Theoretical concepts and practical considerations
Guest lecture by Todor Stoykov
02/05/2012
How to define innovation?
 No single, uniform definition of the term “innovation”
exists
 Oxforddictionaries.com: “a new method, idea,
product, etc.”
 Schumpeter (1934): Innovation is the realisation of a
new combination (or recombination) of existing
cognitive and material elements
 Freeman (1974): From an economic perspective,
innovation is defined as the first real commercial
transaction of a new product or process
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Why the need to innovate?
 The principal benefit of innovation is that it provides a
source of strategic advantage to enterprises
 Tidd et al. (2005): Mechanisms through which
innovation provides strategic advantage to an enterprise:
 Offering something no-one else can
 Offering something in ways others cannot match – faster,
lower cost, more customised, etc.
 Offering something others cannot unless they pay a
license or other fee
 Changing the basis of competition
 Obtaining early-mover advantages
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How are innovations generated?
 The necessary first step to innovation is creativity
 A multi-factor model of organisational creativity
(Woodman et al., 1993):
Employing the creative
product to a business use
(value appropriation) is
what constitutes the
innovation
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What is being innovated?
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Product innovations
Tablet PCs
Glaceau’s Vitamin Water
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Service innovations
Apple’s iTunes store
RIM’s Blackberry mobile service
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Process innovations
• Mining company: installed a computerised
maintenance management system to enhance the
performance of its equipment maintenance process
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Business model innovations
Low-cost airlines
…moving away from the industry
standards
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Innovating away from the
competition
 Kim and Mauborgne (2004): Blue ocean strategy
 Red ocean: an industry with defined boundaries where
players try to outperform each other in a chase to
capture a larger market share. Over time, prospects for
profit and growth decrease, products become
commodities, and competition turns the water bloodier
 Blue ocean: creating an entirely new industry or
redefining the boundaries of an existing industry.
Demand is created instead of fought over, and the new
industry provides ample opportunity for profits and
growth
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Cirque du Soleil
The circus industry in the US and Canada before CdS:
 A shrinking market where competitors tried to attract
audiences by securing the most famous lion tamers and
clowns (traditional circus acts)
 No significant alteration of the circus experience 
audience numbers decrease  rising costs without
corresponding increases in revenues  a typical “red
ocean”
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Cirque du Soleil (cont’d)
How CdS approached the circus industry:
 Offer the fun and excitement of traditional circus
together with the artistic sophistication of a theatrical
performance
 Reevaluated the components of the traditional circus
acts and found that many of them were unnecessary and
often times too costly



Animal acts
“Star” performers
Three-ring shows
 Concentrated on what they found really makes people
go to the circus (clowns, classic acrobatic acts, the tent)
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Cirque du Soleil (cont’d)
 Included new elements, borrowed from theatre and
other performing arts (ex. ballet)



Each show has a theme and a story line
Multiple productions based on different themes and story
lines (ex. Saltimbanco)
Each show has an original musical score which drives the
performance, lighting, and timing of the acts (instead of the
other way around)
 By simultaneously decreasing costs and driving up
buyer value, CdS innovated away from the competition
and created its own “blue ocean”
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Key takeaways from the CdS case
 Continuously question:
 What features of our current offering really add to the
client’s experience?
 What can be deleted?
 What new elements add value?
 Is the new offering necessarily more expensive?
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IKEA




DIY furniture assembly
Optional services (ex. delivery)
Sourcing from suppliers around the world
Separate vending of components (ex. wardrobe frame 
doors)
What is IKEA innovating?
 Product?
 Service?
 Process?
 Business model?
 All of the above?
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What is the degree of change which
the innovation brings?
Degree of
change
Radical
innovation
Incremental
innovation
One definition of incremental and radical innovations (Gatignon et al. (2002)):
• Incremental innovations: improve price/performance at existing rate of progress
• Radical innovations: advance price/performance frontier by much more than
existing rate of progress.
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Radical and incremental
innovations: an example
 Radical innovation: the introduction of the
automobile
 Incremental innovation: the models’ improvement
over time
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The impact of innovations on firm
competences
 Tushman & Anderson (1986) and Anderson &
Tushman (1990): Competence-enhancing vs.
Competence-destroying innovations
 Competence-enhancing innovations: build on the
existing competences of the firm
 Competence-destroying innovations: destroy the
existing competences of the firm

Ex. typewriter manufacturing industry was practically wiped
out after the introduction of the personal computer and the
text-editing software
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Innovating towards individualised
experiences
 Prahalad & Krishnan (2008):
Commodities  solutions  experiences 
individualized experiences
 Particularly relevant in view of increasing speed / need to
innovate away from competition
 Ex. TATA Group (India):
 Tea: From plantation to individualized wellness / health /
beauty company (and from $ 0.20 to $20 per box ☺)
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Open innovation
 Definition: getting hold of innovative ideas from the
outside world which could be applicable inside the
enterprise
 Powell et al. (1996): interorganisational innovation and
networks with partners
 Breakthroughs often the result of diverse network of
contributors
 Internal and external knowledge are (often) not substitutes,
but complementary and reinforce each other over time
 Firms that initiate and maintain diverse alliances and alliance
experience, work themselves to the center of the ecosystem
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Open innovation (cont’d)
 A central position, as an active participant, helps the company
to get at the forefront of new advances, become an attractive
employer, develop a common understanding & shared
principles of cooperation with partners
 Networks also reduce uncertainty
 Result: medium- and long-term growth, success
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Some conclusions about open
innovation
 Doing everything by yourself is a “broken model”; tapping
ideas/technologies/new products from outside
 If you got your internal innovation process right, and the
set of external strategies, you are still only half way. You
also need the right processes, organization, capabilities for
open innovation.
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…final remark
 Successful innovation is about seeing the right
opportunities, even when you are not looking for them
How many passes does the team in white shirts make?
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References
Anderson, Philip. Michael L. Tushman. “Technological discontinuities and dominant designs: A cyclical model of
technological change”. Administrative Science Quarterly, 1990
Freeman, Christopher. “The economics of industrial innovation”, 1974
Gatignon, Hubert. Michael L. Tushman. Wendy Smith. Philip Anderson. “A structural approach to assessing innovation:
Construct development of innovation locus, type, and characteristics”. Management Science, 2002
Hill, Susan. Harry Barkema. Lectures for course MG427 “Analysis and design of organisational practices”. London School of
Economics and Political Science, 2008
Kim, W. Chan. Renee Mauborgne. “Blue ocean strategy”. Harvard Business Review, 2004
Powell, Walter W. Kenneth W. Koput. Laurel Smith-Doerr. “Interorgazational collaboration and the locus of innovation:
networks of learning in biotechnology”. Administrative Science Quarterly, 1996
Prahalad, C.K. M.S. Krishnan. “The new age of innovation”
Schumpter, Joseph. “The theory of economic development”, 1934
Tushman, Michael L. Philip Anderson. “Technological discontinuities and organizational environments”. Administrative
Science Quarterly, 1986
Woodman, R.W. J.E. Sawyer. R.W. Griffen. “Toward a theory of organizational creativity”. Academy of Management
Journal, 1993
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