CHAPTER 2

TECHNOLOGICAL INNOVATION AND INNOVATION DIFFUSION

Figure 2. Types of Innovation

Dimensions of Innovation

Let’s break down innovation into two dimensions: Technology and Market, which gives us the following 4 types of
innovation:

https://techblog.constantcontact.com/software-development/types-of-innovation/ by Jorge lopez, 2015 Wozniak, J (2015).

Innovation Management Theory and Practice. Lodz University of Technology Trott, P (2005). Innovation Management and
New Product Development Third Edition. Prentice Hall
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Incremental Innovation
Incremental Innovation is the most common form of innovation. It utilizes your existing technology and increases
value to the customer (features, design changes, etc.) within your existing market. Almost all companies engage in
incremental innovation in one form or another.

Examples include adding new features to existing products or services or even removing features (value
through simplification). Even small updates to user experience can add value, for example below is an older version of
Constant Contact’s email schedule page:

Disruptive Innovation
Disruptive innovation, also known as stealth innovation, involves applying new technology or processes to your
company’s current market. It is stealthy in nature since newer tech will often be inferior to existing market technology. This
newer technology is often more expensive, has fewer features, is harder to use, and is not as aesthetically pleasing. It is
only after a few iterations that the newer tech surpasses the old and disrupts all existing companies. By then, it might be too
late for the established companies to quickly compete with the newer technology.

There are quite a few examples of disruptive innovation, one of the more prominent being Apple’s iPhone
disruption of the mobile phone market. Prior to the iPhone, most popular phones relied on buttons, keypads or scroll wheels
for user input. The iPhone was the result of a technological movement that was years in making, mostly iterated by Palm
Treo phones and personal digital assistants (PDAs). Frequently you will find that it is not the first mover who ends up
disrupting the existing market. In order to disrupt the mobile phone market, Apple had to cobble together an amazing touch
screen that had a simple to use interface, and provide users access to a large assortment of built- in and third-party mobile
applications.

Architectural Innovation
Architectural innovation is simply taking the lessons, skills and overall technology and applying them within a different
market. This innovation is amazing at increasing new customers as long as the new market is receptive. Most of the time, the
risk involved in architectural innovation is low due to the reliance and reintroduction of proven technology. Though most of
the time it requires tweaking to match the requirements of the new market.

In 1966, NASA’s Ames Research Center attempted to improve the safety of aircraft cushions. They succeeded by
creating a new type of foam, which reacts to the pressure applied to it, yet magically forms back to its original shape.
Originally it was commercially marketed as medical equipment table pads and sports equipment, before having larger success
as use in mattresses. This “slow spring back foam” technology falls under architectural innovation. It is commonly known as
memory foam.

Radical innovation
Radical innovation is what we think of mostly when considering innovation. It gives birth to new industries (or
swallows existing ones) and involves creating revolutionary technology. The airplane, for example, was not the first mode
of transportation, but it is revolutionary as it allowed commercialized air travel to develop and prosper.

Radical Innovations and Incremental Innovations

Radical innovations (Revolutionary Innovations): Ideas that have impact on or cause significant changes in whole
industry. It provides a brand-new functional capability, which is a discontinuity in then
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current technological capabilities [6][64]. For example; electron vacuum tubes, transistors, computers, lasers, and recombinant
DNA techniques.

Incremental innovations (Continuous Innovations): Small ideas that have importance in terms of improving
products, processes and services. They improve thee through improved performance, safety, quality, and lower costs [64].
For example additional grids in electron vacuum tubes, improved doping techniques in transistors, improved memory device in
computers. Existing functional capability of an existing technology.

Technical innovations (technological): These type of innovations occur in the operating component of the organization which
consists of equipment and operations that change the raw materials or information into products or services. For example;
adoption of a new idea pertaining to a new product or service, or the introduction of new elements in an organizations
production process or service operations can be technical innovations.

Phases of Technological Innovation

According to Englert, there are six phases of the technological innovation. In phase 1 many ideas are needed.
Some techniques are used in order to promote creative ideas, for example brainstorming. In phase 2 the feasibility of the
concept, technical, legal, and market constraints are studied, some experiments are made, competitive products are
searched by the firm. In phase 3 the R&D department determines the optimum conditions and materials and studies the idea in
a pilot plant. Engineering costs are assessed and are compared with the competitive products. Also customer interests
are assessed in this phase. In phase 4 the prototype is produced by engineering. Manufacturing methods are studied
and manufacturing costs are developed by engineering staff. Field trials are conducted and final design is developed by
engineers. In this phase sales methods are also selected. At the end of this phase engineering prepares a business plan.
The manufacturing and marketing departments carry on the fifth and sixth phases of the process. Sales in the market are called
diffusion phase. Manufacturing, sales, and the technical performance of the product influence the diffusion phase.

