INNOVATION: SOME INSIGHTS

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INNOVATION SOME INSIGHTS

• Prof. Gündüz Ulusoy
• Director, TÜSIAD-Sabanci University
• Competitiveness Forum
• and
• Faculty of Engineering and Natural Sciences
• Sabanci University, Istanbul
• International Cultural and Academic Meeting of
  Engineering Students - ICAMES
• Bogaziçi University, Istanbul
• May 18, 2007

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WHAT IS INNOVATION AND HOW DOES IT DIFFER FROM
INVENTION ?

• An invention is an idea, a sketch, or a model for
  a new or improved device, product, process, or
  system. It has not yet become a part of the
  economic system. (E.g., several designs of
  Leonardo da Vinci.)
• An innovation is only accomplished with the first
  commercial transaction involving the new device,
  product, process, or system. It is part of the
  economic system. Commercialization is the final
  link of the innovation process. Commercial
  success, on the other hand, is not a requirement
  for an innovation. (E.g., Concorde, which made
  supersonic air travel possible, was an innovation
  but not a successful one since instead of the
  forecasted 300 airplanes only 16 were built and
  those had only limited use.)

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TYPES OF INNOVATION

• Product innovation. Includes totally new product
  or service or those improved to a large extent.
• Process innovation. Includes major improvements
  in production or delivery processes.
• Marketing innovation. Development and
  implementation of new marketing techniques such
  as changes in design, packaging, promotion,
  pricing, and positioning.
• Organizational innovation. Development and
  implementation of new organizational methods in
  commercial applications, workplace design,
  organizational structure, external relations of
  the firm.

The Measurement of Scientific and Technological
Activities. Frascati Manual, OECD, Paris, 2002.
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EXAMPLES OF TYPES OF INNOVATION

• Product innovation antibiotics digital camera.
• Process innovation Kanban floating glass
  manufacturing process a new reservation system.
• Marketing innovation franchising B2C a new
  bottle for a parfume marketed in a new marketing
  segment.
• Organizational innovation business
  restructuring subcontracting a function for the
  first time.

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OTHER CLASSIFICATIONS OF INNOVATION

• New for the firm.
• New for the market.
• New for the world.
• Destructive innovations.
• Incremental innovations.
• Radical innovations.

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CREATIVE DESTRUCTION

• We observe a long period of relative stability
  with incremental changes around an innovation
  continuous improvement.
• The stable environment is destroyed by a
  discontinuity, which changes dramatically one or
  more of the technology, market, social,
  regulatory and other conditions. A new game
  starts opening a new opportunity space for
  further innovation.

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CREATIVE DESTRUCTION

• During periods of dramatic change, incumbent
  firms which have not been successful in building
  the capabilities needed to secure a position in
  the new competitive landscape have vanished.
• For example, manufacturers of horse carriages,
  sailing ships, vacuum tubes, steam locomotives,
  propeller engines.
• In a rather prophetic way, Schumpeter has shown
  the way out for large incumbent firms ... It
  may happen that new combinations should be
  carried out by the same people who control the
  productive or commercial process, which is to be
  displayed by the new.

Hart, S.L. And Milstein, M.B., Global
sustainability and the creative destruction of
industries, Sloan Management Review, pp.23-33,
Fall 1999.
Schumpeter, J., The Theory of Economic
Development, Harvard University Press, 1934.
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WHAT ARE THE RESOURCES FOR ECONOMIC GROWTH? JUST
LABOR AND CAPITAL?

• There are two ways of increasing the output of
  the economy
• 1. increase the number of inputs.
• 2. develop ways of getting more output from the
  same amount of inputs.
• What are the inputs? Inputs are labor and
  capital.
• Abromowitz measured the growth of the American
  economy between 1870 and 1950. He made some
  reasonable assumptions about how much a growth of
  one unit of labor adds to the growth. He did the
  same with capital. All that could explain only
  15 of growth of the American economy in that
  period.
• Robert Solow (later a Nobel laureate) and other
  economists in the 1950s and 60s came up
  approximately with the same result. Hence it
  convinced economists that innovation must have
  been a major force of growth in industrialized
  economies. Indeed this has led to the concept of
  Total Factor Productivity (TFP).

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WHAT DO THEY SAY ON INNOVATIONS ROLE IN
ECONOMIC GROWTH

• Printing, gunpowder and the compass have changed
  the whole face and state of things throughout the
  world... (Francis Bacon, 1620).
• Improvements in machinery go hand in hand with
  the division of labor, and very pretty machines
  ... facilitate and quicken production... (Adam
  Smith, 1776).
• The bourgeoisie cannot exist without constantly
  revolutionizing the means of production! (Karl
  Marx, 1848).
• Knowledge is the chief engine of progress in the
  economy (Alfred Marshall, 1897).
• The entrepreneur and his search for new
  combinations is the driving force in all economic
  development... (Joseph Schumpeter, 1911).
• Science and basic research are incredibly
  powerful sources of future economic and societal
  development... (Vannevar Bush, 1945).

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OUTPUT GROWTH BETWEEN 1300-1800

• The factors that statistically are valid to
  explain the historical data for growth in this
  period are
• 1. Earlier urbanization (growth and urbanization
  are linked but the direction of causality is open
  to question).
• 2. Amount of trade (permitting specialization and
  the benefits of comparative advantage).
• 3. Innovation and productivity in manufacturing
  (new technologies make it possible to produce
  more from the same inputs of labor, capital, and
  land).
• Differences between countries in the other
  variables do not match differences in their
  patterns of growth.

