Lecture 1 – Introduction
What is innovation?
Joseph A. Schumpeter defined the difference between:
• Invention = a new idea or a new design for a product, device, or process.
• Innovation = turning that idea into something that is developed, produces, and sold.
Innovation = invention + exploitation
You not only create something new, but you also make it useful and profitable.
Entrepreneurship often focuses on commercialization, however the exact definition may vary
depending on how entrepreneurship is defined.
Importance of innovation
Innovation is essential because it leads to progress in both the economy and society:
• Inventions like vaccines have saved lives by reducing deaths from diseases.
• Technological innovations like cars have made life easier and more efficient.
• Economic growth is driven by new products, services, and technologies
Why is innovation hard?
Innovation funnel = many ideas enter the process, but only a few become successful
products. Many ideas fail (around 70-90% of new products fail).
Jeff Bezos with Amazon after multiple business failures, Walt Disney who was fired for
lack of imagination, and Bill Gates who failed with his first company but went on to
build Microsoft .
Challenges include:
• Barriers to innovation, such as technology or market limits.
• Competition from other companies trying to innovate.
• Environmental factors like changing regulations or consumer behavior. Innovation
needs carefully crafted strategies to succeed.
Sources of innovation
Innovation can come from several sources:
• Firms: companies conducting R&D
• Individuals: creative people or entrepreneurs
• Universities: scientific research
• Governments: funding new research or technologies
Good innovation often happens when these groups work together.
R&D by firms
• Basic research aims to understand a topic better without immediate commercial
goals.
• Applied research focuses on practical uses to meet specific needs.
, • Development applies this knowledge to create products or services that can be sold
in the market.
Companies use R&D to explore new areas and create commercial products.
Top R&D spenders: Amazon, Volkswagen, Samsung, Microsoft, Apple
Technology push vs. demand pull
Originate from lineair models:
• Technology / science push = emphasizes the supply side (scientific discovery →
invention → manufacturing → marketing). Supply-side factors:
o Technology opportunity: state of the relevant scientific and technological
knowledge.
o Cost and availability of inputs: knowledge workers, scientific personnel,
equipment.
o Appropriability = ability to capture profit from innovation.
• Demand pull = emphasizes the demand side (customer suggestions → invention →
manufacturing). Demand determinants of innovation:
o Cost reduction: innovation that makes products cheaper or more efficient.
o Consumer or producer benefit: products or services that bring real value.
Most current research that innovation is non-lineair, they are much more complex.
TP / DP risks
• Technology push (TP) risk: develop a solution for which there is no problem.
• Demand pull (DP) risk: missing the ability to invent technology to solve problem.
Rothwell’s five generations of innovation models
Show how innovation models have changed, from the focus on technology push to more
interactive and networked models.
External sources and combinations
• External sources: licensing, purchasing, and externalities (technological, pecuniary).
• Companies often combine external and internal sources of innovation through
partnerships, joint ventures, or research collaborations.
,Innovation in collaborative networks
Technology clusters = groups of companies in the same region working together on similar
technologies.
Though today’s information technology enables fast, cheap and easy communication
across the globe. Knowledge does not always transfer so easily.
One reason for this is technological spillovers.
Technological spillovers / knowledge externalities
Technological spillovers = occurs 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 mechanism (patents, copyright, trade secrets).
• Nature of underlying knowledge base (tacit, complex).
• Mobility of the labor pool.
Types of innovation
• Product innovation = a new or improved product, embodied in firm output (a new
phone).
• Process innovation = a new or improved way of producing or delivering something,
more efficient production (faster manufacturing).
These two often appear together.
Product innovation for one firm may be a process innovation for another firm.
• Radical innovation = big, disruptive changes (first smartphone).
• Incremental = small improvements (better camera on the same phone).
• Competence-enhancing = builds on what a company already knows.
• Competence-destroying = makes old knowledge useless (digital photography
destroying film photography).
• Component innovation = improving one part of a system (adding gel-filled material
to a bicycle seat).
• Architectural innovation= changing how all parts fit together (transition from high-
wheel bicycle to safety bicycle).
Most architectural innovations require changes in the underlying components as well.
Patterns of innovation
Technology S-curves
Technologies typically follow a S-curve:
• Slow start because the technology is new and not fully understood.
• Rapid growth once the technology improves.
• Slower progress as the technology reaches its limits.
Companies use S-curves to help plan when to invest or change technologies, but the curves
are not perfect predictions.
, Discontinuous technology
New technologies may replace old ones by following a steeper S-curve, which leads to higher
performance and eventually replaces older technology (smartphones replacing basic phones,
streaming replacing DVDs).
S-curves in innovation diffusion
• The adoption of new technology starts slow because it’s unfamiliar.
• Over time, adoption increases as people learn how to use it.
• Eventually, the market becomes saturated, and the adoption rate declines .
Segment zero
Segment zero = the low-end of the market (cheap, simple products). Companies often ignore
this segment because it looks unprofitable, but as these products improve, they can meet
the needs of the mass market at a lower price than high-end products. Technology moves
faster than the customer needs.
Instead of buying the newest Apple laptop, they buy a low-end cheaper laptop.
This can disrupt the higher-end market, leading to powerful competitors emerging
from the low-end segment.
