Introduction

This module covers (a) the pros and cons of internal innovation, (b) product innovation and

process innovation, (c) the basic steps in planning for innovation, (d) the technology stages and the

possibilities for innovation in each stage, (e) how to develop a climate for internal innovation.

Innovation is how firms plan and create new technology, products, or processes. It occurs internally.

I. INTRODUCTION

Innovation is how firms create new technology, products, or processes. It occurs

internally.

II. PLANNING: A COMPLEX PROCESS

Planning for innovation requires that the firm address a wide range of issues.

For example:

a. The goals for innovation must be clearly delineated--3M‘s goal of 30% of revenues

from products created in the last four years is an example.

b. An environment that encourages innovation and accepts failure must be developed.

c. A plan for moving from ideation to development to market with appropriate controls must

be in place.

III. TO INNOVATE OR NOT?

That is the question that must be considered first. Benefits and drawbacks need to be

considered before plunging into innovation efforts.

a. Factors that Favor Innovation

i. Greater control of the process and outcomes

ii. Greater understanding of the technology produced and how to apply it

iii. Greater ability to potentially develop the next generation of technology

iv. Greater profit potential as a first mover (a firm that is first to market in some manner).

Competitive advantages sometimes emerge for first movers. These include:

2. Can possibly develop high switching costs (costs associated with changing from one

producer to another)

b. Factors that Discourage Innovation

i. First movers incur costs in educating the market that a follower, especially a fast follower,

can avoid and yet use to advantage.

ii. The time required for an internal development strategy is greater than purchasing the

technology.

iii. There is a greater risk of failure to develop the right product at the right time for the

marketplace.

iv. Keeping a pipeline of new products and/or processes is difficult. There is always the danger

that another firm will enter the market first.

IV. TYPES OF INNOVATION

Innovations can be classified in a number of ways.

a. Product Innovation-- For most firms, product innovations are the center of

their research and development (R&D) efforts.

i. Three types of product innovation efforts

1. Basic research—involves the creation of new knowledge. It is riskier but has the potential for

the great reward in the development of new products or ways of doing business.

2. Applied research—utilizes the knowledge developed by basic research to create new

products. The purpose of applied research is to add value to the firm and its customers.

3. Systems integration—is aimed at supporting existing business improvements in established

products or opening new markets with an existing product. This type of innovation has low risks

and rewards. However, not ―tweaking‖ products can lead to strategic disadvantage.

ii. Where to focus? Can use a strategic group map to determine what competitors are doing. A

strategic group map involves mapping competitors on important factors and determining what

those closest to the firm are doing.

Example: Recording industry in 2004 had 5 major competitors and then a group of
independents. Universal (owner of Motown and others) had the most Grammys (innovative

product) and was second in on-line accessibility—behind Sony which had been one of the

developers of that technology. Sony led in on-line accessibility but was lagging in producing

Grammy-winning music. EMI and BMG were # 2 and #3 in producing winning music. In late

2004, Sony acquired BMG and the strategic map of the industry changed. Now, (early 2006)

Universal and SonyBMG have

almost 60% of the market and the others are struggling. However, Apple‘s IPod technology is

hurting Sony in the area where it excelled originally.

While concentrating on buying and building innovation in music output, Sony was attacked in a

technology area it developed.

b. Process Innovation—is designed to increase the efficiencies or the effectiveness of

an organization. Changes in processes require the firm and the individuals in the firm to

adapt. The most common process innovations involve:

i. Restructuring which involves changes in communication and coordination patterns.

Indications of the need to restructure are:

1. Poor timing of information processing for decision making

2. Missed opportunities or unexpected threats appearing

3. Disruption in the environment that has stressed the firm. An example is another firm

introducing a new product that makes the firm‘s product obsolete.

ii. Most common types of restructuring are:

1. Downsizing—the firm either sells some of its units or lays off employees

2. Reengineering is more process based and involves answering 3 basic questions

a. Why is work (your work) performed like it is?

b. What value is added by this process?

c. How can this work be done better?

iii. Pursuing process innovation—Firms should be on the lookout for process innovation

opportunities. But they should also be aware that most process innovations require social as

well as work design changes.

a. Common Aspects to the Planning Process

i. The firm must acknowledge that the goal of internal innovation is for the firm to better

performance. Innovation is not the end goal.

ii. Internal innovation is a process that involves many individuals, capabilities, and resources.

iii. Resources are critical to the innovation process.

b. Activities for Innovation Planning

i. Determine the Vision

ii. Set the Mission

iii. Establish Goals and Objectives

iv. Set Strategy

v. Specify Tactics and Actions

VII. APPLICATION OF THE PLANNING PROCESS

IBMs five key characteristics

a. Ensuring that the identification of strategic issues focused outward on economic and

technology issues rather than on internal concerns. The innovation must have some market

potential or effect.

b. Ensuring that strategic planners focused on the critical implications, risks, and trade-offs

inherent in strategic alternatives. Leave biases out of the analysis phase.

c. Structuring an ongoing process for executives to examine strategic challenges and

opportunities. Plan to plan for the future not just analyze what is going on now.

d. Connecting strategic planning directly to resource allocation decisions. Keep implementation

at the center of the planning process. Put your money and people where your goals are.

e. Promoting widespread support and involvement in the entire process. Ideas and innovations

can come from unlikely places—don’t ignore those ideas because of who has them first.

VII. FACTORS THAT AID INNOVATION PLANNING

that can be translated into the bottom line of the organization.

i. Adventuring—occurs when individuals explore areas that are outside their comfort zone and

perhaps even that of the organization.

ii. Confronting—is a process that encourages deliberate debates among employees through

such techniques as devil’s advocate or “what if” questioning. Example: what if we rewarded

people for throwing trash in appropriate receptacles rather than fine them for littering? Some

cities have experimented with putting motion sensitive playback gadgets in trash cans that have

recorded jokes or information on them. When someone throws away trash properly, they hear

the joke or message. It works.

iii. Portfolio of Skills—involves using the more creative employees to stretch beyond their

normal boundaries into a variety of areas.

b. Organization-wide Issues—there are a number of processes that are critical to the

nature of the innovation planning process. These include the following:

i. Communication—―spreading‖the word is critical. Knowledge is the lifeblood of

innovation and may channels need to be opened to encourage sharing and using of the

knowledge resources.

ii. Reward systems—Managers who want employees to be innovative must reward behaviors

that lead to innovation. To often firms reward A when they want B.

iii. Organizational assumptions—need to be monitored to be sure they do not become

counter-productive because of changes in the environment.

c. Political Processes—Innovation is political in nature. Politics in the organization

are neither positive nor negative because they exist. Politics can help or hurt the

innovation process depending on how they are used.

VIII. TECHNOLOGY STAGES AND PLANNING

As technology matures, the planning issues for utilizing and benefiting from the technology

change. The stages and strategic actions are:

b. Growth—New product and market development

c. Maturity—Restructuring; Market expansion

d. Decline—Reengineering—looking for renewal; Value destruction

IX. DEVELOPING A CLIMATE FOR INNOVATION

A number of myths that conflict with the reality of innovation and innovation processes exist.

These must be considered in the planning process.

X. MANAGERIAL GUIDELINES

To develop the right climate for success in innovation activities, managers should:

a. Recognize innovative individuals exist throughout the organization.

b. More ideas flowing through the organization increase the chances of organizational

breakthrough.

c. Periodically reconsider how work is being accomplished.

d. Encourage ―turning the prism‖ to put a new light on problems.

e. Ask employees what their biggest aggravations are.

f. Train people to recognize their creative abilities and participate in the innovation process.

Creativity is like height and weight—everybody has some.