- How to Build Value into Your Business Using the Innovation Value Pyramid
Resources, time, and investment are considered important factors for ensuring the accomplishment of the activities in the working environment. However, the integration of values is also important for driving business growth and success (Ndalamba, 2018). There are many more reasons why building a sellable business is worth the time and effort it takes up front. After all, a sellable business is also a growing, stable, and profitable business that doesn’t rely on the owner for its daily operations, something every business owner wants, regardless of when they plan on selling. It is necessary that the organisations have a clear understanding of the importance of value and its integration into organisational operations. The concept of innovation in the organisation is facilitated by many aspects of the organisations, which should be considered.
With the emergence of technology and market evolution, organizations are focusing on incorporating innovation as their main strategy in the business for creating a unique value against the competitors (Polding, 2016). However, incorporating the concept of innovative value is claimed to be a complex process for the managers and senior executives as it requires direct and indirect changes in the operating system of firms that are associated with employees, techniques, and goods and services offered to the customers. These changes assist the leaders in transforming the corporate culture of the firm for embedding innovation value. Furthermore, it has been indicated that integration of the value can be considered as an effective strategy for innovation in the business. However, it has been observed that regardless of such role of value in driving business, many firms do not focus or invest in increasing their organisational value (Dembek et al.,2018).
Several theoretical frameworks have been created for helping the business in integrating innovation value in their routine activities. One of the well-known models is the Innovation Value Pyramid that has been designed to support the managers in embedding value in the organisation with the collaboration of the employees (Olmos-Peñuela et al., 2017). Thus, this assignment will analyse the importance of value in the organisation. Additionally, the concepts of maximising goodwill and maximise value will be discussed for a better understanding of the relationship of values and organisational wellbeing. The framework of the Innovation Value Pyramid model will be discussed for the effective embedding of value in the organisation with the help of case studies.
Embedding Value into the Organisation
It’s a common saying that every business should be built so that it can be sold. One of the rare certainties in business is that an owner cannot stay at the helm forever. Of course, at this point it’s too late to do anything much about it, often causing sellers to leave millions of dollars on the table that should have been in their pocket (Fernandes, Ward, and Araújo, 2015). According to BizBuySell’s Annual Insight Report (2019), almost 9,700 businesses were sold, a 3% decrease from the previous year, which saw the highest numbers reported almost 10,000 businesses. Businesses sold are almost stable according to the statistics, which is quite a good sign. A sellable business is a valuable business; however, a daily focus on value creation is key to the achievement of almost any business goal. Whether an owner wants to buy their competitor, franchise their operation, or sell the company to their management team, they need first to build a valuable organisation (Ryu, 2017).
Research in the context of the business value indicated that these values are capable of making a significant difference for the corporate. These values possess the ability to bring behavioural change in the organisation and improve productivity and performance, contributing to the success and growth of the business (Angeli & Jaiswal, 2016). It has been revealed that embedding value in the organisation is effective in motivating the employees and increasing customer and employee commitment to the company (Direction, 2016). Values are embedded in the organisation for targeting three main aspects of the organisational culture. The first aspect is the core principles related to the personality of the individual, such as innovation, determination, integrity, respect, and perseverance (Turró et al., 2014).
Whereas, the second aspect focuses on the attitudes and beliefs of the employees in the organisational culture. Studies had illustrated that organisation, which are clear in their values associated with the reflected behaviour, influences the actions and perceptions of the employees in the workplace. The third cultural aspect that is influenced by the values is a standard practice followed in the company (Ndalamba, 2018).
In the opinions of customers, values can be considered as the quality incorporated in the offered goods and services (Olmos-Peñuela et al., 2017). According to the research conducted in this field, it has been assessed that around 76% of the customers are impacted by the values reflected in the services of the firms (Olmos-Peñuela et al., 2017). It has been further evaluated that organisational culture is created by the values embedded in the working environment of the organisations. Therefore, it can be interpreted that embedding values in the organisation are not only important for enhancing organisational performance but also to gain high customer satisfaction (Ndalamba, 2018).
What is Value?
Value is a key principle of business, and it is something that is fulfilling the need for providing services to the customer. A company is creating value by providing its services to the customers through its products (Porter, and Kramer, 2019). The top three ways of value creation are; creating new value, more value, and better value. Creating new value is difficult because it’s something that needs to be executed from the start, for example, introducing products into new market segments. Creating more value means working on something that has already been executed, for example, creating efficiency in different processes to increase the expansion of selling products for the same price. Creating better value is about enhancing something that already exists, for example, concentrating more on quality than quantity (Dziewanowska, 2017).
Ultimately, every business draws its value from its intangible assets not necessarily attributable to any stakeholder group, for example, the intellectual capital or the firm’s business model. Business value is drawn not from the size of its stockholding. Products don’t have value; benefits usually have value as they are intangible (Lin, Lobo, and Leckie, 2017). For example, a customer doesn’t go to the store to buy a drill bit; they go to the store to buy a solution for making a hole. If someone gave a better choice than a drill bit for making a hole, a customer would take it instead, because the product itself holds little value. It’s the solution a customer is interested in. It’s the solution they are willing to pay for. The same is true for the business. From a buyer’s perspective, the business is a money machine. And the more effectively it does its job, sitting in the corner pumping out hundred-dollar bills, the more valuable it is.
Business value expands the concept beyond mere economic value to include other forms of value (Pearson, 2016) such as:
- Shareholder value: For a publicly-traded company, shareholder value is the part of its capitalisation that is equity as opposed to long-term debt. In the case of only one type of stock, this would roughly be the number of outstanding shares times the current share price. Things like dividends augment shareholder value while issuing of shares (stock options) lower it. The shareholder value-added should be compared to the average/required increase in value, also known as the cost of capital (Cremers, 2016). For a privately held company, the value of the firm after debt must be estimated using one of several valuation methods, such as discounted cash flow or others.
