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The dictionary definition of innovation is as ''the process of making changes to something established by introducing something new''. The term innovation may refer to both radical or incremental changes to products, processes or services. Innovation is an important topic in the study of Economics , Business , Technology , Sociology , and Engineering . 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, competive 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 organizational forms and practices. Organisations that do not innovate effectively may be destroyed by those that do. CONCEPTUALIZING INNOVATION Innovation has been studied in a variety of contexts, including in relation to technology, commerce, social systems, economic development, and policy construction. There are, therefore, naturally a wide range of approaches to conceptualising innovation in the scholarly litereature. Fortunately, however, a consistent theme may be identified: innovation is typically understood as the ''introduction'' of something ''new'' and ''useful'', for example introducing new methods, techniques, or practices or new or altered products and services. Innovation in organizations A convenient definition of innovation from an organizational perspective is given by Luecke and Katz (2003), who write: "Innovation . . . is generally understood as the introduction of a new thing or method . . . Innovation is the embodiment, combination, or synthesis of knowledge in original, relevant, valued new products, processes, or services. (p. 2)" Innovation typically involves Creativity , but is not identical to it: innovation involves acting on the creative ideas to make some specific and tangible difference in the domain in which the innovation occurs. For example, Amabile et al (1996) propose: "All innovation begins with creative ideas . . . We define innovation as the successful implementation of creative ideas within an organization. In this view, creativity by individuals and teams is a starting point for innovation; the first is necessary but not sufficient condition for the second". (p. 1154-1155). For innovation to occur, something more than the generation of a creative idea or insight is required: the insight must be put into action to make a genuine difference, resulting for example in new or altered business processes within the organisation, or changes in the products and services provided. A further characterization of innovation is as an organizational or management process. For example, Davila et al (2006), write: "Innovation, like many business functions, is a management process that requires specific tools, rules, and discipline." (p. xvii) From this point of view the emphasis is moved from the introduction of specific novel and useful ideas to the general organizational processes and procedures for generating, considering, and acting on such insights leading to significant organizational improvements in terms of improved or new business products, services, or internal processes. Through these varieties of viewpoints, creativity is typically seen as the basis for innovation, and innovation as the successful implementation of creative ideas within an organization (c.f. Amabile et al 1996 p.1155). From this point of view, creativity may be displayed by individuals, but innovation occurs in the organizational context only. It should be noted, however, that the term 'innovation' is used by many authors rather interchangeably with the term 'creativity' when discussing individual and organizational creative activity. As Davila et al (2006) comment, "Often, in common parlance, the words The disinctions between creativity and innovation discussed above are by no means fixed or universal in the innovation literature. They are however observed by a considerable number of scholars in innovation studies. Technological concepts of innovation The OECD defines Technological Innovation in the Oslo Manual from 1995: Technological product and process (TPP) innovations comprise implemented technologically new products and processes and significant technological improvements in products and processes. A TPP innovation has been implemented if it has been introduced on the market (product innovation) or used within a production process (process innovation). TPP innovations involve a series of scientific, technological, organisational, financial and commercial activities. The TPP innovating firm is one that has implemented technologically new or significantly technologically improved products or processes during the period under review. Economic conceptions of innovation Joseph Schumpeter defined economic innovation in 1934: 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. 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. Social network perspectives According to Regis Cabral (1998, 2003): :''"Innovation is a new element introduced in the network which changes, even if momentarily, the costs of transactions between at least two actors, elements or nodes, in the network." TYPES OF INNOVATION 7 forms of innovation Scholars have identified at a variety of types of innovation, including for example:
