You know you can't outgrow your competitors unless you out-innovate them. But in an era of rampant R&D belt-tightening, how can you squeeze more innovation out of every dollar you invest?

First, don't leave innovation to the "experts"; instead, turn all of your employees into innovators. Whirlpool, for instance, trains its 15,000 salaried employees on how to generate innovative ideas. Also, look beyond incremental product or service enhancements for truly radical ideas. And conduct small, inexpensive, low-risk experiments to test new ideas commercial promise. Finally, augment your internal innovation efforts with external resources—such as communities of consumers who are passionate about the same things as your workforce and are dreaming up creative ideas themselves.

The competitive field favors companies that do more with less. Take W.L. Gore. The company's wildly successful signature product, waterproof but breathable Gore-Tex fabric, sprang from a simple experiment conducted during an attempt to create a low-cost plumbers' tape.

The Idea in Practice
Four Ways to Innovate on a Shoestring

Cultivate innovators in your company. Send employees the message that you expect them to generate new ideas. Then give them the time, tools, and space needed to exercise their innovation muscles.

Example:
Mexican cement maker Cemex devotes nine "innovation days" each year to harvesting employee ideas. One such day generated more than 250 ideas about ready-mix cement, 10 of which had immediate value and could be implemented immediately.

Use outside innovators. Use the Web to find people whose passions match your problems. Many of these zealous souls are willing to work for a pittance. Ask, "Who out there cares about the problems my company cares about? How can we build goodwill in this community? What incentives would engender the volunteers' contributions?"

Example:
In its annual Code Jam competition, Google gives developers from around the world the chance to work on its toughest software problems. Cash prizes are modest—the real incentive for contestants is the chance to see their  code incorporated into Google's ubiquitous search engine. Google also runs a public Web site where staffers with zany ideas can post their prototypes and solicit feedback on using or improving them.

Invest in the most radical ideas. For the biggest payoffs, avoid retreads, updates, or add-ons in favor of truly original concepts. "Radical" doesn't have to mean "risky."

Example:
The Starbucks debit card was radical: Who'd have dreamed coffee drinkers would pay for their caffeine days or weeks in advance? Yet it wasn't that risky: Debit-card technology was established, and Starbucks could easily test the idea in a few stores first. The payoff? Two months after the card's launch, Starbucks had booked more than $60 million in prepayments. This innovation now accounts for 10% of Starbucks' sales.

Launch low-cost, under-the-radar experiments. It's not always easy to gauge an idea's potential commercial value. Use "quick and dirty" experimentation to explore a radical idea's possible ramifications—while avoiding expensive risk-taking.

Example:
Shell Chemicals talked a major U.K. supermarket chain into letting it install prototype laundry detergent dispensing machines at one location. Frugal U.K. customers liked being able to reuse their containers, and store managers appreciated that the new system saved shelf space. But two additional small-scale experiments uncovered several problems—allowing Shell to avoid the disaster that would have come with an initial large-scale launch.

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