Entrepreneurship Chapter No.

3 Innovation
The Innovation Concepts
The term innovation derives from the Latin word Innovatus which means to renew or change. Although the term is broadly used, innovation generally refers to the creation of better or more effective products, processes, technologies or ideas that are accepted by markets, governments, and society. Innovation differs from inventions or renovation in that innovation generally signifies a substantial positive change compared to incremental changes. ue to its widespread effect, innovation is an important topic in the study of !conomics, business, entrepreneurship, design, technology and engineering etc.

i) Society: In society, innovation aids in comfort, convenience and efficiency in everyday life. "or
instance, the benchmarks in railroad e#uipment and infrastructure added to greater safety, maintenance, speed and weight capacity for passenger services. These innovations included wood to steel cars, iron to steel rails, stove heated to steam$heated cars, gas lighting to electric lighting, diesel powered to electric diesel locomotive. %ther areas that added to everyday #uality of life include& the innovation to the light bulbs, cellular phones and L' s Television, microchips(processors etc.

ii) Economics and Business: In the business and economics innovation is the catalyst to growth, with
rapid advancement in transportation and communication over the past few decades the old world concepts of factor endowments and comparative advantage which focused on area)s uni#ue inputs are outmoded for today)s global economy. *arvard economist, Michael orter! points out competitive advantage or the productive use of any inputs, which re#uires continual innovation, is paramount for any speciali+ed firm to succeed. In addition, entrepreneurs continuously look for better ways to satisfy their consumer base with improved #uality, durability, service and price which come to fruition in innovation with advanced technology and organi+ational strategies.

iii) "r#ani$ations: In the organi+ational conte,t, innovation may be linked to positive changes in
efficiency, productivity, #uality, competitiveness, market share and others. All organi+ations can innovate including, for e,amples, hospitals, universities, and local governments. Innovative strategies include hospitals digitali+ing medical information in electronic medical records, computeri+ed and digital libraries in universities and computeri+ing official records of the government offices etc.

The Innovation rocess:

The innovation process, in the business conte,t, is a structured action that is remarkably easy to implement. It begins with problem and ends with profit. As such it is the ideal business process, and few businesses have actually implemented this structured innovation process. i) Be#in %ith a pro&lem: The innovation process starts with problem or goal. *owever, the fact that the business has not already achieved the goal might be considered a problem. -o we can safely say the process begins with a

problem. All businesses have problems e.g. sales could be better, products could be better, process could be more efficient, cost could be reduced and so on. ii) Convert the pro&lem into a challen#e: %nce a problem has been identified, it needs to be converted into a challenge. !,ample challenges include& in what ways might one improve product. And how might one reduce wastage in his manufacturing process. etc. "ormulating a good challenge that addresses a problem is critical to the innovation process. If a challenge does not properly address the underlying problem, one may get a lot of ideas, but these ideas would not solve the problem and therefore, are unlikely to become innovations. iii) Challen#e collea#ues to su##est creative solutions: %nce a person has a terrific innovation challenge, he needs to communicate it to colleagues or others such as business partners, customers or even the public, so that they can generate ideas. *ow he communicates depends on the method of idea generation he will use for each instance of the innovation process. iv) Colla&orative Idea 'eneration: Idea generation might be in the form of a brainstorming activity, through the use of real idea management software or a team may be assigned to devise and develop ideas. A person can even generate ideas himself, but diverse teams generate more creative ideas than individuals. /hatever method of idea generation a person use, it should ideally be in collaborative environment in which people can work together to develop ideas. v) Com&ine and Evaluate Ideas: /ith lots of ideas the ne,t step is to combine similar ideas into idea clusters or big idea. !ach idea cluster can be processed as a single idea, thus making the ne,t steps of the process more efficient. These ideas are evaluated with an evaluation matri, in which promising ideas are compared to relevant business criteria. The better the idea meets each criterion, the higher its score. Ideas with the highest evaluation scores are taken to the ne,t step. vi) (evelop Ideas: *ow a person develops ideas depends on the innovation challenge and the kind of ideas generated. 0ew product ideas might be developed into prototypes. 1rocess efficiency ideas may be modeled. 2arketing ideas may be evaluated in consumer surveys and so on. The purpose of developing ideas is to test them in the business environment and if no insoluble problems are discovered these are prepared for implementation.

vii) Implement Ideas: "inally, the evaluated and developed ideas are turn into implementation that generates value for organi+ation. It is at this step that creative ideas grow up and become innovations. The implementing ideas are monitored for desired performance and in case of under$performing, ideas can be killed and resources can rapidly be reinvested in promising new ideas.

