Often a change begins with technological innovation leading to new products, services and ultimately new behavior patterns though not necessarily linear in order. Fierce competition is a phenomenon in modern dynamic business environment and the strategies capable of being responsive are essential in order to survive in long run and to remain in the competitive stance in future.
A firm maintaining a monopoly in its industry may not feel any threat to its market share and dominance and is likely to perceive its products and services as a ‘cash cow’. This happens when there is no true rivalry in that industry. The extent of dominance starts reducing as the market changes its mode to an oligopoly. When the industry started to characterize by fierce competition, the buyers get stood in a strong position capable of switching to firms that are responsive to their concerns. The customers initiate a ‘demand pull innovation’ for the firms to critically think of their products.
On the other hand, to succeed in a technology business, where the market is volatile in nature, the firms have to constantly engage in the pursuit of innovation. A firm must come with improvements to its products and services resulting in a ‘supply push innovation’.
Innovation refers to how an invention is brought into a commercial usage. As an example, Henry Ford did not invent the automobile; companies in Europe such as Daimler were producing cars well before Ford founded his company. Henry Ford instead focused on the innovation of automobiles, creating a method (mass production) by which cars could be manufactured cheaply to a large number of customers.
Innovation is a core process of turning opportunities into new ideas and of putting these into widely used practice. It can concern with renewing what the organization offers and the ways in which it generates. The success means accomplishment of the desired goals placed at the beginning of the innovation process.
Innovation started with a good idea will not merely suffice. It requires realization of the idea and converting it into a commercial and practical use. Although there is strong evidence to connect innovation with performance, success depends on other factors as well. This inspires the importance of some kind of a strategically focused innovation in any business firm. The real test of innovation success is not a one-off in short term but sustained growth through continuous innovation and adaptation.
Equally, innovation alone may not lead to business success. If the fundamentals of the business themselves are weak, then innovation will fail. Success depends on an appropriate mix of new ideas and receptive market at the right time. Success also relates to the ability to contribute consistently to growth.
Each year organizations spend a significant amount of their turnover on innovation depending on whether the organization is a cash cow, shooting star, a dog or a question mark in terms of its position on the growth-share matrix. Cash cows are organizations that have low market growth potential and high relative market share. Shooting stars on the other hand have a high market growth potential and high relative market share. Organizations with low relative market share and low market growth rate may receive very little investment. The principle goals required in return for this investment can be improved quality, search of new markets, extension of the product range, reduced labor costs, improved production processes, reduce environmental damage, replacement of products/services, reduced energy consumption or conformance to regulations. These goals dispel a popular myth that innovation deals mainly with new product development.
Despite these ultimate objectives, the efforts in innovation fail to meet them. Some research quotes failure rates of fifty percent while other quotes as high as ninety percent. One survey regarding product innovation quotes that out of three thousand ideas for new product only one becomes a success in the marketplace.
The causes of failure have been widely researched and vary considerably. Some causes will be external to the organization and outside its influence of control. Others will be internal and ultimately within the control of the organization. Internal causes of failure can be divided into causes associated with the cultural infrastructure and causes associated with the innovation process itself. Failure in the cultural infrastructure varies between organizations but the following are common across all organizations as some stages in their life cycle (O'Sullivan, 2002):
(1) Poor Leadership
(2) Poor Organization
(3) Poor Communication
(4) Poor Empowerment
(5) Poor Knowledge Management
Kotter (1996) points out the reasons for the high rate of failed change initiatives. Amongst them are lack of urgency, too much complacency, lack of sensible vision, and leadership issues. The main obstacle to any change-of-direction is what is known as the inertia, the virtual power that keeps moving at the current direction, and rejects any deviation from it. Tidd (2005) highlights it by the metaphor of ‘riding two horses’ when referring to the innovator’s dilemma. Common causes of failure within the innovation process in most organizations can be distilled into five types;
(1) Poor goal definition
(2) Poor alignment of actions to goals
(3) Poor participation in teams
(4) Poor monitoring of results
(5) Poor communication and access to information.
Poor goals definition requires that organizations state explicitly what their goals are in terms understandable to everyone involved in the innovation process. This often involves stating goals in a number of ways. Poor alignment of actions to goals means linking explicit actions such as ideas and projects to specific goals. It also implies effective management of action portfolios. Poor participation in teams refers to the behavior of individuals and teams. It also refers to the explicit allocation of responsibility to individuals regarding their role in goals and actions and the payment and rewards systems that link individuals to goal attainment. Finally, poor monitoring of results refers to monitoring all goals, actions and teams involved in the innovation process.
