INTRODUCTION TO INNOVATION MANAGEMENT INN001, 5 p.

1. INTRODUCTION TO INNOVATION MANAGEMENT(INN001, 5 p.)

2. INTRODUCTORY LECTURE September 1st-2nd 2008 Emelie Stenborg

3. Today�s contents Course outline The role of innovation What is innovation (definitions, typologies of innovation) What is innovation management? Models of the innovative process

4. PEOPLE Main teacher and course responsible: Emelie Stenborg, 046-2224429, emelie.stenborg@fpi.lu.se Course secretary, matters of registration & administrative character: Elna J�nsson, 046-2220576, elna.jonsson@circle.lu.se

5. COURSE AIMS... to provide students with fundamental knowledge of the phenomenon of innovation and innovation processes in capitalist economies from the perspective of firms and industries; to enable students to use basic theoretical tools that help analyse and manage real-world processes of innovation; to enhance students� appreciation of the importance of understanding innovation-related issues for the development of businesses, industries, countries and citizens.

6. WEEKLY THEMES Overview of the study field, with basic definitions, concepts and typologies, Chapter 1-2 Strategy analysis: I - building the framework and the environment, II - technology and learning, Chapter 3-6 The external dimension: markets, networks, institutions, systems, Chapter 7-8 Resource mobilization and strategy implementation, Chapter 9-10 Creating an innovative organisation, Chapter 11-12 2 - Ch. 3: rationalist vs. Incrementalist approach, ch. 4: positions, national & competitive environment 3 � Ch. 5: technological trajectories, ch. 6: processes, integration for strategic learning 4 � Ch. 9: the internal processes, ch. 10: learning through corporate ventures, ch. 11: building the innovative organization, ch. 12: creating innovative new firms2 - Ch. 3: rationalist vs. Incrementalist approach, ch. 4: positions, national & competitive environment 3 � Ch. 5: technological trajectories, ch. 6: processes, integration for strategic learning 4 � Ch. 9: the internal processes, ch. 10: learning through corporate ventures, ch. 11: building the innovative organization, ch. 12: creating innovative new firms

7. WEEK 1-5 Mondays and Tuesdays: Lecture Thursdays: Seminar The seminar is not compulsory Contributes to the final grade (up to 25 %) Active participation expected Assignments to be handed in before the seminar Seminar may include presentations etc. I promise rapid feedback! (not Monday week 1)(not Monday week 1)

8. LAST 2 WEEKS Sixth week: Mainly reserved for writing the home exam. One lecture on the Monday with room for questions if you need it. Seventh week: Examination � presentation and discussion in small groups (5-6 people) of the final essay (which is a part of the home exam).

9. EXAMINATION Your progress and learning is assessed not only at the end of the course but throughout the entire course. Different forms of examination are used to gauge students� progress: Weekly written assignments in preparation for seminars Formal presentations at seminars Home exam, including final discussion seminar The home exam is the more important of the three.

10. About the grading The seminar assignments are not compulsory but graded (up to 25 %) and hence a necessity if you want a high grade The first part of the home exam determines 25 % of your grade The second half of the home exam determines half the grade

11. Home exam The first part is a number of short questions relating to the course literature. These questions will be handed out on Monday of the sixth course week (October 6th) The second part is a more open essay: students are asked to select a specific firm (or other organization) of their own choice and then relate the firm and its innovation activities to a number of more specific issues that have been taken up in the course literature and in teaching.

12. Questions for the second part of the home exam What types of innovation does the firm (not) concentrate on? Does it seem to be successful in its innovative activities? Why (not)? To which technological trajectory does the firm belong? How would you characterise the firm�s innovation strategy? What parts of the firm seem most important for innovation to be successful in the firm? Does the firm use external collaboration to enhance its innovations? If so, what types of collaboration, and why exactly those forms? And what types of partners? What type of competition is threatening the survival of the firm on the short and the long term? Does the firm use corporate ventures, and if so, of what type are they? In what stage of development is the industry in which the firm is active? What type of market (international?, local?, mass market?, niche market?) is at focus? Are there any institutional regulations or other political developments that are particularly important influencing the innovation activities of the firm? And how does the firm itself try to influence political developments?

