Chapter One: Introduction to innovation management

Innovation management involves the process of managing an organization's innovation procedure,

starting at the initial stage of ideation, to its final stage of successful implementation. It encompasses
the decisions, activities and practices of devising and implementing an innovation strategy.
Innovation
Innovation is not invention in that innovation refers to the use of a new idea or method, whereas
invention refers more directly to the creation of the idea or method itself.
Innovation is the creation of better or more effective products, processes, services, or ideas
[technologies] that are accepted by users [desirability], and proposed at the right time according to
governments and society [viability].
“I invented nothing new. I simply assembled into a car the discoveries of other men behind whom
were centuries of work... Had I worked fifty or ten or even five years before, I would have failed. So,
it is with every new thing. Progress happens when all the factors that make for it are ready, and then
it is inevitable. To teach that a comparatively few men are responsible for the greatest forward steps
of mankind is the worst sort of nonsense” – Henry Ford
Invention Vs Innovation
Invention
The term ‘invention’, is defined as the act of creating, designing, or discovering a device, method,
process, that has not existed before. In finer terms, it is a novel scientific idea conceived through
research and experimentation that turns into a tangible object. It can be a new process of producing
a product or may be an improvement upon a product or a new product.
Inventions can be patented, as it provides security to the inventor, for intellectual property rights, and
identifies it as an actual invention. Further, different countries have different rules for obtaining the
patent and the process is also costly. To be patented, the invention must be novel, have value and
non-obvious.
Innovation
The word ‘innovation’ itself signifies its meaning, as the transformation of an idea into reality. In the
purest sense, innovation can be described as a change that adds value to the products or services;
that fulfils the needs of the customers. It is when something new and effective is introduced to the
market, that fulfils the needs of the customers by delivering better products and services.
Innovation can be an introduction or development of new product, process, technology, service or
improving/redesigning the existing ones that provide solutions to the current market requirements.
All the process that helps in the generation of the new idea and translating it into the products
demanded by the customers are covered under innovation.
The significant differences between invention and innovation are classified below:
 The occurrence of an idea for a product or process that has never been made before is called the
invention. The implementation of the idea for product or process for the very first time is called
innovation.
 The invention is related to the creation of new product. On the other hand, innovation means adding
value or making a change in the existing product.
 The invention is coming up with a fresh idea and how it works in theory. As opposed to innovation, is
all about practical implementation of the new idea.
 The invention requires scientific skills. Unlike innovation, which requires a broad set of marketing,
technical and strategic skills.
 The invention occurs when a new idea strikes a scientist. Conversely, innovation arises when a need
realized for a new product or improvisation in the existing product.
 The invention is concerned with a single product or process. As against this, innovation focuses on
the combination of various products and services.
 While the invention is limited to research and development department of the organization.
Innovation is spread all over the organization.
Further reading
There is a clear difference between the concepts of invention and innovation. The famous economist
Joseph Schumpeter was the first to have observed and defined this difference: the ‘invention’ is the
outflow of applied research, while ‘innovation’ is the successful introduction of an invention in the
market as a functional solution (product or service). Scientific discovery
opportunity included in an idea into a practical application. In case of inventing an electric bulb,
Edison understood that without an electrification point, the light bulb would be simply an idea with no
practical value. Therefore, he and his research team began the creation of an electricity generation
and distribution infrastructure, including even the design of switches, cables and floor lamps.
Edison’s contribution proved that innovation is something more than having new ideas. It is the
process whereby new ideas acquire practical application. Notwithstanding the diverging definitions of
innovation as regards the wording, all of them agree nevertheless that innovation is the elaboration
and exploitation of new ideas and not simply their fabrication and invention. The interested reader
may skim through the specialists of innovation, such as Freeman,
Rothwell & Gardiner, Drucker and M. Porter, Clayton Christensen, and others. As regards invention
in contrast to innovation, some of the most important inventions of the nineteenth century were
invented by persons whose name was forgotten.
The names we still remember are the names of entrepreneurs who transformed inventions into a
commercial value. For example, the vacuum cleaner was invented by J. Murrey Spengler. However,
it was W. Hoover, leatherwear manufacturer, who launched it in the market. Similarly, the sewing
machine was invented by Elias Howe in Boston in 1846, who failed to promote it commercially,
though he travelled to England for that purpose. Returning to the USA, he found Isaac Singer to
have stolen his patent and having set up a thriving business of sewing machines.
Innovation is therefore the product of the nineteenth century, not of the twentieth century, while
invention has existed since primitive times. The driving force was to envisage the opportunity to
create new industries, such as the electric railway by Edison. In the twentieth century innovation
became the heart of technological effort through systematic organization and institutionalization of
applied research in laboratories of Research and Technological Development. Types and
Characteristics of Innovation Types of Technological Innovation
The types of innovation vary depending on the object, the sector it refers to, the scope or its
intensity. These types are not independent one from the other. There exist though some
recognizable attributes, without having dividing lines. The types of innovation are classified in three
groups.
