Module 1
Chapter 1: innovation management and new business development
Organizations have to adapt to changing circumstances and lead in broader economical and societal
change. Without innovation, firms run a risk of disappearing in the short- or medium term. At the
same time, innovation is difficult due to uncertainty. Proper innovation management increases the
chances of success. The discipline of innovation management originated in research and
development contexts within manufacturing companies. New business development is an
upcoming field, and closely related to innovation management: it also concerns innovation but has a
stronger focus on the creation of new markets. Both innovation management and new business
development are engaged in innovation.
Innovation and new business development involve the creation of new products or services for
customers, the creation of new markets, but also the creation of new business models.
Organizations that engage in innovation and new business development are established firms as
well as start-ups, which by definition innovate and create new business.
R&D focuses on technology development and the successive creation of new products. Innovation
and new business development are much broader; not just about products, but can also focus on
the creation of new services, markets or business models.
Schumpeter’s definition of innovation includes the introduction of a new good, or of a new method
of production, the opening of a new market, the application of a new source of supply of raw
materials and a new organization of an industry. The book’s definition is the creation and
development of new products, services, business models or processes in firms or other
organizations. Innovation management is the subject of ISO 56000 series standards.
New business development is defined by Sorensen as the development of potential growth
opportunities by companies -> distinction between the development stage and the implementation
stage. He limits the role of new business developers to the earlier development stage. He also
explicitly excludes strategy development from the tasks of a new business developer. Other
academics argue for a more parallel division of tasks over time, during the whole process. The
book’s definition is the creation and development of new products, services, business models or
markets. It includes the activities from idea generation of implementation and sales.
Innovators come up with new ideas, and they are active in developing and implementing those
ideas. There are five discovery skills, which are typical for innovators:
1. Associating: connecting seemingly unrelated questions, problems or ideas from different
fields -> at the heart of innovation
2. Questioning: asking questions on why things are the way they are and to challenging the
status quo
3. Observing: intensively looking at what people are actually doing, with a fresh mind in the
sense of not taking the world for granted
, 4. Experimenting: learning by creating imaginary or real image prototypes or pilots of a new
product, service or business model -> learn about the impact and effectiveness
5. Networking: connecting to other people and institutions, internal and external to the firm ->
essential as innovators combine knowledge and ideas from different fields and people
- X-teams: teams with strong external relations
Entrepreneurial alertness is essential as innovators need to be on the look-out for opportunities for
innovation and new business. The skills are mostly important in the front-end stage.
Innovation management and new business development are paradoxical, characterized by
counterintuitive forces. Innovation management has to balance these forces. Three paradoxes are:
1. Tension between uncertainty generation and reduction: innovators generate uncertainty at
the beginning of a project, but they generally attempt to reduce it as soon as possible. They
generate uncertainty by creating ideas and projects for new products, new services or new
business models. At the same time, innovators attempt to reduce uncertainty as early as
possible in the process, by doing technical and market tests, and by assessing the
organizational and financial viability of the new offering
2. Character of innovation activities in different phases: we distinguish between the idea
development stage (front end of innovation), in which the team develops the innovative
concept, and the implementation phase, in which it details the concept and brings it to
market. Uncertainty is created in the first and reduced in the second. The phases require
different activities and capabilities. The emphasis in the front end is on creativity (five skills
are essential). In the implementation stage, sticking to deadlines, project management,
advertising and an execution-oriented, hands-on management style are more important. In
general, in the front-end phase the innovation team needs a diverse network of different
types of people, to be able to tap into different types of knowledge. In the implementation
stage the team needs a network that supports the tasks of the team (more coherent and
less diverse). A solution to overcome the change in the type of activities and the required
competencies is to assign tasks in the front end and in implementation to different people.
Another solution is to assign both the front end and implementation to the same people, but
to require different behaviors
3. Incremental and radical innovation: incremental innovation means that the firm makes small
modifications on existing products, services or business models. Radical innovation means
that the firm enters completely new markets, applies new competencies and moves away
more radically from its existing products, services and business models. Uncertainty is low
in incremental innovation and high in radical innovation -> different skills, processes,
performance measures, leadership styles and time horizons. Ambidexterity means that the
firm has to perform well in the short term (incremental innovation) and prepare for the
longer term (radical innovation). Separation between these types in distinct units is a
solution
A business model describes the rationale of how an organization creates, delivers and captures
value. Many firms have started discussing their business model and considering alternatives.
