CHAPTER ONE

THE INNOVATION IMPERATIVE

1.1 What is Innovation

One of the problems in managing innovation is variation in what people understand by the
term, often confusing it with invention. In its broadest sense, the term comes from the Latin –
innovare meaning “to make something new.” Our view, shared by the following writers,
assumes that innovation is a process of turning opportunity into new ideas and of putting these
into widely used practice.
“Innovation is the successful exploitation of new ideas. ”Innovation Unit, UK Department of
Trade and Industry (2004)
“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 practiced.” Peter
Drucker (1985)

1.2 Invention vs. Innovation

One of America’s most successful innovators was Thomas Alva Edison, who during his life
registered over 1000 patents. Products for which his organization was responsible include the
light bulb, 35 mm cinema film, and even the electric chair. Edison appreciated better than most
that the real challenge in innovation was not invention – coming up with good ideas – but in
making them work technically and commercially.

Innovation is more than simply coming up with good ideas; it is the process of growing them
into practical use. Definitions of innovation may vary in their wording, but they all stress the
need to complete the development and exploitation aspects of new knowledge, not just its
invention.

In fact, some of the most famous inventions of the nineteenth century came from men whose
names are forgotten; the names that we associate with them are of the entrepreneurs who
brought them into commercial use. For example, the vacuum cleaner was invented by one J.
Murray Spengler and originally called an “electric suction sweeper.” He approached a leather

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goods maker in the town who knew nothing about vacuum cleaners but had a good idea of how
to market and sell them – a certain W. H. Hoover. Similarly, a Boston man called Elias Howe
produce the world‟s first sewing machine in 1846. Unable to sell his ideas despite traveling to
England and trying there, he returned to the United States to find that one Isaac Singer had
stolen the patent and built a successful business from it. Although Singer was eventually forced
to pay Howe a royalty on all machines made, the name that most people now associate with
sewing machines is Singer not Howe. And Samuel Morse, widely credited as the father of
modern telegraphy, actually invented only the code that bears his name; all the other inventions
came from others. What Morse brought was enormous energy and a vision of what could be
accomplished; to realize this, he combined marketing and political skills to secure state funding
for development work and to spread the concept of something that for the first time would link
up people separated by vast distances on the continent of America. Within 5 years of
demonstrating the principle, there were over 5000 miles of telegraph wire in the United States.
And Morse was regarded as “the greatest man of his generation”

1.3 Innovation Matters

You 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 stressing how important
innovation is to „our customers/our shareholders/our business/our future‟ and, most often,
„our survival and growth‟. Innovation shouts at you from advertisements 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 is strongly associated with growth. New business is created by new ideas, 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
coming to favor 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
create 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

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proportion of economic growth.
“Virtually all of the economic growth that has occurred since the eighteenth century is
ultimately attributable to innovation.” William Baumol (2002)

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 2 years away
from extinction. Or, as Andy Grove, one of the founders of Intel, pointed out in his
autobiography, “only the paranoid survive!”

Industrial innovation includes the technical, design, manufacturing, management and

commercial activities involved in the marketing of a new (or improved) product or the first
commercial use of a new (or improved) process or equipment. 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 practiced.

1.4 Innovation and Entrepreneurship

Innovation matters– but it doesn’t happen automatically. It is driven by entrepreneurship.
Innovation is a potent mixture of vision, passion, energy, enthusiasm, insight, judgment and
plain hard work which enables good ideas to become reality. The power behind changing
products, processes and services comes from individuals whether acting alone or embedded
within organizations that make innovation happen. As the famous management writer Peter
Drucker put it: 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 practiced.

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Entrepreneurship plays out on different stages in practice. One obvious example is the 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 labeled as “intrapreneurs‟ or working in “corporate entrepreneurship‟ or
“corporate venture‟ departments – provide the drive, energy and vision to take risky new ideas
forward within that context.6 And of course, the passion to change things may not be focused
on creating commercial value but rather on improving conditions or enabling change in the
wider social sphere or in the direction of environmental sustainability – a field which has
become known as “social entrepreneurship‟

1.5 Innovation Isn’t Easy!

Innovation is strongly associated with growth. New business is created by new ideas, 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
coming to favor 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
create 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.

