Chapter 1

The Innovation
Imperative
 Outline
1. Innovation Matters

2. Innovation and Entrepreneurship

3. Innovation Isn’t Easy!

4. Managing Innovation and Entrepreneurship

5. Dimensions of Innovation: What Can We

Change?

6. A Process Model for Innovation and

Entrepreneurship
 Introduction
 Innovation is an essential part of every organization
activities as it is necessary for growth of organization,
and it has an important role in distinguishing the
organization from others.

 The word ‘innovation’ comes from the Latin, innovare,

and is all about change.

 Perhaps a more helpful definition of innovation is ‘the

process of creating value from ideas’.

 Innovation is about creating value and increasing

efficiency, and therefore growing your business. "Without
innovation, new products, new services, and new ways of
doing business would never emerge, and most
organizations would be forever stuck doing the same old
things in the same old way.”
 Innovation matters
Innovation does make a huge difference to
organization of all shapes and size. The logic is
simple: if we don’t change what we offer the world
(product and services) and how we create and deliver
them, we risk being overtaken by others who do”.
One person’s problem is another’s opportunity and
the nature of innovation is that it is fundamentally
about entrepreneurship. The skill to spot
opportunities and create new ways to exploit them is
at the heart of the innovation process.
On the plus side innovation is also strongly
 Innovation and
entrepreneurship
 Definition of Innovation
• Innovation is the specific tool of entrepreneurs,
how they exploit change as an opportunity for a
different business or service. It is capable of
being presented as a discipline, capable of being
learned, capable of being practiced. (Definition
by Peter Drucker)
 Definition of Entrepreneurship
• The capacity and willingness to develop,
organize and manage a business venture along
 Innovation and entrepreneurship
We use this lens to look at managing innovation and
entrepreneurship. We'll use three core concepts:
 Innovation
As a process which can be organized and managed,
whether in a star-up venture or in renewing a 100-
years-old business.
 Entrepreneurship
As the motive power to drive this process through
the efforts of passionate individuals, engaged teams
and focuses networks.
 Creating Value
As the purpose for innovation, whether expressed in
 Innovation isn't easy
 Coming up with good ideas is what human being are good at we
have this facility already fitted as standard equipment in our brains!
But taking those ideas forward is not quite so simple, and most new
ideas fail.
 Many SMEs fail because they don't see or recognize the need for
change. They are inward looking, too busy fighting fires and dealing
with today's crises to worry about storm clouds on the horizon.
 One problem for successful companies occurs when the very things
which helped them achieve success -" their 'core competencies'
become the things which make it hard to see or accept the need for
change. fear of failure , lack of resource, cultural barriers, and
external factors.
 Barriers to innovation
 Barriers to innovation include:
• Seeing innovation as ideas, not managing the
whole journey;
• Not recognizing the need for change;
• Mindset and complacency– core competence
becomes core rigidity;
• Closed information network, insulated from
new ideas.
 Managing innovation and
Entrepreneurship
 There have been many attempts to answer the question
of whether we can manage innovation.
 Researchers have looked at case examples, at sectors, at
entrepreneurs, at big firm and small firms, at success and
failure.
 Practicing entrepreneurs and innovation managers in
large business have tried to reflect on the 'how' of what
they do.
 The key message come from the world of experience.
 The key message from this knowledge base are that
successful innovators.
 Explore and understand different dimension of
innovation
 Manage innovation as a process create condition to
enable them to repeat the innovation trick (building
capability)
 Focus this capability to move their organization
forward (innovation strategy)
 Dimensions of innovation: what can
we change?
 One approach to finding an answer to the question of
where we could innovate is to use a kind of ‘innovation
compass’ exploring different possible directions.
 Innovation can take many forms but we can map the
option
TABLE along four
1.3 Dimensions fordimension,
innovations as show in table 1.3
Dimensi Type of change
on
Product Changes in the things (products/services) an
organization offers.
Process
Changes in the ways these offerings are created
Position and delivered.
/ brand
Changes in the context into which the
Paradig products/services are introduced.
m/
busines Changes in the underlying mental models which
s frame what the organization does.
 Cont’d
• Some TABLE 1.4 Examples of paradigm innovation
examples of
paradigm
Business model How it changes the rules of the game
innovation
innovation
‘‘Servitization’’ Traditionally, manufacturing was about producing and then selling a product. But,
increasingly, manufacturers are bundling various support services around their products,
particularly for major capital goods. Rolls-Royce, the aircraft engine maker, still produces
high-quality engines but it has an increasingly large business around services to ensure
those engines keep delivering power over the 30-plus-year life of many aircraft.
Caterpillar, the specialist machinery company, now earns as much from service contracts,
which help keep its machines running productively, as it does from the original sale

