2. understanidng innovation

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Understanding Innovation

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Understanding InnovationContent:

1. What is innovation?2. Why is innovation important?3. Types of innovation4. Innovation drivers & barriers5. How to “initialise” innovation?6. Open Innovation7. Innovation in arts & humanities

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“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to

himself. Therefore all progress depends on the unreasonable man.”

- George Bernard Shaw -

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1. What is innovation?

Innovation

Something different?

Something better?

Something cheaper?

Do at a different location?

Do in a different

timeframe?

Something new?

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1. What is innovation?• There are many definitions for innovation! Term widely used….• Innovation:

– Lat. “novus” (new) and “innovatio” (to createsth. new) → something new or different introduced, the act of innovating, introduction of new things or methods

• “[…]the application of new ideas to the products, processes, or other aspects of the activities of a firm that lead to increased “value.”

(Greenhalgh & Rogers 2015: 4; Innovation, Intellectual Property, and Economic Growth“)

• “The process of translating an idea or invention into a good or service that creates value or for which costumers will pay.”

(www.businessdictionary.com)

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1. What is innovation?• Innovation different from invention

– Innovation → refers to the use of a better and, as a result, novel idea or method

– Invention → refers to the creation of the idea or method itself

• Innovation different from improvement– Innovation → refers to the notion of doing something different– Improvement → rather refers to the notion of doing the same

thing better

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2. Why is innovation important ?• Innovation as a term established in the 90`s

• Innovation nowadays part of daily life: Everybody is or wants to be innovative

• Economist Joseph A. Schumpeter is “father” of innovation → did not invent the term but introduced it economics! (“Theory of Economic Development”, published 1912)

• Innovation is important as it is one of the primary ways to differentiate your product from the competition

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• To further understand the evolvement of the term innovation you should read Schumpeter's “Theory of Economic Development”

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2. Why is innovation important ?• Importance of innovation may seem obvious but importance is also

matter of perspective:– Macro-perspective (country-level)

• Foundation for growth of a countries economy• Basis for global competiveness

– Micro-perspective (firm-level)• Foundation for growth of a company• Basis to ensure long-term competitiveness of a company -> ensures “survival” of companies

• However, firms are also able to survive with little amount of innovation• Macro- and micro-level importance of innovation are naturally interlinked• State policies needs to support innovation activities of companies• Companies “do” innovation

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3. Types of innovation• Different types of innovation can be classified in

several ways!• Two dimensional approach on innovation to structure

different types:Innovation Types

Application of Innovation Degree of Novelty

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3. Types of innovation• Application of innovation

– Product Innovation– Marketing Innovation– Process Innovation– Organisational Innovation

• Degree of novelty (Does the innovation involve little, much or no novelty?)– Radical Innovation– Architectural Innovation– Modular Innovation– Incremental Innovation

• Innovation types not 100% distinguishable, some might as well “overlap”

Henderson & Clark Modell

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Product Innovation• A good or service that is new or significantly improved. This includes

significant improvements in technical specifications, components and materials, software in the product, user friendliness or other functional characteristics. (OECD)

• the introduction of a new product, or a significant qualitative change in an existing product

– Product does not need to invented -> improvement of existing product also innovation

– Trend towards product improvement rather than totally new products (since 70`s)

• Examples: Dyson vacuum cleaner, Computer

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Process Innovation• A new or significantly improved production or delivery

method. This includes significant changes in techniques, equipment and/or software. (OECD)

• the introduction of a new process for making or delivering goods and services.

• Examples: automobile produced by robots compared to that produced by human workers

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Marketing Innovation• A new marketing method involving significant changes

in product design or packaging, product placement, product promotion or pricing. (OECD)

• Example: Facebook, Twitter etc.

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Organisational Innovation• A new organisational method in business practices,

workplace organisation or external relations. (OECD)• result from a shift in underlying organizational

assumptions,• are discontinuous from previous practice, and• provide new pathways to creating public value.

• Example: first implementation of an organisational model that gives the firm’s employees greater autonomy in decision making and encourages them to contribute their ideas

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Radical Innovation• It represents a drastic change in the way that the

product or the service is consumed. It generally, brings a new paradigm to the market segment that modifies the existing business model

• Example: the evolution of the music CD to digital files in MP3 extension

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Architectural Innovation

• “The essence of an architectural innovation is the reconfiguration of an established system to link together existing components in a new way […] The important point is that the core design concept behind each component-and the associated scientific and engineering knowledge-remain the same.” (Henderson & Clark 1990:12)

• Example: Sony Walkman (all main components existed before already but were used in other products)

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Incremental Innovation• It reflects small continuous improvements in products

or product lines. It generally represents small improvements in benefits noticed by the consumer and it does not change significantly the business model or the way the product is consumed.

