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Five Conditions for Innovation

Incremental innovations occur everywhere, but revolutionary innovations-the kind that leverage new technologies and business models to drive down costs, increase accessibility, and improve services-are not typical. I believe that the reason for this is an improper realization of the conditions that foster both ability and motivation for innovation. These five conditions include:

  • Experimentation
  • Phase-out old products and services
  • Feedback loops
  • Incentives for product or service improvement
  • Budget constraints

To illustrate how these conditions affect the innovation process, let’s examine each one.

Experimentation. Any organization that wishes to adapt to a changing environment needs a mechanism for experimentation with new technologies and delivery models. Without the ability to develop an experimental infrastructure, fundamentally new and different approaches rarely emerge.

Phase-out old products and services. If an experiment is successful, a new challenge arises. Many organizations lack the ability to freely remove outdated technology and business models. This requires invested leadership with the ability to meet challenges that arise with change.

Feedback loops. It’s no surprise that strong feedback between clients and the organization are required to motivate investment into and adoption of the most valuable innovations. Explicit feedback is needed for managers to judge when to focus on the improvement of services versus the reduction of costs.

Incentives for product or service improvement. Equipped with the knowledge of what clients want, suppliers can improve their offerings if sufficiently motivated with access to increased revenue and/or reduced costs. The key to incentives is to appropriately aligned them with the goals of the organization.

Budget constraints. Budgets force prioritization. Not only do limits force people to prioritize, they also create incentives to cut costs. For innovation to take hold, leaders should ensure that budget constraints exist in order to motivate the appropriate prioritization. In some situations, such as individually distributed services, the constraints should be placed on the customers. In other situations, such as in purchasing, the constraint should be placed on the person responsible for the acquisition. Regardless of where the constraint falls, it is vital that budget incentives are used to force prioritization.

These five conditions for innovation make continuous change possible, and the difference between success and failure is the ability to create or preserve most if not all of these five conditions.

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