In the first group the classification is based on the object innovation refers to:
The Product or Service Innovation refers to the case when an enterprise introduces a new product in
the market or provides a new service.
Process Innovation is in place when an enterprise introduces new elements in its production process
or its operation, being used to produce a product or the provision of a process.
 In some cases, the dividing line between these two types is not clear. Separation depends on the
organization involved. The emphasis placed by companies on every type of innovation differs
depending on the company’s stage of development.
In the first stages, when the company is small, it adopts product innovations mainly. As the company
grows and becomes more complex, it adopts process innovations too. The development of new
products is a risky venture as it may inject big profits in an enterprise, if the venture succeeds, but it
could also lead to failure.
In the second group the classification is based on the sector innovation refers to:
The Administrative or Organizational Innovation appears in the administration sector and affects the
organizational system of an enterprise, consisting of business executives and the relations between
them. In other words, the
Administrative Innovation is the introduction of a new administrative system or a new administrative
process; it does not introduce a new product or service but influences indirectly their introduction or
the production process thereof.
The Technological Innovation pertains to the technological sectors of an enterprise, comprising the
equipment and the procedures for raw materials and information transformation
Characteristics of Innovation
The characteristics of innovation are classified in three axes.
 Product Axis: Product innovation is in place when a new or improved product is launched in the
market. The parameters examined under this axis are the following:
 Market demand: Demand and acceptance of the product in the market is one of the key criteria for
product innovation. It is directly linked to the company’s market share and to profit margin.
 Level of resonance: It is the level of target-customers locally, nationally, or internationally; it is the
product acceptance and market penetration yardstick.
 Optimal use of existing condition: It is examined whether the existing technology is used in an
optimal way relevant to the product and its production. It relates to updating procedures and
technology forecast.
 Price/Value: The price and value of a product is compared with the prices of corresponding
competitive products in the market.
 Compliance with the regulations: Compliance with the safety, health, environmental regulations, etc.
It is a characteristic of innovation because compliance with the regulations could often lead to
qualitative innovative changes on the product.
 Originality: It is examined whether the product is a new solution or encompasses changes compared
to competitive products. These changes may concern the product, its package, the way it is
distributed or its use. It is also a way to evaluate an enterprise’s approach to innovation.
 Offer of improvements: The product as an evolution of an existing technology, in the sense of using
new materials, the existence of new functions, the use of the product in new applications. It defines
whether the product brings about changes on the basic design or its architecture.
 Coverage of operational needs: Coverage rate of specific operational needs, customer needs,
including over-coverage offering additional functions not fully determined by customer demands. It
relates to customer requirements analysis.
 Aesthetic: The product’s outward appeal is a criterion of innovation often under-estimated; it
constitutes though a key success factor.
 Process Axis: Process innovation is the introduction of new processes in product development or the
improvement thereof.
The parameters examined under this axis are the following:
 Market research: Market research may disclose alternative solutions regarding design, price,
distribution, and product promotion and offers an estimate of product acceptance and image in the
market.
 Connection to target-customers: Frequency of contact between the company and target- customers
at local, national, or international level. The main objective is to establish a long lasting relation
mainly with large customers.
Access to new technology: Frequency of the company’s contact with the current technological
evolutions regarding production of product. It relates directly with departments of R&D, design,
cooperation with technological bodies, participation in exhibitions, etc.
Costing Methodology: Costing methodology in all stages of the product development process.
Analysis and accurate costing methodology is required to cut the total product production cost.
Compliance with the regulations: Compliance of the product development process with the safety,
health, and environmental regulations, in parallel with the procedures to verify all the above.
Compliance of the development process with the regulations often contributes to qualitative
upgrading of the product.
Technique of ideas development: The existence of specific techniques and approaches for the
elaboration of new ideas is examined; such ideas affect significantly the development of a successful
innovative product.
Improvement techniques: The effort and the techniques to integrate new technologies and uses in
the product are assessed.
Emphasis on fulfilling operational needs: Focus of product development process on the specific
operational need the product addresses. It involves conversion of requirements to product
specifications and relates to the way the trade mark participates in product development process.
Focus on aesthetics in the design: The success of products using a fixed technology and with fixed
target-customers depends directly on their attractiveness and their visual
Quantitative controls with criteria to assess improvement of technology, new materials, functions and
uses: Introduction of controls with quantitative data and minimum acceptance values to assess
improvement of technology, new materials, functions and uses. Processes for the integration and
evaluation of new technologies and methods by the company.
Quantitative controls with criteria on the satisfaction rate of functional needs: Introduction of controls
with quantitative data and minimum acceptance values to full specific functional needs.
Marketing and quality control processes for the aesthetic aspect of the product: Introduction of
marketing and quality control processes to assess and ensure good product aesthetic appeal. It
relates directly to production and testing of originalities.
Formal control to protect copyright: Formal control procedures to protect copyright are examined.

