Innovation is most commonly defined by economists as “the process of improving an existing process or product, or introducing some new process or product designed to make something better”. Innovation is the fostering of progress towards a particular objective, often one that can only be achieved through further research and development. It involves the application of science and technology for the improvement of the operations and performance of a business or organization. Some examples of business sectors where innovation is most often applied include information technology, health care, personal and beauty products, and the manufacturing sector.
Innovation is important to businesses because it drives growth, creates value for shareholders, and helps to maintain competitive advantage. It is therefore essential that established companies explore all available opportunities to add to their range of offerings. A key approach taken by many firms is to foster innovations by supporting and promoting new ideas and projects through providing financial, managerial and technical resources.
Fostering innovation has been seen as a challenge for many companies in the past, especially in the developed markets. Companies have been slow to adopt innovative thinking because they fear being left behind in global competition, especially when there is a growing number of highly successful firms in other markets that have been able to successfully penetrate and dominate the markets. Innovation strategies therefore must be developed and implemented to create a competitive advantage that can withstand economic and market changes. For this reason, companies need a comprehensive innovation strategy that can define innovation in the most comprehensive way.
Companies need to address two broad questions before they can answer the question of how to create new value through innovation. The first question is how to define innovation. This includes an assessment of the goals and objectives of the innovation process. The second question relates to creating new value in an efficient and cost-effective manner. Many companies have failed to realize their purpose if they have not clearly defined what they want to accomplish.
The creation of value through innovation includes two elements – creation of a new value and capturing value. Value creation is a process that occurs during the innovation process. It is a set of activities such as establishing a competitive advantage, finding new ways to create, marketing and selling the innovation, and developing customer demand. Capture value, on the other hand, refers to the methods used to ensure that innovation produces additional or recurring income.
A large part of creating new value through innovation is making sure that what is created is something new. Innovations will usually never be completely “something new” in the sense that innovations do not have a permanent effect on the world as a whole. Even if something new is created, it will eventually become outmoded or extinct because of natural selection.