WHAT  IS  INNOVATION?  

NOVEMBER  2010  

Austrian   economist,   Joseph   Schumpeter1,   defined   innovation  over  70  years  ago  as:  

1. The   introduction   of   a   good   (product),   which   is   new   to  consumers,   or   one   of   higher   quality   than   was   available   in  the  past.  

2. Methods   of   production,   which   are   new   to   a   particular  branch  of  industry.    These  are  not  necessarily  based  on  new  scientific   discoveries   and   may   have,   for   example,   already  been  used  in  other  industrial  sectors.  

3. The  opening  of  new  markets.  4. The  use  of  new  sources  of  supply.  5. New  forms  of  competition,  that  leads  to  the  restructuring  of  

an  industry.  

The  OECD2   defined   innovation   in   1981   as   consisting   “of   all   those  scientific,   technical,   commercial   and   financial   steps   necessary   for  the   successful   development   and   marketing   of   new   or   improved  manufactured   products,   the   commercial   use   of   new   or   improved  processes  or  equipment  or  the  introduction  of  a  new  approach  to  a  social  service.    R&D  is  only  one  of  these  steps.”  

Both   these   definitions,   and   the   descriptions   set   out   in   Box   1,  include   some   common   words,   such   as   ‘new’,   ‘introduction’,  ‘products’,   ‘markets’   and   ‘processes’,   although  none   in   its   entirety  fully  describes  truly  the  essence  of  innovation.    Why?    I  believe  that  innovation   is  more   than  mere  words.     Innovation   is   a  mind-­‐set,   a  culture,  a  desire  to  do  better,  a  willingness  to  take  risks  and  yes,  the  celebration  of  failure!    Think  of  Apple  and  Google,  both  companies  which  are  considered  to  be  truly  innovative.  

Everyone  has  his  or  her  own  view  as  to  what  constitutes  innovation.    Is  innovation  only  about  new  to  the  world  products  or  services?  Is  invention  innovation?  

©2010  INNOVATION  FOR  GROWTH    C  W  MOBBS  

Email:  cwmobbs@innovationforgrowth.co.uk  

www.innovationforgrowth.co.uk  

 

“Vivamus  porta  est  sed  est.”  

 Having   considered   different  definitions   of   innovation,   it   is   now  worthwhile   looking  at   the  realities.  For   business   innovation,   the   “4Ps  approach   can   be   used   to   explore  opportunities   for   innovation.”5      Essentially,   the   “4Ps”   relate   to  innovation  focusing  on  the  product,  process,   position   or   paradigm.   The  first   two   are   obvious,   with  numerous   examples,   including  revised  or  new  computer  operating  systems,   new   car   models,  (product),  or  extensions  of  product  ranges,   improved   operations  (process).   Position   considers   the  target   consumer   and   the   purchase  decision   rationale.     Examples  include   low-­‐cost   airlines   and   on-­‐line   customisation   of   products.    Paradigm   is   a   more   difficult  concept.   It   is   defined   as   “how   we  frame   what   we   do.”5   Examples  include  new  platforms,  such  as  IBM,  reinventing   itself   as   a   consultancy  business,  or  i  Tunes.    Innovation  can  be  further  split  into  incremental,   radical   and  discontinuous.   The   former,  generally   more   prevalent   is   ‘doing  something  better’.      Radical   innovation,   which   is   more  elusive,   is   doing   something  different.      The   most   elusive,   and   potentially  threatening   is   discontinuous  innovation.   This   results   in  significant   change,   often   from   the  emergence   of   completely   new,  unpredictable   markets   or   as   a  result   of   a   new   technological  breakthrough.     It  might   come   from  a   change   in   market   behaviour  (think   of   real   fur   coats!),   or   be   a  result   of   a   terrorist   event   (World  Trade  Centre,  9/11).    Alternatively,  

Box  1  

There  are  a  number  of  differing  views  as   to  what   constitutes   innovation,  including  the  following:  

• “Innovation   is   the   successful   exploitation   of   new   ideas”   –  Innovation  Unit  (2004)  UK  Department  of  Trade  and  Industry.  

