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PART I

Managing Innovation

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www.innovation-portal.info

Chapter 1

Innovation – What it

is and Why it Matters

'A slow sort of country' said the Red Queen. 'Now here, you see, it takes all the running you can

do to keep in the same place. If you want to get somewhere else, you must run at least twice as

fast as that!'

– Lewis Carroll, Alice Through the Looking Glass

Go online to access your interactive e-book and additional resources for this chapter at

www.innovation-portal.info

1.1 Introduction

'We always eat elephants . . .' is a surprising claim made by Carlos Broens, founder and head

of a successful toolmaking and precision engineering  rm in Australia with an enviable growth

record. Broens Industries is a small/medium-sized company of 130 employees which survives in

a highly competitive world by exporting over 70% of its products and services to technologically

demanding  rms in aerospace, medical and other advanced markets. The quote doesn't refer to

strange dietary habits but to their con dence in 'taking on the challenges normally seen as impos-

sible for  rms of our size' – a capability which is grounded in a culture of innovation in products

and the processes which go to produce them.

At the other end of the scale Kumba Resources is a large South African mining company

which makes another dramatic claim – 'We move mountains'. In their case the mountains con-

tain iron ore and their huge operations require large-scale excavation – and restitution of the

landscape afterwards. Much of their business involves complex large-scale machinery – and their

ability to keep it running and productive depends on a workforce able to contribute their innova-

tive ideas on a continuing basis.

The Innovation Portal provides a case study describing Kumba

Resources' high involvement innovation activities.

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Part I ● Managing Innovation

Innovation is driven by the ability to see connections, to spot opportunities and to take

advantage of them. When the Tasman Bridge collapsed in Hobart, Tasmania, in 1975, Robert

Clifford was running a small ferry company and saw an opportunity to capitalize on the increased

demand for ferries – and to differentiate his offering by selling drinks to thirsty cross-city com-

muters. The same entrepreneurial  air later helped him build a company – Incat – which pio-

neered the wave-piercing design which helped them capture over half the world market for fast

catamaran ferries. Continuing investment in innovation has helped this company from a relatively

isolated island build a key niche in highly competitive international military and civilian markets

(www.incat.com.au/).

But innovation is not just about opening up new markets – it can also offer new ways of

serving established and mature ones. Despite a global shift in textile and clothing manufacture

towards developing countries the Spanish company, Inditex (through its retail outlets under

various names including Zara) have pioneered a highly  exible, fast turnaround clothing opera-

tion with over 2000 outlets in 52 countries. It was founded by Amancio Ortega Gaona who

set up a small operation in the west of Spain in La Coruna – a region not previously noted for

textile production – and the  rst store opened there in 1975. They now have over 5000 stores

worldwide and are now the biggest clothing retailer;

signi cantly, they are also the only manufacturer to

offer speci c collections for northern and southern

hemisphere markets. Central to the Inditex philoso-

phy is close linkage between design, manufacture and

retailing, and their network of stores constantly feeds

back information about trends which are used to generate new designs. They also experiment

with new ideas directly on the public, trying samples of cloth or design and quickly getting back

indications of what is going to catch on. Despite their global orientation, most manufacturing

is still done in Spain, and they have managed to reduce the turnaround time between a trigger

signal for an innovation and responding to it to around 15 days.

Of course, technology often plays a key role in enabling radical new options. Magink is a

company set up in 2000 by a group of Israeli engineers and now part of the giant Mitsubishi con-

cern. Its business is in exploiting the emerging  eld of digital ink technology – essentially enabling

paper-like display technology for indoor and outdoor displays. These have a number of advan-

tages over other displays such as liquid crystal – low-cost, high viewing angles and high visibility

even in full sunlight. One of their major new lines of development is in advertising billboards – a

market worth $5bn in the USA alone – where the prospect of 'programmable hoardings' is now

opened up. Magink enables high resolution images which can be changed much more frequently

than conventional paper advertising, and permit billboard site owners to offer variable price time

slots, much as television does at present.

At the other end of the technological scale there is scope for improvement on an old product,

often using old technologies in new ways. People have always needed arti cial limbs and the

demand has, sadly, signi cantly increased as a result of high technology weaponry such as mines.

The problem is compounded by the fact that many of those requiring new limbs are also in the

poorest regions of the world and unable to afford expensive prosthetics. The chance meeting of

a young surgeon, Dr Pramod Karan Sethi, and a sculptor Ram Chandra in the hospital in Jaipur,

India, has led to the development of a solution to this problem – the Jaipur foot. This arti cial

limb was developed using Chandra's skill as a sculptor and Sethi's expertise and is so effective

that those who wear it can run, climb trees and pedal bicycles. It was designed to make use of low

tech materials and be simple to assemble – for example, in Afghanistan craftsmen hammer the

Case Study on Zara is available

in your interactive e-book at

www.innovation-portal.info

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Chapter 1 ● Innovation – What it is and Why it Matters

foot together out of spent artillery shells whilst in Cambodia part of the foot's rubber components

are scavenged from truck tyres. Perhaps the greatest achievement has been to do all of this for a

low cost – the Jaipur foot costs only $28 in India. Since 1975, nearly 1 million people worldwide

have been  tted for the Jaipur limb and the design is being developed and re ned – for example,

using advanced new materials.

Innovation is of course not con ned to manufactured products; plenty of examples of

growth through innovation can be found in services.

4–6

(In fact the world's  rst business com-

puter was used to support bakery planning and logistics for the UK catering services company

J. Lyons and Co). In banking the UK First Direct organization became the most competitive

bank, attracting around 10 000 new customers each month by offering a telephone bank-

ing service backed up by sophisticated IT – a model which eventually became the industry

standard. A similar approach to the insurance business – Direct Line – radically changed the

basis of that market and led to widespread imitation by all the major players in the sector.

7, 8

Internet-based retailers such as Amazon.com have changed the ways in which products as

diverse as books, music and travel are sold, whilst  rms like eBay have brought the auction

house into many living rooms.

Public services like healthcare, education and social security may not generate pro ts but

they do affect the quality of life for millions of people. Bright ideas well-implemented can lead

to valued new services and the ef cient delivery of existing ones – at a time when pressure

on national purse strings is becoming ever tighter.

New ideas – whether wind-up radios in

Tanzania or micro-credit  nancing schemes in Bangladesh – have the potential to change the

quality of life and the availability of opportunity for people in some of the poorest regions of

the world. There's plenty of scope for innovation and entrepreneurship – and at the limit we

are talking here about real matters of life and death. For example, the Karolinska Hospital in

Stockholm has managed to make radical improvements in the speed, quality and effectiveness

of its care services – such as cutting waiting lists by 75% and cancellations by 80% – through

innovation.

Similar dramatic gains have been made in a variety of Indian healthcare opera-

tions. Public sector innovations have included the postage stamp, the National Health Service

in the UK, and much of the early development work behind technologies like  bre optics, radar

and the Internet.

1.2 Why Innovation Matters

Box 1.1 highlights some quotes about innovation. What these organizations have in common is

that their success derives in large measure from innovation. Whilst competitive advantage can

come from size, or possession of assets, and so on, the pattern is increasingly coming to favour

those organizations which can mobilize knowledge and technological skills and experience to

create novelty in their offerings (product/service) and the ways in which they create and deliver

those offerings.

Innovation matters, not only at the level of the individual enterprise, but increasingly as

the wellspring for national economic growth. The economist William Baumol pointed out that

'virtually all of the economic growth that has occurred since the eighteenth century is ultimately

attributable to innovation'.

In their regular survey of 'innovation leaders' in 25 sectors of

the economy, the consultancy Innovaro report that these companies not only outpace their

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Part I ● Managing Innovation

competitors on a year by year basis but also that this has a marked effect on their share price.

Over the past 10 years they have regularly outperformed the average share price index on the

NASDAQ, Dow Jones and FTSE markets and in 2009, when other companies' share prices

grew on average by between 40 and 70%, the Innovation Leaders average growth was 130%.

(Source: Innovation Brie ng, 'Innovation Leaders 2008', www.innovaro.com). Tim Jones and

colleagues have made an extensive study of the practices in such companies and their book and

associated website – www.growthagenda.org – contains cases of leading innovative businesses

from around the world, including newcomers like Tata and Narayana Hospitals alongside

Apple, Google, Amazon and Rolls-Royce.

Importantly, innovation and competitive success is not simply about high technology com-

panies; for example, the German  rm of Wurth is the largest maker of screws (and other

fastenings such as nuts and bolts) in the world with a turnover of £7.5bn. Despite low cost

competition from China the company has managed to stay ahead through an emphasis on

product and process innovation across a supplier network similar to the model used by Dell

in computers (Financial Times, 5/3/2008). In similar fashion the UK Dairy Crest business has

built up a turnover of nearly £250m through offering a stream of product innovations includ-

ing resealable packaging, novel formats and new varieties of cheese and related dairy products,

supported by manufacturing and logistics process innovations (The Times, 26/9/2011).

Innovation is becoming a central plank in national economic policy – for example, the UK

Of ce of Science and Innovation sees it as 'the motor of the modern economy, turning ideas and

knowledge into products and services'.

An Australian government website puts the case equally

Innovation – Everybody's Talking About it

BOX 1.1

• 'We have the strongest innovation program 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, CEO, Procter

& Gamble

• 'We believe in making a difference. Virgin stands for value for money, quality, innovation, fun

and a sense of competitive challenge. We deliver a quality service by empowering our employees

and we facilitate and monitor customer feedback to continually improve the customer's experience

through innovation.' – Richard Branson, Virgin

• 'Adi Dassler had a clear, simple, and unwavering passion for sport. Which is why with the bene t

of 50 years of relentless innovation created in his spirit, we continue to stay at the forefront of

technology.' – Adidas about its future (www.adidas.com)

• 'Innovation is our lifeblood' – Siemens about innovation (www.siemens.com)

• 'We're measuring GE's top leaders on how imaginative they are. Imaginative leaders are the ones

who have the courage to fund new ideas, lead teams to discover better ideas, and lead people to

take more educated risks.' – J. Immelt, Chairman & CEO, General Electric

• 'Innovation distinguishes between a leader and a follower.' – Steve Jobs, 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

• 'Only the paranoid survive!' – Andy Grove, Intel

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Chapter 1 ● Innovation – What it is and Why it Matters

RESEARCH NOTE 1.1

Hidden Innovation

In 2006 the UK organization NESTA published a report on 'The Innovation Gap' in the UK, and

laid particular emphasis on 'hidden innovation' – innovation activities that are not reected in

traditional indicators such as investments in formal R&D or patents awarded. In research focusing

on six widely different sectors which were not perceived to be innovative, they argued that innova-

tion of this kind is increasingly important, especially in services, and in a subsequent study looked

in detail at six 'hidden innovation' sectors – oil production, retail banking, construction, legal aid

services, education and the rehabilitation of offenders. The study identi ed four types of hidden

innovation:

• Type I: Innovation that is identical or similar to activities that are measured by traditional indica-

tors, but which is excluded from measurement. For example, the development of new technologies

in oil exploration.

• Type II: Innovation without a major scientic and technological basis, such as innovation in

organizational forms or business models. For example, the development of new contractual

relationships between suppliers and clients on major construction projects.

• Type III: Innovation created from the novel combination of existing technologies and processes.

For example, the way in which banks have integrated their various back ofce IT systems to

deliver innovative customer services such as Internet banking.

• Type IV: Locally-developed, small-scale innovations that take place 'under the radar', not only

of traditional indicators but often also of many of the organizations and individuals working in

a sector. For example, the everyday innovation that occurs in classrooms and multidisciplinary

construction teams.

Source: Based on National Endowment for Science, Technology and the Arts (NESTA), 2006, The Innovation

Gap and 2007, Hidden Innovation, www.nesta.org

strongly – 'Companies that do not invest in innovation put their future at risk. Their business is

unlikely to prosper, and they are unlikely to be able to compete if they do not seek innovative

solutions to emerging problems'. According to Statistics Canada (2006), the following factors

characterize successful small and medium-sized enterprises:

• 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 pro tability are those that are innovative.

Not surprisingly this rationale underpins a growing set of policy measures designed to

encourage and nurture innovation at regional and national level.

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Part I ● Managing Innovation

1.3 Innovation and Entrepreneurship

The survival/growth question 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 – a potent mixture of

vision, passion, energy, enthusiasm, insight, judgement and plain hard work which enables good

ideas to become a reality. As the famous management writer Peter Drucker put it:

Innovation is the speci c 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 practised.

– P. Drucker, (1985). Innovation and Entrepreneurship.

New York, Harper and Row.

Entrepreneurship is a human characteristic which mixes structure with passion, planning with

vision, tools with the wisdom to use them, strategy with the energy to execute it and judgement with

the propensity to take risks. It's possible to create structures within organizations – departments,

teams, specialist groups, and so on – with the resources and responsibility for taking innovation

forward, but effective change won't happen without the 'animal spirits' of the entrepreneur.

Of course entrepreneurship plays out on different stages in practice. One obvious example

is the new start-up venture in which the lone entrepreneur takes a calculated risk to bring some-

thing new into the world. But entrepreneurship matters just as much to the established organiza-

tion 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 inside that context. And of course the passion to change things may not be around creat-

ing commercial value but rather in improving conditions or enabling change in the wider social

sphere or in the direction of environmental sustainability – a  eld which has become known as

social entrepreneurship.

RESEARCH NOTE 1.2

Joseph Schumpeter – The 'Godfather' of Innovation Studies

One of the most signi cant  gures in this area of economic theory was Joseph Schumpeter who

wrote extensively on the subject. He had a distinguished career as an economist and served as

Minister for Finance in the Austrian government. His argument was simple; entrepreneurs will seek

to use technological innovation – a new product/service or a new process for making it – to get

strategic advantage. For a while this may be the only example of the innovation so the entrepreneur

can expect to make a lot of money – what Schumpeter calls 'monopoly pro ts'. But of course other

entrepreneurs will see what he has done and try to imitate it – with the result that other innova-

tions emerge, and the resulting 'swarm' of new ideas chips away at the monopoly pro ts until an

equilibrium is reached. At this point the cycle repeats itself – our original entrepreneur or someone

(continued)

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Chapter 1 ● Innovation – What it is and Why it Matters

1.4 How Innovation Matters

Innovation contributes in several ways. For example, research evidence suggests a strong cor-

relation between market performance and new products.

15, 16

New products help capture and

retain market shares, and increase pro tability in those markets. 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 – design, customization and quality. And in

a world of shortening product life cycles – where, for example, the life of a particular model of

television set or computer is measured in months, and even complex products like motor cars

now take only a couple of years to develop – being able to replace products frequently with better

versions is increasingly important.

Competing in time re ects a growing pressure on  rms not

just to introduce new products but to do so faster than competitors.

At the same time new product development is an important capability because the environ-

ment is constantly changing. Shifts in the socio-economic  eld (in what people believe, expect,

want and earn) create opportunities and constraints. Legislation may open up new pathways,

or close down others – for example, increasing the requirements for environmentally friendly

products. Competitors may introduce new products which represent a major threat to exist-

ing market positions. In all these ways  rms need the capability to respond through product

innovation.

Whilst new products are often seen as the cutting edge of innovation in the marketplace,

process innovation plays just as important a strategic role. 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. For example, the Japanese dominance in the late twentieth century across several

sectors – cars, motorcycles, shipbuilding, consumer electronics – owed a great deal to superior

abilities in manufacturing – something which resulted from a consistent pattern of process

innovation. The Toyota production system and its equivalent in Honda and Nissan led to per-

formance advantages of around two to one over average car makers across a range of quality

and productivity indicators.

One of the main reasons for the ability of relatively small  rms

like Oxford Instruments or Incat to survive in highly competitive global markets is the sheer

complexity of what they make and the huge dif culties a new entrant would encounter in trying

to learn and master their technologies.

Similarly, being able to offer better service – faster, cheaper, higher quality – has long been

seen as a source of competitive edge. Citibank was the  rst bank to offer an automated telling

machinery (ATM) service and developed a strong market position as a technology leader on the

back of this process innovation. Benetton is one of the world's most successful retailers, largely

else looks for the next innovation which will rewrite the rules of the game, and off we go again.

Schumpeter talks of a process of 'creative destruction' where there is a constant search to create

something new which simultaneously destroys the old rules and established new ones – all driven by

the search for new sources of pro ts.

In his view '[What counts is] competition from the new commodity, the new technology, the new

source of supply, the new type of organization . . . competition which . . . strikes not at the margins

of the pro ts and the outputs of the existing  rms but at their foundations and their very lives'.