For example, ''financial innovation'' occurs as new financial products and services are developed, combining basic financial attributes (risk-sharing, liquidity, credit) in innovative ways, as well as exploiting the weaknesses of tax law. To address problems or capitalise on opportunities, new financial products and services are developed, new business models emerge, and business processes are adapted and improved. Financial innovation, therefore, may be seen in general to involve most of the above mentioned types of innovation. Disruptive vs. sustaining innovation In addition to dividing innovations into types, innovation is often characterized by its impact on existing markets or businesses. Sustaining Innovation s allows organizations to continue to approach markets the same way, such as the development of a faster or more fuel efficient car. Disruptive Innovations on the other hand, significantly change a market or product category, such as the invention of a cheap, safe personal flying machine that could replace cars. Incremental vs evolutionary innovation Similarly, Incremental Innovation is evolutionary innovation, a step forward along a Technology Trajectory , with a high chance of success and low uncertainty about outcomes. Radical Innovation , on the other hand, involves larger leaps in the advancement of a technology or process. SOURCES OF INNOVATION There are two main sources of innovation. The traditionally recognized source is ''manufacturer innovation''. This is where an agent (person or business) innovates in order to sell the innovation. The other source of innovation only now becoming widely recognized is ''end-user innovation''. This is where an agent (person or company) develops an innovation for their own (personal or in-house) use either because existing products do not meet their needs. Eric Von Hippel has identified end-user innovation as, by far, the most important and critical in his classic book on the subject, Sources of Innovation . Innovation by businesses is achieved in many ways, with much attention now given to formal Research And Development for "breakthrough innovations." But innovations may be developed by less formal on-the-job modifications of practice, through exchange and combination of professional experience and by many other routes. The more radical and revolutionary innovations tend to stem from R&D, while more incremental innovations may emerge from practice - but there are many exceptions to each of these trends. Regarding User Innovation , rarely user innovators may become Entrepreneur s, selling their product, or more often they may choose to trade their innovation in exchange for other innovations. Nowadays, they may also choose to freely reveal their innovations, using methods like Open Source . In such Networks Of Innovation the creativity of the users or communities of users can further develop technologies and their use. Whether innovation is mainly Supply-pushed (based on new technological possibilities) or Demand-led (based on social needs and market requirements) has been a hotly debated topic. Similarly, what exactly drives innovation in organizations and economies remains an open question. DIFFUSION OF INNOVATIONS Once innovation occurs, innovations may be spread from the innovator to other indivudals and groups. This process has been studied extensively in the scholarly literature from a variety of viewpoints, most notably in Everett Rogers' classic book, ''The Diffusion of Innovations''. For more detailed discussion of how innovations are spread and diffused, see Diffusion Of Innovations . GOALS OF INNOVATION Programs of organizational innovation are typically tightly linked to organizational goals and objectives, to the business plan, and to market competitive positioning. For example, one driver for innovation programs in corporations is to acheive growth objectives. As Davila et al (2006) note, :"Companies cannot grow through cost reduction and reengineering alone . . . Innovation is the key element in providing aggressive top-line growth, and for increasing bottom-line results" (p.6) It is not surprising, therefore, that companies such as General Electric and Procter & Gamble have embraced the management of innovation enthusiastically, with the primary goal of driving growth and, consequently, improving shareholder value. In general, business organisations spend a significant amount of their turnover on innovation i.e. making changes to their established products, processes and services. The amount of investment can vary from as low as a half a percent of turnover for organisations with a low rate of change to anything over twenty percent of turnover for organisations with a high rate of change. The average investment across all types of organizations is four percent. For an organisation with a turnover of say one billion currency units, this represents an investment of forty million units. This budget will typically be spread across various functions including marketing, product design, information systems, manufacturing systems and quality assurance. The investment may vary by industry and by market positioning. One survey across a large number of manufacturing and services organisations found, ranked in decreasing order of popularity, that systematic programs of organzational innovation are most frequently driven by: :(1) Improved quality :(2) Creation of new markets :(3) Extension of the product range :(4) Reduced labour costs :(5) Improved production