Part B - INNOVATION

AS 91379 9 (3.1): Demonstrate understanding of how internal factors interact within a business that operates in a global context

An invention is the creation or discovery of new ideas for products or processes.

Innovation is the practical application of new inventions into marketable products.

Businesses must be able to develop new products, materials, systems and processes and improve existing ones in order to grow and to survive. A business that fails to innovate can run the risk of losing ground to competitors, losing key staff, or simply operating inefficiently.

Innovation and Business Success

Successful businesses not only respond to their current customer or organisational needs, but often anticipate future trends and develop an idea, product or service that allows them to meet this future demand rapidly and effectively. Innovation helps the business stay ahead of its competition as markets, technologies or trends shift.

Types of InnovationO Breakthrough innovation ~ an “out

of the blue” solution or discovery that cannot be compared to existing practices or techniques. These innovations use new technologies and create new markets.

O Cost-reducing innovation ~ improved processes that reduce the cost of production for a business or industry.

O Process innovation ~ changes to the way production takes place.

O Product innovation ~ new creations or the development and improvement of existing products. This type of innovation is sometimes called incremental innovation. It is evolutionary in nature and generally leads to substitutes to existing products. These innovations are generally in response to consumer demand.

O Research is the investigation and discovery of new ideas in order to solve a problem or create an opportunity..

O Development involves changing ideas into products, materials, systems or processes. One of the problems with development is the time scale involved.

Process of R&DO Generate ideasO Screen ideas and test conceptsO Prepare product design briefO Make and test prototypes. These may

be discarded, adapted or adoptedO Test marketingO Full-scale productionO Promote and launch the product

R&D does not always lead to innovation. It is expensive and has an opportunity cost. Inventions do not always translate into products that consumers will buy in a quantity that will make their production profitable.

Cultures favouring Innovation

O Risk-taking must be rewardedO Mistake-making must be toleratedO Communication must be open

Innovation StrategiesGive workers greater freedom and resources to explore new ideas. This will encourage them to follow ideas that interest them.O An advantage is that workers might initiate fresh

ideas that have true potential. This might lead to new products and an increase in revenue.

O Another advantage is that it will increase motivation, because stall will feel more valued. This, in turn, may increase productivity.

O A disadvantage is that profitability could fall if ideas do not relate to the firm’s market objectives. This means that the firm’s direction may become confused and lack focus.

Encourage interdepartmental innovation discussion. People sharing views may initiate new ideas.O An advantage is that the sharing of

ideas could lead to the creation of products that may not have happened previously. This may improve revenue in the longer term.

O A disadvantage is that some workers may feel the meetings are unnecessary, and this might reduce motivation. This will raise staff expenses.

Opportunities of Innovation

Innovation gives the business the opportunity to:O Develop unique products O Gain competitive advantageO Provide alternative and possibly more

sustainable income streamsO Identify new opportunitiesO Improve efficiency of production processesO Enhance the business’s reputation

These are offset by challenges and costs

O The need for R&D investmentO Long timescalesO Uncertain outcomesO The chance that conditions may change

during the R&D process, such as competitors launching a similar or better innovation

O Possibility of failure and the impact this will have on reputation