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Part I ● Managing Innovation

due to its sophisticated IT-led production network, which it innovated over a 10-year period,

and the same model has been used to great effect by the Spanish  rm Zara. Southwest Airlines

achieved an enviable position as the most effective airline in the USA despite being much smaller

than its rivals; its success was due to process innovation in areas like reducing airport turnaround

times.

This model has subsequently become the template for a whole new generation of low-

cost airlines whose efforts have revolutionized the once-cosy world of air travel.

Importantly we need to remember that the advantages which  ow from these innovative

steps gradually get competed away as others imitate. Unless an organization is able to move

into further innovation, it risks being left behind as

others take the lead in changing their offerings, their

operational processes or the underlying models which

drive their business. For example, leadership in bank-

ing has passed to others, particularly those who were

able to capitalize early on the boom in information and

communications technologies; in particular many of the lucrative  nancial services like securi-

ties and share dealing have been dominated by players with radical new models like Charles

Schwab.

The UK  rm Marshalls has been in existence for over 100 years and shows how

constant innovation has been central to its survival and growth.

Case Study describing Marshalls is

available in your interactive e-book at

www.innovation-portal.info

The Innovation Imperative

BOX 1.2

In the mid-1980s a study by Shell suggested that the average corporate survival rate for large

companies was only about half as long as that of a human being. Since then the pressures on

 rms have increased enormously from all directions – with the inevitable result that life expect-

ancy is reduced still further. Many studies look at the changing composition of key indices and

draw attention to the demise of what were often major  rms and in their time key innovators.

For example, Foster and Kaplan point out that of the 500 companies originally making up the

Standard and Poor 500 list in 1857, only 74 remained on the list through to 1997.

Of the top

12 companies which made up the Dow Jones index in 1900 only one – General Electric – survives

today. Even apparently robust giants like IBM, GM or Kodak can suddenly display worrying

signs of mortality, whilst for small  rms the picture is often considerably worse since they lack

the protection of a large resource base.

Some  rms have had to change dramatically to stay in business. For example, a company

founded in the early nineteenth century, which had Wellington boots and toilet paper amongst its

product range, is now one of the largest and most successful in the world in the telecommunications

business. Nokia began life as a lumber company, making the equipment and supplies needed to cut

down forests in Finland. It moved through into paper and from there into the 'paperless of ce' world

of IT – and from there into mobile telephones.

Another mobile phone player – Vodafone Airtouch – grew to its huge size by merging with a

 rm called Mannesman which, since its birth in the 1870s, has been more commonly associated

with the invention and production of steel tubes! Tui is the company which now owns Thomson,

the UK travel group, and is the largest European travel and tourism services company. Its origins,

however, lie in the mines of old Prussia where it was established as a public sector state lead mining

and smelting company!

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Chapter 1 ● Innovation – What it is and Why it Matters

CASE STUDY 1.1

The Changing Nature of the Music Industry

1st April 2006. Apart from being a traditional day for playing practical jokes, this was the day on

which another landmark in the rapidly changing world of music was reached. 'Crazy' – a track by

Gnarls Barkley – made pop history as the UK's  rst song to top the charts based on download sales

alone. Commenting on the fact that the song had been downloaded more than 31 000 times but was

only released for sale in the shops on 3rd April, Gennaro Castaldo, spokesman for retailer HMV,

said: 'This not only represents a watershed in how the charts are compiled, but shows that legal

downloads have come of age . . . if physical copies  y off the shelves at the same rate it could vie for

a place as the year's biggest seller'.

One of the less visible but highly challenging aspects of the Internet is the impact it has had – and

is having – on the entertainment business. This is particularly the case with music. At one level its

impacts could be assumed to be con ned to providing new 'e-tailing' channels through which you

can obtain the latest CD of your preference – for example from Amazon.com or CD-Now or 100

other websites. These innovations increase the choice and tailoring of the music purchasing service

and demonstrate some of the 'richness/reach' economic shifts of the new Internet game.

But beneath this updating of essentially the same transaction lies a more fundamental shift – in

the ways in which music is created and distributed and in the business model on which the whole

music industry is currently predicated. In essence the old model involved a complex network in which

songwriters and artists depended on A&R (artists and repertoire) to select a few acts, production

staff who would record in complex and expensive studios, other production staff who would oversee

the manufacture of physical discs, tapes and CDs, and marketing and distribution staff who would

ensure the product was publicized and disseminated to an increasingly global market.

Several key changes have undermined this structure and brought with it signi cant disruption to

the industry: Old competencies may no longer be relevant whilst acquiring new ones becomes a matter

of urgency. Even well-established names like Sony  nd it dif cult to stay ahead whilst new entrants are

able to exploit the economics of the Internet. At the heart of the change is the potential for creating,

storing and distributing music in digital format – a problem which many researchers have worked on

for some time. One solution, developed by one of the Fraunhofer Institutes in Germany, is a standard

based on the Motion Picture Experts Group (MPEG) level 3 protocol – MP3. MP3 offers a powerful

algorithm for managing one of the big problems in transmitting music  les – that of compression.

Normal audio  les cover a wide range of frequencies and are thus very large and not suitable for

fast transfer across the Internet – especially with a population who may only be using relatively slow

modems. With MP3 effective compression is achieved by cutting out those frequencies which the

human ear cannot detect – with the result that the  les to be transferred are much smaller.

As a result MP3  les can be moved across the Internet quickly and shared widely. Various programs

exist for transferring normal audio  les and inputs – such as CDs – into MP3 and back again.

What does this mean for the music business? In the  rst instance aspiring musicians no longer

need to depend on being picked up by A&R staff from major companies who can bear the costs of

recording and production of a physical CD. Instead they can use home recording software and either

produce a CD themselves or else go straight to MP3 – and then distribute the product globally via

newsgroups, chatrooms, and so on. In the process they effectively create a parallel and much more

direct music industry which leaves existing players and artists on the sidelines.

(continued )

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Part I ● Managing Innovation

Such changes are not necessarily threatening. For many people the lowering of entry barriers has

opened up the possibility of participating in the music business – for example, by making and sharing

music without the complexities and costs of a formal recording contract and the resources of a major

record company. There is also scope for innovation around the periphery – for example in the music

publishing sector where sheet music and lyrics are also susceptible to lowering of barriers through the

application of digital technology. Journalism and related activities become increasingly open – now

music reviews and other forms of commentary become possible via specialist user groups and chan-

nels on the web whereas before they were the province of a few magazine titles. Compiling popularity

charts – and the related advertising – is also opened up as the medium switches from physical CDs

and tapes distributed and sold via established channels to new media such as MP3 distributed via

the Internet.

As if this were not enough the industry is also challenged from another source – the sharing of

music between different people connected via the Internet. Although technically illegal this practice

of sharing between people's record collections has always taken place – but not on the scale which

the Internet threatens to facilitate. Much of the established music industry is concerned with legal

issues – how to protect copyright and how to ensure that royalties are paid in the right proportions

to those who participate in production and distribution. But when people can share music in MP3

format and distribute it globally the potential for policing the system and collecting royalties becomes

extremely dif cult to sustain.

It has been made much more so by another technological development – that of person-to-

person or P2P networking. Shawn Fanning, an 18-year-old student with the nickname 'the Napster',

was intrigued by the challenge of being able to enable his friends to 'see' and share between their

own personal record collections. He argued that if they held these in MP3 format then it should be

possible to set up some kind of central exchange program which facilitated their sharing.

The result – the Napster.com site – offered sophisticated software which enabled P2P transactions.

The Napster server did not actually hold any music on its  les – but every day millions of swaps were

made by people around the world exchanging their music collections. Needless to say this posed a huge

threat to the established music business since it involved no payment of royalties. A number of high-

pro le lawsuits followed but whilst Napster's activities have been curbed the problem did not go away.

There are now many other sites emulating and extending what Napster started – sites such as Gnutella,

Kazaa, Limewire took the P2P idea further and enabled exchange of many different  le formats – text,

video, and so on. In Napster's own case the phenomenally successful site concluded a deal with enter-

tainment giant Bertelsman which paved the way for subscription-based services which provide some

revenue stream to deal with the royalty issue.

Expectations that legal protection would limit the impact of this revolution have been dampened

by a US Court of Appeal ruling which rejected claims that P2P violated copyright law. Their judgment

said, 'History has shown that time and market forces often provide equilibrium in balancing interests,

whether the new technology be a player piano, a copier, a tape recorder, a video recorder, a PC, a

karaoke machine or an MP3 player' (Personal Computer World, November 2004, p. 32).

Signi cantly the new opportunities opened up by this were seized not by music industry  rms

but by computer companies, especially Apple. In parallel with the launch of their successful iPod

personal MP3 player they opened a site called iTunes which offered users a choice of thousands of

tracks for download at ¢99 each. In its  rst weeks of operation it recorded 1 million hits in Febru-

ary 2006, the billionth song, ('Speed of Sound',) was purchased as part of Coldplay's X&Y album

by Alex Ostrovsky from West Bloom eld, Michigan. 'I hope that every customer, artist, and music

(continued )

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Chapter 1 ● Innovation – What it is and Why it Matters

company executive takes a moment today to re ect on what we've achieved together during the past

three years,' said Steve Jobs, Apple's CEO. 'Over one billion songs have now been legally purchased

and downloaded around the globe, representing a major force against music piracy and the future of

music distribution as we move from CDs to the Internet.'

This has been a dramatic shift, reaching the point where more singles were bought as downloads

in 2005 than as CDs, and where new players are coming to dominate the game – for example, Tesco

and Microsoft. And the changes don't stop there. In February 2006 the Arctic Monkeys topped the

UK album charts and walked off with a  stful of awards from the music business – yet their rise to

prominence had been entirely via 'viral marketing' across the Internet rather than by conventional

advertising and promotion. Playing gigs around the northern English town of Shef eld, the band

simply gave away CDs of their early songs to their fans, who then obligingly spread them around

on the Internet. 'They came to the attention of the public via the Internet, and you had chat rooms,

everyone talking about them,' says a slightly worried Gennaro Castaldo of HMV Records. David

Sinclair, a rock journalist suggests that 'It's a big wakeup call to all the record companies, the estab-

lishment, if you like. . . This lot caught them all napping . . . We are living in a completely different

era, which the Arctic Monkeys have done an awful lot to bring about.'

Subsequent developments have shown an acceleration in the pace of change and an explosion

in the variety of new business models better adapted to create and capture value from the industry.

For example, the US music download business has become dominated by Apple and Amazon (with

70% and 10% respectively of the market) – two companies which have their roots in very different

worlds. Whilst the volume of downloads has increased signi cantly there is now competition from

alternative business models; for example streaming services like Spotify allow users to rent access to

millions of music and other audio titles without having to 'own' any of them. And behind the music

business the same pattern is playing out in  lms and entertainment, computer games and other areas.

With the advent of 3D printing and low cost design it becomes possible to make similar models work

in the sphere of physical products as well.

With the rise of the Internet the scope for service innovation has grown enormously – not for

nothing is it sometimes called 'a solution looking for problems'. As Evans and Wurster point out,

the traditional picture of services being either offered as a standard to a large market (high 'reach'

in their terms) or else highly specialized and customized to a particular individual able to pay a

high price (high 'richness') is 'blown to bits' by the opportunities of web-based technology. Now

it becomes possible to offer both richness and reach at the same time – and thus to create totally

new markets and disrupt radically those which exist in any information-related businesses.

The challenge that the Internet poses is not only one for the major banks and retail companies,

although those are the stories which hit the headlines. It is also an issue – and quite possibly a sur-

vival one – for thousands of small businesses. Think about the local travel agent and the cosy way

in which it used to operate. Racks full of glossy brochures through which people could browse,

desks at which helpful sales assistants sort out the details of selecting and booking a holiday,

procuring the tickets, arranging insurance and so on. And then think about how all of this can

be accomplished at the click of a mouse from the comfort of home – and that it can potentially

bedone with more choice and at lower cost. Not surprisingly, one of the biggest growth areas in

dot.com start-ups was the travel sector and whilst many disappeared when the bubble burst,

others like lastminute.com and Expedia have established themselves as mainstream players.

Of course, not everyone wants to shop online and there will continue to be scope for the

high-street travel agent in some form – specializing in personal service, acting as a gateway to

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Part I ● Managing Innovation

the Internet-based services for those who are uncomfortable with computers, and so on. And, as

we have seen, the early euphoria around the dot.com bubble has given rise to a much more cau-

tious advance in Internet-based business. The point is that whatever the dominant technological,

social or market conditions, the key to creating – and

sustaining competitive advantage is likely to lie with

those organizations which continually innovate.

Table 1.1 indicates some of the ways in which

enterprises can obtain strategic advantage through

innovation.

Activity applying strategic advantage

through innovation is available in

your interactive e-book at

www.innovation-portal.info

TABLE 1.1 Strategic advantages through innovation

Mechanism Strategic advantage Examples

Novelty in product

or service offering

Offering something no one

else can

Introducing the  rst . . . Walkman, mobile

phone, fountain pen, camera, dishwasher,

telephone bank, on-line retailer, etc. . . . to

the world

Novelty in process Offering it in ways others

cannot match – faster, lower

cost, more customized, etc.

Pilkington's  oat glass process, Bessemer's

steel process, Internet banking, on-line

bookselling, etc.

Complexity Offering something which

others  nd it dif cult to

master

Rolls-Royce and aircraft engines – only

a handful of competitors can master the

complex machining and metallurgy involved

Legal protection

of intellectual

property

Offering something which

others cannot do unless they

pay a licence or other fee

Blockbuster drugs like Zantac, Prozac,

Viagra, etc.

Add/extend range

of competitive

factors

Move basis of competition –

e.g. from price of product to

price and quality, or price,

quality, choice, etc.

Japanese car manufacturing, which systematically

moved the competitive agenda from price to

quality, to  exibility and choice, to shorter times

between launch of new models, and so on – each

time not trading these off against each other but

offering them all

Timing First-mover advantage –

being  rst can be worth

signi cant market share in

new product  elds

Amazon.com, Google – others can follow,

but the advantage 'sticks' to the early movers

Fast follower advantage –

sometimes being  rst

means you encounter

many unexpected teething

problems, and it makes

better sense to watch

someone else make the

early mistakes and move

fast into a follow-up product

Personal digital assistants (PDAs), which

captured a huge and growing share of the

market and then found their functionality

absorbed into mobile phones and tablet

devices. In fact the concept and design

was articulated in Apple's ill-fated Newton

product some  ve years earlier – but

problems with software and especially

handwriting recognition meant it  opped

(continued )

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Chapter 1 ● Innovation – What it is and Why it Matters

TABLE 1.1 (Continued )

Mechanism Strategic advantage Examples

Robust /platform

design

Offering something which

provides the platform on

which other variations and

generations can be built

Walkman architecture – through minidisk,

CD, DVD, MP3 . . .

Boeing 737 – over 50 years old, the design is

still being adapted and con gured to suit different

users – one of the most successful aircraft in the

world in terms of sales

Intel and AMD with different variants of their

microprocessor families

Rewriting the rules Offering something which

represents a completely

new product or process

concept– a different way of

doing things—and makes

the old ones redundant

Typewriters vs. computer word processing,

ice vs. refrigerators, electric vs. gas or

oil lamps

Recon guring

the parts of the

process

Rethinking the way in which

bits of the system work

together – e.g. building more

effective networks, out-

sourcing and co-ordination

of a virtual company, etc.

Zara, Benetton in clothing, Dell in computers,

Toyota in its supply chain management

Transferring

across different

application

contexts

Recombining established

elements for different

markets

Polycarbonate wheels transferred from

application market like rolling luggage into

children's toys – lightweight micro-scooters

Others? Innovation is all about  nding

new ways to do things and to

obtain strategic advantage –

so there will be room for new

ways of gaining and retaining

advantage

Napster. This  rm began by writing software

which would enable music fans to swap their

favourite pieces via peer-to-peer (P2P) networking

across the Internet. Although Napster suffered

from legal issues followers developed a huge

industry based on downloading and  le sharing.

The experiences of one of these  rms – Kazaa –

provided the platform for successful high volume

internet telephony and the company established

with this knowledge – Skype – was sold to eBay

for $2.6bn and eventually to Microsoft

for $8.5bn.

1.5 Old Question, New Context

Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlast-

ing uncertainty . . . all old-established national industries have been destroyed or are daily being

destroyed. They are dislodged by new industries . . . whose products are consumed not only at home

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Part I ● Managing Innovation

but in every quarter of the globe. In place of old wants satis ed by the production of the country,

we  nd new wants . . . the intellectual creativity of individual nations become common property.

