OIT ENG 2020-2021
-1-
What is innovation?
Alfons Cornella:
• -Generate ideas convertible into product, service or process
• -A value for customers and society
• -Achieve sustainable economic / social results over time
• -Combination of: Ideas, value and results
1-5
What is innovation?
Fernez-Walch and Romon:
• -A deliberate organizational process
• -Adopt a new product in a market or in an organization
• -Allows to improve the strategic position of the company
The new product can be:
• -a physical object
• -a service
• -a technology
• -a combination of the above
1-5
What is innovation?
“Assembly of activities registered in a certain period of time and place,
leading to the successful introduction in the market. An idea in the
form of new or better products, services or management techniques
and organization.”
Pavón and Goodman (CDTI, Economy of Innovation)
1-5
OECD Innovation, Oslo Manual
“Technological innovations refer to both the products and the
processes, as well as the technological modifications that affect them.
There is no innovation until the product has been introduced in the
market or until the new idea or way of doing (technological,
organizational, financial, commercial, etc.) has not been effectively
implemented.”
1-5
UNE Norms
The UNE (a Spanish wide catalogue of norms and standards on concepts and
management of R&D&I)
• UNE 166000: Terminology and definitions of R&D&I activities
• UNE 166001: Requirements for R&D&I projects
• UNE 166002: R&D&I management requirements
• UNE 166006: Requirements for technology monitoring and evaluation
1-5
Innovation
"Innovation is about making unexpected
connections between things."
Tim Brown, CEO and President of IDEO (San Francisco Bay organization
devoted to design thinking)
1-7
Innovation
Thomas Alva Edison?
Innovation
“I do not want to invent anything I cannot sell.“
Thomas Alva Edison
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Inventor and innovator
More than 1000 patents
Electrical sector, telephony, audiovisual/media, sound recording
Well known innovations: incandescent light bulb, telephone, alkaline
battery, phonograph, telegraph,…
1-8
Innovation
"More than genius, innovation requires
working hard."
Peter Drucker
• Economist (1909-2005)
• Expert in the management of organizations
1-9
Innovation
“Ask yourself if what you are doing today, brings
you closer to where you want to be tomorrow”
Walt Disney
Pioneer of the animation industry
Academy awards: 22 Oscars
Innovation
Albert Einstein?
Innovation
“Imagination is more important than knowledge”
“If you cannot explain it simply, you don’t understand it
well enough”
Albert Einstein
Nobel Prize in Physics, theory of relativity
Innovation
“If the rate of change of a company is lower than its
environment, then its end is in sight. The point is to know
when the end will be.“
Jack Welch
Former president of General Electric
1-10
Innovation
“If you don’t build your dreams, someone will
hire you to help build theirs”
Tony Gaskins, Coach
-among other authors-
Innovation
Singularity University?
Innovation
“Disrupt or you will be disrupted”
Singularity University (NASA and Google)
A University created to analyze the power of transformation of new technologies
1-12
A continuous changing environment
• Globalization of the economy and trade
• Growing international competition
• Fast evolution of technology -- Technological obsolescence
• Product life cycles shorter and faster
• New lifestyles and sophistication of demand
• Growing complexity of operations
The need to innovate
Is there a need to innovate?
Why is there a need to innovate?
The need to innovate
• As an element of differentiation of the product
• To increase the "value" of the company
• To meet the growing needs of customers
• To address technological obsolescence: technological replacement
• To maintain or improve the market position
• To deal with competition
• The need to innovate..... as a fundamental factor of competitiveness
Innovation and competitiveness
• Innovation is synonymous with the words change and improvement
• New or improved products and processes
• Innovation represents risks and uncertainties
• R&D is important in most technological innovation processes
• It is important to achieve differentiation or competitive advantage
over competitors
• Maintain advantage with appropriation mechanisms –Patents, etc
Indicators - The Global Competitiveness Report 2019 (WEF)
World’s most competitive countries
The Global Competitiveness Report 2019 (WEF)
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Singapore (1)
USA (2)
Hong Kong (3)
Netherlands (4)
Switzerland (5)
Japan (6)
Germany (7)
Sweden (8)
UK (9)
Denmark (10)
..........
Spain (23)
World’s most innovative countries
The Global Competitiveness Report 2019 (WEF)
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Germany (1) (1)
USA (2) (2)
Switzerland (3) (3)
Taiwan (4) (4)
Sweden (5) (5)
South Korea (6) (8)
Japan (7) (6)
UK (8) (7)
France (9)
Netherlands (10) (9)
……..
Spain (25) (26)
Blue: previous year
Innovation and internationalization
Innovation and competitiveness are related to internationalization
• Mass dissemination of new technologies all over the world
• Globalization of markets and economies
• Advanced economies generate products and services with a lot of
pressure to innovate and maintain competitiveness
• R&D is becoming more expensive and risky. Organizations need to
reduce risks
• Technologies are increasingly complex
• (Eg. NBIC crossover of nano-bio-info-cognitive sciences)
Innovation and economic development
Baumol (2002):
• - Innovation is the main source of growth of capitalism
• - Economic growth since the eighteenth century is mostly a
consequence of innovation
Innovation and economic development
Solow (1956) exposed the "residual factor":
• It is the share of the growth that cannot be explained with the factors
“work and capital”
Solow: This “share” is the "technical progress"
Solow: Technical progress is associated with:
• Improvements in the quality of the workforce (labour)
• Improvements in education
• Improvements in infrastructure
Innovation and economic development
Improvements in productivity and GDP growth are associated with:
• The development and diffusion of new technologies
So, governments tend to support R&D and Innovation activities of
their:
• -Research and technology Centres
• -Business
• -Organizations
Innovation and economic development
Based on the concept of innovation, some countries follow a threestage itinerary:
• -1st. Stage: Reducing and optimizing costs using technology from
other countries
• -2ond. Stage: Innovating in the production processes through
acquired technology
• -3rd. Stage: Creating and developing their own technologies
Terminology and models of technological innovation
according to the OECD
OECD: 5 decades devoted to the study of innovation indicators
• R&D as an input in the innovation process
• Condition: that some output of the innovation process reaches the
market “successfully”
• OECD: “Innovation happens when you transform an idea into a
product and is a success in the market.”
1-26
Terminology and models of technological innovation
according to the OECD
• Frascati Manual (OECD): A guide to standards of R&D definitions and
applying them to international statistics (Have a look to this Manual)
• Oslo Manual (OECD): A guide with a similar aim, but referring to
innovation (Have a look to this Manual)
• Since the 2005 version, the Oslo manual includes among its
definitions the one corresponding to non-technological
(organizational) innovations
Terminology and models of technological innovation
according to the OECD
An innovation is an implementation of:
• -A new product or improved product (good or service)
• -A new process, or significantly improved
• -A new method of marketing
• -A new organizational method:
In management practices
Organization of work
External relations
Basic research, applied, and technological development
R&D includes 3 types of activities:
• - Basic research
• - Applied research
• - Technological development
Basic research, applied and technological development
Basic research aims to create knowledge:
• - with results: we call discoveries
• - with recognition: from scientific publications
Applied research is oriented towards practice:
• - Protection can be used, so that authors are recognized
• - Patent protection can be used to obtain economic performance
Basic research, applied and technological development
Technological Development:
• The systematic use of scientific, technical knowledge and skills, to
meet specific business objectives or requirements
Basic research, applied and technological development
Example of a material (eg. graphene):
• - Basic research to understand and explain the characteristics and
properties of the object of study
• - Applied research for the development of a first sample, and
proceed to patent
• -In the stage of technological development, will proceed to create a
prototype or pilot plant, to start a process of industrialization and
enter the market
• -In this case, R&D would end up in the pilot plant or prototype
From R&D to innovation
The process from the prototype to innovation requires:
• -Reorganize the production process
• -To prepare the necessary equipment and infrastructures
• -To prepare new Logistics, Distribution and Marketing
Remember that a product or process will not be an innovation until it
is on the market on a regular basis
• -If the product or process fails commercially, it will not be considered
an innovation.
Innovate without R&D
• R&D is very important for innovation…
…… but it is not exclusive
Innovate without R&D
Other activities complementary to innovation are:
• -The purchase and use of specialized equipment
• -The incorporation of existing technology in the market
• - Improving the skills of the company's human resources
• -Generic and specialized training
• -The product design or redesign
• - Relations with customers, suppliers,…
• -The improvement of the management systems
• -Example: The iPod (launched in 2001) was not the result of a great R&D activity,
nor of an advanced technological development. It was basically a creative
combination of existing technologies, which was a highly successful innovation in
the market.
Most innovative companies – ranking
“Global Innovation 1000 study 2018” (Strategy & PwC)
R&D spending – ranking
“Global Innovation 1000 study 2018” (Strategy & PwC)
Red: Top 20 R&D Spenders since 2005
Radical innovation and incremental innovation
• Innovations that incorporate significant R&D results….
….. a very substantial or radical change in the products and processes....
…….then we will use the words “Radical innovation”
Radical innovation can develop products …..
• …..that revolutionize industrial and market sectors (e.g. graphene)
In contrast, an innovation derived from existing developments and technologies….
…..which does not involve a large R&D activity
….and only brings incremental improvements (eg. model redesign)
….in this case we use the words “Incremental innovation”
Tangible and intangible resources
Tangible and intangible
Tangible and intangible resources
Tangibles
• Materials, physical elements
• Stock products
• Machinery, equipment
• Buildings
• Lot, plot of land
Tangible and intangible resources
Intangibles
Important concept in innovation
• -More difficult to quantify
Operational skills and abilities of the human resources
Stock of knowledge, R&D
Relations with external sources of knowledge
Customer relations
Databases and information
Organizational Innovations
The Oslo Manual (2005) recognizes organizational change as an
important element of innovation
• New formulas of organization and management can improve:
• -Productivity
• -Competitiveness
• -Benefits
Organizational Innovations
There is a strong relationship between organizational innovations and
technological innovations.
The Oslo Manual explains that an organizational innovation is the
application of methodologies to:
• - Management Practices
• - Organization of work
• - External relations
Innovation in services
• The Oslo Manual assimilates innovation in products to innovation in
services
• There is also a key role of technology in the generation of innovations
in services
• Innovate in the way of marketing a service
• Innovate in interfaces, e.g. technical assistance
• Innovate in the production of a service
• Importance of information and communication technologies (ICTs) in
the innovation in services
Other type of activity
The original typology defined innovations exclusively in traditional industrial
sectors
We can move forward to creative industries, such as:
• -Design
• -Fashion
• -Cinema
• -Art
• -Music
• - ICT-Media Sector
These sectors have a great scope for value creation
Example in the Health Sector
• Key importance of R&D activities in the pharmaceutical sector and the
development of health products
• Importance of the competitiveness of the hospital system, to respond to
the social demand for health
Combine several important elements, such as:
• -R&D
• -Development of medical instrumentation (a fast growing sector)
• -ICT-health
• -New administrative and management models
• -Innovation in organization
OIT ENG 2020-2021
-2-
Economic Theories of Innovation
Classic Thinking
The division of labour is related to productivity:
-due to the use of the industrial machines/equipment
Innovation is related to:
- skills -- skills of the human resources
-the activities of the professionals (managers, engineers,…) who organize
the production process
- experts engaged in research (Adam Smith)
Economic Theories of Innovation
Classic Thinking
Adam Smith (1723-1790), Scottish economist:
• - The previous classic ideas of innovation together with the division of
labour, entail the progress of knowledge
David Ricardo (1772-1823), English economist:
• - Inventions are not homogenous phenomena …
… to understand it, it is necessary to analyse it and classify it
• - It is necessary to analyse the impact of innovations …
… on wages and employment
Economic Theories of Innovation
Karl Marx?
Economic Theories of Innovation
Classic Thinking
Karl Marx (1818-1883), German economist and philosopher:
• -Marx relates the innovation with:
• The accumulation of capital
• together with the potential of unemployment
• -Also relates industrial innovation
• with economic crises
Twentieth century
In the 20th Century, technological innovation was generally associated
with:
• technology
• product
• process
Twentieth century
Joseph Schumpeter?
Twentieth century
Joseph Schumpeter (1883-1950), Austro-American economist
• Joseph Schumpeter explains that in the Economy of a country there
are some key elements:
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entrepreneurs
inventions
innovations
the processes of “creative destruction”
• in order to create something new, we must first destroy the old ones
Twentieth Century
Schumpeter:
• The innovative company is a key actor, because it involves
differentiation (differentiation from other companies)
• The differentiation allows the company to get some kind of micromonopolistic position
Vision from Microeconomics
• In order to innovate, companies need incentives.
• “Companies will invest in R&D if the innovation represents a
reduction in production costs, higher than the increase in R&D costs
carried out.”
An evolutionary approach (neoschumpeterian)
Richard Nelson and Sidney Winter (1982), they:
• - Analyse an economic sector in the long term
• - Analyse the market structure
• - Analyse the innovation dynamics
They explain there are basically two well known strategies: imitate or innovate
• - Companies that invest in R&D have uncertainty about the results of their
investment
• -The evolution of the process will demonstrate which strategy is appropriate
• -The key elements are “education and learning”
An evolutionary approach (neoschumpeterian)
Neoschumpeterian vision states that:
• “Technology and the organizational system evolve together”
• “Technological development influences and is influenced by the
actions of all agents”
Other visions: Interaction between agents and elements
• Competition between technologies: in a global technology
market
• Dominant design: temporary monopoly position of a
specific design
• Dissemination of technologies: internationalization of
dissemination
• Path dependency: Once a development process is started, it
is costly to switch to an alternative one
Other visions: Interaction between agents and elements
• Spill-overs: agents not directly involved in a process, but
receiving the consequences of the process (e.g. companies,
sectors, countries)
• Learning by interacting: learning through interaction with
other agents
• Learning by doing: learn while working
• Learning by using: learn as a user
Territory and sectoral innovation systems
Christopher Freeman (1987) and Beng Äke Lundvall (1988)
pointed out that:
• -All elements of an innovation system are framed:
in a territory (national, regional, local)
in an economic sector
Territory and sectoral innovation systems
Innovation at the centre of the analysis together with a number of elements
to be taken into account:
• -Economy
• -Technology
• -Organization
• -Social issues
• -Institutions
• -Politicians and policies
It states that important differences can be found among territories and
among economic sectors
Open Innovation (just an introduction)
• Open Innovation: Concept proposed by Henry Chesbrough (2003)
• The innovation process extends to the entire economy
• Business opportunities can be found:
• anywhere on the planet
• in any economic sector (perhaps different from the sector of reference)
• in any science/technology sector (perhaps different from the sector of
reference)
• the largest companies are small compared to the whole world (eg
researchers, knowledge, resources in international programs, etc.)
• innovations will come more and more from external sources to the company
Triple Helix Model (just an introduction)
• Model proposed by Henry Etzkowitz and Loet Leydesdorff (2000)
• A system based on the relations between university, business and
public administration:
• - it is useful to understand inter-institutional phenomena
• - analyse the relationship between the main actors of the science, technology
and business system, and their effects
• Etzkowitz and Leydesdorff began to develop this model and
established a network regarding the Triple Helix model
Mode 3 of knowledge production
• Mode 3 of knowledge production is initially based on Mode 1: of
traditional research in universities
• It is also based on Mode 2: when the knowledge generated in Mode
1 is applied and implemented (Michael Gibbons et al. 1994)
• Mode 3 also includes innovation networks, knowledge clusters and
science and technology parks, as well as interactions among them
(Groundwater-Smith and Mockler, 2009)
Thoughts and experience of Henry Ford (1863-1947)
“If I have asked people what they wanted, they would
have said faster horses”
Founded the Ford Motor Company
Revolutionized assembly line production in the automotive industry
1-67
“Alice's Adventures in Wonderland” (Alicia en el país de las
maravillas) Lewis Carroll (1865) – Strategy
• “CHESHIRE CAT SCENE”
“Alice: Would you tell me, please, which way I ought to go from here?
The Cheshire Cat: That depends a good deal on where you want to get
to.
Alice: I don't much care where.
The Cheshire Cat: Then it doesn't much matter which way you go.
Alice: ...So long as I get somewhere.
The Cheshire Cat: Oh, you're sure to do that, if only you walk long
enough.”
2-3
Formulation of the strategy
Technological strategy is usually developed within the R&D department …..
although can be extended to other departments
The management of the different departments has to be taken into account:
• different depts. may have different capacities, structure, targets
Objective:
• Increase the value for shareholders and stakeholders
• Increase the competitiveness of the organizations involved
• Generate sustainable competitive advantage
To be taken into account:
• The strategic role of innovation and technology
Innovation and technological capabilities: resources
and capabilities
• Why do companies with similar activities perform
differently? Which is the origin of the differences?
