Chapter 1

Introduction to Management of Innovation

1.1 The importance of innovation

Corporations must be able to adapt and evolve if they wish to survive. Businesses operate with the
knowledge that their competitors will inevitably come to the market with a product that changes
the basis of competition. The ability to change and adapt is essential to survival.

A brief analysis of economic history, especially in the United Kingdom, will show that industrial
technological innovation has led to substantial economic benefits for the innovating company and
the innovating country. Indeed, the industrial revolution of the nineteenth century was fuelled by
technological innovations Technological innovations have also been an important component in
the progress of human societies.

1.2 The Concept of Innovation Management

Innovation has long been argued to be the engine of growth. It is important to note that it can also
provide growth almost regardless of the condition of the larger economy. Innovation has been a
topic for discussion and debate for hundreds of years. Nineteenth-century economic historians
observed that the acceleration in economic growth was the result of technological progress.
However, little effort was directed towards understanding how changes in technology contributed
to this growth.

Schumpeter (1934, 1939, 1942) was among the first economists to emphasize the importance of
new products as stimuli to economic growth. He argued that the competition posed by new
products was far more important than marginal changes in the prices of existing products. For
example, economies are more likely to experience growth due to the development of products
such as new computer software or new pharmaceutical drugs than to reductions in prices of
existing products such as telephones r motor cars.

After the Second World War economists began to take an even greater interest in the causes of
economic growth . One of the most important influences on innovation seemed to be industrial
research and development. After all, during the war, military research and development (R&D)
had produced significant technological advances and innovations, including radar, aerospace and
new weapons.

1.3 The need to view innovation in an organizational context

During the early part of the nineteenth century manufacturing firms were largely family oriented
and concentrated their resources on one activity. For example, one firm would produce steel from
iron ore, another would roll this into sheet steel for use by, say, a manufacturer of cooking
utensils. These would then be delivered to shops for sale. Towards the latter part of the century
these small enterprises were gradually replaced by large firms who would perform a much wider
variety of activities. The expansion in manufacturing activities was simultaneously matched by an
expansion in administrative activities. This represented the beginnings of the development of the

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diversified functional enterprise. The world expansion in trade during the early part of the
twentieth century saw the quest for new markets by developing a wide range of new products

Unfortunately, many of the studies of innovation have treated it as an artifact that is somehow
detached from knowledge and skills and not embedded in know-how.

This inevitably leads to a simplified understanding, if not a misunderstanding, of what constitutes

innovation. Innovation needs to be viewed in the context of organizations and as a process within
organizations.

Innovation a Process -

This figure shows how a number of different disciplines contribute to our understanding of the
innovation process. It is important to note that firms do not operate in a vacuum. They trade with
each other, they work together in some areas and compete in others. Hence, the role of other firms
is a major factor in understanding innovation. As discussed earlier, economics clearly has an
important role to play. So too does organizational behavior as we try to understand what activities
are necessary to ensure success.

Studies of management will also make a significant contribution to specific areas such as
marketing, R&D, manufacturing operations and competition. Indeed, it is worthy of note that
more recent innovations and scientific developments, such as significant discoveries like cell
phones or computer software and hardware developments, are associated with organizations rather
than individuals. Moreover, the increasing depth of our understanding of science inhibits the
breadth of scientific study. In the early part of the twentieth century, for example, ICI was
regarded as a world leader in chemistry. Now it is almost impossible for chemical companies to be
scientific leaders in all areas of chemistry. The large companies have specialized in particular
areas. This is true of many other industries.

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Even university departments are having to concentrate their resources on particular areas of
science. They are no longer able to offer teaching and research in all fields. In addition, the
creation, development and commercial success of new ideas require a great deal of input from a
variety of specialist sources and often vast amounts of money. Hence, today’s innovations are
associated with groups of people or companies. Innovation is invariably a team game.

1.4 Problems of definition and vocabulary

While there are many arguments and debates in virtually all fields of management, it seems that
this is particularly the case in innovation management. Very often these centre on semantics. This
is especially so when innovation is viewed as a single event. When viewed as a process, however,
the differences are less substantive. If one accepts that inventions are new discoveries, new ways
of doing things, and that products are the eventual outputs from the inventions, that process from
new discovery to eventual product is the innovation process.

