3.9.2 Assessing innovation Flashcards
What is innovation?
this is about putting a new idea or approach into action and is commonly described as ‘the commercially successful exploitation of ideas
What is the difference between invention and innovations?
Invention is the formulation of new ideas for products and processes whereas innovation is the practical application of new inventions into marketable products or services
What is product innovation?
launching new or improved products (or services) in to the market
Example = Lush – this is because they constantly introduce more bath products and different ranges to suit the customer needs and trends/fashions
What are advantages of product innovation?
- First mover advantage
- Higher prices and profitability
- Added value
- Opportunity to build customer loyalty due to an established brand name
- Enhanced reputation as an innovative company
- Public relations (e.g. news coverage)
- Increased market share
What is process innovation?
Finding better or more efficient ways of producing existing products, or delivering existing services
Example = Tesla as they invested in different technologies to boost their sales and ideas/manufacturing
What are advantages of process innovation?
Reduced costs
Improved quality
More responsive customer service
Greater flexibility
Higher profits
What are business requirements for innovation?
- Challenge the status quo in a market
- Have a deep understanding of customer needs and wants
- Develop imaginative and novel solutions to how these needs might be met
What does the process of achieving innovation involve?
Improving or replacing business processes to increase efficiency (average unit costs) and productivity (output per worker/machine), or to enable the firm to extend the range of quality of existing products/services
Developing entirely new and improved products and services – often to meet rapidly changing customer or consumer demands and needs
Adding value to existing products, services, and markets to differentiate the business from its competitors and increase the perceived value to the customers and markets
What are advantages of innovation?
- Improved productivity and reduced costs – a lot is process innovation is about reducing unit costs and this could be achieved by improving the production capacity and/or flexibility of the business to enable it to exploit economies of scale
- Better quality – by definition, better quality products or services are more likely to meet customer needs assuming that they are effectively marketed, resulting in higher sales and profit
- Building a product range (diversification) – a firm with a single product or limited product range would almost certainly benefit from innovation. A broader product range provides an opportunity for higher sales and profits, and also reduced the risk for shareholders
- Environmentally friendly and meeting laws – innovation can enable firms to reduce its carbon emissions, produce less waste, or comply with changing product legislation – changes in laws often force firms to innovate when they might not otherwise do so
- Added value – effective innovation is a great way to establish a unique selling proposition (USP) for a product – something which the customer is prepared to pay more for and which helps firms differentiate itself from competitors
- Improved staff retention, motivation, and easier recruitment – potential goods quality recruits are often drawn to a firm with a reputation for innovation and inspiring places of work
What are disadvantages of innovation?
- High levels of competition – an innovation only confers a competitive advantage is competitors are not able to replicate it in its own businesses – whilst patents provide some legal protection, the reality is that may innovative products and processes are hard to protect
- Uncertain commercial returns – much research is speculative and there is no guarantee of future revenues and profits – the longer the development timescale, the greater the risk that research is overtaken by competitors too
- Small availability of finance – like other business activities, research and development has to compete for scarce cash. Given the risks involved, research and development demands a high required rate of return which means that firms have limited cash resources and the opportunity cost of inventing can be very high
State the theories of process innovation
Efficiency
Kaizen
Benchmarking
Entrepreneurship v intrapreneurship
What is efficiency?
This includes how well a business is using its resources to produce
High vs low level of output to produce output
Efficiency can be measured by looking at cost per unit – the lower this is, the more efficient the business is and the higher the profit margin
What are factors that influence efficiency?
- How well employees are managed
- How good suppliers are
- Investment in machinery and technology
- The way in which products are produced – flow production may be more efficient and firms can cut back on waste (lean production)
- Lean production involves techniques which are aimed to reduce waste (e.g. when production exceeds demand and products have to be thrown away; wasted time; faulty products being re-made; holding stock) in order to become more efficient and reduce costs
- Just in time production (JIT) occurs when firms produce products to order. Instead of producing as much as they can and bulking up stock, firms only produce goods when they know they can sell the items – similarly, components and suppliers are only bought in by a firm as and when they are needed
What is kaizen?
Continuous improvement involving constantly introducing small incremental changes to improve the quality and efficiency throughout a business
