The Ambiguity Of Innovation In Markets Commerce Essay

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The term 'innovation' is notoriously ambiguous and lacks either a single definition or measure. The UK Department of Trade and Industry's (DTI 1998) defined innovation as, 'the successful exploitation of new ideas'.

Innovation is defined as the invention and commercialization of new products or services based on the application of technological and/or market knowledge (Hitt & Ireland, 2000)

A considerable literature has accumulated on the subject of innovation, which is widely seen as the basis of a competitive economy (Porter and Ketels 2003)

Quantifying, evaluating and benchmarking innovation competence and practice is a significant and complex issue for many contemporary organizations (Frenkel et al. 2000). An important challenge is to measure the complex processes that influence the organization's innovation capability, in order that they can be optimally managed (Cordero 1990).

Innovation is central to organisational growth and competitiveness (Terninko et al., 1998; Zairi, 1999; Tidd et al., 2001). It can result in changes to the products, processes or services that an organisation offers and on occasion all three together (Roberts, 2002). Effective innovation can transform poor businesses into world leaders and ordinary organisations into stimulating environments for employees.

Poor innovation within organisations often leads to poor morale among employees and ultimately stagnation and decline of the enterprise (Kotter, 1995; Stevens and Burley, 2003). The ability to manage an organisation's innovation process is a key competence for any organisation


Kuczmarski et al.,(2003,p21) suggested that there are five basic barriers to innovation and due to these barriers companies fail to adequately embrace, cultivate, encourage, measure, reward, and carry out innovation.

1. Lack of priority

2. A risk-averse culture

3. Difficulty in measuring innovation

4. Overemphasis on short-term results

5. Lack of discipline


This barrier depicts how serious innovation process is to the organisation and plans on how to achieve it in its daily operations. The level of priority of innovation in the company will contribute to its achievement. Many organisations itemise innovation as part of its goals but without the necessary steps to put it into action.

Within this barrier there are other traits of such organisations

- Roles and responsibility

- Orientation and Training courses

- Executive time, Attention and communication

- Budget and Human Resources


From the seminars, meetings, and training classes with middle and senior managers across a broad range of industries. Without fail, the most frequent barrier to innovation that surfaces is risk aversion. Most companies tell their employees in all kinds of implicit ways that they simply will not tolerate failure. The challenge of balancing the need for success with the need to accept risk can be daunting.

However, companies like 3M have a different approach to innovation which tolerates failure in the process of innovation and allows for freedom of creativity. (Innovation seminar handout)

- Criteria for Promotion:

This element deals with the question of how people get promoted. Either by creating new things or simply avoid failures. In this case the creativity of staff is limited to the status quo. Failure is seen as an opportunity for someone else's promotion.

- Measurement, Compensation and Bonus Systems

The basis of compensation, How are the employees rewarded for innovative feats. Measuring innovation itself is challenging (Barrier 3) and compensation for innovation would result in rewarding some midlevel employees more than some higher level employees

- Innovation Career Path

Does failure affect the careers of innovative employees? Is taking bigger long-term risks boosting encouraged in certain positions? These questions posit the companies stand on breakthrough innovations as it would take some time to uncover, develop, test, launch and measure the outcome of innovation.

- Executive Recognition


One of the major challenges is measuring innovation. Companies often believe that it is much easier and more reliable to grow through acquisitions and investments in their current business than through internal innovation, Inability to measure innovation makes companies under-invest in the process, thereby straining the resources available for the process

According to Adams et al, (2006) innovation management can be measured in these areas; Inputs, Knowledge management, Innovation strategy, Organization and culture, Portfolio management, Project management, Commercialization.

- Organization-wide Impact

Innovation activities should cover all functional areas in the organisation such as marketing, operations etc and not just the science and technology functions

- Inadequate Accounting Systems

The complexity of today' accounting systems records monies spent on innovation and not the income earned from the activities. Entries like sales revenue, gross profit are common in most accounting income statements.

- Lack of Ownership

No one person typically owns a profit and loss statement for innovation. Accountability in most companies centres on business units or department. And most companies have not assigned one individual to measure and are accountable for innovation results

- Focus on Outcomes Measurement

Since innovation itself cannot be accurately measured, possibly its outcome or success rate can be measured as related to the profits generated through its commercialisation.

- The Extended Time Required


This barrier describes Organisations impatience during the innovation process. Short term bottom lines may be set for other r activities such as acquisitions, layoffs, sales promotions, but innovation cannot be achieved on a short term basis, though speeding up the process is a good thing for the organisation. Speed can cause companies to sub-optimize their innovations by not allowing adequate time to refine them and properly introduce them into the market.

