Why Innovation Is Important in Business?

Two people discussing business strategies.

Innovation is crucial for businesses. Nearly every company recognizes this and strives for it. Employees acknowledge the importance, customers want and pay for new products, and investors assess the firms’ competitive entrepreneurial position when considering investment opportunities relative to stock price and valuation. 

Yet, we only hear bold innovative product announcements from a select few companies such as Apple, Amazon, Google and Microsoft. What is the secret to their success? Is there a recipe for corporate innovation? Moreover, why don’t we see innovative new products from other organizations in the technology sector or from the millions of other organizations in other sectors? What happened to all those organizations?

In this blog, I will discuss both the challenge and opportunity of creating new innovative products with an existing organization. 

In This Article: 

Difference Between Minimal Product Enhancements and Innovation 

Senior executives often believe their organizations are innovative. After all, they talk about innovation with their stakeholders, they discuss their vision with employees, they hold focus groups with current and prospective customers and they are frequent guest speakers at industry conferences. Yet, when specifically asked about their organization’s innovation, they list dozens of product enhancements that are interesting, but certainly not innovative.

For example, in the software industry, they may cite that the user’s home screen now has three colors instead of two. In manufacturing, they may cite that their coffee cup in production now has a larger handle. In insurance, they may cite the use of a new color postcard to remind customers to pay their premium. 

Organizations may understand why innovation is important in business as they continually review, update and renew their products and processes. This is a regular part of doing business. However, with this focus, they may neglect to spend effort and resources to create bold new initiatives that can enable them to achieve a dominant position in their industry. Their failure in focus may allow new competitors to seize market leadership. 

For example, as the COVID pandemic spread worldwide, several companies with leadership positions in VoIP desktop video meeting software were positioned at the right place at the right time. Yet, a relatively unknown company became the dominant worldwide leader by developing a highly reliable, scalable technology that was vastly superior as compared to the incumbents. This new company out-flanked incumbents who had superior resources, capital and existing market positions and customer base. 

To begin to assess the innovating environment relative to the differentiation between innovation and minimal product enhancement, consider the following questions: 

  • Within your organizations, who is responsible for new product innovation? Is this one person or a group? 
  • How does your organization differentiate between minimal product enhancement and new innovation? 
  • What is your organization’s definition of innovation? Is it to dominate the industry in which you are participating in? 

Corporate Innovation Strategy and Process 

In many organizations, product management administers processes to regulate product pricing, functionality, marketing direction and even support. The product management process provides a structured approach to continually update specific products and the existing product line. With management oversight and with the use of indicators and metrics, management monitors competition product functionality, pricing and advances in technology.

To achieve administrative efficiency, outliers that are inconsistent with the existing product functionality or target market may be completely removed. However, outliers may provide an early warning indicator that something has changed, such as new technology affecting aggregate demand, changing customer demographics, diminished product quality or inaccurate marketing models.

To enhance the likelihood of creating an internal innovation engine, the product management process needs to distinguish between existing minimal product enhancement and the potential for new product opportunities. When identified, new product opportunities should be transferred to a new process to assess market opportunity, viability and capital requirements. Since the overall goal of innovation is to achieve market dominance, issues of scalability must be addressed at the onset. 

To begin to differentiate minimal product enhancement from innovation in your organization, consider the following: 

  • Is there a product management process used in your organization? If so, who is the senior executive responsible for this? 
  • Does the product management process differentiate between minimal product enhancement and new product innovation? 

Is there a formal process in which everyone in your organization can propose bold new ideas that have the potential of creating a dominant market leadership position? Enabling innovation in an existing organization is quite different than creating a new company with a new product. Without a corporate innovation strategy, new product development in a new company is proposed without considering the organization’s: 

  • Infrastructure
  • Personnel 
  • Expertise 
  • Staffing 
  • Compensation 
  • Information systems 
  • Market focus 
  • Culture 
  • Aversion to risk

Earn Your Doctoral Degree From GCU 

Over the next couple of months, I will continue to write about the challenge of business and innovation and will eventually provide a model to enable this, which is already incorporated into the Doctor of Business Administration with an Emphasis in Innovation and Corporate Entrepreneurship program. Learn more about this program and other doctoral degrees offered through Grand Canyon University’s College of Doctoral Studies.

Approved by Dr. Ronald Berman on June 5, 2024.

The views and opinions expressed in this article are those of the author’s and do not necessarily reflect the official policy or position of Grand Canyon University. Any sources cited were accurate as of the publish date.