Ownership to Spotify is one of the most successful music-streaming companies with around eight
million subscribers. It shifted the model from people’s desire to own the music they
rental listened to towards one in which they rented access to a huge library of music. In similar
fashion, Zipcar and other car rental businesses have transformed the need for car
ownership in many large cities.

Offline to online Many businesses have grown up around the Internet and enabled substitution of
physical encounters, for example in retailing, with virtual ones.

Mass customization New technologies and a growing desire for customization have enabled the emergence
not only of personalized products but platforms on which users can engage and co-
and co-creation create everything from toys (e.g. Lego), clothing (e.g. Adidas) to complex equipment like
cars (Local Motors).

Experience Moving from commodity through offering a service towards creating an experience
around a core product, for example Starbucks making a coffee shop into a place where
innovation people can meet and chat, use Wi-Fi, read books and do a host of activities as well as
buy and drink coffee.
 Process Model for
Innovation
 Innovation is interpreted as a process of a series of
extended activities. There are four major steps of the
entrepreneurial process model.
 Recognizing the opportunity
 Finding the resources
 Developing the idea
 Capturing value
 What, why and when: the challenge of
innovation strategy

• Building a capability to organize and manage

innovation is a great achievement, but unless that
capability is pointed in a suitable direction the
organization risks being all dressed up with no
where to go!
• For entrepreneurs starting a new venture the
challenge is even greater: Without a clear sense of
direction, a vision you can share with others to
excite and focus them, the whole thing may never
take off.
 Cont’d
TABLE 1.6 Strategic advantages through innovation
Mechanism Strategic advantage Examples

Novelty in Offering something no Introducing the first (Walkman,

product or one else can. fountain pen, camera, dishwasher,
service telephone bank, online retailer,
offering etc.) to the world
Novelty in Offering it in ways others Pilkington’s float glass process,
process cannot match – faster, Bessemer’s steel process, Internet
cheaper, more banking, online bookselling, etc.
customized, etc.
Complexity Offering something Rolls-Royce and aircraft engines
others find difficult to (only a handful of competitors can
master. master the complex machining and
metallurgy involved).
Legal Offering something Blockbuster drugs like Zantac,
protection of others cannot do unless Prozac, Viagra, etc.
intellectual they pay a license or
property other fee
Add/extend Move basis of Japanese car manufacturing, which
range of competition (e.g. systematically moved the
competitive from price of product to competitive agenda from price to
factors price and quality, or quality, to flexibility and choice, to
price, quality, choice) shorter times between launch of
Timing First-mover advantage
Cont’d
Amazon.com, Yahoo – others can follow,
(being first can be but the advantage sticks to the early
worth significant movers.
market share in new Personal digital assistants (iPads) and
product fields). Fast- smart phones have captured a huge and
follower advantage growing share of the market. In fact,
(sometimes being first the concept and design were articulated
means you encounter in Apple’s ill-fated
many unexpected Newton product some five years before
teething problems, Palm launched its successful Pilot range
and it makes better – but problems with software and
sense to watch especially handwriting recognition
someone else make meant it flopped. By contrast, Apple’s
the early mistakes and success with iPod as an MP3 player
move fast into a came because it was quite late into the
follow-up product market and could learn and include key
features into its dominant design.
Robust/ Offering something Sony’s original Walkman architecture
platform which provides the which has spawned several generations
design platform on which of personal audio
other variations and equipment (minidisk, CD, DVD, MP3,
generations can be iPod), Boeing 737 (over 30 years old,
built. the design is still being adapted and
configured to suit different users)
remains one of the most successful
aircraft in the world in terms of sales.
Intel and AMD with different variants of
 Cont’d
Reconfiguri Rethinking the way Zara and Benetton
ng the in which bits of the in clothing, Dell in
parts of the system work computers, Toyota
process together (e.g. in its supply chain
building more management
effective networks,
outsourcing and
coordination of a
virtual company)

