Chapter 6: Sources of Innovation

I- Where do innovations come from?

- Shock to the system: events which change the world and the way we think about it and
force us to innovate in new directions.
- Accidents: unexpected and surprising things which offer new directions for innovation
- Watching others: imitating or extending what others do
- Recombinant innovation: ideas and applications in one world transferred to a new context
- Regulation: push or pull innovation in new directions
- Advertising: uncovering and amplifying latent needs
- Inspiration
- Knowledge push: pushing the frontiers of science forward
- Design drive innovation.
- Need pull: necessity as the mother of invention and innovation.
- Users as innovators
- Exploring alternative futures and opening up different possibilities

2 broad classes:
(1) Knowledge push
(2) Need pull: social, market, latent, crisis.

II- Types of product innovation:

- New to the world

- New product lines
- Line extensions.
- Repositioning
- Cost reductions
- Incremental product improvements

III- Mass customization:

1) Distribution customization: customers may customize product/service, packaging,

delivery schedule, and delivery location. However, the actual product/service is
standardized.
2) Assembly customization: customers are offered a number of pre-defined options.
Products are made to order using standardized components
3) Fabrication of customization: customers are offered a number of pre-defined designs.
Products are manufactured to order.
4) Design Customization: customer input stretches to the start of the production process.
Products do not exist until initiated by a customer order.
 Chapter 7: Search strategies for innovation

I- The five key questions:

What, where, how, who, when => searching for innovation opportunities

II- What:

1) Push or pull innovation: work in conjunction

2) Incremental/radical:
Incremental: do what we do but better
Radical: do something different
3) Exploit or explore:

III- When:
Adoption and diffusion over time
IV- Where: the innovation treasure hunt

Zone 1 corresponds to the exploit area we looked at earlier where we are working in
familiar territory and looking to exploit the knowledge base that we already have.
Zone 2 is about exploring but within the context of our existing frame, pushing the
frontiers but in directions we are familiar with.
Zone 3 brings in new elements and combinations and requires a different and more
open approach to search.
Zone 4 is where the different elements interact with each other to make a complex
system that is extremely difficult to explore in a systematic fashion.
V- How?
Each approach:

VI- Who?
Strategies for searching:

1- Open innovation:
challenge facing even large organizations in keeping track of and accessing
external knowledge rather than relying on internally generated ideas
= not all the smart guys work for us

Opening up the enterprise to flows of knowledge into and out from the
organization.

It offers significant opportunities for entrepreneurs since it implies new ways of

connecting:
  small enterprises with key knowledge assets may become attractive to large
players who need that knowledge
while small enterprises can now access a wide range of knowledge resources
provided they are well-networked

Open collective innovation: spreading the search net much more widely and
engaging a variety of different external players in the innovation process.

Opening up engagement refers to creating an environment where people are

encouraged to participate in a process or activity.
Opening up search refers to making information more easily accessible to people
Opening up stakeholder participation refers to involving stakeholders in
decision-making processes.

The 4 arguments pushing for greater levels of networking in innovation:

1) Collective efficiency: Networking offers a way of getting access to different resources

through; a shared exchange process.

2) Collective learning: networking offers not only the opportunity to share scarce or
expensive resources. It can also facilitate a shared learning process in which partners
exchange experiences, challenge models and practices, bring new insights and ideas, and
support shared experimentation.

3) Collective risk-taking: building on the idea of collective activity, networking also permits
higher levels of risk to be considered than any single participant may be prepared to
undertake.

4) Intersection of different knowledge sets: networking also allows for different

relationships to be built across knowledge frontiers and opens up the participating
organization to new stimuli and experiences.

Knowledge management:
- Employee involvement
 - Voice of customer
- Social networks
- Communities of practice
- Intrapreneurship.

Absorptive capacity: Zahra and George model

It is the ability to recognize the value of new, external information, assimilate it, and apply it to
commercial ends.

a- Identify
b- Acquire
c- Assimilate (making sense of it in our context)
d- Deploy
 Chapter 10: Exploiting Networks

I- How does innovation happen?

Idea => Process => Success Y/N?

This is not the case: it flows like a spaghetti.

