WHAT  IS   INNOVATION?

 
NOVEMBER  2010  
Everyone  has  his  or  her  own  view  as  to   what  constitutes  innovation.    Is   innovation  only  about  new  to  the  world   products  or  services?  Is  invention   innovation?  
©2010  INNOVATION  FOR  GROWTH     C  W  MOBBS  
Austrian   economist,   Joseph   Schumpeter1,   defined   innovation   over   70  years  ago  as:   1. The   introduction   of   a   good   (product),   which   is   new   to   consumers,   or   one   of   higher   quality   than   was   available   in   the  past.   2. Methods   of   production,   which   are   new   to   a   particular   branch   of   industry.     These   are   not   necessarily   based   on   new   scientific   discoveries   and   may   have,   for   example,   already   been  used  in  other  industrial  sectors.   3. The  opening  of  new  markets.   4. The  use  of  new  sources  of  supply.   5. New  forms  of  competition,  that  leads  to  the  restructuring  of   an  industry.   The   OECD2   defined   innovation   in   1981   as   consisting   “of   all   those   scientific,   technical,   commercial   and   financial   steps   necessary   for   the   successful   development   and   marketing   of   new   or   improved   manufactured   products,   the   commercial   use   of   new   or   improved   processes   or   equipment   or   the   introduction   of   a   new   approach   to   a   social  service.    R&D  is  only  one  of  these  steps.”   Both   these   definitions,   and   the   descriptions   set   out   in   Box   1,   include   some   common   words,   such   as   ‘new’,   ‘introduction’,   ‘products’,   ‘markets’   and   ‘processes’,   although   none   in   its   entirety   fully  describes  truly  the  essence  of  innovation.    Why?    I  believe  that   innovation   is   more   than   mere   words.     Innovation   is   a   mind-­‐set,   a   culture,  a  desire  to  do  better,  a  willingness  to  take  risks  and  yes,  the   celebration  of  failure!    Think  of  Apple  and  Google,  both  companies   which  are  considered  to  be  truly  innovative.  

Email:   cwmobbs@innovationforgrowth.co.uk   www.innovationforgrowth.co.uk  

 

Box  1  
There   are   a   number   of   differing   views   as   to   what   constitutes   innovation,   including  the  following:   • • “Innovation   is   the   successful   exploitation   of   new   ideas”   –   Innovation  Unit  (2004)  UK  Department  of  Trade  and  Industry.   “Industrial   innovation   includes   the   technical,   design,   manufacturing,   management   and   commercial   activities   involved   in   the   marketing   of   a   new   (or   improved)   product   or   the   first   commercial  use  of  a  new  (or  improved)  process  or  equipment”  –   Chris   Freeman   (1982)   The  Economics  of  Industrial  Innovation,   2nd   edition,  Pinter,  London.   “Innovation   is   the   specific   tool   of   entrepreneurs,   the   means   by   which   they   exploit   change   as   an   opportunity   for   a   different   business   or   service.     It   is   capable   of   being   presented   as   a   discipline,  capable  of  being  learned,  capable  of  being  practised”  –   Peter   Drucker   (1985)   Innovation  and  Entrepreneurship,   Harper   &   Row,  New  York.   “Companies   achieve   competitive   advantage   through   acts   of   innovation.     They   approach   innovation   in   its   broadest   sense,   including  both  new  technologies  and  new  ways  of  doing  things”  –   Michael   Porter   (1990)   The   Competitive   Advantage   of   Nations,   Macmillan,  London.   “An  innovative  business  is  one  which  lives  and  breathes  “outside   the  box”.    It  is  not  just  good  ideas,  it  is  a  combination  of  good  ideas,   motivated   staff   and   an   instinctive   understanding   of   what   your   customer   wants”   –   Richard   Branson   (1998)   DTI   Innovation   Lecture.  

“Vivamus  porta   est  sed  est.”  