What is innovation?
Joseph A. Schumpeter defined the difference between:
• Invention = a new idea or a new design for a product, device, or process.
• Innovation = turning that idea into something that is developed, produces, and sold.
Innovation = invention + exploitation
You not only create something new, but you also make it useful and profitable.
Entrepreneurship often focuses on commercialization, however the exact definition may vary
depending on how entrepreneurship is defined.
Importance of innovation
Innovation is essential because it leads to progress in both the economy and society:
• Inventions like vaccines have saved lives by reducing deaths from diseases.
• Technological innovations like cars have made life easier and more efficient.
• Economic growth is driven by new products, services, and technologies
Why is innovation hard?
Innovation funnel = many ideas enter the process, but only a few become successful
products. Many ideas fail (around 70-90% of new products fail).
Jeff Bezos with Amazon after multiple business failures, Walt Disney who was fired for
lack of imagination, and Bill Gates who failed with his first company but went on to
build Microsoft .
Challenges include:
• Barriers to innovation, such as technology or market limits.
• Competition from other companies trying to innovate.
• Environmental factors like changing regulations or consumer behavior. Innovation
needs carefully crafted strategies to succeed.
Sources of innovation
Innovation can come from several sources:
• Firms: companies conducting R&D
• Individuals: creative people or entrepreneurs
• Universities: scientific research
• Governments: funding new research or technologies
Good innovation often happens when these groups work together.
R&D by firms
• Basic research aims to understand a topic better without immediate commercial
goals.
• Applied research focuses on practical uses to meet specific needs.
, • Development applies this knowledge to create products or services that can be sold
in the market.
Companies use R&D to explore new areas and create commercial products.
Top R&D spenders: Amazon, Volkswagen, Samsung, Microsoft, Apple
Technology push vs. demand pull
Originate from lineair models:
• Technology / science push = emphasizes the supply side (scientific discovery →
invention → manufacturing → marketing). Supply-side factors:
o Technology opportunity: state of the relevant scientific and technological
knowledge.
o Cost and availability of inputs: knowledge workers, scientific personnel,
equipment.
o Appropriability = ability to capture profit from innovation.
• Demand pull = emphasizes the demand side (customer suggestions → invention →
manufacturing). Demand determinants of innovation:
o Cost reduction: innovation that makes products cheaper or more efficient.
o Consumer or producer benefit: products or services that bring real value.
Most current research that innovation is non-lineair, they are much more complex.
TP / DP risks
• Technology push (TP) risk: develop a solution for which there is no problem.
• Demand pull (DP) risk: missing the ability to invent technology to solve problem.
Rothwell’s five generations of innovation models
Show how innovation models have changed, from the focus on technology push to more
interactive and networked models.
External sources and combinations
• External sources: licensing, purchasing, and externalities (technological, pecuniary).
• Companies often combine external and internal sources of innovation through
partnerships, joint ventures, or research collaborations.
,Innovation in collaborative networks
Technology clusters = groups of companies in the same region working together on similar
technologies.
Though today’s information technology enables fast, cheap and easy communication
across the globe. Knowledge does not always transfer so easily.
One reason for this is technological spillovers.
Technological spillovers / knowledge externalities
Technological spillovers = occurs 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 mechanism (patents, copyright, trade secrets).
• Nature of underlying knowledge base (tacit, complex).
• Mobility of the labor pool.
Types of innovation
• Product innovation = a new or improved product, embodied in firm output (a new
phone).
• Process innovation = a new or improved way of producing or delivering something,
more efficient production (faster manufacturing).
These two often appear together.
Product innovation for one firm may be a process innovation for another firm.
• Radical innovation = big, disruptive changes (first smartphone).
• Incremental = small improvements (better camera on the same phone).
• Competence-enhancing = builds on what a company already knows.
• Competence-destroying = makes old knowledge useless (digital photography
destroying film photography).
• Component innovation = improving one part of a system (adding gel-filled material
to a bicycle seat).
• Architectural innovation= changing how all parts fit together (transition from high-
wheel bicycle to safety bicycle).
Most architectural innovations require changes in the underlying components as well.
Patterns of innovation
Technology S-curves
Technologies typically follow a S-curve:
• Slow start because the technology is new and not fully understood.
• Rapid growth once the technology improves.
• Slower progress as the technology reaches its limits.
Companies use S-curves to help plan when to invest or change technologies, but the curves
are not perfect predictions.
, Discontinuous technology
New technologies may replace old ones by following a steeper S-curve, which leads to higher
performance and eventually replaces older technology (smartphones replacing basic phones,
streaming replacing DVDs).
S-curves in innovation diffusion
• The adoption of new technology starts slow because it’s unfamiliar.
• Over time, adoption increases as people learn how to use it.
• Eventually, the market becomes saturated, and the adoption rate declines .
Segment zero
Segment zero = the low-end of the market (cheap, simple products). Companies often ignore
this segment because it looks unprofitable, but as these products improve, they can meet
the needs of the mass market at a lower price than high-end products. Technology moves
faster than the customer needs.
Instead of buying the newest Apple laptop, they buy a low-end cheaper laptop.
This can disrupt the higher-end market, leading to powerful competitors emerging
from the low-end segment.
