Managing Innovation PDF: What It Is & Why It Matters

Innovation – What It Is and CHAPTER 1 Why It Matters Mathieu Meur/Stocktrek Images/Getty Images LEARNING OBJECTIVES By the end of this chapter you will develop...

Innovation – What It Is and CHAPTER 1 Why It Matters Mathieu Meur/Stocktrek Images/Getty Images LEARNING OBJECTIVES By the end of this chapter you will develop the difficulties in managing what is an an understanding of: uncertain and risky process what ‘innovation’ and ‘entrepreneurship’ the key themes in thinking about how to mean and how they are essential for manage this process effectively survival and growth innovation as a process rather than a single flash of inspiration ‘A slow sort of country’ said the Red Queen. ‘Now here, you see, it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!’ — Lewis Carroll, Alice Through the Looking Glass, 1872. Public domain. Y ou don’t have to look far before you bump into the innovation imperative. It leaps out at you from a thousand mission statements and strategy documents, each stress- ing how important innovation is to ‘our customers/our shareholders/our business/our future and most often, our survival and growth’. Innovation shouts from advertisements 1 2 CHAPTER 1 Innovation – What It Is and Why It Matters for products ranging from hairspray to hospital care. It nestles deep in the heart of our history books, pointing out how far and for how long it has shaped our lives. And it is on the lips of every politician, recognizing that our lifestyles are constantly shaped and reshaped by the process of innovation. Innovation makes a huge difference to organizations of all shapes and sizes. The logic is simple – if we don’t change what we offer the world (products and services) and how we create and deliver them, we risk being overtaken by others who do. At the limit, it’s about survival, and history is very clear on this point: survival is not compulsory! Those enterprises that survive do so because they are capable of regular and focused change. (It’s worth noting that Bill Gates used to say of Microsoft that it was always only two years away from extinction. Or, as Andy Grove, one of the founders of Intel, pointed out in his autobiography, ‘only the paranoid survive!’). In this chapter, we’ll look at the challenge of innovation in more detail – what it is, why it matters and, most importantly, how we might think about organizing and managing the process. 1.1 This isn’t just hype or advertising babble – you can get a feel for the importance attached to it 1.1 THE in View 1.1. IMPORTANCE Innovation is strongly associated with growth. New business is created by new ideas, OF INNOVATION by the process of creating competitive advantage in what a firm can offer. While competitive advantage can come from size, or possession of assets, and so on, the pattern is increasingly VIEW 1.1 I N N OVAT I O N – E V E RY B O DY ’ S TA L K I N G A B O U T I T ‘We believe in making a difference. Virgin stands for value ‘Since 1899 HELLA has been continuously making its mark for money, quality, innovation, fun and a sense of competitive on the market with outstanding ideas. This innovative power challenge. We deliver a quality service by empowering our is both the origin and the future of the company. Those who employees and we facilitate and monitor customer feedback want to be global leaders must be – and stay – curious, per- to continually improve the customer’s experience through sistent and flexible. Networking at all levels is the primary innovation’ (Richard Branson) reason behind this wealth of ideas. Our employees from ‘Adi Dassler had a clear, simple, and unwavering passion for around the world contribute new, fresh ideas.’ Hella Annual sport. Which is why with the benefit of 50 years of relent- Report (www.hella.com) less innovation created in his spirit, we continue to stay at ‘Innovation distinguishes between a leader and a follower’, the forefront of technology’, Adidas about its future (www. Steve Jobs, Apple adidas.com) ‘John Deere’s ability to keep inventing new products that are ‘Innovation is our lifeblood’, Siemens about innovation useful to customers is still the key to the company’s growth’, (www.siemens.com) Robert Lane, CEO, John Deere coming to favour those organizations that can mobilize knowledge and technological skills and experience to create novelty in their offerings (product/service) and the ways in which they cre- ate and deliver those offerings. Economists have argued for decades over the exact nature of the relationship, but they have generally agreed that innovation accounts for a sizeable proportion of economic growth. In a recent book, William Baumol pointed out that ‘virtually all of the economic growth that has occurred since the eighteenth century is ultimately attributable to innovation’. Research Note 1.1 gives some examples of this economic importance.  1.1 The Importance of Innovation 3 RESEARCH NOTE 1.1 Why Innovation Is Economically Important OECD countries spend $1700 billion per year on R&D. innovative, compared to 45% of the businesses in the 2013 China has the ambition to spend 2.5% of gross domestic survey; 61% of large businesses (those with more than 250 product (GDP) on research by 2020; in 2019 it spent 2.2%, employees) and 53% of small and medium enterprises (those equivalent to $278 billion. with 10 to 250 employees) were innovative. South Korea and Israel are the world’s most R&D- In the United Kingdom, 28% of innovators were intensive countries, spending well over 4% of GDP on research engaged in exports (compared with 10% of non-innovators); and development. Other high performers in Asia included they reported employing more highly qualified staff, partic- Japan at 3.35% and Chinese Taiwan at 3.1%. ularly staff with science and engineering degrees (12%, com- In 2008, 16.8% of all firms’ turnover in Germany was pared to only 4% of non-innovators). Twenty-five per cent of earned with newly introduced products, and in the research- all businesses used technological (either product or process) intensive sector, this figure was 38%. During the same year, the innovation, and 42% of all businesses used nontechnologi- German economy was able to save costs of 3.9% per piece by cal (organizational or market) innovation, and 27% reported means of process innovations. engaging in ‘new business practices’. The European Union’s Community Innovation Survey (CIS) reported in 2015 that 53% of the businesses were $25 Data Sources $20 Strategy&’s 2018 Global Innovation 1000 study F I G U R E 1.1 World’s 2018 EU Industrial R&D Investment Scoreboard top 25 R&D spend 2018 $15 (US$ billions) Source: By Nick Skilli- $10 corn "Top 1000 com- panies that spend the $5 most on Research & $10.0 $22.6 $16.2 $15.8 Development (charts and $15.3 $14.7 $13.6 $13.1 $11.6 $10.8 $10.6 $10.4 $10.2 $8.5 $8.0 $7.8 $7.7 $7.3 $7.3 $7.1 $7.1 $6.6 $6.2 $6.1 $6.1 analysis)", IdeatoValue. $– com, 2019 https://www AMAZON.COM ALPHABET VOLKSWAGEN SAMSUNG MICROSOFT HUAWEI INTEL APPLE ROCHE JOHNSON & JOHNSON DAIMLER MERCK US TOYOTA MOTOR NOVARTIS FORD MOTOR FACEBOOK PFIZER BMW GENERAL MOTORS ROBERT BOSCH HONDA MOTOR SANOFI BAYER SIEMENS ORACLE.ideatovalue.com/inno/ nickskillicorn/2019/08/ top-1000-companies- that-spend-the-most-on- research-development- charts-and-analysis/ Figure 1.1 shows the huge amount committed to R&D in some of the world’s most suc- cessful businesses. The consulting firm PWC runs a regular survey of senior executives on the theme of inno- vation; in their 2015 Global Innovation Survey, almost half of the 1757 executives interviewed (43%) felt that innovation is a ‘competitive necessity’ for their organization. This was not simply an act of faith; PWC data suggests that leading innovators can expect significant rewards both financially and in terms of competitive positioning. ‘Over the last three years, the most innovative companies in our study delivered growth at a rate of 16% above that of the least innovative... In five year’s time, they forecast that their rate of growth will further increase to almost double the global average, and over three times, higher than the least innovative. For the average company, this equates to $0.5bn more revenue than their less innovative peers’. Similarly, BCG in their report on the world’s top 50 innovative companies draws similar conclusions. The importance issue remains the same – with 79% of respondents in 2015 ranking it as their most important strategic priority, up from around 66% in 2005. And the benefits expected include not only market share but also speed of entry into new and fast-growing fields. Case Study 1.1 gives some more examples of the link between innovation and growth. 