Business model innovation opens up new arenas for innovation: not just innovate your products or
,services, but also your channels to the customer (e-commerce), relations with the customers, the
way of working with partners, or the financial model for the business -> broader scope.
The Business Model Canvas is a tool to make a description of the business model of an
organization. It has nine elements/building blocks. In the centre is the value proposition: describes
the value we provide to our customers. Three elements on the right describe the market part of the
business model (customer segments, channels, customer relationships), three elements on the left
describe the supply side (key activities, key resources, key partnerships), and two on the bottom
describe the financial model (cost structure, revenue streams). Based on the model, a business
model innovation includes every innovation in any of the elements of a business model.
There are many different business models based on the most salient element of the BMC by this
business model. Six parameters that are predictive of their success are:
1. Personalization: tailoring products and services to individual consumer preferences
2. Closed loop: re-using used products
3. Asset sharing: using the same assets for different purposes
4. Usage-based pricing: charging customers based on use instead of up-front purchasing
5. Collaborative ecosystem: collaborating across the supply chain to provide a product/service
6. Agility: reacting quickly to changing customer needs
Business models are about how the firm creates and delivers value to its customers and how it
captures value for itself. Strategy is about how the firm differentiates itself from its competitors and
how the firm can create competitive advantage in the future. The strategy sets out what the firm
wants to achieve and how it wants to do so, and it relates to the capabilities that the company
possesses or aspires to possess in the future. A business model may facilitate the implementation
of a strategy.
There are also different kinds of innovation. Novelty is an important criterion for this: technological
and market novelty. The resulting classification is called the technology-market matrix. It refers
primarily to products. Technological novelty is the technology embodied in the product. Market
, novelty is the novelty of the target customer group, or the novelty of the preferences of the
customer group.
1. Incremental innovation: marginal change on both aspects
2. Technological innovation: new with respect to technology
but serve the same function as the existing products
3. Niche innovation: uses existing technology but aims at new
customers or new preferences of existing customers
4. Radical innovation: innovation in technology and customers
This matrix addresses a limited set of elements of the BMC, mainly
the value proposition, resources (technology) and customer
segment. We can extend the matrix to a multidimensional matrix, which cannot be visualized easily.
A classification of innovations restricted to the technological dimension only is the modularity
matrix: focuses on the composition of products.
1. Incremental innovation: marginal change to both
components and interfaces
2. Architectural innovation: change interfaces radically
3. Modular innovation: change a component without changing
the majority of the interfaces
4. Radical innovation: changes both components and interfaces
Here, radical refers to technological aspects only: change in both
components and their relations.
Innovation has an important impact on the economy. On the one hand, it can destroy existing
businesses and thus hurt the economy. On the other hand, innovation creates new businesses and
can improve the efficiency of existing businesses. The negative effects occur in the short term, while
the positive effects remain in the longer term.
Innovations also are assumed to have effects on the development of economies in the longer term.
Kondratiev developed a theory that technology development was the reason for 50-year waves in
the economy. General-purpose technologies can generate strong growth. At some point, the
growth ends and a period of recession begins until a new technology diffuses through society,
starting a new period of growth. This theory lacks sufficient clarity to be accepted by economists
and it is unclear why general-purpose technologies would appear at regular time intervals.
Because innovation has a strong effect on economies and societies, governments want to promote
this. They usually provide direct subsidies to R&D in universities and research institutes or indirect
subsidies by giving tax deductions for R&D investments. The justification for such policies are
externalities: unintentional effects of a specific action or behavior.
