03-Innovation Management

14 min readAug 12, 2020

This article summarises key concepts and useful models related to innovation management as part of my MS program at the University of York.

Concepts

What is innovation?

As Edison realized, innovation is more than simply coming up with good ideas; it is the process of growing them into practical use. Definitions of innovation may vary in their wording, but they all stress the need to complete the development and exploitation aspects of new knowledge, not just its invention.

Where does Innovation make a difference?

Identifying and creating new opportunities
New ways of serving existing markets
Growing new markets
Rethinking services
Meeting societal needs
Improving operations-doing better

Strategic advantage through innovation

Research evidence suggests a strong correlation between market performance and new products.
“Competing in time” reflects a growing pressure on firms not just to introduce new products but to do so faster than the competitors.
While new products are often seen as the cutting edge of innovation in the marketplace, process innovation plays just as important a strategic role.
Similarly, being able to offer better service — faster, cheaper, higher quality — has long been seen as a source of competitive edge.
Unless an organization is able to move into further innovation, it risks being left behind as others take the lead in changing their offerings, their operational processes, or the underlying models, which drive their business.

Four dimensions of the innovation space

Essentially, we are talking about change, and this can take several forms; for the purposes of this book, we will focus on four broad categories:

Product innovation — changes in the things (products/services) that an organization offers;
Process innovation — changes in the ways in which they are created and delivered;
Position innovation — changes in the context in which the products/services are introduced;
Paradigm innovation — changes in the underlying mental models that frame what the organization does.

Key aspects of innovation

Degree of novelty — incremental or radical innovation?
Platforms and families of innovations
Discontinuous innovation — what happens when the rules of the game change?
Level of innovation — component or architecture?
Timing — the innovation life cycle

Component and architectural innovation

Innovation is about knowledge — creating new possibilities through combining different knowledge sets. These can be in the form of knowledge about what is technically possible or what particular configuration of this would meet an articulated or latent need.

Managing innovation is about turning these uncertainties into knowledge — but we can do so only by committing resources to reduce the uncertainty — effectively a balancing act. Successful innovation management requires that we can get hold of and use knowledge about components but also about how those can be put together — what they termed the architecture of an innovation.

Note: Existing incumbents often fare badly when major system-level change takes place — because they have the twin difficulties of learning and configuring a new knowledge system and “unlearning” an old and established one.

Innovation management

Twelve ways to innovate

Offerings — new products or services
Platform — derivative offerings based on reconfiguration of components
Solutions — integrated offerings that customers value
Customers — unmet needs or new market segments
Customer experience — redesign of customer contact and interactions
Value capture — redefine the business model and how income is generated
Processes — to improve efficiency or effectiveness
Organization — change scope or structures
Supply chain — changes in sourcing and order fulfilment
Presence — new distribution or sales channels
Brand — leverage or reposition
Networking — create integrated offerings using networks

Source: Based on Sawhney, M., R.C. Wolcott, and I. Arroniz (2006). “The 12 different ways for companies to innovate,” MIT Sloan Management Review, Spring, 75–81.

Discontinuous Innovation & Innovation Cycles

Usually the conditions within organisations operate are relatively stable: a steady state. Markets mature and are dominated by one or more established incumbent players. The firms maintain a competitive advantage by tweaking products and services, a steady improvement, a continuous renewal. They get good at managing this type of innovation.

Every now and then, however, a dramatic change occurs, a new technology, or political or regulatory change, for example, rewrites the rules of the game. It is a revolution. Companies that see the revolution coming, and are able to adapt to it, are best placed to survive. Following a discontinuous event, that disrupts the existing stability, there is a phase in which lots of companies rush to explore new options, learning fast and at the same time looking for ways to develop the technology into a form which can become widely adopted. This ‘fluid’ phase is characterised by the co-existence of old and new technologies and by rapid improvements of both.

