Innovation is often defined by scholars as the “rolling out” of new combinations that add to the existing stock of goods. Often the definition is a very limited one. Innovation is frequently described as a form of transformation or progress toward an original idea. It can be thought of as a series of experiments undertaken in order to come up with something new. The ultimate aim is the creation of a product or service whose quality is superior to that of what was already available at the time of innovation.
Innovation can be risky for business since it throws up new value claims for customers and also new risks for business owners themselves. Innovation can be costly. In order to “insulate” themselves from these uncertainties, many business models and organisations adopt a “wait and see” approach. They try to determine the “cost of innovation” over the long term.
There are three main perspectives from which innovation can be conceptualised. These are process innovation, product innovation and incremental innovation. Process innovation is related to the design and manufacture of products or services. Product development is directed toward meeting the needs and requirements of consumers as quickly as possible. Incremental innovation is used to introduce changes in processes and activities in order to achieve particular business objectives.
Innovation can have a profound effect on competition and it can result in either dominant or subordinate firms. The process of innovation can either destroy or produce the competitive advantage that a firm has enjoyed over time. This is known as the creative destruction effect. It has been noted by many researchers that firms which have adopted a “wait and see” approach to innovation have enjoyed a higher rate of success than those firms who have adopted an aggressive approach and attempted to implement rapid innovations that resulted in the partial destruction of their competitive advantage.
Innovation can also occur within a firm’s value chain. In other words, there can be innovation within each component of the value chain. Often an innovation process begins at the start-up stage when an existing process is transformed to provide new value or meet a new need. Sometimes, however, start-ups may not be capable of implementing new processes or they may not be able to identify new opportunities that they can exploit once they have established themselves in the market place.
Innovation can be viewed as a series of events that drive a company’s growth through the creation of new products, processes and/or services. This growth is then dependent on the strategies and actions taken to make the innovation happen. The end result is a firm that has created new market segments and/or created new value chains. As this occurs, a company’s competitors are likely to experience a similar fate. A company that is able to successfully capture and create new market segments or create new value chains will enjoy a competitive advantage over its rivals.