4 CHAPTER 1 Innovation – What It Is and Why It Matters CA S E S T U DY 1. 1 Growth Champions and the Returns from Innovation Tim Jones has been studying successful innovating organi- between the two; innovative organizations are more profitable zations for some time, looking to try and establish a link bet- and more successful. ween those organizations that invest consistently in innovation Tim Jones talked about the Growth Champions project and their subsequent performance. His findings show that in a 2014 interview: https://www.youtube.com/watch?v= over a sustained period of time, there is a strongly positive link O91BxG14G1c. 1.2 Importantly, innovation and competitive success are not simply about high-technology com- 1.2 INNOVATION panies; for example, the German firm Wurth is the largest maker of screws (and other fastenings IS NOT such as nuts and bolts) in the world with a turnover of €15 billion in 2019. Despite low-cost com- JUST HIGH petition from China, the company has managed to stay ahead through an emphasis on product TECHNOLOGY and process innovation across a supplier network similar to the model used in computers by Dell. In a similar fashion, the UK Dairy Crest business (now part of the Canadian food giant Saputo) has built up a turnover of nearly €1.5 billion (2018) by offering a stream of product innovations including resealable packaging, novel formats and new varieties of cheese and related dairy prod- ucts, supported by manufacturing and logistics process innovations. The Danish company Christian Hansen has spent the last two hundred years supplying a huge range of live bacterial cultures to the food industry around the world. Their natural food colours are also extensively used and they have a growing presence in the field of healthcare via probiotics. Their dominance of this niche traces its roots to a commitment to innovation, borne out of the earliest days of the company as a university lab-based spin out. Another long-established German firm, Wilo was founded in 1872 and has evolved into one of Europe’s most successful manufacturers of pumps for a wide range of domestic and industrial applications. And Hella manufactures the lion’s share of headlights (as well as many other auto- mobile electronic parts), having built from a nineteenth century startup to a €7 billion company employing 35,000 people worldwide. Both survived and grew through a consistent commitment to innovation in products, processes and markets. Research Note 1.2 gives some more examples of the link between innovation and economic performance. RESEARCH NOTE 1.2 Company-level Innovation Performance At the level of the firm, a number of research studies have stock market returns than firms that invest identical amounts regularly highlighted the link between performance and in R&D but that have poor track (innovation) records...’. innovation – for example Kumar and Li of the University of This finding emerges from many studies – for example the Houston found that ‘... innovative capacity is positively related Boston Consulting Group’s 2018 survey of the top 1000 inno- to subsequent cumulative stock returns...’. Innovative com- vating firms concluded ‘There is no long-term correlation panies tend to enjoy greater profits, faster profit growth, larger between the amount of money a company spends on its inno- profit margins and other profit metrics as compared to non- vation efforts and its overall financial performance. Instead, innovative firms. Importantly this is not due to investments in what matters is how companies use that money and other R&D alone but rather to the ability to convert knowledge into resources, as well as the quality of their talent, processes, and value. Another study found that firms that have been success- decision making, to create products and services that connect ful innovators ‘... in the past earn substantially higher future with their customers’.  1.2 Innovation Is Not Just High Technology 5 Case Study 1.2 gives an example of how innovation can strengthen competitive position. CA S E S T U DY 1. 2 Running Away with the Competition Shoes have been around for a very long time – archaeologists in 2016. For elite athletes, a Vaporflys could make a reduction of have found them from 40,000 years ago. And even sports shoes one to two minutes across an entire marathon. It’s potentially the are not that new – the first footwear designed to help improve difference between coming first and coming fifth’. running performance were developed by Adolf Dassler in 1920 It has helped athletes break multiple world records – and (giving the brand name ‘Adidas’ from a shortening of his name). also thrown down a big challenge to other manufacturers to So you could be forgiven for thinking that by now catch up; at a recent Japanese marathon, television showed 84% there is little room for innovation in this space. But you’d be of the athletes wearing the Nike shoe. The impact on Asics, the wrong – in an industry worth an estimated $13 billion globally local competitor brand, was dramatic, the share price falling the pressure to keep introducing new products and services is sharply. By contrast Nike has been streaking ahead; since the intense. It has led to new designs, new fabrics, new approaches shoes were introduced its share price has risen by 90%. to the process of getting shoes to fit exactly (Adidas with its ‘mi- The fuss is, of course, not about the running track but adidas’ platform now enables a user to have the shoes custom about the message sent to the millions of ‘ordinary’ people who made for them using various 3D imaging and printing technol- run for pleasure and whose role models are now winning in ogies. Nike even has a version of its shoes with self-tying shoe- such style. Despite their high cost – a pair of Vaporfly shoes laces which can be controlled from a smartphone). currently cost $250 – the prospect of a performance boost is But while the major players in this industry have been irresistible. running neck and neck for some time, Nike has recently Needless to say the big competitors in the field like Asics achieved a breakthrough. Its Vaporfly shoes were developed and Adidas have been running hard to catch up with their own to include a carbon-fibre plate and a wedge of soft, energy- versions of carbon fibre plate shoes. Only now, three years after returning foam that help runners move at least 4% more effi- the Vaporfly trainers first emerged, are running shoe rivals ciently. Independent research studies have backed up this claim; releasing their own versions of footwear with carbon fibre the shoe offers such a significant improvement to per­formance plates installed combined with soft foam cushioning – the new that it risked being banned from the 2021 Olympics and even dominant design. But it takes time and money to develop such now creates controversy in sporting circles. A report by Wired offerings and competitors like Adidas are currently on the back magazine suggests that ‘twice as many men and women ran faster foot; sales of its ‘Boost’ shoe have flattened out reflecting its age than 2:10 and 2:27 for a marathon than before the shoe’s debut and lack of excitement compared to Nike’s product. Of course, not all games are about win/lose outcomes. Public services such as health care, education and social security may not generate profits, but they do affect the quality of life for millions of people. Bright ideas when implemented well can lead to valued new services and the efficient delivery of existing ones at a time when pressure on national purse strings is becoming ever tighter. For example, the Karolinska Hospital in Stockholm managed to make radical improvements in the speed, quality and effectiveness of its care services – such as cutting the waiting lists by 75% and cancellations by 80% – through innovation. Similar dramatic gains have been made in a variety of Indian health-care operations, and suggest important new directions for global health-care management to help deal with the crisis of rising demands but limited resources. Public sector innovations have included the postage stamp, the National Health Service in the United Kingdom and much of the early development work behind technol- ogies such as fibre optics, radar and the Internet. And new ideas – whether wind-up radios in Tanzania or microcredit financing schemes in Bangladesh – have the potential to change the quality of life and the availability of opportunity for people in some of the poorest regions of the world. There’s plenty of scope for innovation and entrepreneurship, and sometimes, this really is about life and death – for example, in the context of humanitarian aid for disasters. Table 1.1 gives some examples drawn from across the spectrum showing how innovation makes a difference to organizations of all shapes and sizes. 