Innovation & Entrepreneurship
Part I Entrepreneurial Goals and Context
Chapter 1 The Innovation Imperative
Innovation matters
Innovation does make a huge difference to organizations of all shapes and sizes. If companies don´t
change what they offer and how they create and deliver them, they risk being overtaken by others
who do. Innovation is strongly associated with growth. Innovation accounts for a sizeable proportion
of economic growth. One person´s problem is another´s opportunity and the nature of innovation is
that it is fundamentally about entrepreneurship. The skill to spot opportunities and create ways to
exploit them is at the heart of the innovation process. Entrepreneurs are risk-takers, but they
compare the potential gains with the costs of taking a bright idea forward. Some ideas are
generating profit, other won’t and some ideas do change the quality of life. Innovation is driven by
the ability to see connections, to spot opportunities and to take advantage of them. Sometimes this
is about completely new possibilities. Equally important is the ability to sport where and how new
markets can be created and grown. Innovation isn’t just about opening up new markets, it can also
offer new ways of serving established and mature ones. And it isn’t just about products, plenty of
examples of turnaround through innovation can be found in services.
Innovation and entrepreneurship
Innovation is driven by entrepreneurship, a potent mixture of vision, passion, energy, enthusiasm,
insight, judgement and plain hard work which enables good ideas to become a reality. The power
behind changing products processes and services comes from individuals who make innovation
happen. Entrepreneurship is a human characteristic which mixes structure with passion, planning
with vision, tools with the wisdom to use them, strategy with the energy to execute it and judgement
with the propensity to take risks. A new start-up is an obvious example of entrepreneurship. Internal
entrepreneurs (intrapreneurs/corporate entrepreneurships/corporate venture) provide the driven,
energy and vision to take risky new ideas forward inside that context. Social entrepreneurship is the
passion to change things that may not be around creating commercial value but rather improving
conditions or enabling change in the wider social sphere or in the direction of environmental
sustainability. Entrepreneurship drives innovation to create value – social and commercial.
,Innovation isn’t easy!
Most new ideas fail. New ventures often fail, the people don’t. Failure is an intrinsic part of the
process. Successful entrepreneurs learn from mistakes, understand where and when timing, market
conditions, technological uncertainties etc. mean that even a great idea isn’t going to work. Many
small and medium-sized enterprises (SMEs) fail because they don’t see or recognise the need for
change. By the time they realise there is a need to change it may be too late. Even large companies
face those problems, core competence can become an obstacle to seeing the need for change.
Change can also come from outside the industry. Existing players often fail to respond fast enough to
the new signals coming from outside their industry. Innovation is seen as the biggest threat to their
competitive position, because they need to learn to let go of their old models as well as learn new
ones. The challenge is one of dealing with an uncertain world by constantly trying new things.
Managing innovation and entrepreneurship
The four core themes of innovation are: (1) recognising the opportunity, (2) finding the resources, (3)
developing the venture and (4) creating value.
What do we know about managing innovation and entrepreneurship?
Success in innovation is not just about having a good idea and assembling the resources to make it
happen. It’s also about having the capabilities to manage them. Experience is important, what we’ve
learned comes from the laboratory of practice rather than some deeply rooted theory. If we want to
succeed in managing innovation we need to:
Understand what we are trying to manage.
Understand the key messages about what makes for successful management of the innovation
process.
Have a clear sense of purpose and direction, a strategy shaping the innovation work that we do.
Recognize that it is a moving target, managing innovation is about building a dynamic capability.
If we ignore these, we run the risk of good ideas who running into the ground.
Understanding the innovation process
Innovation represents both a thing and an action. Innovation can take many forms, but they can be
reduced to four dimensions of change:
Product innovation: changes in the things an organisations offers.
Process innovation: changes in the ways in which they are created and delivered.
Position innovation: changes in the context in which the products/services are introduced.
Paradigm innovation: changes in the underlying mental models which frame what the
organization does.
Sometimes the dividing line is somewhat blurred. Innovation can also take place by repositioning the
perception of an established product or process in a particular user context. Sometimes
opportunities for innovation emerge when we reframe the way we look at something. Another thing
to think about is the degree of novelty involved, running from minor, incremental improvements
right through to radical changes which transform the way we think about and use them. We also
have to think about the differences between change at the level of components or a whole system.
See figure 1.1 for all the different types of innovation.
What has to be managed?
