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what is Innovation?


  1. the commercialization of invention
  2. Innovation is "fresh thinking that creates value",  Goldman Sachs


What leads to innovation?


  •  strong intellectual property rights protections are essential to the process of innovation.  This is because many innovations take years of research and billions of dollars to produce the first unit...but then the production and replication cost is near to nothing.  So, without the protection of patents and other trademarks, there is little incentive for someone to spend all that time and money (if they fear that someone else can just copy them at the end).  Think about Microsoft...it might cost a billion dollars to make Windows Vista, but then its next to no cost to make one extra (illegal or not) copy.  Without intellectual property protection, the company would have no financial way to recapture all of the initial investment, let alone make a profit.
  • daring, risk taking individuals



Table of Contents:




see also:  Technology   ,   entrepreneur,    innovation clusters  ,  product development



But, is VC money necessary for innovation?


According to a new paper


"What they found was surprising. VC investment lagged behind "total factor productivity" (TFP) growth by two years. And follow-on rounds of investment caused a decline in TFP in the first year. In other words, venture capital slowed down the innovation process. Additionally, they found that delayed TFP growth is correlated with first round VC investment. That essentially means that the money goes where the innovation is, not the other way around."




Policy makers typically interpret positive relations between venture capital investments and innovations as an evidence that venture capital investments stimulate innovation ("VC-first hypothesis"). This interpretation is, however, one-sided because there may be a reverse causality that innovations induce venture capital investments ("innovation-first hypothesis"): an arrival of new technology increases demands for venture capital by driving new firm startups. We analyze this causality issue of venture capital investments and innovation in the US manufacturing industry using both total factor productivity (TFP) growth and patent counts as measures of innovation. Using a panel AR regression as well as industry-by-industry AR regressions, we find that TFP growth is often positively and significantly related with future VC investment, which is consistent with the innovation-first hypothesis. We find little evidence that supports the VC-first hypothesis. More surprisingly, one-year lagged VC investments are often negatively and significantly related with both TFP growth and patent counts.


read more: http://www.businessweek.com/smallbiz/content/sep2008/sb20080930_920684.htm




Innovation business models


Rather than relying solely on a center-for-global innovation model, many companies are seeking to develop locally-leveraged, but then globally-linked innovation models. The global market for knowledge is changing, and it is common to find centers for innovation in many non-traditional market locations around the world. The old thinking was that the USA was the best location for developing innovation, which directly led to the strategy of “international” that many US based companies followed. The idea was that the USA had the most sophisticated consumer market, the most developed technology, and the highest level of competition; which were all of the ingredients for development of innovations that could be exported in the product life cycle to the rest of the world. This assumption has been recently challenged as other markets have developed in their ability to produce global innovations. As an example, we discussed the emergence of “Skype”, a revolutionary VoIP telephone service that was developed in Estonia (not in Silicon Valley). Based on this new understanding of how innovations can come from anywhere, companies are attempting to capture worldwide knowledge like never before. The challenge for transnational companies is to figure out how to capture and leverage this worldwide knowledge base. If they can do this effectively, this is one of the main sources of competitive advantage that a transnational company will have over its international, global, or multinational competitors.




Fast innovation


"you should seek results before trying to change the culture."  - (Claudio Avila).   Mobilize one or two small teams, and focusing on specific short term goals as a means of discovering the hidden capacity of a company. In order to innovate, he recommended that you should seek to get small results FAST, through pilot projects, which will give you ideas for new capabilities, resources….and save you lots of wasted time and money. By doing it this way, you will then get new methods, new skills, to organize additional improvement, and you will have more ammunition later for changing the culture of the company (which is essential for long term innovations). Instead of thinking linearly where most companies go from Vision, then get resources + capabilities, and then see results, he recommends that you should think of going directly from vision – to results, then get resources and capabilities. In other words; seek results (through controlled pilot projects) first, and then later expand and replicate, and change the companies culture later


read more in our discussion on fast failing




Creating business culture for innovation


One of the big difficulties for organizations wishing to increase the culture of innovation is how to encourage wild ideas.   An interesting concept is to completely separate out a group of people into separate areas, and keep the innovation secret, separate.  This approach is summarized as "skunk works", in that its stinky business, so keep it separate.