Transferrin Recombining Polycarbonate

g across established wheels transferred
different elements for from application
application different markets market like rolling
contexts luggage into
children’s toys –
lightweight micro
scooters
 Creating an Innovation
Strategy
 Putting an innovation strategy together involves three
key steps, pulling together ideas around core themes
and inviting discussion and argument to sharpen and
shape them. These are:
• Strategic analysis: what could we do?
• Strategic selection: what are we going to do, and
why?
• Strategic implementation: how are we going to
make it happen?
 E n d of
ch a p ter
one
 CHAPTER 2

Social Innovation
 Outline
 What is Social Innovation?
 Different Players
 Motivation: Why Do It?
 Enabling Social Innovation
 The Challenges of Social Entrepreneurship
 What is Social Innovation?

 Social innovation is the process of developing and deploying

effective solutions to challenging and often systemic social and
environmental issues in support of social progress.

 Social innovation is not the prerogative or privilege of any

organizational form or legal structure. Solutions often require
the active collaboration of constituents across government,
business, and the non-profit world.
Key characteristics of social entrepreneurs include:
Missi Reso
Resu
Ambiti on Strate urcef lt
ous drive gic Orien
n ul
ted
 Key characteristics of social entrepreneurs
 Ambitious:
o Social entrepreneurs tackle major social issues – poverty, healthcare,
equal opportunities, etc. – with the underlying desire, passion even, to
make a change.

 Mission driven:
o Their primary concern is generating social value rather than wealth;
wealth creation may be part of the process but it is not an end in itself.
o Just like business entrepreneurs, social entrepreneurs are intensely
focused and driven, even relentless, in their pursuit of a social vision.

 Strategic:
o Like business entrepreneurs, social entrepreneurs see and act upon what
others miss: opportunities to improve systems, create solutions and
invent new approaches that create social value.
 Key characteristics of social entrepreneurs
 Resourceful:
o Social entrepreneurs are often in situations where they have limited
access to capital and traditional market support systems.
o As a result, they must be exceptionally skilled at mustering and mobilizing
human, financial and political (why it important) resources.
 Results-oriented:
o Again, like business entrepreneurs, social entrepreneurs are motivated by
a desire to see things change and to produce measurable returns.
o The results they seek are essentially linked to ‘making the world a better
place’, for example through improving quality of life, access to basic
resources or supporting disadvantaged groups.
 Different players
 Social innovation involves the same core entrepreneurial
process of finding opportunities, choosing amongst them,
implementing and capturing value, but in plays out in a number
or different ways, which we explore briefly.

 Social innovation is an important role in improving people's

lives, and attracted the attention of various institutions
aimed at supporting and stimulating it. Corporation , public
sector and individual startup.
 MOTIVATION: WHY DO IT?
 Psychological studies of entrepreneurs suggest they often have a
high need for achievement (n-Ach), which is a measure of how
far they want to make their on the world.

 High n-Ach requires some evidence that a mark has been

made – but this doesn’t have to be in terms of profit or loss
on balance sheet.

