Lesson 1 - Innovation Process

According to Schumpeter [Schupeter K. (1912) The Theory of Economic Development: AN Inquiry into Profits, Capital, Credit, Interest and the Business Cycle, Cambridge: Harvard University press, p.66] We can distinguish five types of innovation:

1. The introduction of a new good or service,
2. The introduction of a new method of production,
3. Opening of a new market,
4. Conquest of a new source of supply of raw materials of half manufactured goods,
5. Implementation of a new form of organization.

It should be noted that in his approach innovation is always related to introduction to market or any other form of profiting from implementation of new solutions to organization.

And this list still covers most of situation and is used for innovation activities. Some approaches has changed as distinguishing in Oslo Manual:

• product innovation,
• process innovation,
• marketing innovation
• organizational innovation.

[Oslo Manual OECD http://www.oecd.org/sti/inno/2367580.pdf ]

You should also notice trends in opening the organizing to markets with Open Innovation approach proposed by Henry Chesbrough [Research-Technology Management • July—August 2012]. Where in his open innovation model [Research-Technology Management • July—August 2012 p.23] he focuses on inputs coming from not only internal technology base but also from external sources. During the process of development ideas not selected for market introduction should not go to company archives but should be offered to market in form of licensing or spin-offs creation. This strategy is mostly adopted in high tech industries.

Analyzing innovation activities performance regardless of models and approaches we should identify performance indicators. List of such is presented in table 1.

Table 1. Innovation KPI's

missing table

Source: Abhishek Gupta, A Study of Metrics and Measures to Measure Innovation at Firm Level & at National Level, June 2009
http://www.imri.dauphine.fr/fileadmin/mediatheque/centres/IMRI/2009-03.pdf p.22

Presented KPI's cover various stages of innovative process and cover metrics from simple financial as operating expenses through based on time as time to market to commercialization stage as indicators for marketing and promotional activities. The list is not comprehensive and also other measures can be considered and in case of innovation most often used in companies analyzed by Boston Consulting Group in years 2007-2010 were:

• customer satisfaction,
• overall revenue growth,
• margins,
• return on innovation spending,
• total funds invest in growth projects,
• revenue realized from offerings launched in the past three years,
• allocation of investments across projects,
• projected versus actual performance,
• percentage of sales from new products,
• new product success ratio,
• number of new product services,
• time to market,
• projected versus actual performance,
• average development time per project,
• number of projects that meet planned targets,
• percentage of ideas funded,
• number of ideas killed or table at each milestone,
• cannibalization of existing product sales by new offerings,
• patents. [1,2,3]

In case of BCG research most list was created from those which were repeated in years 2007 to 2010. Interesting indicators cover cannibalization of existing products and revenues from new product for three years.

missing image

Drawing 1. Innovation entity relationship model

Source: Own research

In presented innovation entity model process is dependent on tiers and valuation such representation gives flexibility to adapt to various approaches and methodologies which could be implemented in system as Stage Gate or project management methodologies as Prince 2, IPMA, Scrum and other. Sample Tiers classification Where going from Innovation Process we can classify Tiers and Valuation and Tiers can be classified as Scoping, Idea Generation, Development, Testing, Lunch.