Innovation 101

Michael Tchong Innovation

We are in the midst of an era of sweeping change, with major challenges to address, such as poverty, and new planets to explore, like Mars. With all of the recurring talk of change and reinvention, it’s a given that the word innovation is on the tip of everyone’s tongue.
“Innovation distinguishes between a leader and a follower.”Steve Jobs, 2001

Apple Co-Founder Steve Jobs believed that innovation distinguishes a leader from a follower. Disney CEO Bob Iger famously said that the heart and soul of a company are creativity and innovation.

But what exactly is innovation? What has it contributed to humanity throughout history and how do past inventions compare to those of today? How do you know it when you see it?

This introductory article will break it all down for you, giving you the background you need to create a clear and integrated innovative strategy for your organization.

What Is Innovation?
The Wall Street Journal notes that “Innovation is hardly a new term. The word, which derives from the Latin noun ‘innovatus,’ meaning renewal or change, appeared in print as early as the 15th century.”

The concept of innovation goes back even farther in time. Innovation was a key characteristic of our early ancestors and a defining factor in the survival of our species. Innovations like the use of controlled fire and the development of language and tools during the Stone Age made it possible for humans to distinguish ourselves from other animals.

Fast forward to modern times, and we can see that the past 500 years has produced at least one major transformational innovation during each century, including the microscope, telescope, the engine and the light bulb.

Without a doubt, the smartphone is the most important invention of the 21st century thus far. It has given people the freedom to coordinate and enrich their lives no matter where they are. Mobile applications, or apps, create the ultimate user experience by allowing users to customize their platforms.

This brief overview of human innovation not only reminds us of some of the greatest inventions of all time but also highlights the importance human creativity and ingenuity in creating the technological advancements that help us live healthier, happier and more accomplished lives.

Innovation Definition
Merriam-Webster defines innovation as 1. a new idea, device, or method 2. the act or process of introducing new ideas, devices, or methods. It’s as simple as that, nothing scary there. The key part of this definition is the word new. From simple gardening tools to complicated surgical procedures, it’s innovative as long as it’s something that hasn’t been created before or done this way before. From there, the concept of innovation can be broken down into several categories, based on what kind of problem needs to be solved, and the approach chosen to solve it.

There are too many frameworks and innovation types to address here, but the following classifications, as defined by Clayton Christensen and Judy Estrin, are good starting points for organizations looking to create or expand innovation strategies. No innovation strategy should rely on one single form of inventiveness; it may make sense to pursue a combination of the following strategies:

  • Efficiency/Incremental Innovation – Efficiency innovations seek to produce the same product more cheaply, and is the most common type of innovation. It involves small upgrades or enhancements to existing products, services, processes or methods over the course of time order to maintain or improve a competitive position. Incremental innovation means advancing a product by manufacturing it with materials of a higher quality, or by making partial changes to a complex product made up of many integrated technical subsystems.
  • Sustaining/Orthogonal Innovation – Sustaining, or orthogonal, innovation turns good products into better ones. Judy Estrin coined “orthogonal” to refer to inventions that don’t create new technology, but use existing tools, products, and services to create something distinctly new. She uses the example of the iPod as a form of orthogonal innovation. Apple didn’t invent the MP3 player, but the iPod quickly dominated the market despite being a latecomer to the game.
  • Disruptive/Breakthrough Innovation – Disruptive innovations are those once-in-a-lifetime inventions that change the way the world works. We’re talking about things like the invention of the automobile, the light bulb, the printing press, the first PC, and the iPhone. This form of innovation considerably impacts an industry and the players competing in that space. Disruptive innovation is distinguishable as much for the market impact created by the product as for the originality of the entry itself.

Modes of innovation and rates of technological change vary from sector to sector, and factors such as market attractiveness, growth potential, industry restructuring potential, and competitor reactivity should be considered before executing a new strategy.

Service and low- to medium-technology sectors tend to favor lower risk forms of incremental innovation, relying on existing methods and technologies to drive sales. Companies that employ incremental innovation strategies focus on efficiency in manufacturing, marketing, and product differentiation. Tech companies tend to place greater resources in research and development and are more likely to go for the riskier disruptive or breakthrough forms of innovation.

When Did Innovation Catch On?
Innovation is at the top of everyone’s agenda these days. The executive mindset changed markedly in the 1990s. Global competition, the internet, and the onslaught of more than 250,000 product launches each year helped change a lot of minds.

Transformative conversations about modern innovation arose from bestselling books published in the 1980s and 1990s. Peter Drucker’s 1985 Innovation and Entrepreneurship was a pioneering text that defined entrepreneurship and the constant search for innovative ideas.

But it was the 1996 release of James Utterback’s Mastering the Dynamics of Innovation and Harvard professor Clayton Christensen’s 1997 The Innovator’s Dilemma that put innovation in the limelight.

Christensen’s book challenged companies to predict consumer needs and adopt new technologies and business models to address new requirements. It was widely read and changed the way managers and industry leaders thought about innovation.

A McKinsey survey shows just how much the “C” suite pivoted on the question of wanting to become a “category innovation leader.” In 1991, 37% of executives surveyed reported wanting to become a category innovation leader, while 26% wanted to remain a “follower.” By 1999 no one wanted to be a follower and 95% wanted to lead the innovation pack:

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The year of 1999 was, of course, the peak of dot-com mania, a period that saw dizzying valuations ascribed to technology innovators. The insanity may have faded but as the table below pointedly illustrates, the value of innovation is unassailable:

2006/2017 Comparison of Five largest U.S. Companies by Market Cap

2006 RankCompany2017 RankCompanyValuation ($B)
2.General Electric2.Alphabet$652
5.Bank of America5.Facebook$436
02-Aug-16 The Wall Street Journal, 15-May-17 ubercool INNOVATION
Why Innovation Now?
“Innovation is one of the key drivers of everything that goes on in business,” says London Business School Dean Sir Andrew Likierman. Organizations realize that innovation keeps them on the cutting edge of everything from technology to lifestyle to marketing and entertainment.

Why has innovation become so important? As Microsoft Co-Founder Bill Gates puts it, “innovation fundamentally shifts the trajectory of development.” Two insightful examples of how innovation changes market trajectories are Apple and Google.

Both companies launched disruptive technologies that significantly changed the destinies of their respective markets. Apple, in particular, is one of the most stellar examples of how innovation can catapult a company forward.

In 2001, Apple’s revenues were down $2.6 billion, compared to the $8 billion in fiscal year 2000 revenues. In a little over a decade, Apple went from a loss-making company to the world’s most valuable corporation.

The lesson was not lost on the executive suite. By July 2011, just four years after the iPhone shipped, a global survey by Forbes and Wipro reported that two-thirds of C-level executives (PDF) believed that innovation was more critical than ever, in particular in light of the economic downturn of 2008-09.

Another way to gauge the importance of innovation in the workplace is by examining job titles. In August 2010, only 700 people reported having the words “Chief Innovation Officer” in their LinkedIn profile title.

That number skyrocketed to nearly 15,000 by May 2017 (chart below). Part of that 1,993% growth came from the hybridization of titles, i.e. “Chief Strategy and Innovation Officer,” but this remarkable title explosion demonstrates just how mission-critical innovation has become.

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Kudos to those companies that have created an innovation strategy backed by the human resources to implement it.