2.3 Understanding Breakthrough Innovation
Breakthrough innovation doesn’t come naturally to most businesses.
Large successful companies often have a disruptive past. They take a new idea and launch it, and those that grow successfully turn previously ad hoc methods into consistent, systematic routines. Established organisations are brilliantly set up for incremental improvements: the company defines its purpose in terms of its current activities; staff are attracted to its current operations and are trained and rewarded based on delivery; everything fits together, reinforcing the current set-up. Often, what cannot fit are breakthrough ideas which fall outside of the defined purpose. People often don’t have the skills, time or rewards to foster them. Structurally, there can be no space to develop disruptive ideas. At the same time, senior executives often take the safe bet, opting for
incremental improvements with small but predictable returns; these incremental improvements are preferable to breakthrough ideas which can be unclear how to execute.
Why breakthrough innovation is key to a brighter future
It isn’t just companies that settle into a mature phase where there is only space for incremental innovations. These same dynamics are played out in markets and sectors.
Before Cafédirect, the established way of operating in the coffee market meant that smallholders were very exposed to global commodity prices. Cafédirect has disrupted the sector, adjusting some of its norms; and now, most coffee companies have at least one UK product which contributes to a brighter future – be that fair trade, organic, Rainforest Alliance or something else. Cafédirect’s influence is wider than coffee: there has been a growth in fair trade products more generally, as consumers developed preferences for it and companies realised its potential. Breakthrough innovation is more successful when combined with other interventions. For instance, Cafédirect aligned their brand messages with NGO campaigns on supporting people in developing countries. Sometimes these barriers can only be addressed by collaboration, such as establishing a common standard, or other ‘system innovations’. We need to see change across every sector. Breakthrough innovation from products or services as a crucial role in shifting market outcomes so companies can succeed while also creating a sustainable society.
Chapter3. Innovate or Die
As you will discover as you read through this site, the adage “innovate or die” will come up more than just a handful of times. This is because when it comes to the long run sustainability of your firm nothing is more important than innovation.
Consider the following example:
Once upon a time steel was considered the utomost in technological revolution. It was a scarce resource and it was necessary for civilization to evolve. Vast fortunes were made producing and selling steel.
In America the steel industry was once vibrant. Now it’s just a shell of what it used to be – the good days are gone. Foreign markets became more competitive and domestic laws changed. Through it all firms failed to innovate. They failed to change how they did business, improve labor conditions, or work to find new ways to sell their product (Ikenson).
Ultimately this lead to Bethelem Steel’s collapse. Sure government laws, quotas, and foreign competition didn’t help but what if the company had changed and evolved. Would it still be alive today?
Over time your company will decline until it hits the zero mark. This is the product lifecycle (it also appears on our page on incremental innovation).
It seems extreme to say “innovate or die” but tell me, how big is the market today for morse-code machines?
Note that people are still interested in machines that enable communication and that’s exactly the point: the market changes and that’s what companies need to pay attention to. As tastes, preferences, and methods of doing business change so too must your business.
It’s easy to get caught up on what the next Facebook or Google is but perhaps that’s not the best way to look at innovation. [4] Instead of focusing on “that next big win” focus instead on scaling your operations and doing better. Yes, look for wins but be sure to focus on how your capabilities can help you get those wins.
The whole trick to innovation is that it’s not a simple process. Here is a critically important graph:
This graph displays the diffusion of innovation across the market. The blue line represents the rate at which customers adopt the new technology and yellow is the market share which we see eventually rises to saturation (Rogers, 1962).
It seems tempting to look at a new technology and say, “We should jump into that.” Sometimes yes, that’s exactly what you should do. It’s what Nokia has done twice, completely reinventing themselves as they go.
This diffusion graph explains how complicated such a leap is. Ideally your company would be in from the beginning so as to capitalize on both first mover advantage and to make maximum use of saturation but if you spot the new technology and then jump you’re already behind those who created it in the first place and have begun using it. Nine times out of ten you’re guaranteed to lose first mover advantage as well as 100% market saturation payout.
If your company enters in the late majority phase of technology diffusion you’ve already missed 50% of total market share. You’ve missed the opportunity to have anyone raving about your product. Things have just become much more difficult for your firm.
Which is why when you innovate you’ll want to pay attention to your timing.
This discussion of diffusion has had a double meaning. Sure it’s been about the importance of early entry but did you notice that Roger’s diffusion graph also tells a story about the death of a product?