 Many people find entrepreneurial satisfaction through

social value creation, and even those with a long track
record of building successful businesses may find
themselves drawn into this territory. Social benefit, solving
problems, individual need.
 Enabling social innovation
 Innovation doesn’t just happen because there’re processes that
can be managed. This process begins by searching for
opportunities and cultivating them into a concept that deserves to
be a goal. The next step turns the idea into reality and finally
launches a new product.
 Whether they choose to adopt and use it, and spread the word to
other so the innovation diffuses, depends a lot on how we
manage using other knowledge and resource streams to
understand, shape and develop the market.
 The challenges of social entrepreneurship
 While changing the world with social innovation is possible, it
isn’t easy! Just because there is no direct profit motive doesn’t
take the commercial challenges out of the equation.

 The problem isn’t just the difficulty of finding resources. Table 2.2
lists some other examples of the difficulties social entrepreneurs
face when trying to innovate for the greater good.
 Cont’d
TABLE 2.2 Challenges in social innovation
Problem area Challenges
Resources Not easily available and may need to cast the net widely to secure funding
and other support
Conflicts While the overall goal may be to meet a social need, there may be conflicts in
how this can be balanced against the need to generate revenue. For example,
Lifeline Energy wanted to provide simple communication devices for the
developing world and provide employment to disabled people. The costs of
the latter made the former difficult to achieve competitively and set up a
major conflict for the management of the enterprise.

Voluntary nature Many people involved in social innovation are there because of core values
and beliefs and contribute their time and energy in a voluntary way. This
means that ‘traditional’ forms of organization and motivation may not be
available, posing a significant human resource management challenge.

‘Lumpy’ funding Unlike commercial businesses where a stream of revenue can be sued to fund
innovation in a consistent fashion, many social enterprises rely on grants,
donations and other sources which are intermittent and unpredictable.

Scale of the The sheer size of many of the issues being addressed – how to provide clean
challenge drinking water, how to deliver reliable low-cost healthcare, how to combat
illiteracy – means that having a clear focus is essential. Without a targeted
innovation strategy, social enterprises risk dissipating their efforts.
End of Chapter 2
 Chapter 3
Sources of innovation
3.1
 Sources of
Innovation
 Innovation comes from many other directions, involving
many elements such as, Knowledge Push, Need Pull,
Shocks to the system, Accidents, Watching others,
Recombinant innovation, Regulation, Advertising,
Inspiration, Design drive innovation , Users as innovators,
Exploring alternative future etc.

 Knowledge push
• One obvious source of innovation is the possibilities
which emerge as a result of scientific research.
• In short, it is constant teamwork research whose
principal goal is to find answers and ideas to cover
people's needs.
 Cont’d
 Need pull
• As the expert says “need pull” innovation is captured
in the saying ‘necessity is the mother of invention’.
• But, this concept means any innovative idea is often
the response to a real or perceived need for change.
• Need-pull innovation is particularly important at
mature stages in industry or product life cycles when
there is more than one offering to choose from –
competing depends on differentiating on the basis of
needs and attributes, and/or segmenting the offering
to suit different adopter types.
• For instance, Energy saving cars, Procter & Gamble
began their real business meeting the needs at home
Whose needs? Working at the edge:
• When considering need pull as a source of
innovation we should remember that one
size doesn’t fit all.
• Differences amongst potential users can
also provide rich triggers for innovation in
new directions.
• Disruptive innovation:- innovation which
occurs at the periphery of a mainstream
market and which has the potential to
change the ‘rules of the game’ in terms of
 Advertising and mass customization
• Another important source of innovation results from
our desire for ‘customization’.
• Markets are not made up of people wanting the same
thing – we all want variety and some degree of
personalization.
• Mass customization:- ability to offer highly
configured bundles of non-price factors to suit
different market segments/Providing a high degree of
personalization to products or services without
incurring the traditional costs of tailoring to specific
needs.
• Of course, there are different levels of customizing –
Table 3.1 Options in customization