This quote does not come from a contemporary journalist or politician but from the

Communist Manifesto, published by Karl Marx and Friedrich Engels in 1848! But it serves to

remind us that the innovation challenge isn't new – organizations have always had to think

about changing what they offer the world and the ways they create and deliver that offering

if they are to survive and grow. The trouble is that innovation involves a moving target – not

only is there competition amongst players in the game but the overall context in which the

game is played out keeps shifting. And whilst many organizations have some tried and tested

recipes for playing the game there is always the risk that the rules will change and leave them

vulnerable. Changes along several core environmental dimensions mean that the incidence

of discontinuities is likely to rise – for example, in response to a massive increase in the rate

of knowledge production and the consequent increase in the potential for technology-linked

instabilities. But there is also a higher level of interactivity amongst these environmental

elements – complexity – which leads to unpredictable emergence. (For example, the rapidly

growing  eld of VoIP (Voice over Internet Protocol) communications is not developing along

established trajectories towards a well-de ned end-point. Instead it is a process of emergence.

The broad parameters are visible – the rise of demand

for global communication, increasing availability of

broadband, multiple peer-to-peer networking models,

growing technological literacy amongst users – and

the stakes are high, both for established  xed-line

players (who have much to lose) and new entrants

(such as Skype). The dominant design isn't visible yet – instead there is a rich fermenting soup

of technological possibilities, business models and potential players from which it will gradu-

ally emerge).

Table 1.2 summarizes some of the key changes in the context within which the current inno-

vation game is being played out.

The dif culties of a  rm like Kodak illustrate the problem. Founded around 100 years ago the basis

of the business was the production and processing of  lm and the sales and service associated with

mass-market photography. Whilst the latter set of competencies is still highly relevant (even though

camera technology has shifted) the move away from wet physical chemistry conducted in the dark

(coating emulsions onto  lms and paper) to digital imaging represented a profound change for the

 rm. It needed – across a global operation and a workforce of thousands – to let go of old com-

petencies which are unlikely to be needed in the future whilst at the same time to rapidly acquire

and absorb cutting edge new technologies in electronics and communication. Although they made

strenuous efforts to shift from being a manufacturer of  lm to becoming a key player in the digital

imaging industry and beyond, they found the transition very dif cult and in 2012 they  led for

Chapter 11 bankruptcy protection.

Signi cantly this was not the end of the company; instead it regrouped around other core

technologies and developed new directions for innovation led growth in  elds like high speed, high

volume printing.

CASE STUDY 1.2

Case Study describing Kodak is

available in your interactive e-book at

www.innovation-portal.info

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TABLE 1.2 Changing context for innovation (based on

)

Context change Indicative examples

Acceleration of knowledge

production

OECD estimates that around $750bn is spent each year

(public and private sector) in creating new knowledge – and

hence extending the frontier along which 'breakthrough'

technological developments may happen

Global distribution of

knowledge production

Knowledge production is increasingly involving new players

especially in emerging market  elds like the BRIC (Brazil, Russia,

India, China) nations – so the need to search for innovation

opportunities across a much wider space. One consequence of

this is that 'knowledge workers' are now much more widely

distributed and concentrated in new locations – for example,

Microsoft's third largest R&D Centre employing thousands of

scientists and engineers is now in Shanghai.

Market expansion Traditionally much of the world of business has focused on the

needs of around 1 billion people since they represent wealthy

enough consumers. But the world's population has just passed

the 7 billion mark and population – and by extension market –

growth is increasingly concentrated in non-traditional areas like

rural Asia, Latin America and Africa. Understanding the needs

and constraints of this 'new' population represents a signi cant

challenge in terms of market knowledge.

Market fragmentation Globalization has massively increased the range of markets and

segments so that these are now widely dispersed and locally

varied – putting pressure on innovation search activity to cover

much more territory, often far from 'traditional' experiences –

such as the 'bottom of the pyramid' conditions in many emerging

markets.

or along the so-called long tail – the large number

of individuals or small target markets with highly differentiated

needs and expectations.

Market virtualization The emergence of large-scale social networks in cyberspace

pose challenges in market research approaches – for example,

Facebook with 800 million members is technically the third

largest country in the world by population. Further challenges

arise in the emergence of parallel world communities – for

example, Second Life now has over 6 million 'residents', whilst

World of Warcraft has over 10 million players.

Rise of active users Although users have long been recognized as a source of

innovation there has been an acceleration in the ways in which

this is now taking place – for example, the growth of Linux has

been a user-led open community development.

In sectors like

media the line between consumers and creators is increasingly

blurred – for example, YouTube has around 100 million videos

viewed each day but also has over 70 000 new videos uploaded

every day from its user base.

(continued )

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Part I ● Managing Innovation

1.6 What is Innovation?

One of America's most successful innovators was Thomas Alva Edison who during his life

registered over 1000 patents. Products for which his organization was responsible include the

light bulb, 35mm cinema  lm and even the electric chair. Edison appreciated better than most

that the real challenge in innovation was not invention – coming up with good ideas – but

in making them work technically and commercially. His skill in doing this created a business

empire worth, in 1920, around $21.6bn. He put to good use an understanding of the interac-

tive nature of innovation, realizing that both technology push (which he systematized in one of

the world's  rst organized R&D laboratories) and demand pull need to be mobilized.

His work on electricity provides a good example of this; Edison recognized that although

the electric light bulb was a good idea it had little practical relevance in a world where there was

no power point to plug it into. Consequently, his team set about building up an entire electricity

generation and distribution infrastructure, including designing lamp stands, switches and wiring.

In 1882 he switched on the power from the  rst electric power generation plant in Manhattan

and was able to light up 800 bulbs in the area. In the years that followed he built over 300 plants

all over the world.

As Edison realized, innovation is more than simply coming up with good ideas; it is the process

of growing them into practical use.

De nitions of innovation may vary in their wording, but they

all stress the need to complete the development and exploitation aspects of new knowledge, not just

its invention. Some examples are given in Research Note 1.3.

If we only understand part of the innovation process, then the behaviours we use in managing

it are also likely to be only partially helpful – even if well intentioned and executed. For example,

innovation is often confused with invention – but the latter is only the  rst step in a long process

of bringing a good idea to widespread and effective use. Being a good inventor is – to contradict

Growing concern with

sustainability issues

Major shifts in resource and energy availability prompting search for

new alternatives and reduced consumption. Increasing awareness

of impact of pollution and other negative consequences of high

and unsustainable growth. Concern over climate change. Major

population growth and worries over ability to sustain living standards

and manage expectations. Increasing regulation on areas like

emissions, carbon footprint.

Development of technological

and social infrastructure

Increasing linkages enabled by information and communications

technologies around the Internet and broadband have enabled and

reinforced alternative social networking possibilities. At the same

time the increasing availability of simulation and prototyping tools

have reduced the separation between users and producers

27, 28

Source: Based on J. Bessant and T. Venables (2008) Creating Wealth from Knowledge: Meeting the Innovation

Challenge, Cheltenham: Edward Elgar.

TABLE 1.2 (Continued )

Context change Indicative examples

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Chapter 1 ● Innovation – What it is and Why it Matters

RESEARCH NOTE 1.3

What is Innovation?

One of the problems in managing innovation is variation in what people understand by the term, often

confusing it with invention. In its broadest sense the term comes from the Latin – innovare – meaning

'to make something new'. Our view, shared by the following writers, assumes that innovation is a

process of turning opportunity into new ideas and of putting these into widely used practice.

'Innovation is the successful exploitation of new ideas'

– Innovation Unit, UK Department of Trade and Industry (2004).

'Industrial innovation includes the technical, design, manufacturing, management and

commercial activities involved in the marketing of a new (or improved) product or the  rst

commercial use of a new (or improved) process or equipment'

– Chris Freeman (1982) The Economics of Industrial Innovation,

2nd edn. Frances Pinter, London.

'. . . 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)'

– Roy Rothwell and Paul Gardiner (1985) 'Invention, innovation,

re-innovation and the role of the user', Technovation, 3, 168.

'Innovation is the speci c 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 practised'

– Peter Drucker (1985), Innovation and Entrepreneurship.

Harper & Row, New York.

'Companies achieve competitive advantage through acts of innovation. They approach inno-

vation in its broadest sense, including both new technologies and new ways of doing things'

– Michael Porter (1990) The Competitive Advantage of Nations.

Macmillan, London.

'An innovative business is one which lives and breathes 'outside the box'. It is not just good

ideas, it is a combination of good ideas, motivated staff and an instinctive understanding

of what your customer wants'

– Richard Branson (1998) DTI Innovation Lecture.

Emerson* – no guarantee of commercial success and no matter how good the better mousetrap

idea, the world will only beat a path to the door if attention is also paid to project management,

market development,  nancial management, organizational behaviour and so on. Case Study 1.3

gives some examples which highlight the difference between invention and innovation.

*'If a man has good corn, or wood, or boards, or pigs to sell, or can make better chairs or knives, crucibles or church

organs than anybody else, you will  nd a broad-beaten road to his home, though it be in the woods.' (Entry in his journal

1855, Ralph Waldo Emerson)

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Part I ● Managing Innovation

Invention and Innovation

In fact, some of the most famous inventions of the nineteenth century came from men whose names

are forgotten; the names which we associate with them are of the entrepreneurs who brought them

into commercial use. For example, the vacuum cleaner was invented by one J. Murray Spengler and

originally called an 'electric suction sweeper'. He approached a leather goods maker in the town

who knew nothing about vacuum cleaners but had a good idea of how to market and sell them – a

certain W.H. Hoover. Similarly, a Boston man called Elias Howe produced the world's  rst sewing

machine in 1846. Unable to sell his ideas despite travelling to England and trying there, he returned

to the USA to  nd one Isaac Singer had stolen the patent and built a successful business from it.

Although Singer was eventually forced to pay Howe a royalty on all machines made, the name which

most people now associate with sewing machines is Singer not Howe. And Samuel Morse, widely

credited as the father of modern telegraphy, actually invented only the code which bears his name;

all the other inventions came from others. What Morse brought was enormous energy and a vision

of what could be accomplished; to realize this he combined marketing and political skills to secure

state funding for development work, and to spread the concept of something which for the  rst time

would link up people separated by vast distances on the continent of America. Within  ve years of

demonstrating the principle there were over 5000 miles of telegraph wire in the USA and Morse was

regarded as 'the greatest man of his generation'.

CASE STUDY 1.3

(continued )

Although innovation is increasingly seen as a powerful way of securing competitive advantage and

a more secure approach to defending strategic positions, success is by no means guaranteed. The

history of product and process innovations is littered with examples of apparently good ideas which

failed – in some cases with spectacular consequences. For example:

• In 1952 Ford engineers began working on a new car to counter the mid-size models offered by

GM and Chrysler – the 'E' car. After an exhaustive search for a name involving some 20 000 sug-

gestions the car was  nally named after Edsel Ford, Henry Ford's only son. It was not a success;

when the  rst Edsels came off the production line Ford had to spend an average of $10 000 per

car (twice the vehicle's cost) to get them roadworthy. A publicity plan was to have 75 Edsels drive

out on the same day to local dealers; in the event the  rm only managed to get 68 to go, whilst in

another live TV slot the car failed to start. Nor were these just teething troubles; by 1958 consumer

indifference to the design and concern about its reputation led the company to abandon the car – at

a cost of $450m and 110 847 Edsels.

• During the latter part of the World War II it became increasingly clear that there would be a

bigmarket for long-distance airliners, especially on the trans-Atlantic route. One UK contender

Innovation isn't Easy . . .

BOX 1.3

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Chapter 1 ● Innovation – What it is and Why it Matters

was the Bristol Brabazon, based on a design for a giant long-range bomber which was approved

by the Ministry of Aviation for development in 1943. Consultation with BOAC, the major

customer for the new airliner, was 'to associate itself closely with the layout of the aircraft and

its equipment' but not to comment on issues like size, range and payload! The budget rapidly

escalated, with the construction of new facilities to accommodate such a large plane and, at one

stage, the demolition of an entire village in order to extend the runway at Filton, near Bristol.

Project control was weak and many unnecessary features were included – for example, the mock-

up contained 'a most magni cent ladies' powder room with wooden aluminium-painted mirrors

and even receptacles for the various lotions and powders used by the modern young lady'. The

prototype took six and a half years to build and involved major technical crises with wings and

engine design; although it  ew well in tests the character of the post-war aircraft market was

very different from that envisaged by the technologists. Consequently in 1952, after  ying less

than 1000 miles, the project was abandoned at considerable cost to the taxpayer. The parallels

with the Concorde project, developed by the same company on the same site a decade later, are

hard to escape.

• During the late 1990s revolutionary changes were going on in mobile communications involv-

ing many successful innovations – but even experienced players can get their  ngers burned.

Motorola launched an ambitious venture which aimed to offer mobile communications from

literally anywhere on the planet – including the middle of the Sahara Desert or the top of Mount

Everest! Achieving this involved a $7bn project to put 88 satellites into orbit, but despite the costs

Iridium – as the venture was known – received investment funds from major backers and the

network was established. The trouble was that, once the novelty had worn off, most people real-

ized that they did not need to make many calls from remote islands or at the North Pole and that

their needs were generally well met with less exotic mobile networks based around large cities and

populated regions. Worse, the handsets for Iridium were large and clumsy because of the complex

electronics and wireless equipment they had to contain – and the cost of these hi-tech bricks was a

staggering $3000! Call charges were similarly highly priced. Despite the incredible technological

achievement which this represented the take-up of the system never happened, and in 1999 the

company  led for Chapter 11 bankruptcy. Its problems were not over – the cost of maintain-

ing the satellites safely in orbit was around $2m per month. Motorola who had to assume the

responsibility had hoped that other telecoms  rms might take advantage of these satellites, but

after no interest was shown they had to look at a further price tag of $50m. to bring them out of

orbit and destroy them safely! Even then the plans to allow them to drift out of orbit and burn up

in the atmosphere were criticized by NASA for the risk they might pose in starting a nuclear war,

since any pieces which fell to earth would be large enough to trigger Russian anti-missile defences

since they might appear not as satellite chunks but Moscow-bound missiles!

1.7 A Process View of Innovation

In this book we will make use of a simple model of innovation as the process of turning ideas

into reality and capturing value from them. We will explain the model in more detail in the next

chapter but it's worth introducing it here. There are four key phases, each of which requires

dealing with particular challenges – and only if we can manage the whole process is innovation

likely to be successful.

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Part I ● Managing Innovation

Phase one involves the question of search . To take a biological metaphor, we need to

generate variety in our gene pool – and we do this by bringing new ideas to the system. These

can come from R&D, 'Eureka' moments, copying, market signals, regulations, competitor

behaviour – the list is huge but the underlying challenge is the same – how do we organize

an effective search process to ensure a steady  ow of 'genetic variety' which gives us a better

chance of surviving and thriving?

But simply generating variety isn't enough – we need to select from that set of options the

variants most likely to help us grow and develop. Unlike natural selection where the process

is random we are concerned here with some form of strategic choice – out of all the things

we could do, what are we going to do – and why? This process needs to take into account

competitive differentiation – which choices give us the best chance of standing out from the

crowd? – and previous capabilities – can we build on what we already have or is this a step

into the unknown . . .?

Generating and selecting still leaves us with the huge problem of actually making it happen –

committing our scarce resources and energies to doing something different. This is the challenge of

implementation – converting ideas into reality. The task is essentially one of managing a growing

commitment of resources – time, energy, money and above all mobilizing knowledge of different

kinds – against a background of uncertainty. Unlike conventional project management the innova-

tion challenge is about developing something which may never have been done before – and the

only way we know whether or not we will succeed is by trying it out.

Here the biological metaphor comes back into play – it is a risky business. We are betting –

taking calculated risks rather than random throws of the dice but nonetheless gambling – that

we can make this new thing happen (manage the complex project through to successful comple-

tion) and that it will deliver us the calculated value which exceeds or at least equals what we

put into it. If it is a new product or service – the market will rush to our stall to buy what we

are offering, or if it is a new process, our internal market will buy into the new way of doing

things and we will become more effective as a result. If it is a social innovation, can we manage

to make the world a better place in ways which justify the investment we put in?

Finally we need to consider the challenge of capturing value from our innovative efforts.

How will we ensure that the efforts have been justi ed – in commercial terms or in terms of cre-

ating social value? How will we protect the gains from appropriation by others? And how might

we learn from the experience and capture useful leanring about how to improve the innovation

process in the future?

Viewed in this way the innovation task looks deceptively simple. The big question is, of

course, how to make it happen? This has been the subject of intensive study for a long period

of time – plenty of practitioners have not only left us their innovations but also some of their

accumulated wisdom, lessons about managing the process which they have learned the hard way.

