Innovation
What is Innovation?
Innovation is the implementation of new ideas, processes, and techniques to update a product or service and create new value. Innovation is not limited to technological advancements but encompasses a broad spectrum of changes that drive progress and have a significant positive impact.
The Basic Idea
From the early inventions of the wheel and printing press to modern-day discoveries like cloud computing and artificial intelligence (AI), innovation continues to transform our lives. These advancements have revolutionized how we live, communicate, and conduct business, but have also laid the groundwork for future innovations in technology and society overall. Where would we be without innovation?
While innovation is often associated with creativity and invention, it’s important to distinguish between these concepts. Creativity and invention primarily focus on the generation of new ideas or the creation of new things. In contrast, innovation is a process and an outcome. As a process, innovation involves bringing about new ideas, products, services, or solutions. As an outcome, it entails transforming creative concepts into real results that deliver value.1 It is the method of both developing new ideas and successfully implementing them within an organization or economic setting.
Another misconception about innovation is that it’s limited to technological advancements, but innovation can also include broader social, economic, or organizational changes. For example, innovation might involve offering new solutions to address social issues on a community scale or developing new business models to help companies stand out from competitors.
The overarching goal of innovation is to rethink traditional approaches, question the status quo, and transform promising new ideas into practical, tangible results.
Key Terms
Sustaining Innovation: Innovation that involves making improvements to existing products or processes, focused on improving what already exists and maintaining a competitive advantage in the market.2 For example, introducing laptops to the computing industry was a form of sustaining innovation, offering consumers additional value over existing desktop computers.
Disruptive Innovation: Innovation that involves disrupting existing market leaders by introducing new products or services.2 This might mean creating a new market or catering to a new customer base in an existing market, often by providing lower-cost products. In the computing industry, the introduction of smartphones was disruptive because it catered to a new market segment—people who did not need laptops but could still benefit from portable internet access.
Open Innovation: The practice of sourcing ideas from both internal and external sources. Open innovation emphasizes collaboration with people outside of the organization, inviting unique and perhaps left-field ideas from other businesses and stakeholders. Decentralizing innovation is key to gaining insight from people with diverse perspectives on a problem or goal.3
User Innovation: Innovation occurring when users of products and services develop new solutions to meet their own needs. For example, athletes often modify their own sports equipment to better align with their individual goals. This type of innovation is typically collaborative, as users are often willing to share their solutions freely without expectations of payment.4
History
Some of the first discussions of innovation were published by Greek philosopher and historian Xenophon around 2400 years ago. Xenophon talked of innovation in a positive light, describing how Athens could encourage economic advancement by focusing on commercial trade and silver mining instead of exploiting other states through conquest.6 Plato and Aristotle also discussed innovation, but both were critical of it.7 Plato claimed that innovation gave rise to social instability by prompting demands for new institutions and laws. Similarly, Aristotle was concerned that introducing change could threaten political order.
The concept of innovation was largely met with skepticism throughout early history. Most philosophical discussions around innovation presented change as an attack on current systems, leading to resistance from institutions keen on maintaining the status quo. During the Renaissance period, the idea of innovation was often associated with rebellion against religious authorities.7
Innovation eventually turned positive in the 20th century when the concept of technological innovation was popularized by Joseph Schumpeter.8 Schumpeter was a political economist who argued for the economic value of innovation after the Second World War, stressing the responsibility of industries to innovate with better processes and products. He described innovation as “constructive destruction,” a process by which new innovations replace older innovations and make existing ideas obsolete. This period saw rapid advances in technology and marked a period where innovation became synonymous with economic success.
Consequences
Today, innovation is embraced as a fundamental driver of progress and growth across numerous industries. Most organizations now strive to create a culture of innovation to meet evolving consumer needs. Not only can innovation have a positive financial impact on business, but it can also create better consumer experiences and contribute to job growth.
Financial Impact
Introducing innovative products, services, and processes comes with clear financial benefits—evidence suggests businesses that master innovation can generate 2.4 times higher profits than businesses that do not.9 A focus on innovation also better positions businesses to navigate challenges and seize new opportunities, as seen in the success stories of businesses ushering in new innovations during the pandemic.
Innovation and Competition
Innovation also underscores the value of competition in driving progress. According to a recent StatCan survey, Canadian businesses that face competition are much more likely to be innovative. Among businesses with known competitors in their market, more than 76% introduced innovations between 2020 and 2022 (compared to just 38% of businesses with no competitors).10 What’s more, businesses facing more competitors were proportionally more likely to introduce innovations.
What does this mean for consumers? Competition drives companies to offer better value to attract and retain customers. As companies innovate, products get cheaper, more accessible, and often more tailored to our individual needs. Competition also drives disruptive innovation, which provides value to underserved markets and creates new opportunities for consumers.
Job Growth
Innovation also generates demand for diverse skills. As companies innovate, they often require more labor, offering new opportunities to a wide range of job seekers. Innovation can even create entirely new industries—the commercial internet has generated over 17 million jobs in the U.S. alone.11 The internet also birthed several new markets, like the online creator economy, which is responsible for 200,000 full-time equivalent jobs. While technological innovations like generative AI can spark unease about the future of job security, these innovations do have the potential to create more jobs than they disrupt.
