Arab Open University

Department of Business Administration

Understanding Business Functions B202 part B

The Concept of Innovation

Invention

Inventionuses new knowledge to create something new.

Inventions are useful if they enable people to do things in different and better ways or do things which they would like to do but could not have done before.

Inventions can only give benefits if they are useful in helping individuals and organizations to achieve purposes.

Benefits of the Invention

1)Invention might reduce the costs of organization

2)Invention might increase the effectiveness of product or service provision.

3)Invention might enable an organization to supply customers with new products and services.

4)However, reducing costs (for example by the use of technology) may actually mean redundancies for some employees.

The Concept of Innovation

The concept of innovation implies that benefit is derived from applications of new market or technological knowledge

Innovation can take place anywhere within an organization.

Sometimes it can take a long time for an invention to lead to innovation.

How did Michael Porter distinguish between invention & innovation?

Invention is a new process, product or service derived from new ideas and knowledge.

Invention is an application of knowledge which creates something new.

Inventions need not result in something tangible.

Innovation is a new way of doing things that is commercialized.

Innovation can lead to the development of improved processes, products and services.

Innovation is of practical use in providing new products or services and

Innovation enables people and organizations to do thing more effectively and efficiently.

Product Innovation & Process Innovation

Product innovation relates to the development of a new product, for instance a new piece of equipment such as the personal computer.

Process innovation relates to the development of the operations more effectively and efficiently. It is not confined to the use of new equipment in an organization but also refer to a new way of doing things.

Innovation & its benefits

1)Innovation may create new products or services to serve new markets, enabling an organization to expand its market base or range of beneficiaries. For example, some medical conditions that were formerly treated by major surgery are now treatable with keyhole surgery.

2)Innovation may also enable an organization to produce existing or improved products and services more efficiently at lower cost.

3)Innovation can increase revenues and / or reduce the costs, and so increase profits of businesses or the ability for not-for- profit organizations.

4)Innovation may also make it possible to meet the needs it serves more effectively and efficiently.

Two Types of Capabilities to Succeed as Product Manufacturers

Market capabilities use market knowledge to meet customer demands

Technological capabilities use technological knowledge to develop the product.

The Nature of Innovation

Two Types Technological knowledge

Component knowledge: knowledge of the components required to assemble a product or deliver a service.

Architectural knowledge: knowledge of how the components are connected.

The Four Types of Innovation

Component knowledge
Destroyed / Enhanced
Modular / Incremental / Enhanced / Architectural
knowledge
Radical / Architectural / Destroyed

(1) Incremental Innovation

It is building on existing products.

It is usually occurs with a new product or service or process.

It builds on both component and architectural knowledge and architectural innovation links or combines existing technologies in novel ways.

(2) Modular Innovation

It destroys the value of some part of an organization’s component knowledge but leads to architectural innovation

(3) Architectural Innovation

It is a combination or linkage of existing technology in novel ways.

This may also be described as “process innovation”. This can occur within any one of the business functions and has knock-on effects across them.

It is linking together the key components of the organizations in different ways (network).

(4) Radical (sudden) Innovation

It destroys the existing products and sets product development onto a new trajectory.

Both component knowledge and architectural knowledge are destroyed.

Dominant Design

Dominant design is a new industry standard that appear from the breakthrough of new product or service.

A dominant design is characterized both by a set of core design concepts that correspond to the major functions performed by the product and by a product architecture that defines the way in which in these components are integrated.

Three Types of Resources

1)Tangible Resources (e.g. buildings, office equipment, process machinery, raw materials)

2)Intangible Resources (e.g. knowledge, practical know-how, organizational routines)

3)Human Resources (e.g. individuals in the labour force, external individuals in network relationships).

Capabilities & Competencies

  1. Capabilities are the strengths in managing & performing particular types of activity. For example, an organization may be especially good at knowledge creation through a particular approach to human resource management.
  2. Competencies are the strengths in managing & performing groups of activities& the interdependencies between them. For example, an organization which is especially good at knowledge creations, the application of new knowledge to the development of improved products and the marketing of the new products it develops, can be considered to have product innovation competencies.

Competence-enhancing & Competence-destroying innovations

Competence-enhancing innovation:

Innovations with the potential to deep and strengthen existing competencies.

These are often made by established organizations which have the resources, capabilities and competencies to be successful in this activity.

They are ones that either develop new products or make improvements to existing products that build on existing competences and strengthen the position of the current leaders.

Competence-destroying innovation

Competence-destroying innovations are a threat to an organization and occur in organizations which do not have the capabilities to exploit them.

Innovations with the potential to leave obsolete the competencies on which success in the organization, industry or sector has till now been built (e.g. from mechanical to quartz watches).

It is not therefore surprising to find that competence-destroying innovations are often made by new entrants.

They are ones that develop new products or make changes to existing products that require completely new skills and knowledge to be developed.

All established organizations are vulnerable to competence- destroying innovations unless they develop capabilities for successfully introducing such innovations.