Processes of Innovation
There are several sources of innovation. According to the
Peter F. Drucker the general sources of innovations are different
changes in industry structure, in market structure, in local and global
demographics, in human perception, mood and meaning, in the amount of
already available scientific knowledge, etc. Also, internet research,
developing of people skills, language development, cultural background,
skype, facebook, ect. In the simplest
linear model of innovation the traditionally recognized source is
manufacturer innovation. This is where an agent (person or business)
innovates in order to sell the innovation. Another source of innovation,
only now becoming widely recognized, is end-user innovation. This
is where an agent (person or company) develops an innovation for their
own (personal or in-house) use because existing products do not meet
Eric von Hippel has identified end-user innovation as, by far, the
most important and critical in his classic book on the subject,
Sources of Innovation.
In addition, the famous robotics engineer
Joseph F. Engelberger asserts that innovations require only three
things: 1. A recognized need, 2. Competent people with relevant
technology, and 3. Financial support.
Innovation by businesses is achieved in many ways, with much
attention now given to formal
research and development (R&D) for "breakthrough innovations." R&D
help spur on patents and other scientific innovations that leads to
productive growth in such areas as industry, medicine, engineering, and
Yet, innovations can be developed by less formal on-the-job
modifications of practice, through exchange and combination of
professional experience and by many other routes. The more radical and
revolutionary innovations tend to emerge from R&D, while more
incremental innovations may emerge from practice – but there are many
exceptions to each of these trends.
An important innovation factor includes customers buying products or
using services. As a result, firms may incorporate users in focus groups
(user centred approach), work closely with so called
lead users (lead user approach) or users might adapt their products
themselves. U-STIR, a project to innovate
transportation system, employs such workshops.
user innovation, a great deal of innovation is done by those
actually implementing and using technologies and products as part of
their normal activities. In most of the times user innovators have some
personal record motivating them. Sometimes user-innovators may become
entrepreneurs, selling their product, they may choose to trade their
innovation in exchange for other innovations, or they may be adopted by
their suppliers. Nowadays, they may also choose to freely reveal their
innovations, using methods like
open source. In such networks of innovation the users or communities
of users can further develop technologies and reinvent their social
When an innovative idea requires a better
business model, or radically redesigns the delivery of value to
focus on the customer, a real world experimentation approach increases
the chances of market success. Potentially innovative business models
and customer experiences can't be tested through traditional market
Pilot programs for new innovations set the path in stone too early
thus increasing the costs of failure. On the other hand, the good news
is that recent years have seen considerable progress in identifying
important key factors/principles or variables that affect the
probability of success in innovation. Of course, building successful
businesses is such a complicated process, involving subtle
interdependencies among so many variables in dynamic systems, that it is
unlikely to ever be made perfectly predictable. But the more business
can master the variables and experiment, the more they will be able to
create new companies, products, processes and services that achieve what
they hope to achieve.
Programs of organizational innovation are typically tightly linked to
organizational goals and objectives, to the
business plan, and to
competitive positioning. One driver for innovation programs in
corporations is to achieve growth objectives. As Davila et al. (2006)
notes, "Companies cannot grow through cost reduction and reengineering
alone... Innovation is the key element in providing aggressive top-line
growth, and for increasing bottom-line results."
One survey across a large number of manufacturing and services
organizations found, ranked in decreasing order of popularity, that
systematic programs of organizational innovation are most frequently
driven by: Improved
Creation of new
Extension of the
labor costs, Improved
production processes, Reduced
environmental damage, Replacement of
energy consumption, Conformance to
These goals vary between improvements to products, processes and
services and dispel a popular myth that innovation deals mainly with new
product development. Most of the goals could apply to any organisation
be it a manufacturing facility, marketing firm, hospital or local
government. Whether innovation goals are successfully achieved or
otherwise depends greatly on the environment prevailing in the firm.
Conversely, failure can develop in programs of innovations. The
causes of failure have been widely researched and can vary considerably.