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Chapter: 1
1. Innovation imperatives
Innovation matters
Innovation does make a huge difference to organizations of all shapes and sizes. The logic is
simple: if we don’t change what we offer the world (products and services) and how we create and
deliver them, we risk being overtaken by others who do.
Innovation is strongly associated with growth. New business is created by new ideas, by the process
of creating competitive advantage in what a firm can offer. Economists have argued for decades
over the exact nature of the relationship but they are generally agreed that innovation accounts for a
sizeable proportion of economic growth.
Survival and growth poses a problem for established players but a huge opportunity for newcomers
to rewrite the rules of the game. One person’s problem is another’s opportunity and the nature of
innovation is that it is fundamentally about entrepreneurship. The skill to spot opportunities and
create new ways to exploit them is at the heart of the innovation process. Entrepreneurs are risk-
takers, but they calculate the costs of taking a bright idea forward against the potential gains if they
succeed in doing something different especially if that involves upstaging the players already in the
game.
In generally,  Innovation is consistently found to be the most important characteristic associated
with success.  Innovative enterprises typically achieve stronger growth or are more successful than
those that do not innovate.  Enterprises that gain market share and increasing profitability are those
that are innovative
Innovation and entrepreneurship
Entrepreneurship is the process of identifying opportunities in the market place, arranging the
resources required to pursue these opportunities and investing the resources to exploit the
opportunities for long term gains. It involves creating incremental wealth by bringing together
resources in new ways to start and operate an enterprise.
Entrepreneurship is the processes through which individuals become aware of business ownership
then develop ideas for, and initiate a business.
Entrepreneurship can also be defined as the process of creating something different and better with
value by devoting the necessary time and effort by assuming the accompanying financial, psychic
and social risks and receiving the resulting monetary reward and personal satisfaction. In this case
an individual should come up with something different and better in order to the named as
entrepreneur.
Entrepreneurship is a practice and a process that results in creativity, innovation and enterprise
development and growth. It refers to an individual’s ability to turn ideas into action involving and
engaging in socially-useful wealth creation through application of innovative thinking and execution
to meet consumer needs, using one’s own labor, time and ideas. Engaging in entrepreneurship
shifts people from being “job seekers” to “job creators”, which is critical in countries that have high
levels of unemployment. It requires a lot of creativity which is the driving force behind innovation.
Entrepreneurship consists five critical elements. These are:  The ability to perceive an opportunity.
 The ability to commercialize the perceived opportunity i. innovation  The ability to pursue it on a
sustainable basis.  The ability to pursue it through systematic means.  The acceptance of risk or
failure.
What is innovation?
Innovation is not invention in that innovation refers to the use of a new idea or method, whereas
invention refers more directly to the creation of the new idea or method itself. Innovation is the
creation of better or more effective products, processes, services, or ideas [technologies] that are
accepted by users [desirability], and proposed at the right time according to governments and
society [viability].
Key Differences between Invention and Innovation
The significant differences between invention and innovation are classified below:
 The occurrence of an idea for a product or process that has never been made before is called the
invention. The implementation of the idea for product or process for the very first time is called
innovation.  The invention is related to the creation of new product. On the other hand, innovation
means adding value or making a change in the existing product.  The invention is coming up with a
fresh idea and how it works in theory. As opposed to innovation, is all about practical implementation
of the new idea.  The invention requires scientific skills. Unlike innovation, this requires a broad set
of marketing, technical and strategic skills.  The invention occurs when a new idea strikes a
scientist. Conversely, innovation arises when a need realized for a new product or improvisation in
the existing product.  The invention is concerned with a single product or process. As against this,
innovation focuses on the combination of various products and services.  While the invention is
limited to research and development department of the organization. Innovation is spread all over
the organization.
There are four distinct types of innovation, these are as follows:  Invention - described as the
creation of a new product, service or process  Extension - the expansion of a product, service or
process  Duplication - defined as replication of an already existing product, service or process 
Synthesis - the combination of existing concepts and factors into a new formulation
The Innovation Process  Analytical planning: carefully identifying the product or service features,
design as well as the resources that will be needed.  Resources organization: obtaining the required
resources, materials, technology, human or capital resources  Implementation: applying the
resources in order to accomplish the plans  Commercial application: the provision of values to
customers, reward employees and satisfy the stakeholders.
Areas of Innovation
The following are some of the major areas in which valuable innovation might be made.  New
product: A new product can be developed through new or existing technology. The new product may
offer a radically new way of doing something or it may simply be an improvement on an existing
item. The new product must offer the customer an advantage if it is to be successful.  New
Services: A service is an act which is offered to undertake a particular task or solve a particular
problem.  New Production Techniques: Innovation can be made in the way in which a product is to
be manufactured. A new production technique should allow the end user to obtain the product at a
lower cost, or a product of higher quality or better service in the supply of the product.  New Way of
Delivering the Product or Service to the Customer: Customer can only use product/service they can
access. A common innovation is to take a more direct routine by cutting out distributors or
middlemen.  New Operating Practices: As with innovations in the production of physical products,
innovation in service delivery must address customers need and offer them improved benefits, for
example easier access to the service, a higher quality service, a more consistent service, a faster or
less time consuming service etc.  New Means of Informing the Customer about the Product: People
will only use a product or service if they know about it. Demand will not exist if the offering is not
properly promoted to them. Promotion consists of two parts; a message what is said and a means –
the route by which that message is delivered.  New Means of Managing Relationship within the
Organization: Any organization has a wide variety of communication channels running through it.
