Adapting and Innovating

Benefits of Innovation

Innovation may be linked to positive changes in efficiency, productivity, quality, competitiveness, and market share, among other factors.

Learning Objectives

Identify the organizational benefits derived through enabling internal innovation

Key Takeaways

Key Points

  • Innovation is the development of customer value through solutions that meet new needs, unarticulated needs, or existing market needs in unique ways.
  • Innovative employees increase productivity by creating and executing new processes which in turn may increase competitive advantage and provide meaningful differentiation.
  • Managers who promote an innovative environment can see value through increased employee motivation, creativity, and autonomy; stronger teams; and strategic recommendations from the bottom up.
  • Clarity about and understanding of roles, increased responsibilities, strategic partnerships, senior management support, organizational restructuring, and investment in human resources can all enrich organizational culture and innovation.

Key Terms

  • efficiency: The extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended.
  • productivity: The rate at which goods or services are produced by a standard population of workers.
  • innovation: A change in customs; something new and contrary to established customs, manners, or rites.

Defining Innovation

Innovation is the development of customer value through solutions that meet new, undefined, or existing market needs in unique ways. Solutions may include new or more effective products, processes, services, technologies, or ideas that are more readily available to markets, governments, and society.

Innovation is easily confused with words like invention or improvement. They are, however, different terms. Innovation refers to coming up with a better idea or method, or integrating a new approach within a contextual model, while invention is more statically about creating something new. Innovation refers to to finding new ways to do things, while improvement is about doing the same thing more effectively.

Organizational Benefits of Innovation

From an organizational perspective, managers encourage innovation because of the value it can capture. Innovative employees increase productivity through by creating and executing new processes, which in turn may increase competitive advantage and provide meaningful differentiation. Innovative organizations are inherently more adaptable to the external environment; this allows them to react faster and more effectively to avoid risk and capture opportunities.

From a managerial perspective, innovative employees tend to be more motivated and involved in the organization. Empowering employees to innovate and improve their work processes provides a sense of autonomy that boosts job satisfaction. From a broader perspective, empowering employees to engage in broader organization-wide innovation creates a strong sense of teamwork and community and ensures that employees are actively aware of and invested in organizational objectives and strategy. Managers who promote an innovative environment can see value through increased employee motivation, creativity, and autonomy; stronger teams; and strategic recommendations from the bottom up.

Managers can accomplish this through providing top-down support to employees, providing clear roles and responsibilities while allowing individuals the freedom to pursue these as they see fit. Supporting the HR and IT departments so that they can provide training and tools for higher employee efficiency can contribute substantially to a culture of internal innovation. This requires open-minded and motivational leaders in managerial positions who are capable of steering employee efforts without diminishing employee creativity.

Characteristics of Innovative Organizations

According to recent research, companies that make a commitment to innovation are exceptional performers in their respective industries.

Learning Objectives

Outline the critical success factors and characteristics of an adaptable and innovative organizational culture

Key Takeaways

Key Points

  • Being receptive to new business ideas means being receptive to the idea that mistakes are a necessary part of the process.
  • Everyone in the business needs to keep an open mind and develop the capacity to look at things with fresh eyes.
  • It is likely that some successful innovations will result from chance discoveries.
  • Managers must understand that employees too mired in routine work and too criticized for trying new methods will inherently fail to create innovations that may drive organizational growth.

Key Terms

  • innovation: A change in customs; something new and contrary to established customs, manners, or rites.

Many business experts argue that companies that make a substantial commitment to innovation and entrench it deeply throughout their culture will perform exceptionally well. But how can innovation be facilitated within the organizational framework? The following are some examples of characteristics that lead to successful innovation.

Accept Mistakes as Part of the Process

A Minnesota Mining & Manufacturing researcher was looking for ways to improve the adhesives used in 3M tapes that he discovered an adhesive that formed itself into tiny spheres. At first, it seemed as though his work was a failure. However, the new adhesive was later used on Post-it notes—a great innovation and business success for the company. Being receptive to new business ideas means being receptive to mistakes as a necessary, and sometimes even crucial, part of the process.

