Theme 2. Introduction to the theory of innovations

1. The essence of innovations

2. Characteristics of innovation

3. Classification of innovations

1. Innovation is linked to performance and growth through improvements in efficiency, productivity, quality, competitive positioning and market share. It typically adds value by changing old organizational forms and practices. Organizations that do not innovate effectively may be destroyed by those who do.

A 2007 Booz Allen study illustrated that the one key characteristic of successful innovators is that they had a rigorous process for managing innovation including "a disciplined, stage-by-stage approval process combined with regular measurements of every critical factor, from time and money spent.to the success of new products and services in the market."

2. Innovation by businesses is achieved in many ways; through formal research and development for "breakthrough innovations" as well as through less formal on-the-job modifications of practice-such as through exchange, personal experience and by many other routes. Regardless, innovations do not just happen-they are a team effort. Most successful innovation occurs at the boundaries of organizations and industries where the problems and needs of users and the potential of technologies are linked together in a creative and collaborative process that challenges both.

3. There are 4 types:

· Process innovation: If Coffee Café Day uses a new and perhaps faster machine to make cappuccino, it is changing an internal process. Process innovation involves changing internal business processes and making them more efficient. Toyota is considered the role model of process innovation through its “continuous improvement” or “kaizan” methodology.

· Product/Offering innovation: When 3M offers Post-It notes or when SBI offers a new type of card called SBI gift card, it would be a product/offering innovation. It is about providing a new product or service to customers.

· Customer experience innovation: When a retail shop re-arranges the layout in its stores or when Intel runs an “Intel Atom inside” advertising campaign, they are trying to change customer experience. Visual merchandizing is a discipline that focuses on customer experience innovation in retail industry. Innovating a brand would fall under type of innovation.

· Business model innovation: When a company re-configures a value-chain by (a) creating a new customer and/or (b) by creating or eliminating a channel and/or (c) by re-defining a pricing model, it is doing a business model innovation. Tata Nano created a new customer (offering 4-wheeler to 2-wheeler owner). UFO Moviez eliminated the movie distributor in the value-chain. Google’s AdSense created a new way of monetizing Internet search.

In many organizations, these types of innovations happen in different departments. For example, delivery or product departments operationalize process innovation. New Product Development (NPD) or Business Development (BD) or Portfolio Management departments work on product/offering innovations. Brand managers work with customer experience innovations. Business model innovations are usually with strategy departments. Many of these departments speak their own language and usually don’t talk to the other innovators. It would be interesting to get a few representatives in a single room and see what concoction happens.