Understanding innovation

L'innovative action by a company requires attention to external factorssuch as the environmental context in which the company operates (the industrial sector, the environmental dynamics, the local context) and to internal factorssuch as the organisational context in which one operates (resources, incentives, strategies, organisation, etc.). 

These factors, as we will see later, are interconnected and therefore, in order to successfully innovate, it is important to know the individual elements/factors and also the relationships between them. 

Understanding (from Latin cum prehendere) means taking together, embracing the many facets of innovation, the many elements holding them together, putting them into a system, having developed awareness

What is innovation

Summary

Innovation is, in a single word, theuniqueness that characterises a company. Uniqueness means being different from others and this diversity can be about:

  • l'offer (products and services);
  • ihe transformation/production process (the way resources and activities are configured internally);
  • the business model or organisational change.

Traditionally, it is thought that innovation has to do with creativity. This is partly true. However, it should not be forgotten that innovation processes can be 'disciplined' and that a company's innovative attitude can be built over time with rigour and method.

Innovation is a social phenomenon. A company innovates when its new idea has an impact on the external environment because it is shared, accepted and disseminated because generates value for the end user (company or individual).

Different types of innovation

There are different taxonomies of innovation. Most distinguish between innovations: product, process, organisational:

  • Product innovations 
  • Process innovations
    • New production or processing methods.
  • Organisational Innovations
    • New methods/methods of organising and managing a company;
    • application of new management models for information systems;
    • agreements between undertakings for reorganisations.

Another classification of innovations

Another widely used classification of innovations is the one that distinguishes as many as 10 types of innovations grouped into 3 categories: 

  • Innovations relating to the internal configuration of a company (4 types): 
    • Business Modelis realised when a company finds new ways to create value with its product/service. Consider, for example, how Gillette changed its revenue structure by selling blades instead of razors.
    • Networkmeans finding new ways of dealing with suppliers and partners. Forms of open innovation collaboration are an example.
    • StructureIt occurs when a company innovates the configuration of its resources. The resources already possessed (physical, human, technology) are combined in different arrangements that generate rationalisations and lower costs in certain activities. 
    • Processis realised in finding distinctive and more efficient ways of carrying out activities internally. 
  • Innovations in supply (2 types): 
    • Product performanceis achieved by identifying characteristics that make the product different from the competition. This is the most traditional product innovation. 
    • Product systemis to create a system of products and services that create synergies between them that increase customer value. Think for example of products that are sold with apps or other complementary products that enrich the customer experience.
  • Innovations that create new end-user experiences (4 types): 
    • Serviceis to expand the offer through innovative services.
    • ChannelIt consists of changes in the way the product is transferred from the company to the customers; Nespresso has led the way in this, designing exclusive boutiques where they sell their pods. 
    • BrandIt is about innovating the way the offer is communicated. 
    • Customer involvementIt is about innovating the shopping and user experience. 

Incremental and radical innovations

Innovations can be distinguished by degree of novelty they introduce over what already exists, in incremental and radical innovations.

  • Incremental innovations – They involve an improvement of a process, product or service over what already exists (better performance, performance, design changes, marginal improvements). 
  • Radical innovations – They represent a major break with existing products or processes. These innovations in some cases give rise to new industries or market segments. 
Incremental and radical innovations

We often think of the terms radical o incremental from the point of view of end users and the impact that the purchase of a new product or service or the implementation of a new process has on us or our company. The distinction we have proposed here takes the perspective of the company and distinguishes changes into:

  • incrementalwhen the resources and skills base that a company already possesses are not altered. The skills already possessed are fine and one builds on those!
  • radicalswhen companies are asked to invest in the acquisition of new resources and skills. Existing skills are no good, they are obsolete and new ones must be built! 

Then there are architectural innovationsconcerning systemic products, made up of different components. Innovation in architecture is innovation at the level of one or more system components, but also innovation in the relationships between them. A video game console is a systemic product: each new generation of consoles is usually marked by the introduction of a more powerful microprocessor. Innovation at the level of the individual microprocessor induces innovation in other elements of the system (more powerful graphics card, more sophisticated games/software, larger memory) and in the relationships between them. 

The innovation process

The last topic of this unit is the definition of the innovation process.

There are 2 important stages in the innovation process: conception and implementation.

Innovation is the sum of the two and is different from invention. Innovation is therefore a new idea/solution/invention that is implemented and exploited commercially. Innovation is therefore a phenomenon whose success depends on its diffusion, utilisation, absorption by the market, hence a social phenomenon.

Is it possible that one of the two phases is more important? If there is no conception phase, there can be no implementation. If the implementation is done badly, even a beautiful idea, with great potential, can fail. 

What is innovation for? Why innovate?

  • Changing scenarios - the external environment evolves and the rules of the game change and companies that want to keep playing are asked to change (innovate). 
  • Innovation is important to have an advantage over the competition in terms of: lower transformation/production costs (process innovation); higher revenues due to uniqueness/differentiation of the offer. 

The competitive advantage refers to a situation where an enterprise performs better than its competitors. 

To the extent that both situations create value for the customer/end user (containment of purchase costs/distinction of the purchased product or service), both can lead to a competitive advantage. 

Thomas Edison, famous American inventor and scientist (inventor of the light bulb) said: 'The success of an innovation is 1% of inspiration and 99% of perspiration', emphasising the importance of the inspiration/idea phase, but above all the fact that the great challenge for the innovator lies in implementation (the term 'transpiration' means sweat), in making an idea concrete and fostering its adoption and dissemination in the market. History is full of great ideas that remain in the drawers of those who generated them and have never seen concretisation.

This draws attention to the issue of the 'feasibility' of an idea and an appropriate analysis of the extent to which an idea, a vision, a project can be realised from the point of view of the availability of technical and economic resources and, not least, their desirability by the market. 

There are 3 categories of factors influencing an innovation process: 

  1. external environment; 
  2. characteristics of individuals; 
  3. characteristics of the enterprise. 

They will be detailed in the next 3 units.

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