What Is Innovation and Why Is It Important - Essay Example

?Innovation and Change Table of Contents Table of Contents 2 0 Introduction 3 2.0 What Is Innovation and Why Is It Important? 4 3.0 How Do We Measure, Understand or Characterise Innovation? 7 4.0 Thinking about Organisations In General 11 5.0 Thinking about Strategy in General 13 6.0 What Makes an Organisation Innovative? 18 7.0 Conclusion 20 8.0 References 22 9.0 Bibliography 26 1.0 Introduction Innovation and change is an important part of any business organisation. An organisation in order to be competitive in a market has to adopt incessant innovation strategies. In this paper, the importance of innovation in present day business environment has been described. Innovation and commercialisation differ considerably from each other. Different types, sizes and markets of innovation have been clearly depicted in the paper. Several factors such as culture, organisational structure, its core competence and environmental scanning that play a vital part in innovation strategy have been mentioned in detail. Various issues and factors that make an organisation innovative have been discussed by citing examples. 2.0 What Is Innovation and Why Is It Important? Definition Innovation refers to an application of improved or new ideas to products, process, marketing or various other activities of a firm in order to increase its ‘value’. Value represents a wider approach to incorporate higher value added to the firm, benefits to consumers or other firms (Princeton University Press, n.d.). Innovation implies the process by which different degrees of quantifiable value improvement is planned as well as achieved in commercial activity. The processes by which innovation can be achieved are introducing new or improved products and services, executing improved operational process and implementing new managerial process (Business.Gov.in, n.d.). Importance In the present scenario, innovation is a key factor to maintain long run of business and organisation. Innovation facilitates to achieve competitive advantage over others. An organisation is involved in various innovative activities in manufacturing procedures, brand building, product improvement and others. Innovation facilitates to structure corporate life and also helps a company to develop various strategies. Various other significances of innovation in the industry encompass decrease in total cost of production, increase in income opportunity and maintenance of well-organised operating system. It also enables to observe probable acquisitions on the basis of cost as well as accelerating profitable top-line revenue growth along with increasing capabilities. The research and development of the country can be expanded by innovation by means of most up-to-date technology in the country (Business.Gov.in, n.d.). Difference between Commercialisation and Innovation Innovation implies improvement with innovative technologies in various sectors in an organisation. Innovation process varies considerably depending on different industries and their product lines. In certain industries, such as pharmaceuticals, innovation depends greatly on scientific breakthroughs, while in electronics industry innovation develops from product and process design. Innovation takes on several characteristics during product as well as industry life cycles (Princeton University, 1995). Commercialisation refers to increase in profit from innovation in an organisation by integrating new technologies into processes, products and services and then selling them in marketplace. Commercialisation is contingent in industries of pharmaceuticals along with aircraft while receiving sanction of products from suitable organisations. Commercial success depends on the ability and skill of firms to develop and protect a proprietary benefit in the marketplace as it does on their capability to produce new scientific and technical advances (Princeton University, 1995). Several innovations are developed to the prototype stage and are produced in lesser amount, but it is not totally commercialised because the financial as well as managerial resources required are in large amounts. A firm decides to commercialise innovative technologies and are also related to operational characteristics of the innovative system in a firm. A firm considers various factors to commercialise an innovation (Princeton University, 1995). Cycles of Innovation Source: (Underweiser & Et. Al., n.d.). Innovation has been observed to progress over a period known as timeline. The innovation process starts from the inception stage; it then proceeds through broad adoption stage which is part of public infrastructure. Upon this stage additional innovations are generally built. Public as well as private interest plays a crucial role in the innovation process. The traversal generally occur between different stages can be either accelerated or can be decelerated by the influence of factors such as market demand, regulation, standardisation and also increase or decrease in investment. Innovation commences at the research stage, which results in certain discoveries. These two aspects are considered under the public domain based activities in the innovation timeline (Underweiser & Et. Al., n.d.). 