Management: Innovation is key to prosperity

Most top managers recognise that their businesses operate in an environment that is more complex, more dynamic and more hostile than ever before. Competitive pressures have increased, technology is shortening product life cycles and customers are becoming more demanding. All this points to an overwhelming need to innovate - and fast.

Yet when one analyses companies' performance with a view to investment, not enough attention is given to examining the quality and quantity of innovations they have made. In fact, such investigations seldom go beyond identifying the percentage of turnover spent on research and development.

If I were a company analyst, I would place at the top of my list of items for investigation the firm's performance in innovation. In any sector I would consider the most innovative company as the safest one in which to invest my money.

The companies that score low on innovation should be avoided, irrespective of how profitable they may be at present. It is no secret that companies with a portfolio of 'cash cows' can be immensely profitable. Nevertheless, they may not survive to see the next century.

A pharmaceutical company that derives most of its profits from one, albeit excellent, drug can be very profitable but its future is vulnerable. Clearly, the priority for such a company must be to innovate.

The notion that innovation simply means a new or a better product is slow in dying. Innovation means doing things better, more cheaply, more effectively or more aesthetically. But it can relate to any activity undertaken by the company and not exclusively to product development.

A company can innovate in the design of a better or more imaginative distribution system, or by developing a better communication with customers and/or channels of distribution, or even in pricing policy.

In the early days of photocopying, for instance, Rank Xerox stole a march on its potential competitors by introducing a pricing policy based on a 'click charge' per copy. British Airways is still reaping the benefit of the highly innovative 'Air Miles' strategy. This has helped to create a greater loyalty to the airline without changing any of its products.

SMH, the developer of the Swatch, has attained impressive success by marketing the concept that watches, like stamps, can be collectors' items. This encourages customers to buy a few watches a year instead of a few in a lifetime, as they previously did.

Thus innovation starts with the development of a vision, the formulation of a mission and the search for strategy at the top, and extends to the pursuance of operational minutiae at the bottom.

Innovation can take place at all levels and in all functional areas. The German car manufacturer BMW renewed itself by resorting to a novel analysis that had helped to identify the growing 'yuppie' market. An innovative marketing strategy directed from the top helped the rest of the company to march towards success.

It is essential to remember that innovation is the output of creativity, which is the process of thinking and generating ideas and therefore the input. Innovation is the commercial and/or technological application of ideas towards meeting objectives in a better, cheaper or altogether more effective way.

Bearing in mind that on average one needs about 60 ideas to achieve one innovation, it is self-evident that the symbiosis between these two elements is crucial. So in order to innovate a company must be creative.

Why are some companies more creative than others? This is a vast subject for academic research. Nevertheless, an insight that I have stumbled across during my work offers an answer.

Over the past decade I and some colleagues have been conducting 'strategy search' workshops for company strategists. The aim is to produce a mission based around a vision of the future and a set of strategic plans. The main thrust of the approach is to use creative techniques, such as brainstorming, scenario day-dreaming - imagining all sorts of 'what ifs' - metaphorical analogy and attribute listing, in the development of strategies.

Like all real-life assignments one often gains insights that even the most sophisticated academic research may miss. This one was that companies in which the 'bosses' play the creative thinking game tend to be more creative than others.

It appears that creativity at the top can infect the rest of the organisation. In other words, the role model provided by creative bosses can have an all-pervasive impact on the firm.

What starts as a top-down message can translate itself into a powerful groundswell of creativity. This is probably a powerful example of the role of leadership.

Regrettably, too many companies have a top management that delegates creative thinking. Managers often convey the tacit message that creativity is a game for lower echelons only. 'I am paying my people high salaries and expect them to be more creative . . .' was a statement from a powerful chief executive that left me speechless.

If one bears in mind that without creativity, innovation is unlikely to occur, the challenge to top management is loud and clear.

The author is director of Cranfield School of Management's centre for creativity.