The term innovation can be defined in several different ways.15 From a management viewpoint, innovation is the process of applying a new idea to the improvement of organizational processes, products, or services. Innovation is critical to the long-run success of virtually any organization. Used correctly, the “collective intelligence” of an organization has the power to spark innovation.16 On the other hand, without innovation, organizations tend to become less competitive and less desirable to customers as well as to organization members, and organizations that do not innovate tend to fail.17 Many management theorists believe that innovation can fuel the prosperity, not only of organizations, but also of nations.18 To this end, Amazon.com reports that over 300 hardcover and 1,000 paperback books with “innovation” in their titles were published in 2011.19

There is no doubt, though, that innovation starts with employees. In fact, a recent long-term study of new product development in two organizations states that social networks with strong relationships and active participation in decision making help foster innovation.20 As Arthur Levinson, chairman and chief executive officer of Genentech, one of the world’s leading biotechnology companies, has said, “If you want an innovative environment, hire innovative people, listen to them tell you what they want, and do it.”21 Such attitudes toward innovation help to explain why 43 percent of executives in a recent poll stated that their corporation has a chief innovation officer in place.22

Amazon is known as one of the world’s most innovative companies because of its ability to diversify and develop in creative ways. Founded in 1994 as an online bookseller, Amazon soon expanded its product line well beyond books. Today, customers can order electronics, office supplies, toys, and a host of other merchandise—even groceries and automotive supplies—from the Amazon website. The company has also broadened and diversified its products and services. Its offerings include the Kindle 2 e-reader, an MP3 store, extensive cloud computing services, data storage and computing services, and more.23

Table A3.1 lists the top 10 most innovative companies in the world.

Confusion often exists in organizations over the relationship between innovation and creativity.25 Basically, innovation involves turning a new idea into new or improved processes, products, or services that promote the attainment of organizational goals. The ideas on which innovation is based come from creativity in the organization. Innovation is the process of turning those ideas into something tangible that benefits the organization. An organization that is creative but not innovative has a fertile source of good ideas, but lacks the ability to make the those ideas tangible. An organization that is innovative but not creative has the ability to turn ideas into tangible benefits, but lacks good ideas in the first place. Figure A3.4 illustrates that organizations can be either creative or innovative and makes the point that managers should strive to build organizations that are a source of sound ideas and that are also capable of turning the ideas into tangible benefits for the organization.