Chapter

Chapter3 11

Innovation

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 directing designing managing
Business Capacity
Strategy & Designing Planning &
Customer Supplier Management
Orientation Relationships
Supply
Operations Chain & Supply
Product & Relationship
Strategy Service Design Management

Inventory
Innovation Planning &
Process Design
Management

Lean Operations
& Just in Time
(JIT)

Project
Management

improving
Future Directions
Performance Quality
in Operations
Management Management
Management

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 Learning Outcomes

• Define what innovation is within the context of

operations management
• Identify different types of innovation
• Distinguish between the process of innovation and the
outcome of the innovation process
• Explain how organizations can harness innovation both
strategically and operationally
• Discuss where innovations come from
• Appreciate the importance of innovation to
contemporary organizations

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 Chapter Purpose

The purpose of this chapter is not to study the nature

of innovation, but to investigate how it happens, and
how it can be encased within the framework of the
organization to allow us to manage it as part of our
operations.

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 Defining Innovation

Innovation is a new idea, which may be the

recombination of old ideas, a scheme that challenges
present order, a formula, or a unique approach which
is perceived as new by the individuals involved.
Van de Ven (1986: 591):

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 Innovation: Process, Outcome & Type

• Innovation as a process:
– the steps and activities that need to happen in sequence to
generate an idea, and turn it into something that can be sold
for profit
• Innovation as an outcome:
– the feature that is new and different that can be sold or used
as a differentiator. These outcomes can be categorized in
four ways: process, product, paradigm and position
• Type of innovation:
– the form the innovation takes. This is generally spoken of in
two ways: incremental and radical

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 Innovation as a Process

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 Outcomes of Innovation: The 4 Ps
• Product Innovations
– These are changes in the things that the organization offers for sale.
Such innovations enhance the utility of the physical product or the
service offering, making the customer more likely to buy them
• Process Innovations
– These are changes in the processes that create the product that is sold
• Position innovations
– These are changes in the way the product or service offering is
targeted. Put another way, it is the targeting of a product or service at a
different use or customer base
• Paradigm Innovations
– These are changes in how companies might frame what they do

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 Radical & Incremental Innovation

• Radical
– those innovations that have a large impact on the
customer or society in general

• Incremental
– those innovations that have a smaller impact on the
customer or society in general

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 Innovation and Competence

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 Innovation Outcomes and Types

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 Innovations come from…

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Figure3.2
 Push and Pull

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 Need pull - Market-based Approach

• The complement to creating an innovative new product

is finding a gap to fill in the market
• There is little point in investing significant resources in
finding a solution to a problem that doesn’t exist
• It is important to be aware of the driving forces in the
external environment that may yield an opportunity
• Awareness of what the market is doing with technology
application is therefore critical
• Scanning the market by analysing what competitor
products exist may be useful

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 Knowledge push - Resource-based
Approach
• Apart from eureka moments, the most obvious source
of innovation has always been the laboratories of
formalized scientific research
• These days innovation is the result of a systematic
commitment of specialist staff, equipment and facilities
to solving specific problems
• To produce consistent innovation, it is critical to
specialize in one area
• The key thing for managers is to define that area in
terms of its scope, and develop it as an organizational
competence
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 Other sources of Innovation (1)

• Regulation Changes:
– Understanding the legal and social climate can produce a
handy signpost to where new products and services may be
needed in the future
• Accidents and Unplanned Events:
– Many innovations have been the result of an ‘accident’ in the
lab, such as Alexander Fleming’s discovery of penicillin
– Unplanned events such as terrorist attacks have also paved
the way for innovation in safety and security products
– One of the largest service industries in the world – personal
insurance – developed around the need to guard against
unplanned events
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 Other sources of Innovation (2)

• Users as Innovators - there are three categories of

users who are particularly important for innovation:
– Lead users who not only use the product but also help in
its development
– User communities or groups of users who congregate
around a product or product platform and find new and
innovative ways to use it
– Extreme users who push products to their limit creating
a need for improved performance

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 Other sources of Innovation (3)

• Staff as Innovators - enabling innovation within

organizations is all about making maximum advantage
of employees as innovators:
– This journey begins by designing an organizational structure
that emphasizes communication and flexibility
– This structure is complemented with an empowering
management style and the appropriate information
technology
– Employees can contribute ideas within their immediate work
area, within the overall process that they are involved in and
within their group or department
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 The Innovation Lifecycle

