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TEST BANK FOR MANAGING INNOVATION: INTEGRATING TECHNOLOGICAL MARKET AND ORGANIZATIONAL CHANGE, 6TH EDITION, JOE TIDD, JOHN BESSANT
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Summary Managing InnovationChapter 1: Innovation – What is it and why it matters
The logic of innovation is simple: if we don ‘t change what we offer the world and how we create and
deliver it, we risk being overtaken by others who do. Those enterprises that survive do so because
they are capable of regular and focused change.
The importance of innovation
Innovation is strongly associated with growth. New business is created by new ideas, by the process
of creating competitive advantage in what a firm can offer. Competitive advantage is increasingly
coming to favour those organizations that can mobilize knowledge, technological skills and
experience to create novelty in their offerings and the way these are delivered. Innovation accounts
for a sizeable proportion of economic growth.
Innovation is not just high technology
Survival and growth pose a problem for established players but 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 risk-
takers but they calculate the costs of taking a bright idea forward against the potential gains if they
succeed in doing something different.
It’s not just products
Innovation is not confined to manufacturing products. Companies that do not invest in innovation
put their future at risk. Their business is unlikely to prosper, and they are unlikely to be able to
compete if they do not seek innovative solutions for emerging problems. The following factors
characterize successful 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
Innovation and entrepreneurship
The nature of innovation is that it is fundamentally about entrepreneurship. Entrepreneurship is a
human characteristic that 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.
‘Intrapreneurs’ provide drive and vision in established organizations. ‘Social entrepreneurship’
focuses not commercial value but rather on improving conditions or enabling change in the wider
social sphere.
Strategic advantage through innovation
Innovation contributes in several ways:
- New products help capture and retain market shares and increase profitability in those
markets. ‘Competing in time’ reflects a growing pressure on firms not just to introduce new
products but to do so faster than the competition.
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, - Process innovation plays 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.
- Being able to offer better service is seen as a source of competitive edge.
The advantages that flow from these innovative steps gradually fall to the competition 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
which drive their business. Whatever the dominant technological, social or market conditions, the
key to creating and sustaining competitive advantage is likely to lie with those organizations that
continually innovate.
Old question, new context
The innovation challenge isn’t new. The trouble is that innovation involves a moving target: not only
is there competition among players in the game, but the overall context in which the game is played
out keeps shifting. Changes along several core environmental dimensions mean that the incidence of
discontinuities is likely to rise. But there is also a high level of interactivity among these
environmental elements – complexity – which leads to unpredictable emergence.
The globalization of innovation
Key changes in the context of innovation:
- Acceleration of knowledge production
- Global distribution of knowledge production
- Market expansion
- Market fragmentation
- Market virtualization
- Rise of active users
- Growing concern with sustainability issues
- Development of technological and social infrastructure
So, what is innovation
Innovation is more than just coming up with good ideas; it is the process of growing them into
practical use. It is not just concerned with creating commercial value, but also with creating social
value. It is the successful exploitation of new ideas.
A process view of innovation
The process model of innovation involves 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.
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, - Phase 1 Search: How do we organize an effective search process to ensure a steady flow of
new ideas that gives us better chance of surviving and thriving?
- Phase 2 Select: The selection process involves a strategic choice. This process needs to take
into account competitive differentiation and previous capabilities.
- Phase 3 Implement: This tasks is essentially one of managing a growing commitment of
resources against a background of uncertainty.
- Phase 4 Capture: How will we ensure that the efforts have been justified, either in
commercial or social value? How will we protect it from appropriation from others? And how
do we learn from the experience to improve the innovation process in the future?
The innovation process is influenced by a number of factors. Of particular relevance is the presence
of an innovation strategy. And innovation is at heart a process involving people. So the presence of
an enabling innovative organisation is another key influence.
The scope for innovation
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 manufactured products; in most economies, the service
sector accounts for the vast majority of activity, so there is likely to be plenty of scope.
Four dimensions of innovation space
- Product innovation: changes in the things that an
organization offers
- Process innovation: changes in the ways offerings 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 that frame what the organization
does
Key aspects of innovation
Key characteristics of innovation that shape our strategic decisions:
- Degree of novelty: incremental or radical innovation
- Level of innovation: component or architecture
- Platforms and families of innovations
- Timing: the innovation life cycle
- Discontinuous innovation: what happens when the rules of the game change?
Incremental innovation – doing what we do but better
There are degrees of novelty in innovation, running from minor, incremental improvements right
through to radical changes, which transform the way we think about and use them. The ways in
which we approach incremental, day-to-day change will differ from those used occasionally to handle
a radical step change in product or process. It is the perceived degree of novelty that matters.