Keep an Open Mind and Think Laterally

Possibilities for innovation exist everywhere. To realize them, everyone in the business needs to keep an open mind and develop the capacity to look at things with fresh eyes.

The classic example of a company that completely transformed itself as a result of lateral thinking is the Finnish company Nokia, whose original core business was wood pulp and logging. When the collapse of communism opened the Russian market to the west, Nokia’s core business was seriously threatened by cheaper imports from Russia’s seemingly limitless forests. In the deep recession of the early 1990s, Nokia’s management concluded that the only real competitive advantage they retained was a very efficient communications system developed in the 1970s that helped them keep in touch with their remote logging operations. That single realization transformed the company into one of the world’s most successful vendors of communications equipment.

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Nokia cell phone: Nokia successfully transformed itself from a logging company to an electronic-communications company through innovation.

Managerial Implications

As is usually the case, these principles are easier said than done. Managers must carefully consider what type of work environment they project for their subordinates. Managers must understand that employees too mired in routine work and who are criticized for trying new methods will inherently fail to create innovations that may drive organizational growth. There is therefore a balancing act between enabling employees to try new things and take risks vs. ensuring that tasks are completed on time with reasonable success.

Types of Innovation

There are three main modes of innovation: entrepreneurial value-based, technology-based, and strategic-reflexive.

Learning Objectives

Outline a categorical overview of the potential ways in which innovation can be pursued and identified.

Key Takeaways

Key Points

  • The entrepreneurial method of innovation is one in which change is initiated by an individual’s actions and drive to create a business venture of adaptation.
  • Technology-based functional innovation occurs when the development of new technology drives innovation.
  • The strategic -reflexive mode describes innovation that springs from individuals’ interactions with their organization ‘s common values and goals.
  • Other types of innovation include: incremental, architectural, generational, manufacturing, financial, and cumulative.

Key Terms

  • innovation: A change in customs; something new and contrary to established customs, manners, or rites.

In business and economics, innovation is the catalyst to growth. Fuglsang and Sundbo (2005) suggest that there are three modes of innovation. The first is an entrepreneurial value-based method where change is initiated by an individual’s actions. The second is a technology-based functional mode in which the development of new technology drives innovation. The third is a strategic-reflexive mode in which innovation results from individual’s interactions with their organization’s set of common values and goals. The following graphic provides an example of the innovation process.

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Innovation process: Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, after which follow naming and packaging design and ultimately retail and production support.

Entrepreneurial Innovation

The innovation dimension of entrepreneurship refers to the pursuit of creative or novel solutions to challenges confronting a firm. These challenges can include developing new products and services or new administrative techniques and technologies for performing organizational functions (e.g., production, marketing, and sales and distribution).

Technological Innovation

Technological innovation takes place when companies try to gain a competitive advantage either by reducing costs or by introducing a new technology. Technological innovation has been a hot topic in recent years, particularly when coupled with the concept of disruptive innovation. Disruptive innovation is usually a technological advancement that renders previous products/services (or even entire industries) irrelevant. For example, the smartphone disrupted landlines, Netflix made Blockbuster obsolete, and mp3s have marginalized CD players.

Strategic Innovation

The strategic-reflexive mode of innovation is the most effective mode for change and innovation. While technological innovation is clear and easy to define, strategic innovation is inherently intangible and organizational in nature. Strategic innovation pertains to processes: how things are done as opposed to what the end product is. Strategic changes can be disruptive but are more often incremental. Incremental innovation is the idea that small changes, when effected in large volume, can rapidly transform the broader organization.

Walmart’s “Hub and Spoke” distribution model is a classic example of strategic innovation. Walmart succeeded thanks to process efficiency enabled via innovative operational paradigms and distribution strategies. By utilizing a maximum efficiency warehousing and distribution model, refined over and over again incrementally for improvement, Walmart has sustained a competitive advantage for decades.