- Customer value is the value received by the end-customer of a product or service. End-customer can include a single individual (consumer) or an organisation with various individuals playing different roles in the buying or consumption processes. Customer value is conceived variously as utility, quality, benefits, and customer satisfaction (Oh, and Kim, 2017).
- Employee knowledge: This is often an undervalued asset in companies and also the area where there is the most discord in reporting. Employees are the most valuable asset companies possess and the one we expect the most from (North, and Kumta, 2018), but often the one that receives the short end of the stick when it comes to values applied to them.
- Supplier value is an important element in the supply chain that assists the business in the sourcing of goods and services and establishing good relationships with key suppliers (Andersen et al., 2019). Supplier value is beneficial in developing an effective and sophisticated relationship with the supplier partners, which can provide mutual profitability to both business and suppliers. Through efficient management of supplier value, a continuous improvement process is facilitated between selling and buying partners under standard practices (Massingham & Al Holaibi, 2017).
Channel Partner Value
- The value a business underpins on partner relationships in the business. Partner value here stresses that it can be critical to a firm’s functioning (Almquist, Cleghorn, and Sherer, 2018). It ceases to exist or carry out business activities if partner value is diminished or lost.
Alliance Partner Value
- Alliance Partner value is the benefits, which have been given to the alliance partners of the business. Such value creates a mutual relationship between the alliances so that stable balance can be developed, maximising the positive outcomes (Moody-Stuart, 2020).
- Societal value is the value offered to the society from the delivered goods and services. These values are respect, justice, freedom, and responsibility. These values increase the reputation of the business in public by providing quality and standard products for the betterment of society (Ashby et al., 2019).
Innovative Culture by Embedding Values
Studies of Direction (2016) and Jakubeic (2019) emphasised that values are an essential component of organisational culture. The values practiced in the organisation assist the employees in understanding the vision and objectives of the business. Through business values, the employees have a clear demonstration of the responsibilities they have to accomplish for achieving the determined target (Andersen et al., 2019). Scholars have asserted that if the employees share the same values, they will contribute more in the interest of the firm rather than their own as a standard work behaviour (Olmos-Peñuela et al., 2017). This can be supported by a recent study, which showed 82% of the managers revealed that their employees share the same determined values in high-performance organisations as compared to the 45% of the managers working in the low-performance organisations (Ranta et al.,2020).
Value can be created by different processes amongst which cultural reform is very important. Based on the survey conducted involving the Chief Executive Officers (CEOs) of different firms, it has been indicated that cultural reform is very important for bringing necessary changes in the working environment, increasing customer satisfaction (Turró et al., 2014). However, it has been argued that changing the culture repeatedly creates more complexity in the organisation than satisfaction. It has been highlighted by Polding (2016) that embedding transformed cultural reforms in the working environment can consequently also lead to distrust in the employees. Umrani et al. (2018) argued that the more leaders try to embed changes in the culture, the more employee dissatisfaction arises.
This practice can be reflected in the case of Zenefits under the leadership of David Sacks, the fourth CEO who rather than integrating change immediately, focused on increasing communication and interaction with employees to gain knowledge about their needs (Gursoy & Guven, 2016). On the other hand, it has been noted in the case of CEO Antony Jenkins Barclays that it is important that the leaders take immediate actions whenever the change is required to achieve positive outcomes (Moody-Stuart, 2020). Antony Jenkins claimed that he needed five years to reform the culture of the organisation by integrating appropriate values; however, his leadership was unable to survive for more than three years (Rubin & Abramson, 2018).
In this regard, it has been stated that innovation plays an important part in supporting the cultural reform in the organisation. For embedding standard values in the organisation, it is necessary that the organisations are capable of accepting innovation within the working environment. According to Wallace (2017), innovation is defined as the method of transforming an idea or concept into goods and services for creating values for the customers. Furthermore, it has been claimed that for the “mission-driven” sector, innovation is an effective approach for transforming the activities, which can result in achieving the organisation’s mission and increasing the sales and revenues. Therefore, Gursoy & Guven (2016) emphasised that leaders must integrate innovation into their organisational culture for embedding values in the company.
Maximise Goodwill, Maximise Value
In broad terms, the intellectual capital is reflected in the goodwill value. It can be considered as the “net value” of the business. In other words, it’s the value of the business, over and above its liquidation value (the amount that could sell tangible assets). A company’s goodwill value is where most of the opportunity for growth exists (Izmaylov, 2017). Because goodwill typically has minimal liquidity (meaning it’s hard to sell in and of itself), it is a buyer’s greatest risk factor. So, one of the chief concerns of a prospective buyer is how long it will take them to compensate themselves for the goodwill they bought, using profits (discretionary earnings) from the company (Sadgrove, 2016).
The value of a business is usually based on two primary variables. The number of its discretionary earnings and the length of time those earnings are likely to continue once the business has changed hands. The greater the certainty, the lower the risk (Alzoubi, 2018). As with all investments, a buyer will look for a greater return on their investment when the risk is perceived to be higher. Conversely, all other factors being equal, a buyer will be willing to pay more for a business when the risk is perceived to be lower (Petersen, and Kumar, 2015). The good news is, given a little time, we can significantly improve these risk factors, increasing the value of nearly any business.
Goodwill is the intangible assets of a business that are not gained physically but rather gained in the form of the reputation of the firm. The amplification of goodwill is highly important for the business as it creates a positive image of the company in the perception of investors. The goodwill can be increased when the trust of the customers in the business increases (Negricea, & Purcarea, 2017). Thus, the importance of the maximisation of goodwill is highly stressed by the companies, and they are constantly struggling to increase it and opt for ways to create value in their operations (Ortiz-Villajos, & Sotoca, 2018). Organisations are highly focused on increasing the value of their business which in effect increases the goodwill of the business.
