Foundations of Innovation Management

Global Innovation Management - TUHH Institute for Technology & Innovation Management · part of my Technology Management MBA · study notes for revision.

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Before we can manage innovation - let alone manage it globally - we need to be precise about what the word even means, because it gets used for everything from a new gadget to a fresh coat of paint. This chapter builds that foundation: what innovation is, the different shapes it takes, why firms need an innovation strategy, and the main strategic stances they can adopt.

Tip

The one equation to remember: innovation = invention + exploitation (Roberts, 1987). An invention is a new idea or device; it only becomes an innovation once it is actually exploited - brought to market and creating value. A brilliant idea sitting in a lab drawer is an invention, not an innovation.

1 · Why innovation matters - and for whom

Innovation is what keeps firms (and whole economies) competitive. National rankings like the World Economic Forum’s innovation-capability index exist precisely because the capacity to generate ideas, run R&D, and commercialise is treated as a core measure of an economy’s health. At the firm level the logic is starker: the leading digital platforms of the last two decades were mostly built by companies that did not exist a generation ago - a reminder that today’s market leader can be displaced by tomorrow’s innovator.

Innovation matters, then, for everyone - established giants defending their position, challengers trying to displace them, and countries competing for prosperity.

2 · What kind of innovation? Types and qualities

Not all innovation is the same. A useful first cut looks at what is new - the need it serves, or the solution it uses. Crossing those two gives four qualities (Hauschildt):

Incremental known need · known solution

• Small step-by-step improvements to an existing product for a familiar need

Solution-triggered known need · new solution

• A familiar need met by a genuinely new technology or approach

Need-triggered new need · known solution

• A new or newly-recognised need served by existing means

Radical new need · new solution

• Both the need and the solution are new - the biggest leap, and the biggest risk

The “degree of newness” grid. Most everyday innovation is incremental; radical innovation (new need and new solution) is rarer, riskier and more transformative.

Note

Radical vs incremental isn’t good vs bad. Incremental innovation is the steady engine of most businesses; radical innovation is the occasional big bet. A healthy firm runs a portfolio of both - which is exactly what the strategy stances in §5 are about.

3 · The many forms of innovation

“Innovation” is not just about physical products. It shows up in several forms, and the most interesting ones often combine them:

Form	What’s new	Example
Product	A physical good	Airbus A380
Service	An intangible offering	A mobile payment/micropayment service like PayPal
Product-service system (PSS)	Product and service bundled, often “shared”	Car-sharing (Car2Go) - you buy mobility, not a car
Process	How something is made	Rapid prototyping, 3D printing; Ford’s moving assembly line
Business model	How the firm creates and captures value	No-frills airlines (Ryanair, easyJet)
Business field	Entering/creating a new arena	Long-distance coaches (IC Bus) competing with trains

The lesson: managers who only look for the “next product” miss most of the opportunity. Some of the most powerful innovations - no-frills airlines, car-sharing - changed the business model or process, not the product.

4 · What influences innovation, and what drives it

Whether a firm innovates well depends on many factors - some inside the firm, some outside:

Inside the firm

• Size, age and financial resources
• In-house expertise
• Experience with - and success of - previous innovations
• Appetite for cooperation and alliances

Outside the firm

• Economic, social and political environment
• Maturity of the industry; barriers to entry
• Speed of technological development
• Social acceptance of the technology

Pushing all of this along are the broad drivers of innovation: technological progress, intensifying competition, a dynamic business environment, and - above all - changing customers and needs. Together they turn innovation from a nice-to-have into a survival requirement.

Caution

Why sustained innovation is hard. It’s complex because it needs many functions to coordinate; because uncertainty rises with the degree of newness; because you only know it worked once real sales and satisfaction data arrive; and because it must stay aligned with the firm’s strategy the whole way. Managing that complexity is the whole point of “innovation management”.

5 · Why a firm needs an innovation strategy

Innovation sometimes happens by happy accident - the microwave, Post-it notes and Viagra were all famously stumbled upon. But a firm cannot rely on luck. An innovation strategy guides how resources are used to meet company objectives, deliver value and build competitive advantage. It should be a core part of corporate strategy, cope with an uncertain external environment, and help balance two things that pull against each other: developing deep specialised knowledge, and integrating that knowledge across technologies, functions and divisions.

5.1 The Innovation Pentathlon framework

Goffin & Mitchell’s Innovation Pentathlon is a handy map of the whole innovation effort. Three activities run in sequence, all sitting on two foundations:

Ideasgenerate

→

Selectionprioritise & kill

→

Implementatione.g. new-product development

The three sequential activities of the Pentathlon - sitting on two foundations: Innovation Strategy (goals, roadmaps, risk-reward balance) and People, Culture & Organisation (leadership, structure, rewards).

The point of the framework is that strategy sits underneath everything: it sets the targets, launches the calls for ideas, funds the research programmes, and decides the risk-reward balance that governs selection. Get the strategy wrong and the ideas, selection and implementation all drift.

5.2 Four strategic stances - from passive to proactive

How aggressively should a firm innovate? Dodgson et al. describe four escalating stances, each demanding more resources and capability than the last:

Stance	Posture	Type of innovation	Risk appetite
Passive	Change only when a customer or dominant partner demands it	Occasionally incremental	No bets
Reactive	”Wait and see”, then follow a long way behind	Entirely incremental	All low-risk
Active	Not first, but ready to follow fast	Mainly incremental, some radical	Medium - hedge bets
Proactive	Aim for technology and market leadership	Radical and incremental	High - take big bets

A proactive firm draws on science and in-house R&D and collaborates with lead customers; a passive firm essentially does what it’s told. Most firms sit somewhere in between - and the right stance depends on the industry (a proactive pharma company vs a reactive tier-3 component supplier can both be making sensible choices).

5.3 Blue Ocean Strategy - stop competing, start creating

A different angle on innovation strategy comes from Kim & Mauborgne’s Blue Ocean Strategy. Instead of fighting rivals in a crowded, bloody “red ocean” of existing demand, the idea is to create uncontested market space - a “blue ocean” - where competition is irrelevant:

Red ocean compete

• Fight in existing markets
• Beat the competition
• Exploit existing demand
• Accept the value-cost trade-off

Blue ocean create

• Create new market space
• Make competition irrelevant
• Create and capture new demand
• Break the trade-off: pursue differentiation and low cost

The boldest move in Blue Ocean thinking is breaking the value-cost trade-off - refusing to accept that “better” must cost more. Hold on to that idea: it comes straight back in Chapter 7 on frugal innovation, where “affordable and excellent” is the whole game.

Revision summary

Tip

The one-minute recap

• Innovation = invention + exploitation. An idea is only an innovation once it’s brought to market and creates value.
• Classify innovation by newness (incremental → radical, via need- and solution-triggered) and by form (product, service, product-service system, process, business model, business field) - don’t fixate on products.
• Innovation is driven by technology, competition, a dynamic environment and, above all, changing customer needs - and it’s genuinely hard to sustain because of coordination, uncertainty and delayed feedback.
• An innovation strategy guides resources toward advantage and underpins everything in the Innovation Pentathlon (Ideas → Selection → Implementation, on foundations of Strategy and People/Culture/Org).
• Firms adopt one of four stances - passive, reactive, active, proactive - each needing more capability; and Blue Ocean Strategy urges creating new market space and breaking the value-cost trade-off.

Next: Sources of Innovation & the Innovation Process → - where good ideas come from, and how they travel from idea to launch.