3.5: The Role, Impact and Benefits of Innovation

Question 1

What is the definition of Innovation?

(don’t need to memorise - just for context)

Answer 1

Innovation is described as the process of developing and implementing new ideas, methods, processes and products to facilitate business and profitability growth.

Question 2

What are the 3 main forms of Innovation?

Answer 2

• process innovation
• product innovation
• cost reduction innovation

Question 3

Explain process innovation?

Answer 3

The changing and improving of the effectiveness and efficiency of the business operations, manufacturing, distribution and marketing of its goods and services. This is done through the adoption of new technology and procedures.

Question 4

Explain product innovation?

Answer 4

The changing and improving of features, materials and/or functions of a good or service by developing in accordance to the evolving needs of customers.

Question 5

Explain cost reduction innovation?

Answer 5

Deals with improving efficiency and effectiveness of processes by reducing the costs of production for a business.

Question 6

What are the 3 Benefits of Innovation?

Answer 6

• financial gain
• expansion of global market presence
• increased market share

Question 7

Explain financial gain as a benefit of Innovation

Answer 7

( how ) - Through the creation of unique selling points (USPs), subsidisation by the government and access to markets through e-commerce, businesses can increase their revenue streams. Even more, through the improvement of production efficiency, reduced wastage, automation and reduced production costs, expenses are as a result decreased as a whole.
( why ) - As a result of a business making more revenue and decreasing their expenses, they incur an increased profit or in other words financial gain. This resulting financial gain can then be used to minimise losses, further innovate, create change, etc.

Question 8

Explain the expansion of global market presence as a benefit of Innovation

Answer 8

( how ) - The use of innovation throughout business operations can assist a business in developing their competitive advantage in the global market, leading to an increased global market presence. Examples of ways businesses can innovate to increase their global market presence include utilising technology such as e-commerce, social media and distribution/payment systems.
( why ) - This can then further lead to competitiveness with existing multinational firms, shortened cost of delivery to customers and unique social networking opportunities to increase brand image.

Question 9

Explain increased market share as a benefit of Innovation

Answer 9

( how ) - Businesses within a competitive market need to investigate drivers according to current customer demands and market trends to enhance their public image. A business can do this through innovating technology, promoting its commitment to sustainability, creating distinct new products, etc.
( why ) - Through these examples of innovation, the business’s boosted public image will attract more customers, increasing their customer base and therefore their market share; leading to greater profit margins, market dominance, etc.

Question 10

What are the 4 factors that Impact the Success of Innovation?

Answer 10

• timing
• cost
• marketing strategy
• technology

Question 11

Explain timing as a factor impacting Innovation

Answer 11

( how ) - The timing of when a business innovates can determine its success or failure. It is more likely to succeed during times of optimism and higher levels of economic activity, whereas it is less likely to succeed during times of low consumer confidence and lower levels of economic activity. In the case of releasing a new product, a business must also consider the placement of their product in the product life cycle compared to potential competitors.
( why ) - In times of high economic activity, businesses have the funds to innovate without the substancial risk of loss. Consumers are also more likely to try a new product or service in similar times, due to higher discretionary income and consumer confidence.

Question 12

Explain cost as a factor impacting Innovation

Answer 12

( how ) - The costs of innovation (research and development) are very significant and therefore requires the appropriate financial resources and human resources.
( why ) - As a result, this may take substancial resources away from existing operations. In order for innovation to be classed “successful”, the profits gained as a result must outweigh the original and ongoing costs. In the case of a new product, the associated costs of innovation may impact pricing to consumers, making the product too expensive for some customers.

Question 13

Explain marketing strategy as a factor impacting Innovation

Answer 13

( how ) - Marketing strategy relates to the provision of the right information regarding innovative products, services, or processes and how the strategy will inform existing markets and develop new markets. Key elements of the marketing strategy a business must apply include; pricing, product differentiation, promotion and cultural consideration.
( why ) - If a business does not appropriately nor effectively apply a marketing strategy to their innovation, it will significantly negatively impact its success.

Question 14

Explain technology as a factor impacting Innovation

Answer 14

( how ) - The capabilities and advancements of a business’s technology can drastically impact the cost(s) and efficiency of innovation. A business must train its staff in the appropriate skills required for specific technology to ensure they will most effectively assist in the processes of innovation.
( why ) - Too slow and/or inefficient technologies can result in innovations being slow and costly to produce. If a business’s staff are not appropriately trained, the implemention, maintaining and overall efficiency of the innovation will be negatively impacted.