13. What is expected from you? You can choose between width and depth � answer several questions or just a few You are not expected to answer all questions � neither to do so in detail Specify the questions you are addressing 2 000 words per part � in sum 4 000 words (approximately 8 pages) A LTH grade is given U, 3, 4, 5 (International students get an ECTS grade as weel)

14. Note the following about plagiarism Copying text from someone else without using quotation marks and citing the source is considered plagiarism. For the home exam, there are no requirements of listing your references (however, this may show that you have found adequate resources), but you MUST USE quotation marks and list the source if you quote (you are not allowed to just copy text)! If you violate this rule you may be reported! I will check for plagiarism. If there is anything unclear about this, don�t hesitate to contact me

16. Course literature Managing InnovationIntegrating Technological Market and Organizational Change 3ed Joe Tidd John Bessant Keith Pavitt ISBN 0470093269

17. Today�s contents Course outline The role of innovation What is innovation? What is innovation management? Models of the innovative process

18. Chapter 1: Key Concepts in Innovation Management The aim of innovation... Depends on the type of firm Goal is mostly to survive, to grow, to make profit R&D departments generally strive for the best technical solution... ... but what matters for innovation is how it influences survival chances, profit and growth opportunities!

19. Innovation and the corporate strategy Innovation management..... has to be understood as a core process of the organisation -> It is related to what is being produced Is a long term race Is about continuity Has to deal with complexity!! Is about being systematic ? developing routines around innovation

20. WHAT IS INNOVATION? Invention Technology? Innovation Creating new or improved products, processes and services Knowledge and learning Uncertainty

21. Schumpeter�s distinction between �Invention� and �innovation� An �invention� is an idea, a sketch or model for a new or improved device, product, process or system. It has not yet entered to economic system, and most inventions never do so. An �innovation� is accomplished only with the first commercial transaction involving the new product, process, system or device. It is part of the economic system.

22. Dimensions of Innovation (1) Product innovation: changes in the things (products or services) which an organization offers Process innovation: changes in the ways in which they are created an delivered Position innovation: changes in the context in which the product or services are introduced Paradigm innovation: changes in the underlying mental modes which frame what an organization does

23. Figure 1.1 Dimensions of innovation

24. According to the degree of codification: Information to tacit knowledge Wisdom Tacit knowledge Explicit Knowledge Information Data

25. The knowledge of innovation

26. Figure 1.4 Component and architectural innovation Zone 1: steady-state improvements in products & processes, zone 2: significant change in one element, architecture remains, new materials in airframe components, zone 3: discontinuous, end-state not known, rules of the game change, zone 4: architectures, different groups of users, reconfiguring knowledge sources & configuration, low-cost airlinesZone 1: steady-state improvements in products & processes, zone 2: significant change in one element, architecture remains, new materials in airframe components, zone 3: discontinuous, end-state not known, rules of the game change, zone 4: architectures, different groups of users, reconfiguring knowledge sources & configuration, low-cost airlines

27. Triggers of discontinuity New market emerges New technology emerges New political rules emerge Running out of road Change in market sentiment or behaviour Deregulation or reregulation Fractures along �fault lines� Unthinkable events Business model innovation Shifts in techno-economic paradigm Architectural innovation

28. This model tries to� Link innovation, market and industry The level of product and process innovation can be related to the stage of the industry Handels both incremental and radical innovation Explanatory, general model Academically very influental

29. Innovation and Industrial Evolution Assembled products Not universal Links the following to the industry life cycle Product innovation Process innovation Organizational change Market Competition

30. Innovation in an assembly sector

31. Keywords of different phases

32. What happens after the specific phase? New vawes of innovation Next generation Skip a generation Organisational innovation Japanese style Corporate ventures Networking organisation Mass customization

33. Dominant design The design that wins the competition� Not based on technological superiority but instead on a mixture of market and organizational factors Creates What defines the product What is required by the product Meets the need of most customers New proffesions

34. How does it come about? Interplay between market and technology Important non-technological factors Collateral (Complementary) assets Policy Firm strategy Communication

35. Effects of dominant design Competition Shifts the basis from product to process Less and less firms Slower introduction of change (maybe less true these days�) Implication ? Organisational change is necessary!