And a growing academic community has been working on trying to understand in a systematic

fashion questions about not only the core process but also the conditions under which it is

likely to succeed or fail. This includes knowledge about the kind of things which in uence and

help/hinder the process – essentially boiling down to having a clear and focused direction (the

underpinning 'why' of the selection stage) and creating the organizational conditions to allow

focused creativity.

The end effect is that we have a rich – and convergent – set of recipes which go a long way

towards helping answer the practising manager's question when confronted with the problem of

organizing and managing innovation – 'what do I do on Monday morning?'. Exploring this in

greater detail provides the basis for the rest of the book.

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Chapter 1 ● Innovation – What it is and Why it Matters

1.8 Scope for/Types of Innovation

If innovation is a process we need to consider the output of that process. In what ways can we

innovate – what kinds of opportunities exist for use to create something different and capture

value from bringing those ideas into the world?

Sometimes it is about completely new possibilities – for example, by exploiting radical break-

throughs in technology. For example, new drugs based on genetic manipulation have opened

a major new front in the war against disease. Mobile phones, PDAs and other devices have

'There is nothing more dif cult to take in hand, more perilous to conduct, or more uncer-

tain in its success, than to take the lead in the introduction of a new order of things.'

– Niccolo Machiavelli, The Prince, 1532

'Anything that won't sell, I don't want to invent. Its sale is proof of utility, and utility is

success.'

'Everything comes to him who hustles while he waits.'

'Genius is one percent inspiration and ninety-nine percent perspiration.'

'I never did anything by accident, nor did any of my inventions come by accident; they

came by work.'

'Make it a practice to keep on the lookout for novel and interesting ideas that others have

used successfully. Your idea has to be original only in its adaptation to the problem you

are working on.'

– Thomas A. Edison

'Managing and innovation did not always  t comfortably together. That's not surprising.

Managers are people who like order. They like forecasts to come out as planned. In fact,

managers are often judged on how much order they produce. Innovation, on the other

hand, is often a disorderly process. Many times, perhaps most times, innovation does not

turn out as planned. As a result, there is tension between managers and innovation.'

– Lewis Lehro, about the  rst years at 3M

'In the past, innovation was de ned largely by creativity and the development of new ideas.

Today the term encompasses coordinated projects directed toward honing these ideas and

converting them into developments that boost the bottom line.'

– Howard Smith, Computer Sciences Corporation

'To turn really interesting ideas and  edgling technologies into a company that can continue

to innovate for years, it requires a lot of disciplines.'

– Steve Jobs

VIEWS FROM THE FRONT LINE 1.1

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Part I ● Managing Innovation

revolutionized where and when we communicate. Even the humble window pane is the result of

radical technological innovation – almost all the window glass in the world is made these days

by the Pilkington  oat glass process which moved the industry away from the time consuming

process of grinding and polishing to get a  at surface.

Equally important is the ability to spot where and how new markets can be created and

grown. Alexander Bell's invention of the telephone didn't lead to an overnight revolution in

communications – that depended on developing the market for person-to-person communica-

tions. Henry Ford may not have invented the motor car but in making the Model T – 'a car for

Everyman' at a price most people could afford – he grew the mass market for personal transpor-

tation. And eBay justi es its multi-billion dollar price tag not because of the technology behind

its on-line auction idea but because it created and grew the market.

Innovation isn't just about opening up new markets – it can also offer new ways of serving

established and mature ones. Low-cost airlines are still about transportation – but the innovations

which  rms like Southwest Airlines, Easyjet and Ryanair have introduced have revolutionized

air travel and grown the market in the process. One challenging new area for innovation lies in

the previously underserved markets of the developing world – the 4 billion people who earn less

than $2/day. The potential for developing radically different innovative products and services

aimed at meeting the needs of this vast population at what C.K. Prahalad calls 'the bottom of the

pyramid' is huge – and the lessons learned may impact on established markets in the developed

world as well.

And it isn't just about manufactured products; in most economies the service sector

accounts for the vast majority of activity so there is likely to be plenty of scope. Lower capital

costs often mean that the opportunities for new entrants and radical change are greatest in

the service sector. On-line banking and insurance have become commonplace, but they have

radically transformed the ef ciencies with which those sectors work and the range of services

they can provide. New entrants riding the Internet wave have rewritten the rule book for a

wide range of industrial games – for example, Amazon in retailing, eBay in market trading

and auctions, Google in advertising, Skype in telephony. Others have used the web to help

them transform business models around things like low-cost airlines, on-line shopping and the

music business.

Four Dimensions of Innovation Space

Essentially we are talking about change, and this can take several forms; for the purposes of this

book we will focus on four broad categories:

• 'product innovation' – changes in the things (products/services) which an organization offers;

• 'process innovation' – changes in the ways in which they are created and delivered;

• 'position innovation' – changes in the context in which the products/services are introduced;

• 'paradigm innovation' – changes in the underlying mental models which frame what the

organization does.

Figure 1.1 shows how these '4Ps' provide the frame-

work for a map of the innovation space available to

any organization

and one example is the framework

applied to looking at a small  sh and chip shop business.

Video Clip showing Finnegan's

Fish Bar is available in your

interactive e-book at

www.innovation-portal.info

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Chapter 1 ● Innovation – What it is and Why it Matters

For example, a new design of car, 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 of ce 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 in 1927 as a glucose-based drink to help children and inva-

lids in convalescence. These associations with sickness were abandoned by the brand owners,

Beechams (now part of GSK), when they relaunched the product as a health drink aimed at the

growing  tness market where it is now presented as a performance-enhancing aid to healthy

exercise. This shift is a good example of 'position' innovation. In similar fashion Haagen Dazs

were able to give a new and pro table lease of life to an old-established product (ice cream)

made with well-known processes. Their strategy was to target a different market segment and

to reposition their product as a sensual pleasure to be enjoyed by adults – essentially telling an

'ice cream for grown ups' story.

'PARADIGM'

(MENTAL MODEL)

PROCESS

PRODUCT

(SERVICE)

POSITION

(incremental... radical)(incremental... radical)

(incremental... radical)

INNOVATION

FIGURE 1.1 The 4Ps of innovation space

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Part I ● Managing Innovation

Sometimes opportunities for innovation emerge when we reframe the way we look at some-

thing. Henry Ford fundamentally changed the face of transportation not because he invented the

motor car (he was a comparative latecomer to the new industry) nor 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 handmade specialist product to a few wealthy

customers to one which offered a car for Everyman at

a price they 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 making 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.

Recent examples of 'paradigm' innovation – changes in mental models – include the shift to

low-cost airlines, the provision of on-line insurance and other  nancial services, and the reposi-

tioning of drinks like coffee and fruit juice as premium 'designer' products. Although in its later

days Enron became infamous for  nancial malpractice it originally came to prominence as a

small gas pipeline contractor which realized the potential in paradigm innovation in the utilities

business. In a climate of deregulation and with global interconnection through grid distribution

systems energy and other utilities like telecommunications bandwidth increasingly became com-

modities which could be traded much as sugar or cocoa futures.

In their book Wikinomics Tapscott and Williams highlight the wave of innovation which follows

the paradigm change to 'mass collaboration' via the Internet which built on social networks and

communities. Companies like Lego and Adidas are rein-

venting themselves by engaging their users as designers

and builders rather than as passive consumers, whilst

others are exploring the potential of virtual worlds like

'Second Life'.

Concerns about global warming and

sustainability of key resources like energy and materials

are, arguably, setting the stage for some signi cant paradigm innovation across many sectors as

 rms struggle to rede ne themselves and their offerings to match these major social issues. The

Innovation Portal provides additional material describing case studies for Threadless and Adidas.

Table 1.3 provides some examples of innovations mapped on to the 4P framework.

Case Study describing the

Model T Ford is available in your

interactive e-book at

www.innovation-portal.info

Case Study describing Lego is

available in your interactive e-book at

www.innovation-portal.info

TABLE 1.3 Some examples of innovations mapped on to the 4Ps model

Innovation type Incremental – do what we do

but better

Radical – do something different

'Product' – what

we offer the

world

Windows 7 and 8 replacing Vista and

XP – essentially improving on existing

software idea

New versions of established car

models – e.g. the VW Golf essentially

improving on established car design

New to the world software – for

example the  rst speech recognition

program

Toyota Prius – bringing a new

concept – hybrid engines. Tesla –

high performance electric car.

(continued )

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Chapter 1 ● Innovation – What it is and Why it Matters

TABLE 1.3 (Continued )

Innovation type Incremental – do what we do

but better

Radical – do something different

Improved performance incandescent light

bulbs

CDs replacing vinyl records – essentially

improving on the storage technology

LED-based lighting, using completely

different and more energy ef cient

principles

Spotify and other music streaming

services – changing the pattern from

owning your own collection to renting

a vast library of music

Process – how

we create and

deliver that

offering

Improved  xed line telephone services

Extended range of stock broking services

Improved auction house operations

Improved factory operations ef ciency

through upgraded equipment

Improved range of banking services

delivered at branch banks

Improved retailing logistics

Skype and other VoIP systems

On-line share trading

eBay

Toyota Production System and other

'lean' approaches

Online banking and now mobile

banking in Kenya, Philippines –

using phones as an alternative to

banking systems

On-line shopping

Position –

where we target

that offering

and the story

we tell about it

Haagen Dazs changing the target market

for ice cream from children to consenting

adults

Airlines segmenting service offering for

different passenger groups – Virgin Upper

Class, BA Premium Economy, etc.

Dell and others segmenting and

customizing computer con guration for

individual users

On line support for traditional higher

education courses

Banking services targeted at key

segments – students, retired people, etc.

Addressing underserved markets –

for example the Tata Nano aimed at

emerging but relatively poor Indian

market with car priced around $2000.

Low-cost airlines opening up air

travel to those previously unable to

afford it – create new market and

also disrupt existing one

Variations on the 'One laptop per

child' project – e.g. Indian government

$20 computer for schools

University of Phoenix and others,

building large education businesses

via online approaches to reach

different markets

'Bottom of the pyramid' approaches

using a similar principle but tapping

into huge and very different high

volume/low margin markets –

Aravind eye care, Cemex

construction products

(continued )

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Part I ● Managing Innovation

TABLE 1.3 (Continued )

Innovation type Incremental – do what we do

but better

Radical – do something different

Paradigm – how

we frame what

we do

Bausch and Lomb – moved from 'eye

wear' to 'eye care' as their business

model, effectively letting go of the old

business of spectacles, sunglasses

(Raybans) and contact lenses all of which

were becoming commodity businesses.

Instead they moved into newer high tech

 elds like laser surgery equipment,

specialist optical devices and research

in arti cial eyesight

Dyson rede ning the home appliance

market in terms of high performance

engineered products

Rolls-Royce – from high quality aero

engines to becoming a service company

offering 'power by the hour'

IBM from being a machine maker to a

service and solution company – selling off

its computer making and building up its

consultancy and service side.

Grameen Bank and other

micro nance models – rethinking

the assumptions about credit and

the poor

iTunes platform – a complete system

of personalized entertainment

Cirque de Soleil – rede ning the

circus experience

Amazon, Google, Skype – rede ning

industries like retailing, advertising

and telecoms through online models

Linux, Mozilla, Apache – moving

from passive users to active

communities of users co-creating

new products and services

Mapping Innovation Space

The area indicated by the circle in Figure 1.2 is the potential innovation space within which an

organization can operate. (Whether it actually explores and exploits all the space is a question

for innovation strategy and we will return to this theme later in Chapter 3).

We can use the model to look at where the organization currently has innovation projects –

and where it might move in the future. For example, if the emphasis has been on product and

process innovation there may be scope for exploring

more around position innovation – which new or under-

served markets might we play in? Or we may explore

around de ning a new paradigm, a new business model

with which to approach the marketplace.

We can also compare maps for different organi-

zations competing in the same market – and use the

tool as a way of identifying where there might be rela-

tively unexplored space which might offer signi cant

innovation opportunities. By looking at where other

organizations are clustering their efforts we can pick

up valuable clues about how to  nd relatively uncontested space and focus our efforts on these –

as the low-cost airlines did with targeting new and underserved markets for travel.

Activity with an interactive exercise

using the 4Ps approach is available

in your interactive e-book at

www.innovation-portal.info

Tool using the 4Ps to explore

innovation space is available in

your interactive e-book at

www.innovation-portal.info

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Chapter 1 ● Innovation – What it is and Why it Matters

RESEARCH NOTE 1.4

Mapping Innovation Space

Figure 1.2 shows how the 4Ps approach was applied in a company (R&P Ltd) making garden machinery.

The diamond diagram provides an indication of where and how they could construct a broad-ranging

'innovation agenda'. Nine innovation activities were listed on the diamond chart, including:

• Building totally customized products for customer's individual orders (paradigm).

• Using sensors in the next generation of lawn mowers to avoid roots and stones (product).

• Repositioning the company's products as female-friendly as more women are keen gardeners

(position).

• Installing 3D design software in the R&D department (process).

The selection of just nine major innovation initiatives gave focus to R&P's innovation manage-

ment: the  rm considered that 'it is important not to try to do too much at once'. Some initiatives,

such as relaunching their trimmer as environmentally friendly, require both product and positional

innovation. Such interdependencies are clari ed by discussion on the placing of an initiative on the

diamond diagram. Also, the fact that the senior management group had the 4Ps on one sheet of paper

had the effect of enlarging choice – they saw completing the diagram as a tool for helping them think

in a systematic way about using the innovation capability of the  rm.

'Paradigm'

Build totally

customized

products for

individual

customers

Sub-contract

trimmer

manufacture

to firm in

Czech

Republic

ProductProcess

Use sensors in

new lawn

mower

Install 3D design

software

Track lead users to see

what products they feel

add value

Involve

customers in

new product

design

Relaunch trimmer

as environmentally

friendly

Link gardening

to home-

making in

advertising

Re-position

products as

'female friendly'

Position

FIGURE 1.2: Suggested innovations mapped on to the 4Ps framework

Source: based on Francis, D. and J. Bessant (2005) Targeting innovation and implications for capability

development. Technovation, 25 (3), 171–83.

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Part I ● Managing Innovation

1.9 Exploring Different Aspects of Innovation

The overall innovation space provides a simple map of the table on which we might place our

innovation bets. But before making those bets we should consider some of the other character-

istics of innovation which might shape our strategic decisions about where and when to play.

These key aspects include:

• 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.

We will explore these – and the challenges they pose for managing innovation – further in

the following section.

Incremental Innovation – Doing What We do but Better

A key issue in managing innovation relates to the degree of novelty involved in different places

across the innovation space. 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, increasing 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 common 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.

As far as managing the innovation process is concerned, these differences are important. The

ways in which we approach incremental, day-to-day change will differ from those used occasion-

ally to handle a radical step change in product or process. But we should also remember that it

is the perceived degree of novelty which matters; novelty is very much in the eye of the beholder.

For example, in a giant, technologically advanced organization like Shell or IBM advanced net-

worked information systems are commonplace, but for a small car dealership or food processor

even the use of a simple PC to connect to the Internet may still represent a major challenge.

The reality is that although innovation sometimes involves a discontinuous shift, most of the

time it takes place in incremental fashion. Essentially this is product/process improvement along

the lines of 'doing what we do, but better' – and there is plenty to commend this approach. For

example, the Bic ballpoint pen was originally developed in 1957 but remains a strong product

with daily sales of 14 million units worldwide. Although super cially the same shape, closer

inspection reveals a host of incremental changes that have taken place in materials, inks, ball

technology, safety features, and so on. Products are rarely 'new to the world', process innovation

is mainly about optimization and getting the bugs out of the system. (Ettlie suggests disruptive or

new to the world innovations are only 6% to 10% of all projects labelled innovation.)

Studies

of incremental process development (such as Hollander's famous study of Du Pont rayon plants)

suggest that the cumulative gains in ef ciency are often much greater over time than those which

come from occasional radical changes.

Other examples include Tremblay's studies of paper

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Chapter 1 ● Innovation – What it is and Why it Matters

mills, Enos on petroleum re ning and Figueredo's of

steel plants.

37–39

The Innovation Portal provides addi-

tional case studies describing various examples of con-

tinuous improvement innovation – Hosiden Besson,

NPI, Kumba Resources and Forte's Bakery.

Continuous improvement of this kind has received

considerable attention in recent years, originally as part of the 'total quality management' move-

ment in the late twentieth century, re ecting the signi cant gains which Japanese manufacturers

were able to make in improving quality and productivity through sustained incremental change.

But these ideas are not new – similar principles underpin the famous 'learning curve' effect where

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 intro-

duction of a new product or process.