“Virtually all of the economic growth that has occurred since the eighteenth century is
ultimately attributable to innovation.” William Baumol (2002)

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 2 years away

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from extinction. Or, as Andy Grove, one of the founders of Intel, pointed out in his
autobiography, “only the paranoid survive!”

Coming up with good ideas is what human beings are good at – we have this facility already
fitted as standard equipment in our brains! But taking those ideas forward is not quite so
simple, and most new ideas fail. It takes a particular mix of energy, insight, belief and determi-
nation to push against these odds; it also requires judgement to know when to stop banging
against the brick wall and move on to something else. It is important here to remember a key
point: new ventures often fail, but it is the ventures which are failures rather than the people
who launched them. Successful entrepreneurs recognize that failure is an intrinsic part of the
process. They learn from their mistakes, understanding where and when timing, market
conditions, technological uncertainties, etc. mean that even a great idea isn’t going to work. But
they also recognize that the idea may have had its weaknesses but that they have not failed
themselves but rather learnt some useful insights to carry over to their next venture. While the
road for an individual entrepreneur may be very rocky with a high risk of hit-ting potholes,
running into roadblocks or careering off the edge, it doesn’t get any easier if you are a large
established company. It’s a disturbing thought but the majority of companies have a lifespan
significantly less than that of a human being. Even the largest firms can show worrying signs of
vulnerability, and for the smaller firm the mortality statistics are bleak. Many SMEs fail
because they don’t see or recognize the need for change. They are inward looking, too busy
fighting fires and dealing with today’s crises to worry about storm clouds on the horizon. Even
if they do talk to others about the wider issues, it is very often to people in the same network
and with the same perspectives, for example the people who supply them with goods and
services or their immediate customers. The trouble is that by the time they realize there is a
need to change it may be too late.

1.6 Managing Innovation and Entrepreneurship

The dictionary defines „innovation‟ as „change‟; it comes from Latin in and novare, meaning
“to make something new‟. That’s a bit vague if we’re trying to manage it; perhaps a more
useful definition would be “the successful exploitation of new ideas‟. Those ideas don’t
necessarily have to be completely new to the world, or particularly radical; as one

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definition has it: “innovation does not necessarily imply the commercialization of only a
major advance in the technological state of the art (a radical innovation) but it includes also
the utilization of even small-scale changes in technological know-how (an improvement or
incremental innovation).‟ Whatever the nature of the change the key issue is how to bring it
about, in other words how to manage innovation. Can we do it? One answer comes from the
experiences of organizations that have survived for an extended period of time. While most
organizations have comparatively modest lifespans, some have survived at least one and
sometimes multiple centuries. Looking at the experience of these “100 club‟ members – firms
like 3M, Corning, Procter and Gamble, Reuters, Siemens, Philips and Rolls-Royce – we can
see that much of their longevity is down to having developed a capacity to innovate on a
continuing basis. They have learnt, often the hard way, how to manage the process and,
importantly, how to repeat the trick. Any organization can get lucky once but sustaining it for a
century or more suggests there’s a bit more to it than that. It’s the same with individuals:
„serial entrepreneurs‟ may start many different businesses and what they bring to the party is
an accumulated understanding of how to do it better. They have learnt and built long-term
capability into a robust set of skills. Over the past hundred years, there have been many
attempts to answer the question of whether we can manage innovation. Researchers have
looked at case examples, at sectors, at entrepreneurs, at big firms and small firms, at success
and failure. Practicing entrepreneurs and innovation managers in large businesses have tried to
reflect on the „how‟ of what they do. The key messages come from the world of experience.
What we‟ve learnt comes from the laboratory of practice rather than some deeply rooted
theory. The key messages from this knowledge base are that successful innovators:
 explore and understand different dimensions of innovation (ways in which we can change
things)
 manage innovation as a process
 create conditions to enable them to repeat the innovation trick (building capability)
 focus this capability to move their organizations forward (innovation strategy)
 build dynamic capability (the ability to rest and adapt their approaches in the face of a
changing environment).
1.6.1 Innovation management is the process of managing innovations, that is,
ideas, in organizations through the stages of the innovation cycle.