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Sources ") Innovative "pportunities

There are several sources of innovations. According to Peter. F. Drucker the general sources of innovations are different changes in industry structure, in market structure, in local and global demographics, in human perception, mood and meaning, in the amount of already available scientific knowledge etc. Drucker outlines seven sources for innovative opportunities that should be monitored by those interested in starting an entrepreneurial venture. The first four are sources of innovation that lie within the industry. The last three arise in the societal environment. i) The *ne+pected: An une,pected success, an une,pected failure or an une,pected outside event can be a symptom of a uni#ue opportunity. ii) The Incon#ruity ,Stran#eness-Clash): A discrepancy between reality and what everyone assumes it to be or between what is and what ought to be can create an innovative opportunity. iii) Innovation &ased on rocess Need: when a weak link is evident in a particular process but people work around it instead of doing something about it. An opportunity is available to the person or company willing to supply the missing link. iv) Chan#es in Industry or Mar.et Structure: The opportunity for an innovative product, service or business approach occurs when the underlying foundation of the industry or market shifts. v) (emo#raphics: 'hanges in the population)s si+e, age structure, composition, employment, level of education and income can create innovation opportunities. vi) Chan#es in erception/ Mood and Meanin#: Innovative opportunities can be developed when a society)s general assumptions, attitude and beliefs change. vii) Ne% 0no%led#e: Advances in scientific and non$scientific knowledge create new products and new markets. -o, if one is looking for a new business opportunity, monitoring these seven sources may provide with an innovation opportunity.

'eneral Sources - Types o) Innovations:

"ollowing are some of the general sources and types of innovations& Manu)acturer Innovation: In the simplest linear model of innovation the traditionally recogni+ed source is manufacturer innovation. This is where an agent 4person or business5 innovates in order sell innovation. End1user Innovation: Another source of innovation is only now becoming widely recogni+ed is end$user innovation. This is where an agent develops an innovation for their own, personal or in$house use, because the e,isting products do not meet their needs. 2IT economist Eric Hippel has identified end user innovation as the most important and critical in his classic book on the sub6ect, Sources of Innovation. In addition, the famous robotics engineer, 78oseph. ". !ngelberger) emphasi+es that innovations re#uires only three things& a5 A recogni+ed need b5 'ompetent people with relevant technology c5 "inancial -upport

Innovation by business is achieved in ways with much attention now given to formal research 9 development 4:9 5 for bread through innovation. :9 helps encourage patents and other scientific innovations that lead to productive growth in such areas as industry, medicine, engineering and government. ;et innovation can be developed by less formal on$the$6ob modifications of practices through e,change and combination of professional e,perience and by many other routes. The more radical and revolutionary innovations tend to emerge from :9 while more incremental innovation may emerge from practice but there are many e,ceptions to each of these trends. *ser Innovation: An important innovation factor includes customers buying products or user services. As a result, firms may incorporate users in focus groups 4users centered approach5, work closely with so$called lead user 4Lead user$approach5 or users might adapt their products themselves. :egarding this user innovation, a great deal of innovation is done by those actually implementing and using technologies and products as part of their normal activities. In most of times user innovators have some personal record motivating them. -ometime user innovators become entrepreneurs selling their product, they may choose to trade their innovation in e,change for other innovations or they may de adopted by their suppliers. 0ow$a$days, they may also choose to freely reveal their innovation using methods like open source. In such networks of innovations the users or communities of users can further develop technology and reinvent their social meaning.

The Importance ") Innovation In Entrepreneurship

The economy is composed of enterprises and businesses. An economy has survived because the industry leaders had been able to adapt to the changing times and supplied mostly the communities) needs. Any small business is integral to the economy. /ithout it, the economy would not survive. <ut a business must also sustain itself, be able to constantly evolve to fulfill the demands of the community and the people. In every business, it is imperative to be industrious, innovative and resourceful. 2inancial 'ain: !ntrepreneurship produces financial gain and keeps the economy afloat, which gives rise to the importance of innovation in entrepreneurship. !ntrepreneurs are innovators of the economy. It is not 6ust the scientist who invents and come up with the solutions. Ne% roduct or a Solution: The importance of innovation in entrepreneurship is shown by coming up with new way to produce a product or a solution. A service industry can e,pand with another type of service to fulfill the ever changing needs of their clients. 1roducers can come up with another product from the raw materials and by$products. (ura&ility o) Business: The importance of innovation in entrepreneurship is another key value for the durability of a business. !ntrepreneurs and businesses began with a need. They saw the need within the community and among themselves that they have come up with a solution. They sei+e the opportunity to innovate to make the lives more comfortable. And these solutions kept evolving to make it better, easier and more useful. !ntrepreneurs must keep themselves abreast with the current trends and demands. 2anufacturers are constantly innovating to produce more without sacrificing the #uality. Success o) the Company: 'ompanies and enterprises keep innovation as part of their organi+ation. Innovations contribute to the success of the company. !ntrepreneur, as innovators, see not 6ust one solution to a need. They keep coming up with ideas and do not settle until they come up with multiple solutions. Innovation is e,tremely important that companies often see their employees) creativity as a