More recent experience of deploying 'lean' thinking in

manufacturing and services and increasingly between, as well as within, enterprises underlines

further the huge scope for such continuous innovation.

The Innovation Portal provides addi-

tional tools and techniques – 'lean toolbox' and 'continuous improvement'.

Platform Innovation

One way in which the continuous incremental innovation approach can be harnessed to good

effect is through the concept of 'platforms'. This is a way of creating stretch and space around

an innovation and depends on being able to establish a strong basic platform or family which

can be extended. Boeing's 737 airliner, for example, was a major breakthrough innovation

back in 1967 when it  rst  ew – and it cost a great deal to develop. However, the robustness

and  exibility in the design means that many variants and improvements have been made over

the years and the plane is still being manufactured today, nearly 60 years later! Rothwell and

Gardiner call this kind of platform a 'robust design' and examples can be seen in many areas.

Aircraft engine makers like Rolls-Royce and General Electric work with families of core designs

which they stretch and adapt to suit different needs, while semiconductor manufacturers like

Intel and AMD spread the huge cost of developing new generations of chip across many product

variants – for example in the Pentium chipset.

Car makers produce models which, although

apparently different in style, make use of common components and  oor pans or chassis. And in

consumer products the 'Walkman' originally developed by Sony as a portable radio and cassette

system de ned a platform concept (personal entertainment systems) which continues to underpin

a wide range of offerings from all major manufacturers deploying technologies like minidisk,

CD, DVD and MP3 players.

In processes much has been made of the ability to enhance and improve performance over

many years from the original design concepts – in  elds like steel-making and chemicals, for

example. Service innovation offers other examples where a basic concept can be adapted and tai-

lored for a wide range of similar applications without undergoing the high initial design costs – as

is the case with different mortgage or insurance products. Sometimes platforms can be extended

across different sectors – for example, the original ideas behind 'lean' thinking originated in

 rms like Toyota in the  eld of car manufacturing – but have subsequently been applied across

many other manufacturing sectors and into both public and private service applications including

hospitals, supermarkets and banks.

Platforms and families are powerful ways for companies to recoup their high initial investments

in R&D by deploying the technology across a number of market  elds. For example, Procter&

Gamble invested heavily in their cyclodextrin development for original application in detergents, but

Video Clip showing Veeder-Root is

available in your interactive e-book at

www.innovation-portal.info

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Part I ● Managing Innovation

then were able to use this technology or variants on it in a family of products including odour con-

trol ('Febreze'), soaps and  ne fragrances ('Olay'), off- avour food control, disinfectants, bleaches

and fabric softening ('Tide', 'Bounce', etc.). They were also able to license out the technology for

use in non-competing areas like industrial scale carpet care and in the pharmaceutical industry.

If we take the idea of 'position' innovation mentioned earlier then the role of brands can be

seen as establishing a strong platform association which can be extended beyond an initial prod-

uct or service. For example, Richard Branson's Virgin brand has successfully provided a platform

for entry into a variety of new  elds including trains,  nancial services, telecommunications and

food, whilst Stelios Haji-Ioannou has done something similar with his 'Easy' brand, moving into

cinemas, car rental, cruises and hotels from the original base in low-cost  ying.

In their work on what they call 'management innovation' Julian Birkinshaw and Gary Hamel

highlight a number of core organizational innovations (such as 'total quality management' which

have diffused widely across sectors.

These are essentially paradigm innovations which rep-

resent concepts which can be shaped and stretched to  t a variety of different contexts – for

example, Henry Ford's original ideas on mass produc-

tion became applied and adapted to a host of other

industries. McDonalds owed much of their inspiration

to him in designing their fast food business and in turn

they were a powerful in uence on the development of

the Aravind eye clinics in India which bring low-cost

eye surgery to the masses.

The Innovation Portal provides additional case studies describing

cross-sector diffusion – NHL Hospitals and Lifespring Hospitals.

Discontinuous Innovation – What Happens When the Game Changes?

Most of the time innovation takes place within a set of

rules which are clearly understood, and involves players

trying to innovate by doing what they have been doing

(product, process, position, etc.) but better. Some man-

age this more effectively than others but the 'rules of the

game' are accepted and do not change.

But occasionally something happens which dislocates this framework and changes the rules

of the game. By de nition these are not everyday events, but they have the capacity to rede ne

the space and the boundary conditions – they open up new opportunities, but also challenge

existing players to reframe what they are doing in the light of new conditions.

48, 49

This is a

central theme in Schumpeter's original theory of innovation which he saw as involving a process

of 'creative destruction'.

14, 22

Case Study describing Aravind Eye

Clinics is available in your interactive

e-book at www.innovation-portal.info

Activity using patterns of

discontinuous innovation is available

in your interactive e-book at

www.innovation-portal.info

The Melting Ice Industry

Back in the 1880s there was a thriving industry in the north-eastern United States in the lucrative

business of selling ice. The business model was deceptively simple – work hard to cut chunks of ice

out of the frozen northern wastes, wrap the harvest quickly and ship it as quickly as possible to the

CASE STUDY 1.4

(continued )

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Chapter 1 ● Innovation – What it is and Why it Matters

Change of this kind can come through the emergence of a new technology – like the ice

industry example (see Case Study 1.4). Or it can come through the emergence of a completely

new market with new characteristics and expectations. In his famous studies of the computer

disk drive, steel and hydraulic excavator industries Christensen highlights the problems which

arise under these conditions. For example, the disk drive industry was a thriving sector in which

the voracious demands of a growing range of customer industries meant there was a booming

market for disk drive storage units. Around 120 players populated what had become an industry

worth $18bn by 1995 – and – like their predecessors in ice harvesting – it was a richly innova-

tive industry. Firms worked closely with their customers, understanding the particular needs and

demands for more storage capacity, faster access times, smaller footprints, and so on. But just

like our ice industry, the virtuous circle around the original computer industry was broken – in

this case not by a radical technological shift, but by the emergence of a new market with very

different needs and expectations.

The key point about this sector was that disruption happened not once but several times,

involving different generations of technologies, markets and participating  rms. For example,

whilst the emphasis in the mini-computer world of the mid-1970s was on high performance and

the requirement for storage units correspondingly technologically sophisticated, the emerging

market for personal computers had a very different shape. These were much less clever machines,

capable of running much simpler software and with massively inferior performance – but at a

price which a very different set of people could afford. Importantly although simpler they were

warmer southern states – and increasingly overseas – where it could be used to preserve food. In its

heyday this was a big industry – in 1886 the record harvest ran to 25 million tons – and it employed

thousands of people in cutting, storing and shipping the product. And it was an industry with strong

commitment to innovation – developments in ice cutting, snow ploughs, insulation techniques and

logistics underpinned the industry's strong growth. The impact of these innovations was signi cant –

they enabled, for example, an expansion of markets to far- ung locations like Hong Kong, Bombay

and Rio de Janeiro where, despite the distance and journey times, suf cient ice remained of cargoes

originally loaded in ports like Boston to make the venture highly pro table.

But at the same time as this highly ef cient system was growing researchers like the young Carl

von Linde were working in their laboratories on the emerging problems of refrigeration. It wasn't

long before arti cial ice-making became a reality – Joseph Perkins had demonstrated that vaporizing

and condensing a volatile liquid in a closed system would do the job and in doing so outlined the

basic architecture which underpins today's refrigerators. In 1870 Linde published his research and by

1873 a patented commercial refrigeration system was on the market. In the years which followed the

industry grew – in 1879 there were 35 plants and 10 years later 222 making arti cial ice. Effectively

this development sounded the death knell for the ice harvesting industry – although it took a long

time to go under. For a while both industries grew alongside each other, learning and innovating

along their different pathways and expanding the overall market for ice – for example, by feeding the

growing urban demand to  ll domestic 'ice boxes'. But inevitably the new technology took over as the

old harvesting model reached the limits of what it could achieve in terms of technological ef ciencies.

Signi cantly most of the established ice harvesters were too locked in to the old model to make the

transition and so went under – to be replaced by the new refrigeration industry dominated by new

entrant  rms.

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Part I ● Managing Innovation

capable of doing most of the basic tasks which a much wider market was interested in – simple

arithmetical calculations, word processing and basic graphics. As the market grew so learning

effects meant that these capabilities improved but from a much lower cost base. The result was,

in the end, just like that of Linde and his contemporaries on the ice industry – but from a differ-

ent direction. Of the major manufacturers in the disk drive industry serving the mini-computer

market only a handful survived – and leadership in the new industry shifted to new entrant  rms

working with a very different model.

Technological Excellence May Not be Enough . . .

In the 1970s Xerox was the dominant player in photocopiers, having built the industry from its early

days when it was founded on the radical technology pioneered by Chester Carlsen and the Battelle

Institute. But despite their prowess in the core technologies and continuing investment in maintaining

an edge it found itself seriously threatened by a new generation of small copiers developed by new

entrants including several Japanese players. Despite the fact that Xerox had enormous experience

in the industry and a deep understanding of the core technology it took them almost eight years of

mishaps and false starts to introduce a competitive product. In that time Xerox lost around half its

market share and suffered severe  nancial problems. As Henderson and Clark put it, in describing this

case, 'apparently modest changes to the existing technology . . . have quite dramatic consequences'.

In similar fashion in the 1950s the electronics giant RCA developed a prototype portable

transistor-based radio using technologies which it had come to understand well. However, it saw

little reason to promote such an apparently inferior technology and continued to develop and build

its high range devices. By contrast Sony used it to gain access to the consumer market and to build

a whole generation of portable consumer devices – and in the process acquired considerable tech-

nological experience which enabled them to enter and compete successfully in higher value more

complex markets.

CASE STUDY 1.5

Discontinuity can also come about by reframing the way we think about an industry – changing

the dominant business model and hence the 'rules of the game'. Think about the revolution in  y-

ing which the low-cost carriers have brought about. Here the challenge came via a new business

model rather than technology – based on the premise that if prices could bekept low a large new

market could be opened up. The power of the new way of framing the business was that it opened

up a new – and very different – trajectory along which all sorts of innovations began to happen.

In order to make low prices pay a number of problems needed solving – keeping load factors high,

cutting administration costs, enabling rapid turnaround times at terminals – but once the model

began to work it attracted not only new customers but increasingly established  yers who saw the

advantages of lower prices.

What these – and many other examples – have in common is that they represent the challenge

of discontinuous innovation. None of the industries were lacking in innovation or a commitment

to further change. But the ice harvesters, mini-computer disk companies or the established airlines

all carried on their innovation on a stage covered with a relatively predictable carpet. The trouble

was that shifts in technology, in new market emergence or in new business models pulled this

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Chapter 1 ● Innovation – What it is and Why it Matters

carpet out from under the  rms – and created a new set of conditions on which a new game would

be played out. Under such conditions, it is the new players who tend to do better because they

don't have to wrestle with learning new tricks and letting go of their old ones. Established players

often do badly – in part because the natural response is to press even harder on the pedal driving

the existing ways of organizing and managing innovation. In the ice industry example the problem

was not that the major players weren't interested in R&D – on the contrary they worked really

hard at keeping a technological edge in insulation, harvesting and other tools. But they were blind-

sided by technological changes coming from a different  eld altogether – and when they woke up

to the threat posed by mechanical ice-making their response was to work even harder at improving

their own ice harvesting and shipping technologies. It is here that the so-called 'sailing ship' effect

can often be observed, in which a mature technology accelerates in its rate of improvement as a

response to a competing new alternative – as was the case with the development of sailing ships

in competition with newly-emerging steamship technology.

In similar fashion the problem for the  rms in the disk drive industry wasn't that they didn't

listen to customers but rather that they listened too well. They built a virtuous circle of demand-

ing customers in their existing marketplace with whom they developed a stream of improvement

innovations – continuously stretching their products and processes to do what they were doing

better and better. The trouble was that they were getting close to the wrong customers – the dis-

continuity which got them into trouble was the emergence of a completely different set of users

with very different needs and values.

Table 1.4 gives some examples of such triggers for discontinuity. Common to these from an

innovation management point of view is the need to recognize that under discontinuous condi-

tions (which thankfully don't emerge every day) we need different approaches to organizing and

managing innovation. If we try and use established models which work under steady state condi-

tions we  nd – as is the reported experience of many – we are increasingly out of our depth and

risk being upstaged by new and more agile players.

(continued )

Triggers/sources

of discontinuity

Explanation Problems posed Examples (of good and

bad experiences)

New market

emerges

Most markets evolve

through a process of

gradual expansion but

at certain times

completely new markets

emerge which cannot be

analysed or predicted

in advance or explored

through using

conventional market

research/analytical tech-

niques

Established players

don't see it because

they are focused on their

existing markets

May discount it as being

too small or not

representing their

preferred target market –

fringe/cranks dismissal

Originators of new

product may not see

potential in new markets

and may ignore them,

e.g. text messaging

Disk drives, excavators,

mini-mills

Mobile phone/SMS

where market which

actually emerged was

not the one expected

or predicted by

originators

TABLE 1.4 Sources of discontinuity

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Part I ● Managing Innovation

Triggers/sources

of discontinuity

Explanation Problems posed Examples (of good and

bad experiences)

New technology

emerges

Step change takes place

in product or process

technology – may result

from convergence and

maturing of several

streams (e.g. industrial

automation, mobile

phones) or as a result of

a single breakthrough

(e.g. LED as white light

source)

Don't see it because

beyond the periphery of

technology search

environment.

Not an extension of

current areas but

completely new  eld or

approach

Tipping point may not

be a single breakthrough

but convergence and

maturing of established

technological streams,

whose combined effect

is underestimated

Not invented here

effect – new technology

represents a different

basis for delivering

value – e.g. telephone

vs. telegraphy

Ice harvesting to cold

storage

Valves to solid state

electronics

Photos to digital images

New political

rules emerge

Political conditions which

shape the economic

and social rules may

shift dramatically – for

example, the collapse of

communism meant an

alternative model –

capitalist, competition –

as opposed to central

planning – and many

ex-state  rms couldn't

adapt their ways of

thinking

Old mindset about how

business is done, rules

of the game, etc. are

challenged and

established  rms fail

to understand or learn

new rules

Centrally planned to

market economy e.g.

former Soviet Union

Apartheid to

post-apartheid South

Africa – inward and

insular to externally

linked

Free trade/globalization

results in dismantling

protective tariff and

other barriers and new

competition basis

emerges

56, 57

Running out of

road

Firms in mature

industries may need to

escape the constraints

of diminishing space for

product and process

Current system is built

around a particular tra-

jectory and embedded

in a steady-state set of

innovation routines

Coloplast

Kodak, Polaroid

Encyclopaedia

Britannica

TABLE 1.4 (Continued )

(continued )

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Chapter 1 ● Innovation – What it is and Why it Matters

TABLE 1.4 (Continued )

Triggers/sources

of discontinuity

Explanation Problems posed Examples (of good and

bad experiences)

innovation and the

increasing competition of

industry structures

by either exit or by

radical reorientation

of their business

which militate against

widespread search or

risk taking experiments

Preussag

Sea change in

market sentiment

or behaviour

Public opinion or

behaviour shifts slowly

and then tips over into a

new model – for

example, the music

industry is in the midst of

a (technology-

enabled) revolution in

delivery systems from

buying records, tapes

and CDs to direct

download of tracks in

MP3 and related

formats.

Don't pick up on it or

persist in alternative

explanations – cognitive

dissonance – until it may

be too late

Apple, Napster, Dell,

Microsoft vs. traditional

music industry

Deregulation/

shifts in regula-

tory regime

Political and market

pressures lead to shifts in

the regulatory

framework and enable

the emergence of a new

set of rules – e.g.

liberalization,

privatization or

deregulation

New rules of the game

but old mindsets persist

and existing player

unable to move fast

enough or see new

opportunities opened up

Old monopoly positions

in  elds like

telecommunications and

energy were dismantled

and new players/

combinations of

enterprises emerged.

In particular, energy

and bandwidth become

increasingly viewed as

commodities.

Innovations include

skills in trading and

distribution – a factor

behind the considerable

success of Enron in the

late 1990s as it emerged

from a small gas

pipeline business to

becoming a major

energy trade

–

unquanti able chances

may need to be taken.

(continued )

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Part I ● Managing Innovation

TABLE 1.4 (Continued )

Triggers/sources

of discontinuity

Explanation Problems posed Examples (of good and

bad experiences)

Fractures along

'fault lines'

Long-standing issues

of concern to a minority

accumulate momentum

(sometimes through

the action of pressure

groups) and suddenly

the system switches/tips

over – for example, social

attitudes to

smoking or health

concerns about obesity

levels and fast-foods

Rules of the game

suddenly shift and

then new pattern

gathers rapid momen-

tum wrong-footing

existing players working

with old assumptions.