The performance of the organization will depend to a great extent on the effectiveness of its internal
communication channels. These communication channels are guided by the organization’s structure.
 New Ways of Managing Relationships between Organizations: Organizations sit in a complex web
of relationships to each other. The way they communicate and relate to each other is very important.
Innovation doesn’t happen automatically. It is driven by entrepreneurship a potent mixture of vision,
passion, energy, enthusiasm, insight, judgment and plain hard work which enables good ideas to
become reality. The power behind changing products, processes and services comes from
individuals whether acting alone or embedded within organizations.
Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an
opportunity for a different business or service. It is capable of being presented as a discipline,
capable of being learned, capable of being practiced.
Entrepreneurship plays out on different stages in practice. One obvious example is the start-up
venture in which the lone entrepreneur takes a calculated risk to bring something new into the world.
But entrepreneurship matters just as much to the established organization which needs to renew
itself in what it offers and how it creates and delivers that offering. Internal entrepreneurs often
labeled as ‘intrapreneurs’ or working in ‘corporate entrepreneurship’ or ‘corporate venture’
departments provide the drive, energy and vision to take risky new ideas forward within that context.
And of course, the passion to change things may not be focused on creating commercial value but
rather on improving conditions or enabling change in the wider social sphere or in the direction of
environmental sustainability a field which has become known as ‘social entrepreneurship.
This idea of entrepreneurship driving innovation to create value social and commercial across the
lifecycle of organizations
C. A fear of change: this is where a fear of the new and different often takes hold. When the
company holds firm to how things are normally done, how different such ideas, how the established
model, such innovative teams can find themselves without support and in addition without internal
funding.
D. Lack of ownership: one of the most pressing innovation challenges for any business is
determining who is responsible. Without responsibility or ownership there is no impetus to succeed.
E. End to end processes: ideation is just the first step in the innovation process. After such ideas are
established there must be numerous stages of development, testing and refinement. Ideas need to
be validated but not all will succeed, this is often viewed as a vast use of time and money with no
guarantee of success.
F. Inadequate benchmarking: when focusing on here and now, companies have a wealth of
benchmarks to compare. They can look to simply exceed their competitors for like to like
comparison. All of these will ensure the organization stays competitive but innovation is focused
much more on the future and such benchmarks will fail projects before they have had a chance to
succeed.
G. No innovation ecosystem: innovation is about new concept, many of which often come around
trough the sharing of ideas and knowledge amongst different teams. Consequently, a silo driven
culture is a huge business innovation challenges. After all, a company that cannot cooperate within
itself cannot share new ideas.
1. Managing innovation and entrepreneurship
A number of key innovation management practices have a particularly strong impact on innovation
performance across business. These are:  Explore and understand different dimensions of
innovation (ways in which we can change things)  Manage innovation as a process  Create
conditions to enable them to repeat the innovation trick (building capability)  Focus this capability to
move their organizations forward (innovation strategy)  Build dynamic capability (the ability to rest
and adapt their approaches in the face of a changing environment).
1. Dimensions of Innovation
Product: Changes in the things (products/services) an organization offers Process: Changes in the
ways these offerings are created and delivered Position: Changes in the context into which the
products/services are introduced Paradigm: Changes in the underlying mental models which frame
what the organization does
1. A Process Model for Innovation and Entrepreneurship
There are four processes model for innovation and entrepreneurship:  Recognizing the opportunity
 Finding the resources  Developing the idea  Capturing value.
Recognizing the Opportunity
Innovation triggers come in all shapes and sizes and from all sorts of directions. They could take the
form of new technological opportunities or changing requirements on the part of markets. They could
be the result of legislative pressure or competitor action.
Finding the Resources
The trouble with innovation is that it is by its nature a risky business. You don’t know at the outset
whether what you decide to do is going to work out or even that it will run at all. Yet you have to
commit some resources to begin the process. So how do you build a portfolio of projects which
balance the risks and the potential rewards?
Developing the Idea
Having picked up relevant trigger signals, made a strategic decision to pursue some of them and
found and mobilized the resources we need, the next key phase is actually turning those potential
ideas into some kind of reality. In some ways this implementation phase is a bit like making a kind of
‘knowledge tapestry’, by gradually weaving the different threads of knowledge (about technologies,
markets, competitor behaviour, etc.) into a successful innovation.
