Incremental innovations happen everywhere, but breakthrough innovations—the kind that take advantage of new technologies and business models to lower costs, increase accessibility, and improve services—are not typical. I believe the reason for this is an inadequate realization of the conditions that foster both the ability and the motivation to innovate. These five conditions include:

  • Experimentation

  • Removal of old products and services

  • feedback loops

  • Incentives for the improvement of the product or service.

  • budget constraints

To illustrate how these conditions affect the innovation process, let’s examine each one.

Experimentation. Any organization that wants to adapt to a changing environment needs a mechanism to experiment with new technologies and delivery models. Without the ability to develop an experimental infrastructure, fundamentally new and different approaches rarely emerge.

Removal of old products and services. If an experiment is successful, a new challenge arises. Many organizations lack the ability to freely remove outdated technology and business models. This requires committed leadership with the ability to meet the challenges that come with change.

feedback loops. Not surprisingly, strong customer and organizational feedback is required to motivate investment and adoption of the most valuable innovations. Explicit feedback is needed for managers to judge when to focus on improving services versus reducing costs.

Incentives for the improvement of the product or service.. Armed with knowledge of what customers want, providers can improve their offerings if they are sufficiently motivated with access to increased revenue and/or reduced costs. The key to incentives is to properly align them with the objectives of the organization.

budget constraints. Budgets force prioritization. Limits not only force people to prioritize, but also create incentives to cut costs. For innovation to take hold, leaders need to ensure that budget constraints are in place to motivate proper prioritization. In some situations, such as individually distributed services, the restrictions must be placed on the clients. In other situations, such as in the purchase, the restriction must rest with the person responsible for the acquisition. Regardless of where the constraint falls, it is vital that budgetary incentives are used to force prioritization.

These five conditions for innovation make continuous change possible, and the difference between success and failure is the ability to create or preserve most, if not all, of these five conditions.