Although innovation sometimes involves a discontinuous shift, most often it takes place in an
incremental fashion. Essentially, this is product/process improvement. Productivity improves as a
result of learning and continuous incremental problem-solving innovation (learning curve effect).
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,Component/architecture innovation and the importance of knowledge
We can think of innovations that change things at the level of components or those that involve
change in a whole system. Innovation is about knowledge – creating new possibilities through
combining different knowledge sets. The process of weaving these different knowledge sets together
into a successful innovation is one that takes place under highly uncertain conditions. We don’t know
what the final innovation configuration will look like. Successful innovation management requires
that we can get hold of and use knowledge about components but also about how those can be put
together: the architecture of an innovation.
- Zone 1: steady-state improvements to
products or processes and knowledge
accumulated around core components
- Zone 2: significant change in one
element, but the overall architecture
remains the same
- Zone 3: discontinuous innovation,
where neither the end state nor the
ways in which it can be achieved are
known
- Zone 4: new architectures emerge by
using existing knowledge and
recombining it in different ways, or by
combining new and old.
Platform innovation
Platforms are 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 investment costs in R&D by deploying the
technology across a number of market fields.
The innovation life cycle – different emphasis over time
Innovation opportunities change over time. In new
industries there is huge scope for experimentation
around new product and service concepts. But more
mature industries tend to focus more around process
or position innovation. Under discontinuous conditions
there is a ‘fluid phase’ during which there is
uncertainty along two dimensions: target (what will
the new configuration be and who will want it?) and
technical (how will new technological knowledge be
harnessed to deliver this?). Experiments under these
uncertain conditions will converge around a ‘dominant
design’, which represents the most popular solution to the emerging configuration. Innovation
options become channelled around a core set of possibilities (technological trajectory). The period in
which the dominant design emerges and emphasis shifts to imitation and development around it is
4
,called the ‘transitional phase’. As the concept matures further, incremental innovation becomes
more significant. This is the ‘specific phase’.
The main element of this model are:
Discontinuous innovation – what happens when the game changes?
Occasionally, something happens which dislocates the existing framework and changes the rules of
the game. They open up new opportunities but also challenge existing players to reframe what they
are doing in the light of new conditions. Change of this kind can come from the emergence of a new
technology, the emergence of a new market with new characteristics or through reframing the way
we think about an industry which changes the dominant business model. Under new conditions, new
players often do better as they do not have to let go of existing ways of operating. Established
players often do badly, as they try to push harder on existing ways of organizing and managing
innovation. The challenge involves trying to develop ways of managing innovation not only under
‘steady state’ but also under highly uncertain, rapidly evolving conditions, which result from
discontinuity. The source of discontinuity in an industry often comes from outside that industry.
Incumbent firms will therefore have difficulty anticipating on discontinuity, despite allocating
resources to discover them.
5
,Chapter 2: Digital is Different?
What is digital innovation?
Digital innovation can be defined as the suite of technologies around the creation or capture,
storage/retrieval, processing and communication of information and their combination into high-
level systems with emergent properties. Digitalization effects a set of key activities on different
levels:
- Level 1 – basic functions: information storage and retrieval, control
- Level 2 – integrated processing of level 1 functions: information processing, control loops
- Level 3 – integration of level 2 processing into systems: integrated information and control
systems
- Level 4 – complex integrated systems and the ability to self-optimize and learn: platforms
and integrated networks
The power of digital is that it has emergent properties: the higher levels the whole becomes greater
than the sum of its parts. It uses a common language which means interoperability is possible, linking
ever more complex systems. Three other key features:
- Digital technologies allow for easy updates to the core programs because they require only
software revision
- Moore’s Law: the power of electronic devices increases exponentially whilst their cost falls
which enables a continuing stream of innovation delivering expanding functionality without
high cost
- Modularization of software and the development of programming languages means that
increasingly complex arrangements become possible
Is it revolutionary?
Digital innovation has disruptive potential: the process towards radical impact is slow but when it
converges there can be significant waves of change flowing from it. The role of technology as a driver
of economic growth has to be matched by a complementary change in social structures and
expectations (= techno-economic paradigm).
Extensive investment in new technologies does not always seems to contribute to expected rises in
productivity (= productivity paradox).
Whilst digital technologies have the potential to disrupt traditional sectors the evidence is that they
are not necessarily destroying the established incumbents. Rather there is a process of absorbing and
working with new technologies to strengthen the core competencies.
