Warning: What every business needs to know about innovation in the age of AI

In the age of AI, many companies are enthusiastically exploring solutions like ChatGPT and other tools. Yet, a critical gap remains: a genuine understanding of how innovation actually works. I see that most business leaders, from owners to top CEOs, are chasing after AI trends without mastering the fundamentals of innovation. This oversight is a recipe for missed opportunities and stagnation.

Why understanding innovation fundamentals is essential

Why does every business leader need to understand the secrets behind innovation? Let me give you a real-world example. One of my clients, a third-generation family business conglomerate in Asia, believed they had innovation covered. The CEO, also the eldest son and a member of the owner family, assumed that appointing someone as the head of innovation would suffice. With annual profits in the nine-digit range and a diverse portfolio of businesses, this conglomerate seemed poised for success. However, the CEO didn’t grasp the true mechanics of innovation, nor did the person he put in charge.

His “head of innovation” reported that everything was on track, but in reality, the company was barely tapping into 5 percent of its innovation potential. Despite having thousands of employees and operating as a B2C (business-to-consumer) enterprise, they lacked a proper system to capture and utilize customer feedback. They were out of sync with their consumers’ needs and preferences, missing out on crucial insights that drive true innovation.

Understanding the basics of innovation allows CEOs and owners to see through superficial reports and identify whether their innovation efforts are genuinely effective. Without this foundational knowledge, leaders can’t hold their teams accountable or steer their companies in the right direction.

The power of understanding innovation secrets

Innovation is probably the most misunderstood driver of company success. While nearly every company touts innovation as a core value, very few truly walk the talk. The reason is simple: to genuinely implement innovation, one must understand how it works at its core. This understanding requires a deep grasp of the human creative process—something most CEOs and business owners are not trained in.

I’ve seen more BS in boardrooms when it comes to innovation than virtually any other topic! The more a business owner or CEO comprehends the secrets behind innovation, the more they can unlock their organization’s full potential. This understanding enables them to put the right people in charge, identify ineffective efforts, and call out the nonsense that often infiltrates boardroom discussions. This widespread misunderstanding of innovation is one of the biggest hurdles to genuine progress.

The secret superpower behind Apple’s and Microsoft’s success

There are notable exceptions. Steve Jobs, for instance, leveraged his understanding of creativity, honed through calligraphy and design, to revolutionize the tech industry and turn Apple into one of the most valuable companies in the world.

Similarly, Paul Allen, the co-founder of Microsoft, was an accomplished guitarist. Quincy Jones, the legendary music producer with numerous Grammy awards, once remarked that Allen could play guitar just like Jimi Hendrix. Allen’s mastery of a creative skill translated into his innovative thinking in business, enabling him to help build one of the most valuable companies on the planet. He even played alongside iconic musicians like Stevie Wonder, David Crosby and Sean Lennon.

These examples aren’t widely known because they don’t fit the conventional image of a serious businessperson. The public and media often overlook the crucial role that mastery of the creative process plays in business success. Having advised and interacted with numerous iconic business leaders, founders and billionaire entrepreneurs, I’ve seen these connections firsthand. As a trained classical pianist and singer, I’ve experienced how creativity and structure must work together to produce extraordinary results. This allows me to see untapped profit and growth potentials my clients miss. That insight also allows me to clearly see how a deep understanding of the creative process translates directly into world-class innovation.

Why using AI is not enough

Let me be blunt: using AI without understanding innovation is like giving a Stradivarius violin to someone who’s never played a note. It won’t make them a great musician. It will only expose the gaps in their skill.

To truly harness AI, leaders must first build the right foundations: a culture of innovation, processes that support creative problem-solving and leadership that knows how to think differently. A structure to test and implement ideas. A mechanism to extract real-time feedback from customers. A culture that encourages experimentation.

The innovation bottleneck is at the top

One of the examples I cite most often when giving lectures or advising business owners on future-proofing their organizations is the former CEO of Nokia—specifically, the man who was in charge just before the smartphone revolution. One of my close friends who previously led a global consulting powerhouse witnessed it firsthand. When the internal reports clearly showed that a new wave of smartphones was about to change the industry, the Nokia CEO simply couldn’t see it for what it was.

And it wasn’t because he lacked intelligence or experience. You don’t make it to the top of a company like Nokia without being highly capable. The issue was psychological: what behavioral scientists call the privileging hypothesis—the tendency to give more weight to the version of reality we want to be true than to the facts in front of us. His mental model of Nokia’s continued dominance blinded him to the shift that was already unfolding. The rise of the smartphone didn’t fit his internal narrative, so he unconsciously rejected the warning signs.

This is where the Stockdale Paradox becomes crucial. It says that the most resilient and successful leaders are those who can confront the brutal facts of their current reality—no matter how painful—while at the same time maintaining unshakable faith that they will prevail in the end. The Nokia CEO had the faith, but not the realism. That combination is fatal in a world that’s moving as fast as ours.

If innovation is to flourish, it must be championed—and protected—by those at the very top. That means creating an environment where ideas can come from anywhere, where people aren’t punished for failure, and where leadership is actively removing the roadblocks, not creating them.