CHAPTER THREE

SOURCES OF INNOVATION
Innovation is a process of taking ideas forward, revising and refining them, weaving the
different strands of “knowledge spaghetti” together toward a useful product, process, or
service. The following are the major sources of innovation:

3.1 Knowledge Push

One source of innovation is scientific research. Around the world, approximately $1500 billion
is spent every year on research and development (R&D). It’s driven by a clear understanding of
the importance of R&D as a source of innovation. Although there have always been solo
researchers, from a very early stage, the process of exploring and codifying at the frontiers of
knowledge has been a systematic activity involving a wide network of people sharing their
ideas.

This model of “knowledge push” has a strong track record. In the twentieth century, the rise of
the modern large corporation brought with it the emergence of the research laboratory as a key
instrument of progress. Bell Labs, ICI, Bayer, BASF, Philips, Ford, Western Electric, and Du
Pont – all were founded in the early 1900s as powerhouses of ideas. They produced a steady
stream of innovations that fed rapidly growing markets for automobiles, consumer electrical
products, synthetic materials, industrial chemicals – and the vast industrial complexes needed
to fight two major wars. Their output wasn’t simply around product innovation – many of the
key technologies underpinning process innovations, especially around the growing field of
automation and information/communications technology, also came from such organized R&D
effort.

3.2 Need pull

Knowledge push creates a field of possibilities – but not every idea finds successful application
and one of the key lessons is that innovation requires some form of demand if it is to take root.
Bright ideas are not, in themselves, enough – they may not meet a real or perceived need and
people may not feel motivated to change.

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We need to recognize that another key driver of innovation is needed – the complementary pull
to the knowledge push. In its simplest form, it is captured in the saying that “necessity is the
Mother of invention” – innovation is often the response to a real or perceived need for change.
Basic needs – for shelter, food, clothing, security – led early innovation as societies evolved,
and we are now at a stage where the need pull operates on more sophisticated higher level
needs but via the same process.

In innovation management, the emphasis moves to ensuring we develop a clear understanding

of needs and finding ways to meet those needs. For example, Henry Ford was able to turn the
luxury plaything that was the early automobile into something which became “a car for
Everyman,” while Procter and Gamble began a business meeting needs for domestic lighting
(via candles) and moved across into an ever-widening range of household needs from soap to
nappies to cleaners, toothpaste, and beyond.

Need-pull innovation is particularly important at mature stages in industry or product life

cycles when there is more than one offering to choose from – competing depends on
differentiating on the basis of needs and attributes and/or segmenting the offering to suit
different adopter types. There are differences between business to business markets (where
emphasis is on needs among a shared group, e.g., along a supply chain) and consumer markets
where the underlying need may be much more basic – food, shelter, and mobility – and appeal
to a much greater number of people. Importantly, there is also a “bandwagon” effect – as more
people adopt so that the innovation becomes modified to take on board their needs – and the
process accelerates.

3.3 Making process better

Of course needs aren’t just about external markets for products and services – we can see the
same phenomenon of need pull working inside organizations, as a driver of process innovation.
“Squeaking wheels” and other sources of frustration provide rich signals for change – and this
kind of innovation is often something that can engage a high proportion of the workforce who
experiences these needs first hand. The successful model of “kaizen,” which underpins the
success of firms such as Toyota, is fundamentally about sustained, high involvement

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incremental process innovation along these lines and we can see its application in the “total
quality management” movement in the 1980s, the “business process re-engineering” ideas of
the 1990s and the current widespread application of concepts based on the idea of “lean
thinking”.

This kind of process improvement is of particular relevance in the public sector, where the
issue is not about creating wealth but of providing value for money in service delivery. Many
applications of “lean” and similar concepts can be found that apply this principle – for
example, in reducing waiting times or improving patient safety in hospitals, in speeding up
delivery of services such as car taxation and passport issuing, and even in improving the
collection of taxes!

