It is very important to create a work environment which makes employees feel that their ideas will be valued and taken seriously. You have to remove the hesitation in employees in expressing their views because the smallest of ideas can take your company to the next level. You need to work on the channels of communication and make it accessible to all the members so that if an employee has an idea, he can put it through to the higher management. Brainstorming sessions and meetings are another medium for the higher management to get in contact with those lower in hierarchy to hear them out. Place up suggestion boxes and forums to encourage employees to participate.
You need to develop a positive working environment. If an employee comes up with an idea, allow him time to work on it and develop it, apart from the routine work. This encourages them to own the project and bring constant improvements to it. A limited and strict environment creates stress and leaves little room for the employee to think about new ideas.
Humans work with a reward system. The only new thing is that this reward does not always have to be monetary. For some employees, the sense of achievement that comes when their idea is executed as a reward in itself. For others a bonus is. You need to know what your employees value and then let them know the incentives they will get if they come up with an innovative but practical idea.
Turn diversity into innovation:
Diversity encourages innovation because there are so many schools of thoughts at play. Homogeneity among employees discourages innovation because most of them think on the same lines and do not go for an 'out of the box' approach. Hire from diverse backgrounds, nationalities, ethnicity and personalities. Turn this diversity into asset for the company because you now have different sets of cognitive skills.