Innovation management
Chapter 1 | Introduction
Innovation is driven by the ability to see connections, to spot opportunities and to take advantage
of them. But innovation is not just about opening up new markets – it can also offer new ways of
serving established and mature ones.
What these organizations have in common is that their success derives in large measure from
innovation. Whilst competitive advantage can come from size, or possession of assets, etc. the pattern
is increasingly coming to favour those organizations that can mobilize knowledge and technological
skills and experience to create novelty in their offerings (product/service) and the ways in which they
create and deliver those offerings.
Innovation matters, not only at the level of the individual enterprise but also increasingly as the
wellspring for national economic growth. Another study by the consultancy Innovaro suggested that
‘innovation leaders’ had strong links between innovative activities and business performance. Its top
five firms were Apple, Nokia, Google, Adidas and Reckitt Benckiser – all noted for different but
distinctive innovation performance and the increase of their share prices over the year 2006–7 by
between 25% and 135%. This was not just short-term success – these firms had sustained share price
growth for the preceding seven years.
According to Statistics Canada,16 the following factors characterize successful small- and medium-
sized enterprises:
• Innovation is consistently found to be the most important characteristic associated with success.
• Innovative enterprises typically achieve stronger growth or are more successful than those that do
not innovate.
• Enterprises that gain market share and increasing profitability are those that are innovative.
The survival/growth question poses a problem for established players but provides a huge opportunity
for newcomers to rewrite the rules of the game. 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 new ways to exploit them is at the heart of the innovation process.
Entrepreneurs are risktakers – but they calculate the costs of taking forward a bright idea against the
potential gains if they succeed in doing something different – especially if that involves upstaging the
players already in the game. Innovation contributes in several ways. For example, research evidence
suggests a strong correlation between market performance and new products. New products help
capture and retain market shares, and increase profitability in those markets. At the same time new
product development is an important capability because the environment is constantly changing.
Shifts in the socioeconomic field (in what people believe, expect, want and earn) create opportunities
and constraints. Legislation may open up new pathways, or close down others, for example, increasing
the requirements for environmentally friendly products. Competitors may introduce new products,
which represent a major threat to existing market positions. In all these ways firms need the capability
to respond through product innovation.
Whilst new products are often seen as the cutting edge of innovation in the marketplace, process
innovation plays just as important a strategic role. Being able to make something no one else can, or
to do so in ways that are better than anyone else, is a powerful source of advantage.
Importantly we need to remember that the advantages which flow from these innovative steps
gradually get competed away as others imitate. Unless an organization is able to move into further
innovation, it risks being left behind as others take the lead in changing their offerings, their
operational processes or the underlying models that drive their business.
With the rise of the Internet the scope for service innovation has grown enormously – not for nothing
,is it sometimes called ‘a solution looking for problems’. Now it becomes possible to offer both richness
and reach at the same time – and thus to create totally new markets and disrupt radically those which
exist in any information-related businesses.
Ways of how enterprises can obtain strategic advantage through innovation > Table 1.1
Key changes in the context within which the current innovation game is played out > Table 1.2
One of America’s most successful innovators was Thomas Alva Edison who registered over 1000
patents. He put to good use an understanding of the interactive nature of innovation, realizing that
both technology push (which he systematized in one of the world’s first organized R&D laboratories)
and demand pull need to be mobilized. As Edison realized, innovation is more than simply coming up
with good ideas: it is the process of growing them into practical use. Definitions of innovation may
vary in their wording, but they all stress the need to complete the development and exploitation
aspects of new knowledge, not just its invention.
One of the problems in managing innovation is the variation in what people understand by the
term, often confusing it with invention. In its broadest sense the term comes from the Latin innovare
meaning ‘to make something new’. Our view, shared by the following writers, assumes that innovation
is a process of turning opportunity into new ideas and of putting these into widely used practice.
In this book we will make use of a simple model of innovation as the process of turning ideas into
reality and capturing value from them. There are four key phases, each of which requires dealing with
particular challenges – and only if we can manage the whole process is innovation likely to be
successful.
• Search - how do we organize an effective search process to ensure a steady flow of ‘genetic
variety’ which gives us a better chance of surviving and thriving?
• Select - Unlike natural selection where the process is random we are concerned here with
some form of strategic choice – out of all the things we could do, what are we going to do –
and why? This process needs to take into account competitive differentiation – which choices
give us the best chance of standing out from the crowd? – and previous capabilities – can we
build on what we already have or is this a step into the unknown?
• Implementation - The task is essentially one of managing a growing commitment of resources
– time, energy, money and above all mobilizing knowledge of different kinds – against a
background of uncertainty. Unlike conventional project management the innovation challenge
is about developing something which may never have been done before – and the only way
we know whether or not we will succeed is by trying it out.
• Capture Value - In what ways can we innovate – what kinds of opportunities exist to create
something different and capture value from bringing those ideas into the world?
4 categories of innovative space > Table 1.3 for examples:
1. ‘Product innovation’ – changes in the things
(products/services) that an organization
offers.
2. ‘Process innovation’ – changes in the ways in
which they are created and delivered.
3. ‘Position innovation’ – changes in the
context in which the products/services
are introduced.
4. ‘Paradigm innovation’ – changes in the
underlying mental models which frame
what the organization does.
