Even software giants can struggle, writes Paul Hunt, managing director of Phoebus Software Ltd

The UK’s mortgage lending industry is not as innovative as it might be. While software developers sit on the bleeding edge of information technological advancement, the lending industry itself doesn’t seem to move as fast as it might. There are, perhaps, too few big players with too large a slice of the pie for innovation to thrive within the lender community. You only need to look at the wider world of software to see that size and innovation don’t mix, because in IT, bigger is most definitely not better.

In many fields, like social networking, Microsoft has been left for dead. It has resorted to new centres like its Future Social Experiences Lab in Cambridge to fight back.

The Microsoft Research Facility in Cambridge is one of six that the US corporation has around the world, including ones in Cairo and Bangalore, where some of the world’s smartest people are paid to sit around and come up with ideas.

Their role is to do basic research – to discover new things and create new technologies that can be turned into the Microsoft products that people buy and use.

Discovering new things is, of course, at the heart of innovation, and that becomes harder and harder to do as companies become bigger. Bureaucracy starts to kick in as layers of management are formed and companies expand abroad.

Microsoft, for example, started in Albuquerque, New Mexico, in 1975. It is now worth $240 billion. But its shares have tumbled 8% in the past year after a series of missteps. Microsoft Vista, an update of its marquee operating system, was poorly received and has yet to make an impact in the smart phone and tablet space market.

Ironically, the behemoth that is Microsoft finds itself as a start-up in some areas outside the PC, fighting competitors like Apple and Google in phones, search and tablets. The new Windows Phone 7 has been well reviewed, but it remains to be seen if it will be as successful as the iPhone or some of Google’s Android models. And there is no ‘iPad killer’ yet.

So how do you keep innovation part of the DNA of your company?

The first thing you don’t do is start an office of innovation. If you wind up with a chief innovation officer, you’re dead. Many companies, such as Taiwanese phone producer HTC, have such positions. You only need to look at their phones to see where this gets you.

Nokia has also fallen behind in the smart phone space. But the Finnish firm is still the biggest phone producer in the world, with 1.3 billion people currently using its phones. To keep the profits coming, and restore its reputation for forward thinking, it turned to a start-up founder to be head of design across all its products. That’s a smart move. In a start-up, you learn to become positively impatient. The key challenge is giving oxygen to creativity.

One universally-praised example of innovation at Microsoft is the Kinect, a system for the Xbox that allows users to control the games with the own bodies. The firm launched the Kinect for the Xbox 360 in November 2010, and said it has sold eight million of the devices in the run-up to Christmas.

Microsoft spends billions on this kind of research in the hope that its staff will come up with an idea that will make billions more. But if you look at what they’re doing, the formula to creating innovation becomes abundantly clear and frighteningly simple. You get the smartest people you can, you give them great facilities, and you let them get on with it.
&ltdiv id=&quotmyEventWatcherDiv&quot style=&quotdisplay:none&quot&gt