Profiting from innovation:
internal and external dimensions
Professor Stephen Roper
Enterprise Research Centre and Warwick...
The Enterprise Research Centre
• The new Enterprise Research Centre (ERC) is the largest research initiative on
SMEs in th...
Starting points …
• William Baumol, writing in 2002, comments that:
– ‘… firms cannot afford to leave innovation to chance...
Innovation defined…
• Innovation is …
– ‘the successful exploitation of new ideas, which can mean new to a
company, organi...
Innovation and business growth (%, 3 years)
(Source: Roper et al, 2009)
• ‘ … on average, innovating firms were growing mo...
Internal dimensions
Innovation defined
Measuring innovation
(outputs)
• ‘Measurement is one of the most significant factors in
successful innovation. Ironically,...
Measuring innovation
• Q1: Do you currently measure innovation in
your firm? What metrics do you use?
• Q2: What do the ‘n...
Innovation outputs – Irish manufacturing
firms: 1991-2008
Making innovation happen – the
internal dimension
Introducing the innovation value
chain
 Hansen and Birkinshaw (2007) see the IVC as: ‘a sequential, three-phase process’
...
IVC in services
Implementing the IVC
(After Hansen and Birkinshaw, 2007)
• Accessing Knowledge
– Do people in our company create good idea...
Implementing the IVC
(After Hansen and Birkinshaw, 2007)
• Knowledge transformation
– Are we good at screening and filteri...
Implementing the IVC
(After Hansen and Birkinshaw, 2007)
• Knowledge exploitation
– Are we good at taking new product/serv...
Making innovation happen
• Q1: How effective is the IVC in your business?
• Q2: Which links in the IVC are weak/strong?
• ...
Open Innovation
Creating value cheaper, better and faster
Professor Nola Hewitt-Dundas
Queen’s University Belfast
Contact ...
Assumption – Location of innovation is within
the firm.
Reality – Vast potential for innovation
(and innovation activity) ...
What is it?
Generating
Transforming
Exploiting
Traditional Innovators
– few if any partners
and follow a closed
innovation model
Hunters – primarily
engaged in inbound
o...
• Q: Would you describe
innovation in your
business as being:
Traditional closed?
Hunter?
Ambidextrous?
Why?
Changing Attitudes
1. Not all the smart people work for you
2. External ideas can help create value, but it takes internal...
Does it make sense?
05
10152025
0 1 2 3 4 5 6 7 8
Breadth of linkages (0-8)
Small Medium and large
Strong evidence of bene...
Implementing OI
Idea Led
Partner Led
Idea Led
Source: NESTA (2010) Open Innovation
DISCOVER
Starts with an innovation brief detailing the specific unmet need
I...
Partner Led
Source: NESTA (2010) Open Innovation
JAM
Starts with finding collaborative partners often to explore a broad
o...
Use of external partners in firm’s
innovation activities
Source: UK Innovation Survey (2009)
• Q: For your business,
Which model is more
relevant for you in
conducting OI –
DISCOVER or JAM?
Idea Led Partner led
What are the barriers?
Hard Barriers Soft Barriers
Intellectual Property Inertia
Complexity Culture and tradition
Interdep...
• Q: What barriers to you
envisage?
Overcoming these barriers
• Strategy – be clear about what you are aiming
for (or who you are working with)
Ideas for Inno...
Overcoming these barriers
• Use being small to your benefit – be flexible!
– Determine responsibility – Who?
– Bring emplo...
• Q: How might you
overcome your
barriers?
