30/04/2013 12:03 BST | Updated 29/06/2013 06:12 BST

Five Principles to Succeed With Innovation

There are a plethora of lists citing the most innovative companies in the world published by some notable names in media. It does not matter that all differ in their membership; the debate of who is in and shouldn't be and who is missing but should be in is not important. What is important is that there are common principles of innovation to learn from and that can be drawn from the companies that are expertly surfing ahead on the wave of creativity.

1) Understanding what Innovation is.

You have to get this right. Inventing is not innovation without the invention adding significant value. Illustrated by Rube Goldberg's cartoons depicting complex devices that performed simple tasks, creating something new or doing something differently does not automatically mean it is innovative. It has to tangibly or intangibly provide greater utility for the user and/or customer.

Innovation can occur at 4 broad levels:

  • Process innovation - doing something differently that makes it easier/cheaper to complete a task/fulfil a need.
  • Product/service innovation - delivering something new to customers that significantly surpasses the value of substitute products/services.
  • Business model innovation - Changing the way your business works in a way that is different to competitors to enable scale, lower costs, greater profitability, more customer value.
  • Industry innovation - changing the way the industry competes - price focus to quality of service focus, premium pricing to freemium.

2) Understanding the customer.

So often we think we know what the customer wants without really asking them, watching them and understanding them. Our own pain points may be representative of a certain demographic, but we must verify our hypothesis with the wider market, with other experts, with stakeholders. The most innovative companies really "get" their customers and innovate to improve their customer's lives in the right way with the technology that the mass market is ready for. Spending time in discovering needs and opportunities, analysing scenarios, modelling benefits and customer journeys and outcomes will save time and money in the longer-term development process.

3) Experimentation.

Call it what you will, Rapid Application Development (RAD), Lean Development.....the idea is pretty much the same. Prototype, build a low cost demonstration of your product or service and test it with the market. Do it frequently and do it early on. Don't waste money thinking your idea is right, going all out in development only to find no one really wants it.

4) Managing failure and learning from it.

It is not about eradicating failure; failure is actually crucially important to the innovation process as it provides even more insight into customer behaviour. No, it is about ensuring that failure, when it occurs (and it will), occurs early on the process of innovation, within the discovery phase as part of experimentation.

In the vein of the Black Swan, a belief that something works/is right for the customer should be validated by proving that other avenues are wrong or are not as valuable. That is sound practice. Failure at the end of the process of development is costly both in terms of capital and, unfortunately, people's jobs. Creating an environment that encourages employees to perform low cost experimentation that may or not work, without repercussion (as long as they learn from it) is vitally important to building a culture of innovation.

5) Aligning incentives.

Don't reward risk taking, reward progress. Show that those that get ahead in the company are the ones that follow the right process for coming up with ideas and implementing them, not the ones that may have stumbled on a product that luckily hit the mark and made the business money. Not many are that insightful; not many have the genius to intrinsically understand human behaviour with the ease that most of us ride a bicycle. They are unlikely to be that lucky again. You need process for innovation that is repeatable.

Demonstrate to your team that it is the richness of sharing and working together to come up with the right solutions that builds the company and their careers. Give credit and rewards where they are due, but equitably, to all the people involved. Praise and openness contribute a lot to building a sense of ownership and instilling motivation - people like to feel they are contributing to their company's success, that they are making a difference and that it is recognised.