What do you expect will happen when that product reaches 100% market saturation? Unless it is developed further it’s going to experience severe decline. Sure, some customers will repurchase which will keep your sales alive but your company will be a shell compared to what it used to be “when things were good.”
Innovation means your company doesn’t have to fight to control part of a failing market. By constantly changing how you do business your firm comes one step closer to guaranteeing long term success, and that’s something your firm’s shareholders will be deeply interested in.
There are loads of articles on this site about managing innovation, we hope you’ll stick around and learn a lot about being an innovation leader in your firm. [4]
Chapter4. The Meaning of Entrepreneurship
A simple definition
Given the concepts we considered above, what is entrepreneurship?
There are many definitions ranging from off-the-cuff statements made by once-successful businesspeople, to rigorous definitions developed by academics. To keep things simple we are going to borrow a simple statement made by Peter Drucker in which he says that ...
“... Innovation is the "specific function of the entrepreneur."
For the purposes of this course, that is enough said: entrepreneurs seek to innovate. And in keeping with our earlier definition of innovation as change, this means that the entrepreneur is an agent of change made to create value.
Entrepreneurship is the process of bringing together creative and innovative ideas and actions with the management and organizational skills necessary to mobilize the appropriate people, money, and operating resources to meet an identifiable need and create wealth in the process
Perspectives on entrepreneurship
There are several commonly accepted perspectives of entrepreneurship.
One useful perspective views entrepreneurship as a combination of the right toolset and mindset. In other words, with the right tools in hand, the right approach to using them and enough practice, one can successfully innovate to create value.
It is also useful to view entrepreneurship from the perspective of the new venture life cycle. A simplified model of the new venture life cycle is shown below to demonstrate this perspective. This is also handy because it provides an opportunity to show you the design of some of the course that follow The Entrepreneurial Experience. (Figure 2)
Figure 2
Figure 2. A simplified model of the new venture life cycle
Chapter5. The Difference between Entrepreneurs and Innovators
In the popular fiction that most people believe about inventors, one of the routes to success is for the brilliant man to start a small company in his garage, fight it out in the fair and impartial marketplace with a superior product and ultimately triumph on the merit of his ideas, founding a giant, successful company in his name. The myth of the innovator as entrepreneur is so ingrained in popular culture that the two disciplines are considered to be almost indistinguishable. Indeed, I’ve heard the terms used interchangeably.
Contrast this with successful musicians and artists. It is self-evident that a major rock musician or a renowned painter is, in fact, a small scale enterprise based around the talent of a single individual. There are contracts to negotiate, people to pay, shows to put on, logistics to manage, marketing and public relations requirements and taxes to pay. To all intents and purposes, these artists are, in fact, small scale industries, complete with balance sheet and cash flow. To survive and prosper, the enterprise based around the talent of a single artist needs an entrepreneurial spirit. But who supplies that? Is it always the artist? Is it even usually the artist?
We readily accept that understanding abstruse legal contracts, handling financial responsibilities and marketing the artistic product is not something the artist must do. We know that everybody is best served when the conditions are created to let the artist continue to focus on making their art, while somebody good at running an enterprise takes care of business. The artist creates and cares about the artistic, creative output, but they have people to take care of the money, the artist’s interests and their intellectual property. While there are many examples of artists being taken to the cleaners by their management, particularly in the music business, when the management is good and honest, then the artist and the manager both do well. [5] When the artist is ripped off shamelessly, their career is usually short and the manager must look for another genius to represent. Musicians have their managers. Writers and actors have their agents. Painters have their galleries. Who does an inventor have?
To a product innovator, working in high tech and/or software, why is there an expectation that they must enjoy, be skilled in and adept at running a startup business? Why do we regard the signing of staff leave chits, the negotiations with funders, the arguments with the commercial landlords, the responsibility to create and maintain the corporate web site, the purchasing of printer ink and the advertising and selling the company’s new products as requirements of the innovator? Why do we not see it as an egregious distraction from their real work, which is creating new and exciting products that make real people’s lives better? Can’t we accept that innovators are best utilized when we let them focus on innovating, rather than diluting their output with the need to do the thousands of things that an entrepreneur must do to make the business survive and grow?