• The answer lies in the resources and capabilities:
• and they are related to technological knowledge and the market
Resources and capabilities
The company needs resources and assets to develop its activities within the
value chain:
• Infrastructures
• Plants of production
• Specialized equipment
• Technical and scientific human resources
• Patents
• Brand value
• Relationship with customers
• Distribution channels
Classification of resources
• Tangible:
• - Tangible resources can be physical or financial – e.g:
• Specialized equipment, materials
• Production plants, buildings
• Capital
Classification of resources
Intangible:
• Intangible resources are neither physical nor financial – e.g:
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knowledge embodied in the company
Customer relations - value creation through relationships
Patents
Brands
Prestige of the company
Human resources: The set of knowledge and skills embodied within the staff
of the company
Leadership Technology Strategy
The goal: to achieve a permanent position of technological leadership using
all the resources and capabilities of the company
• Supported by a dynamic R&D policy
• Constantly introduce new products into the market
Other mechanisms: Developing new production processes
Assumes: high risk and expects high profits
Requires:
• Ability for technological innovation
• Ability to identify opportunities and translate them into commercial
products
• Business initiative to promote innovation culture and permanent change
Leadership Technology Strategy
Factors that allow organizations to develop technological leadership
strategies (1):
• - Response time (or response lapse): get benefits before the arrival of
the competitors
• - Economies of scale: cost reduction.
• - Notoriety: the leader consolidates the position of “innovator”
• - The “pioneer” usually determines the majority of the
characteristics of the product
Leadership Technology Strategy
Factors that allow organizations to develop technological leadership
strategies (2):
• - Effective advertising: the advertising of the pioneer is not usually
confused with that of rivals.
• - Selection of distribution channels: The pioneer sets the standards of
distribution, blocks the best channels, selects the best distributors, etc.
• - Favourable access to resources: The pioneer has favourable access to
scarce resources
• - Institutional barriers: the pioneer has institutional barriers against
imitation, eg. through patents.
Innovation and strategy
“Innovation is what distinguishes leaders
from followers”
Steve Jobs, Apple
2-25
Follower technology strategy
• In this case, companies do not lead. They prefer to come later:
• - Imitating the leaders
• - Learning from the leaders
• These companies do not want to be the first, but they do not want to be
left behind either
• They want to avoid the risks of technological innovation
• It is a less risky strategy compared with the leadership strategy:
• -The product has already been accepted by the market
• Followers prefer to exploit other capacities of the company: marketing,
production, finance, etc. in which they can have competitive advantages
Follower Technology Strategy
Requires:
• -Extensive analysis of the competition
• -Use reverse engineering, which aims to:
• Obtain information and understand the characteristics of the product
• Understand what the product is made of
• How does it work
• Why it is successful in the market
• -Also, the reverse engineering allows:
• Reduce production costs
• Commercialize a similar product (usually cheaper or better)
• - To carry out a very short term R&D, focused on imitating, not leading the market
External analysis: The Delphi method
The selection of experts is carried out in a panel consisting of:
• - Suppliers of technology
• - Users of technology
• - Specialized consultants
• - Academic experts
• - People with no technological specialization (but who can assess
related social, economic and/or environmental issues)
External analysis: The Delphi method
The process that takes place in the Delphi method consists of:
• - A survey of experts on future issues and their opinion on the probability
that these issues will be met
• - The answers are analysed, and a new and more focused survey is sent to
the same experts
• - The process is repeated until reaching a certain degree of consensus (or
absence of it)
• - Normally 2 or 3 rounds are made
• - It is intended to identify when future technological elements will be
developed over a medium/long term period (from 5 to 15 years,
depending on the sectors).
Scenarios Method
It is an analysis of quantitative data and qualitative information to
propose alternative future scenarios in terms (PESTEL Key words):
• - Political
• - Economic
• - Social
• - Technological
• - Environmental
• - Legal
PESTEL
The risk of technological predictions
"I think in the world there is a market for, say, five
computers."
Thomas Watson President of IBM (1943)
2-55
The risk of technological predictions
"There is no reason why anyone would want to have a
computer at home."
Ken Olsen
President of Digital Equipment Corp. (1977)
2-56
The risk of technological predictions
"Americans need a telephone, we do not need it,
we have enough postmen."
Sir William Preece
Chief Engineer of the British Post Office (1876)
2-57
Do not be afraid to make mistakes
“When you innovate, you run the risk of making
mistakes. It is better to admit it quickly, and continue
with another innovation.”
Steve Jobs, Apple
2-58
The innovation process
A Citation:
"What drives the world is not machines, but
ideas.“
Victor Hugo
French poet, novelist, and dramatist
3-3
The innovation process: a simple model
• Generation of ideas
• Structure a project
• Develop and run the project
• Marketing and commercialization of results
Brain hemispheres
left
right
43
Lateral thinking
Usual way of thinking
Creative thinking
Source: De Bono (1970)
44
Outside the Box
45
OIT ENG 2020-2021
-3-
"Internal" development of innovation:
Implement the innovation process
Organization and assignment of responsibilities:
• All departments should be involved
• The entire staff of the organization should be involved
• The right person to lead the innovation process have to be found
Self-diagnosis process:
• Analysing the innovation capacity of the organization
• Self-diagnose the operational capabilities of the organization
• Detecting opportunities for improvement:
• regarding best practices of other innovative companies
"Internal" development of innovation:
Implement the innovation process
Strategy to follow:
• Analysis of predictable future scenarios for the company
• Decide for a small number of scenarios
• Focus resources on priority scenarios
• Run the best projects
"Internal" development of innovation:
Implement the innovation process
Choose the innovation manager, which may come from:
• Department of R&D
• Department of marketing and new products
• Technical department
• Operations department
• Department of innovation
"Internal" development of innovation:
Implement the innovation process
The unit that manages innovation depends on:
• The specific activity that takes place
• The approach that the Board assigns to innovation
• The Board decisions are critical regarding aspects of promotion,
coordination and execution
• The transversal vision for the execution of projects is equally critical
(transversal among sectors and transversal among departments)
• It involves the maximum number of departments, making themselves
visible, and sharing the projects
"Internal" development of innovation:
Implement the innovation process
• Highlights the key role of the human resources
• Innovation is done by people, together with the company, but
people!
• It is appropriate to establish the right conditions for:
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motivate the staff of the company
to make their ideas come out
to contribute with their knowledge
to contribute with their creativity
"Internal" development of innovation: The
innovation plan
A project mobilizes resources:
• Financial resources
• Human resources
• Material resources
• Technologies
A project combines skills
• Individual
• Collective
In this context it is important to elaborate "Innovation Plans" in order to collect
• The planned projects
• The potential activities
"Internal" development of innovation: The
innovation plan
The Innovation Plan must be communicated to all key people in the
company.
An innovation committee should be set up in order to:
• Systematize innovation
• Analyze and evaluate all projects
• Decide if a project should not continue due to the lack of expectations, the
replacement by another project, etc.
• Continuous monitoring of innovation projects through indicators (metrics)
and evaluation of the profitability
• Maintain the methodology for generating ideas
• Promote a creative culture in the company
"Internal" development of innovation: The
innovation plan
Also, the innovation committee should be set up
• To prepare an Annual Report to be submitted to:
• CEO
• Board of directors
Moreover:
• Systematically assess the innovation developed
• Systematically assess the innovation projects in operation and those already
developed
• Calculate the qualitative and quantitative returns generated
Open innovation and innovation networks
• In a traditional model, ideas and information come mostly from inside the
company
• In an internationalized and global economy, this paradigm has changed
• It is very difficult to develop the whole process of innovation only with internal
resources and knowledge of the company:
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R&D
Concept
Design
Prototype
Manufacturing
Diffusion
Distribution
• “The innovation carried out internally by the largest company is small compared
to the capacity for innovation and development existing throughout the world”
Open innovation and innovation networks
Henry Chesbrough proposes the Open Innovation concept. It's about
combining:
• Internal knowledge
• External knowledge
• Own and external technological capabilities
It is about sharing:
• Ideas
• Technology
• Knowledge
Open innovation and innovation networks
It is about sharing these elements with external collaborating agents, such
as:
• Customers
• Users
• Workers
• Other companies
• Science and technology parks
• Research centres
• Technology centres
• Universities
Open innovation and innovation networks
• Chesbrough explains that companies have knowledge in stand-by that
does not generate value. For example:
• Companies use only a percentage of the available patents (between
5% and 25%)…..
• ..accordingly, companies have a % of the potential value “in stand-by”
Premises of Open innovation
• Not all the most talented people in our field work for us
• We need to work with talented people inside and outside the
company
• External R&D can generate a lot of value. Internal R&D is needed to
recover a part of it
• Building a better business model is more important than being the
first to reach the market
• We will add value if we make the best of internal and external ideas
• We should acquire the intellectual property rights of others when this
favours our business model
Premises of Internal innovation
• The most talented people in our field work for us
• To benefit from R&D, we must discover, develop and apply it
• If we discover / develop something on our own, we must be the first to
launch it to the market
• The company that first commercializes an innovation, usually wins
• We will win if we generate as many ideas as possible, of the best possible
quality
• We must control our intellectual property so that our competitors cannot
take advantage of our ideas
• Source: Adapted from Chesbrough (2003)
Adoption of Open innovation and its benefits
• The Open innovation approach has been successful due to the increasing
cost of internal technological development
• Cases such as the pharmaceutical and electronic sectors are good
examples of this
• For example, the cost of developing a drug can cost more than 1000
million Euros; and a process of 10-12 years. Exceptional situations, e.g. the
COVID vaccines.
• Another important factor in the adoption of Open innovation is the
reduction of the life cycle of the products
• The combination of higher costs and lower life cycle makes technologyintensive companies unable to justify their internal R&D expenditures
Adoption of Open innovation and its benefits
Open innovation aims to respond to internal innovation through:
• cost reduction
• generation of profits
Open innovation deals with costs through external R&D resources
Consequently:
• saves time
• saves money in the innovation process
Open innovation can improve the company's profits by selling:
• technology licenses
• patents
Advantages of the Open innovation
• Get resources and skills (faster)
• Access to external ideas and knowledge to be incorporated to the
company's internal knowledge
• Allows access to new knowledge (K) and technology (T), which the
company could never have developed on its own
• The use of shared resources requires less investment and offers
greater flexibility
• Allows to focus on the core competencies of the company, and
outsource the rest
Advantages of the Open innovation
• Share the risk and uncertainty of the innovation process with other
companies
• Allows a better exploitation of the internal potential of innovation,
which may be partially hidden or not exploited
• Allows to apply internal ideas that would otherwise remain
unexplored
• Allows to expand the potential of growth of the company through
alliances and raising external funds
Stages of adoption of innovations
• 1. Knowledge
• 2. Persuasion
• 3. Decision (acceptance or rejection)
• 4. Implementation
• 5. Confirmation
Source: Rogers (2003)
Dissemination of innovations
Rogers identify 5 types of innovator adopters:
• Most Innovative
• People who take risks and adopt an attitude to be on the front line
• First followers
• They use innovation to make their own adoption decisions
• When innovators are socially acknowledged people, their influence on firstfollowers is greater
Dissemination of innovations
• Early majority
• They accept change faster than the average
• They are clearly influenced by opinion leaders
• Late majority
• They are more skeptical about the utility or benefits of new products
• They use the new products due to the environment pressure
• Lagging (rezagados)
• They are critical regarding new ideas
• They only accept them if there is a general consumption of the innovation or
when the innovation becomes a tradition
To conclude Innovation processes
• There is a need to open our minds ...
• As Sir Thomas Deward said:
"Minds are like parachutes: They work best when open "
3-99
Knowledge Management
• To carry out the innovation process, organizations depend on the tacit
knowledge available
• Nonaka (1994) explains that knowledge is a key requirement for innovation and
competitiveness
• There are two generic kind of knowledge:
--Tacit knowledge
• It is the kind of knowledge:
•
•
•
•
•
•
Personal
Experimental
Specific
Which has a context
Which is difficult to formalize
Which is difficult to transfer
Knowledge Management
--Explicit knowledge
• It is the kind of knowledge:
•
•
•
•
Which can be codified
Can be expressed in numerical, textual or graphic form
Easy to communicate
Easy to transfer
Knowledge Management
Tidd and Bessant (2009) explain that knowledge management includes
the following activities:
• Generate and acquire knowledge
• Identify and codify existing knowledge
• Store and use knowledge
• Allocate the knowledge within the organization
• Exploit knowledge within the company
Success factors in innovation teams
Participation in decision-making:
• Being a participant in the decision-making process is one of the best
ways to get the commitment of team members
• This increases the probability of accepting decisions taken
• And increases the probability of implementing the solutions provided
Success factors in innovation teams
Team environment:
• It is important and advisable to encourage and achieve:
• An adequate environment among team members, both professionally and
personally
• Feel good and even have fun with your own work
• Listen to the proposals of other team members
• To show respect for the ideas of other team members
• The factors explained above will generally have better application in teams with
the same location or close to each other
Physical location, is still a factor to be taken into account (A discussion on this topic
for many years: supporters and opponents)
Success factors in innovation teams
However:
At present, many teams work remotely, in different physical locations:
• In a context of globalization of markets
• With a growing integration of technologies
• With a greater complexity of organizational structures
Indicators of innovation
The company needs to know:
• The status of its innovative capacity
• The valorisation of the investment made in innovation
• The benefits obtained from the innovation activities of the company
It is necessary to analyse if the company makes an efficient use of the
inputs to obtain the outputs
Indicators of innovation
e.g. In the case of the Manufacturing companies, the indicators could be:
• Number of innovations of radical products
• Number of innovations of incremental products
• Number of process innovations
• Number of patents and utility models
• Percentage of sales due to new products
• Expenses made in the R&D Dept
• Number of people working in the R&D Dept
The patent indicator has some limitations because:
• Not all innovations are patentable
• Many companies prefer not to patent their innovations and keep their results as an
“industry secret”
Policies and their justification
• Government intervention in the innovation process is discussed in
relation to R&D activities
• It is maintained that the allocation of resources to R&D through the
market leads to inefficiencies
• According to Arrow (1962), these inefficiencies are related to:
• The uncertainty about the success of the process
• The difficulties of appropriating the results of the R&D
• Companies that carry out R&D, they assume risks…..
…..and they depend heavily, on R&D performance
Policies and their justification
• Basic and applied R&D may involve:
• Radical innovations, or
• Non-radical innovations with some added value
• Small companies will place their activities in stages close to the
market:
• where there is less uncertainty to get results
• In this context, government intervention should:
• Help maintaining enough R&D activity ….
• …. to correct some of the disadvantages of SMEs in this process
Policies and their justification
• Two formulas of intervention of the public sector in R&D:
• --The direct participation in the development of R&D ….
….. with financial assistance to basic R&D
• --The creation and maintenance of a protection system through:
• industrial property
• intellectual property
Policies and their justification
• Some experts discuss the need for this intervention,
explaining that:
• it is not clear that public intervention entails an optimal allocation
of resources, and that
• R&D and innovation policies are increasingly close to policies to
support business competitiveness (in some way the opposite to
“intervention”)
Policies and their justification
• These policies involve:
• Support to companies from a broad perspective, in many fields
of activity (including, for example, support for their
internationalization - eg ACC1Ó in Catalonia, CDTI in Spain)
• For several decades, resources devoted to R&D, and the R&D
policies, have been important in:
most countries of the world….
… although they are strongly affected by economic crisis
The Entrepreneurial State
• The private sector has always been considered innovative, dynamic
and competitive
• The State plays a more static role: intervention in the market only in
situations of potential market failures
• In the book "The Entrepreneurial State", the economist Mariana
Mazzucato dismantles this “….false myth” to show that: “the State is
not only a bureaucratic and conservative entity, but sometimes,
on the contrary: it is an entrepreneurial organization that assumes the
higher risk investments that are not taken by companies”
• Thus, Mariana Mazzucato defends the role of the State as an
entrepreneurial agent within society
The Entrepreneurial State
Mariana Mazzucato explains, for example, how some American private companies (Apple
and others) have benefited from the results and technologies developed by public funds
from US government R&D Centres.
Some examples are:
• Microprocessor technology (developed by DARPA – US Defense Advanced Research
Projects Agency).
• Multi-touch screen technology (developed by DoE, CIA / NSF and DoD).
• Lithium battery technology (developed by the DoE).
• GPS satellite positioning technology (developed by DoD and US Navy).
• Mobile technology (developed by the US Army).
• Internet technology (developed by DARPA - US Defense Advanced Research Projects
Agency).
• etc...