Arguments become stale when we attempt to define terms such as new, creativity or discovery.
First, what is new to one company may be ‘old hat’ to another. Second, how does one judge
success in terms of commercial gain or scientific achievement? Are they both not valid and
justified goals in themselves? Third, it is context dependent – what is viewed as a success today
may be viewed as a failure in the future. We need to try to understand how to encourage
innovation in order that we may help to develop more successful new products

Entrepreneurship

It is the analysis of the role of the individual entrepreneur that distinguishes the study of
entrepreneurship from that of innovation management. Furthermore, it is starting small businesses
and growing them into large and successful businesses that is the focus of attention of those
studying entrepreneurship.

Design

The definition of design with regard to business seems to be widening ever further and
encompassing almost all aspects of business For many people design is about developing or
creating something, hence we are into semantics regarding how this differs from innovation.

Design is concerned with the emergent arrangement of concrete details that embody a new idea. A
key question however, is how design relates to research and development? Indeed, it seems that in
most cases the word design and the word development mean the same thing. Traditionally design
is referred to the development of drawings, plans and sketches. Indeed, most dictionary definitions
continue with this view today and refer to a designer as a ‘draughtsman who makes plans for
manufacturers or prepares drawings for clothing or stage productions’

In the aerospace industry engineers and designers would have previously worked closely together
for many years developing drawings for an aircraft. Today the process is dominated by computer
software programmes that facilitate all aspects of the activity; hence the product development
activities and the environments in which design occurs have changed considerably

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Innovation and invention

Innovation is a very broad concept that can be understood in a variety of ways. One of the more
comprehensive definitions is offered by Myers and Marquis (1969): Innovation is not a single
action but a total process of interrelated sub processes. It is not just the conception of a new
idea, nor the invention of a new device, nor the development of a new market. The process is all
these things acting in an integrated fashion.

It is important to clarify the use of the term ‘new’ in the context of innovation.

Rogers and Shoemaker (1972) do this eloquently: It matters little, as far as human behavior is
concerned, whether or not an idea is ‘objectively’ new as measured by the lapse of time since its
first use or discovery . . . If the idea seems new and different to the individual, it is an
innovation.

Most writers, including those above, distinguish innovation from invention by suggesting that
innovation is concerned with the commercial and practical application of ideas or inventions.
Invention, then, is the conception of the idea, whereas innovation is the subsequent translation of
the invention into the economy (US Dept of Commerce, 1967). The following simple equation
helps to show the relationship between the two terms:

Innovation = theoretical conception + technical invention+ commercial exploitation

However, all the terms in this equation will need explanation in order to avoid confusion.

The conception of new ideas is the starting point for innovation. A new idea by itself, while
interesting, is neither an invention nor an innovation, it is merely a concept or a thought or
collection of thoughts. The process of converting intellectual thoughts into a tangible new artifact
(usually a product or process) is an invention. This is where science and technology usually play a
significant role. At this stage inventions need to be combined with hard work by many different
people to convert them into products that will improve company performance. These later
activities represent exploitation.

However, it is the complete process that represents innovation. This introduces the notion that
innovation is a process with a number of distinctive features that have to be managed. To
summarize, then, innovation depends on inventions but inventions need to be harnessed to
commercial activities before they can contribute to the growth of an organization.

Thus:

Innovation is the management of all the activities involved in the process of idea generation,
technology development, manufacturing and marketing of a new (or improved) product or
manufacturing process or equipment.

This definition of innovation as a management process also offers a distinction between an

innovation and a product, the latter being the output of innovation.

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It is necessary at this point to cross-reference these discussions with the practical realities of
managing a business today. The senior vice-president for research and development at 3M, one of
the most highly respected and innovative organizations, recently defined innovation as:

Creativity: the thinking of novel and appropriate ideas.

Innovation: the successful implementation of those ideas within an organization.

Successful and unsuccessful innovations

There is often a great deal of confusion surrounding innovations that are not commercially
successful. A famous example would be the Kodak Disc Camera or the Sinclair C5. This was a
small, electrically driven tricycle or car. Unfortunately for Clive Sinclair, the individual behind
the development of the product, it was not commercially successful. ommercial failure, however,
does not relegate an innovation to an invention. Using the definition established above, the fact
that the product progressed from the drawing board into the marketplace makes it an innovation –
albeit an unsuccessful one.