I think it is because the work of a real product innovator is very poorly understood. There isn’t a ready understanding or appreciation of what it takes to be good at innovating. Few know of the hours of dedicated application needed to ensure your products can be built at all and still do something beneficial, for a large number of people that are willing and able to pay for them. It’s not thought of as real work, is it? It is assumed that anybody can innovate, but that the hard thing is to run a business. I’ve been both innovator and entrepreneur, often at the same time and I can tell you that both skills sets are very different. Both require a high degree of experience, learning, application, intuition, dedication, focus, ingenuity and insight to do well.
Entrepreneurs care about the money and the business. Innovators care about the product and the people that the product is for. My personal preference is for innovating, over being an entrepreneur. Both have their excitement, but being better at one than the other means that having to spend too much time on your least favourite area of interest can lead to crashing, grinding boredom and not a little frustration. I can attest, from personal experience, that being both a first rate innovator and a first rate entrepreneur at the same time is an exceedingly difficult feat to pull off successfully. Time simply doesn’t permit. The danger is that you become second rate at both. [2]
As far as I can tell, there really isn’t an existing infrastructure of innovator’s managers, skilled in the legal aspects of protecting innovations as intellectual property and capable of negotiating with the large corporations that really need the output of skilled and adept innovators. I’ve never heard of it. Maybe these managers exist, but I doubt they are anything like as widespread as musical artist managers, literary agents and art galleries. The closest we get are the venture capitalists, but with this industry so full of sharks, the horror stories of inventors and innovators being taken to the cleaners by their funding partners are manifold. I have friends that have fallen victim. Like the music business shyster managers of the 1950s to 1970s, they still see innovators as disposable commodities. They believe that an innovation and its inventor can be easily separated and that once separated, the invention will still do well. They think they can find another skilled innovator easily, when they are done with the present one.
The really clever agents and managers in the creative industries learned long ago not to kill the goose that lays the golden eggs. We all know of the musicians and their managers that have enjoyed decades of recurring revenue and continue to do so. We also know that the exploiters ultimately lost their riches. Innovators, in contrast, are still regarded as one-hit-wonders, in the main, who will only ever be capable of producing a single great product. The idea of a “career innovator” isn’t obviously apparent or recognized. Nobody believes there are innovators that are capable of changing the world several times over. Nobody except such innovators, that is.
History tells us that a single man can change the world many times over, of course. Edison was a serial innovator. The wisest course for anybody managing his career and his business would have been to bank on his career longevity. Edison, however, had to be his own entrepreneur. Hats off to him for being able to do both. John Logie Baird, another serial innovator of spectacular talent, was less fortunate in business. We are all the poorer for the ideas he developed that never saw the light of day, due to the failure of his enterprises. Tesla, famously, created an industry worth uncountable trillions, but ended up having to exchange the rights to his intellectual property to pay for the hotel room he lived in.
So I am calling for a separation of concerns. Innovators can be serial innovators, capable of cranking out wonderful products, time after time. However, we shouldn’t try to burden them with the necessity of creating and growing their own enterprise, just to bring those products to the people they were designed for. [5] Where is the body of professional managers willing and able to protect these innovators while they innovate, taking care of legal, financial and taxation matters, while permitting the innovator to focus on doing what they do best? It’s an opportunity and a vacuum begging to be filled, in my opinion.
Chapter6. The Link between Innovation and Entrepreneurship
Every so often, an entrepreneur emerges who really changes the game.
Can you remember a time (before Howard Schultz) when someone told you that we would pay $2 for a cup of coffee? You would have thought them unstable. Today, you would have trouble leaving Starbucks for just $2.
When McDonalds, came on the scene, I can remember the first time my family visited one. My dad was pretty skeptical. “Fast food?” he asked? “Why would anyone want fast food? . . . I’d prefer that mine was good food.” That’s how I suspect many people viewed restaurants before Ray Kroc.
Could you imagine the banker who Herb Kelleher approached to borrow money to buy his first airliner after being told Kelleher’s business model was to offer prices that competed with bus fares rather than plane fares? Yet his simple business model revolutionized commercial air travel and arguably drove some of aviation’s proudest names into bankruptcy. [3]
Or how about Woz and Jobs who struck out in their garage to take on mighty IBM, HP, Tandy and even Microsoft in the PC market? Today Apple’s market cap is at stratospheric levels (over $550 Billion) – a testament to their vision.
Yes, some people have what it takes to see things that most other mere mortals miss. Not only can they see it, but they have a belief that their visions will be realized when most of the rest of us say it just couldn’t happen.
