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WEEK 2 INNOVATION AND ITS MANAGEMENT

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1 WEEK 2 INNOVATION AND ITS MANAGEMENT

2 TOPICS What is Innovation? Categories of innovation
Sources of innovation Innovation models The challenges in managing innovation Innovation and commercialization process

3 What is innovation? Innovation is the process and outcome of creating something new, which is also of value. Innovation involves the whole process from opportunity identification, ideation or invention to development, prototyping, production marketing and sales, while entrepreneurship only needs to involve commercialization (Schumpeter).

4 What is innovation? Today it is said to involve the capacity to quickly adapt by adopting new innovations (products, processes, strategies, organization, etc) Also, traditionally the focus has been on new products or processes, but recently new business models have come into focus, i.e. the way a firm delivers value and secures profits.

5 What is innovation? Schumpeter argued that innovation comes about through new combinations made by an entrepreneur, resulting in a new product, a new process, opening of new market, new way of organizing the business new sources of supply

6 What is innovation? Gary Hamel argued that today’s market place is hostile to incumbents, who now needs to conduct radical business innovation: Radically reconceiving products and services, not just developing new products and services Redefining market space Redrawing industry boundaries

7 Schumpeter’s distinction between ”Invention” and ”innovation”
An ’invention’ is an idea, a sketch or model for a new or improved device, product, process or system. It has not yet entered to economic system, and most inventions never do so. An ’innovation’ is accomplished only with the first commercial transaction involving the new product, process, system or device. It is part of the economic system.

8 “Innovation is a risky process. but also a mandatory one”
“Innovation is a risky process....but also a mandatory one”. Success depends of a variety of: Internal factors Good management Core competencies Clear innovation strategy Right technology External factors Links with market and suppliers Learning from competitors Institutional support: financing, human capital, etc

9 Drivers for innovation
Financial pressures to reduce costs, increase efficiency, do more with less, etc Increased competition Shorter product life cycles Value migration Stricter regulation Industry and community needs for sustainable development Increased demend for accountability Demographic, social and maket changes Rising customer expectations regarding service and quality Changing economy Greater availability of potentially useful technologies coupled with a need to exceed the competition in these technologies

10 New conditions for innovation
Small start-up entrepreneurs increasingly depend on large firms: as suppliers or customers for venture finance, for exit opportunites, for knowledge (production, markets and R&D) and for opening new markets.

11 New conditions for innovation
Large firms increasingly depend on small start- ups for NPD, as suppliers of new knowledge (which they cannot develop themselves), or organizational renewal, for experimentation with busienss models, for opening new markets, etc

12 What do companies think about innovation?

13 Innovation and competitive advantage
Strong correlation between new products, capture and retention of market share, and increased profitability In mature industries, not just low price, but the provision of variety of non-price factors (design, customisation, quality) Rapid response esp. important given shortening product life cycles Response to shifts in the socio-economic field (e.g. SuperSize Me, legislation)

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15 Video Totally Amazing Technology in this house

16 Source of innovation Within the company Social environment
Unexpected success or failure of products – pharmaceutical products Incongruities – a gap existing between expectation and reality Process need – increase in demand Industry and market change - consumer attitudes Social environment Demographic change Perception change Knowledge change

17 Types of innovation – joseph schumpeter (1939)
The introduction of a new product or substantial change in existing product The introduction of new process or production functions The introduction of a new market The conquest of a new source of supply of new materials The carrying out of a new organization

18 Types of innovation - Oslo Manual
Product innovation A good or service that is new or significantly improved. This includes significant improvements in technical specifications, components and materials, software in the product, user friendliness or other functional characteristics. Process innovation A new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software. Marketing innovation A new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing. Organisational innovation A new organisational method in business practices, workplace organisation or external relations. 18

19 Technological innovations – based on specific technology, invention, discovery,
Social innovations – in critical historic periods more important than technological ones (mail, educational systém, social systém, health care, …)

20 CATEGORY OF INNOVATION
Incremental Radical Transformative

21 Incremental innovation
Improvement of existing product/services/process that enhance the performance of the existing product/services – make the product better (beauty products, machines, etc) Duplication – replication of existing product/services/process – eg: Instance noodle, fast food, computer Synthesis – combination of an existing product, services and process into a new formation of use (faks+telephone+photocopier) Mature industries High appropriability