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 Stage 1: The Fluid Phase
• Initially, as a new technology emerges or a new idea for a product begins to
take shape, there is a lot of uncertainty and this uncertainty can be
categorized into:
– the target – what the application of the technology will be
– the technical – how the technology can be harnessed to meet this application

• This phase will be characterized by extensive experimentation and learning,

and will end when the dominant design emerges

• At the end of this stage the target will be defined, and the technical issues in
relation to reaching that target should have been mostly overcome

• The focus of innovation in this stage is very much on the technology and its
application

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 Stage 2: The Transitional Phase
• Here activity becomes less random and more planned with the
product configuration becoming ready for sale

• The focus of activity is on maturing the product platform by finalising

functionality, and improving quality and reliability

• Innovation in product and technology is becoming more incremental,

aimed at squeezing in as much functionality as possible, and
achieving the greatest degree of differentiation in the market

• Innovation in process begins to become important as the ideas will

partly define the operations and production processes

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 Stage 3: The Specific Phase
• The focus is now on cost, with innovative behaviour squarely aimed at the
production process, realizing economies of scales and improving efficiency
• The product is considered mature in the market hanging on to its position
due to customer loyalty, low price and high quality
• Despite continuing strong sales, at this stage the product will be ripe for
replacement by a newer product
• From a product development point of view, as time progresses innovation
will move from the radical to the incremental, with each successive
innovation becoming less and less impactful as the ‘well of innovation’ dries
up
• From a process point of view, as the product becomes more mature the
innovations that squeeze the final few drops of efficiency out of the
manufacturing process may become more incremental

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 The Four Ss

Organizational Factors in Managing Innovation:

•Strategy
•Structure
•Style
•Support

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 Strategy

• Corporate strategy must be developed and

cascaded down from the top to communicate
shared vision and goals

• If the organization is relying on innovation as part of

its competitive advantage then the strategy must
state this explicitly, so that all employees will be
encouraged to behave in the correct way

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 Style
• The management team must act on the strategy, to reinforce its
effect on the employees, a ‘facilitate and empower’ style will foster
innovation better than a ‘command and control’ style

• Employees who are empowered and autonomous will act more

innovatively when not constrained by rigid procedures – however
there is a delicate balance to be between controlling and
empowering

• To be innovative, employees need a greater level of managerial

support as they need to be given sufficient resources and the
space to allow ideas to emerge

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 Structure
• This generally dictates the nature of jobs, and must be coherent
with the management style used within the organization

• A high degree of division of labour and extreme specialization of

tasks are detrimental to innovation

• Task variety and cross-functional communication are

advantageous

• Although lone employees can be innovative, teams of employees

working together are more likely to be more successful over the
long-term

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 Support (Technology)

• Technology is commonly used as a facilitator of knowledge

transfer, drawing together fragmented knowledge resources to
develop a single knowledge repository

• Technology in the form of IT systems can be used to pull

together and centralise information from many sources
making it easier to find and use

• Supporting the organization with the correct IT-based tools

results in a more integrated approach to new idea
development
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 Continuous Innovation

Boer and Gertsen (2003)  define two arenas in which a

company must innovate:

•Operational effectiveness; the ability to satisfy today’s

customers’ demands in terms of cost, quality and
functionality - this they term exploitation

•Strategic flexibility – the capability to find and develop

new configurations of products and markets - this they
term exploration

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 Models of CI

• The ambidextrous model:

– can behave organically in an empowered, flexible and
creative way when the situation needs radical innovation to
come up with new ideas
– and then more mechanistically when the situation requires
incremental innovation to realize increased efficiency

• The punctuated equilibrium model:

– which plans for a period of radical innovation in the
development of a product, and then reforms for a longer
period of incremental change as the product of the
technology is exploited
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 Summary
• Innovation outcomes can be embodied as:
– New products or changes to existing products
– Improvements in processes of manufacture or service delivery
– Changes in the market position of a product to increase sales
– Changes in company paradigms to open up new markets
• In each of the above forms innovation can take the form of radical or
incremental changes
• Innovations can come from three sources:
– Eureka moments gained as the result of blue-sky thinking
– Resource-based knowledge push generated internal to the company
– Market-based need pull identified externally to the company
• Features of the organization such as strategy, structure, style and support
systems can be configured to produce a more creative environment
• In future, successful companies will need to excel at both exploration
(identifying and developing innovative ideas) and exploitation (extracting as
much from them as possible)
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