    The   European   Innovation   Progress   Report,   20063   defines   innovation   as   being   “about   change   and   the   ability   to   manage   change   over   time.     Innovation   can   be   about   the   successful   exploitation   of   new   ideas   in   the   form   of   a   new   or   improved   product  or  service  but  it  can  also  be  about  the  way  in  which  a   product   or   service   is   delivered.     Equally,   innovation   can   be   about   creatively   positioning   (or   marketing)   an   existing   product,   or   about   changing   the   business   model   (a   new   paradigm).”       Ahmed   and   Shepherd4   “discern   a   number   of   characteristics”,   and   these   are   set   out   in   Box   2.     These,   it   will   be   noted,   go   even   further   and   look   outside   the   firm   as   well.   Indeed,   innovation   can   also   be   considered   as   a   non-­‐business   activity,   think   of   legislation,   the   changes   in   fashion,   the   advancement   of   knowledge,  for  example.     In   answer   to   the   two   questions   posed   above,   innovation   is   more   than   the   introduction   of   new   to   the   world   products   or   services  and  invention  is  only  one  element  of  innovation.  

  Having   considered   different   definitions   of   innovation,   it   is   now   worthwhile  looking  at  the  realities.   For   business   innovation,   the   “4Ps   approach   can   be   used   to   explore   opportunities   for   innovation.”5       Essentially,   the   “4Ps”   relate   to   innovation   focusing   on   the   product,   process,   position   or   paradigm.   The   first   two   are   obvious,   with   numerous   examples,   including   revised  or  new  computer  operating   systems,   new   car   models,   (product),  or  extensions  of  product   ranges,   improved   operations   (process).   Position   considers   the   target   consumer   and   the   purchase   decision   rationale.     Examples   include   low-­‐cost   airlines   and   on-­‐ line   customisation   of   products.     Paradigm   is   a   more   difficult   concept.   It   is   defined   as   “how   we   frame   what   we   do.”5   Examples   include  new  platforms,  such  as  IBM,   reinventing   itself   as   a   consultancy   business,  or  i  Tunes.     Innovation  can  be  further  split  into   incremental,   radical   and   discontinuous.   The   former,   generally   more   prevalent   is   ‘doing   something  better’.       Radical   innovation,   which   is   more   elusive,   is   doing   something   different.       The   most   elusive,   and   potentially   threatening   is   discontinuous   innovation.   This   results   in   significant   change,   often   from   the   emergence   of   completely   new,   unpredictable   markets   or   as   a   result   of   a   new   technological   breakthrough.     It   might   come   from   a   change   in   market   behaviour   (think   of   real   fur   coats!),   or   be   a   result   of   a   terrorist   event   (World   Trade  Centre,  9/11).    Alternatively,  

 

Box  2  
Ahmed  and  Shepherd’s  characteristics  are:   • “Innovation   as   creation   (invention):   The   focus   is   on   use   of   resources   (people,   time   and   money)   to   invent   or   develop   a   new   product,   service,   new   way   of   doing   things,   new   way   of   thinking   about  things.   • Innovation   as   diffusion   and   learning:   The   focus   is   on   acquiring,   supporting  or  using  a  product,  service  or  ideas.   • Innovation  as  an  event:  The  focus  of  attention  here  is  on  a  discrete   event,  such  as  the  development  of  a  single  product,  service,  idea  or   decision.   • Innovation   as   a   (stream   of   innovations)   trajectory:   This   is   recognition   that   a   single   act   of   innovation   (as   that   in   a   discrete   event)   can   facilitate   a   family   of   innovations   to   be   derived   from   the   original  source.   • Innovation   as   change   (incremental   or   radical):   Innovation   enacts   change.     Some   innovations   are   minor   adjustments   whilst   other   innovations  are  radical  or  discontinuous  in  nature.   • Innovation   as   a   (firm-­‐level)   process:   In   this   view   innovation   is   not   a  single  act,  but  a  series  of  activities  that  are  carried  out  by  a  firm   to  lead  to  the  production  of  an  outcome  (namely,  the  innovation).   • Innovation   as   a   context   (region,   nature,   etc.)   level   process.   This   view   sees   innovation   as   an   act   beyond   the   confines   of   an   individual   or   firm.   The   view   captures   institutional   frameworks,   socio-­‐political   networks,   and   proximal   factor   endowments   as   important   factors   in   the   act   of   innovation.   The   focus   is   switched   from  the  firm  to  the  peculiar  endowments  and  characteristics  of  a   specific  context  (region,  nation,  etc.)”  

it   could   be   business   model   innovation   –   Amazon   springs   to   mind.   But   the   essence   of   discontinuous   innovation   is   that   it   tends  to  be  unpredictable.    
 

“Vivamus  porta   est  sed  est.”  

