(Johnson, et al., 2008 : 328) described that while Invention involves the conversion of new knowledge into a new product, process or service, Innovation adds the critical extra step of putting this new product, process or service into use, in the private sector typically via the marketplace and in the public sector through service delivery.
Types of innovation
Innovation is usually driven by the following two factors:
Technology Push: In this model, technologists or scientists drive the innovation by carrying out research and development to create new knowledge. This is used as an input to create further products or services which can be used to sell in the market.
Market Pull: In this model, the market represents the actual source of information about the usage of product or service. The lead or power users usually express the need of capabilities in the product which leads to the further innovation. Microsoft maintains a deep relation to its MVPs (Most Valuable professional) around the globe who are usually the biggest critic and source of suggestion while they introduce a new product in market.
Usually, organizations try to create balanced blend between the technology push and market pull. The balance can vary based on the geography, industry etc.
Another factor which is important is to decide between product or process innovation. Process innovators focus on changing how something is done and not what is done. New developing industries favour the product innovation compared to the process innovation as other competitors are still busy defining what needs to be done. On the other hand, mature industries favour process innovation as the basic rules of the game are already well defined and clear. Thus, it is important that focus is centred on how things can be improved and delivered. The new entrants in any business are the ones who usually focus on product innovation as they have less risk of anything to loose and if successful, the margins are very high. Large settled firms on the other hand have an advantage later as the design is established and they can further innovate the process to improve the efficiency and services.
A key question for innovators is the importance of new knowledge in the form of scientific or technological advances. Successful innovators don’t just rely of technical or scientific improvements but creating the whole new business models to bring consumers, suppliers and producers together with or without new technologies.
Diffusion of Innovations
Diffusion is the process by which an innovation is communicated through certain channels over time among the members of a social system. Given that decisions are not authoritative or collective, each member of the social system faces his/her own innovation-decision that follows a 5-step process (Rogers, 1995):
Knowledge – person becomes aware of an innovation and has some idea of how it functions,
Persuasion – person forms a favourable or unfavourable attitude toward the innovation,
Decision – person engages in activities that lead to a choice to adopt or reject the innovation,
Implementation – person puts an innovation into use,
Confirmation – person evaluates the results of an innovation-decision already made.
The pace of diffusion can vary according the nature of the product. It also depends a lot of the factors such as demand as supply rate.
The diffusion S-curve
The pace of diffusion is typically not steady. Successful innovations often diffuse according to an S-curve pattern. The shape of the S-curve reflects a process of slow adoption in the early stages, followed by a rapid acceleration in diffusion, and ending with a plateau representing the limit to demand. The height of the S-curve shows the extent of diffusion; the shape of the S-curve shows the speed.
Figure 1: The diffusion S-curve
Innovators and followers
When it comes to innovation, a big decision for managers to make is to lead or follow. The S-curve concept suggests that leaders in innovation have an advantage. Looking at the historic evidences, it is difficult to come up with one rule of thumb in this decision making process. Though it is evident in some cases that early adopters or leaders had significant advantage when innovating, there have been several cases where this position has resulted in failures.
First movers usually have the following advantages:
Rapid accumulation of experience compared to the late entrants who are not yet familiar with the process, product and the technology.
They can make an early start when it comes to bulk production or purchase.
They have the opportunity to pre-empt the resources as the late entrant would not have the same environment available with resources, skilled labour etc.
They can build up a reputation as the customer’s do not have many alternatives in mind.
They can exploit the customers with hefty switching costs which would make it difficult to move to the new entrants.
On the other hand, late adopters have the following advantages:
They can imitate the technology and other innovations at a far lesser cost than it was done by the first movers.
They can learn from the experiences of the first movers and thus have lesser chances of making mistakes.
Based on the advantages for both first and late movers, Managers should further consider the following factors when deciding whether to go first or move late:
It is unwise for companies to be first movers if the innovation can easily be imitated by the competition.
If there is an absence of necessary complementary resources, then the organizations should retrain in investing heavily being the early adopters.
In a slow moving market, it is easy to decide to be early adopter or not. In a fast moving market, managers need to duly pay attention whether the investment in being the fast mover would be beneficial or not.