The maximisation of goodwill is highly important as it increases the worth of business and provides a potential buyer with a way to analyses the business’s capabilities in a more profound manner. Goodwill increases brand loyalty because the more reputation that the company has the more its goodwill will increase (Jajja, et al., 2017). The creation of goodwill with customers increases brand loyalty, the more interactive engagement that a firm has the more they are likely to increase the goodwill and they are inclined to become the advocates of the product or service. This advocacy by the customer increases word of mouth of the company, and thus the reputation of the company is created, which is perceived in the market (Pisano, 2019).
Importance of Goodwill
The importance of goodwill is crucial for the business as due to it, the business can work on their efforts more easily. The organisation can compensate due to the positive goodwill, which is usually neglected by the customer if the organisation does a blunder or if there is a slight error in catering to the demands of the customers (Carvalho, Rodrigues, & Ferreira, 2016). Thus, the customer tends to forgive the mistakes of the firm on the basis that the organisation has always created positive goodwill in the customer’s mind.
The essential importance of goodwill is the main source of creating value for the organisation. Investors are more interested in reviewing the goodwill of the company and the more Goodwill the company has the more value it seems to have, as goodwill provides a pragmatic reputation and the company is perceived to providing high value in the market. The organisation tends to gain more interested and potential investors if the goodwill of the company is high (Janowicz, & Luty, 2019). The goodwill that is created by the organisation helps the business to grow as well. The extra effort that the business puts in their activities helps it to acquire a broader market share, increase their loyalty, and in effect, maximises the goodwill of the organisation.
Goodwill is an essential element of the balance sheet of the organisation, its presence and the weightage that it has is highly dependent on the values, customer relationship, and conduct of operations of the business (Toszewska-Czerniej, 2018). It is referred to as the corporate reputation of the company, and it is one of the essential components to consider when the business is up for sale. The reputation of the company is recognised as a key driver of risk governance and control. The type of image the company has is due to its conduct and performance in the market (Zulfan et al., 2020).
It serves as a corporate advantage that the business has, and it can be used as a competitive advantage for the company (Danko et al., 2018). Hence the importance of goodwill can be easily assessed by the market share and the quality of word of mouth that the company has in the target market. Goodwill not only provides a competitive edge to the organisation but also depicts the current condition of the company which is based on the previous conduct or reputation that sums up to the current corporate reputation of the company. The greater the goodwill of their organisation the more chance the organisation has to become a top candidate of investment or provide beneficial pitches when it is being sold in the market (Danko et al., 2018).
Maximisation of Goodwill to create value
As discussed, the more effective and positive goodwill the firm has the more value it gains. The value of the organisation is depended on the extent of goodwill that the business possesses (Toszewska-Czerniej, 2018). Several ways can lead to an increased value of the organisation. However, the organisation can attain value if they are focused on achieving worthwhile goodwill. It is important that the organisation is fixated on improving its goodwill to amplify the value of the organisation. The process of increasing the value of the organisation is the whole process that requires the input and effort of the entire organisation and especially the departments which are directly dealing with customers (Ramadan, Farah, & Daouk, 2019).
One of the many techniques of increasing goodwill is improving the customer service of the organisation. The company can be a manufacturing business, but customer service is an essential element of any business (Jajja, et al., 2017). This can be done by attentive and active listening skills whilst listening to customers and training the employees in a way that makes them fully aware of the characteristics of their services and products which will help them to communicate the information to the concerned or worried customers. The integral part is to provide the customer with a friendly and warm welcome while they are visiting or acquiring the service (Dmitrović, Radovanović, & Žarkić-Joksimović, 2016). The proper analysis of the customer feedback is an integral part of customer service; the feedback includes the angry and dissatisfied customers that are voicing their complaints and concerns regarding the service of the company (Ramadan, Farah, & Daouk, 2019).
The foundation of customer service is the bases of the future relationship with the customer, building sound, and interactive relations with their customer is important to create goodwill for the company (Maroofi, 2016). The relation should be based on friendly, professional, and better aspects which make the customer become a regular customer of the business. The recognised customers help the firm in promoting their reputation, and the most effective way of doing this is to treat the customer like they are respected and recognised. The company needs to address the customers carefully, they need to communicate with them more interactively and respectably. Thus, when the customer leaves with a good perception of the organisation, they can spread a positive word for the company (Toszewska-Czerniej, 2018). This increases the goodwill of the firm and initiates the value of the company in the market.
Optimising channels to increase value
The more disclosure the business has in its target market, the more they can retain the customers (Caraway, 2020). This phenomenon is one of the key sources of increasing the goodwill of the company by working on the channels through which the company will target its audience. In the digital time, creating and maintaining the website of the company and customising it regularly as per the preference of the customers helps the firm in building a more secure and retaining place in the market (Khin, et al., 2016). The availability of the firm is reflected as an effective trait of the company in the customer’s mind. The digital platforms are the most efficient way of becoming available to the customers, observing their needs, and cater it efficiently. All of this investment increases the value of the business. Happy and satisfied customers result in increased goodwill of the company, and this eventually leads to the amplified value of the business (Carvalho, Rodrigues & Ferreira, 2016).
These channels are social media platforms, which are used to creating an influential relationship with the customer. It is embedded in the rate at which the customers are either satisfied or dissatisfied with the service of the organisation (Lee & Hwang, 2017). The service that is provided to the organisation is related to the quality of interaction that the company has with the customers who are responsible for the word of mouth that is generated by them.
