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Innovation management
Innovation management Print E-mail
Definition and concept
The term innovation derives from the Latin word innovatus, which is the noun form of innovare "to renew or change," stemming from in—"into" + novus—"new". Although the term is broadly used, innovation generally refers to the creation of better or more effective products, processes, technologies or ideas. Innovation differs from invention or renovation in that innovation generally signifies a substantial positive change compared to incremental changes.
‘Innovation … is generally understood as the introduction of a new thing or method ... Innovation is the embodiment, combination or synthesis of knowledge in original, relevant, valued new products, processes or services.’
Luecke and Katz, 2003
Creativity is often seen as the basis for innovation. For innovation to occur, there needs to be a creative idea and the ability to convert that idea into action to make a difference. The result is a specific and tangible change in the products, services or business processes provided by an organisation:
‘All innovation begins with creative ideas . . . we define innovation as the successful implementation of creative ideas within an organisation. In this view, creativity by individuals and teams is a starting point for innovation; the first is a necessary but not sufficient condition for the second.’
Amabile et al, 1996
Innovation is essential for business survival in highly competitive markets where it is increasingly difficult to differentiate products and services. Innovation is important for the following reasons:
·                    it allows businesses to expand their customer base by refreshing the market with new and improved products
·                    it is a key component of competitive advantage and helps companies stay ahead of competitors before rivals’ innovations take market share
·                    it supports the ability to charge a premium
·                    it provides incremental revenue and profit and also increases shareholder value.
Businesses that are not growing through new product and service introduction are likely to decline as their existing sales portfolio inevitably matures.
‘Nothing is more central to sustain growth than innovation that leads an industry and not only product innovations, but innovative design, innovative marketing, innovative in-store shopping experiences, innovation across the entire business. The companies and brands that lead innovation are the catalysts for growth.’
A.G. Lafely, Chairman, President, Procter and Gamble, 2004
Innovation is relevant in any organisation and can be applied in a number of different ways.
Product/service innovation – introducing new goods or services that are new or substantially improved. This could include improvements in functional use, convenience or technical capabilities.
Process innovation – implementing new or significantly improved production or delivery methods.
Business model innovation – changing the way business is done, for example, EasyJet, Dell computers and global outsourcing.
Organisational innovation – creating or changing business structures, practices and models.
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 and develops new value chains as the compliance and legislative environment evolves.
The common link between each of these is an improvement in efficiency, productivity, quality and/or competitive positioning for the organisation.
While innovation typically adds value to an organisation, it is not without risk. Key innovation risks include:
Operational risks include failure to meet specification, costs or launch date. Damage to company reputation and brand is another potential operational risk.
Consumer resistance and competition are examples of commercial risk.
Investment yield may be less than planned. There is also a risk that debt/equity investors become dissatisfied.