The entrepreneurial State
Example: Origin of different technologies present in various Apple
products
Innovation systems and policies / Agents and
interactions
• In the 1980s the concept of "National Innovation Systems" (NIS)
appears, and later the "Regional Innovation Systems" (RIS)
• Emphasize the relationships among the agents of a territory for the
promotion of innovation
• These National and Regional Systems consist of:
• a set of institutional and personal actors, ….
….. with the aim of producing and disseminating science, technology and
innovation in this territory
• Actors are connected at a technical, commercial, legal, social and
political level
Innovation systems and policies / Agents and
interactions
Edquist (2001) explains that organizations with explicit objectives in these areas are:
• Universities
• Business R&D centres
• Public R&D centres
• Technology centres
• Science and technology Parks
• Government agencies of competitiveness
• Chambers of Commerce
• Financial organizations
• Certification and quality control agencies
• Business associations
Innovation systems and policies / Agents and
interactions
• Heijs (2001) classifies the agents and factors of innovation systems into 4 groups:
• --First group:
• the companies,
• relations between companies
• and market structures
• --Second group:
• public infrastructures supporting innovation
• private infrastructures supporting innovation
• --Third group:
• public actions related to innovation and technological development,
• Including: the legal, institutional and technological policy framework
• --Fourth group:
• the legal context
Innovation systems and policies / Agents and
interactions
• Expert Suppliers
• ("Know-Who")
• Talent Suppliers
• ("Know-Where")
• Financing providers
• ("Know-Where")
• Knowledge providers
• ("Know-how")
National innovation Plans and support
instruments
The two most common types of science and technology policies are:
• --Coordination, promotion and dissemination activities:
•
•
•
•
Coordinate and plan activities of the agents of the system
Create, analyse and disseminate information.
Coordinate and encourage participation in international programs
Organize patent systems and other standards of protection
National innovation Plans and support
instruments
Direct support activities and financing:
• Financial aid for training of R&D personnel
• Direct participation in R&D activities in:
• Public research centres
• Universities
• Direct financial support to companies and R&D organizations:
• Grants
• Public loans
• Risk capital
• Tax incentives for companies
National innovation Plans and support tools
The activities mentioned are usually part of the so-called "National
Plans of ..." (Science, Technology, Innovation, R&D&I)
In general, they are policy planning instruments (usually active from 3
to 5 years) with specific
• Goals
• Means/resources
• Strategies
RIS 3 - Research and Innovation Smart Specialization
Strategy
• “RIS3 is a Regional Strategic Plan for development, whose objectives
are”:
• “Political support to regional investments on key priorities for knowledgebased development.”
• “To build, on the most powerful elements of each region, competitive
advantages and potential for excellence”.
• “To support technological innovation, but also non-technological
innovation, as well as stimulation of private investment.”
• “Involve all stakeholders.”
• “Be based on evidence, monitoring and evaluation.”
5-34
Edquist analysis
• Edquist (2018): Towards a Holistic Innovation Policy: Can the Swedish
National Innovation Council Serve as a Role Model? Charles Edquist,
CIRCLE, Lund University, Sweden Papers in Innovation Studies Paper
no. 2018/02:
• A holistic innovation policy: a policy that seeks to integrate all public
actions that may influence innovation processes. It takes into account
all determinants of innovation
• Usually, innovation policies in the EU are practiced in a partial way,
focusing on only one or a few of the many determinants of
innovation processes
Edquist analysis
• Such policies are often based on the linear view of innovation
• Focuses mainly on research – and therefore the policies themselves
become linear
• Few policy instruments working from the demand side are used
• Innovations shall be achieved by describing functions to be achieved
or problems to be solved through “procurement”
• Financing and procurement contributed substantially to changing
Swedish innovation policy in a holistic direction.
Contenido
CHAPTER 1: INNOVATION - WHAT IT IS AND WHY IT MATTERS ..................................... 2
CHAPTER 2: INNOVATION AS A CORE BUSINESS PROCESS ......................................... 6
CHAPTER 3: BUILDING THE INNOVATIVE ORGANIZATION.............................................. 9
3.1 Shared Vision, Leadership and the Will to Innovate ................................................ 9
3.2 Appropriate Organization Structure .......................................................................... 9
3.3 Key Individuals ............................................................................................................ 9
3.4 High Involvement in Innovation ............................................................................... 10
3.5 Effective Team Working ............................................................................................ 10
3.6 Creative Climate ........................................................................................................ 11
3.7 Boundary-Spanning .................................................................................................. 11
CHAPTER 4: DEVELOPING AN INNOVATION STRATEGY ............................................... 12
4.1 Rationalist or Incrementalist Strategies for Innovation?....................................... 12
4.2 The Dynamic Capabilities of Firms .......................................................................... 12
4.4 Technological Trajectories ....................................................................................... 13
4.5 Developing Firm-Specific Competencies ................................................................ 14
4.6 Globalization of Innovation ...................................................................................... 14
4.7 Enabling Strategy Making ........................................................................................ 15
CHAPTER 5: SOURCES OF INNOVATION ........................................................................ 16
Knowledge Push ............................................................................................................. 16
Need Pull .......................................................................................................................... 16
CHAPTER 6: INNOVATION NETWORKS ............................................................................ 21
Innovation Networks ....................................................................................................... 22
Networks into the Unknown ........................................................................................... 24
CHAPTER 9: CREATING NEW PRODUCTS AND SERVICES .......................................... 26
9.1 Processes for New Product Development .............................................................. 26
9.2 Influence of Technology and Markets on Commercialization ............................... 28
9.3 Differentiating Products ........................................................................................... 28
9.4 Building Architectural Products .............................................................................. 29
9.5 Commercializing technological products ............................................................... 31
9.6 Implementing complex products ............................................................................. 32
9.7 Service innovation .................................................................................................... 33
CHAPTER 10: EXPLOITING OPEN INNOVATION AND COLLABORATION.................... 37
10.1 Joint Ventures and Alliances ................................................................................. 37
10.2 Collaborating with suppliers to innovate .............................................................. 39
10.3 User-Led Innovation ................................................................................................ 41
10.4 Benefits and Limits of Open Innovations ............................................................. 41
CHAPTER 11: EXPLOITING ENTREPRENEURSHIP AND NEW VENTURES .................. 43
CHAPTER 12: CAPTURING THE BENEFITS OF INNOVATION........................................ 45
12.1 creating value through innovation ........................................................................ 45
12.2 innovation and firm performance .......................................................................... 46
12.3 Exploiting knowledge and the intellectual property ............................................ 46
12.3 Exploiting Intellectual Property ............................................................................. 51
12.4 Broader economic and social benefits ................................................................. 53
12.5 Choosing a business model ................................................................................... 55
CHAPTER 13 CAPTURING AND LEARNING FROM INNOVATION.................................. 56
13.1 What we have learned about managing innovation? ........................................... 56
13.2 How can we build dynamic capability? ................................................................. 57
13.3 Learning to manage innovation ............................................................................. 57
13.4 Tools to help capture learning ............................................................................... 58
13.5 Innovation auditing ................................................................................................. 58
13.6 Measuring innovation performance ...................................................................... 59
13.7 Measuring a developing innovation management capability.............................. 59
13.9 Variations: Measuring service innovation ............................................................ 60
CHAPTER 1: INNOVATION - WHAT IT IS AND WHY IT MATTERS
Innovation is driven by the ability to see connections, to spot opportunities and to take
advantage of them. It is not just about opening up new markets - it can also offer new ways of
serving established and mature ones. Technology often plays a key role in enabling radical new
options. At the other end of the technological scale there is scope for improving on an old
product, often using old technologies in new ways. Innovation is of course not confined to
manufactured products, but also to services.
-
Innovation is consistently found to be the most important characteristic associated with
success
Innovative enterprises typically achieve stronger growth or are more successful that
those that do not innovate
Enterprises that gain market share and increasing profitability are those that are
innovative
Entrepreneurship mixes structure with passion, planning with vision, tools with the wisdom to
use them, strategy with the energy to execute it and judgment with the propensity to take risks.
Innovation contributes in several ways. New products help to increase profitability in market
shares. In the case of more mature and established products, competitive sales growth comes
not simply from being able to offer low prices but also from a variety of non-price factors like
design, customization and quality. Being able to replace products frequently with better
versions is increasingly important and being able to make something no one else can, or to do
so in ways which are better than anyone else is a powerful source of advantage. Innovation is
all about finding new ways to do things and to obtain strategic advantage - so there will be
room for new ways of gaining and retaining advantage.
The real challenge in innovation was not invention - coming up with good ideas - but in making
them work technically and commercially. As Thomas Edison realized, innovation is more than
simply coming up with good ideas; it is the process of growing them into practical use.
Innovation is often confused with invention - but the latter is only the first step in a long process
of bringing a good idea to widespread and effective use.
Innovation is the process of turning ideas into reality and capturing value from them. There are
4 key phases and only if we can manage the whole process is innovation likely to be successful.
-
-
Search. We do this by bringing new ideas to the system. These can come from R&D,
‘Eureka’ moments, copying, market signals, regulations, competitor behaviour…
Select. That set of options where variants most likely to help us grow and develop. Out
of all the things we could do, what are going to do - and why?
Implementation. Converting ideas into reality. Managing a growing commitment of
resources - time, energy, money and above all mobilizing knowledge of different kinds
- against a background of uncertainty.
Capturing value. From innovative efforts. How will we ensure that the efforts have
been justified - in commercial terms or in terms of creating social value? How will we
protect the gains from appropriation by others?
The big question is: how to make it happen? with knowledge and organizational
conditions to allow focused creativity.
The four dimensions of innovative space are:
- Product innovation. Changes in products and services.
- Process innovation. Changes in the ways they are created.
- Position innovation. Changes in the context in which they are introduced. Targeting
different market segments for example.
- Paradigm innovation. Changes in the underlying mental models which frame what the
organization does (i.e., shift to low-cost airlines. Companies like Lego and Adidas are
reinventing themselves by engaging their users as designers and builders rather than
passive consumers).
Sometimes opportunities for innovation emerge when we reframe the way we look at
something. Characteristics of innovation:
- Degree of novelty - incremental or radical innovation?
- Platforms and families of innovations
- Discontinuous innovation - what happens when the rules of the game change?
- Level of innovation - component or architecture?
- Timing - the innovation life cycle
A key issue in managing innovation relates to the degree of novelty involved in different places
across the innovation space. We should also remember that it is the perceived degree of novelty
which matters.
“Learning curve effect”: productivity improves with increases in the scale of production; the
reason for this lies in the learning and continuous incremental problem-solving innovation
which accompanies the introduction of a new product or process.
Discontinuous innovation: when occasionally something happens which dislocates this
framework and changes the rules of the game. New opportunities are opened up, but also
challenge existing players to reframe what they are doing in the light of new conditions. Under
discontinuous conditions we need different approaches to organizing and managing innovation.
“Sailing ship” effect: a mature technology accelerates in its rate of improvement as a response
to a competing new alternative.
Innovation opportunities can be viewed as components within larger systems. We can think of
innovations which change things at the level of components or those which involve change in
a whole system. Levels in the higher level systems often have implications for lower down.
We also need to recognize that innovation opportunities change over time. In new industries
there is a huge scope for experimentation around new product and service concepts.
Initially, under the discontinuous conditions which arise when completely new technologies
and/or markets emerge, there is what they term a “fluid phase” (characterized by the coexistence of old and new technologies and by rapid improvements of both. Sailing effect)
during which there is high uncertainty along two dimensions:
- The target: what will the new configuration be and who will want it?
- The technical: how will we harness new technological knowledge to create and deliver
this?
The period in which the dominant design emerges and emphasis shifts to imitation and
development around it it termed the “transitional phase”. Production innovation is increasingly
about differentiation through customization to meet the particular needs of specific users. This
is called the “specific phase”.
12 ways to innovate:
- Offerings - new products or services
- Platform - derivative offerings based on reconfiguration of components
- Solutions - integrated offerings which customers value
- Customers - unmet needs or new market segments
-
Customer experience - redesign of customer contact and interactions
Value capture - redefine the business model and how income is generated
Processes - to improve efficiency or effectiveness
Organization - change scope or structures
Supply chain - changes in sourcing and order fulfillment
Presence - new distribution or sales channels
Brand - leverage or reposition
Networking - create integrated offerings using networks
CHAPTER 2: INNOVATION AS A CORE BUSINESS PROCESS
Innovation is a generic activity associated with survival and growth and at this level of
abstraction we can see the underlying process as common to all firms: search, select,
implement, capture value.
There are different circumstances that lead to many solutions: a pharmaceutical company will
tend to create solutions supported by R&D. On the other hand, there are some retailers which
have small R&D that stress scanning the environment to pick up new consumer trends, and
they are likely to place heavy emphasis on marketing.
Innovation management is a learned capability. It must be adapted and shaped to suit the
circumstances.
Service innovations are often much easier to imitate and the competitive advantages which they
offer can quickly be competed away because there are fewer barriers (i.e., airlines).
Innovation: “the successful exploitation of new ideas”.
In the context of service innovation, the search for and use of demand side knowledge is critical
- many services are simultaneously created and consumed and end-user understanding and
empathy are essential to success. The balance of importance in service innovation may be more
in the direction of demand side knowledge.
One of the significant developments in business innovation has been the “outsourcing” of key
business process. The underlying business model of outsourcing is based on being able to do
something more efficiently than the client and thereby creating a business margin - but
achieving this depends critically on the ability to re-engineer and then continuously improve
on core business processes. The challenge here becomes one of process innovation within
outsourcing agencies - how they can develop their capabilities for carrying out processes more
effectively and how they can sustain their ability to continue to innovate along this trajectory.
Public sector innovation has different - and often conflicting - drivers and the rewards and
incentives may be absent or different. A major challenge in public sector innovation is thus
enabling diffusion of successful experiments into the mainstream.
Social entrepreneurship: the primary aim is to create some form of social value to make a
difference in the world.
Another important influence on the particular ways in which innovation is managed is the size
of the organization. Typically, smaller organizations possess a range of advantages - such as
agility, rapid decision-making - but equally limitations such as resource constraints.
On of the emerging features of the twenty-first century innovation landscape is that is much
less of a single enterprise activity.
Thinking about the wider context within which innovation takes place has led to the emergence
of the concept of “innovation systems”. These include the range of factors - government,
financial, educational, labour market, science and technology infrastructure, and so on - which
represent the context within which organizations operate their innovation process, and the ways
in which they are connected.
Either new opportunities arising out of research gave rise to applications and refinements which
eventually found their way to the marketplace (“technology push”) or else the market signalled
a need for something new which then drew trough new solutions to the problem (“need pull”,
where necessity becomes the mother of invention).
Sometimes the “push” will dominate, sometimes the “pull”, but successful innovation requires
interaction between both.
The underlying structure of innovation can be represented by the metaphor of an “innovation
journey”, which has key phases of initiation, development and implementation/termination.
Mental models are important because they help us frame the issues which need managing - but
therein also lies the risk. If our mental models are limited, then our approach to managing is
also likely to be limited.
Not every innovation fails, and some firms appear to have learned ways of responding and
managing it such that, while there is never a cast-iron guarantee, at least the odds in favour of
successful innovation can be improved. One indicator of the possibility of doing this comes
from the experiences of organizations which have survived for an extended period of time.
It is important to note the distinction here between “management” and managers. Success in
innovation depends upon two key ingredients - technical resources (people, equipment,
knowledge, money, etc.) and the capabilities in the organization to manage them.
“Routines”: “The way we do things around here”. Repetition and reinforcement.
Some routines are better than others in coping with the uncertainties of the outside world, in
both the short and the long term. And it is possible to learn from others’ experience in this way;
the important point is to remember that routines are firm-specific and must be learned.
Successful innovation management routines are not easy to acquire.
We can identify simple archetypes which highlight differences in innovation capability.
- Type A: unaware/passive. They lack the ability to recognize the need for change.
- Type B: reactive. They recognize the challenge of change but are unclear about how to
go about the process in the most effective fashion.
- Type C: strategic. They have a well-developed sense of the need for change and are
highly capable of implementing new projects and take a strategic approach to the
process of continuous innovation. They lack the capabilities for radical innovation.
- Type D: creative. They operate at the international knowledge frontier and take a
creative and proactive approach to exploiting technological and market knowledge for
competitive advantage and do so via extensive and diverse networks.
To measure “success” in innovation: consider the time perspective. The real test of innovation
success is not a one-off success in the short term but sustained growth through continuous
invention and adaptation.
A critical point to emerge from research is that innovation needs managing in an integrated
way; it is not enough just to manage or develop abilities in some of these areas.
Successful innovators acquire and accumulate technical resources and managerial capabilities
over time. At its heart we have the generic process described earlier which sees innovation as
a core set of activities distributed over time.
- Search. Detecting signals in the environment about potential for challenge.
Organizations search in places where they expect to find something helpful.
