Innovation, the successful exploitation of new ideas, is generally accepted as the key to the global challenge of competitiveness in the 21st century. It is also recognised as a key driver for how the market values a company.

Consensus Research on behalf of the Design Council carried out a new research study into nearly 900 of the most innovative companies in Britain. The companies interviewed were all recognised by the Design Council for producing groundbreaking and highly innovative new products and services. The results have found that total belief in the potential of innovation is one of the key driving forces behind business success however the time and costs involved should never be underestimated. To read a summary of the findings click here.

The benefits of innovation are easy to celebrate but it is important to explore how a company can create a culture to enhance and nurture innovation. This section will look at some of the organisational strategies which companies can adapt to encourage an innovative culture.

Why is innovation so central to business success?

Innovation is by nature a risky business and although it is increasingly seen as a powerful way of securing competitive advantage, success is by no means guaranteed. An estimated 46% of all the resources allocated to product development and commercialisation in the US are spent on products that are cancelled or fail to yield an adequate financial return. While the risks are high, so too are the rewards: management research suggests that successful innovators are on average twice as profitable as other firms (Tidd et al 1997).

• Technological advances
• Accelerated pace of change, shortening product life cycles
• Changing customer needs

Technological advances

Technological advances can be a key factor for a company's success, making possible products and services which were not even dreamt of a decade ago. Corporate giant 3M found a way to make laptop screens brighter with less power using microreplication technology, an innovative technique which changes the surface structure of materials, allowing longer battery life for extended performance, with the size and weight considerations of smaller batteries.

The use of internet technology for commercial purposes is growing at an exponential rate, and is providing a powerful new tool for conducting business. Egg, the Prudential's innovative savings account, now only accepts new accounts managed over the internet, with the incentive of higher interest rates. Companies, including Amazon, CD Now and QXL (the UK based on-line auction house) use the internet as their only channel to market.

Accelerated pace of change, shortening product life cycles

In today's global marketplace the demand is for the new, the faster, the better and the cheaper. Product lifecycles are shrinking at an alarming rate: garments stay on the retail shelves for as little as eight to 12 weeks, the life of a TV or computer is now measured in months. Product lead times are being reduced significantly. The development of a vehicle took between ten to seven years a decade ago; cars can now take less than three years to produce. In April 2000 Toyota launched the WiLL Vi which is a car, based on an existing product platform, which has been developed in under 12 months! As competition intensifies, through shortening product life cycles and rapid product proliferation, companies are looking for new ways of attracting consumers through the introduction of new products and services to capture and retain market share.

Changing customer needs

Market needs and customer preferences are changing regularly and contemporary customers are becoming much more discerning and demanding. "They don't want merely a good phone connection: they want call waiting, call blocking, caller identity and voice messaging." (John Kao, 1998).

Companies have got to respond by continuing to innovate and produce new products and services. The Scandinavian Airlines System (SAS) has transformed itself from a technology-dominated to a customer-focused company. 3M pursues a strategy of 'stretch targets': prior to 1992 the target was set to achieve 25 % of annual sales from products that have been around for no more than five years. In 1992, noting that product lifecycles were decreasing, the company introduced the 30/4 rule: whereby 30 % of sales must come from products no less than four years old.

To innovate successfully, companies must know their markets and benchmark their competitors. According to the Consensus survey of Millennium Product companies (March 2000), market research and testing helps companies focus their ideas and position them successfully. Companies also said it reassured them about the viability of their product, giving them confidence to carry it through to launch.

'The content of Innovation Culture is based on research carried out by the Design and Innovation Research Group, University of Salford'