Eventually there is a ‘dominant design’ established — not always the best in purely technological terms, but one which becomes the innovation standard. The establishment of the dominant design then gives way to a phase of consolidation innovation; first around stabilising the product concept, and later around the processes which create and deliver it. Eventually it moves from the mature phase into a new period of fluidity and the cycle repeats itself but with a new technology.

Companies should be aware that:

There is a need to be able to develop good practice innovation routines, to deal with both continuous steady state situations and periods of discontinuous change.
In times of turbulence, organisations must be good at the ‘doing things different’ type of innovation, as opposed to ‘doing the same things better’ type.
The ability to manage innovation well during steady state periods — in mature markets for example — and the types of routines employed, may hinder a company’s ability to develop routines to deal with innovation during discontinuous change.
Instead of missing the next market changing opportunity, companies need to develop innovation routines that enable them to detect, deal and exploit discontinuous change.

Companies should consider taking the following action:

Extending peripheral vision. Find a way to look at the fringes of markets, existing technologies and existing corporate activity.
Enhancing signal processing capacity. Make sure that the company doesn’t automatically filter out information about discontinuous events and disruptive technologies.
Developing alternative strategic frames. Build scenario planning into the firms strategy process in order to consider alternative futures.
Extending resource allocation approaches. Adopt decentralised resource allocation strategies that encourages risky innovation.

Service innovation

Service innovations are often much easier to imitate, and the competitive advantages that they offer can quickly lose ground because there are fewer barriers — for example, of intellectual property (IP) protection.

Services may appear different because they are often less tangible — but the same underlying innovation model applies. The process whereby an insurance or financial services company launches a new product will follow a path of searching for trigger signals, strategic concept, product and market development, and launch.

Organisational size

Managing Innovation

Innovation is a management question, in the sense that there are choices to be made about resources and their disposition and co-ordination. Close analysis of many technological innovations over the years reveals that although there are technical difficulties — bugs to fix, teething troubles to be resolved, and the occasional major technical barrier to surmount — the majority of failures are due to some weakness in the way the process is managed. Success in innovation appears to depend upon two key ingredients — technical resources (people, equipment, knowledge, money, etc.) and the capabilities in the organization to manage them.

Routines

Organizations develop particular ways of behaving, which become “the way we do things around here” as a result of repetition and reinforcement. These patterns reflect an underlying set of shared beliefs about the world and how to deal with it and form part of the organization’s culture — “the way we do things in this organization.” They emerge as a result of repeated experiments and experience around what appears to work well — in other words, they are learned. Over time, the pattern becomes more of an automatic response to particular situations, and the behavior becomes what can be termed a routine.

The important point is to remember that routines are firm-specific and must be learned. Simply copying what someone else does is unlikely to help

Core abilities in managing innovation

Recognising
Aligning
Acquiring
Generating
Choosing
Executing
Implementing
Learning
Developing the organisation

The organization of innovation is much more than a set of processes, tools, and techniques, and the successful practice of innovation demands the interaction and integration of three different levels of management: individual, collective, and climate.

Will to innovate

Innovation is essentially about learning and change and is often disruptive, risky, and costly. The “not-invented-here” problem, in which an organization fails to see the potential in a new idea, or decides that it does not fit with its current pattern of business. In other cases, the need for a change is perceived, but the strength or saliency of the threat is underestimated

The concept of “core rigidities” is important. We become used to seeing core competencies as a source of strength within the organization, but the downside is that the mindset, which is being highly competent in doing certain things, can also block the organization from changing its mind. Thus, ideas that challenge the status quo face an uphill struggle to gain acceptance; innovation requires considerable energy and enthusiasm to overcome barriers of this kind.

Team Roles According to Belbin

Belbin is a popular framework for developing teams. It proposes nine key team roles and argues that most individuals are only comfortable in two or three different roles:

Coordinator — identifies talent and delegates effectively, but can be perceived as free loading and manipulative.
Team worker — cooperative, but can be indecisive.
Resource investigator — develops contacts, but can be too optimistic.
Plant — creative problem solver, but can lack detail.
Specialist — deep knowledge and experience, but can be too narrow.
Shaper — highly driven, but can be insensitive and become aggressive.
Implementer — practical and pragmatic, but can be inflexible.
Monitor evaluator — strategic focus, but can be overly critical.
Completer finisher — polishes and perfects outcomes, but prone to pessimism.

