Innovation is changing. The days of the research and development lab producing a stream of ideas ready for market are passing. Even in the largest firms, the process of creating and distributing new products and services is becoming too complex to carry out in isolation.

Knowledge is now so freely available, and competition so intense, that it is no longer realistic to expect to exercise full control over generating ideas and taking them to market. Instead, innovation runs on an open model and knowledge is sourced externally from many disciplines.

Transformative ideas can come from anywhere: specialists, employees, suppliers and, in particular, users. The ready-to-drink market, for instance, was not invented in the lab. Instead, an innovation workshop at Diageo noticed that clubbers were mixing their own drinks, so Smirnoff Ice was developed as a response.

Such open innovation depends on creating networks of value to lever in a wide range of new thinking from inside and outside the organisation, says Garrick Jones at business design agency Ludic.

The collective knowledge inherent in any commercial context contains a wealth of information, he says. ‘There is a tremendous amount of thinking out there – tap into it. Build networks with specialists and enthusiasts. Allow new products to be the test beds for the new ideas generated in the broader society,’ says Jones.

‘Multi-disciplinary teams might be hard to manage, but they are vital for the creative dynamic that sparks new ideas. They will be working on a solution in different places, so the time they do spend together is precious. How can the most be made of those interactions? To accelerate solutions, you must re-create the highly networked creative environment on a film set.’

Innovation is ceasing to be a one-way street, where consumers sit at the end of a technology pipeline choosing between the products that are set before them. Instead, consumers are becoming active participants in the development of new features and formats.

For smaller companies, in particular, high performance now depends on selling more of their existing product and services to their existing customers and to people like them, says Gerard Burke of the business growth and development programme at the Cranfield School of Management.

‘A compelling strategy for the growth-hungry firm is to find a profitable niche market and bring distinctive value to the customers in it. You cannot fight on too many fronts,’ he says.

Focus on meeting the needs of a well-defined target group, says Burke, as this allows you to respond quickly to, or anticipate, customers’ needs. As a result, you can be seen to be constantly enhancing products and services in ways you already know will meet with customers’ approval.

‘This type of incremental innovation, based on deep sensitivity to customers’ needs, is usually a perfectly natural and deeply engrained behaviour within the business,’ he says. ‘In the successful growth business, there is no need for a special innovation process, or for one person to be responsible for new ideas. Identifying new and better ways to service their customers is simply part of what everybody does and the business is sufficiently nimble and flexible to allow these improvements to be implemented quickly.’

The danger with incremental innovation lies in settling for last year’s performance plus 10 per cent. Radical innovation, as it is often defined, can have a much greater impact resulting in either an entirely new set of features or a five-fold improvement in performance accompanied by a 30 per cent reduction in costs.

The challenge is to develop strategies that create new market space, turning the conventional assumptions of strategy upside down.

‘Stop benchmarking the competition,’ says John Riker at the Value Innovation Network. ‘Instead, pursue a quantum leap in value to dominate the market.’

Wide angle

Riker says a value innovator thinks in terms of the total solution that customers seek, even if that takes the company beyond its industry’s traditional offerings. Ask what you would do if you were starting anew, not just how you can make best use of existing assets and capabilities.

‘To create a quantum leap in value, companies need to direct all their talent to explore the market. The key to this process is to open up the entire organisation to seek growth opportunities. Most firms sit on a gold mine of talented and capable people, yet few tap into them in developing strategy. By bringing together a diverse team of employees from across functions, levels and geographies, an organisation can foster new ways of thinking and a wider business perspective,’ says Riker.

Strategy formulation must consider both a company’s traditional market, and all alternative markets. Until you expand your definition of your market you will not be able to expand the possibilities of your offer.

‘Through a qualitative process of market exploration, companies can begin to look at their industry and business through a new set of lenses. They learn about their customers’ dreams and hates, their aspirations and irritations. This rich image of the wider market translates into breakthrough ideas for new market space,’ he says.

Re-inventing the wheel

‘It requires immense leadership and courage to abandon the ritual comfort of traditional strategy development and embark on this process,’ says Riker. ‘But given the unrelenting pressure of competition, the need to introduce unconventional thinking will become imperative for all firms seeking to create successful growth strategies.

In developing an innovative strategy, it is worth looking externally and reviewing competitors’ ideas. Each year, millions of pounds are wasted on research into technologies that has already been disclosed.

There is a multitude of intellectual property being generated internationally, according to technology broker John Allies, most of which is never used and most of which is relatively easy to gain access to, provided you know where to look and who to talk to. ‘If you are looking for a solution, why pour money into research when someone might already have cracked the problem?’ he asks.

‘You will be able to find near-to-market technology and information, which for whatever reason the originator does not want to take in your direction. It can be a fantastic short cut through the innovation process and is much less expensive than developing everything yourself,’ says Allies.

Whatever the origin of an idea, to take it through to market depends on leadership throughout an organisation. It is a quality that is often in short supply.

Most managers feel there is a lack of buzz or energy at work, according to recent research from the Chartered Institute of Management and the Department of Trade and Industry (DTI), and many executives questioned claimed they had never worked with an inspirational leader, though they could name numerous examples in their day-to-day lives.

This points to a serious deficit for innovation, argues Nigel Crouch, a senior industrialist who works on the DTI’s inspirational leadership programme. ‘You can have all the right technical skills. You just have to overlay them with fairly basic motivational qualities,’ he says.

‘Most people can do it without much effort. And there are a lot of inspirational leaders who are quiet, reflective types, whose people will follow them anywhere.’

To encourage an active flow of ideas, he advocates giving cross-functional teams real power: ‘Turn them into network units in their own right and give them a senior sponsor to prevent projects getting stuck in the mire,’ says Crouch.

He worries that when IT should be the lifeblood of innovation, it can end up being a blocker. ‘Leaders and managers have to ensure people use IT as a support tool and human interaction is not lost,’ says Crouch.

‘Train people when to use email to comment on ideas – and when not to. Some issues are too sensitive or emotive. You want people to spark off each other.’