processes :(6) Reduced materials :(7) Reduce environmental damage :(8) Replacement of products/services :(9) Reduced energy consumption and :(10) Conformance to regulations. These goals vary between improvements to products, processes and services and dispel a popular myth that innovation deals mainly with new product development. Most of the goals could apply to any organisation be it a manufacturing facility, marketing firm, hospital or local government. FAILURE OF INNOVATION Attaining goals must be the ultimate objective of the innovation process. Unfortunately, most innovation fails to meet organisational goals. Figures vary considerably depending on the research. Some research quotes failure rates of fifty percent while other research quotes as high as ninety percent of innovation has no impact on organisational goals. One survey regarding product innovation quotes that out of three thousand ideas for new product only one becomes a success in the marketplace. Failure is an inevitable part of the innovation process and most successful organisations factor in an appropriate level of risk. Perhaps it is because all organisations experience failure that many choose not to monitor the level of failure very closely. The impact of failure goes beyond the simple loss of investment. Failure can also lead to loss of morale among employees, an increase in cynicism and even higher resistance to change in the future. Innovations that fail are often potentially ‘good’ ideas but have been rejected or ‘shelved’ due to budgetary constraints, lack of skills or poor fit with current goals. Failures should identified and screened out as early in the process as possible. Early screening avoids unsuitable ideas devouring scarce resources that are needed to progress more beneficial ones. Organizations can learn how to avoid failure when it is openly discussed and debated. The lessons learned from failure often reside longer in the organisational conscientiousness than lessons learned from success. While learning is important, high failure rates throughout the innovation process are wasteful and a threat to the organisations future. The causes of failure have been widely researched and can vary considerably. Some causes will be external to the organisation and outside its influence of control. Others will be internal and ultimately within the control of the organisation. Internal causes of failure can be divided into causes associated with the cultural infrastructure and causes associated with the innovation process itself. Failure in the cultural infrastructure varies between organisations but the following are common across all organisations as some stages in their life cycle (O'Sullivan, 2002): :(1) Poor Leadership :(2) Poor Organisation :(3) Poor Communication :(4) Poor Empowerment :(5) Poor Knowledge Management Common causes of failure within the innovation process in most organisations can be distilled into five types: :(1) Poor goal definition :(2) Poor alignment of actions to goals :(3) Poor participation in teams :(4) Poor monitoring of results :(5) Poor communication and access to information Poor goals definition requires that organisations state explicitly what their goals are in terms understandable to everyone involved in the innovation process. This often involves stating goals in a number of ways. Poor alignment of actions to goals means linking explicit actions such as ideas and projects to specific goals. It also implies effective management of action portfolios. Poor participation in teams refers to the behaviour of individuals and teams. It also refers to the explicit allocation of responsibility to individuals regarding their role in goals and actions and the payment and rewards systems that link individuals to goal attainment. Finally, poor monitoring of results refers to monitoring all goals, actions and teams involved in the innovation process. Innovation can fail if seen as an organisational process whose success stems from a mechanistic approach i.e. 'pull lever obtain result'. While 'driving' change has an emphasis on control, enforcement and structure it is only a partial truth in achieving innovation. Enabling innovation is as much as can be achieved by organisational gatekeepers; innovation is ultimately recognised, developed, applied and adopted by individuals through the minuteae of daily activities that make and deliver a product/service offer. The gritty appreciation for, and observation of the small needs to be combined with an appreciation for desired organisational objectives - within the 'atom' of the organisation - individuals. From this perspective innovation succeeds from strategic structures that engage the individual to the organisation's benefit. Innovation pivots on intrinsically motivated individuals, within a supportive culture, informed by a broad sense of the future. Innovation, implies change, and can be counter to an organisation's orthodoxy. Space for fair hearing of innovative ideas is required to balance the potential autoimmune exclusion that quells an infant innovative culture. INNOVATION LIFE CYCLE The life cycle of innovation for a product can be described using the ‘s-curve’ or Diffusion Curve . The s-curve maps growth of revenue or productivity against time. In the early stage of a particular innovation, growth is relatively slow as