Innovation Management
Chapter 1: Innovation management and new
business development
1.1 What are innovation management and new business
development?
Innovation generates uncertainty by creating ideas and projects for new products.
Generating uncertainty and reducing it as soon as possible is the core paradox of innovation
management and new business development.
Innovation management is the discipline that concerns the management of innovation
activities. Includes the creation and development of new products, services, business
models or processes in firms or other organisations.
New business development is a relatively new field and approaches innovation more from
a market perspective and has a greater emphasis on creating new markets. Includes the
creation and development of new products, services, business models or markets.
Change is necessary to ensure survival of a firm. Without innovation, firms run a large risk of
disappearing in the short or medium term. At the same time, innovation is difficult because of
high degree of uncertainty. Proper innovation management increases the chances of
success. Therefore, innovation management is a key capability in today’s business
environment.
Innovation and new business development are usually performed by separate departments,
or at times by a single innovation manager or new business developer in the firm. It is
important to note that this can also be done by people in other departments.
Innovation and new business development differ from R&D as the focus of R&D is on
technology development and successive creation of products, whereas innovation’s scope is
much broader.
Innovation and new business development can also focus on the creation of new services,
new markets or new business models, not only new products.
,Innovators are people active in innovation activities, either within an organisation or
individually. They come up with new ideas and actively develop and implement these ideas.
Typical activities are:
- Associating: connecting questions, problems, ideas or knowledge from different
sectors;
- Questioning: asking questions about and challenging the status quo;
- Observing: thoroughly looking at people’s actions without taking them for granted;
- Experimenting: creating prototypes or pilots of new products, services or business
models;
- Networking: connecting with institutions and people internally and externally. This is
essential because innovators and new business developers combine ideas from
different fields and people. X-teams are teams with strong external connections.
On top of this, entrepreneurial alertness characterizes the innovators and new business
developers.
1.2 Paradoxes of innovation
The fields of innovation management and new business development are paradoxical fields,
characterized by counterintuitive forces. Innovation management has to balance those
forces. Three paradoxes are outstanding:
1. Tension between uncertainty generation and reduction
Innovators generate uncertainty at the beginning of a project, but they generally
attempt to reduce it as soon as possible. Uncertainty is a state of missing
information and knowledge of relevant aspects of a situation and of relations between
those aspects. Organisations must seek uncertainty to develop and grow to prepare
for an uncertain future, but they also aim to reduce uncertainty as it means risk and
creates a potential for losses. If uncertainty remains high on a business project, this
could be a reason to stop it. Therefore, after the point of idea generation, the
following innovation activities should reduce uncertainty.
2. The character of innovation activities in different phases
The two fases are:
1. Idea development phase (front end of innovation)
Innovators generate uncertainty. Emphasis on creativity and
experimentation-oriented management is essential.
2. Implementation phase
Innovators reduce uncertainty. Rigid structure and a hands-on management
style are important.
3. Incremental and radical innovation
Incremental innovation refers to the firm making small modifications to existing
products, services or business models. Radical innovation refers to the firm entering
completely new markets, applying new competencies, and moving away more
radically from existing products, services and business models. The levels of
uncertainty between these two types of innovation are opposite; uncertainty is
relatively low in incremental and high in radical. Ambidexterity refers to the firm
performing well in the short term utilising incremental innovation and preparing for the
longer term by means of more radical innovation. Separation between incremental
and radical innovation in distinct units can be a solution.
,1.3 What is Business Model Innovation?
Business model innovation is an important type of innovation. Business model is a
description of the rationale of how an organization creates, delivers and captures value.
Creating value refers to what value means to your customers and capturing value refers to
how you earn money in return. The operations of a company are relevant in terms of
delivering value. Therefore a business model can be seen as a description of why a
company exists since that is derived from adding something to a certain value chain. The
rise of IT has generated many new and unusual business models, different from those
earning money from the exchange of goods and services.
Business Model Canvas provides a tool to make a description of the business model of an
organization.
This canvas helps define the concept of business model innovation more precisely. Based
on the canvas, a definition for business model innovation is that it includes any innovation in
every element of a business model.
The Business Model Canvas is a general framework to distinguish and classify business
models, but it doesn’t say anything about the different existing business models.
Business models concern how a firm creates and delivers value to its customers, whereas
strategy concerns how firms differentiate themselves form their competitors and how they
can create competitive advantage.
The strategy sets out what the firm wants to achieve, and how it wants to do so. It also
relates to the capabilities that the company possesses or aspires to possess in the future. A
business model may facilitate the implementation of a strategy.
, 1.4 Types and classifications of innovations
Novelty is an important criterion in the different types of innovation. We make a distinction
between technological novelty (refers to the technology embodied in the product) and
market novelty (refers to the novelty of target customer group, or the novelty of the
preferences of the customer group). The resulting classification is technology-market
matrix, which primarily refers to products. It outlines four different classifications for
innovation:
1. technological innovations, technologically new but fulfil the same function as
existing products
2. niche innovation, existing technology is used to target a new customer group or
new preferences of existing customer groups
3. radical innovation, innovation in both technology and customers
4. incremental innovation, marginal change on both market novelty and technological
novelty
This matrix addresses a limited set of elements of the Business Model Canvas, mainly the
value proposition, resources and customer segment.
A classification of innovations restricted only to the technological dimension is the
modularity matrix. Focuses on the composition of products. All components are connected
through interfaces. The matrix distinguishes between:
1. Incremental innovations, make a marginal change to both the components and the
interfaces.
2. Architectural innovations, change the interfaces between components and the
interfaces between components.
3. Modular innovations, change one component but not the interfaces.
4. Radical innovations, change both the components and the interfaces between
components.
