What Makes a Company Innovative?
What are the defining characteristics and the inner drivers of truly innovative companies? Could we identify the factors that boost a company’s ability to innovate?
There are no easy answers to these questions — as any attempt to measure and explain the level of innovation of a company gets easily complicated.
We asked global thought leaders about the criteria they would use to classify a company as ‘innovative’ and how they would design or architect a new organization with innovation at its core. We also captured their insights on how to transform a ‘conventional’, established company into an innovative agile organization.
Read the great responses and insights provided by an amazing group of leaders — featuring Enrique Dans, Jesse Nieminen, Brian Kennedy, Marily Nika, Steven O'Kennedy, Andrea Kates, and Sofia Fernandes.
Enrique Dans
Professor of Innovation — IE Business School
As a corporate attribute, innovation could be defined as the ability to avoid isomorphism (the tendency of organizations to progressively resemble their normative environment), to be able to come up with new ideas that result in the introduction of new goods or services, or improvement in offering such goods or services. Innovation allows companies to tackle the current needs of current customers (incremental innovation) or to drastically affect the variables that the market takes into consideration when approaching that need, product, or service (disruptive innovation) — in some occasions even creating a new market.
Innovative companies are not necessarily companies that invent things, since innovation usually reflects more the use or application of an idea or method rather than the creation of the idea or method itself. But innovative companies should be able to do something beyond just improvement — since improvement typically refers to doing the same thing better instead of doing something different or following a different approach. Innovative companies are able to understand that innovation may come from anywhere, from any contextual variable, to an idea that emerges anywhere in the organization, and have differential expertise on the technologies or methodologies that allows them to focus on their users.
The learning function differentiates companies with a sustainable innovation culture – Enrique Dans
In newly created companies, this expertise is usually related to the foundation of the company: the company finds a new approach to cover a need in the market, assembles the required expertise to design it and launch it, and delivers it. Once established, the challenge becomes how to react when a new technology or approach is able to render their product or service as obsolete: in many cases, the company entrenches in its methodologies and tries to improve them following incremental innovation principles, whilst ridiculing or ignoring other alternative approaches — in some cases, even resourcing to the law to try to make any other approaches difficult and to preclude other companies from competing.
Conventional companies require a constant scouting of the market and the relevant technologies that could eventually be applied to their industry, to avoid missing any relevant approaches that could allow them to pursue different ways to offer their products or services in an advantageous way. The first important approach is to establish a learning culture: the learning function differentiates companies with a sustainable innovation culture from those that just hit the magic spot once in a while. Agility implies constant scouting and exploration, done in a collective way so that anyone in the organization that finds a competing approach by any means — from reading publications to pure serendipity or random inspiration — feels that he or she is able to propose it to the whole organization, and gets explored as a potential source of innovation.
Agility implies constant scouting and exploration – Enrique Dans
The most innovative company out there right now (2021) would probably be Tesla, a company that placed its bets on technologies such as batteries and solar panels, capitalized on the long term and on the strong economies of scale generated by such technologies, and has been able to completely transform an old industry by establishing a long term leadership on it. Interestingly enough, this is a characteristic that Tesla’s CEO, Elon Musk, has been consistently applying to every single company that he created, which proves that innovation strategies can be consistently replicated across different industries. As Elon Musk knows very well, companies lose when they invest more resources in protecting their innovation than in generating it. The value of innovation lies not in avoiding others from copying you, but in getting them to want to copy you.
Enrique Dans is a professor of innovation at IE Business School since 1990, and Senior Advisor on Innovation and Digital Transformation at IE University.
Jesse Nieminen
Co-founder & Chairman — Viima
When we look at what makes a company ‘innovative’, we must first take a step back and define what ‘innovation’ means, since there are so many different ways people use the term. My favorite definition is “the introduction of something new”[1] — it’s simple enough for people to understand and covers every kind of innovation. So, with that background, an innovative company is simply one that keeps introducing new things — such as changes to internal processes, minor improvements to existing products, or perhaps even entirely new products and services. Thus, a truly innovative company is one that’s never satisfied with the status quo and that keeps working hard to improve every facet of the organization.