Simple having a good idea is not going to lead to its widespread adoption and use.
A model for innovation and entrepreneurship
Innovation is a process. The four elements, as mentioned earlier, are:
Recognizing the opportunity: picking up relevant trigger signals.
Finding the resources. Innovation is a risky business. This stage is about strategic choices.
, Developing the venture. The next stage is about turning potential ideas into some kind of reality.
Create value.
This core process runs through any successful innovation. In a large company ‘recognizing the
opportunity’ might involve a large R&D department, the process is different for a start-up. It is still
possible to identify some generic recipes or conditions that help the innovation process to happen
effectively. Successful innovation correlates strongly with how a firm selects and manages projects,
how it co-ordinates the inputs of different functions, how it links up with its customers etc. Another
critical point to emerge from research is that innovation needs managing in an integrated way; it is
not enough to be good at one thing. It’s all very well putting a basic process for turning ideas into
reality in place. But it doesn’t take place in a vacuum, it is subject to a range of internal and external
influences which shape what is possible and what actually emerges. In particular innovation needs:
Clear strategic leadership and direction, plus the commitment of resources to make this happen.
An innovative organization in which the structure and climate enables people to deploy their
creativity and share their knowledge to bring about change.
Pro-active links across boundaries inside the organization and to the many external agencies
who can play a part in the innovation process.
What, why and when – The challenge of innovation strategy
Building a capability to organize and manage innovation is a great achievement, but it has to point in
the right direction. The last theme we need to consider is where and how innovation can be used to
strategic advantage. The problem isn´t the shortage of ways of gaining competitive advantage
through innovation but rather which ones will we choose and why? We can think about strategy as a
process of exploring the space defined by our four innovation types: product, process, position and
paradigm (see figure 1.4). The challenge is to be aware of the extensive space within which
innovation possibilities exists and try and develop a strategic portfolio which covers this territory
effectively, balancing risks and resources. The innovation strategy should fit the business strategy
and also the direction the company is going, if they know anything about the direction. Under
conditions such as disruption (which don’t emerge every day) we need different approaches to
organizing and managing innovation. Old models usually don’t work with the new rules of the game.
Chapter 2 Social Entrepreneurship and Innovation
Thinking about innovation
Entrepreneurship is about being prepared to challenge and change, to take (calculated) risks and put
energy and enthusiasm into the venture, picking up and enthusing other supporter along the way.
Social entrepreneurs primarily seek to generate ‘social value’ rather than profits. A social
entrepreneur is someone who recognize a social problem and uses traditional entrepreneurial
principles to organize, create and manage a venture to make social change. Social entrepreneurs
often start non-profits and citizen groups. It is target as making long-term sustainable change rather
than short-term alleviation of problems. A key challenge in this is scaling up and spreading what may
be good local ideas but which have much broader potential. Social innovation is in many cases an
individual-driven thing, where a passion for change leads to remarkable and sustainable results. But
it’s becoming more important to large organizations, they realise that they only secure a licence to
operate if they can demonstrate some concern for the wider communities in which they are located.
Corporate social responsibility (CSR) is becoming a major function in many business and many make
use of formal measures to monitor and communicate their focus on more than simple profit-making.
Another increasingly significant development is the setting up by established organizations and
successful business entrepreneurs of charitable foundations whose aim is explicitly to enable social
entrepreneurship and the scaling of ideas with potential benefits. Other organizations aim to develop
connections and linkages across communities and enable social entrepreneurs to scale and extend
their reach.
,Uncommon heroes
The profits are extremely important for future growth and not only to make entrepreneurs and
shareholders rich. Entrepreneurs often have a high need for achievement, many people find
entrepreneurial satisfaction through social value creation.
The challenge of social entrepreneurship
Just because there is no direct profit motive doesn’t take the commercial challenge out of the
equation. If anything it becomes harder to be an entrepreneur when the challenge is not only to
convince people that it can be done but also to do so in a form that makes it commercially
sustainable.