Chart  1  

Has  your  company  introduced  any  of  the  following   innovations  since  2006?  

New  or  signikicantly  improved   marketing  strategies   New  or  signikicantly  improved   products   New  or  signikicantly  improved   processes   New  or  signikicantly  improved   organisational  structures   New  or  signikicantly  improved   services   0   20   %  of  Yes   Source:  Innobarometer  2009:  Analytical  Report6   40   60   UK   EU27  

This   form   of   innovation   will   change   the   organisation   in   many   ways.   New   technology   may   be   needed   as   well   as,   new   processes,   new   customers,   new   knowledge,   and   possibly   a   new   business   model.   Incremental   innovation   fit   into   existing   core   competencies   and  the  core  business.       There   is   an   unresolved   debate   as   to   whether   companies   need   both   sorts   to   compete   in   the   long-­‐term,   but   certainly,   incremental   innovation   is   required   as   a   minimum.     Research   undertaken   in   2009   (see   Chart   1)   shows   the   percentage   of   respondents  who  have  undertaken   the   identified   forms   of   innovation,   with   new   or   significantly   improved   services  being  undertaken  by  50%   of   the   5,238   enterprises   interviewed   across   Europe.   Responses   from   UK   organisations   are  also  shown  for  comparison.         Having   regard   to   the   above   comments,   when   considering   innovation,   we   look   at   five   main   areas:     • Innovation  strategy;   • Ideas;   • Prioritisation;   • Implementation;  and   • People  and  organisation.     It   is   only   by   linking   and   analysing   these   five   elements   (three   of   which,   ideas,   prioritisation   and   implementation  form  the  phases  of  

 
 

 

          Incremental,  radical,  or              
1. 2. 3. 4. 5. 6.

discontinuous?  

the   traditional   development   funnel)   that   a   fuller   understanding   of   innovation  can  be  reached.     To   conclude,   innovation   is   more   than   just   simple   invention,   or   indeed,   ‘new   product   development’.   It   needs   to   be   commercialised   and   exploited.     It   involves   the   whole   business,   and   particularly  its  ethos  or  culture.  It  can   be  relatively  simple,  and  low  key,  or  it   can   be   more   radical   and   possibly,   byline   threatening   to   existing   players.   It   Lorem   psum   encompasses  Imore   than   just   goods,   it   includes   services,   markets,   processes,   paradigms,   and   positions   as   well.   We   all   innovate,   we   do   not   always   realise   that  we  are  doing  so.    

Aliquam  dolor.  

Schumpeter  (1934)  The  Theory  of  Economic  Development  Harvard  University  Press,   Boston   OECD  (1981)  The  Measurement  of  Scientific  and  Technical  Activities  OECD,  Paris   EIPR  (2006)  European  Innovation  Progress  Report  Office  for  Official  Publications  of   the  European  Communities,  Luxembourg   Ahmed  and  Shepherd  (2010)  Innovation  Management  Context,  strategies,  systems   and  processes  FT  Prentice  Hall,  Harlow   Tidd  and  Bessant  (2009)  Managing  Innovation  Integrating  Technological,  Market   and  Organisational  Change  4th  edition.  Wiley,  Chichester   Flash  Eurobarometer  267  –  The  Gallup  Organisation  (2009)  Innobarometer  2009   Analytical  Report  European  Commission  

Founded   in   2010,   Innovation   for   Growth   is   a   business   consultancy   firm   that   specialises   in   the   provision   of   advice   to   small  and  medium  sized  enterprises.  We  work  with  companies  from  all  sectors  undertaking  innovation  audits,  and   providing   innovation   advice   so   our   clients   can   achieve   their   growth   aspirations.   We   also   undertake   desktop,   business  research,  enabling  our  clients  to  concentrate  on  running  their  business.  

Innovation  for  Growth  Limited  
Weir  Farm   Lower  Road   Blackthorn   Nr  Bicester   Oxfordshire     OX25  1TG     +44  (0)1869  243  394   www.innovationforgrowth.co.uk   enquiries@innovationforgrowth.co.uk     Registered  in  England  and  Wales   Registered  number:  7387935  

For  more  information,  contact       Chris  Mobbs  at     Innovation  for  Growth     Email:   enquiries@innovationforgrowth.co.uk   or   Via  the  website:   www.innovationforgrowth.co.uk   or   Telephone:  +44  (0)1869  243  394  
 

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