What is Innovation ?

PRESANS is an “Open Innovation Intermediary”, based in France. Before explaining what this is, we will first speak about innovation, about the latest trends in innovation management, open innovation etc. The present article, about innovation, is a brief summary of the first chapters of the very interesting Oslo manual published by OECD.

Fundamental role of innovation

Innovation plays a key role in the growth of production and productivity. However, the knowledge and the understanding of processes underlying innovation is not easy because these processes themselves evolve very rapidly. In particular, it is now obvious that innovation does not only mean product innovation, resulting of an intense activity of Research and Development, but also (especially?)

  • Process innovations,
  • Organizational innovations,
  • And marketing innovations.

Definition

Definition of innovation adopted by the OECD

“An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations.”

In other words, the product, the process, the marketing method or the organizational method has to be new for the company to speak about innovation. This novelty may or may not have been developed by the company itself. In additions, this novelty should be implemented: there must be a process that leads from the inventive idea to create value for the company. The innovation is therefore different from the invention.

Four types of innovation

  • The product innovation is the introduction of a good or service that is new or significantly improved. Product innovation can rely on new technology or existing technology (examples: first micro-processors, first MP3 players, first GPS in cars etc.).
  • The process innovation is the implementation of a new or significantly improved production or delivery method. This concept implies significant changes in techniques, equipment and / or software (examples: introduction of RFID goods-tracking system etc.).
  • The marketing innovation is the implementation of a new marketing method involving significant changes in design or packaging, placement, promotion or pricing of a product (example: the use of a fundamentally new bottle design for a body lotion, giving the product a distinctive look and appeal etc.).
  • The organizational innovation is the implementation of new organizational methods, such as changes in business practices, organization of the workplace, the company’s relationship with the outside (example: implementation of an organizational model that gives the firm’s employees greater autonomy in decision making and encourages them to contribute their ideas etc.).

Changes don’t necessarily mean innovation

Changes don’t necessarily mean innovation; in particular, the following changes are not innovations:

  • Ceasing to use a process, a marketing method or an organization method, or to market a product, even if it improves the firm’s performance.
  • Changes resulting purely from changes in factor prices (example: lower the price of PCs with lower prices for components).
  • Regular seasonal and other cyclical changes (example: following the course of seasons).

Innovation management

The management of innovation within a business is fundamental. A company that does not innovate dies as it declines relative to others. Until the 60-70, innovation was managed in a completely closed manner (closed innovation): new product were designed and developed within the company. Major discoveries that were made internally were kept confidential and companies refused to use innovations coming from outside their own Research and Development laboratories (NIH or Not Invented Here syndrome).

While companies in the United States successfully started the transition from closed to open innovation twenty years ago, companies in Europe have just started this transition. In the Open Innovation paradigm, companies incorporate within their own R&D activity technologies that were developed by others. In addition, they meet new markets by licensing to others technologies originally developed internally but that could not be used for their core business. Closed and Open Innovation will be the subject of several upcoming articles.

A controversial point in France and in other OECD countries

“Most governmental policies remain focused on science and technological innovation.”
Report edited by the OECD

Most governmental policies remain focused on science and technological innovation: the financial support to innovative companies in France generally means support to technologically innovative companies. However, non-technological innovation should also be strongly supported as they also generate value and employment. In addition, they are generally less intensive in initial capital and therefore less risky. It is a total nonsense to consider that an innovative technology should necessarily underlie an innovative service or business model.

Conclusion

Innovation is action: it is the implementation of a new or significantly improved product (good or service). Though valuable innovation inservices are still very little supported in Europe. In upcoming articles, we will give examples and testimonies of companies taking advantage or not of open innovation.

References

The Oslo Manual

The Oslo Manual is the principal international reference manual related to innovation. It is published by the OECD and is available in French, English, Spanish and Russian. The first edition appeared in 1992 and the third, the most recent in 2005.

Science, Technology and Industry Outlook 2008 OECD

Illustration

The illustration of this article is licensed under Creative Commons and is available here.

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