36. Organizational implications Leadership or followership Sets the boundaries for change (I thought about plastic waterbottles the other day�) Constraints, users, habits, complementary assets� Can we spot it? At least three variables Chance Technology Social process Disruptive change comes from outside of the industry (More on Wednesday)

37. Radical innovation In industries times of stability are disrupted by times of discontinuity Example of generations of the ice industry in the USA � manually harvested ? mechanical ice-making ? refrigerators In this context we talk about replacive products

38. Performance of old and new technology

39. Dynamics of radical innovation First inferior to old ones � but with potential Early, demanding users � but has to have mass market potential Timing � decline of improvements of old technology, rapid improvement of new �Sailing ship� � old technology fights back

40. Old vs New firms Existing customers Existing products Resources (investments) Other stakeholders (shares, staff, funders�) Existing organisational structure Bureaucracy Mindset � emotionally comitted More?

41. So, how to be an innovative firm?(According to Utterback) (1) Technology, markets and organisation 1) Support radical developments Wide experimentation Learning organisation External vision Developed and balanced core competences Strategies Alliances Accept change � it will happen!

42. So, how to be an innovative firm?(According to Utterback) (2) 2)The importance of incremental innovation! Improve and extend existing lines Parallell innovation Right structure Develop complementary assets

43. The fluid phase � co-existence of old and new technologies rapid improvement of both ?�the sailing ship effect� Target: What product and what market? Technical: What product who will produce it ? Experimentation

44. The transitional phase A dominant design Convergence around one design Rolling bandwagon ? innovation channeled around a core set of possibilities ? a technological trajectory Imitation and development Reliability, cheaply, higher functionality, quality

45. The specific phase Rationalization & scale economies Differentiation through customization Scope for innovation becomes smaller

46. Table 1.2 Stages in innovation life cycle

47. Important contextual factors Type of sector Size of firm The country and region The stage in the industry life cycle Political regulations

48. Do better/do different : Established organizations need to be able to handle bothDo better/do different : Established organizations need to be able to handle both

49. Important NEW contextual factors Globalisation Sustainability Networking organisation

50. Three key questions How do we structure the innovation process? How do we develop effective routines? How do we adapt or develop parallell routines to deal with incremental vs. discontinuous innovation?

51. Conclusions Different kind of innovations Context specific Innovation has different stages Knowledge is the key

52. Chapter 2: The innovation management process Evolving models of the innovation process Can we manage innovation? Introducing the concepts of Organizational Routines or Capabilities Specify the different phases of the innovation process How context affects innovation

53. First and second generation models

54. 3rd generation model

55. 4th generation model

56. 4th generation model

57. 5TH generation model

58. Innovation processes � 5th generation model Relevance of external sources of knowledge �firms do not innovate in isolation� Related to Innovation System concept Focus on networking Still strong emphasis on R&D and formal knowledge (ICT)

59. 6th generation of innovation processes �Revolve around knowledge and learning� Networks embrace all knowledge types, not only R&D. Most innovative firm is the one that learns fastest It is the use of knowledge that makes the competitive difference, and creates the advantage

60. Table 2.2 Rothwell�s five generations of innovation models

61. Innovation models SO, WHICH ONE IS RIGHT? A fast food restaurant chain? An electronic test equipment maker? A hospital? An insurance company? A new entrant biotechnology firm?

62. Innovation can come: From the market (demand pull - 2nd) From the �R&D department� (tech push - 1st ) From any department (interactive � 3rd) From process reinvention (integrated � 4th) From external sources of information (networks - 5th) From intangible assets (6th)

63. Managing complexity

64. Can we manage innovation? The majority of failures are due to some weakness in the way the innovation process is managed. Technical resources (people, equipment, knowledge, money, etc.) Capabilities in the organization to manage them

