Innovation at the Frontier

Steve Jobs and Macintosh recently launched the next generation iPhone, “an all-inclusive multimedia device,” that some media sources have reported, “will completely change the way customers think about and use cellular technology.” Sony’s next generation PS3 (Play Station III) is battling Microsoft’s Xbox and Nintendo’s Wii for the global title of, “the most innovative gaming console.” And Microsoft’s Vista operating system is being marketed as one of the “most innovative operational platforms” for personal computers.

It is becoming increasingly difficult to pick up the business section of a newspaper or read a business magazine today without a headline stressing the importance of product innovation and firm competitiveness. Although the articles tend to differ based on the size and complexity of the firm being described, virtually all the articles strongly confirm that businesses with the most innovative products are the most productive, flexible, stable, profitable, pioneering, and global.

Innovative firms are typically defined by how functional, unique, useful, marketable, and even hip or edgy their products are. Product innovation usually relates to the “perceived innovativeness of the external goods or services a firm provides relative to other similar products or services.” The more innovative a product is, the better it meets its pre-expectations, satisfies customers’ needs, makes users feel, and saves clients money. Innovative products therefore attract higher value, garner greater customer loyalty, and secure broader markets.

Coincidently, the discussion of how these same firms think, manage, and internalize innovation as an organizational process is often overlooked, even though it is the foundation on which their innovative products are developed.

Process innovation is defined by the way businesses think and act. It applies to all aspects of firms’ business operation systems and corporate cultures, from management to marketing, design to distribution, human resources development to research and development. Process innovation improves how firms develop new products or services that add value or reduce costs, capture or retain new and old customers, or carryout strategic thinking and corporate governance.

Problems arise when smaller firms only see product innovation achieved by large investments in critical fixed assets such as machinery, equipment, software, or technology, rather than in the internal processes that manage firms’ day-to-day operations. With this mindset, smaller firms that try to innovate often miss opportunities to upgrade because their understanding of innovation, and how it is achieved, is too narrow.

Product innovation is closely tied to process innovation because many determinants of a product’s originality, novelty, or value added is a direct result of a firm’s internal processes and management. A firm that does not invest in quality production processes and standards or human resource systems may have lower quality goods with higher defect rates. A firm that does not invest in innovative advertising or marketing research may produce products customers no longer need or want.

The efficiency with which firms learn to internalize a broader perspective of innovation directly impacts their understanding of its high value incentives, especially in areas of process management where investments in innovation can be cheaper and easier to implement.

As a more all-encompassing understanding of what it takes to become an innovative company becomes ingrained within firms’ corporate cultures, adoption rates of innovative technologies and practices increase proportionately, thus leading to stronger, smarter firms and more importantly, innovative products.

Caesar Layton

SENADA Senior Industry Advisor