3.4 Crisis-driven innovation

Sometimes, the increase in the urgency of a need or the extent of demand can have a forcing
effect on innovation – the example of wartime and other crises supports this view. For example,
the demand for iron and iron products increased hugely in the Industrial revolution and exposed
the limitations of the old methods of smelting with charcoal – it created the pull that led to
developments like the Bessemer converter. In a similar fashion, the emerging energy crisis with
oil prices reaching unprecedented levels has created a significant pull for innovation around
alternative energy sources – and an investment boom for such work. It’s easy to think that
innovation is about resources – throw enough money, smart minds, and clever technology at the
problem and the answer will surely follow. But the history of ideas suggests that there is another
pathway. Sometimes, the very absence of resources is what galvanizes innovation. Think about
these examples: In the world of humanitarian relief, the extreme needs of people in disaster
situations have triggered a series of radical innovations including high-energy biscuits, which
can be quickly distributed, building materials, which can be deployed and assembled quickly into
makeshift shelters, and robust communication platforms, which can be quickly established to
improve information flow around crisis events.

3.5 Towards mass customization

“Mass customization” (MC) is a widely used term that captures some elements of this. MC is

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the ability to offer highly configured bundles of non-price factors configured to suit different
market segments (with the ideal target of total customization – that is, a market size of 1) – but
to do this without incurring cost penalties and the setting up of a trade-off of agility vs. prices.
However a combination of enabling technologies and rising expectations has begun to shift this
balance and resolve the trade-off between price and customization.

The trouble is that markets are not made up of people wanting the same thing – and there is an
underlying challenge to meet their demands for variety and increasing customization. This
represents a powerful driver for innovation – as we move from conditions where products are
in short supply to one of mass production so the demand for differentiation increases. There has
always been a market for personalized custom made goods – and similarly custom configured
services – for example, personal shoppers, personal travel agents, personal physicians, and so
on. But until recently, there was an acceptance that this customization carried a high price tag
and that mass markets could only be served with relatively standard product and service
offerings.

3.6 Emerging markets

One powerful source of ideas at the edge comes from what are often termed “emerging
markets” –countries such as India, China, and those in the Latin American and African regions.
These are huge markets in terms of population and often very young in age profile, and while
there may be limited disposable income they represent significant opportunities. The writer
C.K. Prahalad first drew attention to this idea in his book “The fortune at the bottom of the
pyramid” arguing that nearly 80% of the world’s population lived on less than $2/day but could
represent a huge market of unserved needs for goods and services.

3.7 Users as innovators

Understanding what it is that customer’s value and need is critical in pursuing a customization
strategy and it leads, inevitably to the next source of innovation in which the users themselves
become the source of ideas. Although need pull represents a powerful trigger for innovation, it
is easy to fall into the trap of thinking about the process as a serial one in which the user needs
are identified and then something is created to meet those needs. The assumption underpinning

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this is that users are passive recipients – but this is often not the case. Indeed history suggests
that users are sometimes ahead of the game – their ideas plus their frustrations with existing
solutions lead to experiment and prototyping and create early versions of what eventually
become mainstream innovations.

One of the fields where this has played a major role is in medical devices where active users
among medical professionals have provided a rich source of innovations for decades. Central to
their role in the innovation process is that they are very early on the adoption curve for new
ideas – they are concerned with getting solutions to particular needs and prepared to
experiment and tolerate failure in their search for a better solution. One strategy – which we
will explore later – around managing innovation is thus to identify and engage with such “lead
users” to cocreate innovative solutions.

3.8 Using the crowd

Not everyone is an active user, but the idea of the crowd as a source of different perspectives is
an important one. Sometimes people with very different ideas, perspectives, or expertize can
contribute new directions to our sources of ideas – essentially amplifying. Using the wider
population has always been an idea, but until recently, it was difficult to organize their
contribution simply because of the logistics of information processing and communication. But
using the Internet, new horizons open up to extend the reach of involvement as well as the
richness of the contribution people can make.

In 2006, journalist Jeff Howe coined the term crowdsourcing in his book The Power of Crowds.
Crowdsourcing is where an organization makes an open call to a large network to provide some
voluntary input or perform some function. The core requirements are that the call is open, and
that the network is sufficiently large, the “crowd”. Crowd sourcing of this kind can be enabled
via a number of routes – for example, innovation contests, innovation markets and innovation
communities.