- Select. Innovation is inherently risky, and even well-endowed firms cannot take
unlimited risks. It is determined by:
● Possible technological and market opportunities - what could we do?
● Distinctive competencies - can we build on our knowledge base?
● Do we want to do it - fit with the overall business?
- Implement. It consisted on turning those potential ideas into some kind of reality - a
new product or service, a change in process, a shift in business model, and so on. We
can explore this phase by considering three core elements:
● Acquire knowledge
● Execute the project
● Launch and sustain the innovation
- Executing the project. It is during this stage that most of the time, costs and
commitment are incurred, and it is characterized by a series of problem-solving loops
dealing with expected and unexpected difficulties in the technical and market areas.
- Launching and sustaining innovation. It brings the need to understand the dynamics
of adoption and diffusion. Making people aware is not sufficient, they need to be drawn
into the process through the other stages. Converting awareness to interest.
Where there is a high degree of uncertainty - as is the case with discontinuous
innovation conditions - there is a particular need for adaptive strategies which stress the
co-evolution of innovation with users, based on a series of “probe and learn”
experimental approaches. The role here for early and active user involvement is critical.
- Capture value. The purpose of innovations is to capture value from them. There are
many ways in which this can be done, from formal methods like patenting through too
much less formal, like the use of tacit knowledge.
- Key contextual influences. Key challenges which emerge in their effective
management. The process doesn’t take place in a vacuum - it is subject to a range of
internal and external influences which shape what is possible and what emerges.
CHAPTER 3: BUILDING THE INNOVATIVE ORGANIZATION
‘People are the greatest asset’. Innovation is increasingly about teamwork and creative
combinations
of
different
disciplines
and
perspectives.
Management challenge: to build organizations in which innovative behaviour can flourish.
3.1 Shared Vision, Leadership and the Will to Innovate
innovation is about learning and change, and it is often disruptive, risky and costly.
Only vision will allow to change mindsets and refocus core competencies.
Leadership creates shared organizational purpose, managers must support long-term projects,
since innovation’s results are uncertain, it may take longer than expected, it may even fail. Risk
acceptance is key to take failure as an opportunity for learning and developing.
A key role of creative leadership is to provide feedback and evaluation, not just generating
ideas. Intellectual stimulation by leaders has a stronger effect on organizational performance
under conditions of perceived uncertainty. Leaders must not only inspire and build confidence
but mainly solve problems, provide consulting and make appropriate strategic decisions.
.
3.2 Appropriate Organization Structure
Success factors for an organizational structure that fosters innovation: smooth information
flows
and
cross-functional
cooperation.
The higher the uncertainty and complexity in the environment, the greater the need for flexible
structures and processes. Fast-growing sectors, like electronics or biotechnology, are often
associated with more organic organizational forms.
Innovation success in mature industries, like food packaging or plastics, depends on having
structures sufficiently differentiated (internal specialist groups) to meet the needs of a diverse
marketplace, while also on being able to link these groups effectively to respond quickly to
market signals. Rapid product innovation and improved customer responsiveness are achieved
through extensive organizational change programmes like parallel working, early involvement
of different functional specialists, closer market links and user involvement.
Organizational structure also varies depending on the nature of the industrial processes,
industries with mass production have more hierarchical and heavily structured forms. (table
3.2)
Key challenge for managing innovation is one of fit- getting the most appropriate structural
form for the particular circumstances.
3.3 Key Individuals
Key figures can play several roles: source of critical technical knowledge (involves
contribution, inspiration, motivation and commitment), and organizational sponsor (has power
and influence in the firm, may not know the details but trusts the projects’ potential).
The role of technological gatekeeper - collects information from various sources and shares it
with relevant people- is key. Knowledge sharing and informal communications are important
for innovation.
3.4 High Involvement in Innovation
Involving all employees in innovation is key for the strategic development of the firm.
Table 3.3 shows how high involvement in innovation in German and Austrian companies led
to 62 ideas for each 100 workers, and savings per implemented idea were 1540$.
The 5-stage-high-involvement innovation model (table 3.4):
STAGE OF DEVELOPMENT
TYPICAL CHARACTERISTICS
1. Natural
Problem solving is random, no strategic
impact, no formal efforts or structure.
2. Structured HII
Formal attempts to create and sustain HII.
Formal problem solving process.
Participation + training in basic HII tools.
Structured idea management system.
Recognition system.
3. Goal-oriented HII
Add formal deployment of strategic goals +
monitoring and measurement of HII +
in-line system
4. Proactive / empowered HII
add responsibility for mechanisms, timing,
etc devolved to problem-solving unit +
high levels of experimentation
5. Full HII capability
HII is dominant, automatic capture and
sharing of learning. Everyone actively
involved in innovation process.
3.5 Effective Team Working
Teams are characterized by common vision and goal. High-performance project teams are a
combination of selection and investment in team building plus clear guidance on their roles and
tasks. Successful firms invest in multiple methods of integrating across groups because crossfunctional teams are one of the most valuable resources.
Key elements in effective high-performance teams:
-
clearly defined goals and tasks + unified commitment
effective team leadership and competent team members + inclusive decision-making
good balance of team roles and match to individual behavioral style
effective conflict resolution mechanisms
continuing liaison with external organization
results-driven structure and external support and recognition
3.6 Creative Climate
Management can influence the firm’s culture by changing structures or processes to reinforce
preferred styles of behaviour (cooperation, innovation…).
Building a creative climate involves systematic development of organizational structures,
communication policies and procedures, reward and recognition systems and training policy.
Innovative organizations reward creative behaviours, encouraging it.
Main climate factors that influence innovation: trust and openness, challenge and involvement,
support and space for ideas, conflict and debate, risk taking and freedom
3.7 Boundary-Spanning
open innovation requires involving suppliers, collaborators, competitors, regulators and many
others. Shared product development projects, strategic alliances, clusters, technological
collaborations, supply chain relationships…
Building and operating these networks requires the following elements:
- key individuals: sponsors, leaders
- facilitation: providing support for the process of networking but not necessarily acting
as members of the network. Neutral roles can help particularly in set-up stages and in
dealing with conflict resolution.
- key organizational roles: regional development agency that organizes a cluster, or a
business association bringing together a sectoral network
CHAPTER 4: DEVELOPING AN INNOVATION STRATEGY
This chapter develops the most useful framework for defining and implementing an innovation
strategy that can cope with ever-changing external environment.
4.1 Rationalist or Incrementalist Strategies for Innovation?
Rationalist Strategy: ‘linear model’ of rational action: analyse the environment, determine the
strategy and act. Corporate equivalent is SWOT. This approach intends to help the firm to:
- be conscious of trends in the competitive environment
- prepare for changing future, focusing sufficient attention on the long term
Incrementalist Strategy: ready to adapt the strategy in the light of new information.
‘Incrementalists’ argue complete understanding of change and environment is impossible.
Implications for Management:
- given uncertainty, explore the implications of a range of possible future trends
- ensure broad participation and informal channels of communication
- encourage the use of multiple sources of information, debate and scepticism
- expect to change strategies in the light of new (and often unexpected) evidence
Innovation ‘Leadership’ vs ‘Followership’
- leadership: firms aim at being first to market, based on technological leadership.
requires strong corporate commitment to creativity and risk taking
- followership: firms aim at being late to market, based on imitating (learning) from the
experience of technological leaders. requires strong commitment to competitor analysis
and cost cutting and learning in manufacturing.
*Blue Ocean (or First Mover) innovation strategy: creation of new market through
differentiation, leads to monopoly. some argue it’s too risky, and that the optimum innovation
strategy is the Fast Second.
4.2 The Dynamic Capabilities of Firms
Learning and Imitating
information on competitors’ innovations is relatively cheap and easy to obtain, but corporate
experience shows knowledge of how to replicate competitors’ product and process innovations
is much more costly and time consuming. Imitation costs between 60-70% of the original and
takes typically 3 years to achieve.
Most effective methods of learning about competitors:
- independent R&D
- reverse engineering
- licensing
- hiring employees from innovating firm
Appropriating the Benefits from Innovation
the capability of a firm to appropriate the benefits of its investment in technology depends on:
the firm’s capacity to translate its technological advantage into commercially viable products
& the firm’s capacity to defend its advantage against imitators.
Nine factors that influence the firm’s capacity to benefit commercially from its technology:
1. Secrecy.
2. Accumulated tacit knowledge (hard to imitate, example: product design skills).
3. Lead times and after-sales service (can establish brand loyalty and credibility).
4. Learning curve (first-comer advantages in certain industries, like semiconductors,
include higher possibilities for reducing unit costs with increasing cumulative
production).
5. Complementary assets or competencies (good assets in production + good
competencies in marketing).
6. Product complexity.
7. Standards (widespread acceptance of a firm’s product standard widens its market and
raises barriers against competitors. Key factors are technological superiority,
complementary assets and credibility of the firm).
8. Pioneering radical new products.
9. Strength of patent protection.
4.4 Technological Trajectories
differences amongst industrial sectors in the sources & directions of technological change:
- Size of innovating firm: typically, big in chemicals, road vehicles, materials processing,
aircraft and electronic products, small in machinery and software.
- Type of product made: typically, price sensitive in bulk materials and consumer goods,
and performance sensitive in ethical drugs and machinery.
- Objectives of innovation: typically, product innovation in ethical drugs and machinery,
process innovation in steel and both in automobiles
- Sources of innovation: suppliers in agriculture and textiles, customers in machinery and
software, in-house technological activities in chemicals, electronics, transport,
machinery and software & basic research in ethical drugs.
- Locus of own innovation: R&D laboratories in chemicals and electronics, production
engineering departments in automobiles and bulk materials, design offices in machine
building & systems departments in service industries (banks, supermarket chains).
Firms can belong to more than one trajectory.
5 major technological trajectories are: supplier-dominated, scale-intensive, science-based,
information-intensive & specialized suppliers (check table 4.7)
4.5 Developing Firm-Specific Competencies
the ability of firms to exploit technological trajectories depends on their specific technological
and organizational competencies and how hard they are to imitate.
Examples of core competencies: Samsung in miniaturization or Canon in the combination of
precision mechanics, optics and microelectronics technologies that underlie all their products.
Core competencies are also communication, involvement and deep commitment to working
across organizational boundaries.
Assessment of the Core Competencies Approach
this approach places the cumulative development of firm-specific technological competencies
at the centre of corporate strategy. It shows that the competence-based view of the firm has
major implications for the organization of R&D, for methods of resource allocation and
strategy determination.
Developing and Sustaining Competencies
how can management identify and develop core competencies?
- Definition and measurement: one possible measure is the level of functional
performance in a generic product, component or subsystem. We distinguish between
assets (IP rights, reputation) and competencies (know-how). The trick is to get the right
balance between exploitation of existing competencies and exploitation and
development of new competencies.
- Top management and ‘strategic architecture’ for the future: the importance of new
technological opportunities and their commercial potential emerge gradually from
incremental corporate-wide process of learning in knowledge building and strategic
positioning., not from a flash of genius (managers predicting future needs or
development).
4.6 Globalization of Innovation
many analysts defend ‘open innovation’ against ‘close/internal innovation’, they argue large
firms’ R&D activities should be globalized to create interfaces with specialized skills and
opportunities at a world level. However, evidence shows the most important factor explaining
each firm’s share of foreign innovative activities is its share of foreign production. On average,
foreign production is less innovation-intensive than home production. Most of the foreign
innovative activities are performed in the USA and Europe (mostly Germany), they are not
globalized. IT advances are more likely to favour the internationalization of production rather
than the process of innovation.
The 2 polar extremes of organizing innovation globally are: specialization-based: firm develops
global centres of innovation in different fields, & integration-based: opposite, network structure
In practice, hybrids of these two structures are common. Main factors influencing the decision
where to locate R&D globally are:
1. availability of critical competencies for the project
2. international credibility (within the firm) of the R&D manager responsible
3. importance of external sources of technical and market knowledge, like suppliers
4. importance and costs of internal transactions, like, between engineering and production
5. cost and disruption of relocating key personnel to the chosen site
4.7 Enabling Strategy Making
successful innovation strategy requires understanding the competitive game (markets,
competitors, external forces...) and the role that technological knowledge plays
Routines to Help Strategic Analysis
Organizations that innovate on impulse are poor performers. Those who understand the overall
business, including their technological competence and desired trajectory, are more likely to
succeed. There are structured methodologies to help firms develop an innovation strategy, like
the SWORD approach to help SMEs find and develop appropriate new product opportunities.
Increasing emphasis is being placed on the role of intermediaries (innovation consultants).
Portfolio Management Approaches
purpose of portfolio management: coherent basis to judge which projects should be undertaken
and to ensure a good balance across the portfolio of risk and potential reward.
3 approaches to the problem of building a strategic portfolio:
- benefit measurement techniques: criteria checklist, weighted comparisons
- economic models: calculating payback time or discounted cash flow of the project
- portfolio models: constructing a matrix measuring risk vs reward of a set of projects
Chapter 4 Summary
Learning from competitors and external sources of innovation is essential for developing
capabilities but requires costly investments in R&D, training and skills development to develop
the necessary absorptive capacity. This partly depends on how management invests in
complementary assets in production, marketing, service and support, and the firm’s position in
local and international systems of innovation. It also depends on factors that make it difficult
to appropriate the benefits from innovation, such as intellectual property and international
trading regimes.
CHAPTER 5: SOURCES OF INNOVATION
Knowledge Push
The process of exploring
knowledge has been a
systematic
activity
involving a wide network
of people sharing their
ideas. Now we are in a
new era in which R&D is
becoming more open and
distributed and the model
of “knowledge push” has a
strong track record.
There is occasional breakthrough and long periods of incremental innovation. Knowledge push
has long been a source of innovative start-ups where entrepreneurs have used ideas based on
their own research (or that of others) to create new ventures.
Need Pull
Knowledge push creates a field of possibilities – but not every idea is successful, as innovation
requires demand to succeed. In innovation management, the emphasis moves to ensuring we
develop a clear understanding of needs and finding ways to meet those needs. Understanding
buyer/adopter behaviour is a key theme in marketing studies since it provides us with
frameworks and tools for identifying and understanding user needs. Advertising and branding
play a key role in this process –using psychology to stimulate basic human needs.
Need-pull innovation is important at mature stages in industry when there is more than one
offering to choose from. There are differences between B2B markets (emphasis on needs
among a shared group) and B2C markets (underlying need are much more basic). There is also
a “bandwagon” effect – the more people involved, the faster the innovation process.
Whose Needs?
Disruptive innovation is associated with entrepreneurs working in a mainstream market and
finding groups whose needs are not being met. Working with these needs creates innovation
options. Low-end market disruption is a threat (producers in China offering products for much
cheaper). This is called “reverse-innovation”.
Toward Mass Customization
Markets are not made up of people wanting the same thing and there is an underlying challenge
to meet their demands for variety and increasing customization. This represents a powerful
driver for innovation. “Mass customization” is the ability to offer highly configured bundles of
non price factors configured to suit different market segments. Service innovations are much
easier to imitate, and the competitive advantage that they offer can be competed away because
there are fewer barriers to entry or options for protecting intellectual property.
Users as Innovators
Understanding what it is that customers need is critical in pursuing a customization strategy
and it leads to the source of innovation in which the users themselves become the source of
ideas. Users are sometimes ahead of the game. Sometimes user-led innovation involves a
community which creates and uses innovative solutions on a continuing basis. Within some
communities, users will freely share innovations with peers, termed “free revealing”.
Participation is driven mostly by intrinsic motivation, such as being able to help others.
Extreme Users
The users in the toughest environments may have needs which by definition are at the edge –
so any innovative solution that meets those needs has possible applications in the mainstream.
Looking for extreme environments or users can be a powerful source in terms of innovation.
Watching Others
Another source of innovation comes from watching others. Much of the rapid progress of Asian
economies was based on a strategy of “copy and develop”, taking Western ideas and improving
them. One variation on this is benchmarking. In this process, enterprises make comparisons
with others to identify new ways of carrying out processes. The learning triggered by
benchmarking may arise from comparing between similar organizations, or it may come from
looking outside the sector but at similar products or processes.
Recombinant Innovation
Recombinant innovation consists in transferring or combining old ideas in new concepts to
generate innovation. A key characteristic of “open innovation” is its emphasis on knowledge
flows in and out of organizations which creates a scope for recombinant innovation. This
innovation is also possible within large organizations where opportunities to use knowledge
created in one area and applied in another can be exploited. Often breakthrough ideas come
about through a process called “bisociation” – the bringing together of apparently unrelated
things, which can be connected and yield an interesting insight.
Design-led Innovation
Design-driven innovation emerges through a design process which seeks to give meaning,
shape and form to products – features and characteristics which clients didn’t know they
wanted. “Experience economy” describes the evolution of innovation from meeting needs
toward creating experiences. In an increasingly competitive world, differentiation comes from
such “experience innovation”.