Other players who have

been working in the

background developing

parallel alternatives may

suddenly come into the

limelight as new

conditions favour them

McDonalds and obesity

Tobacco companies and

smoking bans

Oil/energy and others

and global warming

Opportunity for new

energy sources like

wind-power – c.f. Danish

dominance

Unthinkable

events

Unimagined and

therefore not prepared

for events which –

sometimes literally –

change the world and set

up new rules of the game.

New rules may

disempower existing

players or render

competencies

unnecessary

9/11

Business model

innovation

Established business

models are challenged

by a reframing, usually

by a new entrant who

rede nes/reframes the

problem and the

consequent 'rules of

the game'

New entrants see

opportunity to deliver

product/service via new

business model and

rewrite rules – existing

players have at best to

be fast followers

Amazon.com

Charles Schwab

Southwest and other

low-cost airlines

24, 63

Architectural

innovation

Changes at the level of

the system architecture

rewrite the rules of the

game for those involved

at component level

Established players

develop particular ways

of seeing and frame

their interactions – for

example, who they talk

to in acquiring and using

knowledge to drive

innovation – according

to this set of views.

Architectural shifts may

involve reframing but at

the component level it

is dif cult to pick up

the need for doing so –

and thus new entrants

Photo-lithography in

chip manufacture

(continued )

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Chapter 1 ● Innovation – What it is and Why it Matters

TABLE 1.4 (Continued )

Triggers/sources

of discontinuity

Explanation Problems posed Examples (of good and

bad experiences)

better able to work with

new architecture can

emerge.

Shifts in 'techno-

economic

paradigm' –

systemic

changes which

impact whole

sectors or even

whole societies

Change takes place at

system level, involving

technology and market

shifts. This involves the

convergence of a number

of trends which result in

a 'paradigm shift' where

the old order is replaced.

Hard to see where

new paradigm begins

until rules become

established. Existing

players tend to reinforce

their commitment to old

model, reinforced by

'sailing ship' effects.

Industrial

Revolution

65–67

Mass production

Component/Architecture Innovation and

the Importance of Knowledge

Another important lens through which to view innovation opportunities is as components within

larger systems. Rather like Russian dolls we can think of innovations which change things at the

level of components or those which involve change in 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 of ce. Or we can link the networks to others into the Internet. There's

scope for innovation at each level – but changes in the higher level systems often have implica-

tions 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!

Innovation is about knowledge – creating new possibilities through combining different

knowledge sets. These can be in the form of knowledge about what is technically possible or

what particular con guration of this would meet an articulated or latent need. Such knowledge

may already exist in our experience, based on something we have seen or done before. Or it could

result from a process of search – research into technologies, markets, competitor actions, and so

on. And it could be in explicit form, codi ed in such a way that others can access it, discuss it,

transfer it, and so on – or it can be in tacit form, known about but not actually put into words

or formulae.

The process of weaving these different knowledge sets together into a successful innovation

is one which takes place under highly uncertain conditions. We don't know about what the  nal

innovation con guration will look like (and we don't know how we will get there). Managing

innovation is about turning these uncertainties into knowledge – but we can do so only by com-

mitting resources to reduce the uncertainty – effectively a balancing act. Figure 1.3 illustrates this

process of increasing resource commitment whilst reducing uncertainty.

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Part I ● Managing Innovation

Viewed in this way we can see that incremental innovation, whilst by no means risk-free –

is at least potentially manageable because we are starting from something we know about and

developing improvements in it. But as we move to more radical options, so uncertainty is higher

and at the limit we have no prior idea of what we are to develop or how to develop it! Again this

helps us understand why discontinuous innovation is so hard to deal with.

A key contribution to our understanding here comes from the work of Henderson and Clark

who looked closely at the kinds of knowledge involved in different kinds of innovation.

They

argue that innovation rarely involves dealing with a single technology or market, but rather a

bundle of knowledge which is brought together into a con guration. Successful innovation man-

agement requires that 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.

We can see this more clearly with an example. Change at the component level in building a

 ying machine might involve switching to newer metallurgy or composite materials for the wing

construction or the use of  y-by-wire controls instead of control lines or hydraulics. But the

underlying knowledge about how to link aerofoil shapes, control systems, propulsion systems,

and so on at the system level is unchanged – and being successful at both requires a different and

higher order set of competencies.

One of the dif culties with this is that innovation knowledge  ows – and the structures

which evolve to support them – tend to re ect the nature of the innovation. So if it is at com-

ponent level then the relevant people with skills and knowledge around these components will

talk to each other – and when change takes place they can integrate new knowledge. But when

change takes place at the higher system level – 'architectural innovation' in Henderson and

Clark's terms – then the existing channels and  ows may not be appropriate or suf cient to sup-

port the innovation and the  rm needs to develop new ones. This is another reason why existing

incumbents often fare badly when major system level change takes place – because they have the

twin dif culties of learning and con guring a new knowledge system and 'unlearning' an old

and established one.

High

Low

TIME

Commitment

and 'lock-in'

Uncertainty

technological,

market, etc.

INCREASING RESOURCE COMMITMENT

FIGURE 1.3 Resource commitment and uncertainty in innovation

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Chapter 1 ● Innovation – What it is and Why it Matters

Figure 1.4 illustrates the range of choices, highlighting the point that such change can happen

at component or sub-system level or across the whole system.

A variation on this theme comes in the  eld of 'technology fusion', where different techno-

logical streams converge, such that products which used to have a discrete identity begin to merge

into new architectures. An example here is the home automation industry, where the fusion of

technologies like computing, telecommunications, industrial control and elementary robotics

is enabling a new generation of housing systems with integrated entertainment, environmental

control (heating, air conditioning, lighting, etc.) and communication possibilities.

69, 70

Similarly, in services a new addition to the range of  nancial services may represent a compo-

nent product innovation, but its impacts are likely to be less far-reaching (and the attendant risks

of its introduction lower) than a complete shift in the nature of the service package – for example,

the shift to direct-line systems instead of offering  nancial services through intermediaries.

Many businesses are now built on business models which stress integrated solutions – systems

of many components which together deliver value to end-users. These are often complex, multi-

organization networks – examples might include rail networks, mobile phone systems, major

construction projects or design and development of new aircraft like the Boeing Dreamliner or

the Airbus A-380. Managing innovation on this scale requires development of skills in what Mike

Hobday and colleagues call 'the business of systems integration'.

Figure 1.5 highlights the issues for managing innovation. In Zone 1 the rules of the game

are clear – this is about steady-state improvement to products or processes and uses knowledge

accumulated around core components.

In Zone 2 there is signi cant change in one element but the overall architecture remains the

same. Here there is a need to learn new knowledge but within an established and clear frame-

work of sources and users – for example, moving to electronic ignition or direct injection in a car

engine, the use of new materials in airframe components, the use of IT systems instead of paper

processing in key  nancial or insurance transactions, and so on. None of these involve major

shifts or dislocations.

COMPONENT

LEVEL

LACIDARLATNEMERCNI

('new to

the world')

('new to the

enterprise')

('doing what

we do better')

SYSTEM

LEVEL

New versions

of motor car,

aeroplane, TV

Improvements

to components

New components

for existing

systems

New generations

e.g. MP3 and

download vs.

CD and

cassette music

Steam power,

ICT 'revolution',

bio-technology

Advanced

materials to

improve

component

performance

FIGURE 1.4 Dimensions of innovation

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Part I ● Managing Innovation

In Zone 3 we have discontinuous innovation where neither the end state nor the ways in

which it can be achieved are known about – essentially the whole set of rules of the game changes

and there is scope for new entrants.

In Zone 4 we have the condition where new combinations – architectures – emerge, possibly

around the needs of different groups of users (as in the disruptive innovation case). Here the challenge

is in recon guring the knowledge sources and con gura-

tions. We may use existing knowledge and recombine it

in different ways or we may use a combination of new

and old. Examples might be low-cost airlines, direct line

insurance, others.

The Innovation Life Cycle – Different Emphasis Over Time

We also need to recognize that innovation opportunities change over time. In new industries –

like today's biotech, Internet-software or nano materials – there is huge scope for experimenta-

tion around new product and service concepts. But more mature industries tend to focus more

around process innovation or position innovation, looking for ways of delivering products and

services more cheaply or  exibly, or for new market segments into which to sell them. In their

pioneering work on this theme Abernathy and Utterback developed a model describing the

pattern in terms of three distinct phases (see Figure 1.6).

Initially, under the discontinuous conditions which arise when completely new technol-

ogy and/or markets emerge, there is what they term a ' uid phase' during which there is high

uncertainty along two dimensions:

• The target – what will the new con guration be and who will want it?

• The technical – how will we harness new technological knowledge to create and deliver this?

ZONE 2

– modular

innovation

ZONE 3

– discontinuous

innovation

ZONE 4

– architectural

innovation

ZONE 1

– incremental

innovation

Unchanged

LINKS BETWEEN KNOWLEDGE ELEMENTS

Changed

Overturned

CORE INNOVATION CONCEPTS

Reinforced

FIGURE 1.5 Component and architectural innovation

Source: Adapted from Abernathy, W. and J. Utterback (1978) Patterns of industrial innovation. Technology

Review, 80, 40–47.

Activity using architectural and

component innovation is available

in your interactive e-book at

www.innovation-portal.info

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Chapter 1 ● Innovation – What it is and Why it Matters

No one knows what the 'right' con guration of technological means and market needs will

be and so there is extensive experimentation (accompanied by many failures) and fast learning

by a range of players including many new entrepreneurial businesses.

Gradually these experiments begin to converge around what they call a 'dominant design' –

something which begins to set up the rules of the game. This represents a convergence around the

most popular (importantly not necessarily the most technologically sophisticated or elegant) solution

to the emerging con guration. At this point a 'bandwagon' begins to roll and innovation options

become increasingly channeled around a core set of possibilities – what Dosi calls a 'technological

trajectory'.

It becomes increasingly dif cult to explore outside this space because entrepreneurial

interest and the resources which that brings increasingly focus on possibilities within the dominant

design corridor.

This can apply to products or processes; in both cases the key characteristics become stabi-

lized and experimentation moves to getting the bugs out and re ning the dominant design. For

example, the nineteenth-century chemical industry moved from making soda ash (an essential

ingredient in making soap, glass and a host of other products) from the earliest days where it

was produced by burning vegetable matter through to a sophisticated chemical reaction which

was carried out on a batch process (the Leblanc process) which was one of the drivers of the

Industrial Revolution. This process dominated for nearly a century but was in turn replaced by a

new generation of continuous processes which used electrolytic techniques and which originated

in Belgium where they were developed by the Solvay brothers. Moving to the Leblanc process

or the Solvay process did not happen overnight; it took decades of work to re ne and improve

each process, and to fully understand the chemistry and engineering required to get consistent

high quality and output.

A similar pattern can be seen in products. For example, the original design for a camera is

something which goes back to the early nineteenth century and – as a visit to any science museum

will show – involved all sorts of ingenious solutions. The dominant design gradually emerged

with an architecture which we would recognize – shutter and lens arrangement, focusing princi-

ples, back plate for  lm or plates, and so on. But this design was then modi ed still further – for

example, with different lenses, motorized drives,  ash technology – and, in the case of George

Product innovation

Stage 1 – Fluid

• Exploration

• Uncertainty

• Flexibility

Stage 2 – Transitional

• Dominant design

Stage 3 – Specific

• Standardization

• Integration

Emphasis of innovation

Process innovation

FIGURE 1.6 The innovation life cycle

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Part I ● Managing Innovation

Eastman's work, to creating a simple and relatively 'idiot-proof' model camera (the Box Brownie)

which opened up photography to a mass market. More recent development has seen a similar

 uid phase around digital imaging devices.

The period in which the dominant design emerges and emphasis shifts to imitation and

development around it is termed the 'transitional phase' in the Abernathy and Utterback model.

Activities move from radical concept development to more focused efforts geared around product

differentiation and to delivering it reliably, cheaply, with higher quality, extended functionality,

and so on.

As the concept matures still further so incremental innovation becomes more signi cant and

emphasis shifts to factors like cost – which means efforts within the industries which grow up

around these product areas tend to focus increasingly on rationalization, on scale economies and

on process innovation to drive out cost and improve productivity. Product innovation is increas-

ingly about differentiation through customization to meet the particular needs of speci c users.

Abernathy and Utterback term this the 'speci c phase'.

Finally the stage is set for change – the scope for innovation becomes smaller and smaller

whilst outside – for example, in the laboratories and imaginations of research scientists – new

possibilities are emerging. Eventually a new technology emerges which has the potential to chal-

lenge all the by now well-established rules – and the game is disrupted. In the camera case, for

example, this is happening with the advent of digital photography which is having an impact on

cameras and the overall service package around how we get, keep and share our photographs.

In our chemical case this is happening with biotechnology and the emergence of the possibility

of no longer needing giant chemical plants but instead moving to small-scale operations using

live organisms genetically engineered to produce what we need.

The Innovation Portal provides

additional tools material – 'brainstorming' and 'problem-solving'.

Table 1.5 sets out the main elements of this model.

TABLE 1.5 Stages in the innovation life cycle

Innovation characteristic Fluid pattern Transitional phase Speciﬁ c phase

Competitive emphasis

placed on . . .

Functional product

performance

Product variation Cost reduction

Innovation stimulated

by . . .

Information on user

needs, technical

inputs

Opportunities created

by expanding internal

technical capability

Pressure to reduce

cost, improve

quality, etc.

Predominant type of

innovation

Frequent major

changes in products

Major process

innovations required

by rising volume

Incremental product

and process

innovation

Product line Diverse, often including

custom designs

Includes at least one

stable or dominant

design

Mostly

undifferentiated

standard products

Production processes Flexible and inef cient –

aim is to experiment and

make frequent changes

Becoming more rigid

and de ned

Ef cient, often

capital intensive and

relatively rigid

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Chapter 1 ● Innovation – What it is and Why it Matters

Although originally developed for manufactured products the model also works for services –

for example the early days of Internet banking were characterized by a typically  uid phase with

many options and models being offered. This gradually moved to a transitional phase, building

a dominant design consensus on the package of services offered, the levels and nature of security

and privacy support, the interactivity of website, and so on. The  eld has now become mature

with much of the competition shifting to marginal issues like relative interest rates. Similar

patterns can be seen in Internet VoIP telephony, on-line auctions like eBay and travel and enter-

tainment booking services like expedia.com.

We should also remember that there is a long term cycle involved – mature businesses which

have already gone through their  uid and transitional phases do not necessarily stay in the

mature phase for ever. Rather they become increasingly vulnerable to a new wave of change as

the cycle repeats itself – for example, the lighting industry is entering a new  uid phase based on

applications of solid-state LED technology but this comes after over 100 years of the incandes-

cent bulb developed by Swann, Edison and others. Their early experiments eventually converged

on a dominant product design after which emphasis shifted to process innovation around cost,

quality and other parameters – a trajectory which has characterized the industry and led to

increasing consolidation amongst a few big players. But – as the 'dimming of the lightbulb' case

on the Innovation Portal shows – that maturity has now given way to a new phase involving

different players, technologies and markets.

The pattern can be seen in many studies and its implications for innovation management are

important. In particular it helps us understand why established organizations often  nd it hard to

deal with the kind of discontinuous change discussed earlier. Organizations build capabilities around

a particular trajectory and those who may be strong in the later (speci c) phase of an established

trajectory often  nd it hard to move into the new one. (The example of the  rms which successfully

exploited the transistor in the early 1950s is a good case in point – many were new ventures, some-

times started by enthusiasts in their garage, yet they rose to challenge major players in the electronics

industry like Raytheon.

) This is partly a consequence of sunk costs and commitments to existing

technologies and markets and partly because of psychological and institutional barriers. They may

respond but in slow fashion – and they may make the mistake of giving responsibility for the new

development to those whose current activities would be threatened by a shift.

Importantly, the ' uid' or 'ferment' phase is characterized by co-existence of old and new

technologies and by rapid improvements of both. (It is here that the so-called 'sailing ship' effect

which we mentioned earlier can often be observed, in which a mature technology accelerates in

its rate of improvement as a response to a competing new alternative.)

Whilst some research suggests existing incumbents do badly when discontinuous change trig-

gers a new  uid phase, we need to be careful here. Not all existing players do badly – many of

them are able to build on the new trajectory and deploy/leverage their accumulated knowledge,

networks, skills and  nancial assets to enhance their competence through building on the new

opportunity.