Governments and firms are eager to compare their innovative performance with each other. Several
benchmarks compare the innovativeness of countries -> Global Innovation Index: considers
innovation to be a process at the national level and has three main categories of indicators:
1. Input index: indicators measuring the quality of institutions, availability of human capital and
researchers, infrastructure for innovation, and market and business factors
Chapter 1: innovation management and new business development
Organizations have to adapt to changing circumstances and lead in broader economical and societal
change. Without innovation, firms run a risk of disappearing in the short- or medium term. At the
same time, innovation is difficult due to uncertainty. Proper innovation management increases the
chances of success. The discipline of innovation management originated in research and
development contexts within manufacturing companies. New business development is an
upcoming field, and closely related to innovation management: it also concerns innovation but has a
stronger focus on the creation of new markets. Both innovation management and new business
development are engaged in innovation.
Innovation and new business development involve the creation of new products or services for
customers, the creation of new markets, but also the creation of new business models.
Organizations that engage in innovation and new business development are established firms as
well as start-ups, which by definition innovate and create new business.
R&D focuses on technology development and the successive creation of new products. Innovation
and new business development are much broader; not just about products, but can also focus on
the creation of new services, markets or business models.
Schumpeter’s definition of innovation includes the introduction of a new good, or of a new method
of production, the opening of a new market, the application of a new source of supply of raw
materials and a new organization of an industry. The book’s definition is the creation and
development of new products, services, business models or processes in firms or other
organizations. Innovation management is the subject of ISO 56000 series standards.
New business development is defined by Sorensen as the development of potential growth
opportunities by companies -> distinction between the development stage and the implementation
stage. He limits the role of new business developers to the earlier development stage. He also
explicitly excludes strategy development from the tasks of a new business developer. Other
academics argue for a more parallel division of tasks over time, during the whole process. The
book’s definition is the creation and development of new products, services, business models or
markets. It includes the activities from idea generation of implementation and sales.
Innovators come up with new ideas, and they are active in developing and implementing those
ideas. There are five discovery skills, which are typical for innovators:
1. Associating: connecting seemingly unrelated questions, problems or ideas from different
fields -> at the heart of innovation
2. Questioning: asking questions on why things are the way they are and to challenging the
status quo
3. Observing: intensively looking at what people are actually doing, with a fresh mind in the
sense of not taking the world for granted
, 4. Experimenting: learning by creating imaginary or real image prototypes or pilots of a new
product, service or business model -> learn about the impact and effectiveness
5. Networking: connecting to other people and institutions, internal and external to the firm ->
essential as innovators combine knowledge and ideas from different fields and people
- X-teams: teams with strong external relations
Entrepreneurial alertness is essential as innovators need to be on the look-out for opportunities for
innovation and new business. The skills are mostly important in the front-end stage.
Innovation management and new business development are paradoxical, characterized by
counterintuitive forces. Innovation management has to balance these forces. Three paradoxes are:
1. Tension between uncertainty generation and reduction: innovators generate uncertainty at
the beginning of a project, but they generally attempt to reduce it as soon as possible. They
generate uncertainty by creating ideas and projects for new products, new services or new
business models. At the same time, innovators attempt to reduce uncertainty as early as
possible in the process, by doing technical and market tests, and by assessing the
organizational and financial viability of the new offering
2. Character of innovation activities in different phases: we distinguish between the idea
development stage (front end of innovation), in which the team develops the innovative
concept, and the implementation phase, in which it details the concept and brings it to
market. Uncertainty is created in the first and reduced in the second. The phases require
different activities and capabilities. The emphasis in the front end is on creativity (five skills
are essential). In the implementation stage, sticking to deadlines, project management,
advertising and an execution-oriented, hands-on management style are more important. In
general, in the front-end phase the innovation team needs a diverse network of different
types of people, to be able to tap into different types of knowledge. In the implementation
stage the team needs a network that supports the tasks of the team (more coherent and
less diverse). A solution to overcome the change in the type of activities and the required
competencies is to assign tasks in the front end and in implementation to different people.
Another solution is to assign both the front end and implementation to the same people, but
to require different behaviors
3. Incremental and radical innovation: incremental innovation means that the firm makes small
modifications on existing products, services or business models. Radical innovation means
that the firm enters completely new markets, applies new competencies and moves away
more radically from its existing products, services and business models. Uncertainty is low
in incremental innovation and high in radical innovation -> different skills, processes,
performance measures, leadership styles and time horizons. Ambidexterity means that the
firm has to perform well in the short term (incremental innovation) and prepare for the
longer term (radical innovation). Separation between these types in distinct units is a
solution
A business model describes the rationale of how an organization creates, delivers and captures
value. Many firms have started discussing their business model and considering alternatives.