Source: Belbin, R.M., Team roles at work. 2nd ed., 2010, Routledge, www.belbin.com

Creative climate

Many great inventions came about as the result of lucky accidental discoveries — for example, Velcro fasteners, the adhesive behind “Post-it” notes or the principle of float glass manufacturing. But as Louis Pasteur observed, “chance favours the prepared mind” and we can usefully deploy our understanding of the creative process to help set up the conditions within which such “accidents” can take place.

Two important features of creativity are relevant in doing this:

Recognize that creativity is an attribute that everyone possesses — but their preferred style of expressing it varies widely
While the initial flash may require a significant creative leap, much of the rest of the process will involve hundreds of small problem-finding and problem-solving exercises — each of which needs creative input

Culture is a complex concept, but it basically equates to the pattern of shared values, beliefs, and agreed norms that shape the behavior — in other words, it is “the way we do things round here” in any organization.

Building a creative climate involves systematic development of organizational structures, communication policies and procedures, reward and recognition systems, training policy, accounting and measurement systems, and deployment of strategy

Climate versus Culture

Climate is defined as the recurring patterns of behavior, attitudes, and feelings that characterize life in the organization. These are the objectively shared perceptions that characterize life within a defined work unit or in the larger organization. Climate is distinct from culture in that it is more observable at a surface level within the organization and more amenable to change and improvement efforts. Culture refers to the deeper and more enduring values, norms, and beliefs within the organization.

Conflict and Debate
A conflict in an organization refers to the presence of personal, interpersonal, or emotional tensions. Although conflict is a negative dimension, all organizations have some level of personal tension.

Debate focuses on issues and ideas (as opposed to conflict that focuses on people and their relationships). Debate involves the productive use and respect for diversity of perspectives and points of view. Debate involves encounters, exchanges, or clashes among viewpoints, ideas, and differing experiences and knowledge. Many voices are heard, and people are keen on putting forward their ideas.

Rationalist vs. Incrementalist Strategy

“Rationalist” strategy has been heavily influenced by military experience, where strategy (in principle) consists of the following steps: (i) describe, understand, and analyze the environment; (ii) determine a course of action in the light of the analysis; and (iii) carry out the decided course of action. This is a “linear model” of rational action: appraise, determine, and act. The corporate equivalent is SWOT: the analysis of corporate strengths and weaknesses in the light of external opportunities and threats.

Given the conditions of uncertainty, “incrementalists” argue that the complete understanding of complexity and change is impossible: our ability both to comprehend the present and to predict the future is therefore inevitably limited. As a consequence, successful practitioners do not, in general, follow strategies advocated by the rationalists, but incremental strategies which explicitly recognize that the firm has only very imperfect knowledge of its environment, of its own strengths and weaknesses, and of the likely rates and directions of change in the future. It must therefore be ready to adapt its strategy in the light of new information and understanding, which it must consciously seek to obtain.

Red ocean vs. Blue ocean

Blue Ocean represents all potential markets that currently do not exist and must be created. In a few cases, whole new industries are created, such as those spawned by the Internet; but in most cases, they are created by challenging the boundaries of existing industries and markets. Therefore, both incumbents and new entrants can play a role.

Blue Ocean strategies can be compared to traditional strategic thinking, which is referred to as Red Ocean strategies:

Create uncontested market space, rather than compete in existing market space.
Make the competition irrelevant, rather than beat competitors.
Create and capture new demand, rather than fight for existing markets and customers.
Break the traditional value/cost trade-off: Align the whole system of a company’s activities in pursuit of both differentiation and low cost.