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The innovation cycle describes the activities involved in taking an innovative
product or service to the marketplace. In essence, there are two aspects to this:
 Developing the innovative product or service.
 Building the business to market the product or service.
The table below provides an example of a typical innovation cycle with activities at each stage:
Stage Description Typical Activities
1 Ideas Identify a market opportunity
2 Resources Organize people, finance and facilities to match the goals
of the organization
3 Investigate Research the possibilities
4 Patent Protect the intellectual property
5 Design Model and test it for users
6 Develop Improve the technology
7 Make Start production
8 Sell Advertise and inform people
9 Service Communicate with the customers

The first stage in the innovation cycle is ideas generation. Ideas will often arise from
observation of a current or future problem. They could be inspired by the organization’s
objectives or by a new market situation that suddenly becomes an opportunity

Once the opportunity has been recognized, it needs to be evaluated. An important test for an
idea is that it matches the goals of the organization and available resources – people, finance
and facilities.

If there is alignment with the objectives of the organization, the idea moves to a new stage
where it can be investigated and further developed. The development phase may involve
further research into the opportunity or the patenting of the concept. Prototypes may well be
designed, developed and tested at this stage.

The decision to start selling the innovation is a critical stage. This is when significant resources

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are often required to support the launch. Sometimes an organization might wait at the end of
the development phase for suitable market conditions.

1.7 Dimensions of Innovation

Essentially, we are talking about change, and this can take several forms; for the purposes of
this book, we will focus on four broad categories:
Product innovation: changes in the things (products/services) that an organization offers. For
example, a new design of car, a new insurance package for accident-prone babies, and a new
home entertainment system would all be examples of product innovation.
Process innovation: changes in the ways in which they are created and delivered. For
example, a change in the manufacturing methods and equipment used to produce the car or the
home entertainment system, or in the office procedures and sequencing in the insurance case,
would be examples of process innovation.
Position innovation: changes in the context in which the products/services are introduced.
Innovation can also take place by repositioning the perception of an established product or
process in a particular user context.
Paradigm innovation: changes in the underlying mental models that frame what the
organization does. Sometimes, opportunities for innovation emerge when we reframe the way
we look at something. Henry Ford fundamentally changed the face of transportation. Recent
examples of “paradigm” innovation – changes in mental models – include the shift to low-cost
airlines, the provision of online insurance and other financial services, and the repositioning of
drinks such as coffee and fruit juice as premium “designer” products.
Business model innovation – changing the way business is done, for example, Easy Jet, Dell
computers and global outsourcing.
Marketing innovation – developing alternative marketing techniques to deliver improvements
in price, position, packaging, product design or promotion.
Supply chain innovation – improving the way that materials are sourced from suppliers or
improving methods of product delivery to customers.
Financial innovation – bringing together basic financial concepts. This might include credit,
risk-sharing, ownership or liquidity to produce new financial services, products or ways of
managing business operations. For example, financial innovation adapts to new circumstances

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and develops new value chains as the compliance and legislative environment evolves.