The ways knowledge flows around an innovation project are complex and interactive, woven
together in a kind of social spaghetti where different people talk to each other in different ways,
more or less frequently, and about different things.

Rothwell’s five generation models:

First/second: simple linear models (need pull, technology push)
Third: coupling model = recognize interaction between different elements and feedback loops
between them
Fourth: Parallel model = integration with the company
Fifth: systems integration and extensive networking

II- Types of innovation networks:

1- Entrepreneur based:
2- Internal project teams: groups within a company working on a specific project.
3- Internal entrepreneur networks: employees within a company sharing ideas for
innovation.
4- Communities of practice: groups of people sharing knowledge in a specific area
5- Spatial clusters: networks formed by geographically close businesses.
6- Sectoral network: businesses in the same industry working together to innovate.
7- Development consortia: groups sharing knowledge to develop a new product.
8- Standards group: setting standards for new technologies.
9- Supply chain learning.
10- Recombinant innovation networks: networks connecting different sectors to share
ideas.
11- Managed open innovation networks: companies creating external networks to
access ideas and resources.
12- User networks: networks connecting users to innovation processes.
13- Innovation markets: connecting companies with potential solutions to challenges.
14- Crowdsourcing and funding networks: using crowdsourcing for ideas, resources
and feesback.
III- Benefits of learning networks:

 Potential for challenge and structured critical reflection from different

perspectives
 New concepts or old which are new to the learner.
 Shared experimentation can reduce perceived and actual costs or risks in
trying new things.
  Can provide support and open new lines of inquiry or exploration.
 Helps explicate the systems and open new lines of inquiry or exploration.
 Helps explicate the systems principles by seeing patterns.
 Provide an environment for surfacing assumptions and exploring mental
models outside the normal experience.
 Can reduce cost, helpful for small/medium sized enterprise and developing
country firms.

IV- Open innovation:

A) Challenges
- Conditions and context (environmental uncertainty)
- Control and ownership of resources.
- Coordination of knowledge flows
- Creation and capture of value

B) Six principles of open innovation:

1- Tap into the external knowledge:

 Benefit of leveraging knowledge and expertise from outside

 Challenge: identifying and accessing relevant external sources

2- External R&D has significant value:

 can reduce costs and uncertainties while increasing the depth of innovation
 However, a company needs to have the capability to evaluate and adapt this
external knowledge.

3- Do not have to originate research to profit from it:

 companies can profit from technologies or ideas they don’t invent themselves
 make it harder to develop unique competitive advantages

4- Building a better business model is superior to being first to market

 a strong business model is more important than being the first to introduce a new
product or service.
 developing a good business model can be time-consuming especially when
collaborating with external partners.

5- Best use of internal and external ideas:

  It is important to use both internal and external sources for ideas, not just focusing
on generating new ideas.
 evaluating a large pool of ideas from various sources can be expensive.

6- Profit from others' intellectual property (inbound Ol) and others' use of our
intellectual property (outbound IP):

 potential benefits of licensing intellectual property (IP) from others and allowing
others to license your IP.
 managing these agreements and potential conflicts can be challenging.

C) Strategies to support open innovation:

Contractual/Market strategies focus on formal agreements to access external knowledge and

intellectual property (IP):
1. In-licensing: acquiring the rights to use intellectual property (IP) from another company.
2. Out-sourcing: contracting with another company to perform specific tasks related to
research and development.
3. Joint ventures: creating a new company with another to develop and commercialize a
new product or service

Relational/Organizational strategies focus on building relationships and networks to share

knowledge and collaborate on innovation:
1. Strategic alliances: long-term partnership with another company to collaborate on
research and development.

D) Options in engaging users:

1. Lead users: demand new requirements ahead of the general market of other users, but are
also positioned in the market to significantly benefit from the meeting of those
requirements.
Characteristics:
a) Recognize requirements early.
b) Expect a high level of benefits
c) Develop their own innovations and applications.
d) Perceived to be pioneering and innovative

2. Extreme users
3. Co-development
4. Crowdsourcing: typically enabled by information and communication technology which
can extend the reach without losing some of the richness of user engagement.

