Creating a company culture of innovation is critical for a mid-sized business. In addition to being the engine to drive market share acquisition from far larger rivals, innovation is linked to productivity growth, income improvement, and cost competitiveness, according to research from the Micro-Economic Policy Analysis Branch of Industry Canada.

The kind of innovation needed to stay in business - continuous innovation - appears to be in decline: In 1957, the average life expectancy of a company in the S&P 500 index was 75 years. Today, it's just 15 years. A decade and a half from now, most of the companies in the S&P 500 will be ones we have never heard of.

Innovation can make, or save, a mid-market company's fortunes. Danbury, CT-based furniture retailer Ethan Allen faced difficulties in the 2008 recession. People were not putting money into new furniture. So the company built a new interior decoration service division that would eventually support 90 percent of the company's profits.

Unfortunately, innovation is often seen as a process with a goal of a big market winner, not as an aspect of company culture, according to Arkadi Kuhlmann, former chairman and CEO of ING Direct. Not only is dependence on a single breakthrough a risky approach to strategy, but it leaves a company increasingly vulnerable to market forces.

Continuous innovation is the key to success. But that is far more than a set of business processes. To be truly continuous, innovation must happen constantly and become part of the fabric of the business. That means it must become part of the company culture. To do that requires the work of everyone in a company. No matter what your position, an innovation culture starts with you.

But it's not just as easy as recognizing the problem. Mid-market companies face an innovation challenge. You do not have the massive resources of a giant, nor are you still faced with the generally more straightforward issue of scaling a startup's fundamental business. There is more bureaucracy, which translates into more potential barriers for innovative ideas to bubble up.

For example, at carpet tile maker Interface, a mid-sized business, an idea of recycling abandoned Asian fishing nets into marketable products - profitable and ecologically sound - was sent by an employee to the head of innovation and, ultimately, to top management.

Mid-sized carpet maker Interface was able to create products using abandoned fishing nets.

This example reveals an important lesson: There must be a clear communications channel that recognizes and nurtures ideas in all aspects of the business, including, but not limited to, product development, operations, marketing, finance, design, engineering, and supply chain. With so many functional areas involved, and innovation possible and necessary at every level of a company, relegating innovation to a particular operating group or a given level of position is self-defeating.

You must encourage all employees to embrace the idea of innovation and keep it in mind as they work. Here are a few things you can do to start an innovation culture:

  • Have a mechanism for employees to make suggestions on how to improve the company. Unless you're willing to hear them, they won't tell you what you need to know.
  • Regularly recognize employees whose ideas have made a difference to the company.
  • Hold contests for the best ideas for new products and service, or for improvements on existing ones.
  • Give line employees more control over their parts of operations so they can make the changes that will help the company.
  • Have town meetings to discuss your business and industry so employees feel a greater sense of involvement.

Only then can a company harness the total value of ideas and creativity available to it.

Erik Sherman is an NCMM contributor and author whose work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, Newsweek, The Financial Times, Chief Executive, Inc., and Fortune. He also blogs for CBS MoneyWatch. Sherman has extensive experience in corporate communications consulting and is the author or co-author of 10 books. Follow him on Twitter. Circle him on Google+