Organizational Innovation – Definition, Characteristics and Types

Organizational Innovation is a process of receiving and using new ideas to satisfy the stakeholders of an organization. It is the conversion of new knowledge into new products and services. Organizational Innovation is about creating value and increasing efficiency, and therefore growing business. It is a spark that keeps organizations and people moving ever onward and upward. “Without innovation, new products, new services, and new ways of doing business would never emerge, and most organizations would be forever stuck doing the same old things the same old way.

“Innovation here is defined broadly, to include both improvements in technology and better methods or ways of doing things. It can be manifested in product changes, process changes, new approaches to marketing, new forms of distribution, and new conceptions of scope.” (Porter, 1990, p. 45)

The term organizational innovations covers a wide spectrum of innovations; for example, it can mean innovations in management practices, innovations in administrative processes or innovations in the formal organizational structure.

Organizational Innovation

A distinction is typically made between invention and innovation. Invention is the first occurrence of an idea for a new product or process or when an idea made manifest. Invention is also described as the creation of new forms, compositions of matter, or processes. Innovation is the first attempt to apply an idea, a change, or an improvement and effectively cause a social or commercial reorganization.

Core Characteristics of Organizational Innovation

A small set of characteristics is generally attributed to organizational innovation. These characteristics, that will be labelled here as core characteristics of the innovation concept, are briefly presented below.

  • Uncertainty: Uncertainty is one of the essential characteristics of the innovation process. Innovation is, by definition, an uncertain process, in that the existence of problems or opportunities does not clearly show the best solutions to solve or fulfil them.
  • Ubiquity: Innovation is an ubiquitous phenomenon in modern economies. New products, new processes, and new markets are constantly created in all parts of the economy. It is then possible to consider innovation as a primary component of economic systems, and not as the exogenous, disturbing set of events considered in models of standard economics.
  • Cumulativeness: Organizational innovation can be conceived as a cumulative process that evolves incrementally and is based upon the existing technological and knowledge base. The cumulative nature of organizational innovation causes the firm to be constrained by past decisions and practices.

Types of Organizational Innovation

Innovation has been categorized according to three dimension: competence enhancing (incremental); and competence destroying (radical); architectural versus component; and product versus process innovation.

  • Incremental innovations consist of small modifications or refinements to pre-existing processes or phenomenological states such as existing policies, procedures, product line, and services. These innovations also manifest as improvements in operations, cost control, and product or service performance necessary to keep pace with competitors. Popular concepts such as continuous improvement and reengineering are examples of incremental change that may require “revisioning” the companies mission and competitive strategy to reflect discontinuous change in the task environment.
  • Innovations can also be considered competence destroying. The discerning factor is whether the technology builds on the firm’s existing competences or makes them obsolete. Radical innovations are discontinuous or dramatic departures from the current ideal in design, application, or process. These radical innovations are typically technological breakthroughs with no precedents or antecedents that represent true quantum leaps in theory and application rather than linear progression. Of course radical innovation can be riskier and require greater investments.
  • Product innovation focuses on the outputs of an organization, in terms of its goods and services. This is often synonymous to technological innovation.
  • Process innovations improve the way organizations conduct business, particularly in terms of their efficiency or production. These work in tandem, in the sense that new processes may enable the production of new products or vice versus

Hard versus Soft Innovation

Hard Innovation is organized by Research and Development (R&D) department, characterized by strategic investment in innovation, be it high-risk-high-return radical innovation or low-risk-low-return incremental innovation. Soft Innovation is the clever, insightful, useful ideas that just anyone in the organization can think up. Innovation is the key driver of competitive advantage, growth, and profitability. There are many parts of the whole field of innovation: strategy innovation, new product development, creative approaches to problem solving, idea management, suggestion systems, etc. Innovation is neither singular nor linear, but systemic. It arises from complex interactions between many individuals, organizations and their operating environment. Firms which are successful in realizing the full returns from their technologies and innovations are able to match their technological developments with complementary expertise in other areas of their business, such as manufacturing, distribution, human resources, marketing, and customer service.