Regulation
Regulation provides a two-edged sword – it restricts certain things (and closes off avenues
where innovation had been taking place) and opens up new ones along which change will
happen. Deregulation – the slackening of controls – may open up new innovation space.
Regulation can also trigger counter innovation – solutions designed to get round existing rules
(the growth in speed cameras has led to the growth of products for detecting cameras).
Accidents
Accidents and unexpected events happen, but on occasions they can also trigger innovation,
opening up new lines of attack (ex. Fleming’s discovery of penicillin). Using mistakes as a
source of ideas only happens if the conditions exist to help it emerge. Part of the answer is
undoubtedly to create an environment in which there is space and time to experiment and fail.
A Framework for looking at Innovation Sources
The key challenge for innovation management is how to make sense of the potential input, so
there needs to be some underlying strategy to how the search process is undertaken. One
important question is the relative importance of the push or pull forces. Innovation is not a
matter of push or pull but rather their interaction. These direct our attention in two
complementary directions – creating possibilities and identifying and working with needs.
Another key dimension is around incremental or radical innovation. Most of the time
innovation is about exploiting and elaborating, but occasionally there is a breakthrough which
creates a new trajectory. So, much of our attention in searching for innovation triggers will be
around incremental improvement innovation.
A third issue is around timing – at different stages in the product life cycle the emphasis may
be more or less on push or pull. Mature industries will tend to focus on pull. By contrast a new
industry is often about solutions looking for a problem.
A fourth issue is around diffusion – the adoption and elaboration of innovation over time.
Innovation adoption is a process which takes place gradually over time. Lead users and early
adopters are important sources of ideas which can help shape an innovation in its early life,
whereas the early and late majority will be more a source of incremental improvement ideas.
How to Search
The challenge in managing innovation is how to find the relevant triggers early and well enough
to do something about them. Building rich and extensive linkages with potential sources of
innovation is important. There are also arguments for keeping a closed approach – because the
information collected can then be exploited in ways that the business can control. In “open
innovation”, organizations move to a more permeable view of knowledge in which they
recognize the importance of external sources and make their knowledge more available.
Absorptive Capacity
Where, when, and how organizations make use of external knowledge to grow has been termed
“absorptive capacity”. The concept is described by Cohen and Levinthal as “the ability of a
firm to recognize the value of new, external information, assimilate it, and apply it to
commercial ends” and “largely a function of the firm’s level of prior related knowledge”.
AC is essentially about accumulated learning and embedding of capabilities – search, acquire,
assimilate – in the form of routines that allow organizations to repeat the trick. Firms differ in
their levels of AC, and this places emphasis on how they develop and establish these routines
– their ability to learn. Developing AC involves two kinds of learning. Adaptive learning which
is about reinforcing and establishing relevant routines for dealing with a level of environmental
complexity, and generative learning for taking on new levels of complexity.
Tools and Mechanisms to Enable Search
Firms deploy a range of approaches to organizing and managing the search process. R&D units
can be structured to enable a balance between applied research (supporting the “exploit”
search) and wide-ranging, “blue sky” activities (facilitate the “explore” side of the equation).
Managing Internal Knowledge Connections
Much of the knowledge lies in the experience and ideas of “ordinary” employees rather than
with specialists in innovation departments. Organizations try to tap into such knowledge as a
source of innovation via various forms of what can be termed “high-involvement innovation”
systems such as suggestion schemes, and problem-solving groups.
Extending External Connections
Spreading the net widely is established in innovation studies as a success factor – and places
emphasis on building strong relationships with stakeholders. This shows the need for better use
of existing mainstream innovation agents and for establishing new roles or structures.
Sending Out Scouts
This is a strategy that involves sending out people to search for new ideas to trigger the
innovation process. They could be searching for technological triggers, emerging markets or
trends, competitor behaviour, etc. Search is not restricted to the organization’s particular
industry as the fringes of an industry or currently entirely unrelated fields can be of interest.
Exploring Multiple Futures
Views of how the world might develop are being constructed by using a wide and diverse set
of inputs rather than the narrow frame of reference that the company staff might bring. Another
related approach is to build “concept” models to explore reactions and provide a focus for
various different kinds of inputs that might shape future products and services.
Two Dimensions of Innovation Search
The problem is not just that firms fail to get the balance between exploit and explore right but
also because of the overall direction of search. Many industries have high rates of R&D
investment that go on to push technological frontier even further – resulting in “technology
overshoot”. This is not a lack of search but rather a problem of direction.
The search space is not one-dimensional. Innovation rarely involves dealing with a single
technology or market but rather a bundle of knowledge which is brought together into a
configuration. Successful innovation management requires that we can get hold of knowledge
about components but also about how they can be put together – architecture of innovation.
A Map of Innovation Search Space
In summarizing the different sources of innovation and how we might manage the process of
searching for them, we can use a map. The vertical axis refers to the “incremental/radical”
dimension in innovation, while the second related to environmental complexity – the number
of elements and their potential interactions.
Using this idea of different “frames”, we can explore four zones shown in the figure, which
have different implications for the ways in which innovation is managed.
CHAPTER 6: INNOVATION NETWORKS
It’s easy to think of innovation as a solo act, but taking any good idea forward relies on all sorts
of inputs from different people and perspectives. Increasingly it’s also about links between
organizations, developing and making use of increasingly wide networks.
The “Spaghetti” Model of Innovation
Innovations be a core process with a defined structure and a number of influences. The ways
knowledge flows around an innovation project are complex and interactive, woven together in
a kind of “social spaghetti” where different people talk to each other in different ways and
about different things.
As the innovation becomes more complex, the networks have to involve more different players,
many of whom lie outside the firm. We shouldn’t forget the importance of managing this
“knowledge spaghetti” within the organization. Recent years have seen an explosion of interest
in “knowledge management”, and attention has focused on mechanisms to enable better flow
such as communities of practice, gatekeepers, and social network analysis.
Innovation Networks
A network can be defined as “a complex, interconnected group or system”, and networking
involves using that arrangement to accomplish particular tasks. Networks have been claimed
by some to be a new hybrid form of organization that has the potential to replace both firms
and markets, whereas others believe them to be simply a transitory form of organization.
The following figure presents a framework for the analysis of different network perspectives.
A network can be thought of several nodes, occupied by individuals, firms, and links between
these nodes. A network is concerned with how these economic actors are influenced by the
social context in which they are embedded and how actions can be influenced.
The position an organization occupies in a network is of great strategic importance and reflects
its power and influence in that network. Sources of power include technology, expertise, trust,
economic strength, and legitimacy. Networks can be tight or loose, depending on the quantity,
quality and type of the interactions or links.
Networks are appropriate where the benefits of co-specialization, sharing of joint
infrastructure, and other network externalities outweigh the costs of network governance and
maintenance. Where there are high transaction costs involved in purchasing technology, a
network approach may be more appropriate than a market model.
Organizational networks have two characteristics that affect the innovation process: activity
cycles and instability. The existence of activity cycles and transaction chains creates constraints
within a network. Different activities are systematically related to each other and through
repetition are combined to form transaction chains. This repetition of transactions is the basis
of efficiency, but systematic interdependencies create constraints to change.
A study of networks found two distinct dynamics of formation and growth. The first type of
network emerges and develops as a result of environmental interdependence, and through
common interests – an emergent network. However, the other type of network requires some
triggering entity to form and develop – an engineered network.
In a closed network a company seeks to develop proprietary standards through scale economies
and other actions, and thereby lock customers and other related companies into its network. In
the case of open networks complex products and businesses have to interface with others and
it is in everyone’s interest to share information and to ensure compatibility.
Innovation networks can also have what are termed “emerging properties” – that is, the
potential for the whole to be greater than the sum of its parts. Being in an effective innovation
network can deliver a wide range of benefits beyond the collective knowledge.
Networks at the Start-up: While individual ideas are key requirements, most successful
entrepreneurs recognize the need to network extensively and to collect the resources they need
via complex webs of relationships. They are essentially highly skilled at networking, both in
building and in maintaining those networks to help build a sustainable business model.
Nowhere is this more clearly seen than in the case of social entrepreneurship where the
challenge is to mobilize a wide range of supporting resources often at low or no cost – and to
weave them into a network which enables the launch of a new idea.
Networks on the Inside
Most large organizations have many people spread across their organizations with all sorts of
knowledge. The trouble is that many of these knowledge elements remain unconnected with
only a small number of pieces that have been fitted together. Increasingly firms are recognizing
that the real need is for improved knowledge networks inside the organization.
It’s back to the spaghetti model of innovation – how to ensure that people get to talk to others
and share and build each other’s ideas. Research by Tom Allen highlighted the importance of
physical connections between people; the famous “Allen curve” shows a strong negative
correlation between physical distance and frequency of communication between people.
Networks on the Outside
There has been an acceleration toward “open innovation”. The idea behind this is that even
large-scale R&D in a closed system isn’t going to be enough in the twenty-first century
environment. The logic of open innovation is that organizations need to open up their
innovation processes, searching outside their boundaries and managing a rich set of network
connections right across the board.
Networks into the Unknown
Much of the time the challenge in innovation is continuously improving products and services
and enhancing processes. When discontinuous events occur existing players often perform
badly, and it is the new entrant firms who succeed. Part of the problem is the commitment to
existing networks by established players. Long-term relationships are recognized as powerful
positive resources for incremental innovation.
The challenge facing firms in building new networks can be broken down into two separate
activities: identifying the relevant new partners and learning how to work with them. Once the
necessary relationships have been built, they can then be converted into high-performing
partnerships. It’s a three-stage process: finding, forming, and performing. When these aspects
are set against each other, four separate approaches can be identified.
● Zone 1 represents the
challenge of creating new networks with potential partners that are both easy to find
and keen to interact.
● Zone 2 places the emphasis on new network partners. The barriers here are ethnic,
geographical, and institutional, and the challenge is to locate the right organizations.
● Zone 3 is where the potential partners are easy to find but may be reluctant to engage.
This might occur for ideological reasons, or because of institutional barriers.
● In Zone 4 potential partners are neither easily identified nor keen to engage. One
approach is gradually to reduce the reluctance by breaking down the institutional or
demographic barriers that separate them from pushing the prospective relationship.
Managing Innovation Networks
The challenges of managing innovation networks include how to:
●
●
●
●
Manage something we don’t own or control
See system level effects not narrow self-interests
Build trust and shared risk-taking without trying the process up in contractual red tape
Avoid “free riders” and information “spillovers”
CHAPTER 7: DECISION MAKING UNDER UNCERTAINTY
7.2 Meeting the challenge of uncertainty
Innovation management: converts uncertainty to a calculated risk, no guarantee of success
but attempt to review options and assign probabilities.
However, assessment of risk is based on limited info.
Incremental innovation: safer. Do what we do, better. Use prior info
Radical innovation: riskier. Do something completely different. Lack of info
7.3 Funnel of uncertainty
Knowledge converts uncertainty to risk. Challenge? Invest in acquitting knowledge that feeds
decision making process.
Innovation: process of reducing uncertainty and increasing resource commitment
Innovation funnel: roadmap to make (and review) decisions about resource commitment
Outline
concept
Detailed
design
Testing
Launch
Stage-gate system: make stepwise decisions, each commitment + resources only happen if
risk/reward assessment justifies. Putting gates at key stages, reviewing progress and if it
passes, gate opens. Configure to particular contingencies of the company.
7.4 Decision making for incremental innovation
When deciding about incremental innovation, the process is relatively straightforward,
compare new with existing, set up criteria and measure, risks calculated and relevant info
collected.
An area where systematic management of incremental innovation becomes important is
‘High involvement’ systems, a large proportion of the workforce is engaged in innovation. A
cumulative effect can lead to too many suggestions. Solution? Policy development:
developing top-level innovation strategy to lower levels allowing to make decisions. Strategic
focus in small scale innovation activities. This requires 2 key enablers: 1. Clear and coherent
strategy and 2. Development of a cascade process which builds understanding and
ownership of the goals and sub-goals.
Usually, overall business strategy is broken down in Mid-Term Plans (MTP), backdrop
against which efforts in the next 3 years can be focused. MTP is specified in specific and
measurable goals or pillars, decomposed in manageable projects. When facing mass
collaboration, managers can engage the community itself in rating and commenting ideas.
7.6 Building coalitions
Problems rise from multifunctional nature of development and lack of shared perspectives.
Coalitions require early involvement of key users and their perspectives to improve overall
performance and acceptability of process operation.
Increasing use of open-innovation -> engaging stakeholders communities
CHAPTER 8:
CHAPTER 9: CREATING NEW PRODUCTS AND SERVICES
9.1 Processes for New Product Development
One of the key challenges facing the organization of new product and process development is
that most organizations have not evolved or been designed to do this, but are structured for a
different purpose, So, the first decision is what sort of team to put together to do this.
The choice is between functional teams, cross-functional project teams or a matrix between the
two. Studies of new product development suggest four main types of team structure:
❏ Functional structure – hierarchical structure where communication between functional
areas is handled by function managers according to standard procedures.
❏ Lightweight product manager structure – a traditional hierarchical structure but where
a project manager provides a coordinating structure to the interfunctional work.
❏ Heavyweight product manager structure –a matrix structure led by a product manager
with extensive influence over the functional personnel but also in strategic directions
of the contributing areas critical to the project.
❏ Project execution teams – a full-time project team where functional staff leave their
areas to work on the project, under project leader direction.
As projects move through the development process, there are a number of discrete stages, each
with different decision criteria which they must pass. The development of a new product is
complex, which makes it difficult to model. Simplified four-stage model:
1. Concept generation – identifying the opportunity for new products and services.
2. Project assessment and selection – screening and choosing projects which satisfy
certain criteria.
3. Product development – translating the selected concepts into a physical product.
4. Product commercialization – testing, launching and marketing the new products.
Concept Generation
The strategy to adopt to identify new product concepts is dependent on the novelty of the new
product. For incremental adaptions or product line extensions, “market pull” is the preferred
route, as customers are familiar with the product type and will be able to express preference
easily. However, there are many needs that the customer may be unaware of and in these cases
the balance shifts to a “technology-push” strategy.
Project Selection
Two costs of failing to select the “best” project set are: the actual cost of resources spent on
poor projects; and the opportunity costs of marginal projects which may have succeeded.
There are two levels of filtering. The first is the aggregate product plan, in which the new
product development portfolio is determined. The first step is to ensure resources are applies
to the appropriate types and mix of projects. The second step is to develop a capacity plan to
balance resource and demand. The final step is to analyse the effect of the proposed projects
on capabilities, to ensure this is built up to meet future demands.
The second level filters are concerned with specific product concepts. The two processes at this
level are the development funnel and the stage-gate system. The development funnel is a means
to identify, screen, review and converge development projects as they move from idea to
commercialization. The stage-gate system provides a formal framework for filtering projects
based on explicit criteria.
Product Development
It is at the working level, where the product is actually developed and produced. When a gap
appears between the current design and the requirement, the team must take action to close it.
How this is achieved determines the speed and effectiveness of the problem-solving process.
Product Commercialization and Review
Often the process of new product development blurs into the process of commercialization. For
example, customer co-development and test marketing yield data on customer requirements
and any problems encountered in use, but also help to prime the market.
Factors Influencing Product Success
● Product advantage – product superiority in the eyes of the customer, real differential
advantage, high performance-to-cost ratio, etc.
● Market knowledge – better predevelopment preparation including initial screening,
preliminary market assessment, detailed market studies and business analysis.
● Clear product definition – defining target markets, clear concept definition and benefits
to be delivered, clear positioning strategy, list of product requirements, etc.
● Risk assessment – market based, technological, manufacturing and design sources of
risk to the development project must be assessed, and plans made to address them.
● Project organization – the use of cross-functional, multidisciplinary teams carrying
responsibility for the project from beginning to end.
● Project resources – enough financial and material resources and human skills must be
available; the firm must possess the skills to design and develop the new product.
● Proficiency of execution – quality of technological and production activities, and all
pre-commercialization business analyses and test marketing.
● Top management support – from concept through to launch. Management must be able
to create an atmosphere of trust, coordination, and control.
The most common factors that contribute to successful product development, focusing on
“blockbuster” products – more radical and successful than most new products are:
➢
➢
➢
➢
➢
Commitment of senior management.
Clear and stable vision.
Improvisation.
Information exchange.
Collaboration under pressure.
9.2 Influence of Technology and Markets on Commercialization
Before applying the standard marketing techniques, we must have a clear idea of the maturity
of the technologies and markets. The figure presents a two-by-two matrix, with technological
maturity as one dimension, and market maturity as the other. Each quadrant raises different
issues and will demand different techniques for development and commercialization:
❏ Differentiated: technologies and markets are mature, and most innovations consist of
the improved use of existing technologies to meet a known customer need. Products are
differentiated on the basis of packaging and pricing.