Source: Kim W.C. and R. Mauborgne, Blue Ocean strategy: from theory to practice. California Management Review, 2005

Where do Innovations come from?

So, how might an organization begin to think about frugal innovation? There are some core principles that help make up the mind-set:

Simplify — not dumbing down but distilling the key necessary functions
Focus on value — avoid overshoot, avoid waste
Don’t reinvent the wheel — adopt, adapt, re-use, recombine ideas from elsewhere
Think horizontally — open up the innovation process, engage more minds on the job
Platform thinking — build a simple frugal core and then add modules
Continuous improvement — evolve and learn, best is the enemy of better

Absorptive Capacity

Firms differ widely in their ability to make use of such trigger signals — and the measure of this ability to find and use new knowledge has been termed “absorptive capacity” (AC). The concept was first introduced by Cohen and Levinthal, who described it as “the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends” and who saw it as “largely a function of the firm’s level of prior related knowledge”. It is an important construct because it shifts our attention to how well firms are equipped to search out, select, and implement knowledge.

Factors influencing product success

Product advantage
Market knowledge
Clear product definition
Risk assessment
Project organization
Project resources
Proficiency of execution
Top management support

Frameworks

Component and Architectural Innovation

Innovation Capability

Mintzberg’s Structural Archetypes

Simple structure: Centralized organic type — centrally controlled but can respond quickly to changes in the environment.
Machine bureaucracy: Centralized mechanistic organization controlled centrally by systems. A structure designed like a complex machine with people seen as cogs in the machine.
Divisionalised form: Decentralized organic form designed to adapt to local environmental challenges. Typically associated with larger organizations, this model involves specialization into semi-independent units
Professional bureaucracy: Decentralized mechanistic form, with power located with individuals but coordination via standards. This kind of organization is characterized by relatively high levels of professional skills and is typified by specialist teams in consultancies, hospitals, or legal firms.
Adhocracy: Project type of organization designed to deal with instability and complexity. Adhocracies are not always long-lived, but offer a high degree of flexibility.
Mission oriented: Emergent model associated with shared common values. This kind of organization is held together by members sharing a common and often altruistic purpose

Innovation search space

Influence of product novelty

How technological and market maturity influence the commercialization process

Quality Function Development

The construction of a QFD matrix involves the following steps:

Identify customer requirements, primary and secondary, and any major dislikes.
Rank requirements according to importance.
Translate requirements into measurable characteristics.
Establish the relationship between the customer requirements and technical product characteristics and estimate the strength of the relationship.
Choose appropriate units of measurement and determine target values based on customer requirements and competitor benchmarks.

Collaboration

Firms collaborate for a number of reasons:

To reduce the cost of technological development or market entry
To reduce the risk of development or market entry
To achieve scale economies in production
To reduce the time taken to develop and commercialize new products
To promote shared learning

A model for collaboration for innovation

Doz and Hamel identify a range of motives for strategic alliances and suggest strategies to exploit each:

To build critical mass through co-option
To reach new markets by leveraging cospecialized resources
To gain new competencies through organizational learning

User Innovation

Lead users are critical to the development and adoption of complex products. As the title suggests, lead users demand new requirements ahead of the general market of other users, but are also positioned in the market to significantly benefit from the meeting of those requirements.

A study identified a number of characteristics of lead users :

Recognize requirements early — are ahead of the market in identifying and planning for new requirements.
Expect high level of benefits — due to their market position and complementary assets.
Develop their own innovations and applications — have sufficient sophistication to identify and capabilities to contribute to development of the innovation.
Perceived to be pioneering and innovative — by themselves and their peer group.

Strategies for open innovation

When to develop or build ventures?

Role of venturing in the development and commercialisation of innovations

Structure of Corporate Ventures

Books

Managing Innovation Integrating Technological, Market and Organizational Change — Tidd, Joe & Bessant, John. (2018)

Credit

All content above is compiled from various articles and books that I read from as part of my study. All copyright and IP belongs to the original authors.