Capture Value
Despite all our efforts in recognizing opportunities, finding resources and developing the venture,
there is no guarantee we will be able to capture the value from all our hard work. We also need to
think about, and manage, the process to maximize our chances through protecting our intellectual
property and the financial returns if we are engaged in commercial innovation or in scaling and
spreading our ideas for social change so that they are sustainable and really do make a difference.
Gives a competitive advantage
Thinking innovatively or creatively can help managers and executives develop unique marketing
campaigns to help them stand out. Also, formulate promotional and advertising strategies that will
help in increasing market share and revenue, giving the company a competitive advantage.
Reduces cost and increases revenue
As mentioned above, one of the biggest advantages of innovation is that it helps increase revenue
and market shares. Subsequently, leading to a reduction in cost. Meanwhile, innovation has many
advantages in business, but the points mentioned above will help business leaders, managers, and
executives understand the importance of using innovative ideas actively. If not, then in the next part,
we will discuss how innovation helps achieve business success.
How Does Innovation Help To Achieve Business Success?
Here are some ways in which innovation will help in achieving success in businesses:
 It helps organizations differentiate themselves from the rest by implementing different innovative
marketing, production, and sales strategies.  It helps companies fight uncertainties and stay
relevant in times of adversities.  It helps organizations grow in complex situations
Chapter 1
The Innovation Imperative
NG OBJECTIVES
By the end of this chapter you will develop an understanding of:
what ‘innovation’ and ‘entrepreneurship’ mean – and how they are essential for sur- vival and growth
innovation as a process rather than a single flash of inspiration
the difficulties in managing what is an uncertain and risky process
the key themes in thinking about how to manage this process effectively.
1. Innovation Matters
You don’t have to look far before you bump into the innovation imperative. It leaps out at you from a
thousand mission statements and strategy documents, each stressing how impor- tant innovation is
to ‘our customers/our shareholders/our business/our future’ and, most often, ‘our survival and
growth’. Innovation shouts at you from advertisements for products ranging from hairspray to
hospital care. It nestles deep in the heart of our history books, pointing out how far and for how long
it has shaped our lives. And it is on the lips of every politician, recognizing that our lifestyles are
constantly shaped and reshaped by the process of innovation. Everybody’s Talking about It  ‘We
have the strongest innovation programme that I can remember in my 30-year career at P&G,
and we are investing behind it to drive growth across our business’ – Bob McDonald, Chairman,
President and CEO, Procter & Gamble
 ‘Adi Dassler had a clear, simple, and unwavering passion for sport. Which is why with the ben- efit
of 50
years of relentless innovation created in his spirit, we continue to stay at the forefront of technology’
– Adidas (adidas)
 ‘Innovation is our lifeblood’ – Siemens (siemens)
 ‘We are always saying to ourselves. We have to innovate. We’ve got to come up with that
breakthrough’ - Bill Gates, former chairman and CEO, Microsoft  ‘Innovation distinguishes between
a leader and a follower’ – Steve Jobs, co-founder and former chairman and CEO, Apple  ‘John
Deere’s ability to keep inventing new products that are useful to customers is still the key to the
company’s growth’ – Robert Lane, CEO, John Deere
This isn’t just hype or advertising babble. Innovation does make a huge difference to organizations
of all shapes and sizes. The logic is simple: if we don’t change what we offer the world (products and
services) and how we create and deliver them, we risk being overtaken by others who do. At the limit
it’s about survival, and history is very clear on this point: sur- vival is not compulsory! Those
enterprises which survive do so because they are capable of regular and focused change. (It’s worth
noting that Bill Gates used to say of Microsoft that it was always only two years away from extinction.
Or, as Andy Grove, one of the founders of Intel, pointed out, ‘Only the paranoid survive! On the plus
side innovation is also strongly associated with growth. New business is created by new ideas, by
the process of creating competitive advantage in what a firm can offer. Economists have argued for
decades over the exact nature of the relationship but they are generally agreed that innovation
accounts for a sizeable proportion of economic growth. William Baumol points out that ‘virtually all of
the economic growth that has occurred since the eighteenth century is ultimately attributable to
innovation.’
1. Innovation and Entrepreneurship
Innovation matters – but it doesn’t happen automatically. It is driven by entrepreneurship – a potent
mixture of vision, passion, energy, enthusiasm, insight, judgement and plain hard work which
enables good ideas to become reality. The power behind changing products, processes and
services comes from individuals – whether acting alone or embedded within organizations
who make innovation happen. As the famous management writer Peter Drucker put it: Innovation is
the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a
different business or service. It is capable of being presented as a discipline, capable of being
learned, capable of being practiced. Entrepreneurship plays out on different stages in practice. One
obvious example is the start-up venture in which the lone entrepreneur takes a calculated risk to
bring something new into the world. But entrepreneurship matters just as much to the established
organization which needs to renew itself in what it offers and how it creates and delivers that
offering. Internal entrepreneurs – often labelled as ‘intrapreneurs’ or working in ‘corporate
entrepreneurship’ or ‘corporate venture’ departments – provide the drive, energy and vision to take
risky new ideas forward within that context. And of course, the passion to change things may not be
focused on creating commercial value but rather on improving conditions or enabling change in the
wider social sphere or in the direction of environmental sustainability – a field which has become
known as ‘social entrepreneurship’ (see Chapter 2). This idea of entrepreneurship driving innovation
to create value – social and commercial – across the lifecycle of organizations is central to our
discussion. Table 1 gives some examples. In the rest of the course, we use this lens to look at
managing innovation and entrepreneur- ship. We’ll use three core concepts:
