Innovation Lecture Notes

Types of Innovation

1. Product Innovation
   • Focus: New/better products
   • Goal: Increase revenue
2. Process Innovation
   • Focus: New/better production methods
   • Goal: Reduce unit costs, increase efficiency

Why Innovate?

• Increase revenues or reduce unit costs
• Reasons:
  • Increasing competition
  • Changing consumer tastes
  • Changing/rapid technology
  • Increasing ethical/environmental concerns
  • Shareholder demands for higher dividends

Advantages of Innovation

• Improve product quality => Increased sales, growth, turnover
• Enhance brand image => Competitive advantage => Premium pricing
• Price inelasticity => Allows price skimming

Disadvantages of Innovation

• Initial costs: R&D, market research
• Long-term costs: Intellectual property protection (patents, copyrights)
• Time-consuming; short-term benefits may not be realized

Innovation Considerations

• Are rivals innovative?
• Necessary level of innovation
• Consumer demand for innovative products
• Available finance for innovation
• Staff skills and management risk tolerance

Methods to Achieve Innovation (K BIRD)

Benchmarking

• Identify high-level performance for comparison
• Pros:
  • Encourages result analysis
  • Higher aspirations for business/employees
• Cons:
  • Realistic benchmarks?
  • Less innovation from merely copying competitors

Intrapreneurship

• Employees apply entrepreneurial skills: Creative thinking, risk-taking, problem-solving
• Likely in a flat structure with delegation
• Pros:
  • Motivating, increased staff retention
  • Fosters creative culture
• Cons:
  • Loss of management control
  • Slower decision-making
  • Inconsistency in output/processes

Research and Development (R&D)

• Work towards innovation and improvement of products/processes
• Product Innovation: Better products, meet customer needs, higher turnover
• Process Innovation: Reduce unit costs, increase efficiency, higher profit margins
• Pros:
  • Creates competitive advantage, brand image
  • Ability to charge higher prices
• Cons:
  • Risk of failure, time-consuming, expensive

Kaizen

• Management philosophy for small consistent changes
• Empowerment of workers through regular meetings (quality circles)
• Pros:
  • Motivating, reduced waste
  • Smaller capital expenditure (capex)
• Cons:
  • Time-consuming quality circles, lower productivity
  • Possible resistance to Kaizen approach

Protecting Intellectual Property (IP)

• Patents (for inventions) and copyrights (for creative works)
• Pros:
  • Grow market share, rivals can't copy
  • Higher prices, wider profit margins
  • Reinvestment of profits
• Cons:
  • Complex to achieve and maintain

Innovation in Functional Areas

Marketing

• Requires market research
• Potential overweight of stars/question marks in the Boston Matrix

Human Resources

• More innovation with delegation, soft HRM, flat structures, risk-taking culture

Finance

• R&D costs are high
• Budgeting for benchmarking
• Acceptance of failures in intrapreneurship

Operations

• Moving from labor-intensive to capital-intensive
• Consider supply chain adjustments