Financial analysis
Jain 99
Lecture3-Innovationandsmallfirm.pptxUMSD7Q-15-2 Entrepreneurship and Small Business Lecture – Innovation and small firm
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Structure
What is innovation?
Typologies of innovation
The SME context
Process models of innovation
Conclusion
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What is innovation?
From the latin innovare – to make something new
About (Technical) change and novelty
“The successful exploitation of new ideas” (DTI innovation unit, 2006)
Making new things happen
Not the same as invention
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What is innovation?
Depend Mintzberg (1983) defined innovation as the means to break away from established pattern – doing things really differently
Simply introducing a new product or service that customers are willing to buy is not necessarily innovation
Mintzberg also suggests that ‘divergent thinking’ is what is really characteristic of innovation
Burns (2001) talks about the requirement for the changes in the product or process to be ‘mould breaking’
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Innovation
The creation of new ideas/processes which will lead to change in an enterprise’s economic or social potential
P. Drucker, 1989
Turning opportunity into ideas and putting these into widely used practice (Tidd, Bessant and Pavitt, 2005)
Choosing a definition of innovation depends on the perspective taken – the market –based perspective of innovation underpins entrepreneurship –
About exploitation of ideas in profit and non-profit organisations
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Innovation
Schumpeter (1996) described five types of innovation – “creative destruction”:
The introduction of a new or improved goods or service
The introduction of a new process
The opening of a new market
The identification of new sources of supply of raw material
The creation of new type of organisations
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Drucker, (1985)
Innovation is the specific tool of entrepreneurs”
The unexpected
Incongruity (i.e. the present product / process is not the most appropriate)
Inadequacy in underlying processes
Changes in industry or market structure
Demographic changes
Changes in perception , mood and meaning
New knowledge
Conclusion here is all forms of innovation involves “Newness”
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Definition
Creativity
The generation of new ideas
needed throughout the process of innovation
Usually as a result of individual or team endeavour
Invention
the creation of something in the mind producing a new device or process as a result of study & experimentation – the act of inventing- extreme and riskiest form of innovation
Innovation
the successful exploitation of an invention or new ideas - For all firm of any size, innovation has become something to be sought after and encouraged
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STRUGGLER
STAGNATOR
COPIER
INNOVATOR
B
A
D
C
High
High
Low
Low
Creativity Invention
Opportunity perception Entrepreneurship
Creativity
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Importance of innovation & entrepreneurship
Innovation is of critical importance to a free market economy
Without “new things” appearing in the market place, no stimulus to demand and supply - essential ingredient to a free market economy
Innovation is now widely understood to be the driving force in economic growth
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Typologies of innovation
Innovation can take three forms
Product innovation
Improvement / changes in the design and functional qualities of the product or service – M&S sell small portions of pre-prepared Brussels sprouts in a microwaveable bags
Process innovation
Improvement/changes in how the product is produced or service is delivered- online banking, betting, hotel/B&B online booking systems
Marketing innovation
Improvements in the marketing of product or service (e.g use of social media)
Push or Pull innovation
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Dimensions of innovation space
Incremental innovation
Cover all small – scale improvements that occur on a daily basis.
Can be introduced using existing structures & procedures with modification
Cumulative incremental innovation can achieve greater change over time
Radical innovation requires
Significant organisation & procedural adaptations to be successful
Flexibility and willingness to adapt to emerging innovation
Transformational change
Revolutionises structure & organisation of an industry or market – “changing the industry recipe” – domain redefinition
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Dimensions of innovation – (Paul Burns)
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Product Vs. Process Innovation
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SME Context
Innovation in a small firm
How to classify newness and degree of innovation and what to focus on:
New to the firm?
First in the market?
First in the world?
Incremental or radical innovation?
The Small and Medium-Sized Enterprises (SMEs) Division of World Intellectual Property Organisation
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Classification of innovations in small firms ( Cooper, 1993)
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| New product lines | New to the world products | |
| Improvements to existing products | Additions to existing product lines | |
| Repositioning |
High
High
Low
Low
Newness to company
Newness to market
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Innovation and firm size
Few small firms introduce really new products into their product range
Larger firms do because of resources they have – generally out perform smaller firms when resources are important
Small firms do introduce products that are differentiated from competition
Is this innovation?
On the face of it empirical evidence suggests that larger firms are more likely to be innovative than smaller ones (EU, 2007)
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Innovation and size of firm – Large Firms
Large firms were formally considered the sole engine of innovative activity
Increasingly recognised that small firms play an important role in innovation
Large firms have an advantage in capital intensive, concentrated industries where substantial resources & converging technologies are present
Smaller firms have an advantage in emerging industries (Acs & Audretch, 1990).
