4) Basics of innovation management

Question 1

Innovation definition

Accepted Answer

- process of turning an opportunity into new ideas and putting these ideas into widely used practice- qualitatively new products or processes that are significantly different from the current status- innovation: new; has to be different from current status and widely used -> marketing innovation; sales innovation- 4 types of innovation: -> process -> product -> service -> business model 3

Question 2

Innovation management definition and functions

Accepted Answer

Definition:- managing all activities that are adding to the value concerning something new reaching from basic research up to market launch- narrow definition: management of the first-time launch of innovations Functions:- formulation and pursuit of strategies and goals- deciding company's strategic and organizational focus on innovation- decision making concerning realization of innovations- creating and maintaining an information system to ensure the exchange of information within the innovation process- coordinating and controlling essential processes for the realization of innovations- establishing an innovative corporate culture and social relations to influence decision making of partners Idea -> Invention -> Innovation 4

Question 3

5 dimensions of innovation

Accepted Answer

6 content dimension (What is new?)- process, product or service innovation subjective dimension (New for whom?) intensity dimension (How new is the innovation?)- incremental or radical innovation origin dimension (Where does the innovation start?)- market pull or technology push process dimension (When does the innovation begin? When does it end?)- innovation development cycle -> market launch -> market penetration cycle (adoption and diffusion)- idea -> invention -> innovation

Question 4

Which one of the following products was at the time of its launch a product innovation? 1) Apple's iPhone 2) Online Banking 3) 4th generation of the Mercedes-Benz A-Class 4) Mass production with conveyor belt

Accepted Answer

1) Yes, first smartphone 2) No, it's a service innovation 3) Yes 4) No, process innovation

Question 5

Which of the following statements holds true for service innovations? 1) Service innovation leads to an increase in efficiency only. 2) Service innovation leads to an increase in effectiveness only. 3) Service innovation leads to an increase in effectiveness and efficiency. 4) Service innovation neither leads to an increase in effectiveness nor to an increase in efficiency.

Accepted Answer

1) X true for process innovations 2) O improve something 3) X true for business model innovations 4) X would be a waste of money ("crap innovation")

Question 6

Characteristics of service innovations

Accepted Answer

11 Intangibility (nicht greifbar)- no physical aspect Perishability (Verderblichkeit)- can't be stocked Integration of external factors Perceived purchase risk- low on search characteristics -> credence characteristics: trust in service quality and truth (high credence is needed in service innovation) -> experience characteristics: experiencing the service -> search characteristics: searching if service is good before consuming; test consumation of the service- high perceived purchase risk: doctor, surgeon (low search, low experience, high credence- shop (retail): high credence, high experience, high(?) service Individuality- each service is different (because of external factors)

Question 7

Example for service innovation

Accepted Answer

- notarizing via app or computer (saves time and money; reduces fraud; better customer experience; improved efficiency and convenience)- more effective- is also a process innovation (because it is also more efficient) 12

Question 8

Process innovation, product innovation, service innovation

Accepted Answer

?????????

Question 9

Example for process innovation

Accepted Answer

- using virtual prototypes (for example virtual reality prototyping) instead of physical prototypes 14

Question 10

Product innovations vs service innovations

Accepted Answer

13, 15 in Germany:- sales of product innovations are higher than service innovation's sales- sales of product innovations are decreasing over time; sales of service innovations are also decreasing but not as much (seem to be increasing a bit since 2015)- through process innovations manufacturing and service costs are decreasing

Question 11

Categorization of innovations

Accepted Answer

see 16 based on newness for the company and the market - products that are new for the provider (new product line): company new; market old- improvement of an existing product: company middle; market old- incremental innovation (change that represents an improved way of carrying out some task): company old; market old - expansion of an existing product line: company middle; market middle- repositioning of an existing product: company old; market middle - radical innovation (major change that represents a new paradigm/model for carrying out some task): company new; market new

