Innovation Management PDF

UNIT 1: CONCEPTUAL FRAME Innovation. An innovation is a new or improved product or process (or combination thereof) that differs significantly from the unit’s previous product or processes and that has been made available to potential users (product) or brought into use by the unit (process). Invent...

UNIT 1: CONCEPTUAL FRAME Innovation. An innovation is a new or improved product or process (or combination thereof) that differs significantly from the unit’s previous product or processes and that has been made available to potential users (product) or brought into use by the unit (process). Invention is not the same as innovation: Innovation is invention (a new way of doing something) plus diffusion through commercialization or public provision. Technology as the subset of scientific knowledge that has practical applications (occurs through of innovation) Research and development as creative work undertaken on a systematic basis to increase the stock of knowledge and the use of this knowledge to derive new applications (OECD’s Fascati Manual). R&D Activities - Basic Research has as its objective to develop new scientific knowledge without scientific applications in mind (“curiosity driven” research). Usually conducted in large firm labs and universities. Outputs result in scientific papers and some findings to inspire applied research. - Applied Research. Involves use of existing scientific knowledge for solution of a particular problem Can lead to new technologies and patents. - Experimental Development focuses on solving technical problems regarding a new product ot production process or to improve performance. Can result in a prototype that can be tested and if successful, leads to innovation. Innovation implications - Essential for business competitiveness and corporate growth (including new start-ups) - Generic technologies can create and destroy whole industries (e.g. steam power, electricity, IT) - Important role in economic growth at national level through is effect on productivity. - Innovation as the route to economic diversification and structural change - Innovation for sustainable development - Creative Destruction: New technologies and the accompanying organizational changes challenge the economic structure. New firms challenge existing, and organizations have to adjust or will disappear. This process renews society’s dynamics and leads ultimately society to higher levels of economic development and welfare. Types of innovations - Process innovation. Changes in the way the product is made, Product and Process innovation are coupled: without changing the product itself. Process innovations are often - New processes facilitate the development and oriented toward improving the effectiveness or efficiency of production of new products (cars, bicycles). production by, for example, reducing defect rates or increasing the - New products allow for the development of new quantity that may be produced at any given time. processes. - Product innovation and technological trajectories. Product life - A product innovation in one firm can account for a process innovation in another (new software). cycles shortening, important to replace products frequently with better versions or new varieties. - Radical and Incremental Innovation. o Radical “do something” (e.g. Product: voice recognition, hybrid car engines; process: online share- trading). o Incremental: “do what we do better” (e.g. product: Windows 7 replacing Windows XP; process: improved fixed line phone services). - Social and Sustainable Innovation. o Frugal innovation: lower cost, less use of resources o Green / eco-innovation: to protect the environment and address climate change. o Inclusive innovation: to create opportunities that enhance social and economic wellbeing of poor and marginalized members of society o Pro-poor innovation & innovation for the bottom of the pyramid o Grass-root innovation: developed by lower income groups themselves. Innovation models LINEAR MODEL (SCIENCE PUSH) Scientific advances push technological change. R&D as the origin of innovation, the most important issue is the invention, the new idea. Supports the importance of public investment in basic research. Supports the importance of protecting basic knowledge (patent system). Leads to separation between the different phases and to “closed” innovation strategies. Innovation driven by large corporate labs isolated from universities. Companies focused predominantly on scientific breakthroughs -- “the more R&D in, the more new products out.” “Strategy of hope”: “Hire good people, give them the best affordable facilities, then leave them alone”. Figure 1. Linear model diagram CHAIN LINK MODEL The “chain-link” model shows a central chain of innovation (C) involving the identification of a potential market, followed by the design and testing of the idea, leading to market entry. Crucially, at each stage in the development of the idea there are feed-back loops (f) to depict the trial-and-error nature of the process. The most important source of feed-back (F) is from the testing of the idea in the market. The links to the knowledge and research panels along the top of the figure signify the circumstances under which the existing stock of knowledge (K) or research (R), which might be thought of as new knowledge, is required. This might occur where problem-solving is necessary as the idea is developed. Thus, the problem might be solved by reference to the existing stock of knowledge (arrow 1 to node K and arrow 2 back). For example, this could be achieved through reading scientific publications or attending conferences. If the problem cannot be solved from the existing stock of knowledge, it might be necessary to undertake research (arrow 3 to R). The outcome of this research is uncertain Figure 2. Chain link model diagram as the problem may be insoluble (hence arrow 4 back is dashed). Innovation Management Small firms operating in highly competitive industries are the most likely to be the major source of innovation. Small, entrepreneurial firms, come from outside to challenge the existing