1. Innovation Isn’t Easy!
Coming up with good ideas is what human beings are good at – we have this facility already fitted as
standard equipment in our brains! But taking those ideas forward is not quite so simple, and most
new ideas fail. It takes a particular mix of energy, insight, belief and determi- nation to push against
these odds; it also requires judgement to know when to stop banging against the brick wall and
move on to something else. It’s important here to remember a key point: new ventures often fail, but
it is the ventures which are failures rather than the people who launched them. Successful
entrepreneurs recognize that failure is an intrinsic part of the process. They learn from their
mistakes, understanding where and when timing, market conditions, technological uncertainties, etc.
mean that even a great idea isn’t going to work. But they also recognize that the idea may have had
its weaknesses but that they have not failed themselves but rather learnt some useful insights to
carry over to their next venture. While the road for an individual entrepreneur may be very rocky with
a high risk of hit- ting potholes, running into roadblocks or careering off the edge, it doesn’t get any
easier if you are a large established company. It’s a disturbing thought but the majority of companies
have a lifespan significantly less than that of a human being. Even the largest firms can show
worrying signs of vulnerability , and for the smaller firm the mortality statistics are bleak. Many SMEs
fail because they don’t see or recognize the need for change. They are inward looking, too busy
fighting fires and dealing with today’s crises to worry about storm clouds on the horizon. Even if they
do talk to others about the wider issues, it is very often to people in the same network and with the
same perspectives, for example the people who supply them with goods and services or their
immediate customers. The trouble is that by the time they realize there is a need to change it may be
too late. But it isn’t just a small firm problem. There is no guaranteed security in size or in previ- ous
technological success. Take the case of IBM – a giant firm which can justly claim to have laid the
foundations of the IT industry and came to dominate the architecture of hardware and software and
the ways in which computers were marketed. But such core strength can sometimes become an
obstacle to seeing the need for change – as proved to be the case when, in the early 1990s, the
company moved too slowly to counter the threat of networking tech- nologies – and nearly lost the
business in the process. Thousands of jobs and billions of dol- lars were lost and it took years of
hard work to bring the share price back to the high levels which investors had come to expect. One
problem for successful companies occurs when the very things which helped them achieve success
– their ‘core competencies’ – become the things which make it hard to see or accept the need for
change. Sometimes the response is ‘not invented here’: the new idea is recognized as good but in
some way not suited to the business. Sometimes the pace of change appears slow and the old
responses seem to work well. It appears, to those within the industry that they understand the rules
of the game and have a good grasp of the relevant technological developments likely to change
things. But what can sometimes happen here is that change comes along from outside the industry –
and by the time the main players inside have reacted it is often too late.
Of course, for others these conditions provide an opportunity for moving ahead of the game and
writing a new set of rules. Think about what has happened in online banking, call-centre- linked
insurance or low-cost airlines. In each case, the existing stable pattern has been overthrown,
disrupted by new entrants coming in with new and challenging business models. For many
managers business model innovation is seen as the biggest threat to their competitive position,
precisely because they need to learn to let go of their old models as well as learn new ones. We also
need to see that while for established organizations these crises are a problem, they represent a rich
source of opportunity for entrepreneurs looking to disrupt an established order and create value in
new ways. In many cases the individual enterprise can renew itself, adapting to its environment and
moving into newthings. Consider the example of the Stora company in Sweden: founded in the 13th
century as a timber cutting and processing operation it still thrives today – albeit in the very different
areas of food processing and electronics . All of these examples point to the same conclusion.
Organizations need entrepreneurship at all stages in their lifecycle, from start-up to long- lived
survival. The ability to recognize opportunities, pull resources together in creative ways, implement
good ideas and capture the value from them are core skills.
1. Managing Innovation and Entrepreneurship
The dictionary defines ‘innovation’ as ‘change’; it comes from Latin in and novare, meaning ‘to make
something new’. That’s a bit vague if we’re trying to manage it; perhaps a more useful definition
would be ‘the successful exploitation of new ideas’. Those ideas don’t necessarily have to be
completely new to the world, or particularly radical; as one definition has it: ‘innovation does not
necessarily imply the commercialization of only a major advance in the technological state of the art
(a radical innovation) but it includes also the utilization of even small-scale changes in technological
know-how (an improvement or incremental innovation).’ Whatever the nature of the change the key
issue is how to bring it about, in other words how to manage innovation. Can we do it? One answer
comes from the experiences of organizations that have survived for an extended period of time.
