Most businesses hardly ever struggle to come up with innovative ideas. They usually get drowned in ideas that have been thought of before. The key is choosing the right innovation ideas to apply for your business. This is not all about winning an intellectual game, it’s about getting a solid return on investment for your innovation. And this is all about differentiating your company from its competition.
Innovation can be defined as an original product, process, idea, or approach that changes or improves something existing (in a market or society) so that it can be better or more useful or provide an advantage over competitors. Innovation can take many forms and using the tools of economics we can measure many aspects of the innovation process including both cost and volume of innovation, the level of human capital contributed to the innovation, and the level of output or quality of consumers’ goods or services provided by the new innovation. Economic theory also tells us that some innovations can create more economic value added (GDP) than the cost of producing them. This is why a business can create value and produce goods and services so abundantly in other markets around the world, but not so well in their home market.
Some innovations however are not really part of a business’s innovation strategy but rather a side project or a goal for a company. Some companies would like to invest in research and development (R&D) for example. Other companies would like to invest in new technologies for example. A company may be trying to develop a particular technology or application for a product or a process. The innovation pipeline therefore is much more fluid and flexible than economists would often believe.
The first step to consider when you’re trying to come up with some of the best innovation ideas is what type of economy you currently live in. For instance, do you live in a technological society? If so, then the types of innovations you may be interested in pursuing are likely to be similar to what your peer group is pursuing. On the other hand, if you live in a traditional economy or a labor-based economy, there is less likelihood of being able to commercialize those innovations. In addition, in this type of economy there is less potential for expansion of the innovation pipeline since there are more people with access to capital and labor.
Next, consider your horizon for innovation. Horizon refers to what the future holds for the business model you have in place today. Horizon may also refer to the existing structure and dynamics of the company you are trying to develop. If you want to see more innovation in the business, then refactoring your organizational debt is a good way to go. The key here is to look at the components of your business model in a new way that will help you predict where the innovation cycle is going next.
Finally, consider the types of risks involved with innovation. There are two types of risks inherent in venture capital funding: risk associated with capitalizing an idea before there is enough evidence to support it and risk associated with dilution of your equity. Venture capital is based upon the view that the company will make money even if it goes through an initial period of high risks (that is called an “acceleration phase”). Venture capital firms look favorably on companies that show a track record of being able to capitalize on their innovation, demonstrate a good rate of return on capital invested and have substantial operating profits.