What does it mean for innovation?
Key features of digital technologies which may open up new innovation opportunities for any
organization:
- Low cost leading to widespread application potential
- Common language – digital code – enabling communication and interoperability of software
- Fast easy communication
- Increasing wireless connection potential
- Low cost enables intelligent functionality to be built into a wide range of devices and then
connected into systems – the ‘Internet of Things’
- Learning via machine
- Potential to collect and work with big data
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,The difficulty in making the transition to deploying digital technology is that it is rarely a case of ‘plug
and play’. Systems need to be rethought not simply at the technological level but in terms of
underlying business models. But even when there is a compelling business model there remain
difficulties in implementing the innovations, for instance due to a mismatch between the capabilities
needed and those actually possessed.
What does it mean for innovation management?
Whilst innovation has long been recognized as a distributed multi-player process it is through digital
infrastructures that the significant gains offered by a networked model become available. ‘Open
innovation’ is predicated on the idea of extensive networking and collaboration.
The new digital toolkit
A key characteristic of the digital infrastructure is that it enables both ‘richness’ (quality) and ‘reach’
(accessing large populations) in its communication possibilities. The challenge of search can be
opened up to many more participants through various tools based on working with crowds and
communities. Inside organisations there is growing use of various kinds of collaboration platforms.
These offer support for:
- Finding ideas
- Selecting ideas
- Implementing ideas
- Targeting ideation (focusing ideation along strategic directions)
- Knowledge management
In the select phase the various options for innovation projects need to be assessed and assembled
into a portfolio for further development. Selection decisions are normally made under conditions of
uncertainty and digital tools provide ways in which more information can be made available at low
cost early in the process.
Within the implementation process innovations move from ideas through various stages. Each of
these can benefit from the use of digital tools. ‘Agile innovation’ approaches stress a rapid sequence
of build/test/learn and these can be supported by digital technologies.
Digital tools around networking provide powerful accelerators for the social processes which
underpin diffusion and are increasingly used to create communities around innovations. Building
platforms offers a way of using knowledge more efficiently by deploying it in a targeted fashion to
multiple users and using feedback from those markets to refine the offering and targeting.
Making effective use of collaboration platforms requires an extended learning and organizational
development process before the full gains can be realized.
7
, Chapter 3: Innovation as a Core Business Process
The innovation journey
Innovation is a journey, a process of moving step by step towards the point where we can create and
capture value from an idea. At its heart, innovation involves:
- Searching: scanning the environment for and processing relevant signals about threats and
opportunities for change.
- Selecting: deciding (based on a strategic view of how the enterprise can best develop) which
of these signals to respond to.
- Implementing: translating the potential in the trigger idea into something new and launching
it in an internal or external market.
- Capturing value from the innovation: sustaining and growing the market and ensuring
widespread adoption and diffusion, together with ensuring that value is captured for the
innovator.
- Learning: from progressing through this cycle so that the organization can build its
knowledge base and can improve the ways in which the process is managed.
Different circumstances, similar management challenges
Innovations vary widely in scale, nature, degree of novelty and so on – and so do organizations. But
at this level of abstraction, it is possible to see the same basic process operating in each case. Signals
about needs and new technological means are processed and provide an input to developing a
strategic concept. This then requires identifying an existing option, or inventing a new one, which
must then be developed to such a point that it can be implemented by customers. Innovation
management is a learned capability. Although there are common issues to be confronted and a
convergent set of recipes for dealing with them, each organization must find its own particular
solution and develop this in its own context.
Variations on a theme
Different circumstances lead to many different solutions to the challenge of organizing innovation.
Services and innovation
There are plenty of examples where innovation has led to competitive advantages in services. The
advantages that flow from these innovative steps gradually get competed away as others imitate.
With the rise of the internet, the scope for service innovation grew enormously. The traditional
picture of services being offered (‘high reach’ or ‘high richness’) is blown to bits by the opportunities
of Web-based technology. Reach and richness can now both be offered, creating totally new markets
and disrupting radically those that existed. There are challenges in service innovation:
- They are much easier to imitate
- There are fewer barriers for entry or imitation
The drive to personalization of the service experience comes in part from a recognition that it is only
through customized experiences that a degree of customer ‘lock-on’ takes place.
Service innovation emphasizes the demand side
In the context of service innovation, the search for and use of demand-side knowledge is critical –
many services are simultaneously created and consumed, and end-user understanding and empathy
are essential to success. In the challenge of service innovation, search, experiment and prototyping,
and a gradual scaling up of commitment and activity lead to launch (Frascati manual).
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