Some causes will be external to the organization and outside its
influence of control. Others will be internal and ultimately within the
control of the organization. Internal causes of failure can be divided
into causes associated with the cultural infrastructure and causes
associated with the innovation process itself. Common causes of failure
within the innovation process in most organisations can be distilled
into five types: Poor goal definition, Poor alignment of actions to
goals, Poor participation in teams, Poor monitoring of results, Poor
communication and access to information.
Once innovation occurs, innovations may be spread from the innovator
to other individuals and groups. This process has been proposed that the
life cycle of innovations can be described using the 's-curve'
diffusion curve. The s-curve maps growth of revenue or productivity
against time. In the early stage of a particular innovation, growth is
relatively slow as the new product establishes itself. At some point
customers begin to demand and the product growth increases more rapidly.
New incremental innovations or changes to the product allow growth to
continue. Towards the end of its life cycle growth slows and may even
begin to decline. In the later stages, no amount of new investment in
that product will yield a normal rate of return.
The s-curve derives from an assumption that new products are likely
to have "product Life". i.e. a start-up phase, a rapid increase in
revenue and eventual decline. In fact the great majority of innovations
never get off the bottom of the curve, and never produce normal returns.
Innovative companies will typically be working on new innovations
that will eventually replace older ones. Successive s-curves will come
along to replace older ones and continue to drive growth upwards. In the
figure above the first curve shows a current technology. The second
emerging technology that current yields lower growth but will
eventually overtake current technology and lead to even greater levels
of growth. The length of life will depend on many factors.
There are two fundamentally different types of measures for
innovation: the organizational level and the political level.
The measure of innovation at the organizational level relates to
individuals, team-level assessments, and private companies from the
smallest to the largest. Measure of innovation for organizations can be
conducted by surveys, workshops, consultants or internal benchmarking.
There is today no established general way to measure organizational
innovation. Corporate measurements are generally structured around
balanced scorecards which cover several aspects of innovation such
as business measures related to finances, innovation process efficiency,
employees' contribution and motivation, as well benefits for customers.
Measured values will vary widely between businesses, covering for
example new product revenue, spending in R&D, time to market, customer
and employee perception & satisfaction, number of patents, additional
sales resulting from past innovations.
For the political level, measures of innovation are more focused on a
country or region
competitive advantage through innovation. In this context,
organizational capabilities can be evaluated through various evaluation
frameworks, such as those of the European Foundation for Quality
OECD Oslo Manual (1995) suggests standard guidelines on measuring
technological product and process innovation. Some people consider the
Oslo Manual complementary to the
Frascati Manual from 1963. The new Oslo manual from 2005 takes a
wider perspective to innovation, and includes marketing and
organizational innovation. These standards are used for example in the
Community Innovation Surveys.
Other ways of measuring innovation have traditionally been
expenditure, for example, investment in R&D (Research and Development)
as percentage of GNP (Gross National Product). Whether this is a good
measurement of innovation has been widely discussed and the Oslo Manual
has incorporated some of the critique against earlier methods of
measuring. The traditional methods of measuring still inform many policy
decisions. The EU
Lisbon Strategy has set as a goal that their average expenditure on
R&D should be 3% of GNP.
Many scholars claim that there is a great bias towards the "science
and technology mode" (S&T-mode or STI-mode), while the "learning by
doing, using and interacting mode" (DUI-mode) is widely ignored. For an
example, that means you can have the better high tech or software, but
there are also crucial learning tasks important for innovation. But
these measurements and research are rarely done.
A common industry view (unsupported by empirical evidence) is that
cost-effectiveness research (CER) is a form of price control which,
by reducing returns to industry, limits R&D expenditure, stifles future
innovation and compromises new products access to markets.
Some academics claim the CER is a valuable value-based measure of
innovation which accords truly significant advances in therapy (those
that provide 'health gain') higher prices than free market mechanisms.