Other Applications of Innovation

  • Generational innovation involves changes in subsystems linked together with existing linking mechanisms.
  • Architectural innovation involves changes in linkages between existing subsystems.
  • Incremental innovations improve price/performance advancement at a rate consistent with the existing technical trajectory. Radical innovations advance the price/performance frontier by much more than the existing rate of progress.
  • Manufacturing process innovation refers to all the activities required to invent and implement a new manufacturing process.
  • Cumulative innovation is any instance of something new being created from more than one source. Remixing music is a direct example of cumulative innovation.
  • Financial innovation has brought many new financial instruments with pay-offs or values depending on the prices of stocks. Examples include exchange-traded funds (ETFs) and equity swaps.

Speed of Innovation

Companies compete to adapt their products and services to incorporate new innovations first.

Learning Objectives

Recognize the challenge inherent in adopting new ideas and the subsequent considerations pertaining to the speed of pursuing them.

Key Takeaways

Key Points

  • Speed of innovation can pose a major challenge for organizations responding to external change.
  • Profits depend on speed of innovation and the ability to attract customers. Big corporations used to dominate, but now industry leaders are often small, highly flexible groups that come up with great ideas, build trustworthy branding for themselves and their products, and market them effectively.
  • A first-mover in a given innovation captures the obvious advantage of tapping into a new market before the competition. This can also allow the first-mover to capture the new technology for its own brand.
  • First-movers encounter high fiscal risks in integrating a new product or services into their distribution, and failure often means sunk costs. Late-comers to the game can simply observe the success or failure of other competitors and make a more informed (and less risky) decision.

Key Terms

  • innovation: A change in customs; something new and contrary to established customs, manners, or rites.
  • Cannibalization: The reduction of sales or market share for one of your own products by introducing another.

The best ideas should implemented as quickly as possible—not just by the idea generator but also by others who have a different viewpoint. It is imperative that the idea is honed and refined while it is still fresh. For example, an idea for a new product might start out as a crude model built from polystyrene, foam, or cardboard that will evolve quickly into a more professional prototype.

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Product Innovation Approach: Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, after which follow naming and packaging design and ultimately retail and production support.

Robert Reich observes that profits in the old economy came from economies of scale, i.e., long runs of almost identical products. Thus we had factories, assembly lines, and industries. Today, profits come from speed of innovation and the ability to attract and keep customers. Therefore, while the big winners in the old economy were big corporations, today’s big winners are often small, highly flexible groups that devise great ideas, develop trustworthy branding for themselves and their products, and market these effectively. The winning competitors are those who are first at providing lower prices and higher value through intermediaries of trustworthy brands. To keep the lead, however, these companies have to keep innovating lest they fall behind the competition.

The Benefit of Moving First

Speed of innovation poses a major challenge for organizations responding to external change. A high rate of change can be seen in the shortening of product life cycles, increased technological change, increased speed of innovation, and increased speed of diffusion of innovations. These are key challenges for organizations, as the profit generation of new ideas must fit into a slimmer chronological window—thus underlining the great value of being a first-mover.

A first-mover in a given innovation captures the obvious advantage of tapping into a new market before its competitors. This also sometimes allows the first-mover to identify its brand with the new technology (i.e., saying “Google it” as shorthand for online search or calling any and all mp3 players an iPod). These branding hurdles must be tackled by any competitor following in the footsteps of the first-mover.

However, speed is not everything. First-movers encounter serious disadvantages, the most notable of which are freeloaders. First-movers also encounter high fiscal risks in integrating a new product or services into their distribution, and failure often means sunk costs. Latecomers to the game can simply observe the success or failure of other competitors and make more informed (and less risky) decisions about entering the market segment. Similarly, first movers must carefully consider cannibalization—where their new innovative products steal sales from their older products still on store shelves. Speedy innovation and moving first requires great foresight, planning, and managerial skill to execute effectively to minimize risks.

Sustainability Innovation

Sustainability innovation combines sustainability (endurance through renewal, maintenance, and sustenance) with innovation.

Learning Objectives

Describe how organizational culture adds value by generating an innovative approach to sustainability issues

Key Takeaways

Key Points

  • Sustainopreneurship describes using creative organizing to solve problems related to sustainability to in turn create social and environmental sustainability as a strategic objective and purpose.
  • Solving sustainability-related problems is the be-all and end-all of sustainability entrepreneurship.
  • Passively heated houses, solar cells, organic food, fair trade products, hybrid cars, and car sharing are all examples of sustainability innovations.