Type of Characteristics Examples

customiza
tion
Distributi Customers may customize Sending a book to a friend from
on product/service packaging, Amazon.com. They will receive an
customiza delivery schedule and delivery individually wrapped gift with a
tion location but the actual personalized message from you – but
product/service is it’s actually all been done online and in
standardized. distribution warehouses.
Assembly Customers are offered a Buying a computer from Dell or another
customiza number of pre-defined online retailer. Customers choose and
tion options. Products/services are configure to suit their exact
made to order using requirements from a rich menu of
standardized components. options
Fabricatio Customers are offered a Buying a luxury car like a BMW, where
n number of pre-defined the customer is involved in choosing (‘
customiza designs. Products/services are designing’) the configuration which best
tion manufactured to order. meets their needs and wishes (for
engine size, trim levels, colour, fixtures
and extras, etc.
Design Customer input stretches to Co-creation, where end users may not
customiza the start of the production even be sure what it is they want but
tion process. Products do not exist where, sitting down with a designer,
until initiated by a customer they co-create the concept and
order elaborate it. It’s a little like having
some clothes made but rather than
choosing from a pattern book they
Making processes better
• Of course, needs aren’t just about products
and services – they also apply as drivers for
process innovation.
• ‘Squeaking wheels’ and other sources of
frustration with the way current processes
operate can provide rich signals for change,
both in terms of incremental improvement
and in finding radically new ways of working.
• For example, this approach provided the
basic philosophy behind the ‘total quality
management’ movement in the 1980s, the
Crisis-driven Innovation
• Sometimes the urgency of a need can have
a forcing effect on innovation.

• For example, the demand for iron and iron

products increased hugely in the Industrial
Revolution and exposed the limitations of
the old methods of smelting with charcoal –
it created the pull which led to
developments like the Bessemer converter.
 Users as Innovators
• It is easy to fall into the trap of thinking about
need pull innovation as involving a process in
which user needs are identified and then
something is created to meet those needs.

• This assumes that users are passive recipients,

but this is often not the case.

• In many cases users are ahead of the game.

Their ideas plus their frustrations with existing
solutions lead them to experiment and create
something new.

• Importantly, active and interested users (lead

users) are often well ahead of the market in
terms of innovation needs.

• Lead users- group of very early adopters of new

ideas who are enthusiastic for changes and who
 Extreme Users
• An important variant which picks up on both
the lead user and the fringe needs concepts
lies in the idea of extreme environments as
a source of innovation.

• Looking for extreme environments or users

can be a powerful source of stretch in terms
of innovation, meeting challenges which can
then provide new opportunity space.

• As Roy Rothwell puts it in the title of a

 Watching Others – and Learning from Them
• Another important source of innovation
comes from watching others: imitation is not
only the sincerest form of flattery but also a
viable and successful strategy for sourcing
innovation.

• For example, reverse engineering of

products and processes and development of
imitations – even around impregnable
patents – is a well-known route to find ideas.
 Eg: China’s imitation of
Mercedes: Geely

 Much of the rapid progress of Asian economies in

the post-war years was based on a strategy of ‘copy
and develop’, taking Western ideas and improving
on them.
 A powerful variation on this theme is the concept of
benchmarking.
 Benchmarking - systematic comparison of products,
 Recombinant innovation
• An assumption which we often make about
innovation is that it always has to involve
something new to the world.
• The reality is that there is plenty of scope
for crossover; ideas and applications which
are commonplace in one world may be
perceived as new and exciting in another.
• This is an important principle in sourcing
innovation where transferring or combining
old ideas in new contexts – a process called
 Using the Crowd
• Not everyone is an active user but the idea of
the crowd as a source of different
perspectives is an important one. Sometimes
people with very different ideas, perspectives
or expertise can contribute new directions to
our sources of ideas, essentially amplifying.
• Using the wider population has always been
an idea but until recently it was difficult to
organize their contribution simply because of
the logistics of information processing and
communication.
Regulation
• provide a reminder of another important source of
innovation: the stimulus given by changes in the rules
and regulations which define the various ‘games’ for
business and society.

• Regulation in this way provides a double-edged

sword. It closes off avenues along which innovation
had been taking place but also opens up new ones
along which change needs to happen.

• Eg: New tax rules on cigarettes- restricts sales of

cigarettes, opens up new market of ‘fake cigarettes’
and aids to quit smoking.
End of
Chapte
r3