Example:  The first one was the moonshine factory in "Li'l Abner", a classic cartoon strip; now it is a place designed to encourage the employees of large organisations to come up with original ideas. More »



Outsourcing Innovation


companies such as IDEO Product Development specialize in outsourced innovation.  They say that "brainstorming is a science". 







Creating Innovative business environments


Peter Drucker argued that innovation and entrepreneurship are "purposeful tasks that can be organized, are in need of being organize" and should be treated as part of an executive's job. Do you believe this? Or do you think that organization and order kills off the necessary ingredients for innovation. Think about the GE model of innovation as it compares to google, and let us know what you think...



Innovation and economic development:


Innovation is essential for sustainable growth: The impact of innovation is shown to be particularly positive on growth for medium-income countries. CEE governments should therefore not be tempted by the argument that, as catch-up countries, they only need to imitate and assimilate foreign ideas in order to sustain economic growth.


MNC innovation brings few benefits to domestic enterprises: Despite massive foreign direct investment into the region, and the introduction of modern production and management methods, there have not been sufficient “spillovers” of technology and “know-how” into the domestic economy.


How to boost inputs and improve the innovation environment: Improving innovation performance requires an increase in direct inputs—such as R&D spending, better science education and IT infrastructure—as well as improvement to the overall innovation environment such as less bureaucracy, fairer taxation and more flexible labour markets. 


Talent-related issues are a major concern: Three of the four business operational issues regarded as very important by a majority of our survey respondents were talent-related: availability of university graduates; availability of scientists and engineers; and technical skills of the workforce. Finding the right staff can be made harder by the persistence of a “brain drain” from the region.


Innovative firms have mixed views about the ability of government to help:  Typical complaints include lack of effective tax legislation, particularly regarding tax advantages for start-up businesses and employee share ownership, and weak links with universities.


source:  economist







Balancing the need for regulations with innovation (and economic growth)


In a macro sense;  too much regulation, and we see a lack of competition, and a lack of Innovation.  But too little regulation, and we see scandals, crises...and later, a call for more regulation.  Think about the results of the credit crisis in the USA (2007), and the resulting calls for more regulations... is that a good thing?  Well, on one hand we can see that wrong things happened, and regulation should be put in place to make sure it doesn't happen again...but, on the other hand... if we look at any developing nation, and in country after country...we see that over regulations cuts off competition, and stymies investment, and with underinvestment comes under performing asset classes.  In each of these emerging markets, we see that "deregulations" is often the key to spurring innovation, competition and economic growth. Think about this before you call for more regulations (and learn these lessons before willingly committing your market to more regulations).  read more in our discussion on "policy and regulation"




People & Culture:


Who innovates?


In my experience, iinnovation is ALWAYS driven by a few RARE individuals who 'see' a new product or service, and then pursue that idea relentlessly.  The key is recognizing / valueing / liberating these individuals within (or outside) your company.   The trouble with many large-corporation innovation initiatives is that they often go like this:  " I work in a large corporation, which has (once again) embarked on a large innovation initiative.

The first thing it starts with, is setting up an office for innovation, building a complex, large governance strcuture, creating definitions about innovation, and starting from very generic statements, and only 1 concrete goal (yes, you guessed it, double revenue by 20xx). So much for uniqueness..."


From happy, opportunistic people?


Seeing something that is good in one market and thinking "ah, this is great, maybe this would work in another market", which is creative, but is more about cross-market movement of ideas, rather than the generation of new ones. This is more of a positive experience...seeing something you like in one place, and replicating it in another.


Or, people unhappy about a problem?



Innovation, on the other hand, could be more of a "negative" experience... in seeing something you DONT like, and thinking of ways to systematically solve, remove, or eliminate the problem. Innovation like this...is about asking "what is the problem?", and coming up with new solutions that others haven't thought of before, or haven't implemented yet.




