Joe Tidd
and
John Bessant
ISBN: 9781118360637
© 2013 John Wiley & Sons Ltd.
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Chapter 1
Innovation – what it is and
why it matters
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Managing Innovation
Session 1 outline:
1. Innovation and performance
2. Models and modes of innovation
3. Creating and capturing value from innovation
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Session Plan
Definitions
of Innovation
Creating &
Capturing Value
From Innovation Innovation &
Performance
Models &
Modes of
Innovation
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Profit Chain
• Profit_chain.ppt
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Innovation and Performance
What is innovation?
“Companies achieve competitive advantage
through acts of innovation. They approach
innovation in its broadest sense, including both
new technologies & new ways of doings things”
- Michael Porter
(emphasis added)
Trott_innovation management overview.ppt
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Innovation and Performance
Innovation has to be actively managed:
“Innovation is the specific tool of entrepreneurs, the
means by which 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”
- Peter Drucker
(emphasis added)
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Innovation Management
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
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Innovation and Performance
Some ‘stylised facts’ about the relationships between
innovation and performance:
• Relationships between R&D, patents, new products and
performance are strongest at the industry level, weakest at the
firm level
• Returns from process innovation are typically four times those
from product innovation
• R&D expenditure stronger than patents in predicting
performance
• At firm level, R&D and new products both associated with
higher value-added and market to book values
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Innovation and Performance
• Returns from use of new technology higher than
from its generation
• Highest variability in performance is at firm level
• Senior management typically accounts for 15-50% of
variance
Sources: J. Bessant & J. Tidd (2007) Innovation and Entrepreneurship (Wiley); J. Tidd
(2006) From Knowledge Management to Strategic Competence (Imperial College
Press, 2nd edition); J. Tidd, J. Bessant & K. Pavitt (2005) Managing Innovation:
Integrating technological, market & organizational change (Wiley, 3rd edition); S.
Isaksen & J. Tidd (2006) Meeting the Innovation Challenge: Leadership for
Transformation and Growth (Wiley, 2006).
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Innovation and Performance
Innovation has an inherent variability, but rate of
success can be improved through better & different
management:
• 85% of new ideas never reach a market
• 60% of R&D projects are market failures
• 40% of consumer products & services fail
• 20% of business products & services fail
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Innovation and Performance
Some explanations for the observed wide variation
in the relationships between innovation and
performance:
• Scale – of technological inputs – critical mass; and
market value of commercial outputs – ‘complementary
assets’
• Opportunity – ‘spill-overs’ within sectors and between
firms
• Management – differences in cognition, co-ordination
and control
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Models and Modes of Innovation
Dimensions of ‘innovation space’:
• product – changes in the things (products/services) which
an organization offers,
• process – changes in the ways in which they are created
and delivered
• position – changes in the context in which the
products/services are introduced
• paradigm – changes in the underlying mental & business
models which frame what the organization does
• ..\ARTICLEs\4Ps-explanation.pdf
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Creating and Capturing Value
“lack of technological knowledge is rarely the
cause of innovation failures…the main
problems arise in organization and, more
specifically, in co-ordination and control… four
mechanisms identified by earlier analysts of the
innovating firms: competition, cognition, co-
ordination and control”
- Keith Pavitt
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Creating and Capturing Value
Managers with ‘mature Managers with ‘dynamic
perceptions’ believe that: perceptions’ believe that:
• the industry is stable with
• there is potential for
slow demand growth &
incremental changes in change, new ways of
technology operating, & new
strategies
• profitability is achieved
by process improvement • value is created through
and product innovation in positions
differentiation and paradigms
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Creating and Capturing Value
‘mature’ managers view: ‘dynamic’ managers view:
• profitability is determined • profitability is determined
by industry, & is limited in by the firm. Mature
mature industries industries offer many
• market share is critical opportunities.
• dominance demands • Market share is reward for
extensive resources creating value
• effectiveness, not extent of
resources counts
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Creating and Capturing Value
Choice of strategy (& luck) are more important than
industry:
• choice of industry 8.35%
• choice of strategy 46.4%
• parent company 0.8%
• unexplained (e.g. luck) 44.5%
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Creating and Capturing Value
Patents per million population
100
80
60
40
20
0
Japan Germany USA France UK
Source: OECD
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Creating and Capturing Value
Entrepreneurial Activity
15
10
0
USA UK Germany France Japan
Source: OECD
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Creating and Capturing Value
Advantages of innovation in position or paradigm:
• Reputation as a pioneer
• Early learning curve benefits
• Establish barriers to entry e.g. Design, patents, standards
• Dominate new supply & distribution networks
• Earn 'monopoly' profits
But, beware regulatory & demand uncertainty, e.g. burden
of educating users
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Conclusions:
Innovation and Performance
Conclusions and implications from observation and
research:
• Relationships between R&D, patents, new products
and performance are strongest at the industry & sector
level, but weakest at the firm level – but, management
& strategy can make a difference
• Too much emphasis on technological innovation,
process improvement & product differentiation
produces low returns
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Conclusions:
Innovation and Performance
• Greater focus on a wider range of innovation e.g.
positional and paradigm innovation has potential
to improve returns from innovation
• This suggests active search for external technology
‘spill-overs’ (inputs) and exploitation of commercial
‘complementary assets’ (outputs)
• (Re) combination & integration of different types of
innovation important – role of international
alliances & corporate venturing to help identify,
create & exploit new businesses and services
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