SS CHAPTER 17 PRINCIPLES OF INNOVATION Peter Drucker proposed five key principles of innovation. These are: tunities. Innovation commences with the thorough analysis of OPPO! ; involves analytical, as well a Innovation has both conceptual and perceptual dimensions: TE 1"¥° 7 observational techniques. UI. Effective innovations are focused and simple. WV. Effective innovations usually start small. V. ; ship. successful innovations are focused on market or industry leadershiP ‘THE MEANING OF INNOVATION innovation is described as the implementation of ideas into action. It is the conversion of opportunities into an idea. Further, it is the ability to apply creative solutions to problems, issues and opportunities in order to create value. According to Drucker (Harvard Business Review 2002), innovation is seen as ‘the specific function of entrepreneurship.’ Itis through the process of innovation that the entrepreneur can create new forms of capital. Moreover, innovation is seen as facilitating the wealth creating potential ci existing resources. Innovation according to Drucker (2002) ‘is the effort to create purposeful, focused change in an enterprise's economic or social potential.’ Joseph Schumpeter viewed entrepreneurial innovations as a key driver of economic growth. He contends that competition motivates the entrepreneur to find new ‘ways to improve the business process and technology,THE IMPORTANCE OF INNOVATION Products and industries have life cycles, therefore it is imperative to remain competitive, survive and even aspire to market leadershi . Driving the innovation Process is the changing face of how business is iven the a izati i done gi idvent of globalization. The importance of innovation is outlined in the following points: While businesses need to focus on innovating their goods and services, they must also ensure that the processes in the organization such as, human resources, technical, the goals and values and the managerial systems are creating value for the organization. Innovation is the key to ensuring that an organization's products are differentiated from similar products on the market. Innovation can provide entrepreneurs with first mover advantages in the market. Innovation is important at the societal level in that new and improved goods and services e.g. in the field of technology, medicine, education, work methods can positively impact productivity and standard of living. = According to Schumpeter (1934), innovation is seen as a key driver of new demand and new wealth creation.SS TYPES OF INNOVATION The 4Ps Model was developed by John Besant an Joe Tid provded a framework oF iene innovatii ‘ovative processes. This model is summarised below: red to the end user; develop anew Product (Good or Service) Innovation: change in what is offer 1. mobile phones, computers; new Products product; improved versions of existing products e4 e.g. mp3 player; aims to increase revenue ality management; Process Innovation: improving the process e.g. lean production, total ig, e-mail, internet shopping); change in the way something is done e.g. e-commerce( e-bankini efficiency in the process; aims to reduce costs mobile phones are riow available to the overall Position Innovation: repositioning products e.g. market; budget airlines for persons who prefer affordability rather than comfort; change inthe context in which the product is framed and communicated & Paradigm Innovation: changes in the underlying mental models which shape what the organization does; shift in the way of thinking; rolls Royce supplies a luxurious experience rather than compete with other car (CORE INNOVATION CONCEPTS [geremenital versus radicalinnovation: According to BusinessDictionary.com, incremental innovation is ‘a series of small improvements to an existing product or product line that usually helps maintain or Improve its competitive position over time.’ Incremental innovation is a feature of high technology type‘of businesses that must continually improve their offering to include new features to meet customer expectations. * Incremental innovation has reduced risks as compared to radical innovation. ion within current markets whereas; radical Incremental innovation improves comp. innovation creates dram: tic change leading to a transformation of existing markets (structure, leadership, supply, product offering etc.) * Incremental innovation exploits the existing technology whereas; radical innovation explores new types of technology. * Incremental innovation is characterised by low uncertainty or risk whereas radical innovation is characterized by high risk or uncertainty. = _ Incremental innovation focuses on improvements in existing goods and services or processes while radical innovation focuses on products (goods and services) with new features. + An example of incremental innovation is Google's ‘Gmail. Initially features were limited but as it evolved more features were added. Radical innovation is a feature of the ‘Virgin’ Brand. Businesses are developed in various industries e.g. Gaming, planes, mobile etc. "Examples include: HaagenDazs Ice Cream is seen as incremental market innovation. Ice cream was re-designed as something which adults would enjoy; low ~cost airlines is seen as a radical market innovation. Air travel was made available for new users. Low price meant that a new market was created. ‘Modular Innovation Modular innovation consists of the products and platforms consisting of or faclitating relationships e.g. | People and products; control of experience from creation to interaction; ownership of content. Modular innovation enhances the online experience of the user through products such as, Facebook,Chrome, and Google Maps. Modular Innovation gives the user more control of their interaction wi online environment. : 7 ; ey lodular innovation