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Innovation mgmt By Assoc. Prof. Dr. Amran Rasli
The formula • Innovation = Invention + Commercialisation
The definition • “Innovation consists of the generation of a new idea and its implementation into a new product, process or service, leading to the dynamic growth of the national economy and the increase of employment as well as to a creation of pure profit for the innovative business enterprise. Innovation is never a one-time phenomenon, but a long and cumulative process of a great number of organizational decision-making process, ranging from the phase of generation of a new idea to its implementation phase. New idea refers to the perception of a new customer need or a new way to produce. It is generated in the cumulative process of information-gathering, coupled with an ever-challenging entrepreneurial vision. Through the implementation process the new idea is developed and commercialized into a new marketable product or a new process with attendant cost reduction and increased productivity.”
3 implications • (1) the outcome of innovation is individual, group, societal or economic value; (2); innovation is created through the intersections of multiple disciplines (3) innovation is a planned process. The link between value and planned process (strategy) through the intersection of multiple disciplines is illustrated throughout the business literature.
The importance of technological innovation • The importance of technological innovation is to the extent that it is now the single most important driver of competitive success in many industries due to the following factors: • Many firms earn over one-third of sales on products developed within last five years • Globalization has increased competitive pressure; • Product innovations help firms protect margins by offering new, differentiated features. • Process innovations help make manufacturing more efficient. • Advances in information technology have enabled faster innovation • CAD/CAM systems enable rapid design and shorter production runs • Net effect: • Shorter product lifecycles (more rapid product obsolescence) • More rapid new product introductions • Greater market segmentation
The basic linear model of innovation • Basic Research Applied Research Development Diffusion/production
Incremental, radical and transformational innovation • Incremental innovation occurs when small improvements are made to a product, or the processes used in manufacturing a product. These changes generally extend the competencies of the innovator. An example of this might be temperature compensators on the balance wheels of wrist watches in order to enhance their accuracy. • Radical innovation occurs when major improvements are made to a product. These changes often make the competencies involved in the old technologies obsolete, and sometimes require new marketing channels to be developed. An example of this would be the quartz watch that uses new electronic technologies and does not require a network of skilled watchmakers for after-sales service. • Transformational innovation occurs when the innovation is of such a fundamental nature that it enables the development of many other innovations. Examples of these are recent innovations in computing and communications, biotechnology, and polymeric materials.
Product, process and service innovation • Product innovation results in new or improved products. Product innovations are embodied in the outputs of an organization, i.e., its goods or services. An example of this might be a new type of razor blade that is sharper and lasts longer than previous blades. • Process innovation occurs when the manufacturing processes are improved to make the production of existing products cheaper, or when new processes are developed specifically for making a new or improved product. An example of this would be the development of a coating technology to graphite coat razor blades for extra smoothness. Process innovations are also innovations in the way an organization conducts its business, such as in techniques of producing or marketing goods or services. • Service innovation occurs when new ways of delivering services are developed. An example of this form of innovation would be the use of automatic telling machines (ATMs) in banks to replace human tellers.
Radical and Incremental Innovation • The “radicalness” of an innovation is the degree to which it is new and different from previously existing products and processes. • Incremental innovations may involve only a minor change from (or adjustment to) existing practices. • The radicalness of an innovation is relative; it may change over time or with respect to different observers as in the case of digital photography which is a more radical innovation for Kodak than for Sony.
Competence-Enhancing and Competence-Destroying Innovation • Competence-enhancing innovations build on the firm’s existing knowledge base. The classic example is Intel’s Pentium 4 which was built on the technology for Pentium III. • Competence-destroying innovations render a firm’s existing competencies obsolete as in the case of electronic calculators which rendered Keuffel and Esser’s slide rule expertise obsolete. • Whether an innovation is competence enhancing or competence destroying depends on the perspective of a particular firm.
Architectural and Component Innovation • A component innovation (or modular innovation) entails changes to one or more components of a product system without significantly affecting the overall design. E.g., adding gel-filled material to a bicycle seat. • An architectural innovation entails changing the overall design of the system or the way components interact. E.g., transition from high-wheel bicycle to safety bicycle. • Most architectural innovations require changes in the underlying components also.
New product development Figure 1: Cooper’s stage-gate process
The funnel Figure 2: The Funnel
FluidTransitionSpecific • Firms in a new technology will exhibit a fluid pattern of innovation. The rate of radical (rather than incremental) product innovation is high. The new product technology is often crude, expensive, and unreliable, but it performs a function in a way that satisfies some market niche. • As market needs become better understood and alternative product technology converge or drop out, a transition begins toward a dominant product design and mass production methods, adding competition in price as well as product performance in the intermediate technology stage. Cost competition leads to radical change in processes, rapidly driving down costs. Production capability and scale assume greater importance to reap scale economies. • As the industry and its market mature and price competition grows more intense, the production process becomes more automated, integrated, system-like, specific, and rigid to turn out highly standardized products. The focus of innovation shifts to incremental process improvements, seeking greater efficiency. When the industry reaches this mature technology stage, firms are less likely to undertake R&D aimed at radical innovations, becoming increasingly vulnerable in their competitive position.
The Long Road towards Commercialization I Financial return to the inventor, team and institution
3 options • Commercialization routes can be in three forms: (1) Technology Brokers; (2) Licensing; and (3) Formation of a spin-out company.