Product / Service Development


see our discussion on product development


Open Innovation model


One of the most interesting impacts of the interconnectivity of people through the internet has been the development of social computing and social innovation.  As was outlined in a very interesting book (Wikinomics), there has been a fundamental shift in thinking among leading innovators that there is a need to tap into expertise and knowledge outside the confines of the traditional corporate infrastructure.  Companies are looking for outside help in developing products and in doing amazing new things.  This wisdom of engaging your customers, suppliers, competitors and academia in order to innovate and create new and better products and services is a fundamentally new way of looking at things.  But its being wholeheartedly embraced by such corporate heavyweights such as Proctor and Gamble (see "connect and innovate") that its making other business people take notice of the impressive results.  Please feel free to add your thoughts and insights into this very interesting trend....



Sustainable Innovation:


see our discussion on Sustainable development .   One key issue we will review is: How go design "green", sustainable innovations?  The key is to use materials that can breakdown.   Here is an interesting guide in video:  Biosphere Rules for sustainable profits



Sustainable innovation challenges (competition)


I highly recommend that all MBA's should join, and compete in the Thunderbird Sustainable Innovation Summit.  Studends from MBA schools from around the globe compete on real-world challenges from companies such as J&J, and more...see an example here




A framework for innovating


The how-to guide for planning your next innovation (basic framework)



1. Concept Introduction

  • What is your innovative idea? How is it environmentally or socially and economically sustainable?
  • Provide a brief introduction of the concept, and any background information which may set the stage for the rest of the concept plan. Identify your target market and its unmet needs.


2. Value Proposition

  • How does your sustainable innovation solve the unmet or unarticulated needs of your sponsorship partner and/or its business partners, end users and other stakeholders?
  • Highlight value-add factors and present compelling reasons to believe why your idea will make a dramatic difference in the market.


3. Competitive Advantage

  • How will the benefits of your sustainable innovation create or increase the sponsor company's competitive advantage?
  • Highlight key factors of differentiation for the sponsor company versus their competitors.
  • Teams may discuss sustainability of the advantage and fit with overall strategy or product portfolio.


4. Cost/Benefit Analysis

  • What are the main benefits that can be achieved by your sustainable innovation and what are its related costs?
  • Highlight key financial, social, and/or environmental benefits. Teams may include estimated qualitative and/or quantitative costs and benefits.
  • To the extent possible, highlight key top or bottom-line results and expected change in market share, revenues, and cost savings.


5. Implementation

  • What is your action-plan for feasibly implementing the idea?
  • How would you measure social, environmental and economic impact of your plan?
  • Highlight any internal and external risks involved.


6. Concept Illustration

  • Provide a graphical illustration of the concept to help visualize the idea.
  • It can be the design of a product, an advertisement copy, or any other creative graphic that will bring your idea to life.





Types of Innovations



Innovations to Change the World


Innovation Challenge JNJ

This was a school innovation challenge...here is a collection of research that was done in preparation for the innovation challenge.





Financial Innovations


One of the most important financial innovations has been the securitization of mortgages.  This simple innovation has had a massive impact on Latin America where ist allowed large pools of money to invest in Latin America for the first time.  Before then, the only option for  pension funds, for example, was to invest in the limited number of corporate bonds in Latin America.  But with the innnovation of mortgage backed securities, we saw the mobilization of capital in Latin America for the first time.  Not since the Brady Bonds has there been such an important financial innovation for the financial industry in Lat. AM. 



Warning:  dont over-innovate...or risk losing customers





Barriers to Innovation


Corporate barriers:  the "C.R.E.A.M"


  • C - cash
  • R - regulations
  • E - expertise / knowhow
  • A - access to markets
  • M - manufacturing


Other corporate barriers


1) Time

2) Organizational internal structure

3) People and mindset

4) Infrastructure and baggage of old way of doing things

5) Share holder pressure- which has the short term impact for any change

6) If the technology curve and entry and exit barriers are low

7) Emotional attachments and pride factor

8) Drive radical change keeping the current rate of growth on track




Customer barriers:  the "FRUIT"


  • F - functional value
  • R - risk
  • U - usage compatability
  • I - image
  • T - tangible benefits






Global Innovation





Changes in Innovation 2008










Books on Innovation



























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