system, leading to creative destruction. Some advantages for small firms are flexibility and dynamism, less bureaucratic, less expensive but more radical innovations, presented on the earlier stages of the inventive work Large firms operating in a concentrated industry have some means to project themselves at least temporarily and this allows larger gains from innovation and therefore higher incentives to innovate. Some advantages for larger firms are their financial capabilities and a portfolio approach to control risks, improving and scaling up early breakthroughs and an innovation taking part on the latter stage of the process. A distinction can be made between Unicorn, gazelle and dolphin companies. Unicorns are startup companies that have reached a valuation of 1 billion or more. They had a rapid growth and innovation and attracted significant investment. Have less than 10 years in the market. Gazelles are small to medium-sized companies that are experiencing a rapid growth. They scale quickly and are great contributors to job creation and economic growth, while having high growth ventures. Dolphins are agile and adaptable. Mostly science-based start-ups. The resource-based view considers that the competitive advantage of a business is based on its valuable, rare, inimitable and non-substitutable resources. Resources combine into capabilities/competences, which try to achieve a particular task or tasks. Core competences distinguish the firm in the market and cannot be easily imitated. In other words, they are what a firm does well and better than the others. Figure 3. Resource-based view model diagram However, these capabilities can also have negative effects: - The strengths of the firm are also its weaknesses. - Established competencies may become too dominant and important new competencies can be neglected or underestimated. - Firms become very effective at solving ‘normal’ or ‘routine’ problems and cumulative technological development. - As companies get better at technologies and products, they may also become less adaptable. - The very effectiveness of these activities can make the firm vulnerable to more radical ‘competence destroying’ change. We can make a distinction between competence-enhancing innovation (if it builds on the firms’ existing knowledge) or competence-destroying (if it doesn’t, or if it renders them obsolete). This implies that an innovation will mostly cause a counter-effect: a disruption. Innovative technologies will make others obsolete. UNIT 2. MEASURING INNOVATION Knowledge is one of the principal elements of the market. Regarding innovation, we can imply our social knowledge to the market economy. This variable is sometimes proxied with R&D investment, but one of the problems regarding innovation is that generalizing, the private sector underinvests in R&D. What’s stopping companies from investing in R&D in the uncertainty of having profits and the hazardous possibility of imitators. Companies don’t know if their investment in research will be successful, and even if it is, firms can struggle to maintain their position or anticipate future market developments (if they innovated successfully, why won’t other competitors?). On the other hand, market failures occur when innovators cannot protect their innovations from imitators, leading to lack of innovation (waiting for other researchers to find a nice innovation so I can use it). When protecting intellectual property, there is a balance between R&D expenditure and openness. Those firms that collaborate in open research but invest little have the same performance than those who don’t share their knowledge but invest a lot. There are of course some difficulties for this to happen. - Network management: coordination and collaboration between different actors in the innovation ecosystem, including researchers, businesses, government agencies, and investors. - Scientific knowledge: focus on short-term that lead to underinvestment, not seeing the value of scientific research, etc. - Tacit knowledge: communication barriers (can impede the diffusion of tactic knowledge) and loss of enterprise. - Imitators: entities that replicate innovations without investing in their development. A weak intellectual property protection and lack of competitive advantage. A direction failure occurs when innovation or technological advancements do not align with societal needs, values or priorities, for example, with a technology push: (lack of market view, exclusivity and accessibility, ethical concerns) or when the demand pulls (not everyone is represented in the market, short-term focus). These are all reasons to find a numeric measure to innovation. The OECD publishes the Frascati manual (first issued in 1963), focused on R&D, and the Oslo Manual, for technological innovation (1992) and for non-technological innovation (2005). UNIT 3. OPEN INNOVATION THE CHANDLERIAN MODEL - Strong emphasis on internal capabilities and resources. - Companies should rely primarily on their in-house R&D departments to generate ideas and develop innovations. - Implicitly assumes that all the necessary knowledge and expertise exist within the boundaries of the organization. - Linear innovation process, from internal research and development to market launch. - Innovation is seen as a proprietary and internal affair. - Innovation as a source of competitive advantage that should be protected and kept within the organization. A CHANGE OF PATH… - Decline in the strategic advantage of internal R&D: - - - greater range of producers of knowledge - increased mobility of knowledge workers - Increasing difficulties for firms to appropriate and control their R&D investments - From Chandlerian model to open innovation strategy OPEN INNOVATION VS. CHANDLERIAN MODEL - Internal focus vs. external collaboration - Linear process vs. iterative and networked process - Closed boundaries vs. permeable boundaries - Innovation as a competitive advantage vs. innovation ecosystem THE RATIONALE BEHIND OPEN INNOVATION - Innovations come more from startups than from established companies - In a world of widely dispersed knowledge production, companies