Characteristics of Innovative Companies

Emerging companies are often distinguished from the broader set of entrepreneurial activities by focusing on the significant level of “innovation” associated with their business models.  A number of different definitions and explanations of innovation have been offered by academicians and commentators.  For our purposes, it is useful to think of innovation as the process of successfully acquiring and implementing new ideas within a business organization.  As suggested by this formulation, new ideas can be developed and created internally, or can be borrowed or purchased from other organizations.  New ideas are not confined to new products and services, but also include new or improved processes that enhance productivity or reduce costs associated with manufacturing or distributing existing products.  Put another way, innovation involves firms doing new things in new ways to increase productivity, product development, sales and profitability, including finding new ways of identifying the needs of new and existing clients and making and marketing products that satisfy those needs.

Researchers have attempted to identify those firms that have been most successful at innovation, and to describe and explain those business practices that tend to be associated with innovative companies.  Among the key factors are the following:

  • Innovative companies have strong leaders that are able to clearly articulate a vision for the business, set targets and create and maintain open relationships with all stakeholders (i.e., customers, investors, suppliers and employees).
  • The most innovative companies have extensive knowledge of the marketplace, the needs of customers, and the strengths and weaknesses of their competitors.
  • Innovative companies seek and retain extraordinarily qualified personnel, provide them with the proper amount of resources and general direction, and then allow them to make and pursue their own specific strategies for achieving the agreed goals.
  • The organizational environment of an innovative company emphasizes integration of multiple disciplines and functions and teamwork, goal sharing, and full and effective communication of goals and objectives throughout the firm.
  • Technology is used effectively throughout the organization, including small changes in design, production processes and customer services.
  • The organization strives and plans for continuous and constant innovation, as opposed to isolated new ideas, to improve and enhance products, services and productivity.
  • Innovative firms strive for strong brand recognition and rapid introduction of new products and services into the marketplace.
  • Innovative companies have systems for collecting information about, and learning from, customers, competitors and unrelated businesses around the world.

Some of the most common specific strategies for innovation include the following:

  • Frequent implementation of new management techniques;
  • Implementation of skill development and education programs for employees and managers;
  • Regular introduction of new technologies, generally no less frequently than every three years;
  • Constant and systematic benchmarking through regular comparison with the best companies in their industry and elsewhere;
  • Significant investment in customer-focused product design and in quality-based manufacturing equipment and processes;
  • Regular changes in the organization of work and administration, typically made in conjunction with introduction of new products and/or technologies;
  • Allocation of a significant share of turnover, generally at least 10%, to development and introduction of new products and processes; and
  • Collaboration with universities and other research centers to identify technologies which can be converted into profitable products and processes.

Alan Gutterman is the Founding Director of the Sustainable Entrepreneurship Project, which engages in and promotes research, education and training activities relating to entrepreneurial ventures launched with the aspiration to create sustainable enterprises that achieve significant growth in scale and value creation through the development of innovative products or services which form the basis for a successful international business.  Visit the Project’s Library of Resources for Sustainable Entrepreneurs to download handbooks, guides, articles and other materials relating to sustainable entrepreneurship and keep up with the Project’s activities by following Alan on LinkedInTwitter and Facebook.


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