❏ Architectural: existing technologies are applied or combined to create novel products
or new applications. Competition is based on specific market niches and on close
relations with customers. Innovation typically is in collaboration with potential users.
❏ Technological: novel technologies are developed which satisfy known customer needs.
Products compete on performance. Innovation is driven by developers.
❏ Complex: technologies and markets are novel and co-evolve. There is no defined use
of new technology, but developers work with lead users to create new applications.
9.3 Differentiating Products
Differentiation measures the degree to which competitors differ from one another in a specific
market. Markets in which there is little differentiation are characterized by low profitability,
whereas differentiation on the basis of relative quality is a predictor of high profitability.
➢ High relative quality is associated with a high return on sales. Businesses with higher
quality are able to demand higher prices than their competitors. Higher quality helps
reduce costs by limiting waste and improving processes. Companies benefit from both
higher prices and lower costs than competitors, thereby increasing profit margins.
➢ Good value is associated with increased market share. High quality at a high price
represents average value, but high quality at a low price represents good value.
➢ Product differentiation is associated with profitability. Differentiation is defined in how
competitors differ from each other within a particular product segment. It can be
measured by asking customers to rank the individual attributes of competing products.
Quality function deployment (QFD) is a technique for translating customer requirements into
development needs, and encourages communication between engineering, production, and
marketing. It is used to identify opportunities for product improvement or differentiation.
The construction of a QFD matrix involves the following steps:
1.
2.
3.
4.
Identify customer requirements, primary and secondary, and any major dislikes.
Rank requirements according to importance.
Translate requirements into measurable characteristics.
Establish the relationship between the customer requirements and technical product
characteristics and estimate the strength of the relationship.
5. Choose appropriate units of measurements and determine target values based on
customer requirements and competitor benchmarks.
9.4 Building Architectural Products
Architectural products consist of novel combinations of existing technologies that serve new
markets or applications, the critical issue is to identify or create new markets segments. The
goal is to segment a market into sufficiently small and isolated segment which can be
dominated. Market or buyer segmentation is the process of identifying groups of customers
with sufficiently similar purchasing behavior.
Segmenting customer markets
Utilitarian theories assume that consumers are rational and make purchasing decisions by
comparing product utility. This model suggests phases in the purchasing decision: problem
recognition, information search, evaluation of alternatives and finally the purchase. However,
such rational processes do not appear to have much influence on actual buying behavior.
Behavioral approaches have greater explanatory power, buying decision follows a sequence of
changing attitudes o a product awareness, interest, desire and finally action. In practice the
balance between rational and behavioral influences will depend on the level of customer
involvement. Buying an aircraft or machine tool is different from the process of buying a
toothpaste or shampoo. Many purchasing decisions involve little cost or risk, and therefore low
involvement.
Segmenting business markets
Business customers tend to be better informed than consumers and make more rational
purchasing decisions. Business customers can be segmented on the basis of common buying
factors or purchasing process. Segmentation process is complicated by the number of people
involved: the actual customer, the ultimate users of the product, gatekeepers, who control the
flow of information to the buyers and users & influencers, who may provide technical support.
The most common basis of business segmentation is by the benefits customers derive from the
product, process or service. Customers may buy the same product for every different reasons.
Three stage segmentation process for identifying new business markets:
1. Segmentation based on the functionality of the technology, mapping functions against
potential applications
2. Behavioral segmentation to identify potential customers with similar buying behavior
3. Combine the functional and behavioral segmentation in a single matrix
Much of conventional market research is concerned with identifying the existing needs of
customers and matching these to existing technological solutions, in this case the search must
be extended. 3 phases of analysis:
1.
cross-functional teams used to generate new product concepts by means of
brainstorming
2.
these concepts are refined and evaluated, using techniques such as QDF
3.
parallel prototype development and market research activities
An initial product introduction, or core product, can be extended in several ways:
•
An enhanced product, which includes additional distinctive features designed for an
identified market segment.
•
An up-market extension
•
A down market extension
•
Custom products with additional distribution features required by a specific customer
or distribution channel
•
A hybrid product produced by merging two core designs to produce a new product.
As we discussed in chapter 2, Clayton Christensen distinguishes between two types of
architectural innovation.
1. sustaining innovation, improves existing product functionality.
2. disruptive innovation, appeal to a very different segment of the market, likely to
underperform.
A strategy of ever-faster new product development and introduction is not sustainable, the
aim should be to achieve an optimum balance between platform change and new product
based on existing platforms.
Product strategies in services
Services differ from manufactured goods in many ways, we found that a strategy of rapid,
reiterative redevelopment (RRR) was associated with higher levels of new service development
success and higher service quality.
9.5 Commercializing technological products
In technological products the key issue is to identify existing applications where the technology
has a cost or performance advantage. There are two stages to identify potential applications
and target customers: technical and behavioral. Typically, technical segmentation begins with
a small group to identify differences and similarities. Next a behavioral segmentation is carried
out to find three or four groups of customers with similar situations and behavior. Finally, the
technical and behavioral segments are combined. Several features are unique to the marketing
of high-technology products:
•
buyers’ perceptions of the rate of change of the technology affects buying behavior.
•
organizational buyers may have strong relationships with their suppliers
figure 9.9
Identifying potentially disruptive innovations
Segmentation of markets by products attributes or type of customer will fail to identify
potentially disruptive innovations. They recommend circumstance-based segmentation, which
focuses on the job to be done by an innovation.
9.6 Implementing complex products
Complex products or systems are a special case in marketing because neither the technology
nor markets are well defined or understood. We are concerned here with cases where both
technologies and markets are complex, distinction between consumer and industrial marketing
is therefore unhelpful.
The commercialization process for complex products has certain characteristics common to
consumer and business markets:
•
products have large number of interacting components and subsystems
•
technical knowledge is greater but there is a burden to educate potential users.
•
long-term commitment
•
buying a process is often lengthy
Links between developers and users
Development and adoption process for complex products, processes and services is particularly
difficult. The choice of suppliers is likely to be limited, more an oligopolistic market than a
truly competitive one. There will be a greater burden on developers to educate potential users
(expeditionary marketing).
The relationship between developers and users will change thought-out the development and
adoption process. Three distinctive processes need to be managed: development, adoption and
interfacing.
2 dimensions help determine the most appropriate relationship between developers and users:
the range of different applications for an innovation, and the number of potential users of each
application. Different scenarios:
•
few applications and few users, direct face-to-face negotiation
•
few applications, but many users, careful segmentation, but little interaction with users.
•
many applications, but few users, avoid optimization of the technology for one group
at the expense of others.
•
many applications and different users, developers must work with multiple archetypes
of users and therefore aim for the most generic market possible, customized for no one group.
the uncertainty of new product success
contrary to expectations, three groups of factors did not increase the accuracy of predicting new
product sales:
1.
a firm general experience
2.
high technological competences
3.
customer involvement and strong network in new product development
Adoption of complex products
Perceived risk is a function of buyers’ level of uncertainty. There are two types of risk:
the performance risk, that is the extent to which the purchase meets expectations, and the
psychological risk associated with how other people in the organization react to the decision.
For complex products there is a greater uncertainty. Three factors are likely to affect the
purchase decision in an organization:
1.
political and legal environment
2.
organizational structure and tasks
3.
personal roles and responsibilities
9.7 Service innovation
Employment trends indicate a move away from manufacturing, towards a range of services.
Returns on investment on IT alone are around 15% with a typical lag of two to three years. In
the service sector the impact of innovation on growth is generally positive, except for financial
services.
figure 9.11 pg 447
Great care needs to be taken when making any generalization about the service sectors. Some
fundamental differences between manufacturing and service operations:
•
tangibility
•
perceptions of performance and quality, perceptions of service quality are affected by:
tangible aspects, responsiveness, competence, assurance and empathy.
•
simultaneity, services are produced an almost immediately consumed
•
storage, services cannot usually be stored
•
customer contact, services demand more contact between the operations and customer
•
location, location of service operations is often more important than for operations
which produce goods.
Common characteristics of service innovators: have experienced entry into their markets by a
significant new competitor, more likely to compete in international open markets, tend to avoid
overcomplicating their customer base.
High innovators tend to focus their purchase on fewer, larger suppliers, and are less vertically
integrated-and therefore focused on fewer internal processes within the overall value chain.
They go for growth rather than to exploit it for maximum immediate profits.
picture pg 450
Types of service organization for innovation
We studied over 100 service organizations to identify the relationships between service
strategy, processes for service development, organization, technologies and performance.
We found four distinct patterns which offered different advantages.
1. client project oriented
Project leaders organize the involvement of everyone early on t reduce handovers. Enabling
control over the development and delivery of customer-focused services, it can achieve high
levels of service delivery, and on time to market and cost reduction.
2. mechanistic organization
This is organized by the involvement of external customers in product development and
delivery process decisions. Standardization is a key factor in controlling the relationship the
relationship, and electronic links are used to exchange data with customers and suppliers.
3. Hybrid knowledge sharing
In this type of organization people are cross trained, co-rewarded and organized in groups,
which reinforces their team identity. Electronic tools are distributed to all and enable team
members to map processes, share best practices and communicate lessons learned online.
4. integrated innovative
The integrated innovative organization is characterized by co-located, cross-functional teams
in a flattened hierarchy. Communications are open regardless of rank, both face to face and via
email. Responsibility for work is shared and partnering is practiced throughout the value chain.
Different specialists are designated to work on the same project simultaneously. None of these
is optimal in every context. The integrated innovative is the most innovative, the mechanistic
customization is the most cost efficient, hybrid knowledge sharing is best for overall
performance, and the client project orientated is the best at service delivery.
Each of the four organizational configurations provide several common elements:
•
organizational mode of bringing people together
•
control mechanisms, either impersonal or interpersonal
•
shared knowledge and or technical information base
•
external linkages
figure 9.12 page 454
-
CHAPTER 10: EXPLOITING OPEN INNOVATION AND COLLABORATION
10.1 Joint Ventures and Alliances
Why collaborate?
- Reduce cost of technological development or market entry
- reduce risk of development or market entry
- achieve scale economies in production
- reduce time taken to develop and commercialize new products
- promote shared learning
⇢Rate of tech change + increasingly complex nature of tech. = fewer organisations can
maintain in-house expertise in every relevant technical area.
⇢Two factors to decide whether to “make or buy” a technology:
- Transaction costs: Focused on organizational efficiency especially when uncertainty
/ Sellers of technological know-how engage opportunistic behaviour / it’s difficult to
assess performance / require closer relationship between buyer and seller / acquisition
depends on maturity, technological position and strategic significance of the tech. / Not
most significant factors affecting decision.
- Strategic implications: Long-term organization effectiveness / Competitive
advantage, market expansion and extending product portfolios = important factors /
Associated into increasingly complex tech.
Neither explains behaviour, to some extent they are complementary.
⇢Potential risks of collaboration:
- leakage of info
- loss of control or ownership
- divergent aims and objectives = conflict
⇢High collaboration = information / communication tech and biotech industries
Low collaboration = mature sectors
Forms of Collaboration
⇢Joint Ventures: Agreement between two or more firms to co-develop a new technology or
product. Two types of Formal JV: 1) New company formed by 2 or + separate organizations,
they allocate ownership based on shares of stock control. 2) Simple contractual basis for
collaboration.
⇢Research consortia: Focus on basic research issues
⇢Strategic Alliance: Near-market development projects. Specific end goal and timetable. Not
form of a separate company. Strategies to exploit motives:
- Build critical mass through co-option → through temporary alliances with competitors,
customers or companies. Groups relative weak companies to challenge a dominant
competitor. But, unstable and transitory.
- Reach new markets leveraging co-specialized resources → Partners from different
sectors bring together competencies to create opportunity to enter new markets. Risk
that tech becomes redundant.
- Gain competencies through organizational learning
Reasons for the increase of strategic alliances VS joint ventures:
- Speed → transitory alliances VS careful planning
- Partner fit → network VS dyadic fit
- Partner type → complementarity VS familiarity
- Commitment → aligned objectives VS trust
- Focus → few, specific tasks VS multiple roles
Patterns of collaboration
Two approaches to study collaboration:
- Based on aggregate data and examines patterns within and across sectors → provide
insight on how market charac. affect level type and success of collaboration.
- Based on structured case studies of specific alliances usually within specific sector →
provide insight into problems and management collaboration.
⇢Large firms→ use of joint ventures to acquire technology
Smaller firms→ To acquire market knowledge and financial support.
⇢Domestic alliances increased faster than international ones
⇢Collaborating with domestic firms = access to technology / Cross-border alliances = market
access.
Effects of Technology and Organization
Two dimensions affecting companies’ attitudes towards technology acquisition:
1)Characteristics of technology
⇢Competitive significance
Most important factor influencing companies’ decisions: best way to acquire a given
technology. / Some maintain in-house expertise; others use universities or JV to do research.
Most acquire base tech externally or by cooperative efforts.
Some companies’ tech are the core competencies for other firms = acquire pieces of base
tech. from them.
⇢Complexity of the technology
Not practical to maintain all skills in-house / to stay forefront → leverage in-house
competencies to external ones.
Exploration alliances = predict products in development = exploitation alliances = predict firm’s
products in the market
JV→ high organizational costs + more complex and risky projects
⇢Codifiability of the Technology
More knowledge codifiable = easier to transfer = faster and extensive diffusion / Preferable to
develop tacit tech in-house → provide a more durable source of competitive advantage than
the easily codified
⇢Credibility Potential
Significant factor → credibility given to a company by a tech. or by the source of the tech. /
important value if credibility from govts, customers, analysts, etc
2)Organization’s inheritance
⇢Corporate Strategy
Degree to which company strategy dictates pursuing a technological differentiation policy or
leadership. / Some adopt policy of intervention in the tech supply market until it’s sufficiently
competitive to ensure sources of tech.
⇢Firm competencies
Organization’s internal technical capabilities / If weak =acquire from outside / If strong in-house
= favour internal development + control + faster
⇢Company culture
Underlying values and beliefs / Cultures can determine the view of external technology
developments and open or limit the potential for learning from outside.
⇢Management comfort
Multifaceted / More comfortable managers are with a technology = more likely it’s developed
in-house.
⇢Managing alliances for learning
Alliances can be an opportunity to internalize a partner’s know-how, although it is risky, less
than half achieve their goal. Both partners must be strong financially and in their contribution
to the venture. Alliances of equal partners tend to be more successful; 50-50 ownership is
twice as likely to succeed as other ownership structure. This is because alliances demand
continuous consultation and communication, to help anticipate and solve potential conflicts
and problems of strategic divergence. Three sources of strategic conflict between parent firms:
product strategy, market strategy and pricing policy. Partners should need each other’s
knowledge and they must specify mutual expectations of contributions and benefits. They
should agree on a business plan, including contingencies for possible dissolution, but allow
flexibility for the goals and structure to grow.
- The success of an alliance depends on operational factors (clear goals and
responsibilities) and people-related factors (commitment, communication and trust),
rather than strategic factors such as technological, market or product fit.
- Main factors influencing success (according to survey in table 10.5): establishing
ground rules, people factors, process factors, ensuring equality and clearly defined
objectives agreed by all parties.
- Most common problems: poor communication (quality and frequency) and cultural
conflicts.
- 3 factors that affect learning through alliances: intention, transparency and receptivity.
Intention: propensity to learn new skills, rather than to gain access to partner’s assets.
Transparency: openness of each partner, therefore the potential for learning.
Receptivity:
partners
capacity
to
learn
from
each
other.
Organization structure and culture will determine absorptive capacity in interorganizational learning, while British and American firms focus on legal and financial
aspects, French, German and Japanese are more likely to exploit learning
opportunities.
10.2 Collaborating with suppliers to innovate
Alliances can be horizontal or vertical.
Horizontal: cross licensing, consortia and collaboration with potential competitors.
Main motive: access to complementary tech or market know how
Vertical: subcontracting and alliances. Main motive: cost reduction
Subcontracting or outsourcing non-core activities has become popular for its
potential to save costs. Resource dependence and agency theory are commonly used to
explain vertical relationships, related with the need to control key technologies in the value
chain. Closer links between firms, their suppliers and customers may help reduce cost of
components through specialization and sharing information on costs. The quality of the
relationship with suppliers and the timing of their involvement in development are critical
factors. The ‘partnership’ model is based in long term relationships where suppliers make
significant contribution to product development. This model increases visibility of costperformance trade-off, reduces the time to market and improves the integration of
component technologies.
Different types of relationships are appropriate in different circumstances (figure 10.3).