6 CHAPTER 1 Innovation – What It Is and Why It Matters Table 1.1 Where Innovation Makes a Difference Innovation Is About... Examples Identifying or creating Innovation is driven by the ability to see connections, to spot opportunities, and to take advantage of opportunities them. Sometimes, this is about completely new possibilities – for example, by exploiting radical break- throughs in technology. New drugs based on genetic manipulation have opened a major new front in the war against disease. Mobile phones, tablets, and other devices have revolutionized where and when we communicate. Even the humble window pane is the result of radical technological innovation – these days, almost all the window glass in the world is made by the Pilkington float glass process, which moved the industry away from the time-consuming process of grinding and polishing to get a flat surface. James Dyson built a global business by applying new technologies to domestic appliances such as vacuum cleaners and hand driers. New ways of serving Innovation isn’t just about opening up new markets – it can also offer new ways of serving established existing markets and mature ones. Low-cost airlines are still about transportation – but the innovations that firms such as Southwest Airlines, EasyJet and Ryanair introduced have revolutionized air travel and grown the market in the process. Despite a global shift in textile and clothing manufacture towards developing countries, the Spanish company Inditex (through its retail outlets under various names including Zara) has pioneered a highly flexible, fast-turnaround clothing operation with over 2000 outlets in 52 countries. It was founded by Amancio Ortega Gaona, who set up a small operation in the west of Spain in La Coruna – a region not previously noted for textile production – and the first store opened there in 1975. They now have over 5000 stores worldwide and are now the world’s biggest clothing retailer; significantly, they are also the only manufacturer to offer specific collections for Northern and Southern Hemisphere markets. Central to the Inditex philosophy is the close linkage between design, manufacture and retailing, and their network of stores constantly feeds back information about trends that are used to generate new designs. They also experiment with new ideas directly on the public, trying samples of cloth or design and quickly getting back indications of what is going to catch on. Despite their global orientation, most manufacturing is still done in Spain, and they have managed to reduce the turnaround time between a trigger signal for an innovation and responding to it to around 15 days. Growing new markets Equally important is the ability to spot where and how new markets can be created and grown. Alexander Bell’s invention of the telephone didn’t lead to an overnight revolution in communications – that depended on developing the market for person-to-person communications. Henry Ford may not have invented the motor car, but in making the Model T – ‘a car for everyman’ at a price most people could afford – he grew the mass market for personal transportation. And eBay justifies its multibillion-dollar price tag not because of the technology behind its online auction idea but because it created and grew the market. Rethinking services In most economies, the service sector accounts for the vast majority of activity, so there is likely to be plenty of scope. And the lower capital costs often mean that the opportunities for new entrants and radical change are greatest in the service sector. Online banking and insurance have become commonplace, but they have radically transformed the efficiencies with which those sectors work and the range of services they can provide. New entrants riding the digital wave have rewritten the rule book for a wide range of industrial games – for example, Amazon in retailing, eBay in market trading and auctions, Google in advertising, Skype in telephony, Uber in transportation and Airbnb in accommodation. Meeting social needs Innovation offers huge challenges – and opportunities – for the public sector. Pressure to deliver more and better services without increasing the tax burden is a puzzle likely to keep many civil servants awake at night. But it’s not an impossible dream – right across the spectrum, there are examples of innovation changing the way the sector works. For example, in health care, there have been major improvements in efficiencies around key targets such as waiting times. Hospitals such as the Leicester Royal Infirmary in the United Kingdom or the Karolinska Hospital in Stockholm, Sweden, have managed to make radical improvements in the speed, quality and effectiveness of their care services – such as cutting the waiting lists for elective surgery by 75% and cancellations by 80% – through innovation. Improving operations – At the other end of the scale, Kumba Resources is a large South African mining company that makes doing what we do but another dramatic claim – ‘We move mountains’. In their case, the mountains contain iron ore, and their better huge operations require large-scale excavation – and restitution of the landscape afterward. Much of their business involves complex large-scale machinery – and their ability to keep it running and productive depends on a workforce able to contribute their innovative ideas on a continuing basis.  1.3 It’s Not Just Products... 7 Survival and growth pose a problem for established players but a huge opportunity for new- comers to rewrite the rules of the game. One person’s problem is another’s opportunity, and the nature of innovation is that it is fundamentally about entrepreneurship. The skill to spot oppor- tunities and create new ways to exploit them is at the heart of the innovation process. Entrepre- neurs are risk-takers – but they calculate the costs of taking a bright idea forward against the potential gains if they succeed in doing something different – especially if that involves upstaging the players already in the game. Case Study 1.3 gives some examples of such entrepreneurship in action. CA S E S T U DY 1. 