If you have the luxury of having a fresh start, your organization will naturally evolve and change quickly, so all you need to do is to sustain that effort and cultivate a culture that’s always trying to be a little better and offer a little more value to your customers. However, if you’re an incumbent that’s a bit set in their ways, transforming the organization towards an agile, innovative organization is much more difficult. It will take years, tons of hard work, and countless changes to culture, people, and processes within the organization, and clear top-management support to enable all of that.
Creating an innovative company from scratch is much simpler than changing an existing one. – Jesse Nieminen
However, if I had to name just one thing to focus on to kickstart this movement, I’d seek to create a very tangible, concrete change in the way the company operates towards more agile and innovative direction. One example of such a change that we’ve used together with many of our clients is a new company-wide idea management process that anyone can be a part of, and where the best ideas will be highlighted, and innovators rewarded in front of the entire company. This kind of tangible change is always a much clearer statement than anything the CEO might say in an all-hands meeting.
As to which company I’d consider to be the most innovative in the world, I’d have to say Tesla. There are obviously many innovative companies out there, but what makes Tesla so special is that they operate in a few different, extremely challenging, and competitive industries, and despite these limitations they have been able to introduce dozens if not hundreds of records and big firsts — and more importantly, have been able to successfully scale most of them. What’s more, their pace of innovation is an entire order of magnitude faster than their competitors. In my experience, the pace of innovation is the single most important factor in determining an organization’s ability to succeed in the long term, and that’s where Tesla really shines.
Jesse Nieminen is the Co-founder, Chief Growth Officer & Chairman of Viima, and an entrepreneurial leader with a passion for building businesses and growing organizations to scale in the digital age.
Brian Kennedy
Head of Digital and Innovation — Expleo
For a company to be considered truly “innovative” it must place a premium on collaboration, especially internally. The company must also live and breathe change, challenging everything by not accepting the status quo or “that’s the way we have always done things”. Another key criteria for an innovative business is their obsession with the customer: learning from each customer interaction and continually improving the customer experiences across all channels is foundational.
Customer insights from data are also necessary, to not only deliver the best possible frictionless customer experiences but also to understand what new products and services your customers need and how the company’s offerings will address these requirements.
One of the goals of an innovative company is to disrupt its existing business model. Innovative organizations are risk-takers, consistently exploring new business models and leveraging their assets to identify and realize new revenue streams. Demonstration of this approach to risk should also be illustrated by aspirational company objectives: if stretch goals are not making most people nervous, you are not aiming high enough.
Truly innovative companies are continually trying new things, ideas, ways of working, adopting new technologies, etc. They fail often with some of these activities, but they fail fast and learn from them. If organizations are not failing when innovating, they may be playing it safe and not making the most of the business opportunities out there. Lastly, to be innovative, companies must foster a data-driven and innovative culture.
Evolve from ‘command and control’ towards cross-functional, collaborative behaviours. – Brian Kennedy
Innovation must become part of the company’s DNA — and this can happen by emphasizing design-thinking[2], customer-first, and human-centric approaches to all products and services, and by leveraging the latest technologies to drive operational efficiencies and all the while cultivating your talent. When nurturing employees, leaders must pay more attention to competencies and potential over experience; they must encourage the right mindset and empower their people, enable them to evolve from a command and control structure towards more cross-functional collaborative behaviours. Being Innovative is all about your people and how they work together, and with external partners.
When designing a new company with innovation at its core, taking a Lean Startup[3] approach is a suitable first step in building a business model. It is essential to focus on creating a learning organization — one that recognizes experimentation and validation as key activities and uses them to quickly learn what works and what does not, and then applies these learnings for customer engagement fulfilment and development of new products and services.
To transform a traditional bricks-and-mortar organization into an innovative agile company, numerous factors are involved and various approaches are needed. The established approach to this Digital Transformation demands a clear and close alignment between the Company’s Strategy and any Digital Roadmap. At the same time, it is important to ensure organizational support for the programs being implemented and clarity regarding the benefits expected from them.
