Innovation

Categories: Innovation

For other uses, see Innovation (disambiguation).

Innovation is the implementation of a new or significantly improved idea, good, service, process or practice which is intended to be useful. Scholars who have studied innovation generally differentiate among four main types of innovation: product innovation, process innovation, organizational innovation, and marketing innovation.

Innovation is an important topic in the study economics, business, sociology, and other social sciences. Since innovation is also considered a major driver of the economy, the factors that lead to innovation are also considered to be critical to policy makers.

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Types of innovation

In business and economics, innovation is often divided into four types:

  • Product innovation, which involves the introduction of a new good or service that is substantially improved. This might include improvements in functional characteristics, technical abilities, ease of use, or any other dimension
  • Process innovation involves the implementation of a new or significantly improved production or delivery method.
  • Marketing innovation is the development of new marketing methods with improvement in product design or packaging, product promotion or pricing.
  • Organizational innovation involves the creation of new organizations, business practices, or ways of running organizations.

In financial markets, there is frequently mentioned another type of innovation, viz. financial innovation. It is defined as development of new financial services, combining basic financial attributes (risk-sharing, liquidity, credit) in innovative ways, as well as exploiting the weaknesses of tax law.

In addition to dividing innovations into types, innovation is often characterized by its impact on existing markets or businesses. Sustaining innovations allows organizations to continue to approach markets the same way, such as the development of a faster or more fuel efficient car. Disruptive innovations on the other hand, significantly change a market or product category, such as the invention of a cheap, safe personal flying machine that could replace cars.

Similarly, incremental innovation is evolutionary innovation, a step forward along a technology trajectory, with a high chance of success and low uncertainty about outcomes. Radical innovation, on the other hand, involves larger leaps in the advancement of a technology or process.

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Sources of innovation

Innovation in business is achieved in many ways, with much attention now given to formal research and development for "breakthrough innovations." But innovations may be developed by less formal on-the-job modifications of practice, through exchange and combination of professional experience and by many other routes. The more radical and revolutionary innovations tend to stem from R&D, while more incremental innovations may emerge from practice - but there are many exceptions to each of these trends.

Another key source of innovation is user innovation, innovations developed by individuals when existing products do not meet their current needs. User innovators may become entrepreneurs, selling their product, or they may choose to freely reveal their innovations, using methods like open source. In such networks of innovation the creativity of the users or communities of users can further develop technologies and their use.

Whether innovation is mainly supply-pushed (based on new technological possibilities) or demand-led (based on social needs and market requirements) has been a hotly debated topic. Similarly, what exactly drives innovation in organizations and economies remains an open question.

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How innovation spreads

See diffusion of innovations

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Other definitions of innovation

Joseph Schumpeter defined economic innovation in 1934:

1) The introduction of a new good —that is one with which consumers are not yet familiar—or of a new quality of a good. 2) The introduction of a new method of production, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially. 3) The opening of a new market, that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before. 4) The conquest of a new source of supply of raw materials or half-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created. 5) The carrying out of the new organization of any industry, like the creation of a monopoly position (for example through trustification) or the breaking up of a monopoly position

The OECD defines Technological Innovation in the Oslo Manual from 1995:

Technological product and process (TPP) innovations comprise implemented technologically new products and processes and significant technological improvements in products and processes. A TPP innovation has been implemented if it has been introduced on the market (product innovation) or used within a production process (process innovation). TPP innovations involve a series of scientific, technological, organisational, financial and commercial activities. The TPP innovating firm is one that has implemented technologically new or significantly technologically improved products or processes during the period under review.

Regis Cabral defines innovation as a new element introduced in the network which changes, even if momentarily, the costs of transactions between at least two actors, elements or nodes, in the network. Sources: Cabral, R. (1998) ‘Refining the Cabral-Dahab Science Park Management Paradigm’, Int. J. Technology Management, Vol. 16, pp. 813-818; Cabral, R. (2003) ‘Development, Science and’ in Heilbron, J. (ed.), The Oxford Companion to The History of Modern Science, Oxford University Press, New York, pp. 205-207.

Amabile et al. (1996) defined innovation and its relation to creativity:

"All innovation begins with creative ideas…creativity by individuals and teams is a starting point for innovation; the first is necessary but not sufficient condition for the second". (p. 1154-1155).

As like other researchers (e.g. Stein, 1974; Woodman, Sawyer, & Griffin, 1993) Amabile et al. define creativity as the production of novel and useful ideas in any domain (p.1155). Creativity is seen as the basis for innovation and so they define innovation as the successful implementation of creative ideas within an organization (p.1155)

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Measures for innovation and innovativeness

Individual and team level assessment can be conducted by surveys and workshops. Business measures in balanced scorecard can be viewed from innovation perspective (e.g. new product revenue, time to market, customer and employee perception & satisfaction. Organizational capabilities can be evaluated by using e.g. efqm (european foundation for quality management)-model.

The OECD Oslo Manual from 1995 suggests standard guidelines on measuring technological product and process innovation.

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Public Awareness

Public awareness of innovation is an important part of the innovation process. This is further discussed in the emerging fields of innovation journalism and innovation communication.

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See also

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References

  • Schumpeter, J. (1934) “The Theory of Economic Development”, Harvard University Press, Cambridge, Mass.
  • Amabile, T.M. (1996) Creativity in context. New York: Westview Press.
  • Stein, M.I. 1974. Stimulating creativity, vol. 1. New York: Academic Press.
  • Woodman, R.W., Sawyer, J.E., & Griffin, R.W. (1993). Toward a theory of organizational creativity. Academy of Management Review, 18: 293-321.
  • OECD The Measurement of Scientific and Technological Activities. Proposed Guidelines for Collecting and Interpreting Technological Innovation Data. Oslo Manual. 2nd edition, DSTI, OECD / European Commission Eurostat, Paris 31 Dec 1995.
  • Chakravorti, B. (2003) The Slow Pace of Fast Change: Bringing Innovations to Market in a Connected World. Boston, MA: Harvard Business School Press.
  • Chesbrough, H.W. (2003) Open Innovation: The New Imperative for Creating and Profiting from Technology, Boston, MA: Harvard Business School Press. ISBN: 1578518377
  • Mansfield, Edwin. (1985) "How Rapidly Does New Industrial Technology Leak Out?" Journal of Industrial Economics. Vol.34, no.2, 1985. Pp.217–223.
  • Nordfors, D. The Role of Journalism in Innovation Systems (2004) Innovation Journalism, Vol.1 No.7
  • Scotchmer, S. (2004) "Innovation and Incentives", MIT Press, Cambridge, Mass.
  • Utterback, J.M. and F.F. Suarez. (1993) "Innovation, Competition, and Industry Structure." Research Policy, no.22, 1993. Pp. 1–21.
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External links

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