1. Business innovation

Innovation has become the new theology.

Yet there is still much confusion over what it is and how to make it happen.

(1) Innovation has become the industrial religion of the late 20th century. Business sees it as the key to increasing profits and market share. What precisely constitutes innovation is hard to say, let alone measure. It is usually thought of as the creation of a better product or process. But it could just as easily be the substitution of a cheaper material in an existing product, or a better way of marketing, distributing or supporting a product or service.

(2) One way to describe innovation is to explain what it is not. The husband and wife who open a sandwich bar opposite a new office block may be gambling their life savings, but they are not innovating. The Japanese electronics firm that launches a niftier video camera is merely cramming its distribution channels in a bid to push competitors’ goods off the shelves. The drug firm that makes a generic version of a blockbuster ulcer pill is simply cashing in on the expiry of a rival’s patents. All these are strictly business ventures, not innovations.

(3) Innovations not only break the mould, they also yield far better returns than ordinary business ventures. To appreciate the difference between opening yet another hamburger joint and innovating in earnest, consider what McDonald’s did. It standardized the product, designed entirely new cooking procedures and trained its people meticulously, thereby giving customers something they had never had before—a high-quality hamburger sandwich, delivered with the speed of just-in-time preparation, in hygienic surroundings, at a knockdown price. McDonald’s created not simply a new product, but a whole new market category. This was innovation of the highest order.

2. Innovation is rarely rocket science

(4) Big firms are better at less eye-catching forms of innova­tion and gen­erally improving the ways in which products invented else­where are manufactured, marketed and continually enhanced. Henry Ford, whose name is almost synony­mous with four-wheeled transport, did not invent the automobile. He ‘merely’ invented a far superior way to manufac­ture it - namely, the mass-production assembly line. And on that was built an industrial empire that has thrived for almost a century. Likewise, in the past few decades most of the com­panies that have created truly extraordinary amounts of wealth have done so by inventing great processes, not great products. Dell, Toyota and Wal-Mart, for example, have risen to the top of their respective industries by coming up with amazingly efficient ways of getting quite ordinary products into the hands of consumers more cheaply than their rivals.

3. The road to invention

(5) Big companies have a big problem with in­novation. The Oxford English Dictionary defines innovation as ‘making changes to some­thing established’. Invention, by contrast, is the act of ‘coming upon or finding: dis­covery’. Whereas inventors stumble across or make new things, ‘innovators try to change the status quo,’ says Bhaskar Chakravorti of the Monitor Group, an­other consulting firm, ‘which is why mar­kets resist them.’ Innovations frequently disrupt the way that companies do things (and may have been doing them for years).

(6) It is not just markets that resist innova­tion. Michael Hammer, co-author of an­other important business book Re-engi­neering the Corporation quotes the example of a PC-maker that set out to imitate Dell’s famous ‘Build-to-Order’ system of computer assembly. The company found that its attempts were frustrated not just by its head of manufac­turing (who feared it would lead to most of his demesne, including his job, being out­sourced), but also by the head of market­ing, who did not want to upset his existing retail outlets. So the innovative proposal got nowhere. Dell continued to dominate the business.

(7) Mr Christensen described how ‘dis­ruptive innovation’ - simpler, cheaper and more convenient products that seri­ously upset the status quo - can herald the rapid downfall of well-established and successful businesses. This, he argues, is because most organizations are designed to grow through ‘sustaining innovations’ - the sort, like Gillette’s vibrating Mach3 ra­zor, that do no more than improve on exist­ing products for existing markets. When they are hit by a disruptive inno­vation - as IBM was by the invention of the personal computer and as numerous na­tional airlines have been by low-cost carriers - they are in danger of being blasted out of their market.