The Relationship between Creativity, Innovation, Entrepreneurship

By David Price Part 2 of a 4-Part Series on Entrepreneurship

Creativity is the fuel to ignite new ideas and new ways of thinking. But the real question is whether these new ideas matter to customers. This is where creative ideas can transform into a true innovation.

WHY IS INNOVATION IMPORTANT? In a McKinsey survey of hundreds of CEOs, innovation was rated among the top five areas that will increase in importance in the next five years. Finding employees who embrace creativity and innovation was also one of the top five challenges, suggesting it is a quality that has been deficient in the workforce.

A survey from PwC Global found that 84 percent of executives say innovation is extremely important to their company’s growth strategy, but only 6 percent are happy with their innovation performance. The United States has long been considered the world leader in innovation, yet we have seen a reduction in this global dominance. For the first time in 2010, 51 percent of all U.S. patents were awarded to non-U.S. companies.

WHAT IS INNOVATION AND HOW IS IT DIFFERENT FROM CREATIVITY? Examples of creativity surround us, whether a new product idea or an artists’ new masterpiece. Many of these pursuits may be creative and different, but if they are not useful to people (particularly potential customers), then they cannot be considered truly innovative. True innovation is the conversion of ideas from the creative process into a benefit.

There also remains a distinction between innovation and invention. While “invention” is often the result of a creative process, it is no guarantee of usefulness and certainly profitability. The US patent office is littered with creative and imaginative output that has never made it to market or had any significant return on investment (research suggests that only 2 percent of all patents realize profits).

Therefore, an invention still needs to have benefit. A man named Gary Kildall built the first personal computer operating system, the CP/M, in the late 1970s. However, Bill Gates and his expert business acumen took an imitation with additional features, DOS, into the standard operating system for the IBM PC and later for 90 percent of all PCs. Kildall was the inventor, Gates the innovator. While inventions start with a creative process, the innovator turns the result into a product, service, or process that proposes a benefit and has impact for others.

TYPES OF INNOVATION Innovation can happen in a big way. Most of us have heard of the great ideas and the famous people behind them (e.g. Steve Jobs and the iPhone). But there are also other types of innovations that can have an impact for firms, and these categories help us approach innovation from the perspective of our own unique businesses. The lesson here is that we don’t have to invent something that is totally new; we need to see things in new ways, with different uses, or create new combinations. However, this process is not always easy or cheap, as innovation can require time and resources.

MAKING YOUR CREATIVITY MORE USEFUL The first step in innovation is developing many ideas through the creative process. Ideas can be a well-developed invention or simply “hunches” formed from observation or experience. In either case, these must be filtered into more promising forms of business ideas.

It is important to note that most of our ideas will never come to fruition. Some well-known research by Stevens and Burley found that for every 3000 raw ideas gathered by firms, on average only two are eventually launched and only one of those is successful. So we should try to understand early on which ideas have a better chance of succeeding than others.

We can eliminate bad ideas by evaluating them based on two criteria: impact and feasibility. Impact will allow you to ask questions such as will this potential new idea have the effect on my business I am looking for? Is that impact profit? Is it simply to keep up with competition and maintain market share? If the answer to any of your questions is no, then you should look to the next idea before committing resources to its research and development.

Second, each idea should be judged on its feasibility. While you may believe you have developed a fantastic idea that customers will love, if you don’t have the resources to develop it (time, money, knowledge, skill), then it probably is not worth the effort to move forward as the costs will outweigh the returns.

4 DIFFERENT TYPES OF INNOVATION

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INVENTION The creation of a new product, service or process– often one that is novel or untried. These concepts are the big ones, often ‘revolutionary’ but also extremely rare. Examples include the Wright brothers with the invention of the airplane/flight, Edison’s’ light bulb, the personal computer.

EXTENSION This type of innovation applies a new use or different application of a product, service, or process already in existence. For example, Ray Kroc the founder of McDonald’s applied a process from another industry, car manufacturing, to food production. Kroc revolutionized the industry with strict quality operations and true “fast food” by having a line of workers make food in assembly-line fashion and having it prepared when people order at the counter.

DUPLICATION The replication of an already existing product, service or process. This is not simply copying but adding the entrepreneur’s own creative touch to improve the concept. Sam Walton, the famous entrepreneur and founder of Wal-Mart, said he used K-mart stores as his “laboratory,” studying the good and bad aspects of the chain and then tried to develop something similar–but better. As the largest company in the world by revenue today, I would say he succeeded.

SYNTHESIS The combination of existing concepts and factors into a new formulation or use. This involves taking several ideas already invented and finding a way that they can form something new. Take for example smartphones. When we look at the development of this product, most or all of the product features were already in existence. We had cell phones, digital cameras, video cameras, voice recorders and wireless internet. What made the product so successful was all that these features were packed into one device, with the benefit ease of use.

HOW TO INCORPORATE INNOVATION INTO YOUR BUSINESS In order to focus your innovation efforts, it helps to have an understanding of what you want to do. Business owners or would-be entrepreneurs can “map the competition” and survey the business landscape to get an understanding of markets, the gaps, the major competitors and where are they strong or weak. Note that this does not mean “benchmarking.” This is when firms look at what’s working with leading companies and determine what successes they can imitate. The reason follow the leader doesn’t always work is that it lacks innovation. Better to think of “leapfrogging” the competition. What is the best doing and how can I take the next step and jump ahead of them?

CORPORATE ENTREPRENEURSHIP How do large or established companies become more innovative? It can be more difficult, but certainly possible. In large companies, most managers are rewarded for minimizing risk. There are many detailed plans in place, they must follow established rules and perform functional roles at certain times and due to this structure, there is often little innovation.

Business, however, is often unpredictable and planning becomes imprecise. Small firms that are not bound by bureaucracy tend to be more flexible, making quicker decisions with strategy and thus are usually more innovative. For example, while large firms account for over 80 percent of the world’s R&D spending, individuals and small firms account for over half of all US patents.

Almost all large firms embrace innovation in some form today, Google, IBM, Apple, Whirlpool, GE, Southwest Airlines, all have incentive programs established in their business structure to promote innovation. This is often referred to as “Corporate Entrepreneurship.” Essentially, large firms attempt to apply entrepreneurial principles of smaller firms within the walls of their organizations to foster innovation. This can include encouraging innovation for employees with financial incentives, added autonomy, recognition, etc. This can also be referred to as encouraging “intrapreneurship,” where individual employees of large firms are encouraged to exhibit entrepreneurial tendencies, or sometimes groups are formed where people work collaboratively to develop innovations.

It may not be easy to spot truly innovative ideas. This comes back to the distinction between creativity and innovation. Does it really benefit the customer? Falling into this trap can lead to many wasted resources.

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CONCLUSION Companies can become more successful at developing innovation. Specifically, firms should set priorities and incentives for employees to be more innovative.

Given today's global and technological business environment, firms must learn to adapt and react quickly to marketplace changes. They must embrace innovation to remain competitive and relevant in the future.

Successful innovation is only a temporary source of market power. Given today's’ global and technological business environment, firms must learn to adapt and react quickly to marketplace changes. Many business leaders now consider innovation not just a source of competitive advantage, but rather a capability they must embrace to simply remain competitive and relevant in the future.