Vertical axis: objective, goal of the relationship
Horizontal axis: all suppliers have similar performance, one is clearly superior or they all
differ greatly under different conditions.
ADD FIGURE 10.3
First bubble: B2B intranet exchange or club. Savings of 5-10% are typical of such
exchanges, but most significant savings are in transaction costs rather than the goods
purchased. Transaction costs can be just 10% of conventional supply chains. Attempt to
exploit buyer power and make supplier prices more transparent.
Second bubble: bases on the quality and development lead time benefits experienced by
Japanese manufacturers of consumer durables, specifically cars and electronics. The
characteristics of this partnership or lean supply relations are: fewer suppliers but long term
relations, greater equity, focus on value flows, vendor assessment plus development and
mutual learning. Result: reduction in inventory held by customers of 90% and tool
development time reduction by 70%. Greater strategic significance. Suppliers are vulnerable
since sales are dominated by few key customers.
Third bubble: loose coupling is appropriate where multi technology products are
characterized by uneven rates of advance in the underlying technologies and consultants
and systems integrators act as a buffer between the suppliers and users of the technology.
For suppliers, technological competencies and problem-solving capabilities are associated
with gross margins and larger share of overseas business.
Some management practices found to contribute to a supplier relationship for new product
development: strength of supplier’s top management commitment, direct cross functional
intercompany communication, strength of customer's top management commitment,
familiarity with supplier’s capability prior to project and customer requirements information
sharing.
The list suggests better practices are related to partnership, commitment and
communication, but unbundled these practices from the need of long term stable co
dependent relationships.
10.3 User-Led Innovation
where potential users have high levels of sophistication, for example, B2B markets with
scientific instruments, capital equipment or IT systems, lead users can help co-develop
innovations. Characteristics of lead users:
●
●
●
●
recognize requirements early
expect high level of benefits
develop their own innovations and applications
perceived to be pioneering and innovative
those seeking to develop innovative complex products should identify potential lead users
with such characteristics. Those lead users should be early adopters too, in order to provide
insights to forecast the diffusion of innovations
10.4 Benefits and Limits of Open Innovations
Open innovation can also be applied to the later stages of the innovation process, including
development and commercialization. Firms could acquire valuable resources from external
firms and share internal resources for new product/service development. The question of when
and how a firm sources external knowledge and shares internal knowledge is less clear. We
need to explore the different degrees and types of openness and the extent to which a firm
can benefit from external and internal resources and knowledge in the innovation process.
Issues to manage:
●
●
●
●
conditions and context, such as environmental uncertainty and project complexity
control and ownership of resources
coordination of knowledge flows
creation and capture of value
PRINCIPLES OF OPEN
INNOVATION
Tap into external knowledge
POTENTIAL
BENEFITS
Increase
the
knowledge
pool
CHALLENGES
TO APPLY
of How to search for and
identify relevant knowledge
sources
External R&D has significant Reduce reliance on limited How to share or transfer
value
internal knowledge
such knowledge
Do not have to originate Can reduce the cost and Need
sufficient
R&D
research to profit from it
uncertainty associated with capability to evaluate and
internal R&D
adapt external R&D
Building better business Better balance of resources First mover advantages
model is superior to being to search and identify ideas, depend on technology and
rather than generate
market context
first to market
Best use of internal and Greater
emphasis
external
ideas,
not capturing
rather
generation of ideas
creating value
on Developing
a
business
than model
demands
timeconsuming negotiation
Profit from others intellectual Value of IP very sensitive to Generating ideas is only a
property
complementary capabilities small part of the innovation
(brand, sales network…)
process.
most
ideas
unproven or no value, cost of
evaluation and development
high. Conflicts of commercial
interest or strategic direction.
Negotiation of IP licenses.
CHAPTER 11: EXPLOITING ENTREPRENEURSHIP AND NEW VENTURES
Ventures are a range of different ways of developing innovations, alternative to conventional
internal processes for new product or service development.
Joint ventures and alliances involve working with external partners that will demand some
release of control and autonomy, but in return introduce the additional competences of the
partners. Spin-out or new venture businesses are the extreme case.
The creation of a venture is the interaction of individual skills and disposition and the
technological and market characteristics. Factors which affect the likelihood of establishing a
venture includes family background, religion, formal education and early work experience,
psychological profile.
Entrepreneurs are typically motivated by a high need for achievement (so-called “n-Ach”),
rather than a general desire to succeed. A person with a high n-Ach:
- likes situations where it is possible to take personal responsibility for finding solutions
to problems
- tends to set challenging but realistic personal goals and to take calculated risks
- needs concrete feedback on personal performance
The primary reason for developing a business plan for a new venture is to attract external
funding. The initial capital to start an NTBF is relatively modest (high to low):
1. Biotechnology (research-based venture)
2. Electronics (development-based venture)
3. Software (production-based venture)
Financial requirements:
- Initial financing for launch (personal savings, loan from friends, re-mortgages)
- Second-round financing for initial development and growth
- Third-round financing for consolidation and growth (where most professional financial
bodies enter)
- Maturity or exit
Some entrepreneurs will sacrifice growth to maintain control of their ventures.
Professional investors assess attractiveness of the venture in terms of the strengths and
personalities of the founders, the formal business plan and the commercial and technical
merits of the product.
The average period of investment is five to seven years, and corporate investors typically
demand a rate of return of 20-30%, which compares favourably with professional venture
capitalists required returns of around 75%.
Curious data: UK has the most advanced venture capital community in Europe.
An important issue is the influence of venture capitalists on the success of NTBF’s. The first,
to identify or select those NTBFs that have the best potential for success (“picking winners”.
The second role is to help develop the chosen ventures, by providing management expertise
and access to resources other than financial - that is, a “coaching role”. In the selection stage,
venture capitalists place too much emphasis on human capital, specifically the top
management team.
The most effective organization and management of a new venture will depend on two
dimensions: the strategic importance of the venture for corporate development; and its
proximity to the core technologies and business.
The key factors that distinguish a potential new venture from the core business are risk,
uncertainty, newness and significance.
Motives for establishing corporate ventures:
- Grow the business [Operational]. The desire to achieve and maintain expected rates
of growth is probably the most common reason for corporate venturing.
- Exploit underutilized resources in new ways [Operational]. Both technological and
human.
- Introduce pressure on internal suppliers [Operational]
- Divest non-core activities [Strategic]
- Satisfy managers’ ambitions [Strategic]
- Spread the risk and cost of product development [Strategic]
- Combat cyclical demands of mainstream activities [Strategic]
- Learn about the process of venturing [Strategic]
- Diversify the business [Strategic]
- Develop new technological or market competencies [Strategic]
When managing corporate ventures is important to create an environment which is conducive
to entrepreneurial activity. It requires two skills: technical and managerial expertise.
Seven sources of opportunities: demographic changes, new knowledge, incongruities,
changes in industry or market structure, unexpected successes or failures, process needs,
changes in perception.
Four primary sources of ideas: the “bright idea”, customers requesting a new product or
service, internal analysis of a company’s competencies and business processes, scanning of
external opportunities in related technologies, markets or services.
Design options for corporate ventures:
- Direct integration. It is the preferred choice where radical changes in product or
process design are likely to impact immediately on the mainstream operations and if
the people involved in that activity are inextricably involved in day-to-day operations.
- Integrated business teams. Most appropriate where the expertise will have been
nurtured within the mainstream operations and may support or require support from
those operations for development.
- New ventures department. A group from normal line management that facilitates
external trading.
- New venture division. It provides a safe haven, where several projects emerge
throughout the organization and allows separate administrative supervision. Some
autonomy required.
- Special business units. Wholly owned by the corporation. Businesses like this tend
to come about because the activity is felt to have enough potential to stand alone as a
profit centre and can thus be assessed and operated as a separate business entity.
- Independent business units. Differing degrees of ownership will determine the
administrative control over independent business units, ranging from subsidiary to
minor interest.
- Nurtured divestment. Appropriate where an activity is not critical to the mainstream
business. It provides a way for the firm to release responsibility for a business area.
-
Complete spin-off. No ownership is retained by the parent corporation in the case of
a complete spin-off. This is essentially a divest option, where the corporation wants to
pass over total responsibility for activity, commercially and administratively.
The extent to which an individual is motivated to attempt the launch of a venture depends
upon three related factors - antecedent influences, the incubator organization and
environmental factors.
- Common stages of development: research phase, opportunity framing phase, preorganization phase, re-orientation phase, sustainable returns phase.
At each of these stages there are different significant challenges to overcome in order to make
a successful transition to the next stage, what the researchers call “critical junctures”:
opportunity recognition, entrepreneurial commitment and venture credibility.
Very few firms grow significantly or consistently. Those that achieve it are called “gazelles”.
Common reasons for failure: poor financial control, lack of managerial ability or experience,
no strategy for transition, growth or exit.
Many ways in which a new venture can grow and create additional value: organic growth
through additional sales and diversification, acquisition of or merger with another company,
sale of the business to another company, or private equity firm and initial public offering (IPO)
on a stock exchange.
CHAPTER 12: CAPTURING THE BENEFITS OF INNOVATION
In this chapter we examined how organizations, private and public, can better capture the
benefits of innovation, and minimize the drawbacks of change.
12.1 creating value through innovation
David Teece argues that three groups of factors influence the ability of a firm to capture value
from innovation: the appropriability regime, which includes the strength of formal intellectual
property rights, nature of the knowledge (tacit versus codified), secrecy, ease of imitation and
lead times; complementary assets, such as brand, position, distribution, support and services,
and he dominant design.
With suppliers, consultants, customers and other partners are associated with differences in
innovation and growth. Firms need to balance the desire to protect their knowledge with the
need to share aspects of this knowledge to promote innovation. In fact, the research indicates
that use of IPR has a negative effect on a strategy of long-term value creation. Only a limited
level of IPR is desirable to encourage risk taking and innovation and hat a broader repertoire
of strategies is necessary to create and capture the economic and social benefits of
innovation. Techniques to help explore how economic and social values are created by
innovation, such as value analysis and value stream analysis. identify ways to create and
capture value.
12.2 innovation and firm performance
There are several difficulties in constructing a model of the effects of innovation on the financial
performance. First, The Relationships between inputs and outputs is much weaker than at the
industry level, by the random unpredictable innovation. Second, reporting behavior of the firms
may change, "Goodhart" law, phenomenon whereby monetary indicators devised by the
government become subverted as behavior changes in response to measurement. Thirdly, an
objective of the indicators may be to influence financial markets and lending behavior. To
determine whether inputs (or outputs) measure anything of relevance, it is necessary to look
for correlations between indicators, such as r&d expenditure, productivity, growth.
The limitations of r&d and patents, have led to new product announcements and innovation
counts. Another study examined the strength of the relationship from patents to innovations in
order to judge whether patents can be used as an innovation indicator. there is a strong
relationship, indeed the best predictor of a firm innovation is the patent industry it is in.
innovation tends to be concentrated in larger firms, in less concentrated industries and is
strongly affected by joint investment in advertising and r&d. However at the level of the firm,
the relationship is very weak, and only 2% of the variance of individual firm level new
productivity appears to be explained by patenting activity. Similarly as innovation ratio has
been developed based on the ratio of cash outlay to cash return, as well as the ratio of
development time to market life of specific development projects. Profit margin of innovators
is higher than non-innovators, although the effect is rather smaller. The relationship between
patents and the market value of the firm are not significant, with the exception of the
pharmaceutical industry. In contrast, product announcements have a positive effect on the
share price of the originating firm. The price/earnings rate may be a better indicator of the
future innovation performance. The average P/E ratio of the firms making new product
announcements is almost twice that of the firms which make no new product announcements.
Earnings generated by the innovative firms at a much higher rate than the non-innovators.
High rates f the market growth are associated with:
•
high gross margin
•
high marketing costs
•
rising productivity
•
rising value added per employee
•
rising investment
•
low or negative cash flow
High relative quality is a strong predictor of the high profitability in any market conditions. A
combination of both high market differentiation and high perceived relative quality yields very
high ROI. However PIMS suggests that market share has a much stronger impact on
profitability in innovative sectors. This suggests that scale effects are more important in R&D
and marketing than in manufacturing. If we use ratio of new products introduced/ absolute
R&D as a proxy for research efficiency, we find that the efficiency of research has also a
significant positive effect on the market-to-book value.
12.3 Exploiting knowledge and the intellectual property
how individuals and organizations identify what they know and how best to exploit this. In
essence managing knowledge involves five critical tasks:
•
Generating and acquiring new knowledge
•
identifying and codifying existing knowledge
•
storing and retrieving knowledge
•
sharing and distributing knowledge across the organization
•
exploiting and embedding knowledge in process, products and services.
Generating and acquiring knowledge
Organizations can acquire knowledge by experience, experimentation or acquisition. Of these,
learning from experience appears to be the least effective. Organizations learn incorrectly or
irrelevant skills or self-destructive habits, and may prevent it from gaining sufficient experience
of a superior procedure to make it rewarding to use, sometimes called the "competency trap"
. Experimentation is a more systematic approach to learning. It is a central feature of formal
R&D activities, market research and some organizational alliances and networks. A more
active approach to the acquisition of knowledge involves scanning the internal and external
environments. It can be an operational initiative with market or technology focused managers
becoming more conscious of new developments within their own environments, or a top-driven
initiative where venture managers or professional capital firms are used to monitor and invest
in potential opportunities.
Identifying and codifying knowledge
Knowledge is information that has been contextualized, given meaning and therefore made
relevant and easier to personalize.
Two different types of knowledge:
•
Explicit knowledge, which can be codified, that is expressed in numerical, textual or
graphical terms.
•
Tacit or implicit knowledge, which is personal, experiential and hard to formalize, e.g.
how to ride a bike.
In general, the less tangible and more tacit knowledge of individuals, groups and practices is
necessary to exploit the more explicit and tangible types of knowledge, such as R&D and .
The distinction between explicit and tacit is how easy it is to express that knowledge. Blacker
develops a finer typology of knowledge, which identifies five types:
•
embrained knowledge, conceptual skills on cognitive abilities, and emphasizes the
value of abstract knowledge.
•
Embodied knowledge, which is an action oriented,
•
Encultured knowledge , achieving shared understanding and meaning.
•
Embedded knowledge, organizational capabilities or competencies.
•
Encoded knowledge, which is represented by symbols and signs.
An organization learns in only two ways: 1 by the learning of its members 2 by ingesting new
members.
Using the dimensions of
individual
versus
collective
knowledge,
and routine versus novel
tasks, it is possible to
identify
four
organizational
configurations.
(figure
12.1) This framework
suggest
that
under
conditions
of
environmental
uncertainty embrained and encultured knowledge are more relevant than embedded or
embodied knowledge. knowledge management consists of identifying and sharing knowledge
across these disparate entities.
put figure 12.1
Te conversion of tacit to explicit knowledge is a critical mechanism. knowledge networks,
which crosses intra- and inter-organizational levels and boundaries, this transformation of
individual knowledge into organizational knowledge involves four cycles:
•
solicitation- tacit to tact knowledge, knowledge of an individual or shared with others.
•
externalization- tacit to explicit knowledge, knowledge is made explicit and codified.
Tacit knowledge can be transformed through a process of conceptualization and crystallization
•
combination-explicit to explicit knowledge, different sources of explicit knowledge are
pooled and exchanged.
•
internalization- explicit to tacit knowledge, individuals or groups learn through practice.
Max boisot has developed the similar concept of C-space (culture space) to analyses the flow
of knowledge. It consists of two dimensions: codification, the extent to which information can
be easily expressed; and diffusion, the extent which information is shared by a given
population. H e proposes a social learning cycle with 4 stages: scanning, problem solving,
diffusion, and adsorption. (figure 12.2) Codifying knowledge involves taking information that
human agents carry in their heads and find hard to articulate.
figure 12.2
Knowledge moves around the C-space in a cyclical fashion shown in the figure.
Storing and retrieving knowledge
In practice. there are two common but distinct approach to knowledge management. The first
is based on investment in IT, usually based on a groupware and intranet technologies. The
second approach is to encourage staff to identify, store, share and use information throughout
the organization. Richard Hall indicates that managers believe that the most significant of
these intangible resources are the company's reputation and employees’ know-how, both of
which may be a function of organizational culture. These include:
•
intangible
•
positional, the result of previous Endeavour
•
functional, individual skills and know-how
•
cultural, including traditions of quality, customer service, human resources o innovation
picture page 580
Sharing and distributing knowledge
Database help store, and share data and information, but such systems are often confined to
hard data, rather than more tacit knowledge. As a result, business units may not be aware of
where such information could be applied. Tacit knowledge is not easily imitated by competitors
because it's not fully encoded, but for the same reasons it may not be fully visible to all
members. The speed and extent to which knowledge is shared between members of an
organization is likely to be a function of how codified the knowledge is. There are many
processed required for converting and connecting knowledge:
•
converting data and information to knowledge
•
converting text to knowledge
•
converting individual to group knowledge
•
connecting people to knowledge
•
connecting knowledge to people
•
connecting people to people
•
connecting knowledge to knowledge.