3 Finding Opportunities Back in 1877 Sally Windmuller set up a small business near high-technology weaponry such as mines. The problem is com- his home town of Lippstadt in Germany making and selling pounded by the fact that many of those requiring new limbs accessories and equipment for farm transportation – lamps, are also in the poorest regions of the world and unable to harnesses, horns and so on to go on their buggies, wagons afford expensive prosthetics. The chance meeting of a young and bicycles. By 1895 it was a thriving business with a factory surgeon, Dr Pramod Karan Sethi, and a sculptor, Ram Chandra, employing 120 people; four years later in 1899 he set up the in the hospital in Jaipur, India, has led to the development company Hella making headlamps and horns for the emerging of a solution to this problem – the Jaipur foot. This artificial world of ‘horseless carriages’ along with other entrepreneurs in limb was developed using Chandra’s skill as a sculptor and the nascent automobile industry. Over the next hundred years Sethi’s expertise and is so effective that those who wear it can this grew to become a global company turning over €7 bil- run, climb trees, and pedal bicycles. It was designed to make lion and employing 35,000 people, dominating the headlamp use of low-tech materials and be simple to assemble – for market and also playing an increasingly important role in auto- example, in Afghanistan, craftsmen hammer the foot together motive electronics. out of spent artillery shells, while in Cambodia, part of the When the Tasman Bridge collapsed in Hobart, Tasmania, foot’s rubber components are scavenged from truck tires. Per- in 1975, Robert Clifford was running a small ferry company haps the greatest achievement has been to do all of this at a and saw an opportunity to capitalize on the increased demand low cost – the Jaipur foot costs only $28 in India. Since 1975, for ferries – and to differentiate his by selling drinks to thirsty nearly 1 million people worldwide have been fitted with the cross-city commuters. The same entrepreneurial flair later Jaipur limb, and the design is being developed and refined – for helped him build a company – Incat – that pioneered the wave- example, using advanced new materials. piercing design, which helped them capture over half the world Not all innovation is necessarily good for everyone. One market for fast catamaran ferries. Continuing investment in of the most vibrant entrepreneurial communities is in the innovation has helped this company from a relatively isolated criminal world where there is a constant search for new ways island build a key niche in highly competitive international of committing crime without being caught. The race between military and civilian markets. the forces of crime and law and order is a powerful innovation People have always needed artificial limbs, and the arena – as works by Howard Rush and colleagues have shown demand has, sadly, significantly increased as a result of in their studies of ‘cybercrime’. 1.3 Innovation is, of course, not confined to manufactured products; plenty of examples of growth 1.3 IT’S through innovation can be found in services [14–16]. (In fact, the world’s first business com- puter was used to support bakery planning and logistics for the UK catering services company NOT JUST J. Lyons and Co.) In banking, the UK First Direct organization became the most competitive PRODUCTS... bank, attracting around 10,000 new customers each month by offering a telephone banking ser- vice backed up by sophisticated information technology (IT) – a model that eventually became 8 CHAPTER 1 Innovation – What It Is and Why It Matters the industry standard. A similar approach to the insurance business – Direct Line – radically changed the basis of that market and led to widespread imitation by all the major players in the sector [17,18]. Internet-based retailers such as Amazon changed the ways in which products as diverse as books, music and travel were sold, while firms such as eBay brought the auction house into many living rooms. Research Note 1.3 discusses some examples of innovation in fields that may sometimes be ‘hidden’ from view. RESEARCH NOTE 1.3 Hidden Innovation In 2006, the UK organization NESTA published a report on ‘The or business models. For example, the development of new Innovation Gap’ in the United Kingdom and laid particular contractual relationships between suppliers and clients on emphasis on ‘hidden Innovation’ – innovation activities that major construction projects; are not reflected in traditional indicators such as investments in Type III: Innovation created from the novel combination formal R&D or patents awarded. In a research focusing on six of existing technologies and processes. For example, the way widely different sectors that were not perceived to be innovative, in which banks have integrated their various back-office they argued that innovation of this kind is increasingly impor- IT systems to deliver innovative customer services such as tant, especially in services, and in a subsequent study looked in Internet banking; detail at six ‘hidden innovation’ sectors – oil production, retail Type IV: Locally developed, small-scale innovations that banking, construction, legal aid services, education, and the take place ‘under the radar’, not only of traditional indica- rehabilitation of offenders. The study identified four types of tors but often also of many of the organizations and indi- hidden innovation: viduals working in a sector, for example, the everyday Type I: Innovation that is identical or similar to activities innovation that occurs in classrooms and multidisciplinary that are measured by traditional indicators, but which is construction teams. excluded from measurement. For example, the development of new technologies in oil exploration; Source: National Endowment for Science, Technology and the Arts Type II: Innovation without a major scientific and tech- (NESTA), 2006, ‘The innovation gap’, and 2007, ‘Hidden innovation’, nological basis, such as innovation in organizational forms https://www.nesta.org.uk/. Innovation is a central plank in national economic policy – for example, a UK government report called it ‘the motor of the modern economy, turning ideas and knowledge into products and services’. An Australian government website puts the case equally strongly – Companies that do not invest in innovation put their future at risk. Their business is unlikely to prosper, and they are unlikely to be able to compete if they do not seek innovative solutions to emerging problems. According to Statistics Canada (2006), the following factors characterize successful small- and medium-sized enterprises: Innovation is consistently found to be the most important characteristic associated with success. Innovative enterprises typically achieve stronger growth or are more successful than those that do not innovate. Enterprises that gain market share and increasing profitability are those that are innovative. Not surprisingly, this rationale underpins a growing set of policy measures designed to encourage and nurture innovation at regional and national levels.  1.4 Innovation and Entrepreneurship 9 1.4 One person’s problem is another’s opportunity, and the nature of innovation is that it is fun- 1.4 INNOVATION damentally about entrepreneurship – a potent mixture of vision, passion, energy, enthusiasm, insight, judgement and plain hard work, which enables good ideas to become a reality. As the AND ENTRE- famous management writer Peter Drucker put it: PRENEURSHIP ‘Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service. It is capable of being presented as a discipline, capable of being learned, capable of being practised’. Entrepreneurship is a human characteristic that mixes structure with passion, planning with vision, tools with the wisdom to use them, strategy with the energy to execute it and judge- ment with the propensity to take risks. It’s possible to create structures within organizations – departments, teams, specialist groups and so on – with the resources and responsibility for tak- ing innovation forward, but effective change won’t happen without the ‘animal spirits’ of the entrepreneur. Research Note 1.4 discusses the ideas of Joseph Schumpeter, the ‘godfather’ of innova- tion studies. RESEARCH NOTE 1.4 Joseph Schumpeter – The ‘Godfather’ of Innovation Studies One of the most significant figures in this area of economic the cycle repeats itself – our original entrepreneur or someone theory was Joseph Schumpeter, who wrote extensively on the else looks for the next innovation, which will rewrite the rules of subject. He had a distinguished career as an economist and the game, and off we go again. Schumpeter talks of a process of served as Minister for Finance in the Austrian government. His ‘creative destruction’ where there is a constant search to create argument was simple: entrepreneurs will seek to use techno- something new that simultaneously destroys the old rules and logical innovation – a new product/service or a new process for establishes new ones – all driven by the search for new sources making it – to get strategic advantage. For a while, this may be the of profits. only example of the innovation, so