Question 12

Intensity dimension of an innovation

Accepted Answer

17 newness; degree of innovation Incremental innovation:- little modifications- improved way of carrying out tasks- existing or related markets; well known-fields of application- improving means(company)-end(customer) relationships- key technology that is in an existing market- way to go: exploitation (acquiring profits from existing markets and products; longer product life cycles) Radical innovation:- complete (radical)/major change- new paradigm (Muster) for carrying out tasks- new markets and fields of application- new means and ends- key technology in a completely new market- way to go: exploration (focused on investments in discovery, innovation and experimentation that create value for the future; long term success)- changes people's behavior - radical innovations and incremental innovations (and exploration and exploitation) go hand in hand (ambidexterity; balanced strategy) Examples:Ebay: radical innovation; service innovationConveyor belt: radical innovation, process innovation (changed process)faster/better conveyor belt: Golf 7: incremental innovation, product innovationSpotify: radical innovation, service innovation (music streaming instead of buying)Windows 7, 8, 10 replace Vista and XP: incremental innovation, service innovation (not tangible/storable)ATM: radical innovation, aus Sicht der Kunden: service innovation; aus Sicht der Unternehmen: product innovation 17, 18, 19

Question 13

(Investments in Exploitation and Exploration Capabilities - Study)

Accepted Answer

Sarkees, Hulland, Chatterjee (2014) - Investments in Exploitation and Exploration Capabilities: Balance vs. Focus Central research questions:- exploitation vs. exploration: balance or focus?- exploitation and exploration: effects on short-term/long-term firm performance- firm size important for capabilities? Theoretical background:- resource-based view of firm (RBV)- reaching competitive advantages by using rare (ideally unique), valuable, inimitable and non-substitutable resources and core competencies- key components of resource-based view: -> exploitation capability: efficient conversion process from marketing-related inputs into sales output -> exploration capability: efficient conversion of experimentation and innovation investments into new products, processes and services in the long run Conceptual model: (22)- direct influence of exploitation capability and exploration capability on firm performance- indirect influence (moderator effect) of firm size on firm performance- influence of firm age, year, cash flow of previous year and Tobin's q of previous year- firm performance: cash flow (short-term) and Tobin's q (long-term) Methodology:- independent variables: -> exploration and exploitation capabilities (efficiency of input to output transformation) -> exploitation capabilites = based on sales (=relevant output that is influenced by 1) selling, general and administrative expenses 2) costs of goods sold and 3) non-R&D-oriented alliances with other firms) -> exploration capabilities = based on cumulative patents (=relevant output that is influenced by 1) R&D expenditures 2) R&D-oriented alliances and 3) mergers and acquisitions (M&A))- measuring the dependent variables: -> short-term corporate success (based on standardized cash flow ((EBIT+depreciation-taxes) : total assets = net operating CF : total assets) -> long-term corporate success (based on Tobin's q = (MVE+PS+Debt)/TA)- measuring the moderating variable: -> firm size (number of employees)- measuring the control variable: -> firm age (determined from firm's date of incorporation) Hypotheses:H1a: exploitation capabilities have a positive influence on short term success ΟH1b: exploitation capabilities have a positive influence on long term success XH2a: exploration capabilities have a negative impact on short term success ΟH2b: exploration capabilities have a positive impact on long term success ΟH3a: balanced capabilities have a positive impact on short term success ΟH3b: balanced capabilities have a positive impact on long term success XH4a: when focus on exploiting: firm size has a positive moderator effect on firm performance ???H4b: when balanced: firm size has a negative moderator effect on firm performance XH4c: when focus on exploration: firm size has a pos. moderator effect on firm performance Ο Implications:- exploitation capability: -> short-term: Ο positive impact on operating cash flow through efficient resource deployment -> long-term: X strengthens value creation and avoids innovation gaps but doesn't increase firm value- exploration capability: -> short-term: Ο lower cash flow due to focus on R&D investments -> long-term: Ο exploration capabilities important for strengthening firm value- interaction between exploitation and exploration capabilities: -> short-term: Ο positive impact on operating cash flow -> long-term: X negative impact on Tobin's q- firm size: -> small firms: ??? stronger focus on exploration important for long-term growth -> medium-size firms: ??? define focus based on (long-term or short-term) growth targets -> large firms: ??? both strategies should be pursued (ambidexterity; balanced focus) 20-26