,Degree of novelty – incremental or radical innovation?
The ways in which we approach incremental, day-to-day change will differ from those used
occasionally to handle a radical step change in a product or process. But we should also remember
that it is the perceived degree of novelty which matters; novelty is very much in the eye of the
beholder. The reality is that although innovation sometimes involves a discontinuous shift, most of the
time it takes place in incremental fashion. Essentially this is product/process improvement along the
lines of ‘doing what we do, but better’ – and there is plenty to commend this approach. Products are
rarely ‘new to the world’, process innovation is mainly about optimization and getting the bugs out of
the system.
Platforms and families of innovations
One way in which the continuous incremental innovation approach can be harnessed to good effect is
through the concept of ‘platforms’. This is a way of creating stretch and space around an innovation
and depends on being able to establish a strong basic platform or family which can be extended.
Platforms and families are powerful ways for companies to recoup their high initial investments in R&D
by deploying the technology across a number of market fields.
Discontinuous innovation – what happens when the rules of the game change?
Most of the time innovation takes place within a set of rules of the game which are clearly understood,
and involves players trying to innovate by doing what they have been doing (product, process, position,
etc.) but better. Some manage this more effectively than others but the ‘rules of the game’ are
accepted and do not change. However, occasionally something happens which dislocates this
framework and changes the rules. By definition these are not everyday events but they have the
capacity to redefine the space and the boundary conditions – they open up new opportunities and
challenge existing players to reframe what they are doing in the light of new conditions.
Discontinuity can also come about by reframing the way we think about an industry – changing the
dominant business model and hence the ‘rules of the game’. Think about the revolution in flying which
the low-cost carriers have brought about. Here the challenge came via a new business model rather
than technology – based on the premise that if prices could be kept low a large new market could be
opened up. The power of the new way of framing the business was that it opened up a new – and very
different – trajectory along which all sorts of innovations began to happen. In order to make low prices
pay a number of problems needed solving – keeping load factors high, cutting administration costs,
enabling rapid turnaround times at terminals – but once the model began to work it attracted not only
new customers but also increasingly established flyers who saw the advantages of lower prices.
What these – and many other examples – have in common is that they represent the challenge of
discontinuous innovation. None of the industries were lacking in innovation or a commitment to
further change. But the ice harvesters, mini-computer disk companies and the established airlines all
carried on their innovation on a stage covered with a relatively predictable carpet. The trouble was
that shifts in technology, in new market emergence or in new business models pulled this carpet out
from under the firms – and created a new set of conditions on which a new game would be played.
Under such conditions, it is the new players who tend to do better because they don’t have to wrestle
with learning new tricks and letting go of their old ones. Established players often do badly – in part
because the natural response is to press even harder on the pedal driving the existing ways of
organizing and managing innovation.
Table 1.4 gives some examples of such triggers for discontinuity. Common to these from an innovation
management point of view is the need to recognize that under discontinuous conditions (which
thankfully don’t emerge every day) we need different approaches to organizing and managing
innovation.
, Level of innovation – component or architecture?
Another important lens through which to view innovation opportunities is as components within larger
systems. Rather like Russian dolls we can think of innovations that change things at the level of
components or those that involve change in a whole system. For example, we can put a faster
transistor on a microchip on a circuit board for the graphics display in a computer. Or we can change
the way several boards are put together in the computer to give it particular capabilities – a games
box, an e-book, a media PC.
The process of weaving these different knowledge sets together into a successful innovation is one
which takes place under highly uncertain conditions. We don’t know what the final innovation
configuration will look like (and we don’t know how we will get there). Managing innovation is about
turning these uncertainties into knowledge – but we can do so only by committing resources to
reduce the uncertainty – effectively a balancing act. Figure 1.3 illustrates this process of increasing
resource commitment whilst reducing uncertainty.
Viewed in this way we can see that
incremental innovation, whilst by no means
risk-free, is at least potentially manageable
because we are starting from something we
know about and developing improvements in
it. But as we move to more radical options,
uncertainty is higher and we have no prior
idea of what we are to develop or how to
develop it! Again this helps us understand
why discontinuous innovation is so hard to
deal with.
Figure 1.5 > Component and architectural
innovation
Timing – the innovation life cycle.
We also need to recognize that innovation opportunities change over time.
Initially, under the discontinuous conditions, which arise when completely new technology and/or
markets emerge, there is what they term a ‘fluid phase’ where there is high uncertainty along two
dimensions:
• The target – what will the new configuration be and who will want it?
• The technical – how will we harness new technological knowledge to create and deliver this?
No one knows what the ‘right’
configuration of technological means and
market needs will be and so there is
extensive experimentation (accompanied
by many failures) and fast learning by a
range of players including many new
entrepreneurial businesses. Although
originally developed for manufactured
products the model also works for services,
for example the early days of Internet
banking were characterized by a typically
fluid phase with many options and models
being offered. Importantly, the ‘fluid’ or
‘ferment’ phase is characterized by coexistence of old and new technologies and by rapid
improvements of both. (It is here that the so-called ‘sailing ship’ effect mentioned earlier can often be
observed, in which a mature technology accelerates in its rate of improvement as a response to a
competing new alternative.)The period in which the dominant design emerges and emphasis shifts to