the entrepreneur can expect In his view , ‘[What counts is] competition from the new to make a lot of money – what Schumpeter calls ‘monopoly commodity, the new technology, the new source of supply, the profits’. But, of course, other entrepreneurs will see what he has new type of organization... competition which... strikes not at done and try to imitate it – with the result that other innovations the margins of the profits and the outputs of the existing firms emerge, and the resulting ‘swarm’ of new ideas chips away at the but at their foundations and their very lives’. monopoly profits until an equilibrium is reached. At this point, Of course, entrepreneurship plays out on different stages in practice. One obvious example is the new start-up venture in which the lone entrepreneur takes a calculated risk to bring something new into the world. But entrepreneurship matters just as much to the established organization, which needs to renew itself in what it offers and how it creates and delivers that offering. Internal entrepreneurs – often labelled as ‘intrapreneurs’ or working in ‘corporate entre- preneurship’ or ‘corporate venture’ departments – provide the drive, energy and vision to take risky new ideas forward inside that context. And of course, the passion to change things may not be around creating commercial value but rather in improving conditions or enabling change in the wider social sphere or in the direction of environmental sustainability – a field that has become known as ‘social entrepreneurship’. This idea of entrepreneurship driving innovation to create value – social and commercial – across the life cycle of organizations is central to this book. Table 1.2 gives some examples of entrepreneurship and innovation. 10 CHAPTER 1 Innovation – What It Is and Why It Matters Table 1.2 Entrepreneurship and Innovation Stage in Life Start-up Growth Sustain/Scale Renew Cycle of an Organization Creating Individual Growing the Building a portfolio of Returning to the commercial entrepreneur business through incremental and radical radical frame-breaking value exploiting new adding new innovation to sustain kind of innovation, technology or products/services the business and/or which began the market oppor- or moving into new spread its influence business and enables tunity markets into new markets it to move forward as something very different Creating Social entrepre- Developing Spreading the idea Changing the social neur, passion- the ideas and widely, diffusing it to system – and then value ately concerned engaging others other communities of acting as an agent with improving in a network for social entrepreneurs, for the next wave or changing change – perhaps engaging links with of change something in in a region or mainstream players their immediate around a key issue such as public sector environment agencies 1.5 Innovation contributes in several ways. For example, research evidence suggests a strong corre- 1.5 STRATEGIC lation between market performance and new products. New products help capture and retain ADVANTAGE market shares and increase profitability in those markets. In the case of more mature and THROUGH established products, competitive sales growth comes not simply from being able to offer low INNOVATION prices but also from a variety of nonprice factors – design, customization and quality. And in a world of shortening product life cycles – where, for example, the life of a particular model of television set or computer is measured in months, and even complex products such as motor cars now take only a couple of years to develop – being able to replace products frequently with better versions is increasingly important. ‘Competing in time’ reflects a growing pressure on firms not just to introduce new products but to do so faster than the competitors ; in their 2019 survey, BCG found that increasing the speed of innovation was a key driver. At the same time, new product development is an important capability because the envi- ronment is constantly changing. Shifts in the socioeconomic field (in what people believe, expect, want and earn) create opportunities and constraints. Legislation may open up new pathways, or close down others – for example, increasing the requirements for environmen- tally friendly products. Competitors may introduce new products that represent a major threat to existing market positions. In all these ways, firms need the capability to respond through product innovation. While new products are often seen as the cutting edge of innovation in the marketplace, process innovation plays just as important a strategic role. Being able to make something no one else can, or to do so in ways that are better than anyone else is a powerful source of advantage. For example, the Japanese dominance in the late twentieth century across several sectors – cars, motorcycles, shipbuilding, consumer electronics – owed a great deal to superior abilities in manufacturing – something that resulted from a consistent pattern of process innovation. The Toyota production system and its equivalent in Honda and Nissan led to performance advan- tages of around two to one over average car makers across a range of quality and productivity indicators. One of the main reasons for the ability of relatively small firms such as Oxford Instruments or Incat to survive in highly competitive global markets is the sheer complexity of  1.5 Strategic Advantage Through Innovation 11 what they make and the huge difficulties a new entrant would encounter in trying to learn and master their technologies. Similarly, being able to offer better service – faster, cheaper, higher quality – has long been seen as a source of competitive edge. Citibank was the first bank to offer automated teller machinery (ATM) service and developed a strong market position as a technology leader on the back of this process innovation. Benetton is one of the world’s most successful retailers, largely due to its sophisticated IT-led production network, which it innovated over a 10-year period, and the same model has been used to great effect by the Spanish firm Zara. Southwest Airlines achieved an enviable position as the most effective airline in the United States despite being much smaller than its rivals; its success was due to process innovation in areas such as reducing airport turnaround times. This model has subsequently become the template for a whole new generation of low-cost airlines whose efforts have revolutionized the once-cosy world of air travel. Importantly, we need to remember that the advantages that flow from these innovative steps gradually fall to the competition as others imitate. Unless an organization is able to move into further innovation, it risks being left behind as others take the lead in changing their offer- ings, their operational processes or the underlying models, which drive their business. For example, leadership in banking has been passed to those who were able to capitalize early on the boom in information and communications technologies; in particular, many of the lucrative financial services such as securities and share dealing have become dominated by players with radical new models such as Charles Schwab. In turn, there are now major challenges from the world of peer-to-peer lending and other Web-based financial services. Research Note 1.5 discusses the innovation imperative facing organizations. Case Study 1.4 looks in detail at one example – the music industry. RESEARCH NOTE 1.5 The Innovation Imperative In the mid-1980s, a study by Shell suggested that the average cor- nineteenth century, which had Wellington boots and toilet porate survival rate for large companies was only about half as paper among its product range, became one of the largest long as that of a human being. Since then, the pressures on firms and most successful in the world in the telecommunications have increased enormously from all directions – with the inevi- business. Nokia began life as a lumber company, making the table result that life expectancy is reduced still further. Many equipment and supplies needed to cut down forests in Finland. studies look at the changing composition of key indices and It moved through into paper and from there