While this top-down strategic method to Digital Transformation is necessary and indeed paramount to successfully transform from a Traditional into a Digital Business, it should not be the only approach: companies must also consider a bottom-up approach to Digital Transformation — programs, tools, and methods to harness your people and their creativity. For instance, you may use methods, such as Micro-Innovation to tap into your people as a source of innovation and as a low-cost, low-risk, bottom-up approach to Digital Transformation. In fact, there must be both top-down and bottom-up activities when innovating on your Digital Transformation Journey.
If organizations are not failing when innovating, they may be playing it safe. – Brian Kennedy
A key initial step for these bottom-up activities is building an operating model and organizational capability which empowers and engages all employees. This creates a safe environment for innovation, where there is no such thing as a bad idea, where good ideas are recognized and rewarded and, most importantly, employees are supported to deliver innovations. An environment where success is “showing results quickly”, not “doing the right planning”.
Brian is a Senior Leader within ‘Expleo’ and is currently the Head of Digital and Innovation Services. Since joining in 2017, he has primarily concentrated on building & developing Expleo’ s Digital & Innovation Services. He has 30 years of progressive experience spanning the full range of global IT services, previously working in internal CIO roles.
Dr. Marily Nika
AI Product Leader — Tech companies in the Bay Area
“Adapt or face extinction”. I use this phrase a lot in my courses when I want to showcase the importance of rewiring your brain and your company’s culture to embrace innovation. If a business doesn’t plug the latest advancements of technology into their strategy, it may face extinction. A great example of that is Blockbuster — an American-based provider that would provide rental services for movies and video games. It was extremely popular and was once valued as a $3 billion company. However, Blockbuster did not pivot quickly enough to online rentals and on-demand offerings and it ended up filing for bankruptcy after Netflix’s popularity continued to grow.
Don’t fall for the ‘shiny object’ trap. Focus on what matters. - Marily Nika
So how can you adapt? How can you guard against disruption and fast-moving, tech-enabled startups? Here is my advice. If you are working in an established company, then: invest in talent. Diverse, driven, ambitious & fresh minds that are not afraid to challenge the status quo and to come up with completely new ideas and verticals. If they will never be able to pass your hiring bar, it’s time to change that bar.
Talent will modernize legacy-powered companies’ technology stack and this is how leadership will make sure that the organization is set for success when competition arises. In order to innovate, a company also needs to innovate strategically. That is, be careful not to fall for the ‘shiny object’ trap. Focus on what really matters. Ask yourself ‘what user problem am I solving’? And ‘is it the right time for me to launch this’? These are key questions that are far more important to answer than getting any fancy technology patented. Baby steps are important — before flying, make sure there is product-market fit.
Marily Nika is an AI Product Leader based in San Francisco that has worked for Google and Facebook. She holds a Ph.D. in Computing Science from Imperial College London and is currently a teaching fellow at Harvard Business School. Outside of her day role, Marily acts as advisor to early stage startups and also empowers the women in tech community in various ways.
Steven O’Kennedy
Associate Director of Engineering — Global Centre for Innovation at Accenture
Being an innovative company is not about using the latest technology or the latest cool project management techniques or even setting the latest design trends. It’s not even about the ability to change quickly or bring new offerings to market quickly. Sure, all these may be ingredients you could observe in an innovative company, but they are just visible trappings rather than the substance.
As an example, I’ll borrow light-heartedly from some of the content that currently circulates heavily in business/ innovation social media channels: I could get up at the same time in the morning as Steve Jobs, always wear the same clothes like Steve Jobs did, ask questions of yourself in the mirror every morning like Steve Jobs did, but Steve Jobs this still does not make me! Fortunately, I have recognized this fact before spending a fortune on a wardrobe full of polo-necked jumpers!
Being an innovative company is not about using the latest technology or cool project management techniques. - Steven O’Kennedy
If we look past the trappings, we see that successful innovative companies have three ‘special’ abilities:
1. To see at the right time the necessity to change.
2. To follow through on that change without undue delay
3. To measure the impact of that change and if it has been a step in the right direction.
Building a company with innovation at its core requires these three things in every aspect of its operation — from tech to sales and from product to HR. It’s also worth noting that the company doesn’t necessarily need the same level of innovation in all of its areas at the same time. Also, the pace of innovation and change does not need to be constant. The company should be able to flex in one or more areas faster or slower than others — as needed.
