To innovate is to apply knowledge to new situations, producing new solutions, services, processes, and products. Innovation is about change responding to and creating change. It is about evolution and revolution, evolving into higher and newer planes, and leaping onto another wave of technology. Innovative organizations are futuristic, daring, and pioneers of social change. To be innovative, it is not enough for organizations to respond to changing market forces or trends as they appear. They must be able to predict, foresee, or even create change. No organ­ization can see the future; no organization should try, but it should at least monitor possible sources of change in technology and in the market constantly. To do that, it is important that the organization emancipates the innovative ability of its employees to boost its collective innovative power. Knowledge management is certainly a powerful enabler, but the organization needs to systemize the innovative activity as the core business process as well.

Innovation management is a key core competency in an economy where cycles of change are more recurrent. As a core competency, it involves the ability to embrace and create change, take risks, accept failure as part of the experimentation process, and get from product concept to mar­ket in the shortest time. All these capabilities should translate into a new product development process that capitalizes on a pool of employee, and customer, generated ideas. Organizations need to listen to their employees, who are in constant contact with the market and customers. The speed with which organizations capture, leverage, and implement new ideas of their employees may be of critical importance in the knowledge economy where ideas are contagious.

Consider the experience of Encyclopedia Britannica. Britannica continued producing their leather-bound encyclopedia volumes after the market was ready to purchase the same data in another medium—compact discs. Microsoft seized the opportunity and produced their own ency­clopedic CDs, Encarta, for less than a tenth of the price. The market, preferring the fractional price and the added convenience of digital, searchable encyclopedic CDs, forced Britannica into bankruptcy. As a matter of fact, Britannica saw this coming. Britannica included a CD with its last leather-bound volumes, but the organization's resistance to change caused it to cling to the old way of doing things instead of embracing change and moving forward. No matter what Britannica's reasons were, it is evident that the organization's system of innovation failed to prepare it for change. Being innovative involves having the system to transform ideas into marketable products as much as having the right ideas to start with.

Losing a chance to capitalize on employees' ideas may result not only in an economic loss but also in loss of an opportunity that may take years, if ever, to come again. The Silicon Valley leg­end of Xerox and Steve Jobs, demonstrates this in a striking manner.

The legend goes like this: Steve Jobs, the CEO of Apple at the time, on a visit to Xerox's Palo Alto Research Center (PARC) sees a prototype of the mouse and the PC preface. He borrowed these ideas and established the PC world as we know it today, making billions for Apple and securing other business opportunities for years after that. Of course, Jobs and Apple did so much more than borrow Xerox's ideas to launch us into the PC world. For one thing, the prototype Steve Jobs saw at PARC was a very early and expensive version of what we know today as the mouse. However, it all started with an idea and a prototype that Xerox failed to develop and it was up to the next entrepreneur to seize the moment—exactly like the Britannica example, though Xerox legend has more to it.

Xerox did not fail to innovate or convert its employees' ideas into product concepts and pro­totypes. Xerox, however, failed to acquire the adequate IP protection to secure exclusive com­mercialization rights. Had Xerox obtained the right patent(s) on their prototype, Steve Jobs's borrowing would have cost Apple dearly. Apple would then have to design around such patents, which would have raised Apple's development costs and, most importantly, deprived Apple of the market leadership position. Intellectual property rights are critical when used as competitive and commercial tools. An organization that operates in patent-intensive (R&D), trademark-intensive (consumer products and service), and copyright-intensive (entertainment) industries needs to develop IP management as well as a core competency. To that we now turn.