uses the architecture and configuration associated with the existing system of established product and uses new components with different design concepts. Moreover Architectural Innovation ign concepts remain Architectural innovation exists where the components and associated desi inkages are instituted. It involves the unchanged but the configuration of the system changes as new li Clark, 1990). An example is the ‘Sony reconfiguration of an established system (Henderson and Walkman. '(highered.mheducation.com) Atte reas is Ore ore Re etd Discontinuous Innovation Discontinuous innovation is associated with causing 2 paradigm shift in science and technology; causing a shift in the market structure of an industry. Through this type of innovation, ‘new to the world products’ are produced. Moreover, it disrupts established routines and may require new patterns of behaviour. Discontinuous innovation is synonymous with radical innovation. It is associated with a product (good or service) that fundamentally changes the way a process Is done e.g. fax machine, photocopier.Open Source Innovation versus Open Innovation open source innovation: = Innovation that involves collaboration beyond the boundaries of a specific organization + The problem or opportunity itself is the focal point or core of the innovative process. = Organizations connect with each other rather than having one central organization. Open innovation: «Efforts are usually headed by one company engage: innovation by venturing outside the boundaries of the company. «The opportunity to exploit or the problem to tackle/address is ‘owned’ by the company facilitating or running the open innovation project. «The company is at the core of the collaboration. (COMPARING OPEN SOURCE INNOVATION AND OPEN INNOVATION [Type innovation | Advantages Disadvantages Open Source ‘Consideration is given to ‘© Loss of centralized control may other working types of hinder afirm’s ability to get cultures to get things done ‘things done according to a Greater input from specific organization culture professionals and experts in terms of ideas ‘Open = For many organizations it is * Less industry wide collaboration more realistic in terms of control over intellectual property, market entry cost © More accessible in the short term = More efficient for creating innovation rapidly = Focused on a particular | tempany iJ a iMPACT OF ope aes : IMPACT OF OPEN SOURCE INNOVATION Open source innovation munities in the industry * Enables collaboration and contribution with various com! bined in computing approaches e.g ‘+ Allows innovation from multiple sources to be com! = Business intelligence and reporting tool; sponsored by Actuate ne “ Contributions from IBM and Innovent Solutions Components include Report Designer and BIRT Runtime; Chart engine; Chay Designer and Viewer Complete business intelligence suite ae ‘Combines several open source projects ss activities include reporting to data mining Pentaho Intellectual Property can be described as those ideas that are owned by a person or business and therefore subject to protection under the law. This to some extent prevents ideas from being copied and exploited commercially. It is vital for an entrepreneur to protect his/her ideas as this may be the competitive advantage of the venture. According to the World Trade Organization, Intellectual Property Rights are ‘the rights given to persons over the creations of their minds.’ The individual is given the right cover the production/use of his/her idea for a specific period of time. In Trinidad and Tobago forinstance, there is the Copyright Music Organization of ight Musi i t i izati trinidad and Tobago (COTT) it }ago (COTT) which deals wit with sficensing the use of mi iti lusic e.g, traditional, new and evolving for rmats and collectin i i royalties. The following are some method: is of protecting innovation and creativity: = Trademark: a word, phrase or symbol that differenti identifies a product or service. i, yt at differentiates and i A trademark is intended to protect = di led to protect the brand such as the company’s name or a ict product e.g. Coca Cola. Patent: a right granted t that prevents other agents/businesses/individuals from producing, selling or using an invention (product, method, software, apparatus). A patent protects i ic patent pl an invention/creation that is new or original. Examples where patents are used it i ed include machines, computer software, business processes, and electronics. Patents are usually costly and can take a long time to issue © Copyright: a copyright is intended to protect the form in which ideas are recorded/documented. It is used to protect literary and artistic works (books, articles, poems, songs, music, and cartoons). A copyright can protect anything that is written or recorded. Trade Secret : ‘According to http://wws ntrepreneurship.org 4 trade las, patterns, compilation, Pro not being generally known to fe secret is described as‘ gramme, device, method, type of information, including a form' pendent economic value for technique or process that derives inde other persons who can obtain economic value from its disclosure or use.’ Atrade secret is confidential and proprietary/exclusive/patented. It provides the ‘owner/entrepreneur with a competitive advantage, adding value to the company. A trade secret can be a business plan, research data, customer databases, production process, strategy eg. pricing/marketing."Licensing: a process whereby the individual who creates the patent/idea sells or In some case, leases it to another company. The receiving company may take over the distribution, manufacturing and marketing of the invention. The original owner of invention /patent will receive payment or royalties in the process. Licensing is used by inventors to gain profits and to contract businesses with the capabilities of increased production. ‘an industrial design is the ornamenta| "Industrial Design: According to htto://www.ipo.gov.tt aspect of a useful article’ The ornamental/aesthetic aspect includes: © Elements: 3 dimensional or shape of article; 2 dimensional or lines, design, patterns and colours 0 Must not be solely based on technical or functional considerations of the article ‘An industrial design is therefore the ‘ight to protect the ornamental/aesthetic, non-functional features of an industrial article or products that arise from design activity. In Trinidad and Tobago for industrial designs to be protected the design must be original or novel and registered at the Intellectual Property Office. Examples include designed pieces of furniture, tools, and sunglasses. ‘The case of ‘CHUBBY’ soft drink: look, colour, shape, texture, ergonomic features of the product ‘©. The brand established and the product developed to fit in a child’s hand, lunch kit © {tis based on a cartoon character and a specific bottle design (Other means of protection include: = Non-disclosure agreement: This is a mutual agreement between two individual/parties not to share information with a third party e.g. have an employee sign a non-disclosure agreement where the employee/individual is bound to ‘confidentiality’.Non-compete agreemer nt ‘This type of agreement prevents an employee from starting & competing busin: ig business that would threaten your business within a defined area. Use an attorney/la ywyer when entering into contracts concerning intellectual property = Register scripts(copyright registration) + Create a paper trail/document details Samples of procedures in Trinidad and Tobago Applyit gq for a Trademark Step 1: Obtain a copy of the Trademark Application Form and Authorization of Agent Form Step 2: Contact trademark examiner to determine relevant class or classes of goods/service that the: application should be filed in. step 3: Complete and submit application form to tntellectual Property Office and pay application fee. nit yn { tte Apatent application must encompass the invention title; area or field; background information and invention description and claims that contains information on technical features of the invention. Patent Fees for application in Trinidad and Tobago are approximately §5000.00 T.T denomination. Other fees include: Drafting Fees for patent attorney or agent which may range rom $9000.00 to $30000.00.CC = BENEFITS oF INTELLECTUAL propeRTy RIGHTS TO ENTREPRENEURSHI The ben. ‘efits afforded to the entrepreneur include: eur has time to devel * Protection against competitors or followers copying idea. The entrePre fd the idea and recover costs. ‘Adds to the business credibility in terms of accessing capital ‘© The entrepreneur maintains the right to benefit from ideas. erin Improves consumers’ confidence in the standard of the product offering : irr. ‘* The entrepreneur has the right to license the innovation to a larger fi ‘SOURCES OF INNOVATION Drucker (2002) pointed out seven sources of innovation: These are © The unexpected: This includes unexpected success and failure or an unexpected occurrence in the external environment. Situations that act as a platform for new innovation e.g. The Ford motor company’s failure in 1958 with the ‘Ford Edsel’. According to Drucker, this failure formed the base of much of the company’s future success. Another example (http://www.referenceforbusiness.com) is that of the development of the Sony Walkman which was borne out of the CEO observing people carrying portable radios. _ Incongruities in processes, in the industry, in economic realities: Examples (http://www.referenceforbusiness.com) include the rise of Federal Express that showed that.sumers were willing to on 80 PaY @ Premiurn/high price for postal services in response to the service provided by the U.S, Postal Service. tion arising out of Innovat ing out of a process need: This is an innovation that is created to support an a = existing process or product such as automatic teller machines and internet banking to support banking transactions (http://www.referenceforbusiness.com) Changes in industry or market structure: This would involve changes in the level of competition in markets, as well as, growth or decline in an industry. An example outlined http://www. referenceforbusiness.com) the introduction of the personal computer and the laptop as oppose to the large main frame computers. This has changed the accessible markets, to include business, as well as, the individual consumer demands. Demographic changes such as population density/size, age, employment status, income level: ‘An aging population for example, would require specialized health care such as geriatric nurses and products catering to health care and comfort; changes in the composition of the population ‘would also give rise to innovations in food services and entertainment. New knowledge or technology: Business activities can transcend day and night given the Internet; new research in the field of biotechnology; development of new materials can breed innovation. Changes in perception: For example, a shift to a more health conscious way of living leads to more organic types of foods being consumed; more persons accessing gyms and health facilities,ies, | to the provision of poo ts Another example is the prevalence of women in the workplace leading i ices. and services to the working woman e.g. clothes, accessories, food choice: Other sources include: New political rules: The ideals of the government of the day in terms of an orientation towarg Innovation and creating small business; encouraging innovation; self- help; cottage industries, financing entrepreneurial development and ideas development through low interest loans, Limited options: