What is innovation?

Innovation is the creation of better or more effective products, processes, services, technologies, or ideas that are accepted by markets, governments, and society. Innovation differs from invention in that innovation refers to the use of a new idea or method, whereas invention refers more directly to the creation of the idea or method itself. Why you have to innovate

Advancing technology Changing environment Changing industrial structures and strategies Evolving society Evolving customer desires Competitors improve their products, processes and services Customers stop buying your old products and services so you need to replace them and add new products and services

Typical reasons for innovating Responding to customers Increasing market share Being at the forefront of industry Establishing a new market Improving the quality and speed of service Expanding the product range Meeting Government standards/regulations Reducing costs Increasing revenues

Different Types of Innovation What is Product Innovation Product innovation is the creation of new products or the improvement of existing products to meet user needs. For instance, product innovation could refer to the innovation itself or the process of launching or improving products.

What are the benefits of product innovation? Product innovation is a key component of many companies strategies for these reasons while often a risky endeavor, product innovation can lead to significant value creation. Launching innovative offerings can lead to first mover advantages, where the manufacturer reaps outsized benefits due to increasing barriers to entry. This manifests as a company is rewarded via intellectual property or increased brand equity for having offered the product feature or benefit before competitors. In the case of intellectual property, this protection usually is acquired by achieving some sort of trademark filing or patent. With regard to brand equity, the company will have usually advertised the product and become associated with the product benefit. Later entries are then perceived as me-too offerings that are

undifferentiated from the first mover or better put, the first market maker. Examples of this include Microsofts attempt to steal market share from the iPod with the Zune music player. While first movers are generally rewarded, its the first mover that gains mass appeal and scale that generally benefits. The iPod wasnt the first digital music player, simply the first offering that contained the right bundle of features and effectively caught on in the market place. Does anyone even remember the Roxio music player or any of the other original MP3 players? Additional benefits to product innovation: by increasing the degree of difference between the manufacturers offerings and the competition a company can increase the uniqueness of its products, which reduces price elasticity and improves the

firms business model. Lastly, it deflects the impact of competitors continuous product improvements.

Disruptive Innovation A new technology that has a serious impact on the status quo and changes the way people have been dealing with something, perhaps for decades. Music CDs all but wiped out the phonograph industry within a few years, and digital cameras are destined to eliminate the film industry. The most disruptive technologies in history have been the telephone, the computer (and all of its offshoots) and the Internet. A disruptive technology or disruptive innovation is an innovation that helps create a new market and value added, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology. The term is used in business and technology literature to describe innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in the new market and later by lowering prices in the existing market. Example In 1981 when MTV launched itself, "video literally obliterated the radio star." MTV was very disruptive; it changed the whole fabric of the music business, so that today, music DVD and ringtone sales are way up, while CD sales are way down. File sharing added a second punch. These disruptive innovations gave people something new to demand -- a constant musical multimedia experience that people could only enjoy before by attending concerts. In another music example, the disruptive innovation called the compact disc (CD) nearly destroyed the tape, LP and "45" record industry in less than a decade.

PROCESS INNOVATION

Innovations can also focus on processes through which products are created or delivered. Because so many of the products used in relief settings are initially developed for non-relief contexts, a natural focus for humanitarian innovation is to consider how an existing product might be used in resource-poor or rapidly changing settings. Examples of process innovations that have had a positive effect on the humanitarian sector are the increasing stockpiling of goods in strategic locations, or the use of pre-made packs and kits.

"Process innovation means the implementation of a new or significantly improved production or delivery method (including significant changes in techniques, equipment and/or software). Minor changes or improvements, an increase in production or service capabilities through the addition of manufacturing or logistical systems which are very similar to those already in use, ceasing to use a process, simple capital replacement or extension, changes resulting purely from changes in factor prices, customisation,regular seasonal and other cyclical changes, trading of new or significantly improved products are not considered innovations."

Marketing Innovation A marketing innovation is the implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing. Marketing innovations are aimed at better addressing customer needs, opening up new markets, or newly positioning a firms product on the market, with the objective of increasing the firms sales.

The distinguishing feature of a marketing innovation compared to other changes in a firm's marketing instruments is the implementation of a marketing method not previously used by the firm. It must be part of a new marketing concept or strategy that represents a significant departure from the firms existing marketing methods.

The new marketing method can either be developed by the innovating firm or adopted from other firms or organisations. New marketing methods can be implemented for both new and existing products.

BUSINESS MODEL INNOVATION Business Model Innovation (BMI) refers to the creation, or reinvention, of a business itself. Whereas innovation is more typically seen in the form of a new product or service offering, a business model innovation results in an entirely different type of company that competes not only on the value proposition of its offerings, but aligns its profit formula, resources and processes to enhance that value proposition, capture new market segments and alienate competitors. EXAMPLE Business model innovations have reshaped entire industries and redistributed billions of dollars of value. Retail discounters such as Walmart and Target, which entered the market with innovative business models, now account for 75% of the total valuation of the retail sector. Low-cost U.S. airlines grew from a blip on the radar screen to 55% of the market value of all carriers. Over the past decade (19972007), 14 of the 19 entrants into the Fortune 500 owed their success to business model innovations that either transformed existing industries or created new ones.

Examples of BMI where the business model is the core value proposition TataTata Nano 1 Lakh ($2300) city car AppleiTunes Store + iPod WalMartDiscount retailing HiltiPower tools leasing/subscription FedExGuaranteed overnight delivery SouthwestLow-cost regional air travel