The term innovation may refer to both radical and incremental changes in thinking, in things, in processes or in services (Mckeown, 2008) Invention that gets out in to the world is innovation. In many fields, something new must be substantially different to be innovative, not an insignificant change, e.g., in the arts, economics, business and government policy. In economics the change must increase value, customer value, or producer value. The goal of innovation is positive change, to make someone or something better. Innovation leading to increased productivity is the fundamental source of increasing wealth in an economy.
Innovation is an important topic in the study of economics, business, technology, sociology, and engineering. Colloquially, the word “innovation” is often used as synonymous with the output of the process. Since innovation is also considered a major driver of the economy, the factors that lead to innovation are also considered to be critical to policy makers.
In the organisational context, innovation may be linked to performance and growth through improvements in efficiency, productivity, quality, competitive positioning, market share, etc. All organisations can innovate, including for example hospitals, universities, and local governments.
While innovation typically adds value, innovation may also have a negative or destructive effect as new developments clear away or change old organisational forms and practices. Organisations that do not innovate effectively may be destroyed by those that do. Hence innovation typically involves risk. A key challenge in innovation is maintaining a balance between process and product innovations where process innovations tend to involve a business model which may develop shareholder satisfaction through improved efficiencies while product innovations develop customer support however at the risk of costly R&D that can erode shareholder return
Economic conceptions of innovation Employee of the Month ipod
Joseph Schumpeter defined economic innovation in The Theory of Economic Development, 1934, Harvard University Press, Boston.
1. The introduction of a new good — that is one with which consumers are not yet familiar — or of a new quality of a good.
2. The introduction of a new method of production, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially.
3. The opening of a new market, that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before.
4. The conquest of a new source of supply of raw materials or half-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created.
5. The carrying out of the new organization of any industry, like the creation of a monopoly position (for example through trustification) or the breaking up of a monopoly position
Schumpeter’s focus on innovation is reflected in Neo-Schumpeterian economics, developed by such scholars as Christopher Freeman and Giovanni Dosi.
Innovation is also studied by economists in a variety of contexts, for example in theories of entrepreneurship or in Paul Romer’s New Growth Theory.
Types of Innovation
Scholars have identified at a variety of classifications for types innovations. Here is an unordered ad-hoc list of examples:
Business model innovation
involves changing the way business is done in terms of capturing value .
is the development of new marketing methods with improvement in product design or packaging, product promotion or pricing.
involves the creation or alteration of business structures, practices, and models, and may therefore include process, marketing and business model innovation.
involves the implementation of a new or significantly improved production or delivery method.
involves the introduction of a new good or service that is new or substantially improved. This might include improvements in functional characteristics, technical abilities, ease of use, or any other dimension.
typically refers to service product innovation which might involve, compared to goods product innovation or process innovation, relatively less technological advance, being more interactive and information-intensive (though some service firms have major technology efforts – think of ATMs and banks, for instance. Service innovation may also involve novelty in the way in which services are produced (i.e. service process innovation), or in delivery of other aspects of the service – including creative content in the case of entertainment and cultural services.
Supply chain innovation
where innovations occur in the sourcing of input products from suppliers and the delivery of output products to customers
introduces a different product or service within the same line, such as the movement of a candle company into marketing the electric lightbulb.
through which new financial services and products are developed, by combining basic financial attributes (ownership, risk-sharing, liquidity, credit) in progressive innovative ways, as well as reactive exploration of borders and strength of tax law. Through a cycle of development, directive compliance is being sharpened on opportunities, so new financial services and products are continuously shaped and progressed to be adopted. The dynamic spectrum of financial innovation, where business processes, services and products are adapted and improved so new valuable chains emerge, therefore may be seen to involve most of the above mentioned types of innovation.
is a step forward along a technology trajectory, or from the known to the unknown, with little uncertainty about outcomes and success and is generally minor improvements made by those working day to day with existing methods and technology (both process and product), responding to short term goals. Most innovations are incremental innovations. A value-added business process, this involves making minor changes over time to sustain the growth of a company without making sweeping changes to product lines, services, or markets in which competition currently exists.
Breakthrough, disruptive or radical innovation
involves launching an entirely novel product or service rather than providing improved products & services along the same lines as currently. The uncertainty of breakthrough innovations means that seldom do companies achieve their breakthrough goals this way, but those times that breakthrough innovation does work, the rewards can be tremendous. Involves larger leaps of understanding, perhaps demanding a new way of seeing the whole problem, probably taking a much larger risk than many people involved are happy about. There is often considerable uncertainty about future outcomes. There may be considerable opposition to the proposal and questions about the ethics, practicality or cost of the proposal may be raised. People may question if this is, or is not, an advancement of a technology or process. Radical innovation involves considerable change in basic technologies and methods, created by those working outside mainstream industry and outside existing paradigms. Sometimes it is very hard to draw a line between both.
New technological systems (systemic innovations)
that may give rise to new industrial sectors, and induce major change across several branches of the economy.
a number of different definitions, but predominantly refers to either innovations that aim to meet a societal need or the social processes used to develop an innovation.
Innovation and Market Outcomes
Market outcome from innovation can be studied from different lenses. The industrial organizational approach of market characterization according to the degree of competitive pressure and the consequent modelling of firm behaviour often using sophisticated game theoretic tools, while permitting mathematical modelling, has shifted the ground away from an intuitive understanding of markets. The earlier visual framework in economics, of market demand and supply along price and quantity dimensions, has given way to powerful mathematical models which though intellectually satisfying has led policy makers and managers groping for more intuitive and less theoretical analyses to which they can relate to at a practical level. Non quantifiable variables find little place in these models, and when they do, mathematical gymnastics (such as the use of different demand elasticities for differentiated products) embrace many of these qualitative variables, but in an intuitively unsatisfactory way.
In the management (strategy) literature on the other hand, there is a vast array of relatively simple and intuitive models for both managers and consultants to choose from. Most of these models provide insights to the manager which help in crafting a strategic plan consistent with the desired aims. Indeed most strategy models are generally simple, wherein lie their virtue. In the process however, these models often fail to offer insights into situations beyond that for which they are designed, often due to the adoption of frameworks seldom analytical, seldom rigorous. The situational analyses of these models often tend to be descriptive and seldom robust and rarely present behavioural relationship between variables under study.
From an academic point of view, there is often a divorce between industrial organisation theory and strategic management models. While many economists view management models as being too simplistic, strategic management consultants perceive academic economists as being too theoretical, and the analytical tools that they devise as too complex for managers to understand.
Innovation literature while rich in typologies and descriptions of innovation dynamics is mostly technology focused. Most research on innovation has been devoted to the process (technological) of innovation, or has otherwise taken a how to (innovate) approach. The integrated innovation model of Soumodip Sarkar goes some way to providing the academic, the manager and the consultant an intuitive understanding of the innovation – market linkages in a simple yet rigorous framework in his book , Innovation, Market Archetypes and Outcome- An Integrated Framework.
The integrated model presents a new framework for understanding firm and market dynamics, as it relates to innovation. The model is enriched by the different strands of literature – industrial organization, management and innovation. The integrated approach that allows the academic, the management consultant and the manager alike to understand where a product (or a single product firm) is located in an integrated innovation space, why it is so located and which then provides valuable clues as to what to do while designing strategy. The integration of the important determinant variables in one visual framework with a robust and an internally consistent theoretical basis is an important step towards devising comprehensive firm strategy. The integrated framework provides vital clues towards framing a what to guide for managers and consultants. Furthermore, the model permits metrics and consequently diagnostics of both the firm and the sector and this set of assessment tools provide a valuable guide for devising strategy.
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