Chapter 1: Innovation management and new
business development
1.1 What are innovation management and new business
development?
Innovation generates uncertainty by creating ideas and projects for new products.
Generating uncertainty and reducing it as soon as possible is the core paradox of innovation
management and new business development.
Innovation management is the discipline that concerns the management of innovation
activities. Includes the creation and development of new products, services, business
models or processes in firms or other organisations.
New business development is a relatively new field and approaches innovation more from
a market perspective and has a greater emphasis on creating new markets. Includes the
creation and development of new products, services, business models or markets.
Change is necessary to ensure survival of a firm. Without innovation, firms run a large risk of
disappearing in the short or medium term. At the same time, innovation is difficult because of
high degree of uncertainty. Proper innovation management increases the chances of
success. Therefore, innovation management is a key capability in today’s business
environment.
Innovation and new business development are usually performed by separate departments,
or at times by a single innovation manager or new business developer in the firm. It is
important to note that this can also be done by people in other departments.
Innovation and new business development differ from R&D as the focus of R&D is on
technology development and successive creation of products, whereas innovation’s scope is
much broader.
Innovation and new business development can also focus on the creation of new services,
new markets or new business models, not only new products.
,Innovators are people active in innovation activities, either within an organisation or
individually. They come up with new ideas and actively develop and implement these ideas.
Typical activities are:
- Associating: connecting questions, problems, ideas or knowledge from different
sectors;
- Questioning: asking questions about and challenging the status quo;
- Observing: thoroughly looking at people’s actions without taking them for granted;
- Experimenting: creating prototypes or pilots of new products, services or business
models;
- Networking: connecting with institutions and people internally and externally. This is
essential because innovators and new business developers combine ideas from
different fields and people. X-teams are teams with strong external connections.
On top of this, entrepreneurial alertness characterizes the innovators and new business
developers.
1.2 Paradoxes of innovation
The fields of innovation management and new business development are paradoxical fields,
characterized by counterintuitive forces. Innovation management has to balance those
forces. Three paradoxes are outstanding:
1. Tension between uncertainty generation and reduction
Innovators generate uncertainty at the beginning of a project, but they generally
attempt to reduce it as soon as possible. Uncertainty is a state of missing
information and knowledge of relevant aspects of a situation and of relations between
those aspects. Organisations must seek uncertainty to develop and grow to prepare
for an uncertain future, but they also aim to reduce uncertainty as it means risk and
creates a potential for losses. If uncertainty remains high on a business project, this
could be a reason to stop it. Therefore, after the point of idea generation, the
following innovation activities should reduce uncertainty.
2. The character of innovation activities in different phases
The two fases are:
1. Idea development phase (front end of innovation)
Innovators generate uncertainty. Emphasis on creativity and
experimentation-oriented management is essential.
2. Implementation phase
Innovators reduce uncertainty. Rigid structure and a hands-on management
style are important.
3. Incremental and radical innovation
Incremental innovation refers to the firm making small modifications to existing
products, services or business models. Radical innovation refers to the firm entering
completely new markets, applying new competencies, and moving away more
radically from existing products, services and business models. The levels of
uncertainty between these two types of innovation are opposite; uncertainty is
relatively low in incremental and high in radical. Ambidexterity refers to the firm
performing well in the short term utilising incremental innovation and preparing for the
longer term by means of more radical innovation. Separation between incremental
and radical innovation in distinct units can be a solution.
,1.3 What is Business Model Innovation?
Business model innovation is an important type of innovation. Business model is a
description of the rationale of how an organization creates, delivers and captures value.
Creating value refers to what value means to your customers and capturing value refers to
how you earn money in return. The operations of a company are relevant in terms of
delivering value. Therefore a business model can be seen as a description of why a
company exists since that is derived from adding something to a certain value chain. The
rise of IT has generated many new and unusual business models, different from those
earning money from the exchange of goods and services.
Business Model Canvas provides a tool to make a description of the business model of an
organization.
This canvas helps define the concept of business model innovation more precisely. Based
on the canvas, a definition for business model innovation is that it includes any innovation in
every element of a business model.
The Business Model Canvas is a general framework to distinguish and classify business
models, but it doesn’t say anything about the different existing business models.
Business models concern how a firm creates and delivers value to its customers, whereas
strategy concerns how firms differentiate themselves form their competitors and how they
can create competitive advantage.
The strategy sets out what the firm wants to achieve, and how it wants to do so. It also
relates to the capabilities that the company possesses or aspires to possess in the future. A
business model may facilitate the implementation of a strategy.
, 1.4 Types and classifications of innovations
Novelty is an important criterion in the different types of innovation. We make a distinction
between technological novelty (refers to the technology embodied in the product) and
market novelty (refers to the novelty of target customer group, or the novelty of the
preferences of the customer group). The resulting classification is technology-market
matrix, which primarily refers to products. It outlines four different classifications for
innovation:
1. technological innovations, technologically new but fulfil the same function as
existing products
2. niche innovation, existing technology is used to target a new customer group or
new preferences of existing customer groups
3. radical innovation, innovation in both technology and customers
4. incremental innovation, marginal change on both market novelty and technological
novelty
This matrix addresses a limited set of elements of the Business Model Canvas, mainly the
value proposition, resources and customer segment.
A classification of innovations restricted only to the technological dimension is the
modularity matrix. Focuses on the composition of products. All components are connected
through interfaces. The matrix distinguishes between:
1. Incremental innovations, make a marginal change to both the components and the
interfaces.
2. Architectural innovations, change the interfaces between components and the
interfaces between components.
3. Modular innovations, change one component but not the interfaces.
4. Radical innovations, change both the components and the interfaces between
components.