Key Terms

  • sustainability: Configuring human activity so that societies are able to meet current needs while preserving biodiversity and natural ecosystems for future generations.
  • innovation: A change in customs; something new and contrary to established customs, manners, or rites.

Sustainability is the capacity to endure through renewal, maintenance, and sustenance (or nourishment), which is different than durability (the capacity to endure through resistance to change). Innovation is the creation of new value through the use of solutions that meet new, previously unknown, or existing needs in new ways. Innovation should be pursued with sustainability in mind as a critical strategic objective, as the integration of new business ideas with the broader community and environment is central to long-term success.

Sustainability Entrepreneurship

“Sustainopreneurship” describes using creative business organizing to solve problems related to sustainability to create social and environmental sustainability as a strategic objective and purpose, while at the same time respecting the boundaries set in order to maintain the life support systems of the process. In other words, it is “business with a cause,” where the world’s problems are turned into business opportunities for deploying sustainability innovations. Sustainopreneurship is entrepreneurship and innovation for sustainability.

This definition is highlighted by three distinguishing dimensions. The first is oriented towards “why” – a company’s purpose and motive in adopting sustainable entrepreneurship. The second and third reflect two dimensions of “how” the process is carried out.

  • Entrepreneurship consciously sets out to find or create innovations to solve sustainability-related problems.
  • Entrepreneurship moves solutions to market through creative organizing.
  • Entrepreneurship adds sustainability value while respecting life support systems.

Solving sustainability-related problems from the organizational frame is the be-all and end-all of sustainability entrepreneurship. This means that all three dimensions are simultaneously present in the process.

An example to provide context: Interface Global produces modular carpeting. Sustainability is the core operating mission and vision of the broader organization. Through greening their supply chain, minimizing water use, cutting electric costs, reducing fuel costs through better distribution, and a number of other innovative process improvements, Interface Global produces high quality carpets at a lower cost and smaller environmental footprint. The company created a sustainable business strategy through innovative thinking.

Social Innovation

Social innovation refers to new strategies, concepts, ideas, and organizations that meet societal needs of all kinds.

Learning Objectives

Define social innovation and the potential positive outcomes of employing it within an organizational culture

Key Takeaways

Key Points

  • Social innovation can refer to social processes of innovation, such as open source methods and techniques.
  • Social innovation can also refer to innovations that have a social purpose, like microcredit or distance learning, and can be related to social entrepreneurship.
  • Social innovation can take place within the government sector, the for-profit sector, the nonprofit sector (also known as the third sector), or in the spaces between them.

Key Terms

  • social: Of or relating to society.
  • innovation: A change in customs; something new and contrary to established customs, manners, or rites.
  • social capital: The value created by interpersonal relationships with expected returns in the marketplace.

Social innovation refers to new strategies, concepts, ideas, and organizations that extend and strengthen civil society or meet societal needs of all kinds—from working conditions and education to community development and health.

Organizations, both for for-profit and nonprofit, benefit enormously from incorporating social innovation into their operations. Giving back to to the community and empowering the individuals you work with and sell to (i.e., stakeholders) improves employee morale, grows wealth for potential customers, builds a strong brand, and underlines social responsibility and high ethical standards as central to the organizational character.

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Example of a social innovation program: A health camp conducted for villagers as part of the Social Innovation Program at SOIL, in partnership with the Max India Foundation.

The term “social innovation” has overlapping meanings. Sometimes it refers to social processes of innovation like open-source methods and techniques. Other times it refers to innovations that have a social purpose, like microcredit or distance learning. The concept can also be related to social entrepreneurship (entrepreneurship is not necessarily innovative, but it can be a means of innovation). On occasion, it also overlaps with innovation in public policy and governance. Social innovation can take place within the government sector, the for-profit sector, the nonprofit sector (also known as the third sector), or in the spaces between them. Research has focused on the types of platforms needed to facilitate such cross-sector collaborative social innovation.

