Innovation

Innovation

Innovation is the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. This is accomplished through more effective products, processes,services, technologies, or ideas that are readily available to markets, governments and society. The term innovation can be defined as something original and, as consequence, new that "breaks into" the market or society. One usually associates to new phenomena that are important in some way. A definition of the term, in line with these aspects, would be the following: "An innovation is something original, new, and important—in whatever field—that breaks in to (or obtains a foothold in) a market or society".^[1]

While something novel is often described as an innovation, in economics, management science, and other fields of practice and analysis it is generally considered a process that brings together various novel ideas in a way that they have an impact on society.

Innovation differs from invention in that innovation refers to the use of a better and, as a result, novel idea or method, whereas invention refers more directly to the creation of the idea or method itself.

Innovation differs from improvement in that innovation refers to the notion of doing something different rather than doing the same thing better.

Innovation is the development of new value through solutions that meet new needs, or adding value to old customers by providing new ways of maximizing their current level of productivity. It is the catalyst to growth.

Business and economics

In business and economics, innovation is the catalyst to growth. With rapid advancements in transportation and communications over the past few decades, the old world concepts of factor endowments and comparative advantage which focused on an area’s unique inputs are outmoded for today’s global economy. Economist Joseph Schumpeter, who contributed greatly to the study of innovation, argued that industries must incessantly revolutionize the economic structure from within, that is innovate with better or more effective processes and products, such as the shift from the craft shop to factory. He famously asserted that “creative destruction is the essential fact about capitalism”.^[4] In addition, entrepreneurs continuously look for better ways to satisfy theirconsumer base with improved quality, durability, service, and price which come to fruition in innovation with advanced technologies and organizational strategies.^[5]

Organizations

In the organizational context, innovation may be linked to positive changes in efficiency, productivity, quality, competitiveness, market share, and others. However, recent research findings highlight the complementary role of organizational culture in enabling organizations to translate innovative activity into tangible performance improvements.^[7]

Still other innovative strategies include hospitals digitizing medical information in electronic medical records.

However, innovation processes usually involve: identifying needs, developing competences, and finding financial support.

Programs of organizational innovation are typically tightly linked to organizational goals and objectives, to the business plan, and to market competitive positioning. One driver for innovation programs in corporations is to achieve growth objectives.

 As Davila et al. (2006) notes, "Companies cannot grow through cost reduction and reengineering alone... Innovation is the key element in providing aggressive top-line growth, and for increasing bottom-line results".^[19]

Diffusion of innovation

 

Once innovation occurs, innovations may be spread from the innovator to other individuals and groups. This process has been proposed that the life cycle of innovations can be described using the 's-curve' or diffusion curve  The s-curve maps growth of revenue or productivity against time. In the early stage of a particular innovation, growth is relatively slow as the new product establishes itself. At some point customers begin to demand and the product growth increases more rapidly. New incremental innovations or changes to the product allow growth to continue. Towards the end of its lifecycle, growth slows and may even begin to decline. In the later stages, no amount of new investment in that product will yield a normal rate of return

The s-curve derives from an assumption that new products are likely to have "product life"—i.e., a start-up phase, a rapid increase in revenue and eventual decline. In fact the great majority of innovations never get off the bottom of the curve, and never produce normal returns.

Creativity vs. Innovation

The main difference between creativity and innovation is the focus. Creativity is about unleashing the potential of the mind to conceive new ideas. Those concepts could manifest themselves in any number of ways, but most often, they become something we can see, hear, smell, touch, or taste. However, creative ideas can also be thought experiments within one person’s mind.

Creativity is subjective, making it hard to measure, as our creative friends assert.

Innovation, on the other hand, is completely measurable. Innovation is about introducing change into relatively stable systems. It’s also concerned with the work required to make an idea viable. By identifying an unrecognized and unmet need, an organization can use innovation to apply its creative resources to design an appropriate solution and reap a return on its investment.

Organizations often chase creativity, but what they really need to pursue is innovation. Theodore Levitt puts it best: “What is often lacking is not creativity in the idea-creating sense but innovation in the action-producing sense, i.e. putting ideas to work.”

Sustainability

The word ‘sustainable’ has become widely used to refer merely to practices that are reputed to be more environmentally sound than others.

Sustainability is about an organizations' capacity to endure over time

Sustainability is about an organisations’ capacity to endure over time.

 In the context of social enterprise, sustainability has two sides. One side relates to the fact that an enterprise needs to be able to survive and endure financially over time. However there seems to me to be little point in talking about financial endurance without asking whether an enterprises’ social purpose can endure and whether it is able to maintain or deepen its impact over time. In social enterprises, impact and financial sustainability cannot be separated.

    

Two of the key challenges that this tension can raise in a social enterprise,

1-The social purpose and social impacts of an enterprise have real financial implications

The impacts that are generated through a social enterprise are not cost neutral.

They consist of real costs that need to be accounted for in addition to the operational costs of the enterprise. Depending on what impacts are generated out of the social enterprise, the costs may or may not be covered by the operations of the business itself.    

The nature of impact costs will depend on the social, environmental or cultural purpose of the enterprise. The capacity of the enterprise to internally cover these costs will be related to the nature of the business, its structure, location, size and the capacities of the people involved or the stakeholders of the enterprise. The figure below illustrates a range of costs that could be referred to as ‘impact’ costs.      

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Generally speaking, the deeper the impact, the greater the impact costs, and the more difficult it will be for an enterprise to cover both its operational and impact costs from within the business. 

2-If we don’t transparently separate out the financial implications of both the operations and impact sides of an enterprise, then we can jeopardize its viability and long-term sustainability.

While it is tempting for funders to want to ensure that the social enterprise is supported in whatever ways are needed, I am of the opinion that we should be very careful about how we utilize grant funding in the context of social enterprise. We should not be under the illusion that all social enterprises will be able to operate without grant funding, even in the long term. However, where and how we direct this funding is crucial to ensuring the viability and sustainability of a social enterprise.       

Based on the research that Foresters has undertaken into the financial needs and realities of social enterprise, and my own experience of managing a community enterprise, I believe that we should direct any grant or gift capital only into offsetting the impact costs or ensuring that the enterprise has the appropriate levels of infrastructure to undertake its work. I further believe that we should not use grant or gift capital to subsidies or cover any operational or production costs. It is necessary to ensure that the ‘business’ of the social enterprise is viable, and that it can pay for itself. So, if the social enterprise is a café that employs people who have experienced long-term unemployment, grant and gift capital could be used to help offset support, participation and impact costs of meeting this social purpose. The actual operations of running and managing a café (inputs, marketing, management wages of core staff) need to be covered by the business itself if it is to be viable over time. Separating out the impact and operational costs can ensure that we have the, best opportunity possible to build viable and sustainable social enterprises – and not merely create another layer of non-profit organisations who just have a slightly more enterprising façade.