HL OPERATIONS MANAGEMENTINNOVATION

IB BUSINESS & MANAGEMENTP268-273. (2009)

Oxford University Press

INNOVATION

• Innovation is a key function of any business.• As we known, Kaizen can improve the quality

of the product and most businesses do not simply develop a product and then leave it as it for ever.

• If businesses do not innovate, then they may lose market share and their products may stop being the cash cows of the BCM matrix and become dogs – that leaves the business open to takeover.

INNOVATION

• Innovation is not, however, restricted to marketing.• Many businesses look to find new ways of financing

projects, planning production, motivating their workers and setting administrative tasks.

• Management theorists such as Charles Handy and Kurt Lewin have argued that change is healthy and energizing for a business and if managed correctly can improve overall performance.

TYPES OF INNOVATION

There are many forms of innovation in business.This includes:

Product Innovation Process Innovation Positioning Innovation Paradigm Innovation

Product Innovation

• Where new products are created or improvements to products are made, for example, producing flatscreen TVs or new models of mobile phones.

Process Innovation

• This is when some part of the process is improved to bring benefit.

• This JIT system is a good example.

Positioning Innovation

• In what market or segment a product is sold can depend on positioning innovation.• Eg: Lucozade used to be a medicinal

drink, but the pharmaceutical giant GlaxoSmithKline decided to reposition it as a sports drink.

Paradigm Innovation

• This is where major shifts in thinking cause change. • During a period of increasing air travel, in the 1980s,

Cathal and Declan Ryan (of Ryanair) and others saw the gap in the market for budget air travel.

• This itself has created a massive change in thinking by travellers, airports and established airlines and has also spawned a whole set of opportunities from increasing the practicality of buying property in various countries (because travelling to them is much cheaper than in the past.)

RESEARCH & DEVELOPMENT

• R&D is one form of innovation and it is directly associated with the development of existing products or creating new ones.

• Many businesses spend vast sums of money on R&D (especially the pharmaceutical industry) and this can extend the product life cycle by developing new ways to use existing products (such as the increasing functionality of a mobile phone) or by indicating new directions for the company.

RESEARCH & DEVELOPMENT

• If successfully applied R&D can allow the business to find gaps in the markets or of course open up new markets entirely.

• However, R&D is expensive, time consuming and, if the wrong direction, can be quite destructive for a business.

• The example of Enron, where the creed was “innovate or die” or the banking crisis in 2008, serve as examples of innovation that was inappropriate and badly managed.

RESEARCH & DEVELOPMENT

• There is no single best way of conducting R&D, but to be at its most effective R&D requires good planning and leadership.

• There a number of stages between thinking of an idea and launching a product

RESEARCH & DEVELOPMENT

• The process can take a great deal of and indeed many brilliant ideas don’t get into the production stage, because the product is deemed too costly or there is not enough of a market to be viable.

Differences between US & Japanese Approaches to R&D

• There does seem to be a different approach between US and Japanese producers to R&D and the next stage in the process of new product development.

Diagrams: Asian vs Western Approaches to Product Development

Advantages of successful R&D

• It can give the business a competitive edge over the competition.

• It can extend the life of an existing product.• It can open up new markets. • It can enhance the prestige of the company –

being a known innovator.• It can motivate the workforce – designing new

products• It can lead to improvements in quality.• It can reduce costs.

Problems with R&D

• There many huge opportunity costs – what else could the money be spent on??

• R&D may be in the wrong direction – for instance take R&D for edible deodorant.

• R&D can be time consuming with a poor result (eg: Windows Vista took over six years to launch, and was largely consider a failure)

• It can be fiercely competitive – work on Blue-Ray versus HD-DVD for example.

Problems with R&D

• It can be bureaucratic and non-productive-despite extensive R&D – how many new products do drug companies actually produce?

• There may be ethical issues involved – for example with R&D involving GM crops, stem cell research, or animal experiments for cosmetics and tobacco.

PATENTS, COPYRIGHTS & TRADEMARKTS

• Patents, copyrights and trademarks are important intellectual property rights for the business and the original inventor of the idea.

• In the balance sheet they can appear as intangible assets.

• Their ownership by business constitutes a valuable asset that needs to be protected – for without the protection the business could lose its edge

Patents

• When individuals or businesses invent a product or production process they should take out a patent to protect their idea.

