INNOVATION AND CHANGE ARE CENTRAL TO VALUE CREATION
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Innovation and Value Creation
Various researchers have given the term innovation several different meanings. In 1985, Drucker defined innovation as a tool used by entrepreneurs to impact change for diverse businesses and services. Tidd Beasant and Wiley later described innovation as the process of changing an opportunity into fresh ideas that can get put into practice (Mohd Zawawi et al., 2016). The researchers and several others concluded that innovation the planned introduction and application of new ideas within the workplace and are designed to benefit a team, job, or organization (Reddy, 2014). Innovation includes projects, equipment, product, services, policies, and processes, among others. Value creation, on the other hand, refers to the business procedure that creates more valuable output than input. Value of creation is the performance of actions meant to increase the amount of good, services, or the organization as a whole.
Both concepts are applied to benefit a business or organization and involve the introduction of new or additional procedures. Innovation to create value in an organization is a complex process that consists of a lot of risk-taking. Most companies release products and services, but that does not define value. The ability to innovate and adapt gives a business a unique feature that differentiates them from the competitors hence increase the perceived value in the market. The value of a company is directly linked to the owner’s ability to innovate and adapt to the dynamic world.
Increasing Value Through Innovation
Innovation aimed to create value change can be broken down into four directions of change through the 4ps of innovation that were invented by Tidd and Beassant. The first and simplest P is product innovation. It refers to a change in the products or services offered by an organization. Product innovation happens when the product or service has partly improved and changed through better quality material or advanced technology or when there is a complete change in the product. Thus, product innovation happens through change, updates, redesigns, and reengineering done to products and services.
The second P is process innovation, which describes a change in the way organization procedures are developed and delivered. It is a change in how an organization creates its value. The management of the organization discusses new and better ways to make the value creation processes faster, cost-effective, and more efficient to produce better quality products and services. Process innovation is directed towards the ease use by the customer and value creation (Akgun et al., 2017). For instance, introducing a new sequence to an existing process improves production, thus saving the organization time and money.
The third P represents the position innovation, the main focus being the target market for the products and services produced. The innovation involves evaluating the people and places that might interested in the products or services that have never been used before. The innovation may lead to a new market with a completely new product or a product that has been slightly improved. The innovation indicates changes in how a process is perceived and how the product or service is used. Position innovation can help an organization visualize the time when jeans were for manual workers but in the current society, it is a fashion item.
Paradigm innovation is the last P, which is the change in where, how, and why a product is being used. Paradigms are also mental models that consist of theories, principles, values and beliefs. Within a company, paradigms the business models’ tools help to understand how the world and the market operates or what makes a good development process. When applying new paradigms through innovation, the management should keep in mind that the models are just theories. A good example of paradigm innovation is the first low-cost airline in the American company southwest that was developed in 1971 (Beckenstein and Campbell, 2017). Its main aim was to offer transport at a lower price by cutting off all the fancy expenses.
Innovation is not a specific thing; rather it is defined as a spectrum. It means that it can start with small incremental changes and expand to radical innovation by creating entirely new solutions. Most companies prefer to adapt to the concept of customer-centered innovation since it is challenging to go straight into radical innovation.
When an organization is developing an innovation process, they should aim for a differentiated innovation with the right goals in place. Additionally, it is essential to ensure that there is a budget and enough resources to facilitate the implementation of the process. If the organization decides to involve customer suggestions in the application, it makes sure that the final innovation involve a large percentage of the customers’ wishes.
Innovation in the Market Economy
Research has proven that a free- market economy facilitates real innovation and the innovation in turn sustains continuous economy growth (Phil McKinney, 2017). Innovation promotes the development of the economy by helping businesses produce quality products and services at low costs. Innovation began in the tech industry and slowly developed in other sectors of the economy. Individuals and firms are able to freely create products and services that improve the economy through the more accessible knowledge bases and a globalized economy.
The innovations made in the last few decades have improved the relationship between buyers and consumers. For example, consumers can now buy groceries, clothing, and other products online and get them delivered at their doorstep in a few hours. Mobile phone users can also find a date for the night who may end up being their life partners just by swiping through their phones. Customer satisfaction is the key to the growth of market economy and innovation plays a major role in meeting customer needs.
However, the growth of a market economy varies across countries especially due to the ability to keep up with technological advancements (Szirmai, Naudé and Goedhuys, 2011). Top-down and command economic systems rarely experience long term success since they find it hard to choose which industry will succeed or crash shortly. Therefore, in the long term, a market economy is most likely to become successful since it applies innovation, which is the key ingredient to the success of the economy.
Innovation Life Cycle
The need to create value in companies does not end as the market demands keep on increasing and changing. Therefore, as the need to continue increasing value rises, it increases the need for more innovation. The pressure in the market makes individuals and organizations to think harder of simpler and easier ways to meet the demands and keep up with the dynamic market. Thus, the need for value creation plays a major role in promoting innovation. Innovation is a gradual process that has a life cycle that involves four main stages.
