We all know we need it, but deep down, what is it about innovation that really matters.  How is it that this thing called innovation can propel firms and countries forward in their aims toward economic prosperity. Almost 80 years ago, renowned Austrian economist Joseph Schumpeter identified for the first time the powerful connection between innovation and economic growth.  As Schumpeter demonstrated, economic development does not transpire in smooth, upward curves.  Instead, progress is lumpy, prone to sudden spikes and even disconnected leaps.  The reason: innovation and entrepreneurship continually jolt the status quo.  The introduction of new products, new businesses, new methods, new services, and new knowledge triggers a revision of expectations and values.  Customers have their needs met in superior ways and gravitate to new offerings, abandoning old ways of doing things, old manners, old products, old assumptions.  This dynamic and destabilising force—what Schumpeter called, ‘Creative Destruction’ -- transforms the market.

 

Schumpeter cited advances in railroading, shipping, and automobiles to illustrate his point.  Contemporary examples include the Sony Walkman which was in turn replaced by the iPod, both groundbreaking products that displaced an older, ‘good’ idea and in the process transformed culture, communication, leisure, and the music industry.  Another example is the Blackberry, a new creation which “destroyed” traditional mobile phone technology. In each case, wealth accrued to the innovators. 

 

Innovation, however, is more than just products, and it is a trap to fixate on just product offerings.  Sometimes, the greatest benefit emerges not by altering what you do, but by changing how you do it – a process innovation. By offering door-to-door service, Federal Express redefined the parcel delivery industry and firms based on old models could no longer compete. Amazon transformed the retail book business, delivering novels and a wide variety of other goods directly to customers at keener prices than traditional retail stores, thus meeting a market need with a service innovation. 

 

Innovation has a number of proven economic benefits:

The compelling question is: will you do something about it?  For while over 90 percent of managers and leaders cite innovation as being central to their firm, only one in three actually have a systematic programme of innovation in their company.  Developing such a programme is the beginning of bringing about a revolutionary change in your organization.