1.8 A Process Model for Innovation and Entrepreneurship

Rather than the cartoon image of a light bulb flashing on above someone’s head, we need to
think about innovation as an extended sequence of activities – as a process. Whether we are
looking at an individual entrepreneur bringing their idea into action or a multi-million-dollar
corporation launching the latest in a stream of new products, the same basic framework applies.
We can break it down to the four key steps we mentioned earlier:
Recognizing the Opportunity-Innovation triggers come in all shapes and sizes and from all
sorts of directions. They could take the form of new technological opportunities or changing
requirements on the part of markets. They could be the result of legislative pressure or
competitor action. They could be a bright idea occurring to someone as they sit, Archimedes-
like, in their bathtub. They could come as a result of buying in a good idea from someone outside
the organization. Or they could arise from dissatisfaction with social conditions or a desire to
make the world a better place in some way.
Finding the Resources-The trouble with innovation is that it is by its nature a risky business.
You don’t know at the outset whether what you decide to do is going to work out or even that it
will run at all. Yet you have to commit some resources to begin the process. So how do you build
a portfolio of projects which balance the risks and the potential rewards? (Of course, this
decision is even tougher for the first-time entrepreneur trying to launch a business based on his
or her great new idea – the choice there is whether to go forward and commit what may be a
huge investment of personal time, the mortgage, family life, etc. Even if they succeed, there is
then the problem of trying to grow the business and needing to develop more good ideas to
follow the first.) So this stage is very much about strategic choices. Does the idea fit a business
strategy, does it build on something we know about (or where we can get access to that
knowledge easily) and do we have the skills and resources to take it forward? And if we don’t
have those resources, which are often the case with the lone entrepreneur at start-up, how will we
find and mobilize them?
Developing the idea-Having picked up relevant trigger signals, made a strategic decision to
pursue some of them and found and mobilized the resources we need, the next key phase is
actually turning those potential ideas into some kind of reality. In some ways this

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implementation phase is a bit like making a kind of „knowledge tapestry‟, by gradually weaving
the different threads of knowledge (about technologies, markets, competitor behavior, etc.) into a
successful innovation. Early on it is full of uncertainty but gradually the picture becomes
clearer– but at a cost. We have to invest time and money and find people to research and develop
ideas and conduct market studies, competitor analysis, prototyping, testing, etc. in order to
gradually improve our understanding of the innovation and whether it will work. Eventually, it
is in a form which can be launched into its intended context – an internal or external market –
and then further knowledge about its adoption (or otherwise) can be used to refine the
innovation. Developing a robust business plan which takes all of this into consideration at the
outset is one of the key elements in entrepreneurial success.

Throughout this implementation phase, we have to balance creativity – finding bright ideas and
new ways to get around the thousand and one problems which emerge and get the bugs out of the
system – with control – making sure we keep to some kind of budget on time, money and
resources. This balancing act means that skills in project management around innovation, with
all its inherent uncertainties, are always in high demand! This phase is also where we need to
bring together different knowledge sets from many different people – so combining them in ways
which help rather than hinder the process and raise big questions around teambuilding and
management. It would be foolish to throw good money after bad, so most organizations make
use of some kind of risk management as they implement innovation projects. By installing a
series of „gates‟ as the project moves from a gleam in the eye to an expensive commitment of
time and money, it becomes possible to review and if necessary redirect or even stop something
which is going off the rails. For the solo entrepreneur it is in this stage that judgment is needed –
and sometimes the courage to know when to stop and move on, to let go and start again on
something else. Eventually, the project is launched into some kind of marketplace: externally,
people who might use the product or service or, internally, people who make the choice about
whether to buy into the new process being presented to them. Either way, we don’t have a
guarantee that just because the innovation works and we think it the best thing since sliced bread
they will feel the same way. Innovations diffuse across user populations over time. Usually, the
process follows some kind of S-curve shape. A few brave souls take on the new idea and then
gradually, assuming it works for them, others get on the bandwagon until finally there are just a

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few diehards (laggards) who resist the temptation to change. Managing this stage well means we
need to think ahead about how people are likely to react and build these insights into our project
before we reach the launch stage – or else work hard at persuading them after we have launched
it!

Capture Value-Despite all our efforts in recognizing opportunities, finding resources and
developing the venture, there is no guarantee we will be able to capture the value from all our
hard work. We also need to think about, and manage, the process to maximize our chances
through protecting our intellectual property and the financial returns if we are engaged in
commercial innovation or in scaling and spreading our ideas for social change so that they are
sustainable and really do make a difference. We also have an opportunity at the end of an
innovation project to look back and reflect on what we have learnt and how that knowledge
could help us do things better next time. In other words, we could capture valuable learning
about how to build our innovation capability.

