3.9.2 Assessing innovation


    3.9.2 Assessing innovation

    The pressures for innovation

    Innovation = this is about putting a new idea or approach into action and is commonly described as ‘the commercially successful exploitation of ideas’

    • Invention is the formulation of new ideas for products and processes whereas innovation is the practical application of new inventions into marketable products or services


    Product Innovation = launching new or improved products (or services) in to the market

    • Example = Lush – this is because they constantly introduce more bath products and different ranges to suit the customer needs and trends/fashions


    Advantages of product innovation:

    • First mover advantage
    • Higher prices and profitability
    • Added value
    • Opportunity to build customer loyalty due to an established brand name
    • Enhanced reputation as an innovative company
    • Public relations (e.g. news coverage)
    • Increased market share


    Process Innovation = finding better or more efficient ways of producing existing products, or delivering existing services

    • Example = Tesla as they invested in different technologies to boost their sales and ideas/manufacturing


    Advantages of process innovation:

    • Reduced costs
    • Improved quality
    • More responsive customer service
    • Greater flexibility
    • Higher profits


    Business requirements for innovation:

    • Challenge the status quo in a market
    • Have a deep understanding of customer needs and wants
    • Develop imaginative and novel solutions to how these needs might be met


    What innovation includes:

    • Improving or replacing business processes to increase efficiency (average unit costs) and productivity (output per worker/machine), or to enable the firm to extend the range of quality of existing products/services
    • Developing entirely new and improved products and services – often to meet rapidly changing customer or consumer demands and needs
    • Adding value to existing products, services, and markets to differentiate the business from its competitors and increase the perceived value to the customers and markets


    The value of innovation

    Advantages of innovation:

    • Improved productivity and reduced costs – a lot is process innovation is about reducing unit costs and this could be achieved by improving the production capacity and/or flexibility of the business to enable it to exploit economies of scale
    • Better quality – by definition, better quality products or services are more likely to meet customer needs assuming that they are effectively marketed, resulting in higher sales and profit
    • Building a product range (diversification) – a firm with a single product or limited product range would almost certainly benefit from innovation. A broader product range provides an opportunity for higher sales and profits, and also reduced the risk for shareholders
    • Environmentally friendly and meeting laws – innovation can enable firms to reduce its carbon emissions, produce less waste, or comply with changing product legislation – changes in laws often force firms to innovate when they might not otherwise do so
    • Added value – effective innovation is a great way to establish a unique selling proposition (USP) for a product – something which the customer is prepared to pay more for and which helps firms differentiate itself from competitors
    • Improved staff retention, motivation, and easier recruitment – potential goods quality recruits are often drawn to a firm with a reputation for innovation and inspiring places of work


    Disadvantages of innovation:

    • High levels of competition – an innovation only confers a competitive advantage is competitors are not able to replicate it in its own businesses – whilst patents provide some legal protection, the reality is that may innovative products and processes are hard to protect
    • Uncertain commercial returns – much research is speculative and there is no guarantee of future revenues and profits – the longer the development timescale, the greater the risk that research is overtaken by competitors too
    • Small availability of finance – like other business activities, research and development has to compete for scarce cash. Given the risks involved, research and development demands a high required rate of return which means that firms have limited cash resources and the opportunity cost of inventing can be very high


    The ways of becoming an innovative organiser

    Process innovation theories:

    • Efficiency
    • Kaizen
    • Benchmarking
    • Entrepreneurship v intrapreneurship


    Efficiency = this includes how well a business is using its resources to produce

    • High vs low level of output to produce output
    • Efficiency can be measured by looking at cost per unit – the lower this is, the more efficient the business is and the higher the profit margin


    Factors that influence efficiency:

    • How well employees are managed
    • How good suppliers are
    • Investment in machinery and technology
    • The way in which products are produced – flow production may be more efficient and firms can cut back on waste (lean production)
      • Lean production involves techniques which are aimed to reduce waste (e.g. when production exceeds demand and products have to be thrown away; wasted time; faulty products being re-made; holding stock) in order to become more efficient and reduce costs
      • Just in time production (JIT) occurs when firms produce products to order. Instead of producing as much as they can and bulking up stock, firms only produce goods when they know they can sell the items – similarly, components and suppliers are only bought in by a firm as and when they are needed


    Kaizen = continuous improvement involving constantly introducing small incremental changes to improve the quality and efficiency throughout a business