Business model innovation opens up new arenas for innovation: not just innovate your products or
,services, but also your channels to the customer (e-commerce), relations with the customers, the
way of working with partners, or the financial model for the business -> broader scope.
The Business Model Canvas is a tool to make a description of the business model of an
organization. It has nine elements/building blocks. In the centre is the value proposition: describes
the value we provide to our customers. Three elements on the right describe the market part of the
business model (customer segments, channels, customer relationships), three elements on the left
describe the supply side (key activities, key resources, key partnerships), and two on the bottom
describe the financial model (cost structure, revenue streams). Based on the model, a business
model innovation includes every innovation in any of the elements of a business model.
There are many different business models based on the most salient element of the BMC by this
business model. Six parameters that are predictive of their success are:
1. Personalization: tailoring products and services to individual consumer preferences
2. Closed loop: re-using used products
3. Asset sharing: using the same assets for different purposes
4. Usage-based pricing: charging customers based on use instead of up-front purchasing
5. Collaborative ecosystem: collaborating across the supply chain to provide a product/service
6. Agility: reacting quickly to changing customer needs
Business models are about how the firm creates and delivers value to its customers and how it
captures value for itself. Strategy is about how the firm differentiates itself from its competitors and
how the firm can create competitive advantage in the future. The strategy sets out what the firm
wants to achieve and how it wants to do so, and it relates to the capabilities that the company
possesses or aspires to possess in the future. A business model may facilitate the implementation
of a strategy.
There are also different kinds of innovation. Novelty is an important criterion for this: technological
and market novelty. The resulting classification is called the technology-market matrix. It refers
primarily to products. Technological novelty is the technology embodied in the product. Market
, novelty is the novelty of the target customer group, or the novelty of the preferences of the
customer group.
1. Incremental innovation: marginal change on both aspects
2. Technological innovation: new with respect to technology
but serve the same function as the existing products
3. Niche innovation: uses existing technology but aims at new
customers or new preferences of existing customers
4. Radical innovation: innovation in technology and customers
This matrix addresses a limited set of elements of the BMC, mainly
the value proposition, resources (technology) and customer
segment. We can extend the matrix to a multidimensional matrix, which cannot be visualized easily.
A classification of innovations restricted to the technological dimension only is the modularity
matrix: focuses on the composition of products.
1. Incremental innovation: marginal change to both
components and interfaces
2. Architectural innovation: change interfaces radically
3. Modular innovation: change a component without changing
the majority of the interfaces
4. Radical innovation: changes both components and interfaces
Here, radical refers to technological aspects only: change in both
components and their relations.
Innovation has an important impact on the economy. On the one hand, it can destroy existing
businesses and thus hurt the economy. On the other hand, innovation creates new businesses and
can improve the efficiency of existing businesses. The negative effects occur in the short term, while
the positive effects remain in the longer term.
Innovations also are assumed to have effects on the development of economies in the longer term.
Kondratiev developed a theory that technology development was the reason for 50-year waves in
the economy. General-purpose technologies can generate strong growth. At some point, the
growth ends and a period of recession begins until a new technology diffuses through society,
starting a new period of growth. This theory lacks sufficient clarity to be accepted by economists
and it is unclear why general-purpose technologies would appear at regular time intervals.
Because innovation has a strong effect on economies and societies, governments want to promote
this. They usually provide direct subsidies to R&D in universities and research institutes or indirect
subsidies by giving tax deductions for R&D investments. The justification for such policies are
externalities: unintentional effects of a specific action or behavior.
Governments and firms are eager to compare their innovative performance with each other. Several
benchmarks compare the innovativeness of countries -> Global Innovation Index: considers
innovation to be a process at the national level and has three main categories of indicators:
1. Input index: indicators measuring the quality of institutions, availability of human capital and
researchers, infrastructure for innovation, and market and business factors