22 Radical innovation Change the value of the product based on problems
The back-scratcher - make the product/services/process easier and simpler for people (Mobile phone) The extreme makeover – make an ugly product attractive , find the way to prosper the product at low prices (Budget airline – Airasia, Jetstar, Virgin Blue) High uncertainty Possible transformation of industry and sectors

23 Transformation innovation
Transformation of industry and sectors Change the basis of society

24 Innovation and its dimensions

25 Figure 1.1 Dimensions of innovation

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28 Innovation to Market Challenges?
(c) 2003 VentureQuest Ltd. LLC 11/13/2018 Innovation to Market Challenges? Too early stage Overvaluation of opportunity Too many features, too few benefits Weak value proposition Competition barriers Unvalidated market assumptions Over reliance on technical evaluations Too risky Unproven business model Slow adoption curve Your Challenges?? U of I, Opportunity Assessment ppt

29 (c) 2003 VentureQuest Ltd. LLC
11/13/2018 Technology Adoption Curve Mature Saturated Market Declining Market Rapid Growth Market Size Early adopters Niche markets New Replacement Technology Time U of I, Opportunity Assessment ppt

30 The innovation and commercialization management process
Evolving models of the innovation process Can we manage innovation? Introducing the concepts of Organizational Routines or Capabilities Specify the different phases of the innovation process How context affects innovation

31 Simple representation of the innovation process
The innovation management process Simple representation of the innovation process ©2005 Joe Tidd, John Bessant and Keith Pavitt

32 Table 2.2 Rothwell’s five generations of innovation models
©2005 Joe Tidd, John Bessant and Keith Pavitt

33 First and second generation models
First generation (50’s-60’s): Technology push “Linear model” R&D DESIGN & ENGINEERING MANU- FACTURING MARKETING SALES Second generation (mid 60’s-70’s): Demand pull MARKET NEEDS MARKETING DEPT. R&D MANU- FACTURING SALES

34 3rd generation model

35 4th generation model marketing R&D Product development Components
manufacture Product manufacture

36 4th generation model marketing R&D Product development Components
manufacture Product manufacture Reduced time to market

37 5TH generation model University Financial R&T System Centres IP IP
INDUSTRY Users Suppliers IP Government

38 Innovation processes – 5th generation model
Relevance of external sources of knowledge “firms do not innovate in isolation” Related to Innovation System concept Focus on networking Still strong emphasis on R&D and formal knowledge (ICT)

39 6th generation of innovation processes
“Revolve around knowledge and learning” Networks embrace all knowledge types, not only R&D. Most innovative firm is the one that learns fastest It is the use of knowledge that makes the competitive difference, and creates the advantage

40 CURRENT innovation and commercialization MANAGEMENT process
Discovery Opportunity recognition (idea customer need=business concept) Protection intellectual property (pattern, trademark, copyright, etc) Product development (Prototyping, technology feasibility. Alpha testing) Business development Developing the business Launching the product/business Critical decision Critical decision Source: Allen (2003, p. 16)

41 (c) 2003 VentureQuest Ltd. LLC
11/13/2018 Six-Step Commercialization Process Think 1. Idea Generation Screen 2. Pre- screening Assess 4. Business and Market Development Protect 3. Idea Protection Validate 5. Product Development and Testing Execute 6. Commercial- ization Strategy Scientific discovery Opportunity discovery Customer- driven problem solving Laboratory notebooks Disclosure forms Technical evaluation Lab prototype? Business Concept Seven-Step Opportunity Evaluation Model Opportunity Patent Copyright Trademark Trade secret Opportunity Assessment Executive Summary Innovation Team Product/ Service Analysis Market Strategy Financial Projections Valuation Analysis Market validation Experts Competitors Customers Licensees Customer prototype Beta test Refinement Maturation Commercial ization Plan Licensing Bartering Work-for- hire R&D funding Spin-in Business Plan Spin-out Joint Venture Strategic partnership ©PEP 2005 U of I, Opportunity Assessment ppt

42 the Innovation system at USM
R Research Development Commercialisation Enterprises (knowledge-based) Research Park (in-campus ‘industrial alliances’) D C E (P) Global vs Local Innovation -driven © DAR2003

43 Innovation models SO, WHICH ONE IS RIGHT?
A fast food restaurant chain? An electronic test equipment maker? A hospital? An insurance company? A new entrant biotechnology firm?

44 Successful innovation
New products, processes and services account for an increasing share of sales Lower prices Better-performing products Better features for certain users (niche) ½ of resources devoted to the development of new products go to unsuccessful projects 35% of products launched fail commercially


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