Innovation In Investments. How This New Model Is Altering Businesses?

Innovation is a word we hear all the time in the corporate world, in our day to day lives. Every company is in search of some insight that will revolutionize the way the business operates and open doors to a new level of results. The problem is that, in the midst of this frenzy, the understanding of what innovation really means, the real importance of business innovation is lost.

Defining Innovation

Innovation seems an abstract term, but its definition is clear. It is a process of implementing new ideas, aiming to generate value for an organization. It may involve the creation of a new service, product, system or process, but it can also boil down to the one that already exists.

Contrary to what many people think, innovation, especially business innovation is not limited to a moment of solitary genius. It's not a revolutionary idea that pops up when you're alone in your living room. Instead, to innovate, you need to:

• a consistent process of formulating new proposals
• direct contact with what is intended to innovate

Why there is an urgent need for business innovation? 

Innovating in the business world is a matter of survival. It is it that allows a business to continue to exist and bring long term results.

Innovation offers companies the advantage of penetrating more rapidly into existing markets, connecting with developing markets, or creating their own markets. If a company does not innovate, it is putting itself in a position vulnerable to any problem that may occur in the market in which it operates.

A simple way to understand what I am trying to explain is the famous case of the photo market.

Until the late 1990s, Kodak was a market leader in the camera segment. It even developed the first prototype of a digital machine but did not invest in that innovation. What happened was that it lost the opportunity to create this new market. Soon after, other companies (like Canon and Nikon) ran after this new idea and the newly opened market of digital machines completely absorbed that of analogue machines, with films and revelation. In that process, Kodak disappeared from the corporate map for many years.

Notice how, by losing the chance to invest in an innovation, Kodak put itself in a position of risk because it continued to depend on a single market segment. Therefore, when a company innovates, it is ensuring opportunities for its survival in the future.

How do we outline the other benefits of innovation?

An innovation can improve your company's financial performance by increasing revenue or reducing costs. If your idea drives customers to buy more or pay more, revenue increases. If you allow the company to develop your product from raw materials or cheaper processes, the cost drops. Either way, there will be a positive impact on profit margin.

With innovation, it is also possible to achieve differentiation. That means you're going to leave your competitors behind. It is worth remembering that there are many factors of differentiation and that you do not need to innovate in products to achieve this result. Some companies innovate in customer service, thus offering a better customer experience and positioning themselves at an advantage against key competitors.

Another benefit of business innovation can be in improving productivity. Since productivity is the limit of the growth of a company, any idea that allows to increase this limit represents the real opportunity of growth of the business. It's as if you have a farm surrounded by a fence, and every time you increase productivity, that fence moves another meter. Scalability is gained, that is, space to grow, to do more.

Innovation gives organizational sustainability when you are making continual improvements and repackaging and re-branding. Any good manager will recognize the need to innovate and grows the business skills to increase their creativity.

Innovation can help you to see what exists now in opportunities or which ones will likely pop up in the near future. Businesses which are successful don’t only respond to the current needs of their customers, but usually predict the future trends and come up with an idea, service or product that can meet the future demand quickly and effectively. In this way you can stay ahead of your competition as trends, technology or markets shift.

How should companies invest in innovation? 

When we talk about investing in innovation, you must be careful not to think that I am simply talking about financial investment. In fact, on the contrary. Financial investment is the last step. To get to it, rather, it is necessary to invest culturally.

The main source of business innovation is the employees. It is they who are directly in touch with the minutiae of everyday operation; they are the ones who deal with the main problems and failures; they identify opportunities for improvement.

To innovate, therefore, it is necessary to encourage employees to develop and present more ideas. There are numerous methods, but they won't work if you do not foster an open management style. Managers who demonstrate a need to centralize work and a narcissistic perspective do not offer a great stimulus to spontaneous collaborations.

Another important point is that employees must be sure that their innovations will be recognized - and, more importantly, that recognition will not be taken by others. After all, nothing is as frustrating as presenting an idea, seeing that it is being used for the benefit of the company and not receiving the credit.

Now, in relation to financial investment, flexibility is also required. But that is not enough. There must also be a method.

On the one hand, it is bad that a company is not open to investing in the new ideas that appear, as it can lose great opportunities. On the other hand, it is also bad that this company is open to invest in all new ideas, because not all will bring a return that justifies this investment.

Final thoughts…

Innovative thinking in business leaders improves the living standard of societies. Innovation in IT can provide business opportunities for non-IT people. Innovation in education creates environment-friendly new business leaders and entrepreneurs. And innovation in training/skills improves speed in execution and quality in the business. Innovation in quality increases the demand and position the brand in the market strongly. That’s why innovation is important in business.