cannot afford to rely - exclusively on their own R&D - Companies with a high creative capacity cannot always benefit from their innovations TYPES OF OPEN INNOVATION - Inbound open innovation (collaboration, purchase of inventions, acquisition of start-ups, alliances, joint ventures, etc.) - Outbound open innovation (licensing, joint ventures or spin-offs, etc.) UNIT 4. MODELS AND TOOLS FOR INNOVATION MANAGEMENT Innovation scorecards or reports. They give a general view of the situation with different perspectives: - Financial Perspective: Ensure that R&D investments contribute to the company’s financial performance (e.g. R&D ROI, time-to-break-even for R&D projects…) - Customer Perspective: Ensure that R&D outputs meet customer needs and enhance customer satisfaction (e.g. market share of innovative products, rate of customer adoption…) - Internal Business Processes Perspective: Optimize R&D processes to deliver innovation efficiently and effectively (e.g., product development cycle time, rate of technology transfer to operations/manufacturing…) - Learning and Growth Perspective: Enhance the R&D team’s capacity for innovation and ensure the long-term development of R&D capabilities (e.g. R&D employee training, patents filed by R&D team…) R&D "as a Lab" Model. Clear separation between inputs and outputs, focuses on constant and useful loop feedback between phases. Dynamic capabilities model. Ordinary capabilities imply "Doing the same thing but in the better way (productivity, efficiency, bechmark, reduction of costs…)", and dynamic capabilities refers to the capacity of adapting well and smoothly. An example could be the iPod (Sensing (there’s something with value but it is not presented to the open people) - Seizing (Develop an easy-to-use UI) - Transforming (expand iTunes to Windows)- Result) Figure 4. R&D as a lab model diagram Open innovation model – Not only inbound open innovation, but also outbound (to the society). SECI model (Nonaka, Takeuchi, 1996). This model comes from the acronym formed by Socialization, Externalization, Combination and Internalization, and merges both the social factor and the dimension of the knowledge (if it is tacit or explicit). For example, in socialization, marketing workers would go to the sales people and discuss about what they were doing or the new measures they were taking. Externalization refers to writing memories, reports or databases. Combination is putting explicit with explicit: again, creating reports, manuals or databases with the previous two phases, and internalization would be using that information as for your job. Community of Practice (CoP model). Introduced by Etienne Wenger and Jean Lave in the 1990s, this model focuses on how groups of Figure 5. SECI model diagram people come together to share knowledge, learn from one another, and improve their expertise in a specific area. This concept is central to learning theory and knowledge management within organizations. Some examples are forums, repositories, GitHub… UNIT 5. DIFFUSION OF INNOVATION Why study the diffusion of innovations? Mainly because there is a gap between what is known and what is used (not all inventions are used). The diffusion of innovation is the process in which an innovation is communicated to members of a society (Rogers, 1962). It depends on the perceptions, benefits, simplicity, adoption… and not only on the wellness of the innovation. Von Himmel incurs in the importance of lead users (role models) to make an impact in diffusion. However, these can also have negative impacts: - Through information cascades, "herd behaviour" of adoption occur as a particular variant is selected. - Network effects may lead to excessive market concentration (monopolies). - The diffusion process assumes an historical character (path-dependence, “lock-in”) - Technology diffusion might respond to the interest of powerful elites rather than the broader interest of society (Acemoglu, Johnson, 2023). The creation of a market niche that will adopt innovations is essential for innovations to occur. UNIT 6. TECH TRANSFER AND UNI-BUSINESS RELATIONS Technology transfer is the process of transferring a technology from one organization to another. It shouldn’t be confused with collaboration or co-creation, and it is associated with open innovation strategies. It can happen in any direction between Unis, Public sectors, countries or private business and it can be contractual or informal. Universities increase the socioeconomic returns of mounting public investments in R&D, and if the research and teaching of universities is aligned with business demands the growth is more relevant. Some motivations for firms are: - Research o Access to technological developments and technologies. o Access to complementary knowledge (e.g. basic research) o Use of scientific infrastructures and technical equipment o Access to public grants, adapt to government policies. - Teaching o Training/professional development (in-company programs, tailored courses, executive education) o Access to graduates o Influence university teaching curricula. - General o Cost-effective outsourcing (vs in-house or external consultants) o Non-inter-firm conflicts of interest o Enhance reputation. o Corporate social responsibility. And other motivations for universities are: - Research o Access private funding for R&D projects o Income from patent licensing o Feedback to research agendas and ongoing projects o Increase university outputs (spin-offs, joint publications…) o Access data to conduct relevant research. o Transfer R&D outcomes into practical benefits. - Teaching o Source of income o Improving education curricula, with a more practical orientation o Training and employment opportunities for students - General o Enhance university reputation (and position in international rankings) o Contribution to regional economic development (third mission) Some challenges that both universities and businesses have are the lack of information in transactions, different interest in research and in output. Bussinesses tend to be interested in short-term, not-shared and big profit innovation