Business Innovation Definition

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Innovation is the process of making a product new or better. It is can also be the process of doing some service or action in a new way. In business, innovation also has to include the concept of improvement. To innovate in business is not just to do something differently, but to do or make something better.

A good business innovation definition, then, would be: business innovation involves developing new products or improving existing technologies, processes, designs and marketing to solve problems, increase efficiency, reach new customers, and ultimately increase profits.

Business Innovation 

In the business world, innovation often becomes little more than a synonym for research and development (R&D) - a limited and limiting definition. Innovation, as the OECD puts it, "goes far beyond the confines of research labs to users, suppliers, and consumers everywhere – in government, business and non-profit organizations, across borders, across sectors, and across institutions". 

R&D is only one contributor to innovation. In fact, in the Global Innovation Index (GII), R&D is only one factor in a list of over 50 others that contribute to a country's innovation score. (Calculated as the average of two sub-indices, the GII assesses innovation as the average of a country's innovation input and innovation output. The Innovation Input Sub-Index gauges elements of the national economy which embody innovative activities grouped in five pillars:

  1. Institutions
  2. Human capital and research
  3. Infrastructure
  4. Market sophistication
  5. Business sophistication. The Innovation Output Sub-Index captures actual evidence of innovation results, divided into two pillars: (1) Knowledge and technology outputs and (2) Creative outputs.

For more information on how the GII is calculated and to read the analysis of the most recent report, see The Global Innovation Index.)

"Innovation is a process through which economic or social value is extracted from knowledge—through the creating, diffusing, and transforming of ideas—to produce new or improved products, services, processes, strategies, or capabilities." – Conference Board of Canada

For businesses then, especially small businesses, that want to be innovative, Scott Berkun provides excellent advice; 

...simply dedicate yourself to solving problems. It’s solving problems that matters. Instead of saying “our goal is innovation”, which is vague, say “our goal is to solve THIS problem for THESE people”...

He defines innovation as a significant positive change - a good barometer for small businesses to use to evaluate their innovation efforts.

The Big Challenge for Business Innovation Is Digital

Johan Aurik, Managing Partner and Chairman of GII Knowledge Partner A.T. Kearney, the global consultancy, says: “Digital has become a primary driver of strategy development and innovation for business in almost all sectors; I am convinced we are only at the beginning. Notably, for established organizations, the challenge lies in finding ways to successfully innovate by using and transforming existing resources and business practices. Realizing success in today’s new landscape requires creative, forward-thinking strategies that embrace digital and address the need to change the fundamental ways of working in the company” (Global Innovation Index 2016).

What Are the Most Innovative Countries in the World?

It depends somewhat on who's making the list and what criteria they're using but South Korea, Switzerland and Sweden have consistently led. For instance,

Global Innovation Index 2017

Rank Country Score
1 Switzerland 67.7
2 Sweden 63.8
3 Netherlands 63.4
4 United States 61.4
5 U.K. 60.9

Bloomberg Innovation Index 2017

Rank Country Score
1 South Korea 89.00
2 Sweden 83.98
3 Germany 83.92
4 Switzerland 83.64
5 Finland 83.26

(The United States ranked 9th with a score of 81.44, Canada ranked 20th with a score of 71.58)

Refer to the relevant Index to see exactly how each score was compiled.

What Does a Country Need to Be Innovative?

According to WIPO (World Intellectual Property Organization) Director General Francis Gurry, Innovation requires continuous investment. Before the 2009 crisis, research and development (R&D) expenditure grew at an annual pace of approximately 7%. GII 2016 data indicate that global R&D grew by only 4% in 2014. This was a result of slower growth in emerging economies and tighter R&D budgets in high-income economies – this remains a source of concern.

“Investing in innovation is critical to raising long-term economic growth. In this current economic climate, uncovering new sources of growth and leveraging the opportunities raised by global innovation are priorities for all stakeholders.”

Innovation in countries is measured by criteria such as:

  • levels of R&D spending (public and private)
  • numbers of scientific papers
  • venture capital investment
  • new patents, trademarks
  • high tech exports
  • cultural and creative exports
  • levels of Technology manufacturing/ density
  • productivity

Factors such as political stability and safety, government effectiveness, rule of law and the ease of starting a business are considered to be innovation inputs in the Global Innovation Index - obvious necessities for innovation to flourish.

See also: 7 Ways to Kickstart Innovation in Your Business