X Международная студенческая научная конференция Студенческий научный форум - 2018

Innovation has been and continues to be an important topic of study for a number of different disciplines, including economics, business, engineering, science, and sociology. Most people can provide examples of innovative products such as the iPod or the PC, but few can clearly define the innovative aspects of these products. Among academics there is a difference of opinion about what the term innovation really means. One definition of innovation taken from the dictionary is the following – making changes to something established by introducing something new [1].

This definition does not suggest that innovation must be radical or that it occurs exclusively to products. Nor does it suggest that innovation is exclusively for large organizations or single entrepreneurs. Nor does it suggest that it is exclusively for profit-making businesses; innovation is as relevant for a hospital or local government as it is for a business. In the organizational context innovation can occur to products, processes, or services.

If extend the definition of innovation, it will sound as follows: innovation is the process of making changes, large and small, radical and incremental, to products, processes, and services that results in the introduction of something new for the organization that adds value to customers and contributes to the knowledge store of the organization [4].

The innovation cycle describes the activities involved in taking an innovative

product or service to the marketplace. In essence, there are two aspects to this [3]:

Developing the innovative product or service.

Building the business to market the product or service.

Table 1 presents the typical stages of the innovation cycle [3].

Table 1. The typical stages of the innovation cycle

Stage	Description	Typical activities;
1.	Ideas	Identify a market opportunity;
2.	Resources	Organise people, finance and facilities to match the goals of the organization;
3.	Investigate	Research the possibilities;
4.	Patent	Protect the intellectual property;
5.	Design	Model and test it for users;
6.	Develop	Improve the technology;
7.	Make	Start production;
8.	Sell	Advertise and inform people;
9.	Service	Communicate with the customers.

The first stage in the innovation cycle is ideas generation. Ideas will often arise from observation of a current or future problem. They could be inspired by the organisation’s objectives or by a new market situation that suddenly becomes an opportunity [5].

Once the opportunity has been recognised, it needs to be evaluated. An important test for an idea is that it matches the goals of the organisation and available resources – people, finance and facilities.

If there is alignment with the objectives of the organisation, the idea moves to a new stage where it can be investigated and further developed. The development phase may involve further research into the opportunity or the patenting of the concept. Prototypes may well be designed, developed and tested at this stage.

The decision to start selling the innovation is a critical stage. This is when significant resources are often required to support the launch. Sometimes an organisation might wait at the end of the development phase for suitable market conditions.

The final stage of the innovation cycle is commercialisation, where the innovation is marketed and sold to the customer. The innovation now moves out of the organisation’s control and into the hands of the users. This is the hardest stage of the innovation cycle for organisations to «manage». It is crucial that the organisation monitors the innovation’s performance so that any shortcomings are corrected.

Innovative organisations will typically be working on new innovations that will eventually replace older ones. This is important as product life cycles show reduced growth for older products and services. Growth may even begin to decline eventually, therefore impacting an organisation’s ability to expand.

New incremental innovations or changes to the product allow growth to continue. Companies typically generate far more technical innovations than they can possibly hope to bring to market effectively. There is a need for structured management and processes to handle innovation from the ideas stage to commercialisation.

The innovation life cycle tracks the life of a single product and consists of multiple invention and innovation stages. These stages reflect how a company’s actions impact the target market for the product. Depicted in Figure 1 the innovation life cycle consists of the following stages [2]:

Product invention: Create the foundational product.

Disruptive innovations: Market penetration of the new product with a high consumer transformative value takes place.

Incremental invention: Add functionality or features to the foundational product.

Positive incremental innovation: Enhance transformative value.

Repeat stages 3 to 5 until transformative value no longer increases.

Negative incremental invention: Add functionality or features to the foundational product beyond customer acceptance levels, leading to a decrease of the product’s transformative value.

Repeat stage 6 until transformative value equals competitors in the market.

Destructive invention: Further invention accelerates the decrease of the transformative value.

Figure 1. The innovation life cycle

Stage 1: Initial Invention. The initial invention stage starts with identifying a perceived market need. This market need is often quantified by an evaluation of the consumer’s perceived value for an invention (product) that could satisfy the identified need. Many companies utilize a sampling of the potential market to determine the needs of the entire market.

Stage 2: Disruptive Innovation. Once the foundational product has been created through invention in stage 1, it can be taken to market with the intention of creating an innovation in the consumer’s eyes. The consumer will purchase the product only if the product has a high enough transformative value. The transformative value reflects the combination of a consumer’s perceived value of the product as well as a consumer’s lifestyle priorities, which may impact the decision to purchase.

Some innovations that appear initially to be disruptive can have extremely short lives in the market. These “disruptive innovation spikes” can be caused by the company having a marketing initiative that creates incorrect preconceptions in the mind of the consumer before the product rollout. In this case, there will be an initial rush to acquire the product. But, if the product subsequently fails to match up to the early adopters’ redelivery expectations, the early adopters’ transformative value for the product will quickly plummet, and word will soon get around to others who might have purchased.