Question 14

Origin dimension

Accepted Answer

27, 28 Where does the innovation start? market pull innovations:- market demands innovation; market/customers pulls innovations into market (market need is known); incremental innovations are demanded (B2C)- developing technical solutions based on functional requirements/market needs- highly competitive+ lower risk- searched: resources; capability; technology- given: purpose; function; customer problem- given: market; segment; customer group technology push innovations:- company discovers a technology; innovation is pushed into the market by company- functions or applications that are able to create customer benefit are identified- takes longer from start until market entry than market pull- given: resources; capability; technology- searched: purpose; function; customer problem- searched: market; segment; customer group Examples:- Sony Walkman: technology push (first it was an innovation failure -> education, focus on teenagers (why listening to music on the go?)- portable CD player: market pull- mobile phone: market pull (customers didn't want to carry two devices (mobile phone and MP3 player) -> demand for new product; cooperation between sony & ericsson)- E-bike: market pull- CPU in computer industry: technology push

Question 15

Not every invention is necessarily an innovation

Accepted Answer

29, 30 Idea -> Invention -> Innovation broad definition of innovation: invention -> adoption -> diffusionnarrow definition of innovation: adoption -> diffusion invention: new technological knowledgeadoption: first usediffusion: repeated use Example:Idea: electric suction sweeperInvention: Spengler invented the vacuum cleaner but could only produce a small quantity (not enough for market diffusion (reason it wasn't considered an innovation yet))Innovation: Hoover bought the patent and built a production facility (making a market diffusion possible thus making the vacuum cleaner an innovation)

Question 16

Process dimension

Accepted Answer

31, 32 When does the innovation begin? When does it end? Innovation development (innovation development cycle) -> market launch -> adoption & diffusion (market penetration cylce) innovation process = innovation development cycle + market penetration cycle Innovation development cycle:- idea generation -> concept definition and selection -> development & testing -> production -> test market and market launch- a great number of ideas -> a lot of inventions -> some innovations- some ideas & inventions are discontinued (gates with objectives & criteria)

Question 17

3 theoretical perspectives

Accepted Answer

leadership-based perspective:- innovation process as -> a decision-making and enforcement process -> a technical development and realization process- overcome first resistance towards innovation with marketing resource-based perspective:- innovation process as -> a specific combination of production factors in the form of resources (knowledge, materials, legal rights, free financial resources) and capabilities (knowledge generation, organization, planning, cooperation, financing)- Which resources are owned? Which are needed? diffusion-based perspective:- innovation process as -> an exploitation process in the marketplace inside and outside of the traditional value chain- market penetration cycle 33

Question 18

Cost-benefit analysis on innovations depending on time

Accepted Answer

34 idea -> development -> realization -> utilization effective value improvement:- starts high but decreases over time (decreasing benefit of the value of improvements)- is influencing benefit change effort:- starts low but increases over time (increasing cost of correcting mistakes)- is influencing the cost (effort that is needed to change the innovation) - detect defects early on: include customers in testing (not only internal people)

Question 19

5 dimensions of the concept "innovation" anhand Sony Walkman

Accepted Answer

1) Content: What is new?- Sony Walkman: product innovation 2) Subjective: New for whom?- Sony Walkman: market & company 3) Intensity: How new is the innovation?- Sony Walkman: radical innovation 4) Origin: Where does the innovation start?- Sony Walkman: technology push 5) Process: When does the innovation begin? When does it end?- Sony Walkman: 1964: patent by Olympus (but wasn't used), patent expired, Sony looked for ways to apply technology; ~2 years 35