The Human Element
Innovation has clear economic and social benefits. So why do so many organizations struggle to introduce innovations? In 2022, over half of Canadian businesses faced obstacles to innovation. While COVID-19 was listed as a major obstacle, 28% of businesses cited uncertainty and risk related to innovation as a significant barrier.12
The risk and ambiguity associated with change are common psychological hurdles that can impede innovation. Fear of failure, criticism, and career consequences can deter individuals and organizations from proposing or trying new ideas. These fears are built into our very evolutionary makeup—our minds are hard-wired to avoid uncertainty and seek safety. This is clearly illustrated by common cognitive biases like loss aversion (we tend to prioritize avoiding losses over pursuing gains) and status quo bias (we often prefer the current state of affairs over change).
If companies want to build a culture of innovation, they must create an environment of psychological safety that mitigates biases and ensures employees feel comfortable sharing ideas. Companies can also benefit by making innovation an expectation rather than an option. Consider this: leading innovators are 2.9 times more likely than lagging innovators to expect that executives take initiative toward innovation in order to advance.13 By signaling that implementing new ideas is core to everyone’s role, organizations can create a culture where innovation is ingrained into daily decision-making processes.
Controversies
Innovation is almost always advantageous for business, but on a societal level, innovation has its pros and cons. Unfortunately, innovation sometimes involves exploiting people, harming the environment, or exacerbating wealth disparities.
Innovation at the Expense of People
Innovation doesn’t always benefit everyone equally—those with access to new technology or ideas may benefit disproportionately from those who do not. In fact, a 2024 study found that technological innovation often exacerbates income disparities, especially in developed countries with an abundance of high-skilled (and high-paid) workers.14
Similarly, innovation often leans toward economic improvements over social improvements. Whether or not an idea is implemented is largely tied to its perceived commercial value, and innovative processes that are likely to benefit society are unlikely to be implemented if they do not show potential for profitability. This is a particular problem for healthcare innovation where projects with high societal value but low commercial value struggle to get financial support.15
Planned Obsolescence
By nature, a culture of innovation values the constant introduction of new products that make existing products less desirable or even unusable. To encourage people to adopt new or updated products, companies often intentionally design products with limited lifespans—a practice known as planned obsolescence. This contributes to overconsumption, creates waste, and strains consumer finances. Fortunately, planned obsolescence has come under scrutiny in recent years and some governments have introduced regulations to extend product life cycles.
The Jevons Paradox
The Jevons Paradox occurs when technological innovation increases the efficiency of resource use, resulting in lower costs that drive up demand enough that resource use actually increases rather than decreases. This is a particular problem with advancements in information and communication technologies (ICT). Research shows that while digitization increases energy efficiency, energy consumption increases overall due to ICT.16
Of course, this doesn’t mean that new technologies are always worse for the environment. For instance, innovations in renewable energy technologies can lead to net reductions in emissions without creating the rebound effect we see with the Jevons Paradox.
Case Studies
Uber’s Disruptive Business Model
Uber’s innovative ride-sharing business model—connecting riders with drivers through a mobile app—completely disrupted the long-standing taxi industry. The taxi industry was traditionally capital-intensive, as companies needed to acquire cabs and hire drivers before generating revenue.17 Uber effectively removed all of these overhead costs, allowing the company to scale quickly and expand into new markets without the limitations facing regular taxi companies.
This business model also allowed Uber to offer more cost-effective rides compared with traditional taxi services. Plus, being able to request on-demand transportation via a convenient app was a massive improvement over traditional taxi services, offering riders a more flexible and efficient option in the vehicle-for-hire industry.
To the dismay of taxi companies, Uber’s innovative business model was a sweeping success. In fact, the term “Uberfication” is now used to describe the adoption of Uber’s business model to transform all kinds of traditional industries from hospitality to home maintenance.
Exploring the Four-Day Workweek
The idea of the four-day workweek has been tossed around for a while, with proponents arguing that this organizational innovation would increase productivity and overall employee happiness. Recently, several companies have started experimenting with the four-day workweek to test these ideas.
Let’s explore the results of a recent UK pilot study on the four-day workweek.18 Amazingly, 89% of companies that took part in the pilot were still operating a four-day work week one year later. Moreover, 100% of managers and CEOs reported that the policy had a positive or very positive impact on their organization. These organizations saw improvements in staff well-being, staff turnover, and recruitment. Plus, 46% of organizations reported positive productivity changes and some companies even reported improvements in revenue and sales.
The increasing popularity of the four-day workweek reflects a greater shift in the move toward innovative work structures. By challenging traditional approaches to work, companies can create a better work-life balance for employees while maintaining or even increasing productivity.
Related TDL Content
Want to Innovate? Stop Hiring the Safest Option
This article explores one impactful way organizations can encourage innovation—by hiring people with diverse skills and perspectives. Instead of hiring people who are likely to stick with the status quo, companies can benefit by taking a “risk” on those who may bring something different to the table.
