Chapter Three
Innovation & Entrepreneurship

You can resist an invading army, but not an idea whose time has come.
Victor Hugo (1802-1885), poet, novelist, dramatist.

Business Context

In recent years the pressures for firms to innovate have grown tremendously. As markets develop over time the combination of sophisticated demand and intense rivalry forces companies to strive ever harder just to keep pace with competitive dynamics. They do this in a broad range of ways, consistently seeking product and process breakthroughs to build or maintain sustainable competitive advantages. In this chapter, we examine the broad range of issues that are bringing innovation to the top of the boardroom agenda for many firms.

In a competitive marketplace, the importance of innovation cannot be overstated in an environment where ‘the survival of the fittest’ is the watchword for business success. The following quote from Professor Peter Drucker, the doyen of management gurus, illustrates the vital role of innovation in the contemporary business environment:

Because its purpose is to create a customer, a business has two – and only two – functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.

A crucial point to make here relates to the distinction which should be made between invention and innovation. Invention is the creation of an idea and is typically associated with technological breakthroughs. Innovation is the commercialization of ideas and embraces creativity in all elements of the strategic marketing mix, including product, price, communications, distribution channels, employee engagement, back-office systems and the management of intangibles such as the creation of a ‘feel-good’ atmosphere (see Chapter Four, Strategic Marketing).

Everything provides scope for differentiation if an appropriate market-driven outlook is adopted. While invention is often more interesting for research scientists in R&D departments, the compelling evidence is that innovation strategies tend to be more profitable! Having noted this, it must be emphasized that a strong creative process and organisational responsiveness are essential to secure innovation success, hence the inclusion of the word ‘entrepreneurship’ in this chapter’s title. As we demonstrate, the trick is to innovate for first-mover advantage, a process that combines speed to market with an ability to build entry barriers as the market develops and becomes more attractive to follower companies.

Two statements can be made regarding innovation from a strategic management perspective:

      1. Successful innovation is essential for growth and long-term profitability.
      2. Despite this, many firms are weak in designing and systematically implementing innovation strategies over time.

In this chapter, four key themes relating to innovation and competitive success are addressed:

      1. The importance of understanding the context of innovation, particularly regarding competitive dynamics and how innovations are adopted by groups and diffused throughout societies.
      2. It is essential to take a strategic view of innovation, particularly regarding the discovery of genuinely ‘new to market’ innovation concepts.
      3. Innovation should be regarded as a process, i.e. it should be managed in a systematic, structured and embedded ‘way-of-working’, in much the same way that financial management and reporting is treated as a routine aspect of business operations.
      4. Attention should be paid to project screening since this is where the major problems occur. Two types of mistakes are very common: (i) ‘bad’ ideas are allowed to go forward, i.e. are approved; (ii) ‘good’ ideas are screened out, i.e. are rejected.

As mentioned above, many firms are poor at successfully implementing sustainable innovation strategies over time. This is often due to rigid bureaucratic organisational structures that stifle the flexibility and responsiveness required in turbulent business environments.

To summarise, innovation provides the link between a company’s current business performance and its long-term prosperity. A sense of vision and a flexible organisation are essential if the transition is to be successful.

Indicative Content

    • Identifying key innovation drivers, including:
      #  Consumer income growth.
      #  Intensifying competition, both direct and indirect.
      #  Disruptive technologies and business processes undermining traditional business models.
      #  Shortening technology and product life cycles.
      #  Need to build and/or enhance company capabilities, value proposition creation and brand reputation.
      #  Stretch and leverage core capabilities and competencies.
      #  Market complementary products, for example, Gillette shaving systems and facial hygiene products.
      #  Exploit ‘strategic windows’ of opportunity.
      #  Copy rivals to maintain market leadership positions.
    • Exploring the three broad categories of demand and the innovation implications they present:
      1. Established demand, which is well understood by a company and its rivals.
      2. Latent demand, where a customer need is known but is not currently supplied.
      3. Incipient demand, where the customer is unaware of a particular need so the supplier must create it.
    • The adoption and diffusion of innovative product and service solutions to customer needs.
    • Marketing communications for demonstrating the customer benefits of innovative solutions (aligns with Chapter Six).
    • Categorising innovation strategies.
    • Planning issues for innovation strategies.
    • Profiling the innovation process:
      1. Business environment scanning.
      2. Generating ideas for profitable growth.
      3. First phase ideas screening.
      4. Concept formulation and evaluation.
      5. Advance screening and business case development.
      6. Budget allocation and project review.
      7. Market commercialisation.
      8. Market evaluation, project review and control actions.
    • Blue ocean thinking and ‘industry breakout’ strategies.
    • The meaning and misunderstanding of ‘paradigm shift’.
    • kaizen: the art of continuous improvement.
    • Organisational design for innovation success.

Learning Outcomes

After studying this chapter, readers will:

    • Understand the role of innovation in dynamic and competitive markets.
    • Have the competencies to contribute to the innovation process.
    • Have the capability to lead and/or facilitate the innovation process.
    • Understand the key components of creative thinking and ideas generation: ‘thinking outside the box’.
    • Apply the principles of the innovation process for profitable growth using proven practical frameworks, methodologies, processes and tools.


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All content © Colin Edward Egan, 2023