This all sounds hard enough for a brand-new company to achieve — but what about transforming an existing company to work in this fashion? It is clearly possible — a good example is Nintendo which started out its life as a playing cards manufacturer until it started to stagnate and had to reinvent itself. When trying to transform an established company and introduce innovation, an important initial goal should be to first define what innovation actually means to the company — and also the types of change that are most important to facilitate and measure. Once the aim is clarified, agreed upon, and prioritised by the leadership, then the success factors must be set. Defining success is critical because unreasonable demands and requirements will quickly lead to failure and abandonment of the programme, while unambitious goals may be achievable but will not lead to a return on investment. The goal should not be to prioritise pace of change, or other skewed interpretations of agility, but to focus on achieving the 3 indicators listed above.
Companies like Amazon, Netflix, and Apple innovate at pace because they have conditioned themselves to identify change and measure at pace; they have company-wide constructs in their organisations and business models that facilitate this. These constructs will not and do not exist in a company at the start of their innovation transformation programme. In fact, it is likely that the first steps in such a programme, will produce results that will not appear like innovation at all if measured against the backdrop of a Google or a Microsoft or a Tesla. But that doesn’t mean that it isn’t innovation for the company that’s doing it.
Steven O’Kennedy is the Director of Engineering in Accenture’s Global Innovation Centre at The Dock in Dublin. After working on large scale system implementation and technical transformation projects for many years as a technical architect, he now focuses on incubating innovative products and services centred around modern software architecture, AI and cloud technologies.
Andrea Kates
Managing Director — Futureproofing: Next
It used to be that companies were judged as innovative based on how many ideas they could bring to market. There was a tension defined between the “innovate/explore” and “execute/exploit” mindsets. Huge debates emerged about whether a company should focus on its core or on emerging “edge” opportunities. In today’s market, three things have changed. First, the speed of change is unprecedented: keeping up means shifting to new arenas at a breakneck pace. Second, there are new forces of change — coming from industries outside of the ones where we are used to competing and operating — and that requires cross-industry insights. Third, the business models themselves have shifted, opening up new opportunities to collaborate, to build an ecosystem through relationships that transcend the traditional supply chain mindset.
The bias of most tools we use grounds our thinking in ways we’re not even aware of. - Andrea Kates
All of these conditions add up to the need to classify a company as “innovative” based on a multi-dimensional view that I call futureproofing, which is a four-step process: See, Learn, Decide, and Commit.
- See: How good is a company’s ability to see and respond to emerging trends?
- Learn: How effectively can a company acquire new capabilities that will keep it relevant? I call it Perpetual Refresh — the ability to master new skills.
- Decide: How well does a company align its leaders around priorities to take action?
- Commit: To what extent is the culture geared to aggressively pursue new initiatives, while operating well and keeping a check on the pulse of the customers and the market. It’s not just about idea generation.
Innovative companies focus on becoming futureproofed by adopting a new mindset, adding new capabilities, and embracing new metrics. Innovative organizations always have a clear vision about where to head next and they work backward to chart a path to get there. To adopt the futureproofing approach requires tossing out conventional tools like SWOT[4] (Strengths Weaknesses Opportunities Threats) as our sole point of departure to begin the strategic journey. The bias of most tools we use grounds our thinking in ways we’re not even aware of — for example, SWOT tends to focus on historical or present-day data and is generally vetted by the internal team.
By contrast, Design Thinking[5] can be brought in, to reflect emerging customer beliefs and needs. Or, Lean Startup[6] can bring in customer discovery and experimentation. While all of these are valid, it is a blended, future-proofed approach that is better suited to the dynamics of today’s market.
Andrea Kates helps corporate teams and business leaders drive revenue growth through innovative routes to market, future-based insights, and cross-industry inspiration. Former tech CEO in San Francisco and now a global advisor and leader of high-impact initiatives for companies like Ford, Mayo Clinic, KK Wind, Intergraficas, and Cisco. Leadership Training, Innovation Initiatives, Thought Leadership/ Keynotes, Board Member.
