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How to Develop a Culture of Innovation Jeffrey Phillips, co-founder of OVO, an innovation consulting firm, shares how any company can create a more innovative environment.

By Gwen Moran Edited by Frances Dodds

Opinions expressed by Entrepreneur contributors are their own.

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Business innovation is a hot topic these days. In a March survey by CapGemini Consulting, two-thirds of respondents said they are working on developing a culture of innovation, and the percentage of leading businesses with a formal innovation role jumped 10 percent.

For entrepreneurs, developing a culture of innovation is a coveted, yet sometimes elusive goal. Jeffrey Phillips, co-founder of OVO, a Raleigh, N.C., innovation consulting firm which publishes the Innovation on Purpose blog, helps a variety of organizations become more innovative. It's a discipline that's possible to develop, he says, but it takes time and attention. In this interview with Entreprneur.com, he weighs in on how any company can create a more innovative environment.

Related: Yelp Co-Founder Jeremy Stoppelman on Innovating and Staying Relevant

Entrepreneur: We see some companies where innovation thrives and others where it's nowhere to be found. What are the conditions that make disruptive innovation thrive?

Phillips: Every business starts from an entrepreneurial mindset. Somebody decides to deliver a new product or service or feature into the market. As firms grow they may become less forward-thinking and less expansive. They begin to say, "I have a particular market and I want to defend that market or that customer base," and they play defense rather than offense. So, part of it is a cultural mindset. How much are we willing to embrace new ideas to continue expansive, engaged thinking? You have to ask, "Am I willing to allow the sort of conceptual structure of the business to change and to adapt as new people and new ideas or new demands emerge?"

Entrepreneur: But is changing the fundamental structure of your business is worth the risk?

Phillips: The question is: Do you want 100 percent of a $1 million business or 10 percent of a $100 million business? A lot of entrepreneurs are afraid of giving up control of what they understand, so they don't take advantage of opportunities to change the entire market because they're afraid of change. Look at the business of heating-and-cooling equipment or software. Companies would sell a system to a business. The CEO would have this asset and have to update or maintain it and worry about depreciation. Now, many companies are maintaining ownership of those systems and selling them as a service. They didn't change the product, but they changed the entire business model. That's the kind of innovation that can change an entire industry, but it wouldn't have happened if leaders weren't open to change.

Entrepreneur: What are the best motivations to encourage employees to be more innovative?

Phillips: Generally, extrinsic motivations like paying people cash or giving them some kind of reward isn't as incentivizing as allowing people to develop their ideas within the business framework. Companies like Google and W.L. Gore & Associates, may spin out a whole new product area, business unit, or profit center around the idea and let the employee lead it. That's the best motivation.

Related: 4 Innovative Business Ideas That Changed Everything

Entrepreneur: How can you help employees think in more innovative ways?

Phillips: First, work on trend-spotting. Have them think through how the world is changing and where your business fits in those changes and over what period of time. Societal shifts in demographics, attitudes, and priorities are huge and can dramatically increase or decrease the demand for business. Your customers might be demanding faster service, more sustainable practices, or something else can really change how you deliver your products and services. What could you be doing now to develop solutions to those future changes? Stay aggressive and forward-looking as opposed to defensive and reactive.

Encourage them to put themselves in the customer's shoes and experience what the customer is experiencing making this purchase or engaging with your company. What are their concerns? How could it be made better? Those are opportunities for innovation. I also like Four Sight Online, a web site that helps you understand the various roles people play in innovation and helps you figure out what talents you bring to the innovation role, which can be very useful in some organizations.

Entrepreneur: What are innovation killers in businesses?

Phillips: The main one is ignoring what the market tells you. Another is relying on secondary market research instead of doing your own research with your own customers. And a third is failing to spot the trends. Trends don't just come from competitors but also from places like the government or society.

Related: 3 Creative Ways to Step Out of Your Comfort Zone

Entrepreneur: Is it possible to measure innovation?

Phillips: It depends on what you mean when you say innovating. You have to determine what you're trying to change with innovation and then decide on the best metrics to see how you're doing. You could say we want to generate so many ideas or convert so many ideas into products a quarter. Maybe we want to radically change our service model or our business model, or we want to measure based on revenue. If you want a certain portion of your revenue stream to come from new products, you'd better always be working on developing those ideas. You can't simply break the glass in case of emergency and suddenly be good at innovating.

Gwen Moran

Writer and Author, Specializing in Business and Finance

GWEN MORAN is a freelance writer and co-author of The Complete Idiot's Guide to Business Plans (Alpha, 2010).

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