• “Industrial   innovation   includes   the   technical,   design,  manufacturing,   management   and   commercial   activities   involved  in   the   marketing   of   a   new   (or   improved)   product   or   the   first  commercial  use  of  a  new  (or   improved)  process  or  equipment”  –  Chris  Freeman  (1982)  The  Economics  of  Industrial  Innovation,  2nd  edition,  Pinter,  London.  

• “Innovation   is   the   specific   tool   of   entrepreneurs,   the   means   by  which   they   exploit   change   as   an   opportunity   for   a   different  business   or   service.     It   is   capable   of   being   presented   as   a  discipline,  capable  of  being  learned,  capable  of  being  practised”  –  Peter  Drucker   (1985)   Innovation  and  Entrepreneurship,  Harper  &  Row,  New  York.  

• “Companies   achieve   competitive   advantage   through   acts   of  innovation.     They   approach   innovation   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.  

 

 

The   European   Innovation   Progress   Report,   20063   defines  innovation  as  being   “about   change  and   the  ability   to  manage  change   over   time.     Innovation   can   be   about   the   successful  exploitation   of   new   ideas   in   the   form   of   a   new   or   improved  product  or  service  but  it  can  also  be  about  the  way  in  which  a  product   or   service   is   delivered.     Equally,   innovation   can   be  about   creatively   positioning   (or   marketing)   an   existing  product,   or   about   changing   the   business   model   (a   new  paradigm).”      

Ahmed   and   Shepherd4  “discern   a   number   of   characteristics”,  and  these  are  set  out  in  Box  2.    These,  it  will  be  noted,  go  even  further  and   look  outside   the   firm  as  well.   Indeed,   innovation  can   also   be   considered   as   a   non-­‐business   activity,   think   of  legislation,   the   changes   in   fashion,   the   advancement   of  knowledge,  for  example.    In   answer   to   the   two   questions   posed   above,   innovation   is  more   than   the   introduction   of   new   to   the  world  products   or  services  and  invention  is  only  one  element  of  innovation.  

 

 

0   20   40   60  

New  or  signikicantly  improved  services  

New  or  signikicantly  improved  organisational  structures  

New  or  signikicantly  improved  processes  

New  or  signikicantly  improved  products  

New  or  signikicantly  improved  marketing  strategies  

%  of  Yes  

Has  your  company  introduced  any  of  the  following  innovations  since  2006?  

UK  

EU27  

Chart  1  

Source:  Innobarometer  2009:  Analytical  Report6  

“Vivamus  porta  est  sed  est.”  

Box  2  

Ahmed  and  Shepherd’s  characteristics  are:  • “Innovation   as   creation   (invention):   The   focus   is   on   use   of  

resources   (people,   time   and  money)   to   invent   or   develop   a   new  product,   service,   new  way   of   doing   things,   new  way   of   thinking  about  things.  

• Innovation   as   diffusion   and   learning:   The   focus   is   on   acquiring,  supporting  or  using  a  product,  service  or  ideas.  

• Innovation  as  an  event:  The  focus  of  attention  here  is  on  a  discrete  event,  such  as  the  development  of  a  single  product,  service,  idea  or  decision.  

• Innovation   as   a   (stream   of   innovations)   trajectory:   This   is  recognition   that   a   single   act   of   innovation   (as   that   in   a   discrete  event)  can  facilitate  a  family  of  innovations  to  be  derived  from  the  original  source.  

• Innovation  as  change   (incremental  or   radical):   Innovation  enacts  change.     Some   innovations   are   minor   adjustments   whilst   other  innovations  are  radical  or  discontinuous  in  nature.  

• Innovation  as  a  (firm-­‐level)  process:  In  this  view  innovation  is  not  a  single  act,  but  a  series  of  activities  that  are  carried  out  by  a  firm  to  lead  to  the  production  of  an  outcome  (namely,  the  innovation).  

