Innovation is the act of developing a new process or product and introducing it to the market. It is essentially an entrepreneurial act, whether it takes place in a start-up firm, a large organization, a not-for-profit, or a public-sector agency. Innovation means change: sometimes radical change, such as the development of the computer, and sometimes incremental change, such as the modification of existing computer software. In either case, managers must develop processes to encourage and guide the changes taking place.

Sources of, and opportunities for, innovation in organizations are described below. Finally, the management principles underlying an innovative organization are identified.

Sources of Innovation

Innovation generally stems from the purposeful search for opportunities. Management guru Peter Drucker identified that opportunities for innovation exist both within and outside a company or industry. Opportunities internal to a company include unexpected events, incongruities in processes or between expectations and results, process...