into the ‘paperless draw attention to the demise of what were often major firms and, office’ world of IT – and from there into mobile telephones. It in their time, key innovators. For example, Foster and Kaplan has now moved beyond handsets and into the core architecture point out that, of the 500 companies originally making up the of networks and systems infrastructure. Standard and Poor 500 list in 1857, only 74 remained on the list Another mobile phone player – Vodafone Airtouch – through to 1997. Of the top 12 companies that made up the grew to its huge size by merging with a firm called Mannes- Dow Jones index in 1900 only one – General Electric – survives man, which, since its birth in the 1870s, had been more com- today. Even apparently robust giants such as IBM, GM or Kodak monly associated with the invention and production of steel can suddenly display worrying signs of mortality, while for small tubes! TUI is the largest European travel and tourism services firms, the picture is often considerably worse since they lack the company. Its origins, however, lie in the mines of old Prussia, protection of a large resource base. where it was established as a public sector state lead mining Some firms have had to change dramatically to stay and smelting company!. in business. For example, a company founded in the early 12 CHAPTER 1 Innovation – What It Is and Why It Matters CA S E S T U DY 1. 4 The Changing Nature of the Music Industry 1 April 2006. Apart from being a traditional day for playing relatively slow modems. With MP3, effective compression is practical jokes, this was the day on which another landmark in achieved by cutting out those frequencies that the human ear the rapidly changing world of music was reached. ‘Crazy’ – a cannot detect – with the result that the files to be transferred track by Gnarls Barkley – made pop history as the United are much smaller. Kingdom’s first song to top the charts based on download sales As a result, MP3 files could be moved across the Internet alone. Commenting on the fact that the song had been down- quickly and shared widely. What did this mean for the music loaded more than 31,000 times but was only released for sale in business? In the first instance, aspiring musicians no longer the shops on 3 April, Gennaro Castaldo, spokesman for retailer needed to depend on being picked up by A&R staff from major HMV, said ‘This not only represents a watershed in how the companies who could bear the costs of recording and produc- charts are compiled, but shows that legal downloads have come tion of a physical CD. Instead, they could use home recording of age... if physical copies fly off the shelves at the same rate software and either produce a CD themselves or else go straight it could vie for a place as the year’s biggest seller’. to MP3 – and then distribute the product globally via news- One of the less visible but highly challenging aspects groups, chatrooms and so on. In the process, they effectively of the Internet is the impact it has had – and is having – on created a parallel and much more direct music industry, which the entertainment business. This is particularly the case with left existing players and artists on the sidelines. music. At one level, its impacts could be assumed to be con- Such changes were not necessarily threatening. For many fined to providing new ‘e-tailing’ channels, such as Amazon or people, the lowering of entry barriers opened up the possibility hundreds of other websites. These innovations increased the of participating in the music business – for example, by mak- choice and tailoring of the music purchasing service and dem- ing and sharing music without the complexities and costs of a onstrated some of the ‘richness/reach’ economic shifts of the formal recording contract and the resources of a major record new Internet game. company. There was also scope for innovation around the But beneath this updating of essentially the same trans- periphery – for example, in the music publishing sector where action lay a more fundamental shift – in the ways in which sheet music and lyrics are also susceptible to lowering of bar- music is created and distributed and in the business model riers through the application of digital technology. Journalism on which the whole music industry is currently predicated. In and related activities became increasingly open – music reviews essence, the old model involved a complex network in which and other forms of commentary become possible via specialist songwriters and artists depended on A&R (artists and reper- user groups and channels on the Web, whereas before, they toire) to select a few acts, production staff who would record were the province of a few magazine titles. Compiling popu- in complex and expensive studios, other production staff who larity charts – and the related advertising – was also opened up would oversee the manufacture of physical discs, tapes and as the medium switched from physical CDs and tapes distrib- CDs, and marketing and distribution staff who would ensure uted and sold via established channels to new media such as that the product was publicized and disseminated to an increas- MP3 distributed via the Internet. ingly global market. As if this were not enough, the industry was also chal- Several key changes undermined this structure and lenged from another source – the sharing of music between dif- brought with it significant disruption to the industry. Old com- ferent people connected via the Internet. Although technically petencies were no longer relevant, while acquiring new ones illegal, this practice of sharing between people’s record collec- became a matter of urgency. Even well-established names such tions had always taken place – but not on the scale that the as Sony found it difficult to stay ahead, while new entrants were Internet threatened to facilitate. Much of the established music able to exploit the economics of the Internet. At the heart of the industry was concerned with legal issues – how to protect copy- change was the potential for creating, storing and distributing right and how to ensure that royalties were paid in the right music in digital format – a problem that many researchers had proportions to those who participated in production and distri- worked on for some time. One solution, developed by one of bution. But when people could share music in MP3 format and the Fraunhofer Institutes in Germany, was a standard based distribute it globally, the potential for policing the system and on the Motion Picture Experts Group (MPEG) level 3 protocol collecting royalties became extremely difficult to sustain. (MP3). MP3 offers a powerful algorithm for managing one of It was made much more so by another technological the big problems in transmitting music files – that of compres- development – that of person-to-person networking. Shawn sion. Normal audio files cover a wide range of frequencies and Parker and Sean Fanning, teenage students (Fanning had the are thus very large and not suitable for fast transfer across the nickname ‘The Napster’), were intrigued by the challenge of Internet – especially with a population who may only be using being able to enable their friends to ‘see’ and share between their  1.5 Strategic Advantage Through Innovation 13 own personal record collections. They argued that if they held and downloaded around the globe, representing a major force these in MP3 format, then it should be possible to set up some against music piracy and the future of music distribution as we kind of central exchange program that facilitated their sharing. move from CDs to the Internet’. The result – the Napster.com site – offered sophisticated This technological change to digital music was a software that enabled peer-to-peer (P2P) transactions. The dramatic shift, reaching the point where more singles were Napster server did not actually hold any music on its files – but bought as downloads in 2005 than as CDs and where new every day, millions of swaps were made by people around the players began to dominate the game. And the changes didn’t world exchanging their music collections. Needless to say, this stop there. In February 2006, the Arctic Monkeys topped the posed