What I find interesting about this is how so often the people who introduce a new order of things are outsiders who inflict amazing damage on the slower moving companies who dominated their industries at the time. Why do you suppose Blockbuster could not see the opportunity to stream video content – or even deliver it by mail? Why do you suppose it took Borders and Barnes and Noble so long to see the need to offer online ordering, and even electronic delivery of written content?
So why aren’t there more “entrepreneurs” within our organizations who can drive innovation thinking fast and dramatically enough to thrive in the face of shifting technology, consumer, economic, and social trends? What makes these great entrepreneurs so successful, and aren’t they the same things we need to cultivate within our own organizations?
There have been many attempts to classify the vital traits of great entrepreneurs. As an entrepreneur myself, and as someone who met many successful other entrepreneurs through Young Presidents Organization (YPO) I have been reflecting about some of the common traits I observed among great entrepreneurs. So, for what it’s worth, here is my list:
1) Sense of Self-Confidence. When I think about when I started my first business, I was arrogant and cocky. I was armed with my MBA, and my belief in myself was so strong, no one could talk me out of what I wanted to do. I would say my belief possibly bordered on naïve – but without this belief I would have never taken the risks required to pursue my dream. [6]
2) Incredible Optimism. This goes hand-in-hand with the preceding. A few years ago after I sold my business, I was assisting a friend (an amazing entrepreneur in his own right) with his business. I had some operations and financial skills that he needed. I regularly saw things that merited some caution that I thought were worth bringing to Ron’s attention. One day he finally told me, “Never give me the numbers and tell me the risks. It just brings me down, and without my positive mental attitude, I cannot be effective.” Great entrepreneurs see the possibilities in everything and minimize (or even filter out) the threats that would cause a no-go decision.
3) Boundless Energy. All of the entrepreneurs I have known were married to their dreams, and virtually always were working on them. It’s a 24/7 proposition. If they went out there was always a business purpose (whether networking, entertaining clients, or learning something they could subsequently use). Whether in or out of the office, they just can’t turn it off. Most of my colleagues slept less than many people, getting up at 3 in the morning to read, work on a project, or simply do some online research. This takes personal resilience along with both physical and emotional strength.
4) Risk taking is EXCITING, not debilitating. Trying to do something no one else has before in the face of uncertainty, is risky. For some people this is a crippling thing. Once you start making lists of pros and cons, you are already defeated. [6] Entrepreneurs believe that risks are proportional to the potential rewards. Since they generally dream big, the idea of taking larger risks is invigorating. That doesn’t mean they will do stupid things, but they aren’t afraid of the uncertainty. The first time I signed a personal loan guarantee to a bank, I remember feeling remarkably calm about it. Sure I could have lost my house, but the possible upsides of success outweighed the potential hazards.
5) Have Something to Prove. There are lots of people I have met who at one point or another were passed over for a promotion, or even fired from their employer. Whether trying to prove something to yourself, to the world, to those kids who made fun of you in high school, or to that former boss who had you sacked . . . this is a powerful driver.
6) Love coloring outside the lines. Another common trait among entrepreneurs I have known is that they LOVE to break rules (or they automatically assume the rules apply to others but not to them. Just ask me how many speeding tickets I have had . . . 3 in one day was my record!) These people revel in the thought of playing in uncharted space, changing the game, and doing what others say is not possible or practical.
Now this is surely not an exhaustive list, but it these are some key traits that seem to make a difference. I wonder whether if we had more of these traits in larger organizations, whether we would get more entrepreneurship?
It is true that most entrepreneurs I have known would never have considered working for a large company. To them, such a life would seem too constraining, bureaucratic, and unfulfilling. However, would we drive more innovation in our organizations if we sought to hire people with some of the character traits listed above? In most organizations, we don’t screen for such things. But . . . we could.
The final point I need to make is that the challenge of leaning innovation within a large organization is a unique one. There is a wonderful quote attributed to Stephen King that goes: “Artistic talent is far more common than the talent to nurture artistic talent. Any parent with a hard hand can crush it, but to nurture it is much more difficult“. [5]
Nurturing talent maybe more difficult, but it is no less important than entrepreneurial talent. That is the leadership challenge in large companies.
Chapter7. The Importance of Innovation and Entrepreneurship
The economy is composed of enterprises and businesses. Our economy has survived because the industry leaders had been able to adapt to the changing times and supplied mostly the communities’ needs. [7] Any small business is integral to the economy. Without it, our economy would not survive. But a business must also sustain itself, be able to constantly evolve to fulfill the demands of the community and the people. In every business, it is imperative to be industrious, innovative and resourceful.