3.9 Watching others and learning from them

Another important source of innovation comes from watching others – imitation is not only the

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sincerest form of flattery but also a viable and successful strategy for sourcing innovation.
For example, reverse engineering of products and processes and development of imitations –
even around impregnable patents – is a well-known route to find ideas. Much of the rapid
progress of Asian economies in the postwar years was based on a strategy of “copy and
develop,” taking Western ideas and improving on them. For example, much of the early growth
in Korean manufacturing industries in fields like machine tools came from adopting a strategy
of “copy and develop” – essentially learning (often as a result of taking licenses or becoming
service agents) by working with established products and understanding how they might be
adapted or developed for the local market. Subsequently, this learning could be used to
develop new generations of products or services.

3.10 Recombinant Innovation

Another easy assumption to make about innovation is that it always has to involve something
new to the world. The reality is that there is plenty of scope for crossover – ideas and
applications which are commonplace in one world may be perceived as new and exciting in
another. This is an important principle in sourcing innovation where transferring or combining
old ideas in new contexts – a process called “recombinant innovation” by Andrew Hargadon –
can be a powerful resource.

3.11 Creativity, Innovation and Entrepreneurship

Creativity, innovation and entrepreneurship, have been recognized as important contributors to
a nation’s economic growth. These three terminologies are chronologically interrelated and it is
very important to look in to them to get their full picture.

I) Creativity
Creativity is defined as the tendency to generate or recognize ideas, alternatives, or possibilities
that may be useful in solving problems, communicating with others, and entertaining ourselves
and others. Creativity is the ability to come up with new idea and to identify new and different
ways of looking at a problem and opportunities.
Sources of New Ideas:
a) Observing the market

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b) Consumers
c) Existing Companies:
d) Distribution Channels
e) Federal and Regional Governments
f) Research & Development
g) Development in other nations
h) Trade fairs and exhibitions
i) Hobbies and interests
j) Mass media
k) Brainstorming

II. Innovation
Innovation lies at the heart of the entrepreneurial process and is a means to the exploitation of
opportunity. It is the implementation of new idea at the individual, group or organizational level.
Areas of Innovation
The following are some of the major areas in which valuable innovation might be made.
A. New product: A new product can be developed through new or existing
technology. The new product may offer a radically new way of doing something or it
may simply be an improvement on an existing item. The new product must offer the
customer an advantage if it is to be successful.
B. New Services: A service is an act which is offered to undertake a particular task
or solve a particular problem.
C. New Production Techniques: Innovation can be made in the way in which a
product is to be manufactured. A new production technique should allow the end
user to obtain the product at a lower cost, or a product of higher quality or better
service in the supply of the product.
D. New Way of Delivering the Product or Service to the Customer: Customer
can only use product/service they can access. A common innovation is to take a
more direct routine by cutting out distributors or middlemen.
E. New Operating Practices: As with innovations in the production of physical
products, innovation in service delivery must address customers need and offer them

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 improved benefits, for example easier access to the service, a higher quality service,
a more consistent service, a faster or less time consuming service etc.
F. New Means of Informing the Customer about the Product: People will only
use a product or service if they know about it. Demand will not exist if the offering
is not properly promoted to them. Promotion consists of two parts; a message what is said
and a means – the route by which that message is delivered.
G. New Means of Managing Relationship within the Organization: Any
organization has a wide variety of communication channels running through it. The
performance of the organization will depend to a great extent on the effectiveness of
its internal communication channels. These communication channels are guided by
the organization’s structure.
H. New Ways of Managing Relationships between Organizations:
Organizations sit in a complex web of relationships to each other. The way they
communicate and relate to each other is very important.

[Link] Creativity to Entrepreneurship

Creativity is the ability to develop new ideas and to discover new ways of looking at problems
and opportunities. Innovation is the ability to apply creative solution to those problems and
opportunities in order to enhance people’s lives or to enrich society.
Entrepreneurship = creativity + innovation.