The first stage is ideation which involves identifying a problem in the market and developing the desire to solve it. The process involves both investigating the customer’s needs and determining what they are struggling with. Finally, the organization has come up with a solution for the gap through ideation. A good example is the uber company whose success came from investigating customer needs. They found out that the clients had all along longed for more fair prices and easily accessible transport services (Dudley, Banister, and Schwanen, 2017). However, in this stage, an innovator has to be careful especially when investigating the customer needs since another innovator may take up the idea and implement it, creating unnecessary competition.
The second stage is an evaluation which is the validation stage in which the organization presents the innovation idea to the users and obtains early feedback. The main aim of this stage is to identify the friction points that might hinder the proper functioning of the product and find the proper solutions to them. Building prototypes in very important since it reveals mistakes that are likely to occur through interviewing the potential customers and adjusting to the innovations accordingly, using the feedback.
The third stage is the execution stage, that involves the technical team and other external resources. The senior management has to commit time, money and other resources to make the innovation success. The stage also involves the close tracking of the performance of the new product or service and measuring the innovation process and look for ways to improve it. The stage mostly involves sponsoring the projects, funding the innovation, developing risk management strategies and learning from the identified possible failures.
The final stage of the innovation life cycle is the marketing process. The stage involves introducing the product or the service into the market fully through the physical availability. All the marketing and sales channels are activated in this stage, where the customer gets excited to try out the new product (Gupta, 2018). Management increases sales and customer satisfaction based on customer feedback and market analysis.
Relationship of Innovation to Value Creation
The relationship between innovation and value creation has a circular reasoning. Circular reasoning is one in which the reasoner begins with what they are trying to end with. Such connections are usually valid because when the premises are true, the conclusion must also be true. The outcome is because the aspects of innovation and value creation are closely related, and when one is affected the other one can also be affected (Mohd Zawawi et al., 2016). The two also relate since innovation enhances value creation while the need for value creation encourages more and better innovation.
Challenges Facing Innovators
Individuals and organizations face a lot of challenges when seeking to increase value through innovation. One of the challenges is lack of collaboration from other industries. Both internal and external cooperation is very crucial since innovation involves the combination of many ideas, skills and resources. When there is no collaboration, it is impossible to turn an innovative idea into reality.
Innovation requires patience and a balance in the expectations since the market is always unpredictable. However, most innovators make the mistake of setting unrealistic expectations causing the team to lose confidence when the innovation face a few setbacks (Huber & Hecker, 2017). Most of them overpromise a capability hence creating an expectation bar that is hard to achieve. Additionally, when innovators underestimate an innovation, they might fail to get an appropriate amount from their funders or fail to save up enough for the innovation.
Innovators also face the challenge of lack of enough funding when they seek to promote value creation. Raising money has always been challenging and has grown to be more competitive than ever. Lack of funds mainly affect the individual innovators who do not have direct access to huge investors. Their innovations are, therefore difficult to implement and fail to benefit them and the economy at large.
Embedding Innovation in Strategy making
In most successful organizations, the management requires their employees to suggest outstanding new ideas. However, a lot of researchers introduce their own methods of establishing innovation at the workplace. Strategy involves making choices between several options, and innovation is one of the best ways to achieve the organization’s strategic goals. According to research, the largest percentage of the top managers have described innovation as a strategic priority (Dogan, 2017). Without a proper strategy, it can be quite challenging to achieve long term success and develop the business to secure a competitive advantage.
However, the absence of a clear innovation strategy is a huge problem especially for developed companies, when the optimization of the existing business becomes a priority. Although creating an innovation strategy is not very complex, connecting it with the long and short terms of the organization takes the most resources. Innovation strategy do not involve introducing an idea challenge but focuses on the mapping of the company’s mission, vision and value for the consumer market.
The innovation goals should be connected to the organization’s goals and objectives since they have a unified vision and will assist in increasing operational efficiency. Likewise, innovation should have a main purpose which should be part of the bigger plan. Therefore, the management of an organization should ensure they know the ways in which innovation will contribute to their goals through the marketing strategies and initiatives.
Building innovation into the organization strategy development process begins with deciding focusing on the most favorable way to succeed and justifying their decisions. The best way to achieve this is to list the choices that you can into practice compared to other competitors. One of the best platforms in applying these decisions is the strategy choice cascade. The main aim of the strategy is making it less complex, messy and confusing.
Sources of Innovation Opportunities
Innovation possibilities can arise from many different sources where an innovator should look into. One of the main sources of a good innovation opportunity is the market. A good innovator should always be keen in studying the market and following the market trends. The study should help him identify the level of demand of a certain product or service and how the management can exploit the demand in their favour. The market is also a great place to evaluate the success of an upcoming innovation.
Also, the management can identify their organization weak points in their product or services and correct them through innovation. In this case, the source of innovation comes from the existing capabilities and cultures of the company and not the external market. The innovation might involve developing a new improved version of the same product, or improve on the gap causing the weak points through innovation.
As years go by, the population, people and their perception on different things evolve as well. A good innovator pays attention to these changes and develops products that will suit the new preferences and tastes of the consumers. The innovator should however conduct a pre-interview before introducing a newly developed product so he can get the right feedback and adjust accordingly.