• Once the patent has been bought, it gives the individual or business undisputed rights to exclude anyone else from making the product exactly to the specifications laid down in the patent for a period of up to 20 years.

• After that time, the individual or business can of course renew the patent.

Patents

• A patent on one product does not stop anyone producing similar products, but they must not be exactly the same and or they must have different features.

• For example, Apple had to fight for the right to produce the iPod because Apple was alleged to have used the tough wheel technology fram another producer – the Quantum Research Group.

Patents – First Mover Advantage

• Effectively the patent gives the inventor first move advantage in the market and because of the head start the Apple iPod has become the iconic market leader

Copyright

• Copyright is similar to a patent.• It originally applied to written material, but has now

been extended to cover other artistic forms of media production, such as cartoons, music and films.

• Again the individual or business is protected for a period of time (in the case 50 years) from the unlawful copying of the material.

• Since the digital age, this has become a major source of concern for major record and film producers, especially with the introduction of file sharing sites on the internet.

Trademarks

• A final form of intellectual property rights is that of trademarks.

• These are split into two general forms.• Conventional trademarks include logos, slogans,

designs or phrases. • The name Coca-Cola is protected by the symbol TM.

• There are also non-conventional trademarks, which are qualities that are distinctive to the design, eg – the Coke label, including the exact color, match and shape of the letters.

The Benefits of Intellectual Property Rights

All these intellectual property rights ensure that the individuals or businesses inventing something can: Have first mover advantage Earn greater profit margins Ensure continuity in production Develop brand loyalty Have Time to develop new products Reap the rewards for their intellectual output.

Disadvantages of Intellectual Property Rights

• It must be remembered that protecting the individual or business can have a negative side too.

• There are many famous disputes between signer songwriters and their music producers – one example involved the Beatles.

• Many patents may be brought up with the specific objective to “not produce” – oil and auto companies are sometimes accused of allegedly holding back production of alternative forms of cars, because if they were readily available, the oil companies would lose profits.

FACTORS AFFECTING INNOVATION

There are many factors that can affect the ability of an individual, a team or a business to innovate successfully. This includes:• The Corporate Culture• Past Experience• Available Technology • The Market• The Level of Competition• Finance• HR• Legal Constraints

FACTORS AFFECTING INNOVATIONThe Corporate Culture

• If the organization had a low-risk, role based bureaucratic or autocratic culture then the fear of failure can outweigh the rewards of success.

• On the other hand, democratic or collaborative cultures may foster risk taking and view creative input as valuable resource.

FACTORS AFFECTING INNOVATIONPast Experience

• A proven track record of innovative practices can help develop the expectation for future change and can act as an archive of “what has worked in the past”

FACTORS AFFECTING INNOVATIONAvailable Technology

• Technology can play a leading role in the development of ideas – especially CAD (computer assisted design) and the use of the internet.

• For example, the collaborate nature of freeware has been largely a result of the ease of sharing ideas and practices in a supportive environment – hence the success of Mozilla Firefox and other freeware.

FACTORS AFFECTING INNOVATIONThe Market

• Some markets are responsive to change than others.

• The technology sector is one in which businesses may be less able to ahead of the market for long as the pace of development is so fast.

• Compare this to the market for traditional weddings in whichever culture.

FACTORS AFFECTING INNOVATIONThe Level of Competition

• Monopolies don’t have to be innovate –why should they?? - There is no competition.

• The more competition there is, the more of an incentive there is for business to create that competitive edge brought about by innovation.

FACTORS AFFECTING INNOVATIONFinance

• The amount of finance available, and in particular the R&D budget, can limit the amount of innovation a business can achieve.

FACTORS AFFECTING INNOVATIONHR

• Tied into the availability of finance is the relative field of available workers to innovate.

• Not only the number of workers, but their skills sets and the amount of time allocated to innovation will have an impact on the ability of workers to innovate.

FACTORS AFFECTING INNOVATIONLegal Constraints

• Whether in the development stage or indeed in the implementation of product there are many legal concerns that a business must take into account.

• Eg: Whether it is possible for airlines to reduce the turn-round time of planes on the ground is dependent on labor practices.

SUMMARY – INNOVATION

• The possibility of businesses to innovate successfully may be limited.

• Certainly the number of businesses that come out with radical-market changing inventions my be limited.

• However, any business has the capacity to make small scale adjustments to improve productivity by adopting new techniques and innovative practices, as long as the resistance to change can be addressed.