Entrepreneurship produces financial gain and keeps the economy afloat, which gives rise to the importance of innovation in entrepreneurship. Entrepreneurs are innovators of the economy. It is not just the scientist who invents and come up with the solutions.
The importance of innovation in entrepreneurship is shown by coming up with new way to produce a product or a solution. A service industry can expand with another type of service to fulfill the ever changing needs of their clients. Producers can come up with another product from the raw materials and by-products. [4]
The importance of innovation in entrepreneurship is another key value for the longevity of a business. Entrepreneurs and businesses began with a need. They saw the need within the community and among themselves that they have come up with a solution. They seize the opportunity to innovate to make the lives more comfortable. And these solutions kept evolving to make it better, easier and more useful. Entrepreneurs must keep themselves abreast with the current trends and demands. Manufacturers are constantly innovating to produce more without sacrificing the quality.
Companies and enterprises keep innovation as part of their organization. Innovations contribute to the success of the company. Entrepreneur, as innovators, see not just one solution to a need. They keep coming up with ideas and do not settle until they come up with multiple solutions. Innovation is extremely important that companies often see their employees’ creativity as a solution. They come up with seminars and trainings to keep their employees stimulated to create something useful for others and in turn, financial gain for the company. [7]
Other factors that raises the importance of innovation in entrepreneurship is competition. It stimulates any entrepreneur to come up with something much better than their competition in a lower price, and still be cost-effective and qualitative.
Small businesses see the importance of innovation in entrepreneurship. They were able to compete with large industry and see their value in the economy. Small businesses are important as they are directly involved in the community and therefore, contribute to their financial and economic gain. These small businesses know exactly what community needs and fulfill them. All things start small.
Innovation is important not just in entrepreneurship. As individuals, we are innovators by adapting well to our needs and create our own solutions. Entrepreneurs are the same. The innovation in entrepreneurship helped the country by changing with the times and producing new products and service from ones that already exists. And, being innovative has helped us become successful in all our endeavors.
Conclusions
Entrepreneurship can contribute in important ways to economic development.
One way it does this is through innovation, which involves the development of new products, new processes, new sources of supply, but also the exploitation of new markets and the development of new ways to organize business. However, not all entrepreneurs innovate. A better understanding of the determinants and impacts of innovation in developing countries and the policies and institutions that support or hinder innovation is the central contribution of the chapters of this investigation.
We have learned that entrepreneurs are not only passive victims of obstacles. They can actively shape institutions. How this happens, and how such institutions stimulate further innovation, needs to be further examined. Finally, the appropriate design of institutions, organizations, and policies to promote both entrepreneurship and innovation remains a formidable challenge, complicated not only by the lack of sufficient government capacity and resources in developing countries, but also by a lack of rigorous, evidencebased research.
The study has found that: entrepreneurship and innovation are positively related to each other and interact to help an organisation to flourish; entrepreneurship and innovation are complementary, and a combination of the two is vital to organisational success and sustainability in today's dynamic and changing environment; entrepreneurship and innovation are not confined to the initial stages of a new venture; rather, they are dynamic and holistic processes in entrepreneurial and innovative organisations; and organisational culture and management style are crucial factors affecting the development of entrepreneurial and innovation behaviour in organisations.
In concluding, we stresses the need for innovation and entrepreneurship in society. To obtain this, entrepreneurial executives must make innovation and entrepreneurship “a normal, ongoing, everyday activity, a practice in their own work and in that of their organization.” This treatise on innovation and entrepreneurship should be required reading for today’s business people.
Bibliography
Luke Thomas “Innovation vs. Entrepreneurship (The Difference)” //http://lukethomas.com/innovation-vs-entrepreneurship-whats-the-difference/
Luke Thomas “Can innovation be learned” //http://lukethomas.com/can-innovation-be-learned/
Innovation Management Community for Practitioners //http://www.incrementalinnovation.com/innovation-management-overview/continuous-improvement-trend
Innovation Management Community for Practitioners (http://www.incrementalinnovation.com/innovation-management-overview/innovate-or-die)
http://innovationfascinations.wordpress.com/2011/06/04/what’s-the-difference-between-entrepreneurs-and-innovators/
Lenbrzozowski Wordpress //http://lenbrzozowski.wordpress.com/2012/04/29/the-link-between-entrepreneurship-and-innovation/
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