Innovations that fail are often potentially ‘good’ ideas but have been rejected due to budgetary constraints, lack of skills or poor fit with current goals. Pearson who joined with Mindscape in the emerging market of consumer multimedia was a failure due to unfamiliarity with the technology and market, a misjudged assessment of Mindscape’s position, and lack of awareness of the multimedia activities.
Gary Hamel lists few myths about innovation; that innovation is risky, is mostly about products, is about big ideas, etc – all these myths do act as barriers to innovation.
Early screening avoids unsuitable ideas devouring scarce resources that are needed to progress more beneficial ones. Organizations can learn how to avoid failure when it is openly discussed and debated. The lessons learned from failure often reside longer in the organizational conscientiousness than lessons learned from success. While learning is important, high failure rates throughout the innovation process are wasteful and a threat to the organizations future.
The impact of failure therefore goes beyond the simple loss of investment, upto loss of morale among employees, an increase in cynicism and even higher resistance to change in the future.
Then the issue is how would you successfully manage innovation in a growing technology business? Successful innovation correlates strongly with how a firm selects and manages projects, how it coordinates the inputs of different functions, how it links up with its customers etc. These points inspire managing innovation process in an integrated way. For example, there are firms with a high strength of R&D but lacks the ability to link the innovative potential to their business strategy. Tidd says that successful innovation management involves;
a. taking a strategic approach to innovation
b. using effective implementing mechanisms and structures
c. extending a supporting organizational context
d. building and maintaining effective external linkages.
Successful innovators acquire and accumulate technical resources and managerial capabilities over time; there are plenty of opportunities for learning – through doing, using, working with other firms, asking the customers etc- but they all depend upon the readiness of the firm to see innovation as a lottery than a process which can be continuously improved (Tidd : 2001).
Activity
Signal Processing
Strategy
Resourcing
Implementation
1
scanning environment for technological, market, regulatory and other potential sources for changes and opportunities
choose the change or opportunities that fit with the overall business strategy within technical and marketing competence.
procure solution(s) which realize strategic decisions
develop to maturity
2
develop a mechanism to gather related information and filter them
assess signals in terms of possibilities for action
invent in house through R&D activities
parallel technical development and development of the relevant market.
3
scan forward in time
link with overall business strategy
acquire via external R&D contract
for product development it is external customer market
4
process signals into relevant information for decision making
link with core knowledge base competencies
license or buy in
for process development it is internal user market
assess costs and benefits of different options
technology transfer
launch and commission
select priority options
after sales support
agree and commit resources
plan
A number of models for auditing innovation have been developed to provide a framework against which to assess performance in innovation management.
The first stage in innovation is for someone to generate an idea, which is typically a technical insight into a product or process or thought about a service. Idea generation leads to opportunity recognition where ideas are prodded and tested. Often ideas are improved, merged with other ideas and in many cases abandoned. An important test for an idea is that it matches the goals of the organization and available resources – people and money. If an opportunity is recognized then the idea moves to a new stage where it can be developed further. The development phase may involve prototype development and marketing testing. Many ideas wait at the end of the development phase for market conditions to be right.
There are currently many new products languishing in the laboratories of Philips and Nokia waiting for their moment to begin replacing or even disrupting existing technology. The final stage of the innovation process is realization and in many cases exploitation where the customer makes the final evaluation.
Porter (1990) argues that even global firms who operate businesses worldwide still depend on strategic skills and experience gained in their country of origin. Statistics show that only 12% of innovation activities have taken place in countries outside the firm’s base country showing a high degree of correlation between the area of innovation (industry) and regional base (country). For instance, European firms have had innovation in areas of industries whilst Japanese dominated in consumer electronics and motor cars.
The investment in R&D is amongst the most critical factors that influence innovation. Statistics again show a correlation between the countries investment in R&D as a percentage of GDP. For national firms, patterns of national demand play an instrumental role, in particular the demand pull innovation. Competitive rivalry is dependant on national factors including domestic competencies, and country resources, level of research, rate of literacy, level of higher education etc.
The development of chemical engineering sector in the USA emerged in response to challenges and opportunities of refining petrol are a classic result of the national innovation system. The OECD National Innovation Systems Project is another one, the objectives of which will describe as follows;
"For policy makers, an understanding of innovation systems can help identify leverage points for enhancing innovative performance and overall competitiveness. The concept of national innovation systems directs the attention of policy makers to possible systemic failures that can accompany the more generally recognized market failures in the development of technology. The lack of interaction between the actors in the system, mismatches between basic research in the public sector and more applied research in industry, malfunctioning of technology transfer institutions, and information and absorptive deficiencies on the part of industry may all limit innovation and the diffusion of knowledge. In search of improved interactions, governments can provide the foundations for effective partnering among the elements in the system".