E) Tools for working with open connected innovation:

1. Innovation markets: bringing seeks and solvers together

2. Innovation contests
3. Innovation communities: unite experienced and skilled innovators sharing
4. Innovation toolkits: enable users to engage with developing their ideas
5. Innovation technologies: offer tools to realize design and production by user creators
V- Innovation networks:

A) Challenges in building innovation networks:

- How to manage something we don’t own or control
- How to see system-level effects not narrow self-interests
- How to build trust and shared risk-taking without tying the process up in contractual red
tape.
- How to avoid ‘free riders’ and information ‘spillovers’.

B) Types of innovation networks:

Zone 1: Incremental Innovation
 focuses on tactical innovation issues, where individuals and organizations
with similar backgrounds collaborate to share best practices and improve
existing processes.
 This zone is about building trust and transparency among participants.

Zone 2: Radical Innovation

 deals with exploring and creating new ideas.
 participants from a particular sector work together to challenge existing
boundaries and look for new product or process concepts.
 requires information sharing and collaboration through joint ventures and
strategic alliances.

Zone 3: High-risk innovation

 involves innovation with a high degree of risk.
 participants bring in different knowledge and expertise, making careful
intellectual property management crucial.
 Establishing ground rules for risk and benefit sharing is also important in this
zone.

Zone 4: Shared Learning

 focuses on shared learning across organizations.
 This zone builds on existing regional or sectoral links to collaboratively learn
and share knowledge.

C) Managing innovation networks:

- Network boundary management: How the membership of the network is defined and
maintained.
- Decision making: How (where, when, who) decisions get taken at the network level.
- Conflict resolution: How conflicts are resolved effectively.
- Information processing. How information flows among members and is managed.
- Knowledge management. How knowledge is created, captured, shared, and used across
the network.
- Motivation: How members are motivated to join/remain within the network.
- Risk/benefit sharing: How the risks and rewards are allocated across members of the
network.
- Coordination. How the operations of the network are integrated and coordinated.
 Chapter 11: Developing new products and services

I- The new product/service development process:

A) Implementation as a journey:

As projects move through the development process, there are a number

of discrete stages, each with different decision criteria, or ‘gates’, they must pass.
Many variations to this basic idea exist (e.g. ‘fuzzy gates’), but the important point is
to ensure there is a structure in place that reviews both technical and marketing data
at each stage.

B) The development funnel:

C) Four-stage model: to discriminate between the various factors that must be

managed at different stages.
 1. Concept generation: identifying opportunities for new products and services.

2. Project assessment and selection: screening and choosing projects that satisfy
certain criteria.
2 filters:
a) Aggregate product plan: attempts to integrate the various potential projects
to ensure that the collective set of development projects meet the goals and
objectives of the firm and helps to build the capabilities needed:
i. The first step is to ensure resources are applied to the appropriate
types and mix of projects.
ii. The second step is to develop a capacity plan to balance resources
and demand.
iii. The final step is to analyze the effect of the proposed projects on
capabilities, to ensure this is built up to meet future demands.

b) Developing specific product concepts: The two most common processes at

this level are:
i. The development funnel: identify, screen, review, and converge
development projects as they move from idea to
commercialization.
It provides a framework in which to review alternatives based on a
series of explicit criteria for decision-making.

ii. The stage gate system: formal framework for filtering projects
based on explicit criteria.

The main difference is that where the development funnel assumes resource constraints the
stage-gate system does not.

3. Product development: translating the selected concepts into a physical

procedure.
It includes all the activities necessary to take the chosen concept and deliver a
product or service for commercialization.

4. Product commercialization: testing, launching and marketing new products.

D) Success factors:

Product advantage, Market knowledge, Clear product definition, Risk assessment,

Project organization, Project resources, Proficiency of execution, and Top
management support.
II- Service development:

A) Some fundamental differences between manufacturing and service operations:

- Tangibility: Goods tend to be tangible, whereas services are mostly intangible

- Perceptions of performance and quality are more important in services, in particular the
difference between expectations and perceived performance.
Perceptions of service quality are affected by:
 tangible aspects: appearance of facilities, equipment and staff responsiveness:
prompt service and willingness to help
 competence: ability to perform the service dependably
 assurance: knowledge and courtesy of staff and ability to convey trust and
confidence
 empathy: provision of caring, individual attention.