Different types of innovations

Industrial innovation not only includes major (radical) innovations but also minor(incremental)
technological advances. Indeed, the definition offered above suggests that successful
commercialization of the innovation may involve considerably wider organizational changes. For
example, the introduction of a radical, technological innovation, such as digital cameras by Kodak
and Fuji, invariably results in substantial internal organizational changes. In this case substantial
changes occurred with the manufacturing, marketing and sales functions. Both of these firms
decided to concentrate on the rapidly developing digital photography market. Yet, both Fuji and
Kodak were the market leaders in supplying traditional 35mm film cartridges. Their market share
of the actual camera market was less significant. Such strategic decisions forced changes on all
areas of the business. For example, in Kodak’s case the manufacturing function underwent
substantial changes as it began to substantially cut production of 35mm film cartridges.
Opportunities existed for manufacturing in producing digital cameras and their associated
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equipment. Similarly, the marketing function had to employ extra sales staff to educate and
reassure retail outlets that the new technology would not cannibalize their film-processing
business. While many people would begin to print photographs from their PCs at home many
people would continue to want their digital camera film processed into physical photographs. For
both Fuji and Kodak the new technology has completely changed the photographic industry. Both
firms have seen their revenues fall from film cartridge sales, but Kodak and Fuji are now market
leaders in digital cameras whereas before they were not. Hence, technological innovation can be
accompanied by additional managerial and organizational changes, often referred to as
innovations. This presents a far more blurred picture and begins to widen the definition of
innovation to include virtually any organizational or managerial change.

Innovation was defined earlier as the application of knowledge. It is this notion that lies at the
heart of all types of innovations, be they product, process or service.

A typology of innovations

Type of innovation Example

Product innovation - The development of a new or improved product

Process innovation - The development of a new manufacturing process

such as Pilkington’s float glass process

Organizational innovation - A new venture division; a new internal communication

system; introduction of a new accounting procedure

Management innovation - TQM (total quality management) systems; BPR (business

process re-engineering); introduction of SAPR3

Production innovation - Quality circles; just-in-time (JIT) manufacturing system;

new production planning software, e.g. new inspection system

Commercial/marketing New financing arrangements; new sales approach, e.g. direct

Innovation marketing

Service innovation Internet-based financial services

Technology and science

We also need to consider the role played by science and technology in innovation. The continual
fascination with science and technology at the end of the nineteenth century and subsequent
growth in university teaching and research have led to the development of many new strands of
science. The proliferation of scientific journals over the past 30 years demonstrates the rapidly
evolving nature of science and technology.

Science can be defined as systematic and formulated knowledge. There are clearly significant
differences between science and technology. Technology is often seen as being the application of
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science and has been defined in many ways. It is important to remember that technology is not an
accident of nature. It is the product of deliberate action by human beings. The following definition
is suggested:

Technology is knowledge applied to products or production processes.

No definition is perfect and the above is no exception. It does, however, provide a good starting
point from which to view technology with respect to innovation. It is important to note that
technology, like education, cannot be purchased off the shelf, like a can of tomatoes. It is
embedded in knowledge and skills.

In a lecture given to the Royal Society in 1992 the former chairman of Sony, Akio Morita,
suggested that, unlike engineers, scientists are held in high esteem. This, he suggested, is because
science provides us with information which was previously unknown. Yet technology comes from
employing and manipulating science into concepts, processes and devices. These, in turn, can be
used to make our life or work more efficient, convenient and powerful. Hence, it is technology, as
an outgrowth of science, that fuels the industrial engine. And it is engineers and not scientists who
make technology happen. In Japan, he argued, you will notice that almost every major
manufacturer is run by an engineer or technologist.

1.5 Popular views of innovation

Science, technology and innovation have received a great deal of popular media coverage over the
years, from Hollywood and Disney movies to best-selling novels This is probably because
science and technology can help turn vivid imaginings into a possibility. The end result, however,
is a simplified image of scientific discoveries and innovations. It usually consists of a lone
professor, with a mass of white hair, working away in his garage and stumbling, by accident, on a
major new discovery.

Through extensive trial and error, usually accompanied by dramatic experiments, this is
eventually developed into an amazing invention. This is best demonstrated in the blockbuster
movie Back to the Future. Christopher Lloyd plays the eccentric scientist and Michael J. Fox his
young, willing accomplice. Together they are involved in an exciting journey that enables Fox to
travel back in time and influence the future.

Cartoons have also contributed to a misleading image of the innovation process. Here, the
inventor, an eccentric scientist, is portrayed with a glowing light bulb above his head, as a flash of
inspiration results in a new scientific discovery. We have all seen and laughed at these funny
cartoons.

This humorous and popular view of inventions and innovations has been reinforced over the years
and continues to occur in the popular press. Many industrialists and academics have argued that
this simple view of a complex phenomenon has caused immense harm to the understanding of
science and technology.

