Innovation

Innovation as a competitive strategy

Economies during the 50s and 60s: Potential demand of goods almost unlimited

Technical maturity of ideas coming from WWII

Establishment of current World economic system (Keynes, GATT-WTO, WEF, World Bank) Technological push due to large programs (Concorde, nuclear stations, NASA) Growth of firm competitivity

Innovation as a competitive strategy

Economies during the 70s: First major crisis in the International Monetary System (1971: major dollar devaluation) Rise in prices of oil and raw materials Slow in the growth of demand due to market saturation and smaller purchase power Two-digit inflation New industrial poles arise

Innovation as a competitive strategy

A new socio-technical paradigm arises: Higher uncertainty in the business world Faster pace in the technological change. New synergic-mutant technologies Competitiveness starts to be based on intangibles rather than on price Globalization of the business activities New consciousness of key concepts:
Social responsibility Sustainability

Stagflation, structural unemployment Substitution of sectorial structures by networks

Five-forces Model
Socio-political environment 4) Threat of new entrants Economic environment

2) Suppliers

1) Degree of industry rivalry

5) Substitutes Michael Porter

3) Customers

Technological environment

Cultural environment

DEGREE OF RIVALRY -Exit barriers -Industry concentration -Fixed costs/Value added -Industry growth -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals -Corporate stakes

Porters five forces

Socio-political environment: Labor market Political model Unions Civil society Political stability State intervention

Economic environment Market size/growth Innovations in commercialization Distribution channels Sources of financing

Technological environment Production methods Materials and components Technological knowledge New technologies

Cultural environment Values Beliefs Attitude towards problem solving Attitude towards citizenship

External forces

Innovation as a competitive strategy

The capacity of progress and development within a firm depends directly on its capacity to adapt itself quickly to the changes occurred in the environment and to take advantage of them producing modifications that act in its favor

What is Innovation

Innovation VS Invention
Innovation means introducing into the market new products, processes or services. To define whether an innovation is successful of not, the main criterion is economic, rather than technical. A successful innovation recovers the initial investment and generates further economic benefits. Invention means create a new idea that could be incorporated into a product, process or service or converting this idea into a prototype. The main criterion to define a successful invention is technical, rather than economic.

Pags, 2000

Innovation VS Invention
Examples: Walkman (product) Drycleaning (service) Assemby lines (production) Phone sales (distribution systems) What is the implication? Introducing products, processes or services into the market. Examples:

New ideas, based on:

Creativity Imagination What is the implication? A new idea for a product or a service.

Pags, 2000

Technological Innovation
It comprises all the activities performed from the creation of a technological knowledge up to its implementation in a business. Technological innovation is an attitude, a capability to continually improve products by adapting current processes and organization to new technological developments that may be related to the company

Technological Innovation
Due to the degree of novelty and its application, technological innovation can be divided into: 1. Radical innovation 2. Systems innovation 3. Incremental innovation

1. Radical (disruptive) innovation

This kind of innovations create or changes radically an industry. Typically, these innovations are based on new scietific principles. E.g. Steam machine, transistors, photocopying machine.

2. Systems innovation
This kind of innovation creates a new functionality assemblying parts in a new way. E.g. ATMs.

3. Incremental innovation
This kind of innovation consists of small changes into existing products, processes or services. These changes extend the applications of the other two types of innovations. E.g. Integrated circuits

Abernathy Utterback Model on innovation

Radical Innovation Transition
Incremental improvements Product Innovations

Rate of major Innovation

Process Innovations

Time
Abernathy & Utterback, 1975

Approaches to establish the innovation strategy

Market Pull
Business environment Marketing Strategy Technological Strategy

Manufacturing

Competitors

Technology Push
R&D Manufacturing Marketing Strategy

Innovation Process within a firm

Kline & Rosenberg, 1986 An overview of innovation

Innovation Process within a firm

Kline & Rosenberg, 1986 An overview of innovation

Innovation Process within a firm

New needs Needs coming from the society and the market

Idea Generation

R&D: Design

Prototyping

Production

Mkt & Sales

Market

New technologies

State of the art in technology and production Kline & Rosenberg

Dam Culture VS Stream Culture

Focus on individuality Encourages hiding knowledge Avoids risks Reinforces traditional behavior Does not provide thinking time Low investment on training Not enough time for meetings Short term orientation Interaction within organizational areas Limits on autonomy Cost cutting emphasis Encourages teamwork Recognition to efforts Loves risks Challenges traditional behavior Provides thinking time High investment on training Encourages meeting time Long term orientation Interaction among organizational areas Provides autonomy Emphasis on value

Chavarr, 2000

Innovation as a competitive strategy

Action plan for innovation:

Promote a true culture for innovation

Establish a financial, normative framework that encourages innovation

Articulate properly R&D with innovation

Types of innovation
Types of innovation

Business innovation

Social innovation

Institutional innovation

Technological

Managerial

Product

Process

Practices

Organization

Technological innovation in products

Objectives:

Implementation:

Cost reduction New designs, expansion Quality improvements of product lines Diferentiation Incorporation of new Market expansion materials/components Industrial protection (trademarks, patents) Quality and environment certifications

Technological innovation in processes

Objectives:
Cost reduction Rise in productivity Increase in flexibility Increase added value Implementation: Renewal of machinery and equipment Reorganization of production lines Automation of information systems Quality control Supply chain management

Managerial innovation in practices and organization

Objectives:
Increase in flexibility and efficiency Orientation towards processes Vs. Functions Orientation towards the customer Vs. Production Innovation encouragement

Implementation:
Expansion of value chain Improvements in distribution and post-sale services Leaning organizational structures Training of HHRR Access to Information Systems

Social innovation
Objectives:
Solution of social problems Creation of new business model to tackle unsolved basic needs

Implementation:
Social entrepreneurs Integration with different partners Balance among the triple bottom-line: social, economic, environmental issues

Institutional innovation
Objectives:
Promotion of innovative ideas Elimination of barriers for innovation (social, legal)

Implementation:
Government policy towards innovation and financing Integration of public and private actors