a huge threat to the established music business since it UK album charts and walked off with a fistful of awards from involved no payment of royalties. A number of high-profile the music business – yet their rise to prominence had been lawsuits followed, but while Napster’s activities were curbed, entirely via ‘viral marketing’ across the Internet rather than by the problem did not go away. Many other sites began emulating conventional advertising and promotion. Playing gigs around and extending what Napster started – sites such as Gnutella, the northern English town of Sheffield, the band simply gave Kazaa and Limewire took the P2P idea further and enabled away CDs of their early songs to their fans, who then oblig- exchange of many different file formats – text, video and so ingly spread them around on the Internet. ‘They came to the on. In Napster’s own case, the phenomenally successful site attention of the public via the Internet, and you had chat rooms, concluded a deal with the entertainment giant Bertelsmann, everyone talking about them’, says a slightly worried Gennaro which paved the way for subscription-based services that pro- Castaldo of HMV Records. David Sinclair, a rock journalist, vide some revenue stream to deal with the royalty issue. suggests that ‘It’s a big wakeup call to all the record companies, Expectations that legal protection would limit the impact the establishment, if you like... This lot caught them all nap- of this revolution were dampened by a US Court of Appeal ping... We are living in a completely different era, which the ruling, which rejected claims that P2P violated copyright Arctic Monkeys have done an awful lot to bring about’. law. Their judgement said, ‘History has shown that time and Subsequent developments have shown an acceleration market forces often provide equilibrium in balancing interests, in the pace of change and an explosion in the variety of new whether the new technology be a player piano, a copier, a tape business models better adapted to create and capture value recorder, a video recorder, a PC, a karaoke machine or an MP3 from the industry. For example, the US music download player’ (Personal Computer World, November 2004, p. 32). business became dominated by Apple and Amazon (with 70% Significantly, the new opportunities opened up by this and 10%, respectively, of the market) – two companies with were seized not by music industry firms but by computer com- roots in very different worlds. While the volume of downloads panies, especially Apple. In parallel with the launch of their increased significantly, competition emerged from other new successful iPod personal MP3 player, they opened a site called business models, notably those built around streaming ser- iTunes, which offered users a choice of thousands of tracks vices. In 2008 the Swedish company Spotify AB launched the for download at 99c each. In its first weeks of operation, it Spotify service with a different assumption – that people did recorded 1 million hits; in February 2006, the billionth song, not necessarily wish to own the music they wanted but would ‘Speed of Sound’, was purchased as part of Coldplay’s ‘X&Y’ be prepared to rent access to it on a subscription basis. Its album by Alex Ostrovsky from West Bloomfield, Michigan. ‘I catalogue now runs to over 30 million items and the company hope that every customer, artist, and music company execu- currently has 271 million users spread across 79 countries; of tive takes a moment today to reflect on what we’ve achieved these 124 million pay a subscription for the premium service together during the past three years’, said Steve Jobs, Apple’s while the rest access the service for free with the costs being CEO, ‘Over one billion songs have now been legally purchased picked up in advertising streamed alongside the music. With the rise of the Internet, the scope for service innovation has grown enormously, so much so that it is sometimes called ‘a solution looking for problems’. As Evans and Wurster point out, the traditional picture of services being offered either as a standard to a large market (high ‘reach’ in their terms) or else highly specialized and customized to a particular individual able to pay a high price (high ‘richness’) is ‘blown to bits’ by the opportunities of Web-based technology. Now it becomes possible to offer both richness and reach at the same time – and thus to create totally new markets and disrupt radically those that exist in any information-related businesses. The challenge that the Internet poses is not only one for the major banks and retail com- panies, although those are the stories that hit the headlines. It is also an issue – and quite pos- sibly a survival one – for thousands of small businesses. Think about the local travel agent and 14 CHAPTER 1 Innovation – What It Is and Why It Matters the cosy way in which it used to operate. Racks full of glossy brochures through which people could browse, desks at which helpful sales assistants sort out the details of selecting and booking a holiday, procuring the tickets, arranging insurance and so on. And then think about how all of this can be accomplished at the click of a mouse from the comfort of home – and that it can potentially be done with more choice and at lower cost. Not surprisingly, one of the biggest growth areas in dot.com start-ups was the travel sector, and while many disappeared when the bubble burst, others such as lastminute.com and Expedia have established themselves as main- stream players. The point is that whatever the dominant technological, social or market conditions, the key to creating – and sustaining – competitive advantage is likely to lie with those organizations that continually innovate. Table 1.3 indicates some of the ways in which enterprises can obtain strategic advantage through innovation. Table 1.3 Strategic Advantages Through Innovation Mechanism Strategic Advantage Examples Novelty in product or Offering something no one else can Introducing the first... Walkman, mobile phone, fountain pen, service offering camera, dishwasher, telephone bank, online retailer and so on... to the world Novelty in process Offering it in ways others cannot match – Pilkington’s float glass process, Bessemer’s steel process, faster, lower cost, more customized and so Internet banking, online bookselling and so on on Complexity Offering something that others find difficult Rolls-Royce and aircraft engines – only a handful of competi- to master tors can master the complex machining and metallurgy involved Legal protection of Offering something that others cannot do Blockbuster drugs such as Zantac, Prozac, Viagra and so on intellectual property unless they pay a license or other fee Add/extend range of Move basis of competition – for example, Japanese car manufacturing, which systematically moved competitive factors from price of product to price and quality, or the competitive agenda from price to quality, to flexibility and price, quality, choice and so on choice, to shorter times between launch of new models and so on – each time not trading these off against each other but offering them all Timing First-mover advantage – being first can Amazon, Google – others can follow, but the advantage ‘sticks’ be worth significant market share in new to the early movers. For example, personal digital assistants product fields. Fast follower advantage – (PDAs), which captured a huge and growing share of the sometimes being first means you encounter market and then found their functionality absorbed into mobile many unexpected teething problems, and it phones and tablet devices. In fact, the concept and design was makes better sense to watch someone else articulated in Apple’s ill-fated Newton product some five years make the early mistakes and move fast into earlier – but problems with software and especially handwriting a follow-up product recognition meant it flopped. Equally, their iPod was not the first MP3 player, but the lessons they learned from earlier product failures from other companies helped them focus on making the design a success and built the platform for the iPhone Robust/platform Offering something that provides the platform Walkman architecture – through