I started my day at SAP Labs in Palo Alto moderating a panel discussion about “Enabling Innovation: How does it happen? What’s the secret sauce?”  The room was filled with the managing directors of SAP Labs worldwide and their invited guests, the vast majority of them representing multi-billion dollar global businesses that are challenged, presumably, by the task of continual innovation.

The panel was representative of the of the Silicon Valley ecosystem:

• Kimber Lockhart and Jeff Seibert, co-founders of Increo Solutions (the entrepreneurs)
• Mark Radcliffe, partner at DLA Piper (the lawyer)
• Dan Pistone, SR VP for tech banking at Bridge Bank (the banker)
• Gamiel Gran, VP Business Development at Sierra Ventures (the VC)
• and me (the analyst)

We started the conversation by level setting around the idea of innovation itself.  I usually argue that the word “innovation” is so easily tossed off that it has lost its meaning.  Everybody is “innovative,” even when we can’t be sure how or why.   I contend that innovation is what someone will buy.  Jeff’s definition is even better:  “delivering creativity to end users.”

As this part of the conversation unfolded, though, it became clear that innovation isn’t  a thing; it’s a process. Innovation doesn’t just happen.  It’s exercised and deliberate.  And it that regard, it also may well be a culture, a state of mind, a core value of an individual or organization.

So what marks an innovative company?  Surely, the list is longer than that which we discussed in 45 minutes this morning  (and I invite your additions to the list in the comments, please).  Our conversation kept coming back to these four ideas:

1. Vet ideas early and often. Jeff and Kimber told the story of founding Increo as a process of testing ideas.  Did they dig the idea?  Did it resonate after the initial excitement wore off?  Did other people see value in it?  Brain storming twice a week helped the vet countless “incredibly great bad ideas.”
2. Try something. Feedback is critical and there’s no better way to get feedback than to put something – anything – out for response. Again from the Increo founding story: “We weren’t coming up with any great ideas for a business, so we decided to just build an idea sharing site,” Jeff said.  The site morphed into an enterprise idea bank which morphed again into the Increo document collaboration platform, acquired by Box.net in August.
3. Embrace failure, fail fast. Mark Radcliff was quick to point out that Silicon Valley is distinct from other technology ecosystems in its acceptance of failure, almost as a price of entry for innovation.  You can imagine that a roomful of corporate lieutenants would be loathe to celebrate failure with their management.  And frankly, I think “fail fast” is one of those Valley pablums that lose their meaning in bad practice.  Rather than failing fast, companies need to learn to fail smart.  They need to understand what went wrong and why, do it quickly, reset, and try again.
4. Balance innovation and invention. As “delivered creativity,” Innovation implies an immediacy with the customer.  That’s great for solving today’s business problems, but may leave a large company like SAP flat footed in the long term if they don’t also engage in primary research on the path to invention.