The Context of Success: It’s all very well putting a basic process for turning ideas into reality in
place. But it doesn’t take place in a vacuum. It is subject to a range of internal and external
influences that shape what is possible and what actually emerges. This process doesn’t take place
in a vacuum; it is shaped and influenced by a variety of factors. In particular, innovation needs:
Clear strategic leadership and direction, plus the commitment of resources to make this happen.
Innovation is about taking risks, about going into new and sometimes completely unexplored
spaces. We don’t want to gamble, simply changing things for their own sake or because the
fancy takes us. No organization has resources to waste in that scattergun fashion: innovation
needs a strategy. But, equally, we need to have a degree of courage and leadership, steering the
organization away from what everyone else is doing or what we’ve always done and towards
new spaces. In the case of the individual entrepreneur this challenge translates to one in which a
clear personal vision can be shared in ways which engage and motivate others to buy into it and
to contribute their time, energy, money, etc. to help make it happen. Without a compelling
vision, it is unlikely the venture will get off the ground.
An innovative organization in which the structure and climate enables people to deploy their
creativity and share their knowledge to bring about change. It’s easy to find prescriptions for

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innovative organizations which highlight the need to eliminate stifling bureaucracy, unhelpful
structures, brick walls blocking communication and other factors stopping good ideas getting
through. But we must be careful not to fall into the chaos trap. Not all innovation works in
organic, loose, informal environments or „skunk works‟; indeed, these types of organization can
sometimes act against the interests of successful innovation. We need to determine appropriate
organization that is the most suitable organization given the operating contingencies. Too little
order and structure may be as bad as too much. This is one area where start-ups often have a
major advantage – by definition they are small organizations (often one-person ventures) with a
high degree of communication and cohesion. They are bound together by a shared vision and
they have high levels of cooperation and trust, giving them enormous flexibility. But the
downside of being small is a lack of resources, and so successful start-ups are very often those
which can build a network around them through which they can tap into the key resources they
need. Building and managing such networks is a key factor in creating an extended form of
organization.
Proactive links across boundaries inside the organization and to the many external agencies that
can play a part in the innovation process: suppliers, customers, sources of finance, skilled
resources and of knowledge, etc. Twenty-first-century innovation is most certainly not a solo act
but a multiplayer game across boundaries inside the organization and to the many external
agencies that can play a part in the innovation process. These days it’s about a global game and
one where connections and the ability to find, form and deploy creative relationships is of the
essence. Once again, this idea of successful lone entrepreneurs and small-scale start-ups as
network builders is critical. It’s not necessary to know or have everything to hand but to know
where and how to get it.

1.9 Innovation Risk

While innovation typically adds value to an organization, it is not without risk. Key innovation
risks include:
Operational: Operational risks include failure to meet specification, costs or launch date. Damage to
company reputation and brand is another potential operational risk.
Commercial: Consumer resistance and competition are examples of commercial risk.
Financial: Investment yield may be less than planned. There is also a risk that debt/equity investors

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become dissatisfied.

The final stage of the innovation cycle is commercialization, where the innovation is marketed and sold to
the customer. The innovation now moves out of the organization’s control and into the hands of the users.
This is the hardest stage of the innovation cycle for organizations to „manage‟. It is crucial that the
organization monitors the innovation’s performance so that any shortcomings are corrected. Innovative
organizations will typically be working on new innovations that will eventually replace older ones. This is
important as product life cycles show reduced growth for older products and services. Growth may even
begin to decline eventually, therefore impacting an organization’s ability to expand.

New incremental innovations or changes to the product allow growth to continue. Companies
typically generate far more technical innovations than they can possibly hope to bring to
market effectively. There is a need for structured management and processes to handle
innovation from the ideas stage to commercialization.

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