Innovation & Entrepreneurship

Prof. Maria Cristina Cinici

University of Messina (Italy)
 Today’s contents
• Typologies of innovation
• Innovation & Performance
Session Plan
3

Definitions
of Innovation

Creating &
Capturing Value
From Innovation Innovation &
Performance

Models &
Modes of
Innovation
Dimensions of innovation – what can we
change?

Dimension Type of change

Changes in the things (products/
‘Product’ services) which an organization
offers
Changes in the ways in which these
‘Process’ offerings are created and delivered

Changes in the context into which

‘Position’ the products/services are introduced

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Changes in the underlying mental
‘Paradigm’ models which frame what the
organization does
The 4Ps of Innovation

5
 Examples of the 4Ps
model: Product

‘Product’ New versions of established car models – New to the world software – for example
e.g. the VW Golf essentially improving on the first speech recognition program
established car design Toyota Prius – bringing a new concept –
– what we offer hybrid engines. Tesla – high performance
the world Improved performance - incandescent electric car.
light bulbs LED-based lighting, using completely
different and more energy efficient
CDs replacing vinyl records – essentially principles
improving on the storage technology Spotify and other music streaming services
– changing the pattern from owning your
own collection to renting a vast library of
music
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 Examples of the 4Ps
model: Process

‘Process’ Improved fixed line telephone services Skype and other VOIP systems
Extended range of stock broking services On-line share trading
Improved auction house operations eBay
- how we create Improved factory operations efficiency Toyota Production System and other ‘lean’
and deliver that through upgraded equipment approaches
offering Improved range of banking services Online banking and now mobile banking in
delivered at branch banks Kenya, Philippines – using phones as an
Improved retailing logistics alternative to banking systems
On line shopping
 Examples of the 4Ps
model: Position

HaagenDazs changing the target market for ice Addressing underserved markets – for example
‘Position’ cream from children to consenting adults the Tata Nano aimed at emerging but relatively
poor Indian market with car priced around $2000
– where we .[Link]
Airlines segmenting service offering for different
target that passenger groups – Virgin Upper Class, BA Low cost airlines opening up air travel to those
Premium Economy, etc. previously unable to afford it – create new market
offering and the and also disrupt existing one
story we tell Dell and others segmenting and customizing
about it computer configuration for individual users Variations on the ‘One laptop per child’ project –
e.g. Indian government $20 computer for schools
On line support for traditional higher education University of Phoenix and others, building large
courses education businesses via online approaches to
reach different markets
Banking services targeted at key segments – [Link]
students, retired people, etc.
‘Bottom of the pyramid’ approaches using a similar
principle but tapping into huge and very different
high volume/low margin markets – Aravind eye
care, Cemex construction products
 Examples of the 4Ps
model: Paradigm

Grameen Bank and other microfinance models –

‘Paradigm’ Dyson redefining the home appliance market in rethinking the assumptions about credit and the
terms of high performance engineered products poor
– how we frame [Link]
v=IAj1xx0JWvE&list=PLayVZDwYmOmVELgb3 iTunes platform – a complete system of
what we do 6ZF9tg0bT7CEi-1Q personalized entertainment

IBM from being a machine maker to a service Cirque de Soleil – redefining the circus experience
and solution company – selling off its computer Amazon, Google, Skype – redefining industries
making and building up its consultancy and like retailing, advertising and telecoms through
service side. online models

Linux, Mozilla, Apache – moving from passive

users to active communities of users co-creating
new products and services

[Link]
Disruptive innovation
• [Link]
•
• • [Link]

10
Innovation and Performance
Innovation has an inherent variability, but rate of
success can be improved through better & different
management:
• 85% of new ideas never reach a market
• 60% of R&D projects are market failures
• 40% of consumer products & services fail
• 20% of business products & services fail
Innovation and Performance
Some ‘stylised facts’ about the relationships between
innovation and performance:
• Relationships between R&D, patents, new products and
performance are strongest at the industry level, weakest at
the firm level
• Returns from process innovation are typically four times
those from product innovation
• R&D expenditure stronger than patents in predicting
performance
• At firm level, R&D and new products both associated with
higher value-added and market to book values
Innovation and Performance
• Returns from use of new technology higher than from
its generation
• Highest variability in performance is at firm level
• Senior management typically accounts for 15-50% of
variance

Sources: J. Bessant & J. Tidd (2007) Innovation and Entrepreneurship (Wiley); J. Tidd
(2006) From Knowledge Management to Strategic Competence (Imperial College
Press, 2nd edition); J. Tidd, J. Bessant & K. Pavitt (2005) Managing Innovation:
Integrating technological, market & organizational change (Wiley, 3rd edition); S.
Isaksen & J. Tidd (2006) Meeting the Innovation Challenge: Leadership for
Transformation and Growth (Wiley, 2006).
Innovation and Performance
Some explanations for the observed wide variation in
the relationships between innovation and
performance:
• Scale – of technological inputs – critical mass; and
market value of commercial outputs –
‘complementary assets’
• Opportunity – ‘spill-overs’ within sectors and
between firms
• Management – differences in cognition, co-
ordination and control
Creating and Capturing Value
Choice of strategy (& luck) are more important than
industry:

• choice of industry 8.35%

• choice of strategy 46.4%
• parent company 0.8%
• unexplained (e.g. luck) 44.5%
Creating and Capturing Value

Patents per million population

100
80
60
40
20
0
Japan Germany USA France UK

Source: OECD

16
Creating and Capturing Value

Entrepreneurial Activity

15

10

0
USA UK Germany France Japan

Source: OECD

17
Creating and Capturing Value

“lack of technological knowledge is rarely the cause of

innovation failures…the main problems arise in
organization and, more specifically, in co-ordination
and control… four mechanisms identified by earlier
analysts of the innovating firms: competition,
cognition, co-ordination and control”

- Keith Pavitt
Creating and Capturing Value
Managers with ‘mature Managers with ‘dynamic
perceptions’ believe that: perceptions’ believe that:
• the industry is stable
• there is potential for
with slow demand
change, new ways of
growth & incremental
operating, & new
changes in technology
strategies
• profitability is achieved
• value is created through
by process improvement
innovation in positions
and product
and paradigms
differentiation
 Creating and Capturing Value
‘mature’ managers view: ‘dynamic’ managers view:

• profitability is • profitability is
determined by determined by the firm.
industry, & is limited in Mature industries offer
mature industries many opportunities.
• market share is critical • Market share is reward
• dominance demands for creating value
extensive resources • effectiveness, not extent
of resources counts

20
Creating and Capturing Value
Advantages of innovation in position or paradigm:
• Reputation as a pioneer
• Early learning curve benefits
• Establish barriers to entry e.g. Design, patents,
standards
• Dominate new supply & distribution networks
• Earn 'monopoly' profits

But, beware regulatory & demand uncertainty

Conclusions:
22

Innovation and Performance

Conclusions and implications from observation and
research:
• Relationships between R&D, patents, new
products and performance are strongest at the
industry & sector level, but weakest at the firm
level – but, management & strategy can make a
difference
• Too much emphasis on technological
innovation, process improvement & product
differentiation produces low returns
Conclusions:
23

Innovation and Performance

• Greater focus on a wider range of innovation e.g.
positional and paradigm innovation has potential to
improve returns from innovation
• This suggests active search for external technology
‘spill-overs’ (inputs) and exploitation of commercial
‘complementary assets’ (outputs)
• (Re) combination & integration of different types of
innovation important – role of international
alliances & corporate venturing to help identify,
create & exploit new businesses and services