Such value-based pricing has been viewed as a means of indicating to
industry the type of innovation that should be rewarded from the public
Thomas Alured Faunce has developed the case that national
cost-effectiveness assessment systems should be viewed as measuring
'health innovation' as an evidence-based concept distinct from valuing
innovation through the operation of competitive markets (a method which
anti-trust laws to be effective) on the basis that both methods of
assessing innovation in
pharmaceuticals are mentioned in annex 2C.1 of the
Several indexes exist that attempt to measure innovation include:
- The Innovation Index, developed by the
Indiana Business Research Center, to measure innovation capacity
at the county or regional level in the U.S.
- The State Technology and Science Index, developed by the
Milken Institute is a U.S. wide benchmark to measure the science
and technology capabilities that furnish high paying jobs based
around key components.Technology
and Science Index
- The Oslo Manual is focused on North America, Europe, and
other rich economies.
- The Bogota Manual, similar tot the above focuses on Latin
America and the Caribbean countries.
- The Creative Class developed by Richard Florida
- The Innovation Capacity Index (ICI) published by a large
number of international professors working in a collaborative
fashion. The top scorers of ICI 2009–2010 being: 1. Sweden 82.2; 2.
Finland 77.8; and 3. United States 77.5.
- The Global Innovation Index is a global index measuring
the level of innovation of a country, produced jointly by
The Boston Consulting Group (BCG), the
National Association of Manufacturers (NAM), and The
Manufacturing Institute (MI), the NAM's nonpartisan research
affiliate. NAM describes it as the "largest and most comprehensive
global index of its kind".
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This international innovation index is part of a large research study
that looks at both the business outcomes of innovation and government's
ability to encourage and support innovation through public policy. The
study comprised a survey of more than 1,000 senior executives from NAM
member companies across all industries; in-depth interviews with 30 of
the executives; and a comparison of the "innovation friendliness" of 110
countries and all 50 U.S. states. The findings are published in the
report, "The Innovation Imperative in Manufacturing: How the United
States Can Restore Its Edge."
The report discusses not only country performance but also what
companies are doing and should be doing to spur innovation. It looks at
new policy indicators for innovation, including tax incentives and
The latest index was published in March 2009.
To rank the countries, the study measured both innovation inputs and
outputs. Innovation inputs included government and
education policy and the innovation environment. Outputs included
technology transfer, and other
R&D results; business performance, such as
labor productivity and total shareholder returns; and the impact of
innovation on business migration and
economic growth. The following is a list of the twenty largest
countries (as measured by
GDP) by the International Innovation Index:
Given the noticeable effects on
quality of life, and
productive growth, innovation is a key factor in society and
economy. Consequently, policymakers are working to develop environments
that will foster innovation and its resulting positive benefits. For
instance, experts are advocating that the U.S. federal government launch
a National Infrastructure Foundation, a nimble, collaborative
strategic intervention organization that will house innovations programs
from fragmented silos under one entity, inform federal officials on
performance metrics, strengthen industry-university partnerships,
and support innovation
economic development initiatives, especially to strengthen
regional clusters. Because clusters are the geographic incubators of
innovative products and processes, a cluster development grant
program would also be targeted for implementation. By focusing on
innovating in such areas as precision
information technology, and
clean energy, other areas of national concern would be tackled
carbon footprint, and
Economic Development Administration understand this reality in their
continued Regional Innovation Clusters initiative.
In addition, federal grants in R&D, a crucial driver of innovation and
productive growth, should be expanded to levels similar to
South Korea, and
Switzerland in order to stay globally competitive. Also, such grants
should be better procured to
metropolitan areas, the essential engines of the American economy.
Many countries recognize the importance of research and development
as well as innovation including Japan’s
Ministry of Education, Culture, Sports, Science and Technology
Federal Ministry of Education and Research;
Ministry of Science and Technology in the People’s Republic of China
. Furthermore, Russia’s innovation programme is the
Medvedev modernisation programme which aims at creating a
diversified economy based on high technology and innovation. Also, the
Government of Western Australia has established a number of
innovation incentives for government departments.
Landgate was the first Western Australian government agency to
establish its Innovation Program.