Improving the value delivery
To improve the goodwill, the company needs to focus on the value that it provides to the customers which improves the value of the organisation. The entire process of generating goodwill for the company is deeply related to the performance of the company. This process is filled with additional procedures that the organisation needs to perform so that every possible measure is taken that can achieve the aim of increasing the performance (Khin, et al., 2016). The organisations emphasise the idea that the extensive value provided to the customer can lead to good performance and attractive outcomes.
The organisation which is working on increasing their potential and efficiency can provide value to the organisation by implementing innovation in their workspace. This innovation is part of the products and services and the constant change that the market experiences due to the changing trends of the company (Jajja et al., 2017). The additional values that are offered to the customers and the satisfaction that customer express is the true basis of creating goodwill. Due to the number of competitors present in the market, the market is filled with an abundance of companies that provide a more or less identical type of products or services (Toszewska-Czerniej, 2018). Still, the market leader is distinguished due to its ability to provide the customers with extra value and effort that makes the customer retain the company’s name.
Offering better quality
The delivery of value is a broad process that is observed and implemented by the customers. The companies are focusing their attention on the little details that are noted by the customers as these little details serve as a guide for the businesses to gain an understanding of the elements that can attract more customers (Yu, 2017). One of these details is the quality of service that the customer perceives by the products or services they wish to purchase. The management of the level of quality by the products or services is highly focused on by the organisation. They are constantly working towards providing the best qualities to them so that they can attract customers. Several scholars research that the impact of quality on consumer behaviour tends to remain in the customer’s mind (Toszewska-Czerniej, 2018).
This phenomenon is highly regarded as the true basis of creating an impact on the customers. As discussed earlier, these efforts are executed by the organisations to invest in their reputation to improve. The aim of organisations is to create the value of their business in the market by aspiring to exceed into their service quality, organisation management and ultimately acquiring such practices that can accelerate the value of their business (Ortiz-Villajos, & Sotoca, 2018). The customer service, the quality, and the added value provided to the customers by the organisation are embedded in the internal operations of the business. The management and alignment of each department and the achievement of goals of the organisation lead to generating an attractive corporate reputation. Thus, the interval elements and operations, the standards of procedures help the firm in becoming constantly working towards increating values for the customers (Janowicz & Luty, 2019).
This strategy has helped several organisations in becoming more aware of the needs of the customers and delivering those needs at the right time and the right place (Carvalho, Rodrigues, & Ferreira, 2016). The more focused on serving creativity in their business and accepting innovation in the internal aspects of organisation by implementing the kind of operations that improve the quality of service that is provided to their target market. Hence the role of all of the procedures mentioned above and aspects helps in building a base of creating a long-lasting relationship with the customers to help them in ultimately creating values and thus increasing the goodwill of the organisation (Jajja, et al., 2017).
The Innovation Value Pyramid
Studies have highlighted that there are three important dimensions, which must be evaluated by the business leaders before making an innovative approach (Adegbile & Sarpong, 2018). Ranta et al. (2020) argued that simply generating ideas and concepts cannot be referred to as innovation if they are not progressed to their implementation stage. Therefore, implementation of the innovation is considered as the first dimension. Therefore, the senior executives of the companies must realise that creating ideas is not just innovation until and unless it has been implemented (Dembek et al.,2018). On the other hand, the second dimension that has been highlighted is the implementation of the ideas without making necessary changes in the business operating system (Olmos-Peñuela et al., 2017).
Studies conducted in several companies had revealed that firms, which do not improve their structure and culture for facilitating innovation, face failure (Angeli & Jaiswal, 2016). Therefore, planning is very important, along with the contribution of the employees. Innovation and continuous improvement work side by side to each other (Rubin & Abramson, 2018). Due to this reason, executives must develop effective communication and understanding with their employees to increase their engagement and collaboration to encourage innovation. Whereas, the third dimension of innovation is being aware of the developments, occurring in the external environment. The executives of the firm must assess their external environment for identifying the market trends (Ndalamba, 2018).
The case study of Kodak can be referred to to assess the impact of poor market assessment and collaboration on innovation. Kodak was recognised as one of the leading technology companies of the 20th century. Steve Sasson, the Kodak engineer, was the actual first inventor of the digital camera in 1975 (Olmos-Peñuela et al., 2017). However, the management of the company had denied accepting his innovative idea in their operating system and soon suffered from severe loss with the revolution of digital technology, going bankrupt in 2012. Thus, it can be observed in this case that the company failed to collaborate with its employee, who suggested an innovative product and did not implement it (Tanwar & Kumar, 2019).
Moreover, the management team also failed to assess the digital revolution in the market. It has been argued that if Kodak was successful in implementing such an innovative idea of Steve, the company would be called a leading digital firm in today’s work in the field of photography, having its unique value (Turró et al., 2014). To prevent this situation, it has been suggested that the companies should adopt an appropriate theoretical framework or model in their organisational culture. Several theoretical frameworks have been developed for this purpose to assist business leaders in promoting innovation in the working environment. However, one of these models that particularly focus on creating value for the customers through innovation is the “Innovation Value Pyramid” (Ndalamba, 2018).
The Innovation Value Pyramid is a model for increasing the value of any business by transforming it into a thriving, turn-key operation. It has four stages of operational maturity that a business must move through to increase its goodwill value, while simultaneously decreasing its operational dependence on the owner or key management (Dembek, York, and Singh, 2018).
Owner-Driven Innovation-Level One
A new business springs to life from the ideas and imagination of an individual, or a group of individuals. So naturally, at its start, a business is like a young child that is dependent on its parents for absolutely everything. This level can be described as an owner-driven business. It represents the lowest level of the four business maturity stages on the innovation value pyramid because all the goodwill of the business, that is all the intangible value over and above the value of the assets, is tied directly to its owner (Khin et al., 2016). If an individual were to remove the owner from the business, it would have no value in and of itself, because the business is unsustainable. It’s ironic that the owner, who is the main reason the company exists in the first place, becomes the biggest limiting factor to its growth.