the new product establishes itself. At some point customers begin to demand and the product growth increases exponentially. New incremental innovations or changes to the product allow growth to continue. Towards the end of its life cycle growth slows and may even begin to decline. No amount of new investment in innovation to the product will yield the same rate of return for the investment. Every product will have an s-curve i.e. a start-up phase, a rapid increase in revenue and eventual decline. Innovative companies will typically be working on new innovations that will eventually replace older ones. Successive s-curves will come along to replace older ones and continue to drive growth upwards. In the figure above the first curve shows a current technology. The second shows an emerging technology that current yields lower growth but will eventually overtake current technology and lead to even greater levels of growth. The length of life will depend on many factors. INNOVATION MANAGEMENT Innovation management is the process of managing innovations (e.g. ideas) in organisations. The first stage in innovation is for someone to generate an idea. It is typically a technical insight into a product or process or thought about a service. In some cases ideas arises from observed problems either now or in the future. Ideas can also be stimulated by the goals of the organisation or an opportunity that appears suddenly. Various stimuli can lead to the generation of an idea from reading magazines and observing problems to visiting other organisations and having informal discussions with colleagues. Idea generation leads to opportunity recognition where someone can see an opportunity for developing the idea into a new product, process or service. The opportunity recognition stage involves the idea evaluation stage where ideas are prodded and tested. Often ideas are improved, merged with other ideas and in many cases abandoned. An important test for an idea is that it matches the goals of the organisation and available resources – people and money. If an opportunity is recognised then the idea moves to a new stage where it can be developed further. The development phase may involve prototype development and marketing testing. Many ideas wait at the end of the development phase for market conditions to be right. There are currently many new products languishing in the laboratories of Philips and Nokia waiting for their moment to begin replacing or even disrupting existing technology. The final stage of the innovation process is realisation and in many cases exploitation where the customer makes the final evaluation. INNOVATION FUNNEL The innovation funnel provides a solution for explicitly defining the information requirements for managing the innovation process. The funnel illustrates how innovation goals, innovation actions, innovation teams and innovation results interact with each other to create change in any organisation. The innovation funnel can be visualised as containing four arrows flowing around a funnel. Each arrow represents the flow of goals, actions, teams and results. Actions enter the wide mouth of the funnel and represent among other things, alternative ideas for change. These actions flow towards to the neck of the funnel where many will be eliminated. The neck of the funnel is constrained by two arrows – goals and teams. These constraints loosen or tighten depending on the availability of teams and definition of the goals. Tightly defined goals can be visualised as closing the neck of the funnel with the change of fewer ideas flowing through. The availability of more teams on the other hand can be visualised as opening the neck of the funnel and allowing more ideas to be worked on. The final arrow, results flows from the narrow end of the funnel and represents information concerning the results of execution of goals, actions and teams. This arrow flows back towards goals representing the impact of results on the process of defining and redefining goals. An important aspect of the innovation funnel is the associations generated between actions and both goals and teams. Ideas, for example, that cannot easily be associated with goals will find it difficult to proceed into the funnel. This has two effects. First, individuals and teams will focus on ideas they believe are in-line with established goals. Second, goals may be re-defined to accommodate good ideas. This is a natural learning process within an innovation community. MEASURES OF INNOVATION Individual and team-level assessment can be conducted by surveys and workshops. Business measures related to finances, processes, employees and customers in balanced scorecards can be viewed from innovation perspective (e.g. new product revenue, time to market, customer and employee perception & satisfaction). Organizational capabilities can be evaluated through various evaluation frameworks e.g. efqm (european foundation for quality management)-model. The OECD Oslo Manual from 1995 suggests standard guidelines on measuring technological product and process innovation. PUBLIC AWARENESS Public awareness of innovation is an important part of the innovation process. This is further discussed in the emerging fields of Innovation Journalism and Innovation Communication . SEE ALSO
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