Examining Importance and Methods of Managing Innovation

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The term of innovation was built from Innovate (lat.: make), which means to make changes in something existing, especially by introducing new methods, ideas or products

"Innovation: Any new approach to designing, producing, or marketing goods that gives the innovator or his company an advantage over competitors. By means of patents, a successful innovator can enjoy a temporary monopoly, although eventually competitors will find ways of supplying a valuable market. Some companies rely on bringing out new products based on established demand, while others develop technological innovations that open up new markets."

A Dictionary of Business. Oxford University Press, 2002.

In contrast to that an invention …

Description of incremental vs. radical

Benefits of an innovation …

The innovation process is driven by the ability of seeing connections and opportunities and to take the advantage out of them. But innovation does not always mean opening up new market, it can also offer new ways of serving established and older ones.

Tidd mentioned in his book "Managing Innovatio" one example of the a Spanish company. The company Inditex is acting on the global market of textile and clothing through its retail outlets under several names, especially through the most famous called Zara. Inditex has innovated a very flexible, fast turnaround clothing operation with over 2000 outlets in 52 countries. It was founded by Amancio Ortega Gaona who set up a small operation in the west of Spain in La Coruna and the first store opened there in 1975.

Another very important role plays technology. Technology often plays a key role in offering radical new options. But not always a radical change is needed. It is also possible to improve an old product, like a car that is replaced by a new model with more economical motor or a higher safety kit. This has lead to a new technology with the potential to transform the lives of hundreds of millions of people in the developing world.

Of course innovation is not limited to products; for instance, changing through innovation can be found in services and in the public and private sector

One example can be demonstrated by means of a hospital. Let us imagine a turnaround of an old hospital by implementing radical improvements in the speed, quality and effectiveness of its care services. This can be realized by reducing waiting time and cancellations.

Another example can be found in the banking sector. For a bank it may be possible to become more competitive by offering an additional service, like online banking

Retailer such as Amazon and Ebay used the revolution of the internet as new platform for selling goods.

A competitive advantage goes not only inherent with size or assets of a company compared to another but rather by the ability of a organization of mobilizing knowledge ant technological skills as well as experiences to create, offer and deliver new products or services.

Innovation is not only linked to single organizations or companies but also to a whole nation.

Importance of an innovation

Managing innovation for organization has a very important aspect, because of several reasons mentioned below:

Market share

Innovation or new products help to keep or even to take more market shares. For this reason the innovation itself may increase the profitability of an enterprise in a certain market.

Non-price factors

To become more competitive in case of more mature and established products, competitive sales growth comes not from a low price bur also from several non-price factors like design, customization and quality of the product or service.


A very important aspect goes inherent with the ability of replacing a product frequently with a better version.

For many companies the competition in time is not only reflected by a growing pressure of introducing a new product but to launch the product faster than the competitor.


With regard to a constantly changing environment the product development is an important aspect of the innovation process. Shifts in what people believe, expect, want and earn (socio-economic field) is leading to constraints and opportunities.

For instance, on the one hand the legislation may open or close doors like generating electricity by means of renewable energy sources.

On the other hand product innovation is needed in the case a competitor introduce a new product that may threaten the actual market position.

In general it can be said that for any environmental change a company has to have the ability of responding by means of a product innovation.

Process innovation

Process innovation is a very important strategic tool. The capability of making something no one else is able to do or just do it in a better way is leading to a big advantage. Being able to offer a better, faster or cheaper service can be useful to get a competitive advantage.

For instance Southwest Airlines achieved became on of the most effective airlines in the USA, because of reducing airport turnaround times.

This innovated procedure was copied by many other which revolutionized the world of cheap air traveling.

But as soon as the innovative process is copied by others the competitive advantage gets rid of the organization which introduced the innovation. To move continuously to further innovation is reducing the risk of being left behind others.

The leadership in the banking sector has been established by those who were able to capitalize early on the boom in information and communications technologies.

Service innovation has grown enormously with the boom of the Internet. Retailer who adopted the advantages of IT extended their lead, because they were able to respond fast their production to the signals given by the IT system.

The first mover advantage can lead to a significant market share in the new product field, but it also contains some disadvantages like sometimes being first goes inherent with many unexpected problems. For this reason the fast follower may use the advantage of observing someone else by making early mistakes. After a certain time the fast follower moves fast into a follow-up product.

Strategy of managing innovation


The success of a company is depending on the one hand on the generation of knowledge and on the other hand on the capability of responding quickly and efficient to the generated knowledge.

Nevertheless, the listed remarks below have to be considered to get valid competitive success:

The organization has to have the capacity to make use of its specific knowledge. This includes the identification and development of the specific knowledge as well as the exploitation of it through integration across technology, business and product divisions.

The innovation strategy has to be accumulated to the company specific knowledge

The internal structure and processes have to be continuously balanced to requirements that might contain possible conflicts.

The innovation has to fit in the company external environment with its unknown variables of present and future developments of demand, competitive threats and technologies.

Strategic advantage of an innovation

Innovation is used to find new ways to get a strategic advantage. In general there will be always space for retaining or gaining an advantage

Gaining Strategic Advantages of an Innovation

Innovation in …

Lead to …

Product/ Service

a product monopol


a faster process, lower cost, more customized


a product monopol

Legal protection of intellectual property

a product monopol

Range of competitive factors

a change of price, quality and/ or choice


a First-mover advantage or Fast follower advantage

Robust/ platform design

a platform on which other variations can be built easier

Rewriting rules

a displacement of mature products by doing things in a different way

Configuration of parts/ processes

a more effective network by means of outsourcing and co-ordination

Different application contexts

a recombining of established elements of different markets

"Five forces" of Porter

The major goal of a competitive strategy is to find a position in a market in which the company is able to defend itself against competitive forces, which may influence them.

For mature industries the profitable opportunities are less. Porter mentioned five forces which drive the industry competition. Those five forces may be useful to provide opportunities and avoid threats within the industry competition:

1. Relations with suppliers.

2. Relations with buyers.

3. New entrants.

4. Substitute products.

5. Rivalry amongst established firms.

A change in technology can influence all forces mentioned above.

Potential Entrants and Substitute Products

The entrance of a new organization in a market may increase threat towards other organizations acting in the same market. The result can be a reduction of the economies of scale for the primary organizations. As an example can be mentioned the telecommunications market of mobile phones.

Another threat may occur through substitute products, for instance mini-computers, or aluminum for copper wire).

•Power of Suppliers over Buyers

The power of buyers can be increased by innovations which are more important or useful (e.g. microprocessors into computers).

In contrast to that the power can be decreased by innovations that reduce technological dependence on suppliers (engineering materials).

Rivalry amongst Established Firms

By means of innovation a monopoly position can be established by rival organisations (e.g. Polaroid in instant photography). But on the other side a monopoly position can be destroyed by means of imitation through rival organizations or destroy a monopoly position through imitation (US General Electric in brain scanners).