applications, while uni departments research on more curiosity-drive, long-term innovations, to be published as soon as possible. To find a mutual path, technology transfer offices work on searching for a balance. There are also some economic instruments and policies that help these transactions: UNIT 7. NATIONAL INNOVATION SYSTEMS The national innovation system concept was introduced by evolutionary economists who found that neoclassical economics did not offer explanations on what determines economic growth and competitiveness. The most important weakness of neoclassical economics is that its basic assumptions on equilibrium and rational expectations block for understanding innovation and learning processes. Firms do not innovate in isolation with the environment, and as innovation is risky, firms need support to innovate. The State is crucial, then, in the innovation process. With this premise, a national innovation system is defined as: - Freeman (1987): “the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies”. - Lundvall (1992): “all parts and aspects of the economic structure and the institutional set-up affecting learning as well as searching and exploring”. - Nelson (1993): “a set of institutions whose interactions determine the innovative performance of national firms”. - Edquist (1997): “all important economic, social, political, organisational, institutional and other factors that influence the development, diffusion and use of innovations”. It is composed of organizations (Unis, Businesses, TTO’s, government agencies…) and institutions, referring to the legal frame (Patent laws, IP regulations, university norms…). Innovation and technology development are the result of a complex set of relationships among actors in the system. For policymakers, an understanding of the national innovation system can help identify leverage points for enhancing innovative performance and overall competitiveness. (UNIT 9) System failures as a rationale for policy intervention, beyond market failures – e.g. weak links/relations between different components of the system; weakness of certain component of the system that acts as a bottleneck or weak or inappropriate institutions. UNIT 8. GLOBALIZATION OF INNOVATION Innovation is increasingly generated through international collaboration and diffused faster on a global scale, and global innovation networks (disperse corporate R&D centres) from different firms are being developed. Some motivations from globalising innovation can be explained as either demand-driven or supply-driven. - Demand-driven factors: o Need for proximity to local customers. o Need to adapt products to local market. o “Trading market access for technology” - Supply-driven factors: o Access to highly skilled personnel. o Proximity to renowned university and R&D laboratories. o Proximity to potential partners (customers and suppliers). o Access to low-cost supply of R&D personnel. Even if creating a global innovation network for a firm sounds good, there are some implications: - Choices to be made: o Centralisation versus decentralisation of R&D. o Geographical location(s). o Integrating R&D networks. - Issues to consider. o Minimum/ maximum effective size of unit? o Cultural issues, diversity. o Communication across borders. Nowadays, there is a global trend where emerging countries are growing relevance as destination and source countries, as well as Western countries are growing mistrust and difficulties to get investment. Plus, there has been a stabilization on R&D growth, that was fast-paced in the years 1980-2010. If we look out of the large companies, lately there has been plenty of mobility of entrepreneurs and start-ups, as well as an international expansion of universities and public research institutes. These are creating international branch campuses because of these motivations: - Expanding teaching programs to attract more students and raise more money. - Gaining access to research funding and public subsidies from foreign countries. - Expanding technology commercialization abroad and engaging in contract research with foreign firms. - Achieving economies of scale and scope through common governance of geographically dispersed campuses. - Building a more efficient global research network. UNIT 9. PUBLIC POLICIES TO PROMOTE INNOVATION Innovation policies has as objectives to improve the regional capacity to introduce innovations in order to maintain competition and improve people’s quality of life, to increase the public science system, or even to some economic reasons (such as better defence, health, education…) There are some limitations to these policies, the main being political cycles, but also coordination problems or political failures. Examples of these policies are: - Regulations: o Intellectual Property Rights o Universities and PROs statues o Competition policies about R&D alliances o Bioethical regulations - Financial instruments / Economic transfers: o ‘En block’ support to research o Competitive research funding o Tax exemptions o Support to venture capital - Soft instruments: o Voluntary standardisation o Codes of conduct o Public-private partnerships o Voluntary agreements When taking decisions about the policy mix choices, these aspects should be regarded: - Time frame o Short vs long term impacts vary across policy instruments - Target actors o Universities – public research centres – firms – individual researchers/entrepreneurs o SMEs vs large firms / startups vs established firms - Target technologies / industries o Neutral vs targeted approach to concentrate resources and prioritize o Smart specialization strategies (to take advantage of local strengths and future potential) o The entrepreneurial state – sets direction of change rather than just correcting market failures - Evaluation o Detect potential gaps or imbalances o Compare the impact of policy instruments o Assess positive and negative interactions between policy instruments o Avoid excessive complexity and piling-up of policy instruments Table 1. Foundations of innovation policies Figure 6. Policy mix determinants and interactions between policy instruments.