• Innovation   as   a   context   (region,   nature,   etc.)   level   process.   This  view   sees   innovation   as   an   act   beyond   the   confines   of   an  individual   or   firm.   The   view   captures   institutional   frameworks,  socio-­‐political   networks,   and   proximal   factor   endowments   as  important   factors   in   the   act   of   innovation.   The   focus   is   switched  from  the  firm  to  the  peculiar  endowments  and  characteristics  of  a  specific  context  (region,  nation,  etc.)”  

it   could   be   business   model  innovation   –   Amazon   springs   to  mind.   But   the   essence   of  discontinuous   innovation   is   that   it  tends  to  be  unpredictable.      This   form   of   innovation   will  change   the   organisation   in   many  ways.   New   technology   may   be  needed   as  well   as,   new   processes,  new   customers,   new   knowledge,  and   possibly   a   new   business  model.   Incremental   innovation   fit  into   existing   core   competencies  and  the  core  business.      There   is   an   unresolved   debate   as  to   whether   companies   need   both  sorts   to   compete   in   the   long-­‐term,  but   certainly,   incremental  innovation   is   required   as   a  minimum.    Research  undertaken   in  2009   (see  Chart   1)   shows   the   percentage   of  respondents  who  have  undertaken  the   identified   forms  of   innovation,  with  new  or  significantly  improved  services  being  undertaken  by  50%  of   the   5,238   enterprises  interviewed   across   Europe.  Responses   from   UK   organisations  are  also  shown  for  comparison.        Having   regard   to   the   above  comments,   when   considering  innovation,   we   look   at   five   main  areas:    

• Innovation  strategy;  • Ideas;  • Prioritisation;  • Implementation;  and  • People  and  organisation.  

 It   is   only   by   linking   and   analysing  these   five   elements   (three   of  which,   ideas,   prioritisation   and  implementation  form  the  phases  of  

 

 

   

 

 

 

 

 

 

   

 

Aliquam  dolor.  

byline  

Lorem  Ipsum  

For  more  information,  contact      

Chris  Mobbs  at    Innovation  for  Growth  

 Email:  

enquiries@innovationforgrowth.co.uk  or  

Via  the  website:  www.innovationforgrowth.co.uk  

or  Telephone:  +44  (0)1869  243  394  

the   traditional   development   funnel)  that   a   fuller   understanding   of  innovation  can  be  reached.    To   conclude,   innovation   is  more   than  just   simple   invention,   or   indeed,   ‘new  product   development’.   It   needs   to   be  commercialised   and   exploited.     It  involves   the   whole   business,   and  particularly   its  ethos  or  culture.   It  can  be  relatively  simple,  and  low  key,  or  it  can   be   more   radical   and   possibly,  threatening   to   existing   players.   It  encompasses  more   than   just   goods,   it  includes   services,   markets,   processes,  paradigms,   and   positions   as   well.   We  all   innovate,  we  do  not   always   realise  that  we  are  doing  so.    

Innovation  for  Growth  Limited  Weir  Farm  Lower  Road  Blackthorn  Nr  Bicester  Oxfordshire    OX25  1TG    +44  (0)1869  243  394  www.innovationforgrowth.co.uk  enquiries@innovationforgrowth.co.uk    Registered  in  England  and  Wales  Registered  number:  7387935  

1. Schumpeter  (1934)  The  Theory  of  Economic  Development  Harvard  University  Press,  Boston  

2. OECD  (1981)  The  Measurement  of  Scientific  and  Technical  Activities  OECD,  Paris  3. EIPR  (2006)  European  Innovation  Progress  Report  Office  for  Official  Publications  of  

the  European  Communities,  Luxembourg  4. Ahmed  and  Shepherd  (2010)  Innovation  Management  Context,  strategies,  systems  

and  processes  FT  Prentice  Hall,  Harlow  5. Tidd  and  Bessant  (2009)  Managing  Innovation  Integrating  Technological,  Market  

and  Organisational  Change  4th  edition.  Wiley,  Chichester  6. Flash  Eurobarometer  267  –  The  Gallup  Organisation  (2009)  Innobarometer  2009  

Analytical  Report  European  Commission  

Founded  in  2010,  Innovation  for  Growth  is  a  business  consultancy  firm  that  specialises  in  the  provision  of  advice  to  small  and  medium  sized  enterprises.  We  work  with  companies  from  all  sectors  undertaking  innovation  audits,  and  providing   innovation   advice   so   our   clients   can   achieve   their   growth   aspirations.   We   also   undertake   desktop,  business  research,  enabling  our  clients  to  concentrate  on  running  their  business.  

Incremental,  radical,  or  discontinuous?