• Example: iPhone → smartphones existed before apple entered the market but apple introduced larger touchscreen, app store, and an overall improvement in usability

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Modular Innovation• Uses the architecture and configuration associated with

the existing system of an established product but employs new components with different design concepts

• Use of new or different component is key factor of modular innovation

• Less dramatic impact than radical innovation

• Example: Clockwork radio (radios were already there but different power supply, not autonomously as in clockwork radio)

Technological vs. non-technological innovation• Taking the different types of innovation it is clear, that

innovations can be of technological and of non-technological nature

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Business Inno-vation

Marke-ting

Strategic

Oper-rational

Non-Technological

TechnologicalProduct

Etc.

Process

Techno-logy

Etc.

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4. Innovation drivers & barriers• Innovation is not deterministic

– There are elements that may foster or hinder the development of innovation

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Innovation drivers• There are many drivers that can lead to innovation• However, certain drivers are more commons than

others:

1. Frustration with the Status-Quo2. Responding to Crisis3. New emphasis on prevention4. New emphasis on results5. Adapting of technology6. Inclination of “doing the right thing” (moral

imperative)

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Innovation barriers• Of course, there are also many barriers that can

hinder (business) innovation• However, a couple of barriers are particularly

common:

1. Inadequate funding2. Risk avoidance3. “Siloing”4. Time commitments5. Incorrect measures

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Inadequate funding

• Innovation usually requires some sort of funding

• Funding a project leading to an innovation oftentimes means taking away money from established programs

• Getting the money in the right time not easy (organisations often work on annual funding cycles)

• However, there are many ways to receive (public) funding for innovational activities → check for funding programs in your community or state

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Risk avoidance• Many people avoid risk to preserve what they have ->

understandable but not a good attitude for becoming an innovator

• No progress will be made without a certain amount of calculated risk or change

• Risk avoidance goes often along with fear of failure– In some societies one gets “stigmatized” for failing– In a successful innovative company/society an atmosphere of

entrepreneurial spirit ought to be created to foster innovation

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“Siloing”

• Organisations seek to protect their identities, get proper credit, sustain themselves and protect themselves – they create boundaries, assign responsibilities and put rules in

place

• By nature, innovations tend to cross boundaries and create new categories within organisations– innovations that might benefit the whole enterprise can be

“killed”– better understanding of the needs and concerns of

organisations can be a starting point for managing natural organisational conflicts innovation creates.

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“Siloing”

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Time commitments

• Time is a scarce resource

• Time needs to be used efficiently in a company -> management responsibility to assure that

• If management invests in on-the-job training, experimentation etc. that might stimulate innovation there is no guarantee that it will pay off – Conflict of interest as innovation is wanted but not clear to what

price– it’s difficult to prove that such “investments” pay off

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5. How to “initialise” innovation?• Companies must encourage and support the

development of innovation

• Innovation can be seen as dynamic process

• → Hamel (2000): „Leading the revolution“ – describes what he calls „the wheel of innovation“

• However, this is only one concept among others– Rather “new” understanding of how innovation works

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- Innovation must be seen as a dynamic process but that there are co-existing concepts to describe this process.

- Some of the main facts about and from Gary Hamel`s book “Leading the Revolution” are:

- He is an American management expert. He is a founder of Strategos, an international management consulting firm based in Chicago.

- Hamel is a graduate of Andrews University (1975) and the Ross School of Business at the University of Michigan (1990)

- Hamel has been was Visiting Professor of International Business at the University of Michigan (PhD 1990) and at Harvard Business School. He is a visiting Professor of Strategic Management at London Business School

- Mention concept of the “Wheel if Innovation” (will be explained later)

https://en.wikipedia.org/wiki/Management_consulting

https://en.wikipedia.org/wiki/Andrews_University

https://en.wikipedia.org/wiki/Ross_School_of_Business

https://en.wikipedia.org/wiki/University_of_Michigan

https://en.wikipedia.org/wiki/University_of_Michigan

https://en.wikipedia.org/wiki/Strategy

https://en.wikipedia.org/wiki/London_Business_School

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Innovation as a process• Innovation is really not only an end in itself and it can

be a long-term process!

