Theory of Innovation

7/29/2019 Theory of Innovation

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Innovation


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Innovation as a competitive strategy

Economies during the 50s and 60s:

Potential demand of goods almost unlimited

Technical maturity of ideas coming from WWII

Establishment of current World economic system

(Keynes, GATT-WTO, WEF, World Bank)

Technological push due to large programs (Concorde,

nuclear stations, NASA)

Growth of firm competitivity


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Economies during the 70s:

First major crisis in the International Monetary System

(1971: major dollar devaluation)

Rise in prices of oil and raw materials

Slow in the growth of demand due to market

saturation and smaller purchase power

Two-digit inflation

New industrial poles arise


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A new socio-technical paradigm arises:

Higher uncertainty in the business world

Faster pace in the technological change. New

synergic-mutant technologies

Competitiveness starts to be based on intangiblesrather than on price

Globalization of the business activities

New consciousness of key concepts: Social responsibility

Sustainability Stagflation, structural unemployment

Substitution of sectorial structures by networks


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Five-forces Model

1) Degree ofindustryrivalry

4) Threat ofnew entrants

5) Substitutes

2) Suppliers 3) Customers

Michael Porter

Socio-politicalenvironment

Technological

environment

Economicenvironment

Cultural

environment


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Porters five forces

DEGREE OF RIVALRY

-Exit barriers

-Industry concentration

-Fixed costs/Value added

-Industry growth

-Intermittent overcapacity-Product differences

-Switching costs

-Brand identity

-Diversity of rivals

-Corporate stakes


7/29External forces

Socio-political environment: Labor market

Political model

Unions

Civil society

Political stability

State intervention

Technological environment Production methods

Materials and components

Technological knowledge

New technologies

Economic environment Market size/growth

Innovations in

commercialization

Distribution channels

Sources of financing

Cultural environment Values

Beliefs

Attitude towards problem

solving

Attitude towards citizenship


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The capacity of progress anddevelopment within a firm depends

directly on its capacity to adapt itself

quickly to the changes occurred in theenvironment and to take advantage of

them producing modifications that act

in its favor


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Innovation VS Invention

Innovation means introducinginto the market new

products, processes or

services. To define whether

an innovation is successful of

not, the main criterion iseconomic, rather than

technical. A successful

innovation recovers the

initial investment andgenerates further economic

benefits.

Invention means create anew idea that could be

incorporated into a

product, process or

service or converting

this idea into aprototype. The main

criterion to define a

successful invention is

technical, rather thaneconomic.

Pags, 2000


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Innovation VS Invention

Examples:

Walkman (product) Drycleaning (service)

Assemby lines (production)

Phone sales (distribution

systems)

What is the implication?

Introducing products,

processes or services into

the market.

Examples:

New ideas, based

on: Creativity

Imagination

What is the implication?

A new idea for a

product or a service.

Pags, 2000


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Technological Innovation

It comprises all the activities performed

from the creation of a technological

knowledge up to its implementation in a

business.

Technological innovation is an attitude, a

capability to continually improve products by

adapting current processes and organizationto new technological developments that may

be related to the company


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Technological Innovation

Due to the degree of novelty and itsapplication, technological innovation can

be divided into:

1. Radical innovation

2. Systems innovation

3. Incremental innovation


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1. Radical (disruptive)innovation

This kind of innovations create or

changes radically an industry. Typically,

these innovations are based on newscietific principles. E.g. Steam

machine, transistors, photocopying

machine.


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2. Systems innovationThis kind of innovation creates a new

functionality assemblying parts in a

new way. E.g. ATMs.


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3. Incremental innovation

This kind of innovation consists of small

changes into existing products,

processes or services. These changes

extend the applications of the other two

types of innovations. E.g. Integrated

circuits


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Abernathy Utterback Model oninnovation

Rate

ofmajorInnovation

Time

Radical

InnovationTransition

Incremental

improvements

Product

Innovations

Process

Innovations

Abernathy & Utterback, 1975

A h t t bli h th


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Approaches to establish theinnovation strategy

Market Pull

Technology Push

Business

environment

Competitors

Marketing

Strategy

Technological

Strategy Manufacturing

R&D ManufacturingMarketing

Strategy


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Innovation Process within a firm

Kline & Rosenberg, 1986An overview of innovation


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Kline & Rosenberg, 1986An overview of innovation


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Needs coming from the society and themarket

Kline & Rosenberg

R&D:

Design

Proto-

typingProduc-

tion

Mkt &

Sales

Idea

Genera-tion

Market

State of the art in technology andproduction

Newneeds

Newtechnologies


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Dam Culture VS Stream Culture

Chavarr, 2000

Focus on individuality Encourages hiding knowledge

Avoids risks

Reinforces traditional behavior

Does not provide thinking time Low investment on training

Not enough time for meetings

Short term orientation

Interaction within

organizational areas

Limits on autonomy

Cost cutting emphasis

Encourages teamwork Recognition to efforts

Loves risks

Challenges traditional behavior

Provides thinking time High investment on training

Encourages meeting time

Long term orientation

Interaction among organizational

areas

Provides autonomy

Emphasis on value


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Action plan for innovation:

Promote a true

culture for

innovation

Establish a financial,

normative framework that

encourages innovation

Articulate properly

R&D with innovation


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Types of innovation

Types of innovation

Business innovationSocial

innovation

Technological Managerial

Product Process Practices Organization

Institutional

innovation


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Objectives:

Cost reduction

Quality improvements

Diferentiation Market expansion

Implementation:

New designs, expansion

of product lines

Incorporation of newmaterials/components

Industrial protection

(trademarks, patents)

Quality and environmentcertifications

Technological innovation in products


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Objectives:

Cost reduction

Rise in productivity

Increase in flexibility Increase added value

Implementation:

Renewal of machinery and

equipment

Reorganization ofproduction lines

Automation of information

systems

Quality control Supply chain management

Technological innovation in processes

Managerial innovation in practices and


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Objectives:

Increase in flexibility

and efficiency

Orientation towardsprocesses Vs. Functions

Orientation towards the

customer Vs. Production

Innovationencouragement

Implementation:

Expansion of value chain

Improvements in

distribution and post-saleservices

Leaning organizational

structures

Training of HHRR Access to Information

Systems

Managerial innovation in practices andorganization


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Objectives:

Solution of social

problems

Creation of newbusiness model to

tackle unsolved basic

needs

Implementation:

Social entrepreneurs

Integration with different

partners Balance among the triple

bottom-line: social,

economic, environmental

issues

Social innovation


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Objectives:

Promotion of

innovative ideas

Elimination ofbarriers for

innovation (social,

legal)

Implementation:

Government policy

towards innovation and

financing Integration of public and

private actors

Institutional innovation

Documents

Theory of Innovation