Innovation requires a vision change, risk and upheaval. Innovation is not done for innovation’s sake. There must be a driving motivator compelling the organization to develop the systems, resources and culture needed to support innovation. In today’s environment, that driver is survival in a world of rapid change. Innovation is customer-driven and bottom-line focused. The purpose of innovation is to find better ways to delight customers while meeting the needs of all other stakeholders and creating a financially viable organization. Innovation requires a foundation of ethics as it would flourish only in an environment of mutual trust and respect, not only within the organization but also within the surrounding community and global environment. Only such organizations develop a truly innovative approach to problems and opportunities.

Innovation requires innovative thinking, which is a skill needed among every member of the organization. It is the ability to constantly look for new possibilities, generate ideas, think together productively, make sound decisions and gain the commitment needed for rapid and effective implementation. Innovation begins with a clean slate in which prior assumptions and the way things have always been done are set aside in order to look at possibilities with a fresh perspective. Innovation looks at the whole system. Creating solutions in one area that causes problems in another is not innovation; it’s chaos. Innovation requires a diverse, information- and interaction-rich environment. People with different perspectives, working together toward a common objective, with accurate, up-to-date information and the proper tools are the only source of innovation.

Innovation requires a risk-tolerant environment. The creation of anything new involves risk and the possibility of failure. An innovative environment honors nice tries that didn’t work as learning experiences and part of the innovation process. Innovation involves and rewards every member of the organization. There are no longer “thinkers” and “doers,” “owners” and “workers.” Innovation requires the very best thinking and doing from everyone and treats everyone as an “owner,” equitably sharing the rewards generated by those best efforts. Innovation is an on-going process. It will never be a static state, which, once achieved, can be placed on a shelf and forgotten. It requires constant renewal, reinvention and dedication. Innovation requires a learning orientation as only by creating an environment where every member of the organization is continuously learning more about its products, services, processes, customers, technologies, industry and environment an organization could successfully innovate year after year.

Blocks to Innovation

Managers tend to nurture self-defeating beliefs that fantasy and reflection are a waste of time and that playfulness is for children only serve as block to innovation. Feelings and intuition good besides reason, logic, numbers and practicality are. Similarly, thinking that problem solving is serious business in which no fun or humor are allowed would ruin chances of innovation. Preference to tradition over change and the feeling that one is less creative are other barriers. Self-Imposed or Emotional Blocks such as fear of failure, inability to tolerate ambiguity and hang out until the best solution can be developed, inability to relax or incubate, or excessive zeal to succeed quickly could mar innovations. Lack of persistence, stress or depression could also affect innovations. Work Obstacles include lack of cooperation and trust among colleagues, autocratic management, too many distractions and easy intrusions, lack of acknowledgment or support of ideas and bringing them to action, intellectual or expressive blocks could result from lack of or incorrect information, inadequate skill to express or record ideas verbally, visually and mathematically and lack of intellectual challenge. Societal pressures, bombardment of information and pressure to keep up, acceleration of the pace of life and time are threats to innovation. An organization could be assessed to be innovative if at least 25% of their revenues come from products and services developed in the past five years consistently outperform competition in things like customer service, quality, time to market, return on investment and profitability, routinely solicit, listen to, and act on suggestions from people from every level and function of organization, encourage and stimulate interaction between departments and promote cross-functional projects and improvement processes like Total Quality Management, re-engineering, excellence, etc., regularly train people at all levels and in every function how to think and work together more effectively.

It is imperative that people in organization regularly have time available to think through situations, look at the big picture, improvise ideas and experiment with possibilities, information is to be freely and readily available to everyone in organization rather than on a need-to-know-basis. Organizations should regularly review and update its assumptions, mission and goals and encourage everyone in the organization to do so. Ownership, rewards and risks, are to be distributed widely through organization through stock ownership plans, or profit sharing plans. People can be taught, encouraged and coached or counseled to be more creative. Four basic creative strengths such as Flexibility, Fluency, Elaboration and Originality can be easily encouraged in employees.

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