Building a culture of innovation around Generative AI & LLMs
Generative AI tools and large language models (LLMs) have the potential to boost productivity and quality across several sectors. Companies that want to maintain a competitive advantage will need to create a culture that embraces this technology while considering the ethical and societal challenges that come with it. Check out this article to learn how this might work.
References
- Amabile, T. M., & Pratt, M. G. (2016). The dynamic componential model of creativity and innovation in organizations: Making progress, making meaning. Research in Organizational Behavior, 36, 157-183. https://doi.org/10.1016/j.riob.2016.10.001
- Cote, C. (2022, February 3). Sustaining vs. Disruptive Innovation: What's the Difference? HBS Online. Retrieved August 13, 2024, from https://online.hbs.edu/blog/post/sustaining-vs-disruptive-innovation
- Bokisha, O., & Zarooni, S. A. (2024, June 25). Decentralized but not fragmented: A new way to think about operations. The World Economic Forum. Retrieved August 13, 2024, from https://www.weforum.org/agenda/2024/06/decentralized-not-fragmented-new-way-think-about-operations/
- Franke, N., & Lüthje, C. (2020, January 30). User Innovation. Oxford Research Encyclopedia of Business and Management. Retrieved 8 Aug. 2024, from https://oxfordre.com/business/view/10.1093/acrefore/9780190224851.001.0001/acrefore-9780190224851-e-37.
- Jansen, J. N. (2007). After empire: Xenophon's Poroi and the reorientation of Athens' political economy (Doctoral dissertation). University of Texas. http://hdl.handle.net/2152/3258
- Jansen, J. N. (2007). After empire: Xenophon's Poroi and the reorientation of Athens' political economy (Doctoral dissertation). University of Texas. http://hdl.handle.net/2152/3258
- Godin, B. (2012). Innovation and conceptual innovation. Chaire Fernand-Dumont. Retrieved from https://www.chairefernanddumont.ucs.inrs.ca/wp-content/uploads/2013/09/GodinB_2012_Innovation_and_Conceptual_Innovation.pdf
- Robra, B., Pazaitis, A., Giotitsas, C., & Pansera, M. (2023). From creative destruction to convivial innovation - A post-growth perspective. Technovation, 125, 102760. https://doi.org/10.1016/j.technovation.2023.102760
- What is innovation? (2022, August 17). McKinsey. Retrieved August 13, 2024, from https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-innovation
- Survey of Innovation and Business Strategy, 2022. (2024, April 30). Statistique Canada. Retrieved August 13, 2024, from https://www150.statcan.gc.ca/n1/daily-quotidien/240430/dq240430b-eng.htm
- Study Finds Internet Economy Grew Seven Times Faster Than Total U.S. Economy, Created Over 7 Million Jobs in the Last Four Years. (2021, October 18). IAB. Retrieved August 13, 2024, from https://www.iab.com/news/study-finds-internet-economy-grew-seven-times-faster/
- Survey of Innovation and Business Strategy, 2020-2022. (2024, February 20). Statistique Canada. Retrieved August 13, 2024, from https://www150.statcan.gc.ca/n1/daily-quotidien/240220/dq240220b-eng.htm
- Furstenthal, L., Alex Morris, A., & Roth, E. (2022, June 3) Overcoming barriers to innovation. McKinsey. Retrieved August 13, 2024, from https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/fear-factor-overcoming-human-barriers-to-innovation
- Xiao, A., Xu, Z., Skare, M., Qin, Y., & Wang, X. (2024). Bridging the digital divide: The impact of technological innovation on income inequality and human interactions. Humanities and Social Sciences Communications, 11(1), 1-18. https://doi.org/10.1057/s41599-024-03307-8
- Allers, S., Eijkenaar, F., Van Raaij, E. M., & Schut, F. T. (2023). The long and winding road towards payment for healthcare innovation with high societal value but limited commercial value: A comparative case study of devices and health information technologies. Technology in Society, 75, 102405. https://doi.org/10.1016/j.techsoc.2023.102405
- Lange, S., Pohl, J., & Santarius, T. (2020). Digitalization and energy consumption. Does ICT reduce energy demand? Ecological Economics, 176, 106760. https://doi.org/10.1016/j.ecolecon.2020.106760
- Bashir, M., Yousaf, A., & Verma, R. (2016). Disruptive business model innovation: How a tech firm is changing the traditional taxi service industry. Indian Journal of Marketing, 46(4), 49-59.
- Autonomy Research. (2024). Making it stick: A guide to effective workplace transformation. Autonomy. https://autonomy.work/wp-content/uploads/2024/02/making-it-stick_-1.pdf
About the Author
Kira Warje
Kira holds a degree in Psychology with an extended minor in Anthropology. Fascinated by all things human, she has written extensively on cognition and mental health, often leveraging insights about the human mind to craft actionable marketing content for brands. She loves talking about human quirks and motivations, driven by the belief that behavioural science can help us all lead healthier, happier, and more sustainable lives. Occasionally, Kira dabbles in web development and enjoys learning about the synergy between psychology and UX design.