While most organizations have comparatively modest lifes- pans, some have survived at least one
and sometimes multiple centuries. Looking at the expe- rience of these ‘100 club’ members – firms
like 3M, Corning, Procter and Gamble, Reuters, Siemens, Philips and Rolls-Royce – we can see that
much of their longevity is down to having developed a capacity to innovate on a continuing basis.
They have learnt, often the hard way, how to manage the process and, importantly, how to repeat
the trick. Any organization can get lucky once but sustaining it for a century or more suggests there’s
a bit more to it than that.
For example, a new design of ca r, a new insurance package for accident-prone babies and a new
home-entertainment system would all be examples of product innovation. And change in the
manufacturing methods and equipment used to produce the car or the home- entertainment system,
or in the office procedures and sequencing in the insurance case, would be examples of process
innovation. Sometimes the dividing line is somewhat blurred. For example, a new jet-powered sea
ferry is both a product and a process innovation. Services represent a particular case of this where
the product and process aspects often merge. For example, is a new holiday package a product or
process change? Innovation can also take place by repositioning the perception of an established
product or process in a particular user context. For example, an old-established product in the UK is
Lucozade, originally developed as a glucose-based drink to help children and invalids in con-
valescence. These associations with sickness were abandoned by the brand owne r, Beechams
(part of GlaxoSmithKline), when it relaunched the product as a health drink aimed at the growing
fitness market, where it is now presented as a performance-enhancing aid to healthy exercise. In
2014, the brand was sold to Suntory for around $1. This shift is a good example of ‘position’
innovation. In similar fashion Häagen Dazs created a new market for ice cream, essentially targeted
at adults, through position innovation rather than changing the product or core manufacturing
process. Sometimes opportunities for innovation emerge when we reframe the way we look at
something. Henry Ford fundamentally changed the face of transportation not because he invented
the motor car (he was a comparative latecomer to the new industry) or because he developed the
manufacturing process to put one together (as a craft-based specialist industry car-making had been
established for around 20 years). His contribution was to change the underlying model from one
which offered a hand-made specialist product to a few wealthy customers to one which offered a car
for Everyman at a price he could afford. The ensuing shift from craft to mass production was nothing
short of a revolution in the way cars (and later countless other products and services) were created
and delivered. Of course, mak- ing the new approach work in practice also required extensive
product and process innovation, for example in component design, in machinery building, in factory
layout and particularly in the social system around which work was organized. Examples of
‘paradigm’ innovation – changes in mental models – include the shift to low- cost airlines, the
provision of online insurance and other financial services and the reposition- ing of drinks like coffee
and fruit juice as premium ‘designer’ products. They involve a shift in the underlying vision about
how innovation can create social or commercial value. The term ‘business model’ is increasingly
used and this is another way of thinking about ‘paradigm innovation’. Paradigm innovation can be
triggered by many different things: new technologies, the emergence of new markets with different
value expectations, new legal rules of the game, new environmental conditions (climate change,
energy crises), etc. For example, the emergence of Internet technologies made possible a complete
reframing of how we carry out many busi- nesses. In the past, similar revolutions in thinking were
triggered by technologies like steam
power, electricity, mass transportation (via railways and, with motor cars, roads) and
microelectronics. And it seems very likely that similar reframing will happen as we get to grips with
new technologies like nanotechnology or genetic engineering. From Incremental to Radical
Innovation... Another thing to think about is the degree of novelty involved. Clearly, updating the
styling on our car is not the same as coming up with a completely new concept car which has an
electric engine and is made of new composite materials as opposed to steel and glass. Similarly,
increas- ing the speed and accuracy of a lathe is not the same thing as replacing it with a computer-
controlled laser forming process. There are degrees of novelty in these, running from minor,
incremental improvements right through to radical changes, which transform the way we think about
and use them. Sometimes these changes are com- mon to a particular sector or activity, but
sometimes they are so radical and far-reaching that they change the basis of society, for example
the role played by steam power in the Industrial Revolution or the ubiquitous changes resulting from
today’s communications and computing technologies. .. Components and Systems Innovation is
often like a set of Russian dolls: we can change things at the level of components or we can change
a whole system. For example, we can put a faster transistor on a microchip on a circuit board for the
graphics display in a computer. Or we can change the way several boards are put together into the
computer to give it particular capabilities – a games box, an e-book, a media PC. Or we can link the
computers into a network to drive a small business or office. Or we can link the networks to others
into the Internet. There’s scope for innova- tion at each level – but changes in the higher-level
systems often have implications for lower down. For example, if cars, as a complex assembly, were
suddenly designed to be made out of plastic instead of metal, it would still leave scope for car
assemblers but would pose some sleepless nights for producers of metal components!