65. Organizational routines or capabilities are �the way we do things around here (in this organization)� as a result of repetition and reinforcement Routines are firm-specific and must be learned. �To manage� innovation means to create an organisation where routines can be learned as to cope with the complexity and uncertainty of the innovation process Unlearning is important Here emerges the negative side of routines. They represent behavioural patterns which become reinforced to the point of being almost second nature. By analogy with driving a car, our driving behaviour is reinforced by traffic rules embedded in traffic lights, signs, etc. However, if driving a car has been made more effective (for example in reducing the number of car accidents) by enforcing everybody to follow the same rules, routines for managing innovation can become difficult to change when the �way we do things around here� becomes inappropriate and the organization is too committed to the old ways to change. So it is important, from the standpoint of innovation management, not only to build routines but also to recognize when and how to destroy them and allow new ones to emerge.Here emerges the negative side of routines. They represent behavioural patterns which become reinforced to the point of being almost second nature. By analogy with driving a car, our driving behaviour is reinforced by traffic rules embedded in traffic lights, signs, etc. However, if driving a car has been made more effective (for example in reducing the number of car accidents) by enforcing everybody to follow the same rules, routines for managing innovation can become difficult to change when the �way we do things around here� becomes inappropriate and the organization is too committed to the old ways to change. So it is important, from the standpoint of innovation management, not only to build routines but also to recognize when and how to destroy them and allow new ones to emerge.

66. Figure 2.1 Simple representation of the innovation process

67. Searching �looking for threats and opportunities for change within and outside of the organisation. Technological opportunity Changing requirements on the part of the market Selecting � deciding (strategically from how the enterprise can develop and taking into account risk) what to respond to. Flow of opportunities Current technological competence Fit with the current organizational competence Fit with how we want to change

68. Implement � turn potential ideas into a new product or service, a change in process. Acquiring � to combine new and existing knowledge (available within and outside the organization) to offer a solution to the problem Executing � to turn knowledge into a developed innovation and a prepared market ready for final launch Launching � to manage the initial adoption Sustaining � to manage the long term use

69. In the implementation phase Cope with uncertainty about: Technological feasibility Market demand Competitor behaviour Regulatory and other influences Replaced by knowledge accumulated ? technology & market research

70. Learning � to learn from progressing through this cycle so that they can build their knowledge base and can improve the ways in which the process is managed. Restart the cycle Failure � why? Refine, improvement ? next generation Learning about technology, routines & organization

71. Figure 2.1 Simple representation of the innovation process

72. Almost the same - again

73. Almost the same - again SCAN Definition: Detecting signals in the environment about potential change (market niches, technology development, etc) Activities Scanning environment for technological, market, regulatory and other signals Collect and filter signal from background noise Scan forward in time Process signals into relevant information for decision making

74. Almost the same - again FOCUS Definition: Selection of the various market and technological opportunities. Inputs: (1) the flow of signals coming from the previous phase (2) the current technological base of the firm (3) the fit with the overall business strategy.

75. Almost the same - again RESOURCE Definition: Combining new and existing knowledge to offer a solution to the problem. Activities: Invent in-house through R&D activities Create the conditions for creativity Use existing knowledge in-house Technology transfer and knowledge transfer Licensing..etc

76. Almost the same - again IMPLEMENT Definition: Close interaction between marketing related activities and technical activities to develop the idea into a marketable product or service. Activities: Develop to maturity Technical development Development of the market Launch After-sales support

77. Almost the same - again LEARN Definition Analysing the failures and success to input the innovation process Activities: Continuous improvement Knowledge and IC management

78. Table 2.3 Problems of partial views of innovation

79. Table 2.3 Problems of partial views of innovation (continued)

80. �Innovation is a risky process....but also a mandatory one�. Success depends of a variety of: Internal factors Good management Core competencies Clear innovation strategy Right technology External factors Links with market and suppliers Learning from competitors Institutional support: financing, human capital, etc

81. Successful innovation New products, processes and services account for an increasing share of sales Lower prices Better-performing products Better features for certain users (niche) � of resources devoted to the development of new products go to unsuccessful projects 35% of products launched fail commercially

82. Summary of Chapter 2 Models of the innovation process Routines and capabilities Innovation management process Partial views on innovation

83. Seminar assignment September 4th 2008 Give examples from the real world of a firm that has been successful at innovation a firm that has failed to innovate successfully What, would you say, might be the most important difference between the successful and the unsuccessful firm? Please send in a page or so to emelie.stenborg@fpi.lu.se, and bring a print-out of your answer with you to the seminar!

84. How to select firms See separate sheet for guidelines You could: Follow one firm over the entire course - Of course, you should be able to cover many aspects of innovation using this case ...or switch firm based on the assignment - Note! Doing this to often may take a lot of time! You don�t have to decide now... ...however, a recommended strategy is that you choose case(s) with enough �richness� to cover several aspects of innovation