Defining Innovation: Have We Lost Our Edge?

Venture capitalist Ben Horowitz, co-founder and general partner of Andreessen Horowitz, writes on his company blog: "Innovation is almost insane by definition: most people view any truly innovative idea as stupid, because if it was a good idea, somebody would have already done it."

But innovation expert James P. Andrew argues there are compelling reasons for companies to take the risk. Andrew, who headed the global innovation practice at the Boston Consulting Group before taking a position as EVP, chief strategy and innovation officer at Philips (NYSE: PHG), defines innovation as "a process that uses new knowledge to generate payback":

The most successful companies anchor innovation in where they want to take their organization, how to create competitive advantage and how to best serve customers. And the last point is essential because true innovation needs to generate a payback, and someone needs to think it is valuable and be willing to shell out some cold hard cash -- or whatever it is may be a great invention but it really is not innovative.

The thing is, innovation is about more than creating new products or services. It's about transforming corporations from highly structured and rigid to flexible, responsive, and open to creativity and growth.

In other words, it's about changing the corporate culture. Innovative companies have the capacity to select and execute the right ideas and get them to market in record time. They are agile, decisive, and willing to take risks.

Vijay Govindarajan, a professor at Dartmouth College's Tuck School of Business and author of Ten Rules for Strategic Innovators: From Idea to Execution, notes a lot of different things fall under the rubric of innovation. And contrary to popular misconception, "Innovation does not have to have anything to do with technology."

The real drivers of innovation are people. "In an innovative organization, human resources -- and not financial and physical capital -- are an organization's competitive edge, and management must maximize the output of highly educated workers," Howard W. Oden writes in Managing Corporate Culture, Innovation, and Intrapreneurship.

Could that explain why innovation has slowed?

It's no secret that workers are doing more -- often for less -- than they did five or 10 years ago. Management may be maximizing their output, but is it optimizing it? Is it encouraging innovation or warning everyone that it's better to play it safe than take risks? And innovation by its nature is risky.

How risky? Last year, when MIT released its list of the 50 most innovative companies, it indicated that it looks for companies that are "setting the agenda in an increasingly important market, on the verge of disrupting an established market, or creating an entirely new market."

Whether you call it disruption, disequilibrium, or, simply, "change," it can be unsettling for organizations focused more on the bottom line than on building new opportunities.

"Innovation requires change and change requires courage," noted researcher Mel Perel states on the Research-Technology Management Website: "Instilling a climate that recognizes the critical need for innovation and encourages and rewards innovative behavior requires a change in the mindset of many CEOs."

If CEOs want an innovative company, they "have to make it happen" and "drive it personally," he continues. "Set innovation goals. Provide funding. Encourage a constant search for new ideas and business opportunities by creating the culture and providing the enabling tools. And control with a light touch."

It seems simple. But it also seems unlikely that many CEOs will lighten up, loosen up funds, and throw their support behind innovation right now, no matter how much we seem to need it.

Related posts:

• As Google Shows, Innovation Is No Picnik
• The Secrets of Apple's Success