- Simultaneity: The lag between producing and consuming goods and services is different.
Most goods are produced well in advance of consumption, to allow for distribution,
storage, and sales. In contrast, many services are produced and almost immediately
consumed.
- Storage: The inability to hold stocks of services can create problems matching supply and
demand.
- Customer contact
- Location
B) Characteristics of service ‘high innovators’:

C) Success factors:

The SPOTS model:

III- Tools to support new product development:

A) Concept generation:

- Surveys and focus

- Latent needs analysis: uncover the unarticulated requirements of customers by means of
their responses to symbols, concepts, and forms.
- Lead-users:
- Customer-developer.
- Competitive analysis.
- Industry experts or consultants.
- Extrapolating trends: technology, markets, and society to guess the short- to medium term
future needs.
- Building scenarios.
- Market experimentation.

B) Financial methods: cash flows, cost-benefit analysis, payback period

C) Non-financial methods:
- Ranking,
- Profiles: Projects are given scores on each of several characteristics and are rejected if
they fail to meet some pre-determined threshold
- Simulated outcomes,
- Strategic cluster: Groups are clustered according to their support for specific objectives
- Interactive: between the R&D director and project managers, where project proposals are
improved at each stage to more closely align with the objectives.

D) Product development:
- Design for manufacture (DFM): full range of policies, techniques, practices and attitudes
- Rapid prototyping
- Computer-aided techniques (CAD,CAM)

- Quality function deployment (QFD): technique for translating customer requirements into
development needs, and encourages communication between engineering, production,
and marketing.

Steps:
1. Identify customer requirements, primary and secondary, and any major dislikes.
2. Rank requirements according to importance.
3. Translate requirements into measurable characteristics.
4. Establish the relationship between customer requirements and technical product
characteristics and estimate the strength of the relationship.
5. Choose appropriate units of measurement and determine target values based on
customer requirements and competitor benchmarks.
 IV- Promoting the adoption of innovations:

Diffusion: how innovations are translated into social and economic benefits.

Roger’s definition: ‘the process by which an innovation is communicated through certain

channels over time among members of a social system. It is a special type of communication, in
that the messages are concerned with new idea’

A) Three types of innovation decisions: Roger’s 3

1) Individual: the individual is the main decision-maker, independent of peers. Decisions
may still be influenced by social norms and interpersonal relationships, but the
individual makes the ultimate choice.

2) Collective: choices are made jointly with others in the social system, and there is
significant peer pressure or formal requirement to conform.

3) Authoritative, where decisions to adopt are taken by a few individuals within a social
system, owing to their power, status or expertise.

B) Models of diffusion:

Demand-side factors: direct contact with or imitation of prior adopters, adopters with different
perceptions of benefits and risk.

Supply-side factors: relative advantage of an innovation, availability of information, barriers to

adoption, and feedback between developers and users.

The basic epidemic S-curve model is the earliest and still the most used.
 It assumes a homogeneous population of potential adopters, and that innovations
are spread by information transmitted by personal contact, observation, and the
geographical proximity of existing and potential adopters.
 This model suggests that the emphasis should be on communication and the
provision of clear technical and economic information.

C) Barriers to adoption:

- Economic: personal costs versus social benefits, access to information, insufficient

incentives
- Bbehavioral: priorities, motivations, rationality, inertia, propensity for change or risk
- Organizational: goals, routines, power and influence, culture, and stakeholders
- Structural: infrastructure, sunk costs, governance.

D) Factors affecting diffusion:

Five factors explain 49–87% of the variance:

1. Relative advantage: the degree to which an innovation is perceived as better than the
product it supersedes, or competing products
 measured in narrow economic terms

2. Compatibility: the degree to which an innovation is perceived to be consistent with

the existing values, experience, and needs of potential adopters
 Existing skills and practices
 Values and norms

3. Complexity

4. Trialability: the degree to which an innovation can be experimented with on a limited

basis.
 An innovation that is trailable represents less uncertainty to potential adopters and
allows learning by doing.
 Sometimes called ‘divisibility’: how far can the risk of adoption be broken down
into small steps rather than requiring a full commitment at the outset.

5. Observability: the degree to which the results are visible to others.

 The easier it is for others to see the benefits of an innovation, the more likely it
will be adopted.