1. A Process Model for Innovation and Entrepreneurship
Rather than the cartoon image of a light bulb flashing on above someone’s head, we need to think
about innovation as an extended sequence of activities – as a process. Whether we are looking at
an individual entrepreneur bringing their idea into action or a multi-million-dollar corporation
launching the latest in a stream of new products, the same basic framework applies. We can break it
down to the four key steps we mentioned earlier:
recognizing the opportunity
finding the resources
developing the idea
capturing value.
Learning FIGURE 1 A model of the entrepreneurial process
Recognizing the Opportunity Innovation triggers come in all shapes and sizes and from all sorts of
directions. They could take the form of new technological opportunities or changing requirements on
the part of markets. They could be the result of legislative pressure or competitor action. They could
be a bright idea occurring to someone as they sit, Archimedes-like, in their bathtub. They could
come as a result of buying in a good idea from someone outside the organization. Or they could
arise from dissatisfaction with social conditions or a desire to make the world a better place in some
way. The message here is clear: if we are going to pick up these trigger signals then we need to
develop some pretty extensive antennae for searching and scanning around us – and that includes
some capability for looking into the future.
Finding the Resources The trouble with innovation is that it is by its nature a risky business. You
don’t know at the outset whether what you decide to do is going to work out or even that it will run at
all. Yet you have to commit some resources to begin the process. So how do you build a portfolio of
projects which balance the risks and the potential rewards? (Of course, this decision is even tougher
for the first- time entrepreneur trying to launch a business based on his or her great new idea – the
choice there is whether to go forward and commit what may be a huge investment of personal time,
the mortgage, family life, etc. Even if they succeed, there is then the problem of trying to grow the
business and needing to develop more good ideas to follow the first.) So this stage is very much
about strategic choices. Does the idea fit a business strategy, does it build on something we know
about (or where we can get access to that knowledge easily) and do we have the skills and
resources to take it forward? And if we don’t have those resources, which is often the case with the
lone entrepreneur at start-up, how will we find and mobilize them?
Developing the Idea Having picked up relevant trigger signals, made a strategic decision to pursue
some of them and found and mobilized the resources we need, the next key phase is actually
turning those potential ideas into some kind of reality. In some ways this implementation phase is a
bit like making a kind of ‘knowledge tapestry’, by gradually weaving the different threads of
knowledge (about technologies, markets, competitor behaviour, etc.) into a successful innovation.
Early on it is full of uncertainty but gradually the picture becomes clearer – but at a cost. We have to
invest time and money and find people to research and develop ideas and conduct market studies,
competitor analysis, prototyping, testing, etc. in order to gradually improve our understanding of the
innovation and whether it will work. Eventually, it is in a form which can be launched into its intended
context – an internal or external market – and then further knowledge about its adoption (or
otherwise) can be used to refine the innovation. Developing a robust business plan which takes all of
this into consideration at the outset is one of the key elements in entrepreneurial success.
Throughout this implementation phase, we have to balance creativity – finding bright ideas and new
ways to get around the thousand and one problems which emerge and get the bugs out of the
system
with control – making sure we keep to some kind of budget on time, money and resources. This
balancing act means that skills in project management around innovation, with all its inherent
uncertainties, are always in high demand! This phase is also where we need to bring together
different knowledge sets from many different people – so combining them in ways which help rather
than hinder the process and raise big questions around teambuilding and management. It would be
foolish to throw good money after bad, so most organizations make use of some kind of risk
management as they implement innovation projects. By installing a series of ‘gates’ as the project
moves from a gleam in the eye to an expensive commitment of time and money, it becomes possible
to review and if necessary redirect or even stop something which is going off the rails. For the solo
entrepreneur it is in this stage that judgement is needed – and sometimes the courage to know when
to stop and move on, to let go and start again on something else. Eventually, the project is launched
into some kind of marketplace: externally, people who might use the product or service or, internally,
people who make the choice about whether to buy into the new process being presented to them.
Either way, we don’t have a guarantee that just because the innovation works and we think it the
best thing since sliced bread they will feel the same way. Innovations diffuse across user populations
over time. Usually, the process follows some kind of S- curve shape. A few brave souls take on the
new idea and then gradually, assuming it works for them, others get on the bandwagon until finally
there are just a few diehards (lag- gards) who resist the temptation to change. Managing this stage
well means we need to think ahead about how people are likely to react and build these insights into
our project before we reach the launch stage – or else work hard at persuading them after we have
launched it!
Capture Value Despite all our efforts in recognizing opportunities, finding resources and developing
the venture, there is no guarantee we will be able to capture the value from all our hard work. We
also need to think about, and manage, the process to maximize our chances – through protecting
our intellectual property and the financial returns if we are engaged in commercial innovation or in
scaling and spreading our ideas for social change so that they are sustainable and really do make a
difference. We also have an opportunity at the end of an innovation project to look back and reflect
on what we have learnt and how that knowledge could help us do things better next time. In other
words, we could capture valuable learning about how to build our innovation capability. The Context
of Success It’s all very well putting a basic process for turning ideas into reality in place. But it
doesn’t take place in a vacuum. It is subject to a range of internal and external influences that shape
what is possible