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Empowering SME Innovation - Building internal strengths and external partnerships

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  • Current ‘best practice’ models of innovation are typified by interactivity, partnerships and networks - they are more ‘open’But ‘openness’ also needs to characterise firms’ internal organisation involving group or team based developmentA key indicator of ‘openness’ is the extent of partnering activity…REINVENTION OF ORGNIASTIONL MODELS
  • Empowering SME Innovation - Building internal strengths and external partnerships

    1. 1. Profiting from innovation: internal and external dimensions Professor Stephen Roper Enterprise Research Centre and Warwick Business School Stephen.roper@wbs.ac.uk Professor Nola Hewitt-Dundas School of Management, Queen’s University Belfast NM.Hewitt@qub.ac.uk
    2. 2. The Enterprise Research Centre • The new Enterprise Research Centre (ERC) is the largest research initiative on SMEs in the UK for 25 years - £3m over the first 3 years. Awarded after national competition. • Warwick Business School leads the research consortium which brings together some of the UK’s best SME researchers from five leading business schools (including Aston, Imperial and Strathclyde) • The ERC is funded by the Economic and Social Research Council, the UK government Department for Business, Innovation and Skills, the British Bankers’ Association and the Technology Strategy Board • ERC research focuses on six themes: – Entrepreneurial Ambition and Growth – Entrepreneurial Leadership, Capabilities and Growth – Diversity and SMEs in the Emerging Economy – Finance and Growth – Innovation, Exporting and Growth – Firm Dynamics, Job Creation and Productivity Growth
    3. 3. Starting points … • William Baumol, writing in 2002, comments that: – ‘… firms cannot afford to leave innovation to chance. Rather, managements are forced by market pressures to support innovation activity systematically… The result is a ferocious arms race among firms in the most rapidly evolving sectors of the economy, with innovation as the prime weapon.’ (Baumol 2002, p. ix) • And the evidence suggests that innovation matters – contributing positively to growth, profitability and productivity …
    4. 4. Innovation defined… • Innovation is … – ‘the successful exploitation of new ideas, which can mean new to a company, organisation industry or sector. It applies to products, services, business processes and models, marketing and enabling technologies’. – Innovation Nation White Paper, 2008, p. 15. • Innovation is … – ‘The design, invention, development and/or implementation of new or altered products, services, processes, systems, organisational structures or business models for the purpose of creating new value for customers and financial returns for the firm’ – US Advisory Committee on Measuring Innovation, 2008
    5. 5. Innovation and business growth (%, 3 years) (Source: Roper et al, 2009) • ‘ … on average, innovating firms were growing more than four times as fast as • non-innovating firms’ (p. 21).
    6. 6. Internal dimensions
    7. 7. Innovation defined
    8. 8. Measuring innovation (outputs) • ‘Measurement is one of the most significant factors in successful innovation. Ironically, in many organisations, it is one of the least attended to’. Davila et al.(2006, p. 178) • A killer measure (or two!) – The percentage of sales coming from products newly introduced in the last three years (Narrow) – The percentage of sales coming from products newly introduced or improved over the last three years (Wide)
    9. 9. Measuring innovation • Q1: Do you currently measure innovation in your firm? What metrics do you use? • Q2: What do the ‘narrow’ and ‘wide’ measures of innovation look like for your firm? • Q3: Are these the ‘right’ values? How would you like them to change?
    10. 10. Innovation outputs – Irish manufacturing firms: 1991-2008
    11. 11. Making innovation happen – the internal dimension
    12. 12. Introducing the innovation value chain  Hansen and Birkinshaw (2007) see the IVC as: ‘a sequential, three-phase process’  Link 1: Accessing knowledge : getting the knowledge needed to undertake innovation  Link 2: Building innovation: transforming this knowledge into new innovations - products, services, processes or business models  Link 3: Commercialisation: exploiting these innovations to generate sales, added value and growth  If all links are strong this will enable effective translation of knowledge into added value  Any link in the chain is weak this will undermine the whole effort and so can act as a management diagnostic
    13. 13. IVC in services
    14. 14. Implementing the IVC (After Hansen and Birkinshaw, 2007) • Accessing Knowledge – Do people in our company create good ideas on their own? – Do we create good ideas by working across the company? – Do we source enough good ideas from outside the firm? • Are you ‘ideas rich’ or ‘ideas poor’?
    15. 15. Implementing the IVC (After Hansen and Birkinshaw, 2007) • Knowledge transformation – Are we good at screening and filtering new ideas? – How good are we at investing in new products or services? – How well do we manage and organise the development of ideas into new marketable products or services? – Are you ‘transformation rich’ or ‘transformation poor’?
    16. 16. Implementing the IVC (After Hansen and Birkinshaw, 2007) • Knowledge exploitation – Are we good at taking new product/services to market? – Are we prepared to invest in marketing/advertising to support new products? – How effectively do we partner with other organisations to maximise our sales and marketing opportunities? – How effectively do we feed back signals from the market into our innovation process? • Are you ‘exploitation rich’ or ‘exploitation poor’?
