Transcript Document

INNOVATION: SOME INSIGHTS
Prof. Gündüz Ulusoy
Director, TÜSİAD-Sabancı University
Competitiveness Forum
and
Faculty of Engineering and Natural Sciences
Sabancı University, Istanbul
International Cultural and Academic Meeting of Engineering
Students - ICAMES
Boğaziçi University, Istanbul
May 18, 2007
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.)
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.
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.
OTHER CLASSIFICATIONS OF INNOVATION
 New for the firm.
 New for the market.
 New for the world.
 Destructive innovations.
 Incremental innovations.
 Radical innovations.
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.
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.
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).
WHAT DO THEY SAY ON INNOVATION’S
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).
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.
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.
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 R&D 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 world’s 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.
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.
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.
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.
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.
THE GLOBAL INNOVATION STUDY 2006 IBM –
FINDINGS*
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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.
INNOVATION MODELS IN THE
MANUFACTURING INDUSTRY 2006/07*
Determinants of Innovation
*Ulusoy, G., Günday, G., Kılıç, K., Alpkan, L., et.al., TUBITAK Project SOBAG-105K105, TUBITAK,
Ankara; 2006-2007.
INNOVATION MODELS IN THE
MANUFACTURING INDUSTRY 2006/07
Firm Innovation Model
SOME RESULTS OF THE
PERFORMANCE MODEL
BEATING THE COMPETITORS TO MARKET
FINANCIAL PERFORMANCE
IMPACT OF INNOVATION EXPENDITURES
Median:
Inovation exp / Return = %3.4
Mean:
Inovation exp / Return = %2.8
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.
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.
THANK YOU
TUSIAD – SABANCI UNIVERSITY
COMPETITIVENESS FORUM
Sabancı University
Orhanlı, Tuzla 34956 İstanbul
Tel. 0216 483 97 10
Fax. 0216 483 97 15
www.ref.sabanciuniv.edu