The incorrect consumer perception of the product could be an intentional overstatement of the product’s capabilities and value by the product’s marketing group. However, in many cases the apparent disjoint between what the company is saying and what the consumer is hearing is caused by the misalignment of the company’s transformative value of the product with the consumer’s actual transformative value for the product. As shown in Figure 2, if the marketing team presents the product’s capabilities in terms of the product’s perceived value, consumers may very well interpret these capabilities relative to their own personal lifestyle priorities. It is easy to visualize how the presentation of a broad picture of a product’s capabilities can unintentionally expand the product’s impact on a consumer’s lifestyle priorities.

The occurrence of disruptive innovation spikes further expands the perceived randomness of the innovation process. Disruptive innovation spikes are also another reason that executive management teams think that delivering new products and pursuing disruptive innovations is extremely risky and unpredictable.

Figure 2. Causes of disruptive innovation spike

Stage 3: Incremental Invention. After a company has succeeded in bringing to market a product that becomes a disruptive innovation, the natural tendency for the company is to expand the market disruption. . Incremental inventions evolve the existing product in ways that will ideally enhance the transformative value of the product and expand the target market.

Stage 4: Positive Incremental Innovation. Each customer has different business priorities. This difference makes it highly likely that different customers will perceive each incremental invention from vastly different perspectives. Some customers will consider the incremental inventions as critical enhancements. Other customers will consider the incremental inventions as too complex, as unnecessary, or as too expensive. If a majority of customers, or at least the largest ones, consider the inventions to be valuable, then the transformative value of the product has been increased by the incremental inventions. This results in the inventions becoming incremental innovations.

If the incremental innovations continue to accelerate the dominance of the product in the market, then they are disruptive innovation aftershocks. If, however, the incremental innovations do not continue to accelerate market dominance, in spite of being deemed as positive by the majority of existing customers and also increasing the transformative value of the product, then the disruptive innovation earthquake within the market has likely ended.

Stage 5: Repetitive Incremental Innovation. As depicted in Figure 3, each time an incremental invention is added to the base disruptive product, the internals of the product become increasingly more complex. Externally, the product is improving internally, however, the product is becoming harder to expand, harder to maintain, and harder to evolve.

Figure 3. Impact of incremental invention on product complexity

As incremental invention and innovation are repeated again and again to the same disruptive product foundation, multiple events begin to happen:

• The internal product complexity increases.

• The cost of new incremental invention/innovation increases.

• The cost of support and maintenance increases.

• The difficulty of evolving the product to new disruptive products increases.

• The customer satisfaction decreases.

• The customer willingness to fund incremental inventions decreases.

• The probability of a new simpler product arising from a competitor increases.

From the consumer’s viewpoint, repetitive incremental invention makes the product more difficult to understand and use and more expensive to acquire and maintain.

Stage 6: Negative Incremental Invention. As revenues start to decrease because of a customer’s unwillingness to breathe increasing costs for decreasing value, the company will start to shift away from external invention and innovation. Instead, the company will begin to focus on internal invention/innovation in a move to reduce costs.

One of the actions that the company is likely to take at this inflection point is reduce the research and development budget. These changes are brought on primarily by the decreasing revenues from the foundational product innovation.

Stage 7: Repetitive Negative Incremental Invention. The company will likely accelerate the rate of product incremental invention in an attempt to regain revenue growth and maintain market competitiveness. However, the ever-increasing complexity of the product and the rising per invention cost will limit the acceptability of most of these new incremental inventions. New incremental inventions start to have an accelerating negative effect on the product and its transformative value. New incremental inventions are no longer perceived as innovations.

It is at that stage many customers begin to pursue an alternative “good enough” product.

Stage 8: Destructive Invention. Once a product passes through innovation stage 7, virtually any continued feature invention added to the product will be interpreted as a destructive invention. Destructive inventions are more than just negative incremental inventions. They also decrease the perceived value of prior incremental innovations. Destructive inventions have a negative multiplicative impact on the product’s transformative value.

Once a product passes this stage the company should cease incremental invention and move the product into a maintenance mode.

The Optimal innovation life cycle. As we have seen, the current innovation life cycle (Figure 1) has some serious shortcomings. Increasing business pressures and the perceived market changes at the innovation inflection points will force the executive management team to make decisions that minimize risk and maximize return from the existing product and internal infrastructure. Figure 4 depicts the optimal innovation life cycle. By proper management throughout this optimal innovation life cycle, it is possible to avoid the landslide effect of the previously described innovation inflection points [2].

Figure 4. The optimal innovation life cycle

References:

The New Oxford Dictionary of English, 1998

David Croslin. Innovate the future: a radical new approach to IT innovation, 2010. ISBN 978-0-13-705515-9

Paul Trott. Innovation Management and New Product Development, 2011. ISBN 978-0273736561

Defining Innovation. URL: https://us.sagepub.com/sites/default/files/upm-binaries/23137_Chapter_1.pdf

FULL LIFECYCLE INNOVATION. URL: http://www.ntti3.com/open-innovation-full-lifecycle-innovation-ambitious-idea-marketplace/

1^ Bob Iger is an American businessman who is chairman and chief executive officer (CEO) of The Walt Disney Company

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