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Wheel of Innovation• Innovation in a 5 step process:

1. Imagining: thinking about new possibilities, making discoveries by ingenuity of communication with others, extending existing ways

2. Designing: testing ideas on concept; discussing them with peers, customers, clients, or technicical experts; building initial models, prototypes, or samples

3. Experimenting: examining practicality and financial value through experiments and feasibility studies

4. Assessing: identifying strengths and weaknesses, potential costs and benefits, and potential markets or applications; and making constructive changes

5. Scaling: gearing up and implementing new process; putting to work what has been learned; commercialising new products or services

Imagining

Designing

Experimenting

Assessing

Scaling

IDEA

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Idea Creation

Where do ideas come from?

Where did your idea come from?

Chance remark Luck Brain

StormingInnocent remark

Dream Mistake

The bath

(Eureka Momen

t)

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6. Open Innovation• New concept for innovation

– Innovation process is not limited to inside company efforts but also open for external influences to create innovations through knowledge (sharing)

– Internal and external ideas have impact on innovation (development of new products, services or business models)

• 3 main approaches:– Outside-in: integration of external knowledge (e.g. make use of knowledge of

external partners -> producer, supplier, customers etc.) to raise quality and pace of innovation process

– Inside-out: new process already exist in company (e.g. knowledge is externalised through creation of a start-up)

– Cooperative: mixture of the formers ones; externalisation of internal knowledge and internalisation of external knowledge → ideas are developed jointly (e.g. optimising processes between producers and suppliers)

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- Open innovation can be seen as a rather new innovation phenomenon

- There are three main approaches that need to be explained:

- Outside-in- Inside-out- Cooperative

• - Try and think of more examples, from your own experience

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Open Innovation Example: Mauna Lai Tropical I/IISituation:• a group of entrepreneurs purchased a failing beverage

brand– Goal: Revitalise business within 5 years– Problem: they had all marketing rights for the products but no

operational or product development capabilities (had to rely on original owner → high costs)

→ growth potential was very limited

Strategy:• Enhance value of the brand by establishing an open

innovation system for product development→ Creation of new product pipeline & reduction of operating costs

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Open Innovation Example: Mauna Lai Tropical II/IITactics:• Establishment of a distributed product development team,

including outside experts (product development beverage formulation, food processing and market research etc.)

• Management of the team by professional consultancy in a phased review process→ Cost reduction for existing products→ Development of product line extensions

Results:• Increased sales and profitability• New excitement about the brand among distributors (also b/c of better

product pipeline increased value of the brand)• Owners were able to sell the brand two years ahead of schedule at a

substantial gain

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7. Innovation in arts & humanities• Research in arts & humanities contributes significantly to

growing body of knowledge on human experience, agency, identity and expression (language, literature, performance etc.)

• Strong affiliation with creative industry (strongly innovative)

• Sciences, technologies and arts & humanities complement each other and are interdependent

– E.g. arts & humanities can help to translate science to wider public– E.g. arts & humanities provide understanding of the effects of change on society

• arts & humanities create language that helps to communicate complex matters in a comprehensible way

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7. Innovation in arts & humanities• Knowledge is at the heart of innovation

• HEI provide a vital source of fundamental knowledge (sharing/transmission, creating and accumulating knowledge)

• Innovation system depends on knowledge coming from HEI– This not only true for technological inventions but also for innovation coming

from arts & humanities– Strength of innovation system depends on effectiveness of HEI to disseminate

knowledge to others

• However, innovation does not just evolve within HEI→ special skills and a certain mind-set is needed to be innovative

– Can be linked to entrepreneurial skills– Entrepreneurial skills need to be taught in arts & humanities to better transmit

ideas from HEI to business and vice versa → ventures

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7. Innovation in arts & humanities• Everybody can be an innovator!

→ Concept of intrapreneurship (behaving like an entrepreneur while working within a large organisation)

• Difference between entrepreneur & intrapreneur?• Entrepreneur: someone who creates (through his/her passion, skills, innovation)

a business and is willing to take full account for its success or failure• Intrapreneur: utilizes his/her skill, passion and innovation to manage or create

something „useful“ for someone else`s business

• Arts & humanities need to teach typical skills throughout their education which enables students to become intrapreneurs!• Increases chances to become either entrepreneur or intrapreneur• Increases chances on job market as companies look increasingly for graduates

with intrapreneurial mind• Increases the chances for innovation to evolve → nourishes the innovation

system

2. understanidng innovation

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