This process of conversion and connection i underpinned by communities f practice. A
community of practice i a group of people related by a shared task. Many factors can prevent
the sharing of knowledge between communities of practice, such as the distinctiveness of
different knowledge bases, and the lack of common knowledge. There are proven
mechanisms to help knowledge transfer:
•
1 an organizational translator, who express the interests of one community in terms of
another.
•
2 A knowledge broker differs from a translator in that they participate in different
communities rather than imply mediate between them.
•
3A boundary object of practice, something of interest to two or more communities of
practice, provides an opportunity for discussion, debate and conflict. for example, a prototype.
Knowledge brokers scavenge the organization for old or unused ideas. One useful way of
understanding the advantages and disadvantages of different ways of implementing
knowledge management is to identify five different strategies for introducing knowledge
management to an organization:
•
ripple
•
flow
•
embedding
•
bridge
•
transfer
The ripple consists of a knowledge centre or core of one specific discipline, technology o skill,
the danger is that the knowledge will become detached from market needs and
technological opportunities.
The flow approach involves projects being handed from one knowledge center to another,
often sequentially.
The embedding approach brings different knowledge centers into a broader framework,
without any major changes to the centre`s. An example would be the electronic data
interchange (EDI) between supplier and retailer to reduce the stocks and improve
responsiveness. Potential problems include asymmetric cost benefits between the centre's,
and fear of control or leakage of information.
The bridge approach merges to or more different knowledge centre's to create a whole new
knowledge domain.
The transfer approach is more selective and consists of taking a useful element of one
knowledge domain and adapting it for use in another. Process benchmarking is an example
of a knowledge transfer strategy.
Converting knowledge into innovation
Innovation rarely involves dealing with a single technology or market but rather a bundle of
knowledge which is brought together into a configuration. Successful innovation management
requires tat we can get hold of and use knowledge about components but also about how
those can be put together- what they termed the architecture of an innovation (see chapter 1).
When change takes place at the higher system level- architectural innovation, then the existing
channels and flows many not be appropriate or sufficient to support the innovation and the
firm needs to develop new ones. A variation on this theme comes in the field of technology
fusion, where different technological streams converge, such that products which used to
have a discrete identity
begin to merge into new architectures. Like computing,
telecommunications, industrial control (heating, air conditioning, lighting etc. David tranfield
and his colleagues map the different phases of the innovation process to identify e knowledge
routines in each three innovation phases-discovery, realization and nurture.
•
Discovery-scanning and searching the internal and external environments, to pick up
and process signals about potential innovation.
•
Realization-ho the organization can successfully implement the innovation, growing it
from an idea through various stages of development to final launch as a new product,
realization requires selecting from activities the organization will commit resources.
•
Nurturing the chosen option by providing resources, developing (either by creating
through R&D or acquiring through technology transfer, the means of exploration. The nurture
phase involves maintaining and supporting the innovation through various improvements from
experience. This learning creates the conditions for beginning the cycle gain, or re-innovation.
figure 12.3 pg 585
12.3 Exploiting Intellectual Property
Economies have been encouraged to sign up to the TRIPS (trade related intellectual property
systems), in most countries the issue of a patent requires a certain legal test to be satisfied:
•
Novelty- no part of prior art
•
inventive step- not obvious to a person skilled in the art
•
Industrial application- utility test requires the invention to be capable of being applied
to a machine, product or process.
•
Patentable subject - discoveries and formula cannot be patented and in Europe neither
can software.
•
clear and complete disclosure-note that a patent provides only a certain legal property
rights.
Apart from the more obvious use of patents as IPR, they can be used to search for potential
innovators, and to help identify potential partners or assess competitors. The quality of patents
can be assessed by a count of how often a given patent is cited in later patents. For example,
half of the patents are cited two or fewer times, 75% are cited five times, and only 1% of the
patents are cited 24 or more times. Overall, after 10 or more years, the average cites per
patent is around six. The most useful indicators of innovation based on patents are:
1.
number of patents
2.
cites per patent
3.
current impact index, this is a fundamental indicator of a patent portfolio quality, it is
the number of times the company's previous five years of patents, were cited from the current
year, divided by the average citations received.
4.
technology strength, is the number of patents multiplied by the current impact index
5.
technology cycle time indicates the speed of invention and is the median age, in years,
of the patent reference cited on the font of the page of the patent.
6.
Science linkage indicates how leading edge the technology is, and is the average
number of science papers referenced on the font of the page of the patent.
7.
science strength indicates how much the patent applies basic science, and is the
number of patents multiplied y science linkage.
Picture figure 12.3 pg 589
An indicator of innovation. The main advantages of patents are:
1.
represents the output of the inventive process
2.
patents protection is time consuming and expensive. Only made for those
developments which are expected to provide benefits in excess of the costs.
3.
providing information on both the rate and direction of innovation.
4.
Patent statistics are available in large numbers and over very long times series.
The main disadvantage of patents as indicators of innovation are:
1.
not all inventions are patented
2.
not all inventions are technically patentable
3.
the propensity to patent varies considerably across different sectors and firms
4.
firms have a different propensity to patent in each national market
5.
a large proportion of patents are never exploited.
There are also major differences among countries in the procedures and criteria for granting
patents. For this reason, comparisons are most reliable when using international patenting or
patenting in one country.
USING PATENTS STRATEGICALLY
Range of different patent strategies:
•
offensive- multiple patents in related fields to limit or prevent competition
•
defensive- specific patents for key technologies, to be developed
•
financial- to optimized income through sale or license
•
bargaining-promote strategy alliances, adoption of standards or cross-licensing
•
reputation-to improve the image or positioning f company
Copyright
Copyright is concerned with the expression of ideas, and no the ideas themselves. Therefore
the copyright exists only if the idea is made concrete. Like patents, copyright provides limited
legal rights for certain types of material for a specific term. For a literary, dramatic, musical,
normally for 70 years after the death of the author. The type of materials covered by copyright
include:
•
original literary, artistic works, including software
•
recordings, films
•
typographical arrangement
Design rights
Design rights are similar to copyright protection, but mainly apply three dimensional articles,
covering any aspect of the shape or configuration. Design rights exist for 15 years and 10
years if commercially exploited. Cheaper and easier than patent protection, but covers only
visual appearance- shape, configuration, pattern and ornament.
Licensing IPR
IPR, you can allow other to use it in some way in return for some payment. Considerations
when drafting a licensing agreement include degree of exclusivity, territory and type of end
use, period of license and type and level of payments- royalty, lump sum or cross license.
Common methods of pricing license are:
•
going market rate- based on industry norms
•
25% rule- based on licensee's gross profit earned through use of technology
•
return on investments- based on licensors costs
•
profit sharing-based on relative investments and risk.
The successful exploitation of IPR also incurs costs and risks:
•
cost of search, registration and renewal
•
need to register in various national markets
•
full and public disclosure of your idea
•
need to be able to enforce
In most countries the basic registration fee for a patent is relatively modest, but in a addition
applying for a patent includes the cost of professional agents, translation, official registration
and renewal fees.
12.4 Broader economic and social benefits
innovation and economic development
Friedman argues that developments in technology and trade are spreading the benefits of
globalization to the emerging economies. Many firms in merging economies have become
trapped in dependent relationships a low-cost provider of low-technology, low-value
manufactured goods and have failed to develop their own design or new products. Firms in
emerging countries may pursue different routes to upgrading through innovation
•
process upgrading-process improvements to adapt to local inputs, reduce costs or to
improve quality
•
product upgrading- adaptation, differentiation, design and product development
•
capability upgrading- improving the range of functions undertaken, or changing the mix
of functions, for example, production versus development or marketing
•
intersectoral upgrading-moving to different sectors, for example, to those with higher
value added.
As the innovations and markets evolve together a dominant design begins to emerge, in
merging economies, the path of evolution is often reversed and begins with incremental
process innovations, to produce an existing product at a lower cost or at a lower quality. As
firm improve begin to make product adaptations and changes in design.
Innovation and social change
Definitions of social innovations and entrepreneurship, most include two critical elements:
1.
create social change and value, rather than financial value
2.
it involves business, public and third sector organizations
social entrepreneurs share most of the characteristics of entrepreneurs:
•
motives and aims- less concerned with independence and wealth, and more on social
means and ends.
•
Timeframe- less emphasis on short term
•
resources- greater reliance on a network of stakeholders
CSR (corporate social responsibility) thinking has led to the development of formal measures
to consider not just financial outcomes but also environmental and social performance.
The history of many successful social innovations is essentially one of networking, mobilizing
support and accessing diverse resources through rich networks.
Innovation and sustainability
Policy discourses about sustainability, very little attempt has been made in the business and
environment to draw the concepts, several limitations in the innovation literature suggest: 1 A
focus on managers, the firm, or the supply chain is too narrow. 2 A focus on a specific
technology or product is inappropriate. 3 the assumption that innovation is the consequence
of coupling technological opportunity and market demand is limited.
How to influence application of innovations through regulation and control. regulation, targets
incentives, and usually punishments, but is a rather blunt instrument to encourage change,
and can be slow and incremental. New ways of doing things, demands a better appreciation
of how firms and innovation work, innovation must also be a large part of any potential solution
to a range of environmental issues, including:
•
clearer products
•
more efficient processes
•
alternative technologies
•
new services
•
systems innovation
The improvement of existing technologies, this is not necessarily incremental, and may at
times involve radical innovation, for example, increasing the fuel efficiency, common type of
innovation its application to existing problems. This includes alternative materials, processes
or technologies used in existing products. These are sometimes called architectural
innovations, because they reuse different components and subsystems in new configurations.
New socio. technical systems co-evolve. Developers and users of innovation interact more
closely, systems innovation demand a range of externalities, such as supporting infrastructure,
complementary products and services, finance and new training and skills.
figure 12.5 pg 608
Business model innovation and strategic flexibility
This research links the concept business model innovation with the two relevant concepts for
firms operating in volatile environments: strategic agility and flexibility. Strategic agility includes
strategic sensitivity, operational responsiveness and managerial responsiveness. Strategic
flexibility includes modification capability, options-keeping capability, and the capability to
reduce dependencies, in particular with collaborating organizations.
12.5 Choosing a business model
The value model of a venture is implied how value is to be created and captured. models:
•
value proposition- ho does the innovation or venture created value and for whom?
•
revenue generation- how does the enterprise capture and appropriate the benefits
•
capabilities and processes- how can the innovation or venture deliver?
•
position in the network-how are risks, responsibilities and rewards distributed?
Business model innovation
Business model innovation does not require the discovery of new products or services, or new
technology, but rather the redefinition of existing products and services and how these are
used to create value.
Creating value through reputation and relationships
The interaction of reputation and relationships can help t create value, and in this case we
examine the case of technology and engineering consultancies (tec). These companies work
closely with client on projects. We develop and illustrate the notion of generative interaction.
TECS capture value by building experience and accumulating knowledge through
partnerships with operators, strategy consultants, and the vendors.
Summary and further reading
A broad view of innovation and its more fundamental financial, economic and social benefits.
How firms appropriate the benefits from innovation, by means of intellectual property rights,
standards or first-mover advantages. The generation acquisition, sharing and exploitation of
knowledge are central to successful innovation. There is a wide range of different types of
knowledge. Tacit knowledge is critical, but is difficult to capture, and draws upon individual
expertise and codified, key challenges is to identify and exchange knowledge across different
groups and organizations.
CHAPTER 13 CAPTURING AND LEARNING FROM INNOVATION
this chapter reviews the ways in which learning can be captured from the innovation
experience.
13.1 What we have learned about managing innovation?
Themes we have been covering i the book, summarize:
•
learning and adaptation are essential in an inherently uncertain future- thus innovation
is an imperative.
•
innovation is about interaction of technology, market and organization
•
innovation can be linked to a generic process which all enterprises- public and private
sector- have to find their way through.
•
routines are learned patterns of behavior which become embodied in structures and
procedures over time. As such they are hard to copy and highly firm-specific
•
innovation management is the search for effective routines- in other words, it is about
managing the learning process towards more effective routines to deal with the challenges of
the innovation process.
Four clusters of behavior which we feel represent particularly important routines. Successful
innovation:
•
is strategy based
•
depends on effective internal and external linkages
•
requires effective enabling mechanisms for making change happen
•
only happens within a supporting organizational context
essential ingredients in innovation strategy:
1.
the position of the firm, in terms of its products, processes, technologies and the
national innovation system
2.
the technological paths open to the firm given its accumulated competencies
3.
the organizational processes followed by the firm in order to integrate strategic learning
across functional and divisional boundaries.
Developing close and rich interaction with markets, with suppliers of technology and other
organizational players, is of critical importance. In order to succeed organizations also need
effective implementation mechanisms to move innovations from idea or opportunity through
reality. Finally, innovation depends on having a supporting organizational context in which
creative ideas can emerge and be effectively deployed
13.2 How can we build dynamic capability?
First there is acquisition of new knowledge to add to the stock of new knowledge resources,
these can be technological or market knowledge. Second, there is knowledge about
innovations process itself- the ways in which it can be organized. Framework and innovation
capability refer to our ability t create and operate such a framework in our organizations. But
in a constantly changing environment, we must be able to adapt and change our framework.
This process of constant modification is called dynamic capability. The lack of such capability
can explain many failures.
•
failure to recognize or capitalize on new ideas
•
not being able to move into new technological fields
•
following ne technological fashions-without an underlying strategic rationale
•
problem of lack of codification of tacit knowledge
figure 13.1 page 625
13.3 Learning to manage innovation
We can think of the innovation process as a learning loop- picking up signals which trigger a
response. Also requires a second learning loop, one which can re-programme he system to
tune it better. All of this argues strongly that firms should undertake some form of review of
innovation projects in order to help them develop both technological and managerial capability.
figure 13.2 page 627
13.4 Tools to help capture learning
Post project reviews are structured attempts to capture learning at the end of an innovation
project. Structured review, exploring the degree to which objectives were met, the things went
well and those which could be improved.
Benchmarking is the general name given to a range of techniques which involve comparisonsfor example, between two variants of the same process or two similar products. Benchmarking
works in two ways to facilitate learning. First, it provides a powerful motivator, also provides a
structured way of looking to new concepts and ideas. Building on the success of benchmarking
as an organizational development tool there has been increasing use of capability maturity
models. The origin of the term came from software. In such models the auditing and reviewing
process in benchmarking is done against ideal-type or normative models of good practice.
13.5 Innovation auditing
Capability/maturity auditing of this kind offer another structured way of reflecting on the
process of innovation and how it is managed. Other frameworks have been developed which
cover aspects of innovation management, such as creative climate, continuous improvement
and product development. It is the process of regular review and discussion which is important
rather than detailed information or exactness of scores. The point is to drive improvement of
the innovation process and the ways in which it is managed.
13.6 Measuring innovation performance
Figure 13.3 indicates the ranges of measures which we might put in place, covering the inputs
and outputs of the process together with our core interest. Inputs time and money invest in
skilled staff and their further development, then several possible measures and indicators
measures of operational or process elements can also try to asses the strategic impact.
figure 13.3 page 131
13.7 Measuring a developing innovation management capability
What and how to measure in innovation? an organization with no clear innovation strategy,
with limited technological resources and with weak project management, would be unlikely to
succeed in innovation. By contrast, one of which was focused on clear strategic goals, had
developed long term links to support technological development, would have a better chance
of success.
figure 13.4 page 633
Process of trial and error learning, slowly finding out which behavior work, key questions are:
•
what do we need to do more of, strengthen?
•
what do we need to do les or stop?
•
what ne routines do we need to develop?
Any organization needs to ask itself questions in key five areas:
1.
do we have effective enabling mechanisms for the innovation process - to search, to
select, to implement and to capture?
2.
do we have a clear innovation strategy and is communicated effectively?
3.
do we have an innovative organization?
4.
do we manage rich eternal linkage to enable open innovation?
5.
do we capture learning to help us develop improved innovation management capability'
13.9 Variations: Measuring service innovation
The organization and management of new service development and delivery can be assessed
by five components: strategy, process, organization, tools/technology and system (spots).
Each factor lays a different role, strategy provides focus, process provides control,
organization provides co-ordination of people, tools and technologies provide transformation/
transaction capabilities, and system provides integration.
Performance is analyzed as a total index and as three subscales
1.
innovation and quality
2.
time compression in development and cost reduction in development/delivery
3.
service quality
picture table 13.1 page 640