1.6 Models of innovation

Traditional arguments about innovation have centered around two schools of thought. On the one
hand the social deterministic school argued that innovations were the result of a combination of

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external social factors and influences, such as demographic changes, economic influences and
cultural changes. The argument was that when the conditions were ‘right’ innovations would
occur. On the other hand the individualistic school argued that innovations were the result of
unique individual talents and such innovators are born. Closely linked to the individualistic theory
is the important role played by serendipity;

Over the past 10 years the literature on what ‘drives’ innovation has tended to divide into two
schools of thought: the market-based view and the resource-based view. The market-based view
argues that market conditions provide the context which facilitate or constrain the extent of firm
innovation activity. The key issue here, of course, is the ability of firms to recognize opportunities
in the market place The resource-based view of innovation considers that a market-driven
orientation does not provide a secure foundation for formulating innovation strategies for markets.

The popular view of science which are dynamic and volatile; rather a firm’s own resources
provide a much more stable context in which to develop its innovation activity and shape its
markets in accordance to its own view

The resource-based view of innovation focuses on the firm and its resources, capabilities and
skills. It argues that when firms have resources that are valuable, rare and not easily copied they
can achieve a sustainable competitive advantage – frequently in the form of innovative new
products.

Serendipity

Many studies of historical cases of innovation have highlighted the importance of the unexpected
discovery. The role of serendipity or luck is offered as an explanation. This view is also reinforced
in the popular media. It is, after all, everyone’s dream that they will accidentally uncover a major
new invention leading to fame and fortune.

On closer inspection of these historical cases, serendipity is rare indeed. After all, in order to
recognize the significance of an advance one would need to have some prior knowledge in that
area. Most discoveries are the result of people who have had a fascination with a particular area of
science or technology and it is following extended efforts on their part that advances are made.
Discoveries may not be expected, but in the words of Louis Pasteur, ‘chance favors the prepared
mind’.

Linear models

It was US economists after the Second World War who championed the linear model of science
and innovation. Since then, largely because of its simplicity, this model has taken a firm grip on
people’s views on how innovation occurs. Indeed, it dominated science and industrial policy for
40 years. It was only in the 1980s that management schools around the world began seriously to
challenge the sequential linear process.

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The recognition that innovation occurs through the interaction of the science base (dominated by
universities and industry), technological development (dominated by industry) and the needs of
the market was a significant step forward. The explanation of the interaction of these activities
forms the basis of models of innovation today.

There is, of course, a great deal of debate and disagreement about precisely what activities
influence innovation and, more importantly, the internal processes that affect a company’s ability
to innovate.

Nonetheless, there is broad agreement that it is the linkages between these key components that
will produce successful innovation. Importantly, the devil is in the detail. From a European
perspective an area that requires particular attention is the linkage between the science base and
technological development. The European Union (EU) believes that European universities have
not established effective links with industry, whereas in the United States universities have been
working closely with industry for many years.

As explained above, the innovation process has traditionally been viewed as a sequence of
separable stages or activities. There are two basic variations of this model for product innovation.
First, and most crudely, there is the technology-driven model (often referred to as ‘technology
push’) where it is assumed that scientists make unexpected discoveries, technologists apply them
to develop product ideas and engineers and designers turn them into prototypes for testing. It is
left to manufacturing to devise ways of producing the products efficiently. Finally, marketing and
sales will promote the product to the potential consumer. In this model the marketplace was a
passive recipient for the fruits of R&D. This technology-push model dominated industrial policy
after the Second World War. While this model of innovation can be applied to a few cases, most
notably the pharmaceutical industry, it is not applicable in many other instances; in particular
where the innovation process follows a different route.

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It was not until the 1970s that new studies of actual innovations suggested that the role of the
marketplace was influential in the innovation process . This led to the second linear model, the
‘market-pull’ model of innovation. The customer need-driven model emphasizes the role of
marketing as an initiator of new ideas resulting from close interactions with customers. These, in
turn, are conveyed to R&D for design and engineering and then to manufacturing for production.
In fast-moving consumer goods industries the role of the market and the customer remains
powerful and very influential.

Simultaneous coupling model

Whether innovations are stimulated by technology, customer need, manufacturing or a host of

other factors, including competition, misses the point. The models above concentrate on what is
driving the downstream efforts rather than on how innovations occur. The linear model is only
able to offer an explanation of where the initial stimulus for innovation was born, that is, where
the trigger for the idea or need was initiated. The simultaneous coupling model suggests that it is
the result of the simultaneous coupling of the knowledge within all three functions that will foster
innovation. Furthermore, the point of commencement for innovation is not known in advance.