3.0 How Do We Measure, Understand or Characterise Innovation? Types In an organisation there are generally four types of innovation takes place which includes product innovation, process innovation, marketing innovation and organisational innovation. Product innovation involves improved or innovative goods or services. It generates technical specification, mechanism and materials, integrated software as well as user friendliness. In process innovation improved as well as new way of production and delivery methods are used. Marketing innovation refers to innovative methods of marketing which involves significant changes related to ‘product packaging, product promotion or pricing and product placement’. In organisational innovation, improved methods of organisation are introduced in business practices, external relation or organisational workplace (OECD, n.d.). Besides these types of innovations, technological innovation and management innovation are also included. Technological innovation is the incorporation of technological knowledge, research and development activities in an organisation. An innovation related to industrial appliance of scientific knowledge is a technological innovation. Management innovation refers to application of improved practices of management in a firm. It involves innovative ways of performance and considerably transforming as well as improving the effectiveness of managerial functions and important departure from the recent norms (Business.Gov.in, n.d.). Successful innovations take place when product and technological or process innovations within the value chain are executed by means of effective and qualitative management innovations. Innovation is an aspect for growth, profitability as well as organisational success and achievement which may include people, leadership, creativity, process and organisational culture. In an organisation, innovation must not be approached slowly rather it should be advanced in an organised enterprise wide capability with the lowest levels (Business.Gov.in, n.d.). Different Sizes According to Henderson and Clark, there are four sizes of innovation. Each size is explained in terms of components and system architecture. Components represent the physical building block related to the products that carry out a well defined function and architecture defines the way in which components perform together. The four sizes are incremental innovation, modular innovation, radical innovation and architectural innovation. Incremental innovation simply refines and expands the dominant design which includes an upgrade to a weapon system. Modular innovation modifies a core design without changing internal linkage. Radical innovation is referred to when a new dominant design is linked to a new structure. For example, aircraft and submarine are due to radical structure. Architectural innovation alters the way in which components are related together while separating the concepts of core design, which remain untouched. For example, architectural innovation is ‘continuous aim gunfire’. The architectural model explains the reason for warfare innovation by shifting from subsystem to system level. For instance, system-level architectural innovation is German blitzkrieg (Pierce, 2005). Source: (Innovomics, 2009) Product Life cycle The product life cycle of a product facilitates to understand the innovation. This theory brings different areas of innovation management such as strategy, technological evolution and industrial dynamics. A dynamic model was developed by Abernathy and Utterback in the year 1975 which represents the product as well as process innovation throughout the life cycle of an industry. The three stages which were incorporated into the model are fluid, transitional and specific (Dodgson & Et. Al., 2008). In fluid stage, a range of different possible products are explored by a firm. The market is in unstable condition and the products are not well learnt by the customers. There are products with competing design with different functional attributes. There is new product innovation which fulfils the specific need of a small group of customers. The competitions recline in well-designed performance of the product and also whether it fulfils the need of the customers. Organisations which are producing the products are highly informal (Dodgson & Et. Al., 2008). In transitional stage the products’ demand gets increased and may results in major process changes in the nature of production. Product design has been fixed and firm’s development increases the volume of products. Firm gets extensively involved in improving the specific features of products that also embraces functional performance. The market focuses on differences in the features of the product design. Efficient producer emerge and manufacture the products to a larger quantity. In this stage, the entrance of new firms is equal to the number of exit firms. The specific stage of the firm focuses on process innovation related to both operations as well as production with lower cost and increase scale of production. There are several products in the market which are similar in their functions and based on the cost, a customer decides which product needs to be bought. The products are based on dominant design. The production of the product requires advanced equipment which suited a single product. The organisation use formal structure for manufacturing a product (Dodgson & Et. Al., 2008). 