Sofia Fernandes
Director of Business Development — BGI
Given my experience with startups and corporations on Open Innovation programs, I would say that a company is innovative when it successfully launches either a product or a service that addresses a problem in such a way that was never seen before and that ultimately disrupts the market; it teaches consumers a new way to solve a problem. This is Uber, enabling users to ask for drivers through a smartphone and then rate them; or Amazon, enabling people to purchase any product always from the same store — at a distance of a click. Innovative companies introduce a new method that people learn and adopt at scale — since it solves their problem quicker, faster, cheaper.
To design such an innovative company, I would focus on forming a dream team: a diverse group of different nationalities and backgrounds — including exact scientists and social scientists with different professional experiences. An innovative company needs dreamers — the ones who seek the unimaginable — what everyone sees as impossible; the ones who scratch the impossible and believe it will happen. But innovative companies also need doers — those who look at the dreamers’ plan and make it happen no matter what; the ones who are driven by results and find the ways to keep the company running and profitable. Both profiles are needed, and they have to work together — sometimes disagreeing; sometimes leading the company into the future.
Transforming an established company to become more innovative is tougher though. In this case, companies need a ‘Kamikaze’ team — an external team that reports to the head of each department. The mission of this special team is to identify bottlenecks in internal processes, spot those highly motivated individuals inside the corporation, understand the current status quo and capture feedback on improvements; to spot problems with current clients, benchmark with competitors, and gather insights about other aspects of the company that may be crucial for understanding how it is being run, what works and what does not.
To design an innovative company, focus on forming a Dream Team. - Sofia Fernandes
Among other aspects, this team must analyze the employees’ dynamics and patterns — e.g. their career development in the company, reasons why they leave and companies they go to, etc. The ‘Kamikaze’ team will then produce a report on all these aspects — problems and opportunities for improvement along with guidelines and best-in-class examples on how to solve the problems and implement the improvements. Then, they work together with the head of each department to define goals and a timeline to achieve them. Then, following a top-down approach, they implement the new ‘system’ as the basis for a more innovative version of the company.
Looking out there in the market, the most innovative company for me is Google. They never fail to invest in the biggest asset a company can have — People. And I know what you are thinking: “Here we go again with the same old idea that people are key”. But they are. Thinking that anyone is replaceable, not only is inaccurate, but it also proved wrong several times. It is like a football team: one member can make the difference, because that influences not only the way the team plays but also the way the energy flows. In every team, each person plays an important role as a motivator, a leader, an enabler. Google has always been there scouting for the best, for those who show the potential to bring the right energy to the table.
And that all comes down, in my opinion, to the balance between dreamers and doers: you need the crazy guys that come up with ideas everyone considers to be ridiculous, and then you need the doers that start figuring out how these ideas could be brought out to daylight. This is what startups are all about, and Google, not only started like that but also quickly realized that this is the future. This is why they have an extremely strong team always looking for startups that have the potential to be the next big thing — just like Google a few decades ago. And they immediately buy those companies and incorporate their culture. And that is pure magic. Furthermore, they understand that people no longer have the baby boomers’ culture of being driven by money. In our era, people are mostly driven by happiness and fulfilment; they are inspired by collaborating with creative, energized individuals in pursuing a meaningful purpose.
Do not fail to invest in the biggest asset a company can have — People. - Sofia Fernandes
Truly innovative companies have a strong culture — this is what creates leaders, heroes, and role models. Being scalable is not enough. Being digital is not enough. Being authentic and unique is not enough. You need a team that can secure what you have built long after your reign is over. This is an infinite game, and this is how truly innovative companies manage to never die.
Sofia Fernandes is a strategist with extensive experience in working with both startups and corporations in launching new products. Sofia manages a portfolio of over 100 startups and focuses on designing and aligning strategies, motivating teams, and assuring flawless implementation.
[1] Innovation | Definition of Innovation by Merriam-Webster
[2] Design thinking — Wikipedia
[5] Design thinking — Wikipedia
Excerpt from 60 Leaders on Innovation (2021) — the book that brings together unique insights and ‘practical wisdom’ on corporate innovation.