The Process of Social Innovation

Social innovation is often an effort of mental creativity that involves fluency and flexibility across a wide range of disciplines. The act of social innovation in a sector encompasses diverse disciplines within society. The social innovation theory of “connected difference” emphasizes three key dimensions of social innovation:

  1. First, it usually produces new combinations or hybrids of existing elements, rather than wholly new.
  2. Second, it cuts across organizational or disciplinary boundaries.
  3. Last, it creates compelling new relationships between previously separate individuals and groups. Social innovation is currently gaining visibility within academia.

Examples of Social Innovation

There are many examples of social innovation making a meaningful difference across the globe—from huge organizations like the Bill and Melinda Gates Foundation funding multinational initiatives to small groups of community leaders collecting money to help buy new high school textbooks. Some specific examples include:

  • The University of Chicago sought to develop social innovations that would address and ameliorate the immense problems caused by poverty in a largely immigrant city around the turn of the 20th century.
  • Prominent social innovators include Bangladeshi Muhammad Yunus, the founder of Grameen Bank, who pioneered the concept of microcredit for supporting innovators in multiple developing countries in Asia, Africa, and Latin America.
  • Stephen Goldsmith, former Indianapolis mayor, engaged the private sector in providing many city services.

Commercializing Innovative Products

Commercialization is the process or cycle of introducing a new product or production method into the market.

Learning Objectives

Examine the three key aspects of the commercialization process and outline the four key questions that must be answered prior to the commercialization of a new and innovative product

Key Takeaways

Key Points

  • The actual launch of a new product is the final stage of new product development. This is when the most money is spent for advertising, sales promotion, and other marketing efforts.
  • It is important to emphasize that the commercialization strategy and feasibility should have been considered and approved long before the actual execution of commercialization – as the time, efforts and development costs have already largely been incurred.
  • Organizations must consider who they are selling to and where they are selling when determining the most effective process for commercialization.
  • The primary target consumer group includes innovators, early adopters, heavy users, and opinion leaders. Their buy-in will ensure adoption by other consumers in the marketplace during the product growth period.

Key Terms

  • commercialization: The act of positioning a product to make a profit.
  • early adopter: A person who begins using a product or service at or around the time it becomes available.

Commercialization is often confused with sales, marketing, or business development. In the context of innovation, commercialization is the process of introducing a new product or service to the public market. Innovations are defined as new products or services that improve upon their predecessors, and the process of integrating them into the current market is a critical component of successfully bringing them to market. Great innovations are not always brought to market due to a lack of feasibility or poor planning. Long-term planning is crucial in the commercialization process because this is when the most money will be spent—on advertising, sales promotions, and other marketing efforts after the launch of a new product.

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Product innovation approach: Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, after which follow naming and packaging design and ultimately retail and production support.

The Commercialization Process

The commercialization process has three key aspects:

  • Carefully select, based upon comprehensive market research, which products can be sustained financially in which markets for long-term success.
  • Planning for various phases and/or stages in the commercialization process is key. Consider geographic distribution, different demographics, etc.
  • Finally, identify and involve key stakeholders early, including consumers.

Key Strategic Questions

When bringing a product to market, a number of key strategic questions need to be answered satisfactorily long before substantial costs are incurred for commercialization. These questions are simple to ask but complex to answer, and business analysts and market researchers will spend a considerable amount of time approaching them via research models and careful financial consideration.

  • When: The company has to time introducing the product perfectly. If there is a risk of cannibalizing the sales of the company’s other products, if the product could benefit from further development, or if the economy is forecasted to improve in the near future, the product’s launch should be delayed. Similarly, many items are seasonal (e.g., fashion) and so should be timed appropriately to maximize revenue.
  • Where: The company has to decide where to launch its products. This can be in a single location, in one or several larger regions, or in a national or international market. This decision will be strongly influenced by the company’s resources; larger companies can reach broader geographic audiences. It is important to keep in mind where the early adopters will be and where competitive gaps may exist. In the global marketplace, this question is increasingly complex.
  • To whom: The primary target consumer group will have been identified earlier through research and test marketing. This primary consumer group will include innovators, early adopters, heavy users, and opinion leaders. Their buy-in will ensure adoption by other consumers in the marketplace during the product growth period.
  • How: The company has to decide on an action plan for introducing the product by implementing these decisions. It has to develop a viable marketing mix and create a respective marketing budget.