It is evident that in formulating and executing their innovation strategies, business firms can not ignore the national systems of innovation in which they are embedded. Through their strong influences on demand and competitive conditions, the provision of human resources, and forms of corporate governance, national systems of innovation both open opportunities and impose constraints on what firms can do. However although firm’s technological strategies are influenced by their own national systems of innovation, they are not determined by them.
The next issue is how would you allocate resources for innovation? Innovation activities are characterized by high level of risk, uncertainty and instability. The first phase of innovation is basically knowledge building requiring fewer resources and taking long time to complete. Hence, this is the most risky yet the least resource consuming phase.
Competition, mistrust, and scarcity of resources make innovation imperative. Even successful innovations cause incredible booms and busts. People under- or over-estimate the potential profits of innovations. Electricity, the railroad, the telephone, the fax machine, and the Internet are all examples of the chaos that new innovations can cause for people who work with and/or invest in them. The larger an innovation is, (that is, the greater potential gain) the more difficult it can be to manage. More people get involved, more money is staked, and more is put at risk.
In order to capitalize on the innovative capacities within a company, it should have some basic elements that foster it. The way it is provided can be formal or informal, and adapted to the size of the company, but they must be present in some form to truly encourage and leverage innovation. They are direction and alignment between the goals of the individuals and the company, a safe environment to take risks and share ideas, and a compensation system that recognizes and rewards innovation and its close cousin, collaboration.
For innovations to be truly exploited, they need to be shared. Great developments by lone inventors, such as Thomas Edison, are largely of the past- most truly great inventions of today are the result of collaborations. Ideas are usually just starting points. They need to be refined, augmented, and merged with other ideas.
As mentioned, Innovation is the successful exploitation of new ideas ahead of the competition. This results in an organization being able to bring new value added products and services to world markets. The innovation that results from sustained investment in R&D, combined with other related investment at the right levels, is essential in providing innovative environment that is crucial to improve competitive edge. It is equally vital to many companies looking to sustain profits.
The first step in creating a culture of innovation is unleashing the creative potential of the employees. The challenge is getting them to see the world with fresh eyes in order to develop fresh solutions. This is relatively inexpensive research for nurturing expertise in fields that could lead to future opportunities and threats. The key question is what are the potential costs and risks of not mastering or entering the field? For instance, no successful firm in pharmaceuticals could avoid exploring recent developments in biotechnology. Besides market analysis, sound technical judgments are the ones that should matter deciding innovative activities.
Creative ideas are not enough for business to survive. It needs a process and culture that maximize creative assets. This is a discrete innovation capability that helps pull together the best thinking within the company, enabling connect the organizational dots. The most powerful form of innovation is real-time innovation - innovation without any external stimuli. This requires rethinking of all aspects of the business (strategy, processes, measures, competencies, leadership). The result is a culture that thrives on change, flexibility and adaptability. This stage involves applied R&D and feasibility demonstration, in order to reduce technical uncertainties and to build in-house competence so that the firm is capable of transforming technical competence into a profitable venture. This helps determine strategic options open to the firm at a later stage. As usual, costs will be higher than the knowledge building but much lower than the full scale business investment.
The business investment stage involves relatively large scale expenditures to develop, product and market of new and better products, processes or services. The key question in such a project is what are the potential costs and benefits in continuing with the project? Success depends on meeting the user needs and thereby targeted marketing. The external linkages need to be tightly controlled through majority ownership or a joint venture.
Resource allocation should follow the principles of ;
- Incrementalism – developing gradually and allowing dying peacefully or changing direction, if it is entering a dead-end.
- building sample rules and models
- setting criteria for stopping
- using sensitivity analysis
- seeking reduction of key uncertainties.
Reference
Burgelman, Robert A (2001) Strategic Management of Technology and innovation, (3rd Edition), McGraw-Hill
Byars, Lloyd, Rue, Leslie, Zahra, Shaker (1996), Strategic Management, Irwin
Cabral, R. (1998) ‘Refining the Cabral-Dahab Science Park Management Paradigm’, Int. J. Technology Management, Vol. 16, pp. 813-818.
Chakravorti, B. (2003) The Slow Pace of Fast Change: Bringing Innovations to Market in a Connected World. Boston, MA: Harvard Business School Press.
Christensen, Clayton M. (1997). The Innovator's Dilemma, Harvard Business School Press.
Christensen, Clayton M.;Raynor, Michael E. (2003). The Innovator's Solution, Harvard Business School Press.
Tidd, Joe (2001) Managing Innovation, Integrating Technological Market and Organizational Change (2nd Edition), NY: John Wiley and Sons.
Tidd, Joe (2001) Managing Innovation, Integrating Technological Market and Organizational Change (2nd Edition), NY: John Wiley and Sons.
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