1. Innovation
What is it?

2. Innovation
The process of taking a creative idea and turning it into a product or process that can be sold.

3. Types of Innovation
Product Innovation - producing a new good or new service

4. Types of Innovation
Process Innovation new means of producing, selling and
supporting goods and services
Examples:
Direct Sales Model
Hospital Room Registration Processes (computer-based patient records)

5. Types of Innovation Administrative innovation - new ways of organizing
and/or handling the organizational tasks firms use
to complete their work
Examples: Changes in organizational structure, the use of technology to
support business processes (Enterprise Resource Planning Systems)

6. Three Ways to Innovate
Internal Innovation – Using a firm’s own resources and capabilities to innovate
(e.g., Novartis allocates at least 15% of its sales to R&D)
Cooperation – When two or more firms form and agreement to join some
of their resources and capabilities to innovate (Merck partnered with more than
100 universities and clinical centers to develop the human papillomavirus
(HPV) vaccine)
Acquisition – Buying ownership of another firm’s innovations or
innovation capabilities (Disney’s acquisition of Pixar)

7. Research and Development
Basic Research – Research designed to gain a comprehensive knowledge
or understanding of the subject without specific applications in mind.
Applied Research – Research designed to gain knowledge or understanding
to meet a specific, recognized need.
Development – The systematic use of knowledge or understanding gained
from research directed toward the production of useful materials, devices
systems or methods

8. Top Global R&D Spenders (2004)
Microsoft
Pfizer
Ford
DaimlerChrysler
Toyota
General Motors
Siemens
Matsushita Electric
IBM
Johnson and Johnson

9. Spend More and Profit Will Come?

10. Study Findings (Booz and Hamilton, 2005)
Study of 1,000 publicly held companies around the world revealed:
Money doesn’t buy results (There is no relationship between R&D spending and
the primary measures of firm performance (e.g., growth, profitability and
shareholder return))
Size Matters: Scale can lead to an advantage
Spending more does not necessarily help, but spending too little will hurt
Appropriate Innovation Processes are more important than innovation spending
Inter-functional/organizational collaboration is key to success

11. Firm Performance Product Innovation Process Innovation Administrative
Not necessarily

12. Example of an Innovation Process
IHOP’s R&D Director (or one of the staff members) thinks of a product idea
and approaches the company with the proposal
IHOP personnel finds at least 100 screeners (actual customers) to evaluate
the idea (i.e., Would they like to see it on the menu? Will it blend in with other
items on the menu?)
R&D personnel do a cost benefit analysis on the proposed item.
A different group of screeners are asked to sample the product
and react to how the item is presented on the menu
Those items that survive are test-marketing within a limited
Number of restaurants and more data is gathered from actual
Guests.