Defining innovation – part 2: a fresh perspective on what innovation means

The fact is, innovation is (relatively) easy to define, but it is notoriously difficult to achieve, as Dave Richards finds out

The concept of ‘value’ embraces commercialisation, commercial success, wealth, utility, adoption and wellbeing, but in a way that doesn’t unduly limit our definition or thinking about what constitutes innovation.

‘Value’ is a more comprehensive psychological construct than utility. Humans can value, appreciate and love things that aren’t useful.

Another key reason to place the concept of value at the heart of innovation is to consider your why, what and wow. Why does your organisation exist? What does it deliver in the world? What’s your ‘wow factor’ that makes your brand or offering stand head and shoulders above others? Would anyone care if your organisation tipped over its collective shoelaces and died?

The essence of any organisation is its business model. At the core of any business model is a product – whatever good or service the enterprise produces that is intended to be of value to someone, usually thought of as the ‘customer’. The rest of the business model is simply whatever the enterprise does to produce the product, and whatever it does to get the product into the hot little hands of the intended customers. In its simplest form, a business model is simply about manifesting value in customer experience.

Of course, in reality, most organisations deliver a complex product portfolio, but we can nonetheless think of whatever is produced as the ‘product’. Further, there might be incredibly complex international supply chains, distribution channels, sales and marketing, and much more involved, but at its essence, a business model consists of these three simple elements. We can also use the term ‘value delivery model’, especially when considering public or social enterprises that might not like to think of themselves as businesses.

The concept of ‘customer’ is also somewhat complex. Whether this customer is a paying consumer or the recipient of charity or public services, they are nonetheless a ‘customer’. And sure, there is some psychological complexity here, in that some customers might be users, while others might be choosers (or buyers), influencers, all three, or any combination. Further, there is typically an incredible level of diversity of customer experience resulting from even the simplest of products, let alone complex product portfolios delivered in a wide variety of ways. Life is complex.

Given the above – that any enterprise should exist to create and deliver value to customers – the best definitions of innovation are ‘fresh thinking that creates value’ or ‘people creating value through the implementation of ideas’ or ‘something new that delivers value to the world’ – recognizing that the concept of ‘value’ must therefore also be clearly and unequivocally defined to fully understand what we mean by ‘innovation’. So, what is value?

Value is a psychological experience, or perception. Value is not absolute, and it’s not equivalent to money. Money, after all, is a human construct designed to enable commerce, trade and wealth. But if you think about it, even when money was made with precious metals, there was nothing inherently valuable about it, other than the value people placed in it based on their expectations for how they might use it. Value is more about love than money. Sure, people pay for love (some more than others), and will pay much more for something they truly love than something that is merely useful. Even the concept of money is psychological, and the value humans place on various forms of currency is also based on their perceptions, expectations, hopes and fears – all psychological phenomena.

Based on all of the above, I offer this definition:

Innovation is the realisation of net new value as experienced by people, resulting from the implementation of ideas (by the same or other people) for value creation.

The degree of innovation success at any given point in time is measurable return on investment (ROI) – the value created relative to the value (time, money, effort or other resources) invested to create it. ROI is usually expressed as a ratio, or percentage:

Innovation ROI = (Value Created – Value Invested) / Value Invested

Whether or not, or to what extent innovation is considered ‘successful’ is therefore a relative judgment. The level of ROI considered ‘acceptable’ by any given organisation, board, or investor will depend on other investment options, and perhaps other strategic considerations.

Being able to agree upon measures of value is critically important both for conversations about innovation, the development and implementation of innovation strategies, and of course the assessment of innovation results.

Money (commercial success, costs, budgets, profits) is of course a common and relatively easy way to measure perceived value – as it’s constantly tied and correlated to value experience in real time, in various local and global markets. But as alluded to above, if we focus only on money as our measure of psychological value, we might miss very important nuances. Leading organisations have learned that measures of customer experience, loyalty (e.g., net promoter scores) and love (of brands, products, etc.) can be vital for predicting and measuring success or failure. Four key concepts to bear in mind: (1) garbage in, garbage out; (2) not all that can be measured is important; (3) not all that’s important can be measured; and (4) the devil is in the detail.

Let’s end this series by defining another term – ‘unnovation’ – to refer to cases where the ROI is negative, negligible or simply disappointingly low. The fact is, innovation is (relatively) easy to define, but it is notoriously difficult to achieve, as witnessed by the fact that innovation success rates are very low (less than 10%) across all types of enterprises and industries globally (Dobin Group, 2012; Richards, 2014; VIIMA, 2018).

Dave Richards is Co-Founder of the MIT Innovation Lab, and a highly acclaimed author, speaker and consultant on strategic innovation leadership. He is the author of The Seven Sins of Innovation: A Strategic Model for Entrepreneurship  and holds a PhD in mathematical psychology and neuroscience from the University of Toronto.

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