Diffusion of Innovations

The term “diffusion” term comes from the Latin word meaning “to spread out”. Gases and vapors are the
examples that fit the definition of the term. They slowly expand and spread through available space.
“Diffusion” is a concept that is linked with the idea of innovation. The terms “diffusion of innovations” and “spread of
innovations” can be used interchangeably developed. Diffusion, on the other hand, is the process by which these new
ideas are communicated to the members of a social system and it constitutes the second step. Consequences are
changes in the social system as a result of the adoption or rejection of the innovation. Parker defined diffusion as a means
whereby innovations become part of the production function or product range economic units which are not the originators.
He also, as many authors, accept the diffusion as a phase of technical change. According to him diffusion is the stage
where the benefits of an innovation are generalized. From the innovator, the innovation passes through other users until it
finally becomes a commonplace and accepted part of productive activity.
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Factors affecting the Diffusion of Innovation

Relative Advantage:
Consumers come across large numbers of innovations, but only some are readily adopted by consumers due to the
additional perceived benefits the innovation offers as compared to existing alternatives. This perceived benefits is referred to
as relative advantage.

In a very general sense, relative advantage has a positive relationship with the diffusion of innovation, i.e., the higher the
relative advantage, the larger number of consumers are inclined to buy it.

Compatibility:
Consumers have set behavioral patterns due to past experiences, beliefs, and habits. It is very difficult to change these
patterns and marketers try to make their innovations compatible with the established usage and behavioral pattern of the
consumers for quick adoption. Compatibility, thus, is the measure of consumer's perception of the innovation's consistency
with their established usage and behavioural pattern.

Compatibility has a positive relationship with the diffusion of innovation,i.e., the higher the compatibility of the innovation with
consumers' needs, values, and experiences, the larger the number of consumers will eventually adopt it.

Complexity:
Generally, consumers have tendency to adopt things which they understand and can use easily. Often, highly complex electronic
gadgets leave people confused. The perceived complexity of an innovation is the degree to which the end consumers find an
innovation difficult to understand and use. Complexity has a negative relationship with the diffusion of innovation, i.e., if
consumers find a new product very complex in nature, very few will be interested in actually purchasing it.
In the case of technological innovations liked application-based software and hi-tech gadgets, the issue of the consumers'
ability to adopt the innovation gains more importance than their willingness to adopt
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it. The consumers' comfort level with the technology goes down considerably if they need to understand lot of operational
technicalities in order to use the innovation.

Trialability:
Trial of a new product before purchase often helps consumers to make the purchase decision. Perceived trialability of an
innovation is the extent to which the consumers can experiment with it. This has a positive relationship with the diffusion of
innovation. It is very important in high-value products like designer clothing, and products directly affecting the general health and
well-being of consumers, like personal care and food items. Since trialability reduces the perceived risk of adoption, it facilitates
the buying decision of consumers. In emerging markets, small sachets have provided consumers with the opportunity to try a
product before finally adopting it. Examples of trialability also includes test-driving in case of automobiles, trial of readymade
garments to check fit and look, and the demo version of games and application software launched for a small duration of time.
But trialability does not affect services like air travel. There is no possibility of a trial on an experimental basis, for such services.
That's why, in products where opportunity to actually try a product is very limited or does not exist, the role of opinion leader
and word-of-mouth communication is considered to be extremely important.

Observability:
New products which are visible to other potential adopters diffuse at a faster rate. Perceived observability or
communicability is the ease with which innovation's feature and benefits can be observed by other prospective buyers.
Observablity has a positive relationship with the diffusion of innovation. Clothes and accessories, automobiles, etc., are
examples of products with high observability, but in case of products like a new
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model of industrial cooker or exhaust fan, the benefits are not on display in public and so are not very obvious.

Networkability:
With the rise of the internet, certain externalities or external factors are directly influencing the new product innovations,
where it can be used as a part of a network. It describes the direct relationship between a networked innovation's use-
value to a new adopter, and the total size of the network. The bigger the total user network, the more the use-value to the
new adopter.
Innovations with network externalities have four unique characteristics which have an impact on the adoption. They are
as follows;
1. Greater expense for the consumer
2. The time to generate returns on the innovation is shorter due to stifled competition
3. The company has the incentive to indulge in the penetrative pricing to accelerate the diffusion.
4. High returns if the product is successful with technological lock-ins (use of compatible technologies to operate a product)
One important point to note in case of the networked innovations is the pricing. If prices are fixed too low, this can lead to
the network overload (number of users using the network is more than the network's capacity) while too high a price can
make the product too expensive for the consumer. Clearly, the factors that affect adoption of the networked innovations
need to be looked at carefully in order to predict adoption with accuracy - a major challenge for innovators.
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ACTIVITY NO. 2
Product Innovation

From the entrepreneurial solutions in Activity No. 1, select (1) one which you think very
beneficial to the society. Write the Business Name and draw the Business Logo. Describe the special
feature of the business through Business Slogan or Tagline. Make sure it is your own idea. Avoid
copying from the existing business.
Take a selfie and submit it in our Google Class.

Sample:
BUSINESS NAME

“Tagline”