Innovation Types

1. HISTORY

One of the first groundbreaking developments in innovation was Joseph Schumpeter’s (1934) definition of the process. He argued that economic development is driven by innovation. He described innovation as a process of new technologies replacing old technologies, which he called “creative destruction”. He was also the founder of the terms: “radical” and “incremental” innovations, which entail major sudden changes and continuously changing processes, respectively. Schumpeter set out a list of types of innovations which form the basis of today’s definitions and strategic choices. For example, the four most important aspects of nowadays’ innovation, namely product, process, marketing and organizational innovation.

Innovation may occur due to several reasons, according to Tirole (1995), innovation is a way of staying ahead of competitors. Adapting or developing ones products may help a company to protect or conquer market share from competitors.

According to Rosenberg (1994), innovation goes together with uncertainty. Often, innovation is neglected or postponed due to the uncertainty of the outcomes. This may lead to the company not being able to obtain funding for their projects.

Lam (2005) believes that organisational innovation aids a firm in its efficiency of its innovations. Properly adapted firms, that is organisationally wise, will enjoy higher yields from newly implemented innovations.

Marketing theories as those from Hunt (1983) helped innovations in a way that it offered companies a way to matching their products to their customers. Hunt’s theory assumes namely, that buyers and sellers are heterogeneous (not a-like). It offers companies a possibility to easier match their products by the use of marketing tools like the “4 P’s” (product, price, promotion and placement).

Evolutionary approaches (Nelson and Winter, 1982) helped to develop the systems of innovation approach (Lundvall, 1992; Nelson 1993). These explain how external factors (e.g. consumer demand) influence internal factors (products being produced) and how fluent flow of information, ideas and knowledge can improve the firm’s chances to successfully innovate.

2. FOUR MAIN TYPES OF INNOVATION

2.1 PRODUCT (SERVICE) INNOVATION

Substantial improvements in products/services

Not surprisingly the fast pace of our world and business has made product innovation critical. The evidence for the importance of rapid product development to success is compelling. Vesey (1991) reported on a study of high-technology products, showing that products that were six months late in entering the market, but were within budget, earned 33 percent less over a five-year period than they would have if on time. Moreover, fast product development is usually more productive and lower cost, because lengthy time in product development tends to waste resources on peripheral activities, changes, and mistakes (Stalk and Hout, 1990; Clark and Fujimoto, 1991). Thus, product innovation becomes critical in the surviving and winning for most firms.

Product innovation involves the introduction of a new good or service that is new or substantially improved. This might include improvements in quality, functional characteristics, technical abilities, ease of use, or any other dimension.

For most firms, creating new products and services are the central path by which they adapt and sometimes even transform themselves in the ever changing market and ever increasing competition. Facing those hardships and difficulties, product innovation becomes an essential way to keep their competitive force and advantage in the market. The success of Ipod is a somewhat based on the upgrading of their product nearly every six month. Both the advancement in its design and its capacity help Ipod become no.1 in the business. Similarly, sport drinks are also kind of product development which meets the growing need of our mature consumers. Details on the innovation of sport drink will be discussed below.

2.1.1 REAL LIFE EXAMPLE

The most famous sport drink Gatorade was developed in the