At level 1, to align the staff with a mission is impossible because the mission – if there is one – is either not actionable, not communicated, or not understood. There is some accountability with staff, but it’s arbitrary, and there is little transparency between staff and the management. There are many conflicts and competing efforts, resulting in generally unreliable and distrusted data and multiple versions of the truth (Khin et al., 2016).
In business, this first level is associated with minimal changes in the workplace with low investment and low failure risk. Therefore, it is called as low-value innovation. For example, in the manufacturing firm, this low-value innovation can be a slight change in the colour of the goods or logos as suggested by the owner (Adegbile & Sarpong, 2018). Such type of innovation level can be achieved by any firm as it does not involve the implementation of any new technology or practices for bringing that change. Although products going through such change is not modified or evolved, they still benefit from an increase in value. One of the famous examples of this low-value innovation is Coca-Cola (Dembek et al.,2018).
The company has been continuously going through innovation in product packaging for years. It has been analysed that regardless of the introduction of different flavours and types of beverages such as Vitamin-Enhanced Diet Coke, Coke Zero, and Vanilla Coke, the classic coke product has the same stable sales and demands (Polding, 2016). On the other hand, they have also supplied a limited number of old glass bottles for reminiscing nostalgia. This has proven beneficial in increasing the sales of the products in that period. Therefore, it can be stated that it is necessary that the company innovate their products and services even at a small level to generate value amongst the customers. Without innovation, the company is seen to be at high risk of failure with respect to the evolving market nature (Wallace, 2017).
People-Driven Innovation-Level Two
As a business grows and matures, it takes on key people who fill major roles and become part of the driving force of the business, and this level is called a people-driven business. On the Innovation Value Pyramid, it is assessed a higher value than an owner-driven business because the business is no longer dependent on one person. And yet the goodwill of this business is still tied up in a few key people. It only takes one of these key people to leave, and the business can retreat, becoming owner-dependent once again. People-driven businesses are also exposed to a certain amount of risk (Trinchini et al., 2019). For example, if a key person leaves, they may take their (undocumented) knowledge base with them (potentially along with the client base).
At Level 2, departments are starting to form and optimise themselves; however, while they are closely aligned with isolated functional and departmental goals, there is little alignment with the organisational mission. Accountability and transparency are improving within isolated functions and roles, but is still somewhat fragmented, creating an environment of uncoordinated and narrow actions, often at the expense of others; this produces the appearance of cooperation on the surface, but in reality, it is an unprincipled settlement at the core. The availability and currency of the data are directed departmentally, causing organisation-wide confusion, and common disagreement is to the conflicting, functional views of data (Trinchini et al., 2019).
This second-level innovation involves changes at a higher level. As indicated, this level is facilitated to integrate the demands and expectations of key people (shareholders) associated with the business such as customers (Gursoy & Guven, 2016). For example, to consider the expectations of the customers, the firm may either introduce the differentiated product in the same product line or incorporate new features into that same product. However, as compared to level one, there are significant innovations performed; thus, it is associated with more investment and risk at a medium level. One of the simplest examples, which can be referred to to understand level two of embedding innovation level is an automobile manufacturing company (Ranta et al.,2020).
Many firms in the automobile industry have been involved in persistent innovation when it comes to the features and design of the vehicles. For example, at first, these manufacturing companies introduce a standard model and then with innovation, and some investment launches a deluxe version with advanced features (Gursoy & Guven, 2016). Although the deluxe version will be the same successful product, however, there is still a medium level risk that customers may prefer the standard model. It should be noted that regardless of the similar product, improving or adding features seem to generate a high level of value. Within the business environment, employees will be more aware of the changes that can be integrated for continuous improvement with respect to the demands in the consumer market (Wallace, 2017).
Whereas, this improvement will increase the value of the business amongst the customers, leading to high productivity and performance (Turró et al., 2014). These automobile car manufacturing firms such as Honda, Civic, etc. are known to implement this level of innovation in their products and services. Studies have analysed that these companies, through medium innovation, introduces their standard model in different countries with additional features to satisfy the preferences of the consumer markets of Europe, Asia, etc (Direction, 2016). Based on the survey conducted, it has been revealed that many business owners seem more comfortable with such a medium level of innovation as it will include medium investment and risk with the implemented changes whilst satisfying the customers’ desires (Jakubiec, 2019).
System-Driven Innovation-Level Three
The next maturity stage in innovation is in a system-driven business, wherein operating systems and metrics allow key people, even the business owner, to step away from the business while it continues to function successfully. System-driven innovation positions the business to grow or sell and is more attractive to investors because it can run on its own (Chen, Yin, and Mei, 2018). For example, hiring great people, generating new product ideas, and building your products are all tasks that can be measured and supported through documented systems.
Level 3 of the Value Pyramid is where a performance-directed culture begins to emerge, with a more aligned and actionable mission supported by top-down metrics (Chen, Yin, and Mei, 2018). Multiple functions and departments are putting aside their differences and starting to collaborate and become accountable as a team meaningfully; there is still some lacking of transparency, but it is improving, and conflicts are resolved on an impromptu basis. Trans-functional insights are now actioned in an impromptu fashion, and there is an emergence of common data with provincial views to support specific positions. The information and data are available across the organisation, but there is an uneven value put on it. In system-driven innovation, the implemented changes cause high business value in the market. This level is the initial stage of the innovations where a large sum of financial investment has been required (Rubin & Abramson, 2018).
For this purpose, the sale forecast has to be carried out for measuring the investment return of the determined capital levels. In addition, for progress monitoring, some business resources are also utilised for risk assessment throughout the development process of innovative products (Adegbile & Sarpong, 2018). Such innovation can be either introduction of an innovative product and service or the creation of a new marketing strategy. Examples of this high-level innovation in product development such as from station wagons to SUVs as they have more market share. However, such innovation requires additional resources like research and development, manufacturing, designing, market teams, etc. However, with the investment of large money and substantial resources, high value is generated in the consumer market (Tanwar & Kumar, 2019).