Equally whilst it is true that new entrants – often small entrepreneurial  rms –

play a strong role in this early phase we should not forget that we see only the successful players.

We need to remember that there is a strong ecological pressure on new entrants which means

only the  ttest or luckiest survive.

It is more helpful to suggest that there is something about the ways in which innovation is man-

aged under these conditions which poses problems. Good practice of the 'steady-state' kind described

above is helpful in the mature phase but can actively militate against the entry and success in the  uid

phase of a new technology.

How do enterprises pick up signals about changes if they take place in

areas where they don't normally do research? How do they understand the needs of a market which

doesn't exist yet but which will shape the eventual package which becomes the dominant design? If

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Part I ● Managing Innovation

they talk to their existing customers the likelihood is that those customers will tend to ask for more

of the same, so which new users should they talk to – and how do they  nd them?

The challenge seems to be to develop ways of managing innovation not only under 'steady-

state' but also under the highly uncertain, rapidly evolving and changing conditions which result

from a dislocation or discontinuity. The kinds of organizational behaviour needed here will include

things like agility,  exibility, the ability to learn fast, the lack of preconceptions about the ways

in which things might evolve, and so on – and these are often associated with new small  rms.

There are ways in which large and established players can also exhibit this kind of behaviour but

it does often con ict with their normal ways of thinking and working.

Worryingly, the source of the discontinuity which destabilizes an industry – new technol-

ogy, emergence of a new market, rise of a new business model – often comes from outside that

industry. So even those large incumbent  rms which take time and resources to carry out research

to try and stay abreast of developments in their  eld may  nd that they are wrong-footed by

the entry of something which has been developed in a different  eld. The massive changes in

insurance and  nancial services which have characterized the shift to on-line and telephone pro-

vision were largely developed by IT professionals often working outside the original industry.

In extreme cases we  nd what is often termed the 'not invented here' – NIH – effect, where a

 rm  nds out about a technology but decides against following it up because it does not  t with

their perception of the industry or the likely rate and direction of its technological development.

Famous examples of this include Kodak's rejection of the Polaroid process or Western Union's

dismissal of Bell's telephone invention. In a famous memo dated 1876 the board commented,

'this 'telephone' has too many shortcomings to be seriously considered as a means of communica-

tion. The device is inherently of no value to us.'

1.10 Managing Innovation . . .

This chapter has begun to explore the challenges posed by innovation. It has looked at why inno-

vation matters and opened up some perspectives on what it involves. And it has raised the idea

of innovation as a core process which needs to be organized and managed in order to enable the

renewal of any organization. We talked about this a little earlier in the chapter and Figure 1.7

sets it out as a graphic which highlights the key questions around managing innovation.

We've seen that the scope for innovation is wide – in terms of overall innovation space

and in the many different ways this can be populated, with both incremental and more radical

options. At the limit we have the challenges posed when innovation moves into the territory of

discontinuous change and a whole new game begins. We've also looked brie y at concepts like

component and architecture innovation and the critical role which knowledge plays in managing

these different forms. Finally we've looked at the issue of timing and of understanding the nature

of different innovation types at different stages.

All that gives us a feel for what innovation is and why it matters. But what we now need to

do is understand how to organize the innovation process itself. That's the focus of the rest of the

book, and we deal with it in the following fashion:

Chapter 2 looks at the process model in more detail and explores the ways in which this

generic model can be con gured for particular types of organization. It also looks at what we've

learned about success and failure in managing innovation – themes which are examined in greater

detail in the subsequent chapters.

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Chapter 1 ● Innovation – What it is and Why it Matters

Part II looks at the key contextual issues around successful innovation management. In

Chapter 3 we pick up the question, Do we have an innovative organization? and examine the role

which key concepts like leadership, structure, communication and motivation play in building

and sustaining a culture of focused creativity.

Chapter 4 looks at the question 'do we have a clear innovation strategy? and explores this

theme in depth. Is there a clear sense of where and how innovation will take the organization

forward and is there a roadmap for this? Is the strategy shared and understood – and how can

we ensure alignment of the various different innovation efforts across the organization? What

tools and techniques can be used to develop and enable analysis, selection and implementation

of innovation?

Part III moves on to the  rst of the core elements in our process model – the 'search' ques-

tion. Chapter 5 explores the issues around the question of what triggers the innovation process

– the multiple sources which we need to be aware of and the challenges involved in searching

for and picking up signals from them. Chapter 6 takes up the complementary question – how do

we carry out this search activity? Which structures, tools and techniques are appropriate under

what conditions? How do we balance search around exploration of completely new territory

with exploiting what we already know in new forms? In particular it looks at the major challenge

of building and sustaining rich networks to enable what has become labelled 'open innovation'.

Part IV moves into the area of selection in the core process model. Chapter 7 looks at how

the innovation decision process works – of all the possible options generated by effective search

which ones will we back – and why? Making decisions of this kind are not simple because of the

underlying uncertainty involved – so which approaches, tools and techniques can we bring to

bear? Chapter 8 picks up another core then – how to choose and implement innovation options

whilst building and capturing value from the intellectual effort involved? Managing intellec-

tual property becomes an increasingly signi cant issue in a world where knowledge production

approaches the $1bn/year mark worldwide and where the ability to generate knowledge may be

less signi cant than the ability to trade and use it effectively.

Do we have a clear innovation strategy?

Do we have an innovative organization?

Select – what are

we going to do –

and why?

Search – how can

we find

opportunities for

innovation?

Implement – how

are we going to

make it happen?

Capture – how are

we going to get the

benefits from it?

FIGURE 1.7 Simpli ed model of the innovation process

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Part I ● Managing Innovation

Part V looks at the 'implementation' phase, where issues of how we move innovation ideas

into reality become central. Chapter 9 looks at the ways in which innovation projects of various

kinds are organized and managed and explores structures, tools and other support mechanisms to

help facilitate this. In Chapter 10 we explore in more detail how  rms use external relationships

with suppliers, users and partners to develop new technologies, products and businesses in the

context of 'open innovation'. Chapter 11 picks up the issue of new ventures, both those arising

from within the existing organization (corporate entrepreneurship) and those which involve setting

up a new entrepreneurial venture outside.

Part VI looks at the last phase – how can we ensure that we capture value from our efforts

at innovation? Chapter 12 looks at questions of adoption and diffusion and the ways we can

develop and work with markets for innovation. It picks up on both commercially driven value

capture and also the question of 'social entrepreneurship' where concern is less about pro ts than

about creating sustainable social value.

Finally Chapter 13 looks at how we can assess the ways in which we organize and manage

innovation and use these to drive a learning process to enable us to do it better next time. The

concern here is not just to build a strong innovation management capability but to recognize that –

faced with the moving target which innovation represents in terms of technologies, markets,

competitors, regulators and so on – the challenge is to create a learning and adaptive approach

which constantly upgrades this capability. In other words we are concerned to build 'dynamic

capability'.

(continued )

VIEWS FROM THE FRONT LINE 1.2

Where do You See the Top Three Challenges in Managing

Innovation?

1. Creating and sustaining a culture in which innovation can  ourish. This includes a physical and

organizational space where experimentation, evaluation and examination can take place. The

values and behaviours that facilitate innovation have to be developed and sustained.

2. Developing people who can  ourish in that environment; people who can question, challenge

and suggest ideas as part of a group with a common objective, unconstrained by the day-to-day

operational environment.

3. Managing innovation in the midst of a commercial enterprise that is focused on exploitation –

maximum bene t from the minimum of resource that requires repeatability and a right- rst-time

process approach.

– Patrick McLaughlin, Managing Director, Cerulean

1. The level at which long-term innovation activities are best conducted, without losing connected-

ness with the BUs at which the innovations should  nally be incubated and elaborated.

2. Having diverse types of individuals in the company motivated for spending time on innovation

related activities.

3. Having the right balance between application oriented innovation and more fundamental innovation.

– Wouter Zeeman, CRH Insulation Europe

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Chapter 1 ● Innovation – What it is and Why it Matters

1. Innovation is too often seen as a technically driven issue; in other words the preserve of those

strange 'scienti c' and 'engineering' people, so it's for them not 'us' the wider community. The

challenge is in confronting this issue and hopefully inspiring and changing people's perception so

that 'innovation is OK for all of us'.

2. Raising awareness; coupled with the above, people do not fully understand what innovation is or

how it applies to their world.

3. Managing in my opinion is either the wrong word or the wrong thing to do; managing implies

command and control and whilst important it does not always  t well with the challenge of lead-

ing innovation which is far more about inspiring, building con dence and risk taking. Most senior

managers are risk averse therefore a solid management background is not always a best  t for the

challenge of leading innovation.

– John Tregaskes, Technical Specialist Manager, Serco

1. Culture – encouraging people to challenge the way we do things and generate creative ideas.

2. Balancing innovation with the levels of risk management and control required in a  nancial

services environment.

3. Ensuring that innovation in one area does not lead to sub-optimization and negative impact in another.

– John Gilbert, Head of Process Excellence, UBS

1. Alignment of expectations on innovation with senior management. A clear de nition of the nature

of innovation is required, that is, radical vs. incremental innovation and the 4Ps. What should be

the primary focus?

2. To drive a project portfolio of both incremental (do better) and radical (do different) innovation.

How do you get the right balance?

3. To get suf cient, dedicated, human and  nancial resources up-front.

– John Thesmer, Managing Director, Ictal Care, Denmark

1. Finding R&D money for far-sighted technology projects at a time when shareholders seem to

apply increasing amounts of pressure on companies to deliver short-term results. Every industry

needs to keep innovating to stay competitive in the future – and the rate of technological change

is accelerating. But companies are being forced to pursue these objectives for less and less money.

Managing this dif cult balance of 'doing more with less' is a major challenge in our industry, and

I am certain that we are not alone.

2. Building a corporate culture that doesn't punish risk-takers. Managers in many organizations

seem to be judged almost exclusively according to how well they are performing according to

some fairly basic measurements, for example, sales or number of units. No one would disagree

that absorbing new technologies can potentially help to improve these statistics in the long term,

but new technologies can be a rather daunting obstacle in the short term. Sometimes technology

trials fail. An organization needs to recognize this, and has to lead its teams and managers in a

way that encourages a healthy amount of risk without losing control of the big picture.

3. Striking the right balance between in-house R&D and leveraging external innovations. The scope and

scale of innovation is growing at a pace that makes it all but unthinkable that any single company

can do it all themselves. But which elements should be retained internally vs. which ones can be out-

sourced? There's never a shortage of people writing papers and books that attempt to address this very

topic, but managers in the  eld are hungrier than ever for useful and practical guidance on this issue.

– Rob Perrons, Shell Exploration, USA

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Part I ● Managing Innovation

George Buckley, CEO of 3M, is a PhD chemical engineer by training. 3M has global sales of around

$23bn and historically has aimed to achieve a third of sales from products introduced in the past  ve

years. The famous company culture, the '3M Way', includes a policy of allowing employees to spend

15% of their time on their own projects, and has been successfully emulated by other innovative

companies such as Google.

He argues that 'Invention is by its very nature a disorderly process, you cannot say I'm going

to schedule myself for three good ideas on Wednesday and two on Friday. That's not how creativity

works'. After a focus on improving ef ciency, quality and  nancial performance 2001–2006, under

its new CEO, 3M is now refocusing on its core innovation capability. Buckley believes that the com-

pany had become too dominated by formal quality and measurement processes, to the detriment of

innovation: '. . . you cannot create in that atmosphere of con nement or sameness, perhaps one of

the mistakes we have made as a company . . . is that when you value sameness more than you value

creativity, I think you potentially undermine the heart and soul of a company like 3M . . .', and

since becoming CEO has signi cantly increased the spending on R&D from some $1bn to nearer to

$1.5bn, and is targeting the company's 45 core technologies such as abrasives to nanotechnology, but

sold the non-core pharmaceutical business. (based on B. Hindo, 'At 3M: a struggle between ef ciency

and creativity', BusinessWeek, 11/6/2007, pp. 8-14).

VIEWS FROM THE FRONT LINE 1.3

RESEARCH NOTE 1.5

Twelve Ways to Innovate

Mohanbir Sawhney, Robert Wolcott and Inigo Arroniz from the Center for Research in Technology

and Innovation at the Kellogg School of Management at Northwestern University, USA, interviewed

innovation managers at a number of large  rms, including Boeing, DuPont, Microsoft, eBay, Motorola

and Sony, and from these developed a survey questionnaire which was sent to a further 19  rms, such as

General Electric, Merck and Siemens. Analysing these data, they derived an 'innovation radar' to repre-

sent 12 dimensions of business innovation they identi ed. Their de nition of 'business innovation' does

not focus on new things, but rather anything that creates new value for customers. Therefore creating

new things is neither necessary nor suf cient for such value creation. Instead they propose a systematic

approach to business innovation, which may take place in 12 different dimensions:

• Offerings – new products or services.

• Platform – derivative offerings based on recon guration 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 – rede ne the business model and how income is generated.

• Processes – to improve ef ciency or effectiveness.

• Organization – change scope or structures.

(continued )

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Chapter 1 ● Innovation – What it is and Why it Matters

• Supply chain – changes in sourcing and order fu llment.

• Presence – new distribution or sales channels.

• Brand – leverage or reposition.

• Networking – create integrated offerings using networks.

Source: Based on Sawnhey, M., Wolcott, R., and Arroniz, L. (2006) The 12 different ways for companies to

innovate', MIT Sloan Management Review, Spring, pp. 75–81.

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Part I ● Managing Innovation

Below is a complete list of the resources associated with

Chapter 1; those in blue are embedded in your e-book.

Access all this material via the Innovation Portal at

www.innovation-portal.info

Cases Media Tools Activities

• Kumba Resources

• Zara

•

Freeplay Energy

• Karolinska Hospital

• Music industry

• Model T Ford

• Kodak

• Lego

•

Adidas

• Aravind Eye Clinics

•

Lifespring Hospitals

• NHL Hospitals

• Dimming of

lightbulb

• Philips

• NPI

• Forte

• Hosiden Besson

• Cerulean

• Ice industry

• Public sector

innovation

• Discontinuous

innovation

• Marshalls

•

Minimonos

• Finnegan's Fish Bar

•

Bill's

• Armin Rau, Sicap

• Emma Taylor,

Denso

• Catherina van

Delden, Innosabi

• Patrick McLaughlin,

Cerulean

• Girish Prabhu,

Srishti Labs

• Simon Tucker,

Young Foundation

• Veeder-Root

•

Suzana Moreira,

moWoza

• Francisco Pinheiro,

Atos

• Victor Cui, One FC

• Melissa

Clark-Reynolds,

Minimonos

• 4Ps approach to

explore innovation

space

•

Innovation  tness

test

• 4Ps framework for

innovation strategy

• Discontinuous

innovation audit

• Innovation life cycle

analysis

• 5 Forces for

strategic innovation

• SWOT analysis

• Competency

mapping

• Lean toolbox

• Continuous

improvement

• Brainstorming

• Problem solving

• Strategic advantage

through innovation

• 4Ps interactive

exercise

• Using patterns

of discontinuous

innovation

• Architectural/

component

innovation

•

Life cycle analysis

• Forces for strategic

innovation

• Competence

enhancing and

competence

destroying

innovation

(continued)

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Chapter 1 ● Innovation – What it is and Why it Matters

Summary and Further Reading

Few other texts cover the technological, market and organizational aspects of innovation in an

integrated fashion. Peter Drucker's Innovation and Entrepreneurship (Harper and Row, 1985)

provides a more accessible introduction to the subject, but perhaps relies more on intuition and

experience than on empirical research. Since we published the  rst edition in 1997, a number of

interesting texts have been published. Paul Trott's Innovation Management and New Product

Development (now in its  fth edition, Prentice Hall, 2010)), particularly focuses on the man-

agement of product development. Books by Bettina von Stamm (Managing Innovation, Design

and Creativity (2nd edition), John Wiley & Sons, Ltd, 2008) and Margaret Bruce (Design in

Business', Pearson Education, 2001) have a strong design emphasis and Tim Jones' Innovating

at the Edge (Butterworth Heinemann, 2002) targets practitioners in particular. David Gann,

Mark Dodgson and Ammon Salter's book (The Management of Technological Innovation ,

Oxford University Press, 2008) looks particularly at innovation strategy and the 'new innova-

tion toolkit', whilst Gof n and Mitchell (Innovation Management (2nd edition, Pearson, 2010)

also look particularly from a management tools perspective. Brockhoff et al. (The Dynamics

of Innovation, Springer, 1999) and Sundbo and Fugelsang (Innovation as Strategic Re exiv-

ity, Routledge 2002) provide some largely European views while Melissa Schilling's ( Strategic

Management of Technological Innovation McGraw-Hill, 2005) is largely based on the experi-

ence of American  rms. A few books explore the implications for a wider developing country

context, notably Forbes and Wield (From Followers to Leaders, Routledge, 2002) C.K. Prahalad

(The Fortune at the Bottom of the Pyramid, Wharton School Publishing, 2006), Prabhu and

colleagues (Jugaad Innovation, Jossey Bass, 2012) and Govindarajan and Trimble Reverse

Innovation: Create Far From Home, Win Everywhere. Harvard Business Review Press, 2012.