Question 20

Innovation theories

Accepted Answer

37 - Schumpeter's theory of innovation- Model by Utterback and Abernathy

Question 21

Schumpeter's theory of innovation

Accepted Answer

40, 41, 43 Fundamentals:- 1912 (Theory of economic development): -> "producing means combining available things and forces" -> "producing differently means combining these things and forces in a different way" -> innovation means enforcing new combinations and the "creative destruction of existing solutions or states" -> economic development is driven by such "discontinuously occuring new combinations"- basic assumptions by Schumpeter: -> constant flow of potential, economically relevant developments and inventions which are accessible for the general public -> entrepreneurial skills are approximately normally distributed within the population (-> some people have superior entrepreneurial capabilities -> existence of dynamic, creative and risk-taking companies- functions of a creative entrepreneur -> driving the economic development -> exploiting inventions economically -> using a previously untested technical opportunity to manufacture a new product -> using a previously untested technical opportunity to manufacture an old product in a new way -> exploiting new resources -> exploiting new markets- necessary characteristics of an entrepreneur -> individual leadership; authority; innovative ideas -> taking over personal responsibility, motivation -> performance-based income from monopolistic profits -> no uncertainty, no resistance to change Phases of a business cycle (40, 41):- economic development as a process of "creative destruction" leads to an sequence (Aneinanderreihung) of individual cycles over time- Phase I (low gross domestic product): temporarily stationary state with high planning security; capable companies (pioneers) start to innovate- Phase II (increasing to high GDP): satisfying customer needs; pioneers generate high profits due to their monopoly position; emergence of some risk-taking imitators; expansion and boom- Phase III (decreasing GDP): profit margins decrease; planning security declines/insecurity; less innovations are promising, wave of innovation ceases; economic crisis (recession and depression); product extension leads to new business cycle Types of business cycles:- three-cycle-scheme by Schumpeter- cycles are distinguished by their length: Kitchin cylcle (3-4 years); Juglar cycle (7-11 years); Kondratieff cycle (50-60 years)- example: Kondratieff cycle is triggered by revolutionary base innovations; base innovations and subsequent, additional innovations lead to a 50 to 60 years-long phase of economic expansion; now: 5th Kondratieff cycle (Information and communication technology; started 1982); see 43 (long term growth path; evolutionary innovations with their own cycles and turning points) 38, 39, 40, 41, 42, 43

Question 22

Model by Utterback and Abernathy

Accepted Answer

see 45 - dynamic model of process and product innovation Opportunities for innovation:- change over time- rate of innovation and its economic relevance within competition depends on the stage of development of the respective industry- in saturated market: focus on process innovations -> offering products cheaper, in a more flexible way or finding new customer groups- start of industry cycle: higher rate of product innovations- end of industry cycle: higher rate of process innovations- Utterback and Abernathy: model to describe this relation looking at 3 stages -> fluid stage (show what you can do; performance maximization) -> transitional stage (maximize sales (through different product variation)) -> specific stage (cost reduction, quality improvement) Fluid stage:- stage 1- competitive emphasis on performance maximation- innovation stimulated by information about user's needs and technical inputs- a lot of product innovations (but decreasing); very few process innovations (nearly stagnant until beginning of transitional stage)- example: electronic cars; VR Transitional stage:- stage 2- competitive emphasis on sales maximization through product variation- dominant design becomes the standard- innovation stimulated by expansion of internal technical capabilities- fewer product innovations (further decreasing); more process innovations (increasing)- example: computer hardware; consumer electronics Specific stage:- stage 3- competitive emphasis on cost minimization- perfect design is found -> how to be more efficient? (lower costs), increase market share- innovation stimulated by pressure on cost reduction, quality improvement- few product innovations (now stagnant); decreasing process innovations- example: automotive industry (lots of different types of cars; now VR and AR is used to increase efficiency in processes (minimizing costs)); shoe industry - knowledge about time of disruption of industry when it is known in which stage the industry is in- product and process innovations are negatively correlated 5 fundamental theses:- share of innovations -> companies create the largest share of product innovations in stage 1 (fluid stage); smallest share in stage 3 (specific stage) -> the opposite is the case for process innovations (highest in stage 3, lowest in stage 1)- competitive strategy -> due to high profits (temporary monopoly), innovation is an appropriate means to competitive strategy especially in stage 1- originality -> originality of an innovation is highest in stage 1 and subsequently decreases- changes in the production process: -> stage 1 and 3: product innovations only require minor changes -> stage 2: transition requires major changes within production process- firm size effect -> without the company increasing in size, there will be no transition to stage 2 and 3 44, 45, 46

Technologie- und Innovationsmanagement (Fach) / 4) Basics of innovation management (Lektion)