Innovation Management B&M
Summary
Week 1: An introduction to innovation
What is an innovation?
Joseph A. Schumpeter:
Invention: an idea, a sketch or model for a new or improved device, product, process or system
Innovation: the process and outcome of creation and commercialization of something new
Innovation includes opportunity identification, ideation or invention to development,
prototyping, production, marketing and sales
Entrepreneurship only needs to involve commercialization (depending which definition of
entrepreneurship is applied)
o Innovation = Invention + Exploitation
Standard economics of strategy can be boring:
Analyzing…
o Existing structures
o Equilibriums
But innovation is about:
o Creation (and destruction)
o Change
o Novelty
Why is it so difficult?
Innovation funnel
o Most innovative ideas do not become successful new products.
Carefully crafted strategies required
Barriers, competitors, innovation patterns,
environment, etc.
, Sources of Innovation
R&D by firms
Research refers to both basic and applied research:
Basic research aims at increasing understanding of a topic or field without an immediate
commercial application in mind.
Applied research aims at increasing understanding of a topic or field to meet a specific need
Development refers to activities that apply knowledge to produce useful devices, materials, or
processes.
R&D thus refers to a range of activities that extend from early exploration of a domain to specific
commercial implementations.
Demand Pull / Technology Push
Originate from linear models:
“Technology/Science push”
Scientific discovery -> invention -> manufacturing -> marketing
Linear model emphasizes “supply side”
“Need/Demand pull”
Customer suggestions -> invention -> manufacturing
Linear model emphasizes “demand side”
Innovation process likely to be non-linear
Most current research emphasizes that innovation originates from a variety of sources and follow a
variety of paths.
Supply and demand determinants
, Supply determinants of innovation:
Technological opportunity -> state of the relevant scientific and technological
knowledge
Cost and availability of inputs -> knowledge workers, scientific personnel, equipment
Appropriability -> ability to capture profit from innovation
Demand determinants of innovation:
Cost reduction potential from innovation (process innovation; new sources of supply;
organizational change)
Consumer or producer benefit from novel product (product innovation)
Consumer or producer benefit from improvements (incremental product innovation)
TP/DP risks
Technology push -> develop solution for which there is no problem
Demand pull -> missing ability to invent technology to solve problem
Development of innovation models
External sources and combinations
External sources
Licensing, purchasing
Externalities (technologies, pecuniary)
Combinations of external and internal sources
, Strategic partnership
Cross licensing
(Networks for exchange, joint venture, collective research associations, government-
sponsored joint research programs, informal networks, …)
Innovation in Collaborative Networks
Technology Clusters are regional clusters of firms that have a connection to a common
technology (e.g., Silicon Valley’s semiconductor firms)
Though today’s information technology enables fast, cheap and easy communication across the
globe, knowledge does not always transfer so easily.
Encompass an array of industries that are linked through relationships between suppliers, buyers and
producers of complements.
Technological spillovers / Knowledge externalities
Technological spillovers occur when the benefits from the research activities of one entity
spill over to other entities.
Likelihood of spillovers is a function of:
Strength of protection mechanisms (e.g., patents, copyright, trade secrets)
Nature of underlying knowledge base (e.g., tacit, complex)
Mobility of the labor pool
Types of Innovation (A)
Product Innovation vs. Process Innovation:
Product innovation
o Embodied in firm output (good or service)
New product
Process innovation
o Techniques of producing output
More efficient production
→ Appear very often in combination:
→ Product innovations can enable process innovations and vice versa
→ Product innovation for one firm may be a process innovation for another firm
Types of innovation (B)
Level of newness
Summary
Week 1: An introduction to innovation
What is an innovation?
Joseph A. Schumpeter:
Invention: an idea, a sketch or model for a new or improved device, product, process or system
Innovation: the process and outcome of creation and commercialization of something new
Innovation includes opportunity identification, ideation or invention to development,
prototyping, production, marketing and sales
Entrepreneurship only needs to involve commercialization (depending which definition of
entrepreneurship is applied)
o Innovation = Invention + Exploitation
Standard economics of strategy can be boring:
Analyzing…
o Existing structures
o Equilibriums
But innovation is about:
o Creation (and destruction)
o Change
o Novelty
Why is it so difficult?
Innovation funnel
o Most innovative ideas do not become successful new products.
Carefully crafted strategies required
Barriers, competitors, innovation patterns,
environment, etc.
, Sources of Innovation
R&D by firms
Research refers to both basic and applied research:
Basic research aims at increasing understanding of a topic or field without an immediate
commercial application in mind.
Applied research aims at increasing understanding of a topic or field to meet a specific need
Development refers to activities that apply knowledge to produce useful devices, materials, or
processes.
R&D thus refers to a range of activities that extend from early exploration of a domain to specific
commercial implementations.
Demand Pull / Technology Push
Originate from linear models:
“Technology/Science push”
Scientific discovery -> invention -> manufacturing -> marketing
Linear model emphasizes “supply side”
“Need/Demand pull”
Customer suggestions -> invention -> manufacturing
Linear model emphasizes “demand side”
Innovation process likely to be non-linear
Most current research emphasizes that innovation originates from a variety of sources and follow a
variety of paths.
Supply and demand determinants
, Supply determinants of innovation:
Technological opportunity -> state of the relevant scientific and technological
knowledge
Cost and availability of inputs -> knowledge workers, scientific personnel, equipment
Appropriability -> ability to capture profit from innovation
Demand determinants of innovation:
Cost reduction potential from innovation (process innovation; new sources of supply;
organizational change)
Consumer or producer benefit from novel product (product innovation)
Consumer or producer benefit from improvements (incremental product innovation)
TP/DP risks
Technology push -> develop solution for which there is no problem
Demand pull -> missing ability to invent technology to solve problem
Development of innovation models
External sources and combinations
External sources
Licensing, purchasing
Externalities (technologies, pecuniary)
Combinations of external and internal sources
, Strategic partnership
Cross licensing
(Networks for exchange, joint venture, collective research associations, government-
sponsored joint research programs, informal networks, …)
Innovation in Collaborative Networks
Technology Clusters are regional clusters of firms that have a connection to a common
technology (e.g., Silicon Valley’s semiconductor firms)
Though today’s information technology enables fast, cheap and easy communication across the
globe, knowledge does not always transfer so easily.
Encompass an array of industries that are linked through relationships between suppliers, buyers and
producers of complements.
Technological spillovers / Knowledge externalities
Technological spillovers occur when the benefits from the research activities of one entity
spill over to other entities.
Likelihood of spillovers is a function of:
Strength of protection mechanisms (e.g., patents, copyright, trade secrets)
Nature of underlying knowledge base (e.g., tacit, complex)
Mobility of the labor pool
Types of Innovation (A)
Product Innovation vs. Process Innovation:
Product innovation
o Embodied in firm output (good or service)
New product
Process innovation
o Techniques of producing output
More efficient production
→ Appear very often in combination:
→ Product innovations can enable process innovations and vice versa
→ Product innovation for one firm may be a process innovation for another firm
Types of innovation (B)
Level of newness