Culture-Driven Innovation-Level Four
At the top of the Innovation Value Pyramid is a culture-driven business. A culture-driven business has a strong team of people dedicated to innovation and continuous improvement. Not only are systems in place, but employees are encouraged to continuously improve those systems, including the innovation system (Laužikas, and Miliūtė, 2020). With culture-driven innovation, at the end of each day, the business is better in some way than it was at the beginning of that day. The outcome of all this is an “investment grade” business. This type of business is ready to sell for the greatest value when the right buyer comes along, but not under any pressure to do so in the meantime.
Where the performance-directed culture is now realised at Level 4 of the value pyramid, there is close alignment with the organisational mission, and this is supported, informed, and reinforced by metrics. Therefore, an environment where general transparency and accountability thrives, and timely action is taken on any insights with closed-loop processes. Conflicts are resolved quickly with well-established and effective mechanisms, and data quickly provides a single source of truth. There is a rhythm created within all functions that match the value of the data and metrics (Laužikas, and Miliūtė, 2020).
In this innovation, the changes are carried out for embedding the highest level of value associated with the business. These changes have a significant influence on the lives of the customers, achieving enhanced satisfaction. As compared to the third level of innovation, which is called “evolutionary development”, the fourth level is referred to as the “revolutionary step” in the Value Pyramid (Turró et al., 2014). Culture-Driven innovation drives the business to transform their cultural and operational capabilities to integrate desired changes in the products and services. Through this innovation, the culture of the organisation becomes efficient where employees work for the common objective of providing optimum value to the customers. At this level, the organisations show great productivity and performance with stable sales and revenues. However, it must be noted that large investments and resources are optimised for maintaining the culture of the organisation (Wallace, 2017).
This culture is promoted by the collaborative work of employees who function as the main assets for the company in reaching the determined goals and objectives of the firm. However, at this level, as such innovation requires large financial investment, there is also a large risk of bankruptcy. Therefore, the senior executives must have proper knowledge and understanding of the market to determine the impact of the innovation. One of the leading examples of culture-driven innovation is Apple Inc (Turró et al., 2014). Apple Inc. is recognised as a well-known Information Technology company that sells a wide range of products and services, including iPhones, MacBook, AirPods, Apple Watch, etc. The company has incorporated innovation in its corporate structure and continuously innovate their products and services for meeting the expectations of its customers (Angeli & Jaiswal, 2016). The company had released its first iPhone called as iPhone 2G and innovated it to more advanced series such as 6, 6s, 7, 7s, etc. with the sale of 46.89 million products worldwide (Wallace, 2017). Recently, the company has announced the release of new innovative products like iPad Pro, Mac mini, iPhone SE, etc. in 2020 (Jakubiec, 2019).
How to Climb the Pyramid?
In this stage, the owner needs to implement the procedure of performing the activities of the business. This includes the owner-driven innovation that is embedded into the foundations of the organisation at this level the owner needs to communicate the innovative nature of the organisation that can help the firm in promoting innovative attitude into the employees of the firm. This crucial as it creates a perception in the employees’ minds regarding the expectation of the organisation (Jajja, et al., 2017). The CEO of Amazon has promoted innovation to its employees and encouraged them to be innovative without worrying about being right or expecting to achieve the prime results with one attempt. Due to this attitude and culture created by the CEO, the company has faced several failures which is part of the process as narrated by the owner of the firm (Janowicz, & Luty, 2019). However, the firm is one of the most successful businesses in the industry, which is believed to be due to this attitude that is acquired and promoted by the owner-driven innovation in Amazon.
The second level of the Innovation Value Pyramid focuses on improving the engagement of the employees for satisfying the needs of the customers (Adegbile & Sarpong, 2018). This innovation is triggered by the identified needs in the corporate working environment. Within the organisation, the leaders or executives have to play a significant role in motivating and encouraging the employees towards innovation (Gursoy & Guven, 2016). High employee engagement and participation in the decision-making of the business contribute in identifying the improvement which can be adapted in the working environment of the firm. Employees play an important role in the continuous improvement of the firm by facilitating the change. However, for bringing these changes, it is necessary that the employees are motivated (Dembek et al.,2018).
Motivation can be stimulated by implementing different processes in the workplace. One of the most effective ways to increase motivation and engagement of the employees in the workplace is by giving them the opportunity to contribute to the decision-making (Gursoy & Guven, 2016). Employees feel highly motivated and encouraged if their opinions are heard and acknowledged by the management team. This develops a sense of belonging amongst them, leading to high satisfaction. However, differences in opinions can also generate conflict in the team. Therefore, it is important for the leader to establish good communication and relationship with the employees. Such communication and relationship enhance understanding and respect for each other that ensures fewer conflicts in the working environment (Ndalamba, 2018).
Another practice, which can be adapted for increasing motivation is by creating an incentive system for the organisation (Gursoy & Guven, 2016). Offering bonuses and incentives to the employees as a way of appraising them for their efforts in reaching the determined goals and objectives is known to improve satisfaction and to belong in the team (Rubin & Abramson, 2018). The team will feel driven and acknowledge their contribution in innovation to create value. This can be achieved by designing an effective incentive model. The purpose of People-Driven innovation is to incorporate idea generating and evaluating behaviour in the routine activities of the employees. This can be supported by employee incentives and bonuses to encourage them in producing innovative ideas to meet the customers’ needs (Ranta et al.,2020).
