Terms relating to Innovation
Through reading MT5007 Management of Technological Innovation conducted by Professor Annapoornima, I was introduced to some terms relating to Innovation which I found useful as a technology person.
I document those terms alongside some of my thoughts in this post.
What is an invention?
When we think about innovations, the first thing that we need to be aware are inventions. An invention is the starting point of innovation. An invention is:
- an act of creating or developing something new through the creation of new knowledge or from new combinations of existing knowledge.
- an act of bringing something new into being; Actualising mental imaginations to physical forms.
Once in its physical form, an invention is technically evaluated to gauge its success.
What is an innovation?
Once we have an invention, the next step can be to convert it into an innovation. With that in mind, an innovation is:
- the process of creating commercial values from an invention.
- the bringing of invention into use.
The success of an innovation is evaluated based on commercial criteria.
Catalysts of innovation
There are two main driving factors for innovation:
- Technology Push
- Market / Need Pull
A Technology Push is the case when the emergence of new technology from research and development labs drives the development of the new invention, and subsequently the new innovation.
Market / Need Pull
A Market / Need Pull is when there are problems in the market that the potential innovator felt worthy of solving. The demand for solutions to the problems is the driving force for new innovation. The demand for the problems can be perceived by the innovator or derived from market research.
Double linking is the case where the innovation is driven by both Technology Push and Market / Need Pull.
Areas of innovation: Product Innovation vs Process Innovation
There are two main areas where an innovation happens:
- An innovation can happen in the introduction of a new product/service. This area of innovation is defined as Product Innovation.
- An innovation can happen in the process of creating and/or delivering the product/service. This area of innovation is defined as Process Innovation.
Based on the competitive needs of our company, we will focus innovation efforts on each of these two different areas innovation accordingly. Product and process innovation often occur in tandem, with product innovation being more visible than process innovation.
Before the emergence of a dominant design, more efforts are usually invested into product innovation. Companies will usually work on the introduction of new features and standards to differentiate themselves from their competition.
After the emergence of a dominant design, more efforts are usually invested into process innovation. Companies will usually work on the manufacturing and/or delivery processes so that they can sell faster and cheaper to their customers in order to gain the upper hand amongst their competitors.
Creative destruction is the occurrence when an innovative entry became the force that sustained long-term economic growth by destroying the value of established companies that had enjoyed some degree of monopoly power. It is the product and process innovation mechanisms that replaced previous established products with new ones.
Clayton Christensen coined the term Disruptive Innovation to describe the product or service which initially serves the low end of a market, constantly move up towards the higher ends of a market, and ultimately displacing the established competitors in the highest end of the market.
A disruptive innovation caught an incumbent off guard through a series of events.
- The incumbent constantly pursue the needs of customers who can and had historically pay highest prices for products and services that the incumbent can provide.
- As a result, the incumbent tends to create products and services that are too sophisticated and expensive for many other customers in the market.
- With many other customers unserved in the market, new entrants with disruptive innovations can then enter the market to provide cost efficient and easy to use products / services to feed the demand in the market.
- This situation feeds the new entrants and equips them with more fire power to ultimately replace the incumbent at even the high end of the market.
Forms of Innovations
According to Henderson and Clark, there are four forms that an innovation can take:
- Incremental, in which the core concepts of the product/service are reinforced but the linkage between the core concepts and the components of the product/service are not changed.
- Modular, in which the core concepts of the product/service are overturned but the linkage between the core concepts and the components of the product/service are not changed.
- Architectural, in which the core concepts of the product/service are reinforced and the linkage between the core concepts and the components of the product/service are changed.
- Radical, in which the core concepts of the product/service are overturned and the linkage between the core concepts and the components of the product/service are changed.
Innovations can take several of the above forms. Disruptive innovations usually come in Modular, Architectural and Radical forms. Incremental innovations usually occur before the dominant design is established.
Henderson and Clark reasonings on why incumbents fail in technological shifts
Based on the different form of innovations, Henderson and Clark came up with some reasonings on why incumbents fail in technological shifts:
- People in the incumbent firm are too accustomed to the architectural form of the product / service that the firm provides.
- An architectural innovation with better performance came into the competition.
- The people in the incumbent firm did not realise that the competitor innovation came in an architectural form because their existing architectural knowledge are too embedded in communication channels and information filters.
- When the people in the incumbent firm realised that they need to change the way they compete in the new architectural form, they often do not have enough time to respond with an innovation with the new architectural knowledge.
- When the incumbent firm finally get their innovation in the new architectural form, they are too late to compete effectively.
Aspects of Innovations within an organization: Competence Enhancing vs Competence Destroying
Within an organization, innovation revolves around two aspects:
- A competence enhancing innovation builds on the organization's existing knowledge base.
- A competence destroying innovation does not build on the organization's existing knowledge base.
As competence enhancing innovation builds on what the organization already knows, it is easier for the organization to come up with the innovation. However, if the organization purely focuses on competence enhancing innovations, it may run into the risk of being displaced by disruptive innovations.
Since competence destroying innovation does not build on the organization's existing knowledge base, it can be more expensive for the organization to acquire the different skill sets needed for the innovation. However, a competence destroying innovation can help the organization to stay relevant in the market.
GE practices Reverse Innovation to disrupt itself. Reverse innovation is the act of first making innovations work in developing markets before bringing them to more matured markets. It is an innovation that appears to be counter intuitive for companies who are used to making innovations work in matured markets before introducing them to developing markets.
To realise reverse innovation, companies need to:
- overcome dominant logic and institutionalized thinking
- throw out old organization structures and create new ways to the development of products/services and the manufacturing processes for the products/services.
- shift power to places where there is growth.
- build new offerings from scratch, via new companies with customized performance metrics. These new companies will then report to somebody who is high ranking in the parent company.
Five traps in engineering for reverse innovation
Five common traps in engineering for reverse innovation are as follows:
- Trying to match market segments to existing products. As a counter measure, we could define the problems independent from the existing solutions.
- Trying to reduce price by eliminating features. As a counter measure, we could create an optimal solution using the design freedoms available in the developing market.
- Forgetting to think through all the technical requirements of emerging markets. As a counter measure, we could analyze the technical landscape behind the consumer problem in the developing market.
- Neglecting stakeholders. As a counter measure, we could tests the products/services with as many stakeholders as we can from the developing market.
- Refusing to believe that product developed for emerging markets could have global appeal. As a counter measure, we could use the emerging market constraints to create global winners.