The Philosopher’s Stone is a mythic object that was believed to have the ability to transmute metals into gold and bestow immortality to individuals. Throughout ancient and medieval history, countless alchemists spent their entire lives searching for this fabled substance.

Modern businesses these days are on a similar quest, but this time, the thing they seek does indeed exist. We are talking about innovation – ideas that can seemingly create value out of thin air, and transform tiny start-ups into multi-billion-dollar companies in a matter of a few years. The importance of innovation in business can't be ignored today.

According to PwC estimation from a 2018 Global Innovation Study, the total global investments in R&D was $1.9 trillion, with the top 1000 companies accounting for 40% of that amount (around $782 billion).

Why do companies spend such astronomical amounts on R&D? Why is innovation so important in business? How does innovation help a business? These are some of the questions we will answer in this post.

What Is Innovation In Business?

Human beings are a highly creative species – we have the ability to use our imagination and intellect to generate new ideas or possibilities. When a creative idea is harnessed and converted into something of tangible value in business, it is called an innovation. Innovation serves as the catalyst for growth in business and economics.

Humans travelling by air is a creative idea – building the actual aircraft to accomplish this feat is an innovation. As noted by the Harvard Business School Online, for a creative idea to be considered innovative, it has to be useful and viable.

An innovation can be many things to a business organisation – it could be a new product or service, a novel strategy, or a business model. Some innovations are radical departures from the status quo, while others can be incremental upgrades to existing products or processes.

Why Is Innovation Important In Business?

Until the 1970s, the global automobile industry was dominated by American companies like Ford, General Motors, and Chrysler. But if you take a look at the modern Indian roads, these brands are nowhere – the market is dominated by Japanese brands like Suzuki, Toyota, and Honda. And in 2021, Toyota usurped GM at the top spot, becoming the best-selling car company in the US.

The secret behind the success of these Japanese companies – a relentless push for innovation, based on the philosophy of continuous improvement, also called ‘Kaizen’. The Toyota Production System (TPS) encourages all employees to come up with creative ideas to improve the company and its product.

While the US companies are stagnated, the Japanese automobile makers invested heavily in innovation and surged ahead. In short, putting a strong emphasis on innovation can give you the following advantages:

  • Foster Growth: Incremental upgrades to products improve customer satisfaction and loyalty, and helps in increasing revenue. New products can also help you grow your company by unlocking new markets.
  • Stay Competitive: If you don’t innovate, you run the risk of getting outshone and overtaken by your more enterprising rivals. Innovation is like an arms race – if you don’t invest in it, you will fall behind in the market.
  • Improve Efficiency: Innovation in realms outside product R&D can help your organisation improve its efficiency and productivity through new policies, processes, and solutions to existing bottlenecks or pain points.
  • Attract Talent: Companies that invest heavily in innovation have a superior employer branding. The HR managers at these organisations have an easier time attracting new talent, and also in retaining existing talent.

The Link Between Workforce Management And Innovation

There is a fundamental contradiction in business organisations when it comes to innovation. On the one hand, they desperately need innovations to maintain growth and increase profits. At the same time, businesses are more inclined to seek stability, as they like predictable results.

This is why successful innovations often lead to organisational inertia – a small and agile start-up grows into a large organisation only to become less and less innovative in the process. As departments expand and teams stick to tried and tested processes, they become more resistant to change.

In a Harvard Business Review article on barriers to innovation, the authors have identified several key attitudes and behaviours of highly innovative organisations:

  • Always assuming that a better way of doing things exist out there.
  • Trying to understand both the stated and unstated needs of customers.
  • Constantly collaborating, both inside the organisation and with external networks.
  • Accepting that risks and failures are essential to unlock success.
  • Empowering people to take such risks and provide dissenting perspectives.

With proper planning and investment, you can recreate the same attitudes and behaviour patterns in any organisation. However, it will not be easy, since innovation is not restricted to any particular individual or team – according to McKinsey, it has to be an organisation-wide approach, with a focus on the following aspects:

  • Leadership: The C-Suite has to recognise the need for innovation, identify promising avenues, and invest in adequate resources for these projects.
  • Workplace Culture: You need policies that empower employees to challenge outdated organisational norms and create safe environments where they can embrace innovation without fear of failure.
  • Employee Rewards: To effectively embed innovation in your organisation, you need to create a system of rewards that actively encourage individuals to be more creative.
  • Technology: Digital technology is driving innovative behaviour across all sectors and industries. Web-based solutions can help to improve efficiency, productivity, and collaboration even across geographically dispersed teams.

Embracing innovation is not easy, especially if you are a larger company or organisation. But it is by no means impossible – as long as you start off on the right foot and realise the need for a human-focused approach, you are on the right track.