4.0 Thinking about Organisations In General Organisation Culture and Innovation Successful organisations possess the capability to implement innovation within the culture of organisations along with management processes. This organisational culture reclines in the heart of organisational innovation. There is a great influence of organisational culture on innovation and due to this affect creative solutions are encouraged, maintained and ultimately implemented. The organisational culture in absence of effective rules of the organisation may encumber creativity and innovation. Innovation is considered as a highly complex social process which involves the valuable interaction of a great number of individuals as well as sub-units in innovating organisation. It can be observed that all organisational change do not bring innovation but all organisational innovation involves change. Innovation is supported by culture by creating an organisational climate which institutionalises innovation as a vital activity. Furthermore, it also focus attention on and legitimate innovation, a supportive culture assists to motivate and maintain the complex and at last interactive process of social exchange which is essential for successful innovation. Thus, the culture prevailing in any organisation entails to facilitate process of innovation and build the innovative competency within the organisation (Dasanayaka & Et. Al., 2001). SME versus Larger Organisation Small enterprises generally possess good internal communications. Several SMEs have a dynamic entrepreneurial management style. As technical people are in large number in SMEs, innovation in the firm is less expensive. Innovation in SMEs is much more efficient and effective. However, certain SMEs are not at all innovative. Lack of economic resources, insufficiency of management as well as marketing resources, shortage of skilled workers, weakness in external information and linkages and difficulty arising while dealing with government regulations are the factors that restrict the SMEs in gaining their competitiveness. In SMEs, there are cultural barriers which may arise with respect to innovation. The barriers include unwillingness to change, propensity to ignore process, focus on short-term needs, lack of strategic vision as well as distribution of a guilt culture (Scozzi & Garavelli, n.d.). SMEs are less innovative than large organisations and they also contribute few resources for the acquirement of external technologies (Bougrain & Haudeville, 2001). Large firms unite the combination of both internal as well as external knowledge while acquiring their innovation strategy in the workplace. Large organisations are highly innovative in sectors having high concentration and also barriers to entry, whereas small firms are more innovative in the sectors that have low concentration in newly emerging or at times growing technologies (Veugelers & Cassiman, 1998). During the period 1990-1992, in France, 30.5% firms with number of employees from 20 to 49 were identified as innovators and 93% firms with more than 2000 employees were included in the process of innovation (Bougrain & Haudeville, 2001). 5.0 Thinking about Strategy in General Core competency The five activities which are included while creating innovation as competency in an organisation are technological innovation, organisational change, process of innovation, strategic technological planning and business development (Anatan, 2001). Technological innovation signifies amalgamation of product market as well as technology in the firm. This type of innovation provides importance to satisfy the customer with innovation. The objective of the organisation can be achieved when production of technology development and administration require to be incorporated with the development process of the products (Anatan, 2001). Organisational change and innovation are greatly correlated and innovation has an impact on new knowledge, new employees, and new markets of the needs of the organisation. The organisation in order to implement innovation strategy must consider changes in the organisation. The innovation process represents cross-functional activities in the business process in the organisation that facilitate to develop and improve innovation in each department. Every department in the organisation is responsible for creating innovation in their performance in management (Anatan, 2001). Strategic technology planning represents planning of technology along with competence projects for sustaining balanced set of technologies and competencies. Business development means the organisation in order to build new and improved business undergo innovation in their operation. Innovation may drive and can be considered to be driven by business development which is one of the vital aspects of innovation management (Anatan, 2001). Technology integration is much complicated for creating a new integration as it requires to be created by means of each new generation of products. Products are related to the technology and it changes in due course of time which creates negative impact on the market. The process is related to the requirements of knowledge workers in the organisational process while sharing knowledge and information related to technologies and their utilisations. Organisational change takes place at employee level due to continuous change in technologies and knowledge in due course of time. Business development is a regular alteration of integration in