Show that innovation is ubiquitous
- Germany: One of the most important topics to remain competitive
- Europe: One of the major points on the 2020 agenda
- Across atlantic: Planning to extend innovation
What are thoughts on innovation
- Schumpeter: Creative destruction
- Innovation strikes not on margin or outputs but on the foundation of their lives
- e.g. Prozak: 1/3 of all incomes are on one drug, where the patent will only last one more year. Very high dependency.
- Baumol:
- Nearly all economic growth can be attributed to innovation
- mandatory for capitalism: creating better products not the same but cheaper
Characteristics of innovation
- Innovation needs commercial acceptance / influence
- Innovation must be popular (if you create it and no one knows its not an innovation)
- 1% inspiration 99% perspiration
Innovation: Definitions:
- “Innovations are qualitatively new products or processes that differ significantly […] from what existed before.” (Hauschildt)
- “A new way of doing things that is commercialized.” (Porter)
- “The adoption of ideas that are new to the adopting organization” (Afuah)
What is the innovation matrix
- New for the market (consumer) but not new as an solution (e.g. Minoxidil) it is mainly due to marketing
- New as a solution but not new to the market (consumer) LCD. There was a television before, only the solution is new.
Summary of innovation
- Risky (technology, demand, competition) - like a start up
- can be very costly (like 5-8% R&D budget of total sales)
- can be copied afterwards
- needs protection (patents, secrecy)
- happens often outside business routines (special R&D business units)
- creative destruction: like iphone kills the ipad
- usually needs cooperation of many actors
- can be better if it is “low tech” rather than “high tech”
- New combination of needs and technical solution
- —> Very difficult
- Management of innovation requires different skills, tools, incentives and organization than other functions
Different types of innovation:
- Product or Service Innovation:
- generate or increase sales (iPhone etc.)
- must be established to the market
- Process Innovation:
- to enable / improve production of goods or services
- must be established inside the organization
- Business Model Innovation: (Netflix)
- Reshuffling of value proposition, processes, products and services
- There are also some interdependencies:
- product and process innovation go often hand in hand: production of smart car
- distinction is often difficult: (e.g. pharmaceutical industry)
- production innovation for supplier can be process innovation for buyer
Different types of R&D in innovation
Basic research (5-20% founded by government mostly):
Basic research to understand a problem and gather information or phenomena without any application or use in view. (Do the basic research to understand something better)
Applied research (15-25%):
Investigation to get new knowledge towards a specific practical aim or objective. (Do research on a specific practical problem to understand it better).
Experimental development research (65-85% founded by industry mostly):
Using existing knowledge gained from research and practical experiments directed to producing, improving and installing new materials, products or services. (Solve the problem and crating something new).
Principal Agent Problem:
Innovation is hard to monitor, measure and understand.
Organizational Problems: Exmaple The Vasa
Problems are observed but not told. Too much money was put into to give it up
Lecutre 1 wrap up
- Innovation is an output and a process
- Succesful innovation combines a need and a solution
- Different types: product, process, service
- Impact on Innovation, firms and society: See destructive etc.
- R&D is an essential driver of innovative activity, but not the only
- Usually it produces solution-related knowledge
- Not all sectors have formal R&D
- Innovation is risky and difficult to manage:
- therefore it must be managed
- must be managed differently