- The Quick Fix Syndrome

Due to lack of patience and the pressure to record growth, firms seek for a "quick fix" i.e. between innovation and acquisition. An example of the industrial product company which wanted to grow b 15%, only for the managers to discover that it could only grow by 7% and 8% of the growth was only feasible either through innovation or acquisition. On one hand the innovation process would materialise in 3years while acquisition was a quick fix.

- The Search for the Big Idea Syndrome

Firms are always in search of a "big hit" that would ultimately enable it achieve its growth goal, making managers look productive. However, having the idea but being able to spread the available resources through initiatives and commercialising the idea (Trott, 2004, p.15). But in reality firms have to make portfolio of investment in innovation to support different objectives.


Innovation should be viewed as a management process that requires attention, planning, directing, allocation and other functions performed by managers from the idea conception up to the commercialisation of the outcome. Mismanagement of the process will result in failure and waste of resources and consequently high cost for the organisation.

- Challenge of Aligning Innovation with Business Strategy

Most organisations do not have a mapped out strategy of the innovation process that connects the business strategy with the available human resources. It also enables focus on the matter at hand, limiting other creative opportunities


The Systems model consists of four levels or subsystems, each of which represents common and necessary elements of the model. The only requirement (and a necessary one) is that System I must produce something of value such that in its own right it could be a viable system. All the other systems (System II, System III, and System IV) exist only to support the teams and groups that make up System I. If System I does not create something of value to its marketplace or society, then there is no purpose for the others- and hence, by definition, no viable system.

System I

System I represents the people who actually get stuff done: the product development teams, process development teams, and manufacturing teams. Some would call it operations, but certainly product development teams or process development teams would fall easily into System I. These are all the non-support activities, the line functions.

System II

System II supports System I folks with shared resources. A product development team, for instance, is far from self-sufficient. It is an intense user of shared systems and resources- payroll, benefits, information services, PC repair, library resources, copyright services, and legal services, to name only a few. The efficient provision of System II services to System I units is one of the biggest challenges for all organizations.

System II is ''overhead'' and proud of it. System II units make it possible for System I units to actually function in their assigned role. Understanding the relationship of System II to System I is a critical component in the management of innovation. System II is support. When System II functions find themselves in competition with System I elements, something is obviously wrong. Yet, it is not inconceivable to envision a research department in conflict with a product development unit. Similarly, one may see the advertising and promotion department in competition with the sales department, rather than in direct support of its efforts. It is not unusual for support functions, in their efforts to standardize services and thus cut costs, to find themselves in conflict with their direct customers, the System I units. The Viable System Model clearly illustrates the folly of this type of conflict. It is analogous to a salesman picking a competitive argument with the customer. Certainly he cannot win without also losing. But in many organizations, this is precisely what one sees between System II units and System I clients. Such turf wars can be calamitous.

System III

It is noteworthy that System III is the first place where we find management. To the extent that the system requires a command function, it resides here. System III provides operational direction, resolves conflicts, and allocates resources in cases where System II needs help or clarification. Functional and operational relationships in the system frequently require negotiation of issues like resource availability, priorities, and the like. Negotiation of issues is a function of System III. Compliance with prior agreements (goals, quotas, completion times, roles, profitability, etc.) is also a System III function. Management is, after all, accountable for performance of the various elements within its jurisdiction. Similar to the compliance function, but not quite the same, is an audit function. It is up to System III to ensure that safety standards, quality control, security, copyrights, and the general state of the infrastructure are all maintained. (In Beer's original iteration of the model, System IIIa is used to point out this adjunct function.)

System IV

System IV may at first seem a little confusing. Isn't creating the organizational environment for innovation- setting the values, policies, and long-term goals, for example- a management function also? Certainly it is. But it's a broader, more encompassing challenge than those addressed in System III, which is distinctly operational. In very large organizations like General Electric, it is easier to see the differentiation. Jack Welch may spend most of his time on System IV issues, and it's easier to rationalize because he has a small army of executives below him in that huge organization. In a smaller organization, we often find the two functions being performed by precisely the same executive team. In these cases, where management must clearly wear two hats, it's even more important to differentiate between the different roles and responsibilities of System III work and System IV work. It is important, in our judgment, that System IV remain separate and be addressed separately. It is important enough to successful innovation that it clearly deserves its own category.