Another major source of an innovation opportunity is introducing an unexpected product or service into the market. The unexpected failures and successes associated with the innovation are a great source of inspiration and innovation (Drucker, 2017). The uncertainties can also be used as an opportunity for impacting a change. Such situations can be advantageous for a business since they inspire innovators to develop a different view on the situation and take advantage of the emerging situations.
Core Competencies, Innovation and Core Rigidities
Most organizations that experience continuous success over the years, despite the dynamic markets, use cultures and measures that enhance innovation. Core competencies are the strategic advantages of an organization such as the combination of skills and technological abilities, that gives the business a competitive advantage (Fredkin, 2018) . Most of the companies achieve success through the development of core competencies.
When an organization gains a competitive advantage, it might fall into a comfort zone and stop innovating. The action might cause it to fall into core rigidity. Core rigidity refers to a situation where an organization pauses its improvement efforts when relying on particular advantages for a while, as the competitors keep getting better. Therefore, it is necessary for a company to seek innovation to maintain a competitive advantage continuously. Additionally, core competencies may change to core rigidities due to the unpredictable changes in the external environment.
Features of a Good Innovative Organization
A successful innovative organization develops trust between the management and the employees responsible for discovering and implementing the implementation strategies. The creative energy required during innovation gets created confidence by the management. Additionally, the willingness to risk necessary failure of the innovation is enhanced by the management trusting the individuals handling the innovation process (Choudhar, 2014). Trust should be addressed in a clear understanding of the strategic vision communicated by the manager. The action helps to maintain focus during the implementation to achieve the strategic objectives.
An innovative organization should be a learning organization with clear strategic objectives. Such an organization is able to make creative decisions and is able to conduct their duties in the unpredictable circumstances. The uncertainties vary from technical to market issues that must be faced to achieve success of the innovation. An innovative organization must therefore learn to embrace failure and learn from it since it is through the challenges that it will learn more about the innovation.
An organization that looks to achieve success in an innovation needs to invest in skills, resources, time and space, all dedicated to supporting the innovation. For some organizations the main part of the investment is time to allow the employees to experiment. However, for companies that rely on technology, their investment may be quite expensive. For the investment in innovation skills, an organization should be willing to seek external expertise and thoughts.
A truly innovative organization should have a unique, reliable and relevant strategy like those of face book and google among others. An organization that lacks a definable strategy lacks the power to innovate. Additionally, the innovative companies usually take the lead in the market. This is because such innovators have creative employees and a supportive management. Successful innovators and wannabe innovators are differentiated in the ways in which their implement their innovations. Less innovative companies talk more about their ideas while good innovators implement them.
R&D and Innovation
A focus on Research and Development may be the best way to evaluate the practices within an organization but not how innovative a business is. Having an excellent R&D process and continuous market success with the invented technologies are two distinct issues. Additionally, strategy and research indicate that investments placed on R&D do not contribute to innovation success (Viki, 2017). The difference is further explained through technical and market risk.
Technical risk defines whether an organization has the ability to develop and implement new technologies. On the other hand, market risk defines whether customers will be willing to buy and use the product when the technology works. Innovation is about overcoming both technical and market risk. However, R&D focuses on handling the technical risks only, a step that is likely to increase the number of technologies in an organization but does not guarantee the success of the technology (Demirel and Mazzucato, 2012). Organizations thus need innovation to enable them to look for a reliable business model.
Intel, which combines reliable R&D resources with specific business models, takes advantage of R & D’s findings. The model called “tick tock” focuses on the business’s two primary sections: the microarchitecture processes and the technology used in manufacturing (Sharma and Saha, 2014). In the “tick” cycle, Intel built on the manufacturing changes to innovate their microarchitecture processes, thus increasing the power in the final product. Innovation can not be described as the final result of R&D but it can be described as the combination invention through R&D, customer value and a good business model.
The main aim of an innovative organization is to evaluate their ability to develop and deliver customer value in a profitable manner. Although a successful innovation process does not fully depend on the money spend, organizations should not fail to invest money and resources in the R&D department. An organization should be extra careful on how they send the money invested in R&D. successful innovative companies combine R&D with the required strategies to develop good innovation management processes to introduce the products to the market.
Conclusion
To create value in products and services innovation and change are the key to this process. Innovation is valuable because it increases the productivity both capital and labour. Innovators like kellher, wallton and Zuckerberg are perfect examples of innovation being the key to long term success of an organization. Kelleher and wallton used available technology while Zuckerberg developed an entirely new product. Studying and understanding the complex concept of innovation is very crucial before any organization decides to start the process. The management should ensure that they are fully equipped with the necessary resources to implement the process and make it a success.
Most individuals and organizations are reluctant to transform their ideas into innovations since they also fear seeking external expertise. In this new decade, innovation is growing higher since most businesses have adopted the technology. Consumers have also played a significant role in promoting technology by adopting new tastes and preferences. Organizations should learn to adopt innovation as a way of maintaining long term success. Additionally, individuals should not be afraid to present their innovative ideas to investors to seek help.
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