technology. It is vital that new generation of products is lined up with rival’s products in the market and also the need of the market. Thus, for sustainable change in an organisation innovation must be done in a rapid way. Instead of focussing on an administrative innovation, an organisation must provide emphasis on product and process innovation as well (Anatan, 2001). Environment Scanning and Innovation A firm that undertakes technology along with innovation requires continuous scanning of both external and internal environments in order to come out with improvement in technology as this may be applied to current or probable products. For example, Motorola is well known for its capability to invest in beneficial new technologies together with improvement in their manufacturing. In environmental scanning, ‘marketing intelligence system’ has been adopted which would assist while developing ‘Technology Road Map’ (Srinivasan, 2006). A firm that provides emphasis on scanning the external environment are more innovative than the firms that focus on internal core competencies for generating innovative products or services. The new development and growth that create threats to the existing business practices as well as technologies may not arise from existing competitors in the market or from traditional industries. A new technology can act as an alternative for existing technology with minimum cost and high quality can alter the source of competition of industry. Thus, it is essential on the part of manager to scan the environment of products for innovative changes in the external market (Wheelen & Hunger, n.d.). In addition to external environmental scanning, an organisation must also go for internal scanning. Research and Development is a vital part in an organisation. Thus, a company must make accessibility of the resources for R&D improvement. The intensity of research and development is a crucial factor for gaining competitive level advantage in the global market. For instance, computer software and drug industries spend approximately 11% to 13% of their entire sales revenue for the purpose of R&D, while food and packaging industry spend less than 1% (Wheelen & Hunger, n.d.). 6.0 What Makes an Organisation Innovative? National Innovative System The model of National Innovation System (NIS) was initiated to provide more emphasis on relationships along with procedures between various innovation actors. The main elements of interaction in NIS and innovation cluster model are knowledge, people and money. The major activities include knowledge creation, transfer and use in the market. Thus, all the innovation actors interrelate with each one and exchange financial, human resources and knowledge (United Nations ESCAP, n.d.). The innovation occurs in a specific area due to interaction between innovation as well as market. Thus, the cluster of innovation may reduce NIS. The cluster theory of innovation comprises of sociology, network theory, economic, geography and industrial organisational theory. The theory attained from both national innovation system and innovation cluster implies that it is essential to describe the actors of innovation in accordance with generic role in the system (United Nations ESCAP, n.d.). Organisational structure and innovation The organisational structures of Mintzberg with various innovative potentials have been described. The firms are likely to be subjugated by one of the five archetypes: simple structure, machine bureaucracy, professional bureaucracy, divisionalised form and adhocracy. The bureaucracy structure in the organisation performs in stable environment, but they cannot cope up with changes and are not at all innovative in nature. Adhocracy is extensively flexible form of organisational structure and are capable of adopting changes in the organisation. Simple structure is controlled by a single person and reacts rapidly in changing environment. Simple structure is highly innovative in nature and involves high risk environments. Divisionalised form means decentralised organic structure in which they are capable of meeting local challenges in the environment (Lam, 2004). 7.0 Conclusion With reference to the above report, it can be cited that several factors exist in relation to the business organisation which either facilitate or may hinder development in innovation. It has been observed that in present scenario innovation plays a tremendous role and possesses great importance in bringing an organisation to gain competitive advantages. The organisation brings innovation in their process, product, technology and various other operational functions. The innovative technology in an organisation may attract customers and based on different criteria in the market, the customers make purchasing decision. The various factors which may act either positive or negative role in the innovation process are organisational structure, culture, both external and internal environment. The core competency in the organisation also acts in line with innovative changes in the organisation. The product life cycle of the product also has an impact on the innovation in the organisation. There is a continuous product development in the market, which creates competition for an industry from existing competitor. Thus, it can be inferred that innovation and change is a significant factor in the present market environment of an industry. It can be inferred that an organisation can learn to be innovative. This innovation generally is at times forced upon an organisation by external environmental factor or at times innovation can arise by the necessity to tackle ensuing competition from a competitor. As a result, an organisation must make continuous innovative changes in their operations in order to achieve success. Innovation in an organisation can bring in several benefits towards the consumers as an organisation innovation endeavour can provide the consumer with superior quality of service and product. 