Interactive model

The interactive model develops this idea further and links together the technology-push and
market-pull models. It emphasizes that innovations occur as the result of the interaction of the
marketplace, the science base and the organization’s capabilities. Like the coupling model, there is
no explicit starting point. The use of information flows is used to explain how innovations
transpire and that they can arise from a wide variety of points.

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While still oversimplified, this is a more comprehensive representation of the innovation process.
It can be regarded as a logically sequential, though not necessarily continuous, process that can be
divided into a series of functionally distinct but interacting and interdependent stages. The overall
innovation process can be thought of as a complex set of communication paths over which
knowledge is transferred. These paths include internal and external linkages. The innovation
process represents the organization’s capabilities and its linkages with both the marketplace and
the science base. Organizations that are able to manage this process effectively will be successful
at innovation. Figure 1.

1.7 Innovation as a management process

The preceding sections have revealed that innovation is not a singular event, but a series of
activities that are linked in some way to the others. This may be described as a process and
involves :

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1 a response to either a need or an opportunity that is context dependent;

2 a creative effort that if successful results in the introduction of novelty;

3 the need for further changes.

Usually in trying to capture this complex process the simplification has led to misunderstandings.
The simple linear model of innovation can be applied to only a few innovations and is more
applicable to certain industries than others. The pharmaceutical industry characterizes much of the
technology-push model. Other industries, like the food industry, are better represented by the
market-pull model. For most industries and organizations innovations are the result of a mixture
of the two. Managers working within these organizations have the difficult task of trying to
manage this complex process.

A framework for the management of innovation

Industrial innovation and new product development have evolved considerably from their early
beginnings outlined above. However, establishing departmental functions to perform the main
tasks of business strategy, R&D, manufacturing and marketing does not solve the firm’s
problems. Indeed, as we have seen, innovation is extremely complex and involves the effective
management of a variety of different activities. It is precisely how the process is managed that
needs to be examined. Over the past 50 years there have been numerous studies of innovation
attempting to understand not only the ingredients necessary for it to occur but what levels of
ingredients are required and in what order

A framework is presented that helps to illustrate innovation as a management process. This

framework does not pretend to any analytical status, it is simply an aid in describing the main
factors which need to be considered if innovation is to be successfully managed. It helps to show
that while the interactions of the functions inside the organization are important, so too are the
interactions of those functions with the external environment. Scientists and engineers within the
firm will be continually interacting with fellow scientists in universities and other firms about
scientific and technological developments. Similarly, the marketing function will need to interact
with suppliers, distributors, customers and competitors to ensure that the day-to-day activities of
understanding customer needs and getting products to customers are achieved. Business planners
and senior management will likewise communicate with a wide variety of firms and other external
institutions, such as government departments, suppliers and customers. All these information
flows contribute to the wealth of knowledge held by the organization.

Within any organization there are likely to be many different functions. Depending on the nature
of the business, some functions will be more influential than others. The framework identifies
three main functions: marketing, research and manufacturing and business planning. Historical
studies have identified these functions as the most influential in the innovation process. Whether
one lists three or seven functions misses the point, which is that it is the interaction of these
internal functions and the flow of knowledge between them that needs to be facilitated Similarly,
as shown on the framework, effective communication with the external environment also requires
encouragement and support. The framework emphasizes the importance placed on interaction
both formal and informal) within the innovation process. Indeed, innovation has been described as
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an information–creation process that arises out of social interaction. In effect, the firm provides a
structure within which the creative process is located .

These interactions provide the opportunity for thoughts, potential ideas and views to be shared and
exchanged. However, we are often unable to explain what we normally do; we can be competent
without being able to offer a theoretical account of our actions. This is referred to as ‘tacit
knowledge’. A great deal of technical skill is know-how and much industrial innovation occurs
through on-the-spot experiments, a kind of action-oriented research with ad hoc modifications
during step-by-step processes, through which existing repertoires are extended. Such knowledge
can only be learned through practice and experience. This view has recently found support from a
study of Japanese firms (Nonaka, 1991) where the creation of new knowledge within an
organization depends on tapping the tacit and often highly subjective insights, intuitions and
hunches of individual employees and making those insights available for testing and use by the
organization as a whole. This implies that certain knowledge and skills, embodied in the term
‘know-how’, are not easily understood; moreover they are less able to be communicated. This
would suggest that to gain access to such knowledge one may have to be practicing in this or
related areas of knowledge.

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