INNOVATION, according to Wikipedia, is simply a new way of doing something. But it's more than that. For innovation to be effective it must be the successful introduction of something new, useful, in demand and profitable (whether that is financially, or in the more intangible areas of reputation and intellectual capital).
In the UK we're not bad at innovation, but then we're not outstanding either. The annual International Innovation Index (compiled by the Boston Consulting Group) looks at business outcomes of innovation, and governments' ability to encourage and supp
ort it through public policy. The survey ranks Britain seventh out of 20 countries. Positioned firmly behind South Korea, America, Japan, Sweden, the Netherlands and Canada, there is clearly room for improvement.
It's a good reason for the launch of a new government department this month: the Department for Business, Innovation and Skills, under Lord Mandelson, brings together BERR (Department for Business, Enterprise and Regulatory Reform) and DIUS (Department for Innovation, Universities and Skills).
But rather than leave innovation to governments and politicians it will probably be left to the country's entrepreneurs to take the lead.
In Scotland, we seem to be making some decent headway. Indeed Scottish companies lead the European field when it comes to the take-up of a European pilot aimed at benchmarking innovation. According to James Mason, who was responsible for 50 of those benchmarking cases in the last year alone, Scotland entered more cases than any other EU country at the trial stage.
As a result Mason, co-founder of performance measurement experts Upper Quartile, found that Scots tend to be good at innovation, but not so good at the actual process of innovation. Coming up with a great idea and dashing off to thrust it upon an unsuspecting market without going through the necessary research activities means the innovation is just as the Wikipedia definition.
Innovation isn't difficult because employees have no good ideas. It's difficult because of the perceived barriers and obstacles placed in the way of transferring those ideas into products or services. It costs too much, it takes too much time, we're doing fine without any newfangled nonsense, we've always done it this way. I'm sure you've heard them all. But they are valid questions that should be answered if innovation is to be successful.
Mason says companies must consider all those things and put the foundations in place first, do the market research, make sure the new idea fits with long-term strategy, ensure people have the skills to deliver, get the funding, build the infrastructure, run the figures, test the market. And then have the courage to walk away if it doesn't stack up.
For that reason innovation can't remain tucked away safely in a company's R&D department or ignored in more traditional businesses that don't necessarily see innovation as the same key driver for service companies as product development organisations. Businesses need to know if there's a genuine return.
Jeffrey Immelt, who took over as CEO of General Electric from Jack Welch, believes the only source of profit, the only reason to invest in companies in the future, is their ability to innovate and their ability to differentiate.
That critical success factor is the basis of a new analytical framework that can demonstrate how innovative your company is, whether your organisation is structurally capable of innovation, and even if your innovation is actually valued in the marketplace.
Former Deloitte consultant and now founder of Medici Partners, David Singh worked with Glasgow University research fellow Stephen McLaughlin, an ex-IBM employee, to develop the Business Capability Framework Model.
McLaughlin and Singh are convinced that business is about more than just traditional financial metrics. While banks and financial institutions seem hellbent on focusing entirely on the management accounts of an organisation, their Framework could provide a better way to give a broader, more accurate picture of a business's potential.
The outcomes produced by this model cover five key areas: financial metrics; management performance and capability – how versatile and open to change they really are; the culture of the organisation – how the company rewards creativity; innovation practice – not just in relation to product development but across the organisation; technology introduction and how it integrates.
Factors such as alignment of the organisation, how well the business reacts to changes in the marketplace, whether the culture facilitates change, how well the business innovates, and ultimately whether the management structure is the right one to encourage and support innovation tend to be ignored in traditional information gathering or business analysis processes.
It's a dangerous gap to leave in the due diligence process, but these are addressed and considered key by the creators, forcing business owners to take a long hard look at their management and leadership styles.
The results, sometimes critical, are not often welcomed but compiling all this information creates a richer picture of the company and gives a better basis on which to judge future potential. Which is why the Framework, supported by funding from Glasgow University's First Steps Award programme, is already attracting interest from VC companies and a major financial institution, which want to use it to benchmark businesses in which they are considering an investment.
So whether innovation is about simply beating the competition outright, or changing the rules of the game so you come out on top, the key to success is in the detail.