Others look at public policy implications including Bessant and Dodgson (Effective Inno-

vation Policy, International Thomson Business Press, 1996) and Smits et al. ( The Theory and

Practice of Innovation Policy, Edward Elgar, 2010).

• Spirit

• Green buildings

• Green supply chain

management

• Natura

• Threadless

Quizzes to test yourself further are available online at

www.innovation-portal.info

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Part I ● Managing Innovation

There are several compilations and handbooks covering the  eld, the best known being

Burgelman et al.'s Strategic Management of Technology and Innovation, (McGraw-Hill, 2004)

now in its 4th edition and containing a wide range of key papers and case studies, though with a

very strong US emphasis. A more international  avour is present in Dodgson and Rothwell (The

Handbook of Industrial Innovation, Edward Elgar, 1995) Shavinina (International Handbook

on Innovation, Elsevier, 2003) and Fagerber et al. (The Oxford Handbook of Innovation, OUP,

2004). The work arising from the Minnesota Innovation Project (Van de Ven et al., The Innova-

tion Journey, Oxford University Press, 1999) also provides a good overview of the  eld and the

key research themes contained within it.

Case studies provide a good lens through which this process can be seen and there are several

useful collections including Bettina von Stamm's Innovation, Design and Creativity (2nd edition,

John Wiley & Sons, Ltd, 2008), Tim Jones and colleagues (The Growth Agenda, John Wiley &

Sons, Ltd, 2011), Roland Kaye and David Hawkridge Case Studies of Innovation, Kogan Page,

London, 2003 and Roger Miller and Marcel Côté's Innovation Reinvented: Six Games that

Drive Growth (University of Toronto Press, 2012).

Some books cover company histories in detail and give an insight into the particular ways

in which  rms develop their own bundles of routines – for example, David Vise The Google

Story (Pan, London, 2008), Graham and Shuldiner, Corning and the Craft of Innovation ( 2001,

Oxford University Press), and Gundling's The 3M Way to Innovation: Balancing People and

Pro t (2000, New York: Kodansha International).

Autobiographies and biographies of key innovation leaders provide a similar – if sometimes

personally biased – insight into this. For example Richard Brandt's One Click: JeffBezos and

the Rise of Amazon.com, (Viking, 2011), Walter Issacson Steve Jobs: the Authorised Biography

(Little Brown, 2011) and James Dyson Against the Odds (Texere, 2003). In addition several

websites – such as the Product Development Management Association (www.pdma.org) and

www.innovationmanagement.se – carry case studies on a regular basis.

Most other texts tend to focus on a single dimension of innovation management. In the The

Nature of the Innovative Process (Pinter Publishers, 1988), Giovanni Dosi adopts an evolution-

ary economics perspective and identi es the main issues in the management of technological

innovation. Julian Birkinshaw and Gary Hamel explore 'management innovation' ('The why,

what and how of management innovation', Harvard Business Review, February 2006) and the

wider themes of organizational innovation are explored in Clark's Organizational Innovations ,

(Sage, 2002) and Gailly (2011) Developing Innovative Organizations: A Roadmap to Boost Your

Innovation Potential (Palgrave MacMillan).

Dyer and colleagues focus on individual entrepreneurial skills (The Innovator's DNA: Mas-

tering the Five Skills of Disruptive Innovators, Harvard Business Review Press, 2011) while

Schroeder and Robinson (Ideas are Free, Berret Koehler, 2004) and Bessant (High Involvement

Innovation, John Wiley & Sons, Ltd, 2003) look at the issue of high involvement incremental

innovation building on the original work of Imai (Kaizen, Random House, 1987).

Most marketing texts fail to cover the speci c issues related to innovative products

and services, although a few specialist texts exist which examine the more narrow problem

of marketing so-called 'high-technology' products – for example, Jolly, Commercialising

New Technologies (Harvard Business School Press, 1997) and Moore, Crossing the Chasm

(Harper Business, 1999). There are also extensive insights into adoption behaviour drawn

from awealth of studies by Everett Rogers and colleagues (Diffusion of Innovation, Free

Press,2003).

3GC01.indd 54 3GC01.indd 54 23/04/13 4:38 PM 23/04/13 4:38 PM

www.innovation-portal.info

Chapter 1 ● Innovation – What it is and Why it Matters

Particular themes in innovation are covered by a number of books and journal special issues;

for example, services (Tidd and Hull's Service Innovation: Organizational Responses to Tech-

nological Opportunities and Market Imperatives Imperial College Press, 2003; and Chesbrough,

Open Service Innovation, Jossey Bass, 2011), public sector innovation (Osborne and Brown,

Managing Change and Innovation in Public Service Organizations Psychology Press, 2010; and

Bason, Managing Public Sector Innovation Policy Press, 2011), networks and clusters (Michael

Best, The New Competitive Advantage, OUP, 2001; and Phil Cooke, Regional Knowledge Econo-

mies: Markets, Clusters and Innovation, Edward Elgar, 2007), sustainability (Nidumolo et al.,

'Why sustainability is now the key driver of innovation', Harvard Business Review , September

2009), and discontinuous innovation (Foster and Kaplan, Creative Destruction, Harvard Uni-

versity Press, 2002; Christensen et al. Seeing What's Next, Harvard Business School Press, 2007;

and Augsdorfer et al., Discontinuous Innovation, Imperial College Press, 2013). Various websites

offer news, research, tools, and so on – for example, AIM (www.aimresearch.org ) and NESTA

(www.nesta.org.uk).

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... This implies that before people can become innovative, they need to be skilled in identifying performance gaps where innovative solutions are needed, in generating creative ideas and in transforming these creative ideas into realistic, practical, and marketable solutions (Bel, 2010). Innovation competence is, therefore, the competence to develop creative ideas for products, services, procedures, theories, and strategies that are useful or meaningful to the intended audience, and that can be implemented successfully (Tidd & Bessant, 2009;M. A. West & Farr, 1990). ...

... However, what is meant by the term 'innovation competence' is not always clear to the teacher, as many definitions have been reported in the literature (e.g., M. Robinson, 2001;Sawyer, 2012;Sefton-Green & Sinker, 2000). In the present study, innovation competence is the competence to develop creative ideas for products, services, procedures, theories, and strategies that are useful or meaningful to the intended audience, and that can be implemented successfully (Tidd & Bessant 2009;M. A. West & Farr, 1990). ...

... According to these authors, the innovation value chain represents the newness path of creative firms. With an innovation management point of view, such a path is occasionally represented as an innovation process (Bessant & Tidd, 2013;Ferreira et al., 2015;Tálamo, 2008;Tidd, 2017;Tidd & Bessant, 2018). However, as many authors argued the innovation process is mostly focused on the Schumpeter trilogies, in which, it has been considered as a limitation in this article. ...

... In common literature noted those end to end actions as an IVC (Berghman et al., 2012;S Roper et al., 2008;Stephen Roper & Arvanitis, 2012;Van Horne et al., 2006). Furthermore, Bessant & Tidd (2013) develop a simplified model of the innovation process, which starts with searching for new opportunities, selecting the appropriate one, implementing and making it happen, and capture the value. As it is depicted in Table 2, modeling the complete IVC highlights the structure and complexity of the process of translating knowledge into business value (Stephen Roper & Arvanitis, 2012). ...

Innovation is omnipresent in today's world. Yet, our understanding of innovation from a value chain perspective has so far been piecemeal. The present paper aims to address this knowledge gap by conducting a systematic and narrative review of the extant literature on innovation value chain. The review in the paper sheds light on the trajectories of innovation from a process to value chain perspective and highlights the elements that characterize the innovation value chain, namely knowledge sourcing, knowledge screening, firm-level knowledge diffusion, business model, realization. The "what," "how," and "why" of each innovation value chain element are also discussed, thereby reconciling fragmented knowledge and providing greater clarity on innovation value chain.

... Enquanto método, a etnografia permite deixar em segundo plano aquilo que seria comum a todas as civilizações já estudadas, assim destacando a cultura da natureza. Clegg, Hardy e Nord (1999, 2001e 2004 coordenam coletânea útil, mas marcadamente segmentada e, assim, igualmente emblemática; e ainda mais notório nessa característica, Morgan (1996) propõe método de análise que integra modelos por meio da explicitação das diferentes visões da organização, contudo, sem misturá-las, uma metáfora de cada vez. partir desse ponto, sugerimos o desenvolvimento de aplicativos a partir da incorporação do conceito de cultura encontrado no escopo da antropologia social, área que originou os primeiros estudos em cultura. ...

Luciano D'Ascenzi
Luciana Leite Lima

DOI: http://dx.doi.org/10.13071/regec.2317-5087.2012.1.1.4026.95-121Trata-se de uma abordagem comparativa entre os conceitos de cultura e cultura organizacional, cada qual originado na antropologia e na teoria geral da administração respectivamente. Esse diálogo explicita as diferenças teóricas e as particularidades, possibilidades e os limites de sua aplicação, frente a essas duas procedências, quando em situações práticas. Sugerimos complementar o enfoque funcionalista, presente nas análises e práticas administrativas, com outros elementos relacionais presentes nos contextos de ação das estruturas locais. Finalmente, sugerimos que tal arremate poder-se-ia dar, eficazmente, por meio da incorporação da produção teórica e metodológica em ciências sociais, que, com a pesquisa empírica, vem demonstrando a possibilidade de apreensão da dinâmica cultural junto aos mais diversos lócus de estudo. Nossa proposta configura, então, em esforço de colaboração entre as mais diversas áreas das ciências sociais aplicadas.

... The encouragement of creative and experimental behaviour not only requires the necessary skills and confidence on the part of the individual, but also a long term training and development strategy by the Organization (Tidd et al., 1997). Training activities in innovative organizations should be spontaneous, informal, and unsystematic and should encourage high employee participation (Schuler and Jackson, 1987). ...

Fawaz Thawabieh

The Research aims on Human Resource Management and innovation has to date relied on a theoretical assumption that there exists an identifiable set of HR practices which organizations seeking to be innovative should adopt. However, analysis of the various prescriptions of HR practices for innovation reveals a high level of internal inconsistency, leading to conflicting advice for practitioners. Furthermore, a review of empirical research on the topic indicates that HR practices within innovative organizations are remarkably similar to those found in the best practice literature This raises questions about the link between strategy and HRM, and about the theoretical foundations of research on HRM and innovation. Drawing on recent research on HRM and firm performance, I suggest that research on HRM and innovation can benefit from incorporating elements from both contingency theory and best practice approaches into the existing configuration theory approach. A change in direction for both theoretical and empirical research on HRM and innovation is proposed. This paper is laid out as follows. In part one, I ask what a strategy of innovation is, and consider what employee behaviors are believed to be consistent with such a strategy. The second section compares and contrasts different authors' prescriptions of HR practices for innovation, and also compares the findings of research on HRM and innovation with the findings of the best practice approach. In the final part I consider the implications of MY review for future research on this topic. I propose a broadening of the theoretical base on which research on HRM and innovation is founded, and discuss the particular challenges involved in conducting empirical research on HR systems for innovation.

... Одна з найважливіших властивостей конкурентоспроможності -можливість впливу на неї, тобто нею можливо і потрібно управляти. Управління конкурентоспроможністю підприємств сфери послуг -це управління в ринкових умовах своїми конкурентними перевагами, результатом якого є кращі позиції по відношенню до конкурентів і стабільне становище підприємства за рахунок отримання достатнього прибутку, що дозволяє йому розвиватися [16]. ...

Quentin De Beurme

Since Dr. Henry Chesbrough first coined the open innovation concept back in 2003 (Chesbrough, 2003a), a lot of research was performed to identify the key open innovation activities across different sectors and industries (Huston and Sakkab, 2006; Ili et al., 2010; Spithoven et al., 2013; Van de Vrande et al., 2009; Bommert, 2010; Brown and Osborne, 2012). Although several researchers investigated the open innovation perspective applied to the defence industries of different countries (Fernandes et al., 2020; Simões et al., 2020; Cronin, 2020), high-qualitative research of this open innovation concept applied to Belgian Defence in particular is lacking. Moreover, a publicly available overview of the actual research and development (R&D) practices of Belgian Defence is also not available for the moment. To address this literature gap, this Master's Dissertation focuses on giving an overview of the R&D practices of Belgian Defence and, as a result of the latter, how well these practices are aligned with the modern view of open innovation. Despite the several limitations present in this dissertation, it still provides interesting findings useful for both 'non-defence' and 'defence' related readers respectively. Hence, this dissertation shows that Belgian Defence is currently on the way to implement an effective Triple Helix strategy that connects Belgian Defence with the most proficient industrial partners. However, it shows that the legal framework which surrounds, for example, the procurement policy of Belgian Defence is putting several limitations on these open innovation practices. As such, several guidelines to both Belgian Defence and the government infrastructure surrounding Belgian Defence are given.

Nurses are in a key position between the patient, provider, and the health care system. This position provides them with valuable insight into problems and potential solutions in health care, yet there is little recorded involvement of nurses in product or service development. A five‐step process called design thinking has proven successful across multiple settings to generate meaningful solutions that provide value to those directly impacted by a problem. The purpose of this study is to describe the process of design thinking and review how it can be used by nurses for the creation of products and services that will benefit health care systems and improve nursing practice and patient care.

The paper aims at investigating through an empirical research what is the interconnection between innovativeness on country level (based on The Global Innovation Index) and university competitiveness (based on the world university ranking U-Multirank). As a result of statistical analyses, we present the main indicators, part of university competitiveness, which are significant for the Global Innovation Index of a country. The results are based on data from 44 countries and 1394 universities. In addition, the end-result of the study presents a full picture of the interaction between educational innovations for achieving and improving main challenges in universities and universities main functions all together with the relevant indicators, bringing innovation performance on country level.

Boru Douthwaite

Enabling Innovation is an engrossing look at some of the disaster—and success—stories surrounding technological development and diffusion in industrialized and developing countries. The book tells the story of widely divergent technologies—agricultural appliances, wind turbines, Green Revolution high yielding seeds, the Linux computer operating system, and Local Economic Trading Systems. Boru Douthwaite has constructed a "how to do it" guide to innovation management that runs counter to so many current "top-down", "big is good", and "private sector is best" assumptions

M. Fojt

In the hectic world in which we live it is all too easy to lose sight of our original goals. Daytoday events take on an unprecedented amount of importance relative to our overall aims. What people need more of is an overview of what they are doing to enable clarity and perspective to shine through. Easier said than done, I hear you say, and you are probably right. This special issue of Journal of Product & Brand Management, on the theme of new product development, aims to add perspective by adding a selection of articles on how other industries manage this most important of areas. New product development is becoming increasingly expensive, and companies are ever more reluctant to invest heavily in an area which could have a high risk of failure. This is very apparent in the food industry, for example, where only a small percentage of new food products survive to reap the gains of commercial success in the market.

John Bessant
T. Venables

This book illustrates that, although innovation has always mattered in economic development, simply increasing expenditure in creating knowledge may not be the answer: we need to look at the whole system through which such knowledge translates to value creation.

In the past decade or so, systems integration has become a key factor in the operations, strategy, and competitive advantage of major corporations in a wide variety of sectors (e.g. computing, automotive, telecommunications, military systems, and aerospace). In the past, systems integration was confined to a technical, operations task. Today, systems integration is a strategic task that pervades business management not only at the technical level but also at the management and strategic levels. This book shows how and why this new kind of systems integration has evolved into an emerging model of industrial organisation whereby firms and groups of firms join together different types of knowledge, skill, and activity, as well as hardware, software, and human resources to produce new products. The business of systems integration has fundamental implications for the capabilities of firms. Firms have made a transition from being vertically integrated to being the integrator of somebody else's activities. This book, the first to systematically explore the re-invention of systems integration from a business and innovation perspective, is based on contributions from leading international scholars. It delves deeply into the nature, dimensions, and dynamics of the new systems integration, deploying research and analytical techniques from a wide variety of disciplines including, the theory of the firm, the history of technology, industrial organisation, regional studies, strategic management, and innovation studies.

Source: https://www.researchgate.net/publication/285052130_Managing_Innovation

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