    17. 17. Making innovation happen • Q1: How effective is the IVC in your business? • Q2: Which links in the IVC are weak/strong? • Q3: Why? What can you do about it?
    18. 18. Open Innovation Creating value cheaper, better and faster Professor Nola Hewitt-Dundas Queen’s University Belfast Contact nm.hewitt@qub.ac.uk
    19. 19. Assumption – Location of innovation is within the firm. Reality – Vast potential for innovation (and innovation activity) lies outside the firm
    20. 20. What is it? Generating Transforming Exploiting
    21. 21. Traditional Innovators – few if any partners and follow a closed innovation model Hunters – primarily engaged in inbound open innovation Ambidextrous firms – seek knowledge outside the firm and seek to exploit their own knowledge with partners 32% 42% 26%
    22. 22. • Q: Would you describe innovation in your business as being: Traditional closed? Hunter? Ambidextrous? Why?
    23. 23. Changing Attitudes 1. Not all the smart people work for you 2. External ideas can help create value, but it takes internal R&D to claim a portion of that value for you 3. It is better to build a better business model than to get to market first. 4. You don’t have to originate the research in order to profit from it. 5. If you make the best use of internal and external ideas, you will win. 6. Not only should you profit from others’ use of your intellectual property, you should also buy others’ IP whenever it advances your own business model Source: Chesbrough, H. (2003) The Era of Open Innovation, MIT Sloan Management Review, Spring 2003, pp. 35-41
    24. 24. Does it make sense? 05 10152025 0 1 2 3 4 5 6 7 8 Breadth of linkages (0-8) Small Medium and large Strong evidence of benefits Stronger for small firms Limit of Benefit may be reached earlier for small firms Openness is not confined to specific sectors Source Vahter, P., Love, J.H., & Roper, S. (2012) Openness and innovation performance: are small firms different? Working Paper, Centre for SMEs, Warwick Business School.
    25. 25. Implementing OI Idea Led Partner Led
    26. 26. Idea Led Source: NESTA (2010) Open Innovation DISCOVER Starts with an innovation brief detailing the specific unmet need Is a competitive innovation marketplace amongst customers, suppliers or users Innovation process is mediated by a Trusted Agent Innovations are extracted Tend to be internal routes to market e.g. licence deals 1. Clear Thinking 2. Open Competition 3. The Airlock 4. The pitches
    27. 27. Partner Led Source: NESTA (2010) Open Innovation JAM Starts with finding collaborative partners often to explore a broad opportunity Is a cooperative process, with customers, suppliers, users, universities etc. Process may be facilitated Innovations are built through an iterative process Tend to be external routes to market 1. Picking the right partner 2. Open Briefing 3. Facilitation 4. Business planning
    28. 28. Use of external partners in firm’s innovation activities Source: UK Innovation Survey (2009)
    29. 29. • Q: For your business, Which model is more relevant for you in conducting OI – DISCOVER or JAM? Idea Led Partner led
    30. 30. What are the barriers? Hard Barriers Soft Barriers Intellectual Property Inertia Complexity Culture and tradition Interdependence Mind-sets Source: NESTA (2010) Open Innovation: From marginal to mainstream, NESTA London
    31. 31. • Q: What barriers to you envisage?
    32. 32. Overcoming these barriers • Strategy – be clear about what you are aiming for (or who you are working with) Ideas for Innovation website – wanted “ideas for new products, packaging, marketing, and production technologies that will help us meet the needs of our consumers and customers better, faster and more completely.” 3 – 6 months response period with no explanation for decision!
    33. 33. Overcoming these barriers • Use being small to your benefit – be flexible! – Determine responsibility – Who? – Bring employees with you - How is it rewarded? – Invest in the effort – People or ideas – Power and control does not work! Develop Trust – Be open to potential ideas – Minimize risk (you can’t eliminate it) – Measure efforts Source: NESTA (2010) Open Innovation: From marginal to mainstream, NESTA London
    34. 34. • Q: How might you overcome your barriers?
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