Big can be beautiful too
Entrepreneurial behaviour can be found in any organization and is central to their ability to develop
and reinvent themselves. More and more business are targeting both conventional profits and social
value creation. By engaging stakeholders directly, companies are also better able to avoid conflicts or
to resolve them when they arise. In some cases the process begins with an individual but gradually a
trend is established which other players see as relevant to follow, in the process bringing their
resources and experience to the game. There is also increasing pressure on established businesses to
work to a more socially responsible agenda, with many now operating a key function around
corporate social responsibility. CSR thinking has led to the development of formal measures and
frameworks like the ‘triple bottom line’ which many firms use as a way of expanding the traditional
company reporting framework to take into account not just financial outcomes but also
environmental and social performance. An increasingly number of firms are looking to develop new
opportunities via stakeholder innovation. The real challenge is to create new products and services,
process and markets which will respond to the needs of current as well as future customers.
The potential of the ‘Bottom of the Pyramid’
Most of the world’s population live close to or below the poverty line (less than $2 per day). The
challenge of meeting their basic needs of food, water, shelter and healthcare require high levels of
creativity, but beyond this social agenda lies a considerable innovation opportunity. But it requires a
reframing of the normal rules of the market game and a challenging of core assumptions (see table
2.2). Meeting the needs of people at the bottom of the pyramid is not about charity but rather about
a fundamental rethink of the business model ‘paradigm innovation’ in the 4Ps model to create
sustainable alternative systems.
Challenges in managing social entrepreneurship and innovation
The process of innovation (recognizing opportunities, find resources, develop venture and create
value) is the same for social innovation (see table 2.3).
Chapter 3 Globalisation, development and sustainability
Globalisation and development
Innovation and enterprise are central to the development and growth of emerging economies and
yet their contribution is usually considered in terms of the most appropriate national policy and
institutions, or the regulation of international trade. Four factors have a major influence on the
ability of a firm to develop and create value through innovation:
The national system of innovation.
Its power and market position.
The capability and processes of the firm.
Its ability to identify and exploit external sources of innovation.
, Globalisation of innovation
The developments in technology and trade (particularly ICTs) are spreading the benefits of
globalization to the emerging economies, promoting their development and growth. Some analysts
and practitioners have argued that, following the ‘globalisation’ of product markets, financial
transactions and direct investments, large firms’ R&D activities should also become globalised. R&D
data still suggests that innovation remains unevenly distributed across the world. The main factors
influencing the decision where to locate R&D globally are:
1. The availability of critical competencies for the project.
2. The international credibility of the R&D manager responsible for the project.
3. The importance of external sources of technical and market knowledge.
4. The importance and costs of internal transactions.
5. Cost and disruption of relocating key personnel to the chosen site.
There are two broad logics of organising innovation globally, specialisation-based and integration-
based, or network structure. In the specialisation-based structure the firm develops global centres of
excellence in different fields, which are responsible globally for the development of a specific
technology or product or process capability. It helps to achieve a critical mass of resources and
makes coordination easier. A disadvantage is the potential isolation of the centre of excellence from
global needs. In the integration-based structure different units around the world each contribute to
the development of technology projects. It draws upon a more diverse range of capabilities and
international perspectives, but it does suffers from high costs of co-ordination and inefficiently.
There is no right answer, we can identify four sets of factors that will influence a proper balance:
The firm’s main technological trajectory.
The degree of maturity of the technology.
Corporate strategic style.
Links to ‘new science’-based technologies.
Learning from foreign systems of innovation:
It’s relative easy and cheap to obtain information on competitors’ innovations, but its more costly
and time-consuming to replicate competitors’ product and process innovation. Firms have at least
three reasons for monitoring and learning from the development of technological, production and
organizational competencies of national systems of innovation other than those in which they are
embedded themselves, and especially from those that are growing and strong:
1. They will be the sources of firms with a strong capacity to compete through innovation.
2. They are also potential sources of improvement in the corporate management of innovation and
in national systems of innovation.
3. Firms can benefit more specifically from the technology generated in foreign systems of
innovation.
The slow but significant internationalisation of R&D is also a means of firms learning from foreign
systems of innovation. In many cases a significant motive is to gain access to national or regional
innovation networks. Managers report that the most important methods of learning about
competitors’ innovations were independent R&D, reverse engineering and licensing, all of which are
expensive compared to reading publications and the patent literature. More formal approaches to
technology intelligence gathering are less widespread and the use of different approaches varies by
company and sector.
National systems of innovation
The home country positions of global firms have a strong influence on their innovation strategies.
The national influences can be grouped into three categories: competencies (workforce education &
research), economic inducement mechanisms (local demand and input prices & competitive rivalry)
and institutions (methods of funding, controlling and managing business firms). The strategic
importance to corporations of home countries’ technological competencies matter because they are
