, operating procedures, and service delivery. To shake these ideas loose, it is essential to create a culture which encourages employees to speak up when they see a better way of doing things. Too often managers and businesses view employees who make suggestions for improvement as disruptive and problematic. The danger in not listening to an innovative employee is that a good idea may be overlooked or, even worse, the employee may leave and use his idea to set up a competing company.

One way to encourage employees to speak up is to offer a reward for suggestions. Initially, it may be useful to keep the rewards small to encourage as many ideas as possible. Mugs, pens, or t-shirts are sufficient recognition to get people started. However, if get an idea that delivers significant new business or cost-savings, consider a higher reward.

Consider the Customer:

The greatest risk in producing an innovative product or service is alienating existing customers while failing to attract new customers. Take steps to minimize this risk by seeking, listening to, and acting on customer feedback. Ask questions about how, where, and why customers use existing products and services. Hold focus groups to explore new ideas. Carry out customer testing before committing to mass production or releasing the innovation to the market. This does not mean that innovations will succeed 100 percent of the time, but it will greatly reduce the risk of a spectacular failure.

Open Innovation:

When a business consists only of an owner-operator or a small group of partners, securing innovative ideas can be a particular challenge because the business lacks diversity of knowledge, experience, and opinion. One solution is to consider open innovation, where ideas are sought from people outside the company.

Open innovation needs to be carefully managed, to ensure that intellectual property rights are appropriately transferred to the company. Often this is achieved by way of a disclaimer which is signed or clicked on prior to the ideas being provided. Encouraging people to part with ground-breaking ideas, which will then be developed by someone else, can be difficult unless there is some sort of reward on offer. A number of companies have successfully encouraged innovation by running competitions with a lucrative award. For example, in 2006, Netflix offered a $1 million prize to the first developer who produced a video-recommendation algorithm that performed better than its existing algorithm. The prize was awarded to the successful team in September 2009.

Be Open to Failure:

To establish an innovative culture, a company needs to be comfortable with the fact that mistakes will happen. Not every innovation will be successful. At employee level, if the workforce believes that jobs at risk if an innovative idea fails, suggestions will soon dry up.

On a corporate scale, some innovations will fail. It is important to be objective enough to dump a bad idea if it starts to nosedive. A classic example was Coca Cola’s introduction of a new flavor in 1985. When customers revolted, Coca Cola relaunched the original drink. Don’t become so attached to innovative ideas that you can’t let them go. The key is to learn from mistakes and apply that learning in future innovations.

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