solution. They come up with seminars and trainings to keep their employees stimulated to create something useful for others and in turn, financial gain for the company. Competition: %ther factors that raises the importance of innovation in entrepreneurship is competition. It stimulates any entrepreneur to come up with something much better than their competition in a lower price, and still be cost$effective and #ualitative. Community Needs: -mall businesses see the importance of innovation in entrepreneurship. They were able to compete with large industry and see their value in the economy. -mall businesses are important as they are directly involved in the community and therefore, contribute to their financial and economic gain. These small businesses know e,actly what community needs and fulfill them. All things start small. Innovation is important not 6ust in entrepreneurship. As individuals, we are innovators by adapting well to our needs and create our own solutions. !ntrepreneurs are the same. The innovation in entrepreneurship helped the country by changing with the times and producing new products and service from ones that already e,ists. And, being innovative has helped us become successful in all our endeavors. 333333333333333333333333333333333333333333333333333333

3is.s Involved In Innovations:

%n one side of the innovation is its benefits but to look on the other side of innovation there are not only benefits= in the case that an organi+ation starts to focus on innovation it may face some disadvantages. These can also be referred as risks when entering an unknown field 4of business5. It does not mean that one should not use innovation. <ut it will helpful to anticipate and to understand these risks in order to tackle them. Innovations always involve particular risks for the organi+ation. A company that searches for new ways, processes and types of organi+ation is confronted fre#uently with the risk to land in a dead end. Another disadvantages of a we are innovators$approach is the need to review strategy more often= hence structural adaptations which are linked to strategy can take place more often, too. An organi+ation has to consider further five typical disadvantages& It is possible that a new business model 4in order to add value5 does not create a competitive advantage 4e.g. due to bad timing5. !ventually the new business model has to be abandoned after the testing phase. ?. An economically strong follower copies the innovation and turns it into the industry standard. Therefore the innovation become the standard solution for every company within the industry and loses its innovation status. This will destroy the competitive advantage for the innovator. 40ote& It is also possible that a competitor has another innovation and transfers it to the industry standard. !,ample for this is the format war between <lu$ray and * $ @ , that was won by -ony5
>. A. B. C.

A follower is able to learn more #uickly 4e.g. to fi, starting errors5 and to achieve the readiness for marketing #uicker than the innovator. The innovator overestimates his innovation power and his organi+ational capabilities 4e.g. change management, financial resources5 to bring an innovation to the market place. 2isinterpretation of the market. The new product is e,cellent in terms of technical specifications. espite these features no customer is willing to pay for them, since their costs are higher than their e,pected benefits 4e.g. over engineered product5. Another option is that customers have a minor different behavior then e,pected 4e.g. do not accept your pricing policy, are less loyal5.

All these risks represent the line of a loss of resources for the innovator. In addition undeveloped products can cause reputation damages.

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Ma4or 0inds ") 3is. 5ssociated 6ith Innovation

There are three different ma6or kinds of risk associated with innovation$ time, money and reputation. These are the key reasons why some individuals and organi+ations are reluctant to invest in innovation. Let us understand the risks and try to find a way out. Time: Time is money, an organi+ation is answerable to its stakeholder and achievements would be measured at the end of every #uarter. -uch a scenario creates a mindset like a pre$programmed robot. -ome organi+ations talks about their so called Think Tank which is the only reliable source of innovation and rest are all chip driven e,ecution units. If the Tank goes dry, the organi+ation fails. I feel this is where the thinking needs to change. Allow everyone to think and innovate at least once in a week to create the enormous pool of ideas which the Think Tank can then mobili+e. It also creates a sense of ownership among employees. ecentrali+ation of idea generation could be a solution to the time risk involved in innovation. Money: Innovation is a much hyped 4overvalued5 word which is often used as a premium. :esearch and evelopment is another very heavy word which often means huge e,penses. 'reativity is not about rocket science and e,pensive labs with hooded humans moving around with fuming test tubes. 'reative inspiration re#uires encouragement and the right environment, and then every workstation can become a virtual lab. 0ewton got the great idea sitting under a tree, all of us are not 0ewton and we are not sitting under a tree either. !ncourage people to come up with low cost ideas, empower them to e,ecute and the money risk of innovation could soon become irrelevant. 3eputation: The risk of reputation emerges from the fear of failure or criticism. /e have seen so many instances of authors being critici+ed or attacked for writing on topics they believe in. <ut we keep getting new breed of writers across generations who are fearless with the pen. -uch mindsets could become inspiration for others. Intent and self belief differentiates the winner from the loser.