Innovation, a Necessity for Firms

December 13, 2011 in Entrepreneurship, General, Starting up, Technical by salim tannous

Innovation is becoming a crucial factor in company survival because of the evolution of the competitive environment. Modern organizations are under ever increasing competitive pressure to maintain market share, enhance product range, improve efficiency and reduce cost. The ability of an organization to grow is dependent upon its ability to generate new ideas and to exploit them effectively for their long-term benefit of the organization.

Technology based innovations coming in rapid sequence, have been seen as the crucial source of prosperity, fundamental to business success and the remedy of all business problems. However, the solutions sought are not always and at all times advantageous. Today, many companies across markets are suffering like never before, they are grappling with shifts in industry economics and consumer behavior, shifts that threaten their very existence. A new breed of revolutionaries is building a newer, better industry, whose economics differ radically from yesterday, and one that requires fundamentally new approaches to strategy and innovation. Companies like Apple, Amazon, Facebook and Google are some of today’s revolutionaries while the innovative capacity of older companies has mostly dried up.

Although innovation is seen as the life blood of organizations, the meaning people attach to it tends to vary widely and hence the way in which they behave can vary widely.
For instance, the terms “invention” and “innovation” have often been used interchangeably. While invention deals only with the creative aspect of new products, innovation involves the creation and the development of new products. Drucker defined innovation as “the application of knowledge to produce new knowledge”.

Interestingly enough, the companies that are leading today’s innovation wave are not Time Warner or the New York Times, rather start-ups such as Facebook, Twitter and Youtube or entrants from different industries like Apple and Google. While it would be assumed that it is easier for industry leaders to be innovative due to their large market share, their technical, human and financial wealth. However, successful companies get so used to their way of processing and selling their products that they become resistant to change.

In his book, Innovation Management, Allan Afuah talks about the resistance of incumbents to disruptive innovation and cites the words of Clayton Christensen, “incumbents fail to exploit disruptive technologies not so much because these firms do not get it…or because the technologies are competence destroying to them…rather incumbents fail because they spend too much time listening to and meeting the needs of their existing mainstream customers who, initially, have no use for products from the disruptive technology.”

“Every organization has to prepare for the abandonment of everything it does” (Peter Drucker).

Apple’s iPod is a perfect example of innovation. Within eight weeks of being first proposed, the integrated MP3 player concept by an independent contractor in 2001, Apple had hired the inventor to develop an initial product solution and then lead the development team to bring it to market. Drawing together collaborative external resources from the likes of Texas Instruments, Toshiba and Sharp, the technical development was largely put in the hands of Portal Player a technology development company with an existing platform and the right connections. Linking in with Apple’s internal design team and interface developers, the iPod was launched within six months and with over 300 million sales to date is already part of contemporary history. The key factors here were the willingness on behalf of Apple to both accept an external idea and then to respond by pushing much of the development out into a collaborative partnership, nearly simultaneous in-sourcing of concept and out-sourcing of development.

Another example of innovation is Google’s 20% rule, where engineers can spend a day a week working on whatever they like, is a management innovation, which lets it explore strategic variety. Letting employees play sometimes, instead of work all the time, allows them to experiment with new products, services and revenue streams. Instead of focusing on over-planning and over-thinking, Google launches a huge number of low-cost, real-time experiments.

“It’s not the strongest or most intelligent that survive, but those who can adapt to change.” Charles Darwin.

The concepts upon which the modern theory of innovation is based can be attributed mainly to advances in technology, changing customer needs, shorter product life cycles and global competition, which have transformed the definition of innovation from one of luxury to practical necessity.
If companies want to encourage the maximum amount of innovation in social production, they need to de-emphasize competition and emphasize creativity and cooperation. As the thinking of management should also be adjusted according to the change in the mode of competition, a key issue for the present day high-tech enterprise is to establish the learning capability of its organization to effectively nurture and accumulate the ability to adapt to changes and challenges.
More than seventy years ago, Schumpeter, gave a brilliant description of the entrepreneur who, in hedging his bets on invention and market, knows how to bring an intuition, a discovery, a project, to the commercial stage. Maybe the Schumpeterian entrepreneur is exactly what companies need.