Coyle, D., The Soulful Science, Princeton
University Press, Princeton, 2007.
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THE NEW SHAPE OF INNOVATION

• Innovation is diffusing at ever increasing rates
  . It took 55 years for the automobile to spread
  to a quarter of the country, 35 years for the
  telephone, 22 years for the radio, 16 years for
  the PC, 13 years for the cell phone, and only
  seven years for the Internet.
• It is multidisciplinary and technologically
  complex. It arises from the intersections of
  different fields or spheres of activity.
• It is collaborative requiring active
  cooperation and communication among the
  scientists and engineers and between the creators
  and users.
• Workers and consumers are embracing new ideas,
  technologies and content, and demanding more
  creativity from their creators.
• It is becoming global in scope with advances
  coming from centers of excellence around the
  world and the demands of billions of new
  consumers.

Innovate America, Council on Competitiveness,
Washington, D.C., 2005.
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THE SERIOUSNESS OF COMPETITION

• Foreign owned companies and foreign-born
  investors account for nearly half of all US
  patents with Japan, Korea and Taiwan accounting
  for more than one-fourth.
• Sweden, Finland, Israel, Japan and South KOrea
  each spend more on RD as a share of GDP as a
  share of GDP than the United States.
• China overtook United States in 2003 as the top
  global recipient of foreign direct investment.
• Only six of the worlds 25 most competitive
  information technology companies are based in the
  United States 14 are based in Asia.
• Asia now spends as much on nanotechnology as the
  United States

Innovate America, Council on Competitiveness,
Washington, D.C., 2005.
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THE GLOBAL INNOVATION STUDY 2006 IBM TYPES OF
INNOVATION

• Business model Innovation in the structure
  and/or financial model of the business.
• Operational Innovation that improves the
  effectiveness and efficiency of core processes
  and functions.
• Product/services/markets Innovation applied to
  products or services or go-to-market activities.

Expanding the Innovation Horizon. The Global CEO
Study, IBM Business Consulting Services, 2006.
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THE GLOBAL INNOVATION STUDY 2006 IBM TYPES OF
INNOVATION

• Most common business model innovations
• - Organization structure changes.
• - Major strategic partnerships.
• - Shared services.
• - Alternative financing / investment vehicles.
• - Divestitures / spin offs.
• - Use of a third party operating utility.

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THE GLOBAL INNOVATION STUDY 2006 IBM TYPES OF
INNOVATION

• Most common operations innovations
• - Improved operations responsiveness to
  customers.
• - Applied new science or technology to core
  processes.
• - Applied new IT to automate processes.
• - Optimized core process.
• - Reduced cycle time / complexity.
• - Integrated functional business processes.

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THE GLOBAL INNOVATION STUDY 2006 IBM TYPES OF
INNOVATION

• Most common products / services / markets
  innovations
• - Greater penetration of current market.
• -Improvements to current products or services.
• - Electronic channels.
• - New geographic markets.

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THE GLOBAL INNOVATION STUDY 2006 IBM FINDINGS

• Business model innovation matters.
• External collaboration is indispensable.
• Innovation requires orchestration from the top.
• Create and manage a broad mix of innovation that
  emphasized business model change.
• Find ways to substantially change how you add
  value in your current industry or in another.
• Use technology as an innovation catalyst by
  combining it with business and market insights.
• Collaborate on a massive , geography defying
  scale to open a world of possibilities.
• Push the organization to work with outsiders
  more, making it first systematic and, then, part
  of your culture.

Expanding the Innovation Horizon. The Global CEO
Study, IBM Business Consulting Services, 2006.
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INNOVATION MODELS IN THE MANUFACTURING INDUSTRY
2006/07
Determinants of Innovation
Ulusoy, G., Günday, G., Kiliç, K., Alpkan, L.,
et.al., TUBITAK Project SOBAG-105K105, TUBITAK,
Ankara 2006-2007.
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INNOVATION MODELS IN THE MANUFACTURING INDUSTRY
2006/07
Firm Innovation Model
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SOME RESULTS OF THE PERFORMANCE MODEL
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BEATING THE COMPETITORS TO MARKET
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FINANCIAL PERFORMANCE
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IMPACT OF INNOVATION EXPENDITURES
Median Inovation exp / Return 3.4
Mean Inovation exp / Return 2.8
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SOME FINAL REMARKS

• We engineers should not do innovation for the
  sake of innovation and strive for the best
  technical solution. The goal is to survive, to
  grow, and to make profit.
• Innovation is not invention. It requires
  commercialization of whatever we suggest to
  introduce and hence, innovation goes hand in hand
  with entrepreneurship.
• Collaboration and competition are the basic
  ingredients of the innovation process.

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SOME FINAL REMARKS

• Even the most stable looking innovation
  environment can be subject to creative
  destruction. Innovation is a never ending process
  with a renewable resource, namely, human
  intellect.
• Particularly with all the current emphasis on
  sustainable environment, we can expect relatively
  more creative destruction to take place in near
  future. It is up to the new generation of
  engineers to come up with innovations, which help
  to increase the standart of life on a global
  scale and at the same time do not work against
  sustainability of the environment.

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THANK YOU

• TUSIAD SABANCI UNIVERSITY
• COMPETITIVENESS FORUM
• Sabanci University
• Orhanli, Tuzla 34956 Istanbul
• Tel. [phone]
• Fax. [phone]
• www.ref.sabanciuniv.edu