However, the manager or leader must create an idea evaluation team of 1-5 individuals who have comprehensive knowledge and understanding in that particular area of innovation so that one specific idea can be selected (Polding, 2016). The case study of Disney can be considered for analysing the role of motivation in facilitating change in the organisation. Disney is a well-established multinational entertainment and mass media company with a revenue of £54.59 billion (Olmos-Peñuela et al., 2017). In Disney, innovation is integrated as the main cultural focus of the company. The employees of the company are encouraged to provide creative ideas to improve the human resources, services, and products of the company to achieve better performance and customer satisfaction. This has resulted in making the company highly competitive at the international level (Wallace, 2017).
This cultural characteristic of innovation in Disney has empowered the firm in addressing any arising challenges and gaining benefits from the opportunities in the media and entertainment industry (Angeli & Jaiswal, 2016). For example, it has been assessed that the company has integrated new techniques for implementing new trends with respect to the preferences of the customers regarding entertainment products, amusement parks, and movies. For this purpose, the strategies are focused on persistent innovation to regulate the long-term growth and success of Disney. Therefore, this corporate culture of the company influenced by motivation has assisted the manager in maintaining stable business development (Olmos-Peñuela et al., 2017).
Involve Everyone and Create Conversations
To make an innovation culture effective, involving every employee remains crucial. Innovation isn’t effective in isolation (Seelos and Mair, 2017). Bringing employees together, in the beginning, may stir a better chance for success. As mentioned above, crowdsourcing can be one of the best techniques to involve employees in innovation and generate a pool of ideas within the organisation (Pisano, 2015).
The best way to inspire innovative thinking isn’t to force a brainstorming session; it’s to create an ongoing conversation (Kalargiros, and Manning, 2015). The quality of conversation is an important determinant impacting the quality of creativity and innovation. It provides an interactive platform to bridge the gap between senior management and employees during their ideation sessions.
This is the first level of the value pyramid, and its dependency on conducting the activities of the business is on its owner. The owner is responsible for carrying forward the business, set the base and values of the business (Ortiz-Villajos, & Sotoca, 2018). At this stage, the implementation of innovation or the core effectiveness is due to the execution of the owner. As the company is dependent on the owner’s direction, the operations, activities, and standard of the procedure (SOP) are all expectant of the guidance of the owner.
The owner of the organisation believes that it is essential for the firm to have the mindset of the invention and the acceptance of failure needs to be promoted in the organisation, which will help the employees the liberty to try out various ideas that either be creative or result as a failure to the firm (Carvalho, Rodrigues, & Ferreira, 2016). Amazon has emerged in the market with different and various new and innovative products and services, which has led to the business becoming a market leader (Toszewska-Czerniej, 2018). This is the result of the owner’s regular communication about acquiring the innovative mindset in the organisation and to accept the adverse outcomes of the attempt towards achieving innovation.
94% of senior executives agree that employees and corporate culture are the most important drivers of innovation (McKinsey & Company)
Pull, not Push
Nurturing the internal side of open innovation amplifies participation. Forcing or delegating involvement may lead to weaknesses in due course of time. To involve employees in ideation – make them understand how their ideas will contribute to the organisation’s success (Bogers, Chesbrough, and Moedas, 2018). Explain the significance of innovation, describe the potential they have in improving the organisation’s productivity, individual growth, rewards & recognition, overall purpose, and values they get. Employees might get motivated by recognising these values and participate in innovation.
This is the third level of the pyramid, where the system is riven innovation is enforced in the organisation. The organisations are focused on embedding innovation into the core operations. At this level, the operation and performance criteria of the businesses based on innovation. As the businesses have surpassed the lower levels of the value pyramid, the organisation’s culture of innovation starts to build (Janowicz, & Luty, 2019). This leads to the formation of a structured operation department that does not require the intrusion of the owner. The owner so embeds the innovation factor at this point by promoting more structured documents that can easily guide the employees on generating innovative products and ideas that promote the institution more automatically (Jajja et al., 2017).
The system driven innovation in the organisation is implemented in the organisation by communicating and guiding the employees to be more vigilant towards their environment and to adapt the changes that are happening in the market to develop such products and services that can help the organisation in becoming more adaptive and inventive (NEGRICEA, & PURCAREA, 2017). At this level of the pyramid, the organisation is fully aware of the protocols and emphasis on innovation in the organisation, that the owners can step back from guiding the employees and the documents related to the concerned procedure helps the employees in carrying out the procedure.
System driven innovation is profoundly embedded in Apple. The technological firm has focused on innovation from the very start of their creation. The company has always inclined on creating products that are beneficial for the people that are using them. The co-founder of Apple has emphasised innovation in the organisation’s environment from the very beginning of the organisation (Carvalho, Rodrigues, & Ferreira, 2016). The tech giant organised two meetings a week, one of which is called the right-brain creative meeting that aims to encourage the employees to brainstorm for ideas and the second is a regular staff meeting, discussing the weekly events of the company.
The meeting is based on the rules that the employees need to be free from any constraint; they should think beyond their barriers and come up with innovative ideas. These meetings are still arranged in the organisation even after the Co-founder of the firm is no longer alive (Janowicz, & Luty, 2019). The organisation has adapted to the idea of innovation that was deeply embedded in the system of the organisation. At this point, Apple has developed a culture of innovation in the organisation that is relied on the ideas, values, and vision of the founders of the organisation and it does not require the intervention of owners to remind the employees regarding the core values of the organisation.
Creating innovative ideas that drive business growth doesn’t just happen; it requires a strategic orientation to adopt the culture and generate new ideas. It is a proven way to encourage the widest range of participants in innovating. Creating awareness by running campaigns is a proven way to generate interest to use the ideation space. This awareness has a direct influence on capturing creative ideas stirring enhanced productivity, cut down operational costs, and drive improvements from the bottom up in a short period (Bridges et al., 2019). This campaign can be within your organisation’s social network via emails, news, and events, announcements, posts, etc.
