The government has long encouraged firms to be innovative. Knowledge Transfer Partnerships (KTPs), for example, were set up to enable firms of all sizes and across all industry sectors to share in the skills, expertise and know-how of the UK's universities and colleges.

But even if a firm is not in a position to create leading-edge technical products, innovation can be essential to its ability to survive and thrive.

In its broadest sense, innovation, or the development of new business ideas, is at the core of many successful businesses.

Innovation may not involve inventing a brilliant brand new product; it can just be the commercial exploitation of a piece of knowledge.

It could be, for instance, a matter of changing the way a business operates so that it is more cost-effective; or of improving a service; or of introducing new techniques; or of adding extra value to products that already exist.

Nor does innovation have to be revolutionary, a huge breakthrough in technology or design or invention; it can be evolutionary, a number of small step changes that allow a business to adapt to developing marketplace or economic conditions.

Business creativity

Whatever its form, innovation invariably means creative thinking. That thinking does not necessarily have to come from the top; properly motivated staff, those who are intimately involved with the operation of a firm, can be bubbling with good ideas.

Customers and suppliers can be just as fertile a source of inventive change.

The talents of a good business director or owner may lie in identifying the value and the practical application of those ideas.

What is certain is that the ability to innovate, even in small ways, offers a business many advantages. It can boost productivity, cut overheads, help forge new business alliances, attract skilled staff and, most importantly, drive up profits.

Innovation, customers, rivals and staff

New or improved ideas are not abstracts. They are born of concrete needs. The need, for instance, to provide customers with a better product or service or to set a business apart from its competitors.

So it is important constantly to assess how your market is developing, what your customers may be looking for and how your rivals are performing.

This may mean adapting a product so that it fits in with anticipated shifts in customer expectations. It could be as something simple as a better telephone ordering service. Or a redesign of a product. Or selling on quality rather than price.

Ask your most loyal customers how they might think your service could be better suited to their needs. Tap into the thinking of your suppliers or those other businesses with whom you have close, complementary relationships.

Encourage staff to come forward with ideas (this could mean anything from setting up suggestion boxes and intranet forums to organising brainstorming sessions). Help to create an open workplace environment in which people don't feel they run the risk of censure or criticism for putting forward their thoughts or in which experimentation is stifled. Get staff to share their knowledge and to feel a part of the larger picture and the firm's future. The less hierarchical a business, the more likely it is that good ideas will surface and innovation succeed. Offer incentives for creative, practical thinking.

Most importantly of all, make innovation a part of the fabric of your business. If you alight on an idea, work it through in terms of the way its implementation will affect your business: look at the effects on operations and practices, on training, on investment, on the finances needed to implement it, on attracting new customers, on the ways the idea can take the business forward. Review its development at every stage.

Firms that would like more information on innovation and funding for innovation can find help and advice at a number of websites. These include:

The Department for Innovation, Business and Skills at http://www.berr.gov.uk

HM Revenue and Customs at http://www.hmrc.gov.uk/randd

Business growth and development Why every business should aim to be innovative