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Summary MNE3703 Summarised Study Notes
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MNE3703NOTES
, STUDY UNIT 1
INTRODUCTION
What is innovation?
• Invention: Discovering something new.
• Innovation: Changing what has been invented and applying it commercially.
• Most innovations have a degree of novelty.
• Innovation is about the commercial exploitation of ideas and innovations
• Embrace both technological and creative dimension
• Innovation is a subset of invention
• Also requires comercialisation in order to make an invention ready for market
• Also embrace services (Facebook)
The scope of innovation: Just how new is it?
• The degree of novelty can be modest
• Two particularly significant aspects of newness are new to the market and
new to a company
• New to market implies that this is a product or service not previously offered in
the market. The product or service is entirely new, though clearly something
similar could have been offered in other markets and then adapted to the
market in question.
• With products or services that are new to a company, there is probably less
scope for novelty because other companies might already be offering the
product or service.
• Combining the two aspects of market and company gives a two-dimensional
matrix.
• The principle purpose behind the addition of new attributes is to enable the
product to appeal to a new group of customers. By so doing the product line is
being extended, hence the term “line extension”.
• There will generally be less novelty with “re-positionings” and new product
lines. New product lines are where companies introduce what for them are
new products, but which are already available on the market.
Innovation: invention – commercialisation – diffusion.
• Inventions involve new ideas, new discoveries and new breakthroughs. These
are developed through a process of experimentation to arrive at a workable
invention. The invention phase of innovation is the one that is most commonly
associated with innovation and it is the phase where ideas are turned into
workable inventions.
• The essence of the commercialisation element of innovation is to find an
appropriate way to unlock the “latent value” of a technology in order to
1
, generate real value. Commercialisation mechanisms are also increasingly
described as “business models”.
• Diffusion is the stage where innovations are adopted and used by consumers
or, in the case of process innovations, by other organisations. Diffusion
described the way in which innovations catch on and become popular.
1. Invention
The invention phase of innovation is the one that is most commonly associated with
innovation and it is the phase where ideas are turned into workable inventions.
Three routes to innovation
• Individual (heroic). Classic model of invention, where a lone inventor toils
away on his or her own. Battling against the odds, isolated, lacking support
and short of resources. Comparatively rare.
• Corporate (Closed). Is where corporate research and development facilities
in the form of R&D laboratories are the main engine of invention. Because
most of the activities associated with invention take place within a single
organisation the corporate model has in recent years come to be termed the
closed model of innovation.
• Open. Recognises that invention isn’t only the product of corporate research
labs. External sources include other large corporations which, having
developed new technologies decide not to commercialise them. Having no
immediate and obvious use for the technology themselves, they license the
technology to others who are willing to innovate and turn the technology into
new products.
2. Commercialisation
A way has to be found to transform the “technological potential” of an invention into
economic value.
A business model is an enabling device, that is, a tool that allows inventors to profit
from their ideas and inventions.
Two functions of a business model: value capture and value creation.
Value creation refers to a series of activities that enable the user to recognise the
benefit and thence the value that he or she can gain from the invention.
What the business model has to do is firstly, identify the users to whom the
innovation is going to be of use and then articulate the “value proposition” so that
users are aware of its purpose and the benefit they can expect to derive. Only when
the user recognises the benefit to be gained from a new offering is he or she likely to
be willing to consider purchasing it.
2
, The second function of a business model is value capture. This involves
appropriating value from the activities undertaken by the innovator. In this context
the term “appropriating” means extracting or obtaining.
The value that the innovator typically hopes to gain is revenue, though there could
be other gains as well.
Three business models to enable firms to convert technological potential into
economic value:
1. Incorporate the technology in the current business
2. License the technology to a third party
3. Launch the new venture to exploit the technology in new business arenas
The models determine who undertakes the commercialisation phase of innovation
and how it is conducted.
They are each in their own way mechanisms for brining an invention to market.
3. Diffusion
Diffusion is the process by which innovations are adopted and used by consumers,
or in the case of process innovations, by other organisations.
Diffusion describes the way in which innovations catch on and become popular.
Diffusion is the rate at which innovations are adopted.
Diffusion rarely takes place at a steady linear rate. Instead the normal pattern is for
the path of diffusion to exhibit an S curve.
3
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