Mark Twain is widely credited with quipping that "everybody talks about the weather, but nobody does anything about it."

At many companies, the same might be said about innovation. But some fast-growing businesses do more than pay lip service to the concept: They view it as a core part of their missions; in fact, they believe it's utterly essential to the bottom line.

"Innovation is mandatory for success. It's probably the most key ingredient," says Thomas P. Gavin, CEO of Eze Castle Software (ECS), a Boston-based company specializing in investment-management technology. Michael Pratt, founder and CEO of Ogio International Inc., a Bluffdale, Utah-based company well-known for its style-setting backpacks and bags, agrees: "If you're not innovating, you're just sitting there processing orders" --which, of course, won't provide competitive advantage for long. (They should know; both companies earned slots on the annual Inc. 500 list of America's fast-growing privately held businesses.)

Others share that belief. When the Boston Consulting Group surveyed more than 1,000 executives on the subject in early 2006, 72 percent ranked innovation among their top three strategic priorities. The same percentage said they expect to increase innovation-related spending during that year, with 41 percent planning to boost their investments by 10 percent or more.

At the same time, many companies aren't happy about their past innovation initiatives. Nearly half the Boston Consulting Group survey participants reported that they were dissatisfied with their ROI in that area, and only 52 percent viewed their own innovative capabilities as superior to those of their competitors.

So what tips the balance between merely talking about innovation and actually succeeding at it? Executives offer the following recommendations:

Create an open, collaborative culture. "I don't have all the ideas. Nobody has all the ideas," says Pratt, who founded Ogio in 1987 and has since started three other companies. "Our approach is that we're all in this together. If anybody can think of a way to improve something, it's that much better for everyone." At ECS, Gavin goes beyond reminding employees that "my door is always open if you want to drop in"; he regularly meets with small groups or takes individual employees out to lunch to talk about their ideas.

Hire for innovation. Make sure new employees share passion for your core business. People are far more likely to think creatively when genuinely engaged in their work. And once they're on board, play to their strengths. If, for instance, Pratt hires a product tester who ultimately seems more drawn to design, he's got no problem with helping the employee change roles. "I've had to allow people to spread their wings, to find where they're meant to be," he says. Once they do, he says, they tend to not only be more productive, but more innovative as well.

Encourage experimentation--and accept failure. No matter how carefully conceived and executed, some initiatives will ultimately fail, says ECS founder Sean McLaughlin, who took the company from one employee--himself--in 1995 to 200 worldwide today. "I can't believe how many projects are done with no option for failure," says McLaughlin, who left ECS in mid-2005 to accept a prestigious White House fellowship. "Every time we launched a project, I asked: 'How will we know when we've failed?' Most people don't even want to talk about it." Leaders at genuinely innovative companies understand that failure is always one possible outcome--and their employees know that, if they've done their best, they won't take a fall for experiments that flop.

Think big, but start small. There's a tried-and-true way for testing innovative ideas before investing huge amounts of time, money and energy in them: "Set up a pilot," McLaughlin advises. "Bring somebody through the business process to see how the idea works," even if you're initially skeptical about it. "I've been proven wrong as many times as I've been right," McLaughlin says. The underlying message: Even the boss can make a mistake--and when it comes to trying new things, that's just fine.

Sponsor meaningful extracurricular activities. Several years ago, ECS founded its own nonprofit charity fund. The in-house organization--suggested and run by employees--supports a variety of causes; recently, its annual in-house auction raised $22,000 for the staff's selected charities. By letting staffers participate directly in community services rather than just donating money from their paychecks, the fund helps keep morale high, Gavin says; that, in turn, generates creative thinking about new products and services.

Enlist your customer-service reps. Where better to get new ideas or suggestions for improvement than from your customers? Urge your front-line employees to go beyond handling questions and complaints to picking customers' brains about what they love, what they hate and what they want--and encourage them to recommend changes based on what they learn.

Think holistically. Don't limit innovation to research and development. Encourage employees in every department to come up with ideas that improve efficiency, enable new activities, generate revenue or save money. At Ogio, the IT team recommended investing in a software system that cost $1 million--but the system streamlined operations and will grow as the company does. Finally, let everyone share in the company's successes. Ogio outsources its manufacturing, so whenever a new style of bag or backpack arrives back at headquarters, everybody gathers to check it out, Pratt says: "It's like Christmas happens here twice a week."

Sidebar: Resources to Jumpstart Innovation

Following are selected resources for entrepreneurs interested in fostering innovation in their organizations:

Websites

Boston Consulting Group Innovation Institute
Articles, research, video clips, other resources

Innosite
Articles, case histories, workshops, other resources

InnovationNetwork
Articles, events, innovation self-assessment tool, other resources

InnovationTools
Articles, research, reviews, discussion forums, other resources

Reports

Innovation 2006, by James P. Andrews, The Boston Consulting Group The consulting firm's third annual survey on innovation issues and practices is based on responses from more than 1,000 senior executives worldwide. (PDF file, 30 pages)

Measuring Innovation 2006, by James P. Andrews, The Boston Consulting Group This report, a companion to Innovation 2006, analyzes the results of separate research into innovation metrics and offers advice on how companies can measure innovation. (PDF file, 17 pages)

Newsletter

INNOVATIONWeek, from InnovationTools This free weekly e-mail offers executive summaries of recent articles on innovation, brainstorming, creativity and related topics; readers click links to access full stories.

Books

The Art of Innovation: Lessons in Creativity from IDEO, America's Leading Design Firm, by Tom Kelley, with Jonathan Littman (Currency, 2001).

Driving Growth Through Innovation: How Leading Firms are Transforming Their Futures, by Robert B. Tucker (Berrett-Koehler Publishers, 2002).

Making Innovation Work: How to Manage It, Measure It and Profit from It, by Tony Davila, Marc J. Epstein and Robert Shelton (Wharton School Publishing, 2005).

Managing Creativity and Innovation (Harvard Business Essentials series, Harvard Business School Press, 2003)

The Seeds of Innovation: Cultivating the Synergy That Fosters New Ideas, by Elaine Dundon (American Management Association, 2002)

The Ten Faces of Innovation: IDEO's Strategies for Defeating the Devil's Advocate and Driving Creativity Throughout Your Organization, by Tom Kelley with Jonathan Littman (Currency, 2005).

Published on: Sep 5, 2006