    What kaizen involves:

    • Customer focus – greater attention paid for customer requirements and needs
    • JIT and Kanban – efficient stock control methods help reduce costs and improve cash flow
    • Flexible working practices and empowerment – helps increase efficiency, reduce costs, and improve motivation
    • Quality assurance – using ISO 9002 and other quality methods marks to create a brand image of quality products
    • Leadership and future thinking – leadership and the ability to communicate a clear vision is vital
    • High quality – change charge premium prices for items that consumers see as high quality and hence improve their profit margin
    • Low cost – improves efficiency in terms of resources used to create a product
    • Reductions in waste – often characterised as lean production – reducing waste, zero defects, and high quality control measures at all stages
    • Punctuality – in all aspects – delivery, supply, manufacture etc to reduce work in progress and the warehouse costs


    Benchmarking = the objective of this is to understand and evaluate the current position of a firm in relation to best practice and to identify areas and means of performance improvement


    What benchmarking includes:

    • An understanding in detail of existing business processes
    • Analyse the business process of competitors
    • Compare own firms performance with that of others analysed
    • Implement the steps necessary to close the performance gap


    Types of benchmarking:

    • Strategic
      • Long term and so relatively inflexible
      • Examines competences and product range
      • Used for closing gaps in performance
    • Performance
      • Specific processes and operations
      • Form partnerships of best practice within the industry
      • Uses process maps (flow diagrams)
      • Used to gain short term benefits
    • Functional
      • For partnerships of best practice outside of the industry to find cross over technologies
      • Can lead to innovation and dramatic improvements
    • Internal
      • Between units within a firm (e.g. different factories or locations)
      • Access to data, cheaper, but less innovation
      • Fewer barriers to adoption across the business
    • External
      • Follow the leading firm
      • Comparability may be difficult if data lacking
      • Used for introducing new ideas
    • International
      • Follow the leading firm from a different country
      • Globalisation has led to global partnerships
      • However there may be cultural/political issues l
      • Leads to ‘international standards’


    Entrepreneurship = activities done by an entrepreneur along with risks and rewards

    Intrapreneurship = entrepreneurial activity done by managers and employees along with risks – rewards are invested back into the business


    How to protect innovation and intellectual property

    Intellectual Property = this is aimed at protecting the property of an individual or business with had innovated

    • It helps to stop people stealing and copying the names of a firms products or brands, inventions, designs of products, and things that have been written, made, or produced


    Automatic protection:

    • Copyright writing and literary works (e.g. art, photography, films, TV, music, web content, and sound recordings)
    • Design right (e.g. the shape of a product)


    Protection to be applied for:

    • Trade marks – minimum 4 months (e.g. product names, logos, and jingles)
    • Registered designs – minimum 1 month (e.g. appearance of a product such as colour, shape, packaging, and patterns)
    • Patents – minimum 5 years (e.g. inventions and products such as machines and parts, tools, and medicines)


    Non-Disclosure Agreements = a legally binding document that can be used to stop those consulted from stealing the idea

    • It can be used with potential partners such as investors, manufacturers, and stockists
    • It can also be used with advisors such as accountants, banks, insurance brokers and marketing agencies
    • It is a relatively simple document that can be used as innovators must not assume that conversations are automatically confidential


    Patents = these protects invention and gives the inventor the rights to take legal action against anyone who makes, uses, sells, or imports it without their permission

    • They are expensive (£4,000 with professional help) and take a long time to go through (5 years) – it also has to be renewed every year
    • To apply for a patent, the product must adhere to certain guidelines and rules such as it being new, innovative, and something that can be made or used
    • Many things cannot be patented such as literacy, music, ways of doing business, a discovery, math,Arica, methods, mobile apps, and methods of medical treatment
    • The process is long (there are 8 steps in total)


    Copyrights = exclusive legal rights that protects the publication, production, or sale of the rights to a literacy, dramatic, musical, or artistic work, or computer programme, or the use of a commercial print/label


    Trademarks = this refers to distinctive designs, graphics, logos, symbols, words, of any combination of the above that uniquely identifies a firm and/or its goods and services

    • It guarantees the item’s genuineness, and gives its owner the legal rights to prevent the trademarks unauthorised use
    • It must be distinctive instead of descriptive, affixed to the item sold, and registered with the appropriate authority to obtain legal ownership and protection rights


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