When firms/individuals are faced with limited options/end of the road for some products, they are encouraged to think outside of the box and in order to remain viable they look to turn ideas into something useful or marketable. Deregulation: The removal of governmental controls/legislation can lead to increased competition. According to the Global Economic Symposium 2014, deregulation may have a Positive effect on employment creation. Changes in business models: A business model is the means by which a firm aspires to get value from the business activities. It incorporates the company’s processes such as how products are made; for whom it is made, The business model provides a framework for how the firm will compete in the market/industry. It involves value creation in the business. Changes in the market/industry e.g. financial crisis, new technologies, acts of terrorism; shifts in perception for example can impact the business models encouraging creativity and establishing new products and processes.103 Coulter (2003) outlined three factors that fuel innovation in an enterprise. These factors are summarized in the diagram below: ‘Structural Factors organic vs. mechanistic structures degree of centralization vs. decentralization flexibility of structure resources available to support innovation level of communication Encouraging Innovation Human Resource Factors support for innovative efforts e.g. training and development job security encouraging experimentation within defined limits creating ideas champions providing rewards and recognition Cultural Factors encourage the innovative process fosters experimentation high tolerance of risk mistakes are viewed as learning opportunities encourage diversity in views scan the internal and external environments encourage the development of different paths to achieve goalsh to sustain the "Managing the innovative process, the micro/organisational level has to be able innovatiy 'vative process. The following factors should be present: hat supports a © Thi a cultural context t! This means that the leadership/executive team must create a cultur: ds and giving The context must facilitate innovation by providing incentives and rewar« individuals the opportunities to convert ideas into working solutions. ust, respect ist be tri Top level management must set the tone for the organization. There mu and open communication to facilitate innovation in the organization. st versus Moreover, policy implications must be understood by all stakeholders such as co: benefits; human resource requirements and procedures for mistakes. {tis important when nurturing innovation that failure or mistakes and successes are taken as learning points and documented in a knowledge based system. |n creating a culture of innovation there must be vertical integration of the vision and mission of the organization with each key functional area strategy such as, the human resource recruitment strategy should incorporate the selection of individuals with an orientation toward innovation. Further, there ing and development to enhance the capacity of individuals. must be ‘The structure of the organization must also facilitate the innovative process. Organic systems tend to be flexible and fluid by nature. Such a system is appropriate for changing or uncertain conditions. Interactions among members occur at any point or level in this system. There is greater decentralization of decision making and facilitates more team work. Drawbacks to this system include a lack of clear lines of authority. Workers must also be highly trained. Conversely, the mechanistic system has a high degree of specialization and Is usually associated with bureaucratic, tall structures. This is rigid type of system but it can be appropriate got stable conditions, Drawbacks include possible communicationlems, slow d aki i proble’ ‘ecision making and implementation. According to king and Anderson (1990), izati i organizations that are organically structured have a greater propensity to enhance organizational capacity for innovation. Critically, various organization structures can facilitate and nurture innovation not necessarily, organic structures e.g. a large multinational or global company like Coca Cola. At the macro or national level, policy developments to nurture and manage innovation include an examination of various environmental factors such as: ‘+ Socio-cultural factors: This would include an analysis of population in terms of age and its impact on goods and services; changes in population demographics and its impact on recruitment and selection; awareness of different customs and practices + Political factors: This includes the role of governments in impacting innovation and the prevailing political ideology such as encouraging entrepreneurship through funding and technology © Economic Factors: This entails policies and incentives geared towards the development of small and micro enterprises such as training and development programmes, funding, trade fairs, innovator of the year competitions; collaborative partnership with other countries to provide training programmes; provision of avenues protection of intellectual property and ideas development. © Environmental Factors: Initiatives geared toward environmental sustainability such as green policies and the development of green products. Government can provide incentives for such developments such as tax incentives, funding. © Ethical factors: Businesses have to strategically account for ethical behaviours and should develop codes to govern the environment. Innovations should therefore be developed with the(a und : ; lerstanding of cultural and ethical differences and with the knowledge of what the business principles by regulators, st ‘ands for. Therefore, it is imperative that there is adherence to sound