While these questions are key considerations in the commercialization process, remember that they should have been answered long before the commercialization stage. After all, if the need is not sufficiently widespread or the market not sufficiently developed, there is little reason to have pursued a given innovation in the first place.

Fostering Innovation

Offering employees challenges, freedom, resources, encouragement, and support can help them to innovate.

Learning Objectives

Outline how to encourage creativity, participation and innovation through effective management

Key Takeaways

Key Points

  • People perform best when they are driven by inspiration and are encouraged to push their boundaries and think outside the box.
  • Teamwork enhances people’s strengths and lessens their individual weaknesses.
  • One of the most powerful tools for promoting employee creativity and innovation is recognition.
  • Ultimately, in developing a culture of innovation you want employees to feel comfortable experimenting and offering suggestions without fear of criticism or punishment for mistakes.

Key Terms

  • innovation: A change in customs; something new and contrary to established customs, manners, or rites.
  • creativity: The quality or ability to create or invent something.

Strategies capable of producing innovation require resources and energy; it is therefore necessary to discuss in your business plan the organizational structures and practices you will put in place to encourage and support innovation. Amabile (1998) points to six general categories of effective management practices that create a learning culture within an organization:

  1. Providing employees with a challenge
  2. Providing freedom to innovate
  3. Providing the resources needed to create new ideas/products
  4. Providing diversity of perspectives and backgrounds within groups
  5. Providing supervisor encouragement
  6. Providing organizational support
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Innovation: Cartoon shows the challenge of translating innovation (designers) to economic success.

Create a Culture of Innovation

You will likely find that you need to generate hundreds of ideas to find ten good ones that will create value for your organization. This is part of the creative brainstorming process, and it should be encouraged. It should be the responsibility of every individual in the organization to come up with ideas, not just the founder or key staff. Here are some suggestions to encourage the flow of ideas.

Encourage Creativity

Encouraging creativity helps keep staff happy. If they think something is important and has the potential to create a financial payoff for the company, let them follow their idea. People perform best when they are driven by inspiration and encouraged to push their boundaries and think outside the box. But employees cannot do this when they are being micromanaged. Employees need to feel independent enough to own their innovative thinking and to pursue the ideas they are passionate about. In fact, if management effectively fosters a creative and open environment, innovation will happen naturally.

Encourage Participation

Teamwork enhances people’s strengths and mitigates their individual weaknesses. Effective teamwork also promotes the awareness that it is in everyone’s best interests to keep the business growing and improving. Creating a participation-based environment means creating smart teams, encouraging open dialogue, and minimizing authority. Criticism is productive and should be encouraged, but it must be used constructively.

Provide Recognition and Rewards

One of the most powerful tools for promoting employee creativity and innovation is recognition. People want to be recognized and rewarded for their ideas and initiatives, and it is a practice that can have tremendous payoff for the organization. Sometimes the recognition required may be as simple as mentioning a person’s effort in a newsletter. If a staff member comes up with a really creative idea, mention them in the company newsletter or on the news board even if their idea can’t be implemented immediately. Make it clear that compensation and promotions are tied to innovative thinking.

Enable Employee Innovation

You may have an innovative culture in your organization, but you also need to familiarize staff with some of the hallmarks of continuing innovation. For example, you could educate employees at regular training sessions on topics such as creativity, entrepreneurship, and teamwork. Each session might conclude with the assignment of an exercise to be performed over the next few working weeks that will consolidate lessons learned. Your aim here is to give employees a taste of innovation so they will embrace the process.

Other Motivators

  • Profit-sharing and bonuses
  • Days off
  • Extra vacation time

Encourage employees to take advantage of coffee breaks, lunch breaks, and taxi rides. Often great ideas that can lead to innovation will happen outside the places where we expect them to happen. If it’s hard to get staff together for common informal breaks, consider taking them out for an informal meal where you can encourage creative discussion about work. Also be sure to encourage laughter at meetings because laughter is an effective measure of how comfortable people feel about expressing themselves.