minidisk, CD, DVD, MP3... design on which other variations and generations Boeing 737 – over 50 years old, the design is still being adapted can be built and configured to suit different users – one of the most suc- cessful aircraft in the world in terms of sales Intel and AMD with different variants of their microprocessor families Rewriting the rules Offering something that represents a com- Typewriters versus computer word processing, ice versus refrig- pletely new product or process concept – a erators, electric versus gas or oil lamps different way of doing things – and makes the old ones redundant  1.6 Old Question, New Context 15 Table 1.3 Strategic Advantages Through Innovation (continued) Mechanism Strategic Advantage Examples Reconfiguring the Rethinking the way in which bits of the Zara, Benetton in clothing, Dell in computers, Toyota in its parts of the process system work together – for example, building supply chain management, Cisco in providing the digital infra- more effective networks, outsourcing, structure underpinning the Web coordination of a virtual company and so on Transferring across Recombining established elements for Polycarbonate wheels transferred from application market such different application different markets as rolling luggage into children’s toys – lightweight micro- contexts scooters Others Innovation is all about finding new ways Napster. This firm began by writing software that would enable to do things and to obtain strategic music fans to swap their favourite pieces via peer-to-peer (P2P) advantage – so there will be room for new networking across the Internet. Although Napster suffered from ways of gaining and retaining advantage legal issues, followers developed a huge industry based on downloading and file sharing. The experiences of one of these firms – Kazaa – provided the platform for successful high- volume Internet telephony, and the company established with this knowledge – Skype – was sold to eBay for $2.6 billion and eventually to Microsoft for $8.5 billion 1.6 ‘Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting 1.6 OLD uncertainty... all old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries... whose products are consumed not only at home but in every QUESTION, quarter of the globe. In place of old wants satisfied by the production of the country, we find new NEW CONTEXT wants... the intellectual creativity of individual nations become common property’ This quote does not come from a contemporary journalist or politician but from the Com- munist Manifesto, published by Karl Marx and Friedrich Engels in 1848! But it serves to remind us that the innovation challenge isn’t new – organizations have always had to think about chang- ing what they offer the world and the ways they create and deliver that offering if they are to survive and grow. The trouble is that innovation involves a moving target – not only is there competition among players in the game, but the overall context in which the game is played out keeps shifting. And while many organizations have some tried-and-tested recipes for playing the game, there is always the risk that the rules will change and leave them vulnerable. Changes along several core environmental dimensions mean that the incidence of discontinuities is likely to rise – for example, in response to a massive increase in the rate of knowledge production and the consequent increase in the potential for technology-linked instabilities. But there is also a higher level of interactivity among these environmental elements – complexity – which leads to unpredictable emergence. The current uncertainty in the automobile industry is a good example. During most of the twentieth century the technological and market trajectories were clear, and innova- tion took place in a pattern reflecting the maturity of the sector. But now it has reverted to a fluid state in which social forces (such as changing attitudes to ownership and concern for the health of the planet), regulatory pressures (on emissions and on energy conservation), the entry of new players (many coming from outside the traditional auto sector) and tech- nological shifts (especially towards driverless car technology) are all creating a complex co-evolving system. Case Study 1.5 explores the ways in which Kodak is reinventing itself through redeploying some of its knowledge base. 16 CHAPTER 1 Innovation – What It Is and Why It Matters CA S E S T U DY 1. 5 Reinventing Kodak The difficulties of a firm such as Kodak illustrate the problem. while at the same time to rapidly acquire and absorb cutting Founded around 100 years ago, the basis of the business was edge new technologies in electronics and communication. the production and processing of film and the sales and ser- Although they made strenuous efforts to shift from being a vice associated with mass-market photography. While the lat- manufacturer of film to becoming a key player in the digital ter set of competencies are still highly relevant (even though imaging industry and beyond, they found the transition very camera technology has shifted), the move away from wet difficult, and in 2012, they filed for Chapter 11 bankruptcy physical chemistry conducted in the dark (coating emul- protection. sions onto films and paper) to digital imaging represented Significantly, this is not the end of the company; instead, a profound change for the firm. It needed – across a global it has regrouped around other core technologies and devel- operation and a workforce of thousands – to let go of old oped new directions for innovation-led growth in fields such as competencies, which are unlikely to be needed in the future, high-speed, high-volume printing. 1.7 Innovation has always been a globally distributed activity but until the latter part of the twentieth 1.7 THE century it was strongly linked to the major industrial nations. The rise of the industrial research GLOBALIZATION laboratory and the growing investment in universities and other parts of the science and tech- OF INNOVATION nology ecosystem took place particularly in regions like the USA, Japan and Europe. That pattern has changed dramatically; now even small country players like Taiwan, Singapore or Denmark are important parts of the international innovation system. As Figure 1.2 shows one indicator of this is the shift from the USA as a dominating R&D spending in the 1960s to the current picture which has seen that share more than halved. Figure 1.3 shows that the biggest shift by far has been in the entry of China on to the world innovation stage. And as Figure 1.4 shows the rise in recent years of China as a significant spender has been dramatic. Nor are the sums of money invested trivial, as Table 1.4 shows. 1960 2017 FIGURE 1.2 U.S. share of global R&D Sources: Based on 1960 : CRS analysis United Rest of United Rest of of U.S Department States the World States the World of commerce, office 69% 31% 28% 72% of technology policy. The Global context of U.S Technology policy 1997. 2017: CRS anal- ysis of organisation Notes: Rest of the World includes the members of the OECD (less the United States), for economic coopera- Argentina, China, Romania, Russia, Singapore, South Africa, and Taiwan. R&D tion and Development expenditures by others countries are not included but are likely to be small in relative (OECD) data, Main terms. In estimating total global R&D, CRS used the most recent year’s reported R&D science and Technology expenditures for two countries (Singapore and South Africa) that had not reported data Indicators, OECD.Stat. for 2017.  1.7 The Globalization of Innovation 17 45% United States 40% China 35% Japan 30% Germany 25% South Korea F I G U R E 1.3 Share of global R&D of selected 20% France countries, 2000–2017 15% United Kingdom Source: Data from CRS Russia analysis of Economic 10% Taiwan Development and coop- 5% eration. OECD.Stat Italy database, https:// 0% stats.oecd.org/index. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 aspx?DataSetCode= MSTI_Pub 1400% China United States China 1200% Japan Germany 1000% South Korea France F I G U R E 1.4 Growth 800% United Kingdom in R&D expenditures Russia since 2000 for selected 600% Taiwan South Korea countries, 2000–2017 Italy