Innovation Management Tool
Employees might not have a separate place and time to meet to discuss ideas addressing a common challenge. Introducing an innovation management platform can create a digital workplace environment in which employees can interact, collaborate & contribute ideas, and evaluate, select, and provide the best innovative strategies across the organisation from anywhere anytime. According to Innovation Management Market by Function, Deployment Mode, Enterprise Size – 2025, it is predicted that the Innovation Management market is projected to grow from an estimated USD 421.6 Million in 2017 to USD 1,519.2 Million by 2022, at a Compound Annual Growth Rate (CAGR) of 29.2% during 2017–2022. Incorporating innovation management software or tools like Viima (innovation platform transforming ideas to innovations) can play a major role in fostering employee engagement and involvement in innovation using techniques like gamification (Khalil Mustafa, 2016).
Honesty and Transparency
Transparency boosts the culture of innovation. It is essential that employees should know what the buzz is around the ideas shared, challenges posed by the organisation, etc. Often employees are left in the dark having no clue on further steps on the ideas posted. This may create chaos and trust issues in the entire innovation initiative (Zhong, 2018). In such instances, social collaboration tools can provide a platform to employees where they can collaborate, communicate, engage, and share the selection process updates in real-time. According to Deloitte (2017), millennials want to work in places where they feel empowered and accountable – where they feel they can make a difference and have an impact.
Recognition and Rewards
Building an effective reward and recognition system is a key aspect of maintaining and encouraging innovation. Appreciation and recognition are essential to an outstanding workplace. Employees want to be respected and valued by others for their contribution. When employees and their work are valued, they seem happy, loyal, satisfied with the organisation. Therefore, developing an effective tool for rewards and recognition can encourage and keep employees continue to post their ideas to get recognised and rewarded for their effort (Daher, 2016). Elements of gamification in innovation management tools can help in streamlining the rewards mechanism. Awarding points to the highest contributor or bestowing the winning idea can fuel competitive spirits and active participation. As organisations strive to develop an innovative culture in the organisation, it is necessary to consider implementing the right strategies to bring about the transformation from the ground up. It is suggested integrating effective idea management software or tools into the digital workplace, which can collaborate, capture, evaluate, and pick innovative ideas that can help in business growth (Serrat, 2017).
Looking to transform the ideas into powerful business outcomes? Check out Viima or book an ideation workshop with Innovolo. At this stage of the pyramid when the organisation has achieved all the other types of innovation and has emerged to embed the innovation in the culture of the organisation. The organisation is free from any further intrusion from the owner. At this point, the organisation has managed to capture a major share of the market; the customers are satisfied with the products and services of the organisation (Janowicz & Luty, 2019). This leads to the increased value of the business in the market, which, in effect, amplifies the goodwill of the firm. This level of the value pyramid is achieved by embedding the innovation into the culture of the organisation. The entire film is based on the idea of implementing creative thinking into the organisation by motivating the employee at each part of the production and idea generation of the product (Jajja et al., 2017). The collaboration is created by the managers of the firm to work as a team throughout the designing of the products. The managers of the company thrive on creating a decentralised environment for the employees to brainstorm ideas that are fitted to the dynamic environment of the marketplace.
The implementation of innovative culture also requires the organisation to be more receptive to the failures of the creative ideas. Culture driven innovation is the result of continuous attempts towards achieving the optimal results and not to be demotivated if there is no success (Gursoy & Guven, 2016). The management of the organisation needs to adapt to the changing trends and encourage the employees of the organisation to be vigilant in adapting as per the changes in the organisational environment.
Google is an organisation that has culture-driven innovation; the firm is focused on deriving innovation in the organisation’s operations. It organised Google events where different speakers are invited to encourage and participate in generating open-mindedness in the employees (Gursoy & Guven,2016). It encourages transparency between the employees and the owners of the organisation to promote a more innovative way of thinking. The company has created a 20%-time policy, where the employee has to spend 20% of their working hours working on their pet projects. The outcomes of these projects include Google Maps, Google News AdSense, and Gmail.
The company develops such organisational culture, where there is always flexibility to implement new changes with respect to the evolving trends in the market for meeting the customers’ demands. The employees are highly engaged and motivated for ensuring the achievement of necessary activities to increase the productivity and reputation of the business. It is important that the senior executives carefully assess the success rate of innovation in the market before implementing the required changes. However, it should be considered that for creating values through innovation collaboration and engagement of the employees is required. Such transformation can only be achieved if the employees show commitment and positive behaviour towards innovation for the benefit of the firm.
If the employees have a clear and adequate understanding of the values, they will reflect the same behaviour and attitude in the organisation to achieve the determined goals and objectives. It is necessary for innovative ideas to achieve their implementation stage for generating desired outcomes and results. The need to capture and maximise that intellectual capital in a sustainable and sellable way can cause a sufficient increase in the value (Nimtrakoon, 2015). The challenge is, in most businesses, most of this value is stored inside the heads of a few key people of upper management. So, we need a method for getting it out of those heads and bringing it to life within the business itself.
The Innovation Value Pyramid is an effective framework for embedding value in the organisation through different levels of innovation. Cultural reform can be facilitated to support the productivity and quality in the operations of the firm. Thus, it is necessary that before embedding values in the organisational culture, the employers have comprehensive knowledge of the concerns and opinions of the employees. Leaders or executives play a significant part in making the employees aware of the need for innovation for embedding value in the business. Although such innovation also seems to have high product risk in the market, there is also a large possibility of benefits for the business. Therefore, to determine the probability of the risk and success of the innovation, it is necessary for the executives to conduct a comprehensive market assessment. Such an assessment will help in determining whether the particular innovative idea should be implemented or not with respect to its value.
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