8.0 References Anatan, L., 2007. How to Create Innovation as the Core Competency of Organisation?. Innovation as Core Competency: the Role of Knowledge and Organisational Learning in Knowledge-Based Competition Era. [Online] Available at: http://majour.maranatha.edu/index.php/jurnal-manajemen/article/view/193/pdf [Accessed April 05, 2011]. Bougrain, F. & Haudeville, B., 2001. SMEs and External Communication. Innovation, Collaboration and SMEs Internal Research Capacities. [Online] Available at: http://xcsc.xoc.uam.mx/apymes/webftp/documentos/biblioteca/SMEs%20internal%20research%20capacities.pdf [Accessed April 05, 2011]. Business.Gov.in, No Date. Importance or Benefits. Innovation and Business. [Online] Available at: http://business.gov.in/innovation/benefits.php [Accessed April 05, 2011]. Business.Gov.in, No Date. Concept and Types. Innovation and Business. [Online] Available at: http://business.gov.in/innovation/concept.php [Accessed April 05, 2011]. Dasanayaka, B. S. W. S. & Et. Al., 2001. Linkage between Innovation and organizational Culture. Implications of Organizational Culture on Innovation: An Exploratory Micro Study of Sri Lankan Gift and Decorative-ware Sector Firms. [Online] Available at: http://www.merit.unu.edu/MEIDE/papers/2009/1234932173_SD.pdf [Accessed April 05, 2011]. Dodgson, M. & Et. Al. 2008. The Management of Technological Innovation: Strategy and Practice. Oxford University Press. Innovomics, 2009. When Radical Innovation Is Not Plausible. Innovomics – End of the First Season. [Online] Available at: http://innovomics.wordpress.com/ [Accessed April 05, 2011]. Lam, A., 2004. Contingency Theory : Context, Structure and Organizational Innovativeness. Organizational Innovation. [Online] Available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.131.9638&rep=rep1&type=pdf [Accessed April 05, 2011]. OECD, No Date. Innovation: the OECD Definition. Directorate for Education. [Online] Available at: http://www.oecd.org/document/10/0,3746,en_2649_33723_40898954_1_1_1_1,00.html [Accessed April 05, 2011]. Princeton University Press, No Date. What Is Innovation? The Nature and Importance of Innovation. [Online] Available at: http://press.princeton.edu/chapters/s9221.pdf [Accessed April 05, 2011]. Princeton University, 1995. Innovation and Commercialization. Innovation and Commercialization of Emerging Technologies. [Online] Available at: http://www.princeton.edu/~ota/disk1/1995/9539/9539.PDF [Accessed April 05, 2011]. Pierce, C. T., 2005. Warfighting and Disruptive Technologies: Disgusting Innovation. Taylor & Francis Scozzi, B. & Garavelli, C., No Date. Innovation Development within SMEs: Problems and Needs. Methods for modeling and supporting innovation processes in SMEs. [Online] Available at: http://rails-test.floss.syr.edu/system/files/MethodsForModeling.pdf [Accessed April 05, 2011]. Srinivasan, R., 2006. Strategic Management the Indian Context 2Nd Ed. PHI Learning Pvt. Ltd. United Nations ESCAP, No Date. National and sub national innovation system. Concept of national innovation system Concept of national innovation system. [Online] Available at: http://www.unescap.org/tid/publication/indpub2507_chap3.pdf [Accessed April 05, 2011]. Underweiser, M. & Et. Al., No Date. Understanding the Innovation Cycle. RSA. [Online] Available at: http://www.thersa.org/__data/assets/pdf_file/0020/126542/IBMinnovationcyclesfinal.pdf [Accessed April 05, 2011]. Veugelers, R. & Cassiman, B., 1998. Literature and Hypotheses. Make and Buy In Innovation Strategies: Evidence From Belgian Manufacturing Firms. [Online] Available at: http://www.econ.kuleuven.be/msi/_docs/members/veugelers/1999_make_and_buy.pdf [Accessed April 05, 2011]. Wheelen, L. T. & Hunger, D. J., No Date. Strategic Management and Business Policy. Pearson Education India. 9.0 Bibliography Cooper, G. R. & Edgett, J. S., 2009. Product Innovation and Technology Strategy. Stage-Gate International. Clark, J. & Clark, J. 1995, Managing Innovation and Change: People, Technology and Strategy. SAGE. Evans, D. N., 2003. Business Innovation and Disruptive Technology: Harnessing the Power of Breakthrough Technology-- For Competitive Advantage. FT Press. Goldenberg, J. & Mazursky, D., 2002. Creativity In Product Innovation. Cambridge University Press. Greve, H. R., 2003. Organisational Learning from Performance Feedback. A Behavioural Perspective on Innovation and Change. [Online] Available at: http://catdir.loc.gov/catdir/samples/cam041/2003284150.pdf [Accessed April 05, 2011]. Johnston, E. R. & Bate, D. J., 2003. 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Innovation And Technology: Strategies And Policies. Springer. Trott, 2008. Innovation Management and New Product Development, 4/E. Pearson Education India. Verburg, M. R. & Et. Al., 2005. Managing Technology And Innovation: An Introduction. Taylor & Francis. Read More