Fundamentals of Business Innovation Summary for Exam

Fundamentals of Business Innovation
Chapter 1
What is innovation and why does it matter?
 Innovation is the process of creating value from ideas
 There are differences in the novelty of the changes we introduce
 There are different levels of innovation, from changing parts to changing the way they
are arranged




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 Innovation is making changes in order to create value
 Innovation can also be about creating social value
 Competition can exist between firms, or between problems and problem solvers
 Innovations are driven by a quest for opportunity or a response to a threat
 An entrepreneur is an individual or group who sees an opportunity and takes the risk
of trying to exploit it
 An important theorist of innovation is Joseph Schumpeter




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 What organizations know and have learnt is a core asset which they can leverage
 Paying attention to creating, capturing, and using knowledge is critical for innovation
 William Baumol: “Virtually all of the economic growth that has occurred since the
eighteenth century is ultimately attributable to innovation”
 Innovation involves a moving target
 Individuals and organizations need to have a strategy for innovation and a plan for
implementing that strategy
 Innovation also matters to policy agents, which include:
o Governments: innovation creates economic growth
o Trade and sector bodies: stimulating innovation to make for sector health and
competitiveness
o Supply chain ‘owners’: any supply network is as strong as its weakest link, so
it makes sense for firms to try to manage their supply systems and upgrade
them
 Innovation is a multiplayer game and needs different bits of the network to work
together
 Many small and medium-sized enterprises (SMEs) fail because they don’t see the
need for change
 A common problem for successful companies is when their core competencies
become the things which make it hard to see or accept the need for change
 Existing players often fail to respond fast enough to the new signals coming from
outside their industry
 Innovation is not a random process, but a sequence of planned experimentation:
1. Searching for possible opportunities (generating variation)
2. Selecting a particular one (selection)

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, 3. Implementing it (propagation)
 Success in innovation is not just about having a good idea, but also about having the
capabilities to manage them
 Innovation is about growth and survival

 Business Innovation is improving on a new product
 If you put innovators/experts near each other, they can learn from each other (Silicon
Valley)
 Concentrate producers so they won’t share their secrets or work for someone else
 Innovations lead to other innovations once their shared to the public
 Innovations lead to new demands
 Individualism is one of the strongest drivers of innovation
 Control key resources
o Internally (monopoly on your own products)
o Externally (monopoly on external goods)
 Protect your innovations from imitations (non-compete clause, patents, etc.)
 The spread of innovation has huge societal impact (private vs. public benefits of
innovation)
What is innovation
 ‘The process of creating value from ideas’ - Strategic innovation management
 Different areas to innovate in
o Product/service
o Process
o Delivery
o Market
 Different degrees of novelty (how much it has changed compared to an existing idea)
 Not about change for the sake of change, but about value creation
 “An innovation is the implementation of a new or significantly improved product (good
or service), or process, a new marketing method, or a new organizational method in
business practices, workplace organization or external relations.” - OECD
 Innovation is not the same as invention or change
 There are a lot of intermediate products, it’s hard to say when a product is new or just
an improvement on an old product
 Being able to implement the idea is a key part of innovation
 Schumpeter: Innovation is recombination. Innovation/value creation in bringing
existing products together
 Not innovating means stagnating and will result in ‘diminishing results on capital’
 Doing more of the same will not differentiate you
 Innovation is hard
 Businesses need to be organized for innovation




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, Strategic Innovation Management – Chapter 2
Innovation strategy
 Innovation strategy can give us a framework for discussion and alignment
 Strategy is about making a clear vision for the future
 Strategic analysis begins with an exploration of innovation space – where could we
innovate and why would it be worth doing so
o Build a sense of the environment and analyze threats and opportunities
o Reflect on what resources the organization can bring to bear
o Spot where and how new markets can be created and grown
o Serve established markets in new ways
o Innovation can be mapped along four dimensions
1. Product: changes in the things which an organization offers
2. Process: changes in the way in which these offerings are created and
delivered
3. Position: changes in the context into which the products/services are
introduced
4. Paradigm: changes in the underlying mental models which frame what
the organization does
 Strategic selection is choosing out of all the things you could do, the ones you will do
o Play to your strengths
o Understand how you fit into wider systems and where we could create a
competitive advantage through innovation
o Determine your strategic posture
 Strategic implementation
o Make a simple project plan
o Think through and challenge the underlying strategic concept
 Make sure others see your strategic vision
 Clearly communicate your innovation strategy
 There is a core role for leadership to provide vision and direction

Strategy
 Strategy is what an organization does to reach it goals
 Innovation is not the end goal, but the means to get there
 According to high-school economics, a company is a rational actor whose goal is
profit maximization, but this isn’t the case in the real world
 Strategy is about making risky choices
Behavioral theory of the firm
 A firm is a coalition of participants
 Multiple actors influence what the firm can or cannot do
 The firm has no unambiguous objective function
 Each group of participants will have their own objective
 Information is not free, it has a price
 Decision makers are boundedly rational
Organizational goals
 The goals of a firm are reached through a bargaining process
 The bargaining power of different participants determines how much they can
influence goals
 The bargaining power of different participants depends upon how unique their
contribution to the company is and on their legitimacy
Contributions and inducements
 All participants have aspiration levels of how much change they want
 A participant doesn’t optimize, it searches for satisfaction

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