Over the past two years, businesses have experienced unprecedented operational disruptions and market uncertainties due to the COVID-19 pandemic.
Accordingly, many business executives are prioritizing innovation to enhance competitiveness and performance in 2022. This is easier said than done, as the list of supposedly essential innovative practices is extensive and growing.
For example, recent research shows that innovative companies, compared to their non-innovative counterparts, engage in many highly touted best practices. While these practices can enhance competitiveness, some are more important than others, and implementing them in the absence of a strategy is highly problematic.
As a marketing and innovation management researcher, I found these complexities led me to two research questions. First, what kind of organizational culture best supports implementing these innovative practices? And second, which of these practices universally enhance firm performance?
Global innovation study
In co-operation with national conference boards in the United States, Europe and Asia (non-profit organizations that support research aimed at helping leaders address societal challenges), we collected data from 437 companies, across 11 industries, in 27 countries.
Our findings showed that an innovation-focused culture was required to successfully implement crowd-sourcing, stage-gate systems, design thinking, open innovation, big data analytics, innovation management software, scientific discovery and prototyping. However, only some of the these practices enhanced company performance.
Companies with strong innovation cultures have leaders that support innovating, dedicate resources to experimentation, pursue knowledge generation and dissemination and have processes to test and launch ideas. High innovators are able to execute strategy, create competitive advantages and achieve performance objectives.
We found that highly innovative people were better at implementing all of the innovation practices. We also found that across industries, companies with strong innovation cultures outperformed their counterparts without a similar culture. Given its performance benefits, how does one create an innovation-focused culture?
Previous insight from Fortune 1000 companies suggests that executives need to set innovation goals, encourage all employees to innovate in their roles, prioritize individual and organizational learning, remove negative consequences related to failed experimentation and support activities with incentives.
Based on the results of our study, we argue that an innovation-focused culture is the necessary first step. Only after companies have created a supporting environment can they attempt to implement any innovative practices.
Companies in all industries experienced the performance-enhancing benefits from crowd-sourcing, open innovation, innovation management software, scientific discovery and prototyping:
- Crowd-sourcing is the process of taking internal tasks and outsourcing them. Naturally, it creates new ideas and perspectives that can create value for companies.
- Open innovation is the process of sharing innovations freely among players in the value chain, also allowing more value-creating opportunities for companies.
- Innovation management software is designed to measure innovation progress. Because “what gets measured, gets managed,” innovation progress that is effectively measured generates results.
- Scientific discovery — people collaborating across space and time to deepen knowledge — has been recognized as a trait of top-performing companies.
- Prototyping, creating early and test versions of products, reduces risk and increases a product’s market performance.
We recommend companies explore implementing these innovative practices since they have universal performance benefits. But it’s important to reiterate that engagement in such practices needs to be guided by the organization’s strategy, and an innovation-focused culture is the necessary first step.
Less successful innovative practices
Although there’s a lot of hype about stage-gate systems, design thinking and big data analytics, our research shows that only companies in specific industries benefit from these practices.
Stage-gate systems are a linear process involving a series of sequential steps aimed at launching new products. We argue that the innovation process is anything but linear, and such a rigid process is not conducive for most industries.
Our data confirms that stage-gate systems are most effective in manufacturing, IT and health-care settings but not in any others.
Design thinking, an approach that uses a designer’s sensibility and methods to match consumer needs with what is technologically feasible, is nebulous and even vague among those who practise it.
We argue that design thinking’s ambiguity is the reason why only companies in the arts and entertainment, retail and marketing industries experienced its benefits.
Surprisingly, big data analytics — collection, interpretation, and decision-making based on large datasets — only benefited companies in some industries. Upon closer examination, we found that only companies in industries that have conventionally managed and interpreted large amounts of data (like finance, health care and IT) realized such value. We think this speaks more to some companies’ inability to manage big data as opposed to its value.
We offer three ways managers can fuel and foster innovation based on our research:
- All executives should seek to create an innovation-focused culture.
- After an innovation culture is established, companies should engage strategically in some of the universally beneficial practices.
- Some practices should be avoided all together, as their benefits are limited to specific industries.