The document summarizes research from the Enterprise Research Centre (ERC) on innovation and business growth. [1] The ERC is the largest UK research initiative on small and medium enterprises in 25 years, led by Warwick Business School in partnership with other universities. [2] The ERC research focuses on themes like entrepreneurial growth, leadership, financing, and the relationship between innovation, exporting, and growth. [3] The document discusses measuring innovation outputs, the internal dimensions of innovation within firms, and implementing open innovation strategies to create value.

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. 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. 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. 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. 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. Internal dimensions

7. Innovation defined

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. 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. Innovation outputs – Irish manufacturing
firms: 1991-2008

11. Making innovation happen – the
internal dimension

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. IVC in services

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. 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. 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. 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. Open Innovation
Creating value cheaper, better and faster
Professor Nola Hewitt-Dundas
Queen’s University Belfast
Contact nm.hewitt@qub.ac.uk

19. Assumption – Location of innovation is within
the firm.
Reality – Vast potential for innovation
(and innovation activity) lies outside
the firm

20. What is it?
Generating
Transforming
Exploiting

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. • Q: Would you describe
innovation in your
business as being:
Traditional closed?
Hunter?
Ambidextrous?
Why?

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. 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. Implementing OI
Idea Led
Partner Led

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. 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. Use of external partners in firm’s
innovation activities
Source: UK Innovation Survey (2009)

29. • Q: For your business,
Which model is more
relevant for you in
conducting OI –
DISCOVER or JAM?
Idea Led Partner led

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. • Q: What barriers to you
envisage?

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. 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. • Q: How might you
overcome your
barriers?