There is often confusion over the terms "creative thinking" and "innovation". Many view them as one and the same, but in reality they are very different. One means ideas, the other means action.

The term "innovation" on its own can offer several possible meanings. Innovation has to be about output - the act of doing something, either to improve an existing product or process, or invent something entirely new. The "laziness test" is an effective way of identifying good innovation - does it make my life simpler, easier? Does the product that has been through the innovation process perform in more efficient ways for me?

I view innovation and innovation policy as more than focusing on new ideas. An idea is not enough to qualify as innovation. It is about outcomes and providing the means to experiment with new concepts. Innovation is not an aim in itself, but a tool to achieve what the market is looking for in terms of constant improvement.

Business is a ‘supply and demand' cycle activity: customers, not investments, are its lifeblood. The economy can be seen as a dynamic, constantly evolving ecosystem where small, medium and large size entities live side by side in balanced proportions. Too much innovation is not necessarily good - like everything, it requires a delicate balance.

"[...] Customers want more innovation in everything from products and services to pricing and delivery. But there has to be a balance. Perfect example is Telcos where there are so many plans and models and variations that the system has simply broken"

(from "Too Much Innovation Can Create a Process Bottleneck: When innovation runs rampant the result is high cost and low quality")

Continuous innovation does not necessarily lead to high profits and market domination. Too much innovation can in fact confuse your customers and drive them away in numbers.

"[...] Some of the most innovative institutions in the history of American business have been colossal failures. Xerox Corp.'s famed Palo Alto Research Center (Xerox PARC) gave the world laser printing, ethernet, and even the beginnings of the graphical user interface--later developed by Apple--yet is notorious for never having made any money at all. Polaroid, which introduced us to instant images decades before digital photography, collapsed under mismanagement and filed for Chapter 11 bankruptcy protection in October 2001.

[...] Enron was arguably the most innovative financial company ever. So it turns out that not all innovation is equal. Not all of it is even good.

(from "IF He's So Smart...Steve Jobs, Apple, and the Limits of Innovation" by Carleen Hawn )

Being innovative is risky and the paradox of success states that good business management is about taking the risk out of the transaction. In business one picks the winner after the race has been won. Taking risks is for gamblers.

The paradox of democracy is that, though everyone should be able to participate, only a small number make a difference. Same with innovation: most innovative ideas fail and only a very few pass "the market test".

"Typical attempts at innovation fail more than 95 percent of the time."

(Larry Keeley, cofounder and president of innovation consulting firm Doblin, Inc., CSBnews)

"The world we experience today is the outcome of zillions of seemingly insignificant, incremental innovations, from seemingly insignificant people, plus a few radical ones that get all the attention."

(from "Ten things we know about innovation" - Broken Bulbs: Innovation)

One needs to give an innovative product time to produce returns. If Australia wants to see more innovation, the setting needs to be right, including the incentives.

How do we balance the risk of being innovative and the need to innovate? And what are the right incentives for business which should be introduced to foster innovation in Australia?

I welcome your thoughts.

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Peter Fritz AM is Group Managing Director of TCG Group and Managing Director of Global Access Partners.

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