SMEs can be more flexible and adapt to change more easily
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Innovation and size of firm - Large firms
Considerable resources
Can engage in significant innovation
Large R&D budgets but only approx. 30% of innovations come from R&D
Structure – large hierarchies with accompanying bureaucracy inertia- difficult to make decisions
Economy of scale , scope and experience Dominant in innovation in mature industries
Market power
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Innovation and size of firm- small firms
Behavioural advantage in flexibility and adaptability in early stages of market & industry development
Simple structure – less bureaucracy and inertia preventing change
Experimentation in the early stages of market / industry development before standardisation – acceptance of dominant design
Incremental innovation rather than radical
Staying too close to the customer
The attacker’s advantage (Christensen & Rosenbloom, 1995)
Entrepreneurial dynamism (Henderson, 1988)
Proximity to the market
Motivation
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Linear models of innovation, (adapted from Rothwell, 1995)
1st Generation: (Technology) Push
Research & Development => Manufacturing => Marketing => User
High-tech, science and engineering firms – example small bioscience companies carryout chemistry research in expectation of eventually producing a chemical compound that might have commercial application
At the early stages of development actual customer benefits cannot be precisely predicted.
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Linear models of innovation, (adapted from Rothwell, 1995)
2nd Generation: (Market/demand) Pull
Marketing => Research & Development => Manufacturing => User
Innovation is solely focused solely on meeting carefully defined customer needs- for example a company supplying supermarket with own label products relies on the supermarket to forecast consumer demand – it will carry out only the development work that is necessary to satisfy the need of the supermarket in terms of product specification and price.
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Coupling models of innovation, (adapted from Rothwell, 1995)
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Closed Innovation (After Chesbrough, 2003)
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Open Innovation (After Chesbrough, 2003)
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Closed Vs. Open Innovation (After Chesbrough, 2003)
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Conclusion
Innovation is an essential and integral part of a dynamic economy
The literature recognises that small firms can play a vital part in the process, particularly where radical innovation is concerned
Open innovation provides particular opportunities and challenges for the SME
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Recommended Reading
Chapter 6 – Deakins & Freel – entrepreneurship and small firms 5th Ed.
Chapter 3 – Burns- Entrepreneurship and small business 3rd Ed
Chesbrough, H.W., 2003. “The Era of Open Innovation”, Sloan Management Review, vol. 44, no. 3 (Spring) p35-41.
Drucker, P.F., 1985. The discipline of innovation. Harvard Business Review, May/Jun85, Vol. 63 Issue 3, p67-72.
Chapter 3 Robin Lowe & Sue Marriott – Enterprise: Entrepreneurship and Innovation, Concepts, Contexts and Commercialisation.
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Evolutionary analysis (
Abernathy and
Utterback, 1978)
Rate of Major Innovation
Process Innovation
Product
Innovation
Time
Evolutionary analysis (Abernathy and Utterback, 1978)
Rate of Major Innovation
Process Innovation
Product
Innovation
Time
R & D
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Generation: Coupling model
Needs of society and the marketplace
<=> Prototype Production <=> Manufacturing <=> Marketing <=> User
State of the art in technology and production
3rd Generation: Coupling model
Needs of society and the marketplace
<=> Prototype Production <=> Manufacturing <=> Marketing <=> User
State of the art in technology and production
R & D
Closed Innovation Principles
Open Innovation Principles
·
We have the smartest people
·
There are smart people ouside too
·
We discover, develop and ship
ourselves
·
External R&D can create value.
Internal
R&D
needed to claim a
portion of that value
·
Discovery means first to market
·
We can profit without originating
the research
·
First to market means winning
·
It’s more important to build a
better business model
·
If we create the most and best
ideas we will win
·
Making best use of internal AND
external ideas is key to winning
·
Control IP to avoid profit for
competitors
·
Profit from others’ use of our IP
and buy others’ IP when it
advances our business model
Closed Innovation Principles
Open Innovation Principles
· We have the smartest people
· There are smart people ouside too
· We discover, develop and ship ourselves
· External R&D can create value. Internal R&D needed to claim a portion of that value
· Discovery means first to market
· We can profit without originating the research
· First to market means winning
· It’s more important to build a better business model
· If we create the most and best ideas we will win
· Making best use of internal AND external ideas is key to winning
· Control IP to avoid profit for competitors
· Profit from others’ use of our IP and buy others’ IP when it advances our business model
