RCA 204 Innovation & Entrepreneurship S-Curve

RCA 204, Innovation & Entrepreneurship
What is Innovation?
Innovation is the key element in providing aggressive top-line growth
and for increasing bottom-line results"
The process of translating an idea or invention into a good or service that creates
value or for which customers will pay.
To be called an innovation, an idea must be replicable at an economical cost and
must satisfy a specific need. Innovation involves deliberate application of
information, imagination and initiative in deriving greater or different values from
resources, and includes all processes by which new ideas are generated and
converted into useful products.
Effective knowledge management can be a key (ing) ingredient of innovation as it

can feed a continual flow of ideas into the process.
While knowledge management focuses, primarily, on learning from the past and on
current good practices, innovation focuses on experimentation, prototyping, and the
creation of the good practices of tomorrow.
In Ernst and Young, they identified four mega-processes in each company. All
business processes then become sub-processes of the mega-processes of Sell,
Serve, Develop People, and Develop New Products and Services.
Underpinning each of these mega-processes is knowledge.
Innovation has the capacity to improve performance, solve problems, add value and
create competitive advantage for organizations. Innovation can be broadly
described as the implementation of both discoveries - inventions and the process by
Prepared by Neelam Rawat

which new outcomes, whether products, systems, processes or organizational
forms, come into being (Williams, 1999).
The process of innovation depends heavily on knowledge, particularly since
knowledge represents a realm far deeper than simply that of data, information and
conventional logic.
The potential of Knowledge Management (KM) creates the intellectual capital as
sources of innovation and renewal; business strategy should be focusing more on
these issues.
To do this, I am going to briefly discuss three things:
What does innovation really mean, especially in a global knowledge
economy?
What can history teach us about successful innovation in organizations?
How do we bridge knowledge management and innovation?
Wikipedia says that innovation can be considered as the useful application of new
inventions or discoveries.
It distinguishes here between invention and innovation. Invention is an idea that is
made manifest, and innovation, is ideas that are applied successfully in practice. So
the key words here are the successful application of ideas.
Creativity is an individual ability that can lead to an intact invention or idea

by the creative person.
Innovation is the process to convert invention or idea into a marketable
product or service.
Entrepreneurship is an individual characteristic that leads the innovation
process successfully in bringing a product or offering a new service to market
despite many obstacles.
Because entrepreneurship requires a special kind of creativity and entrepreneurship

in the entire process, from initial idea generation to finance sale, all require
creativity.
Innovation is synonymous with risk-taking and organizations that create
revolutionary products or technologies take on the greatest risk because they create
new markets.
Imitators take less risk because they will start with an innovator's product and take
a more effective approach. Examples are IBM with its PC against Apple Computer,
Compaq with its cheaper PC's against IBM, and Dell with its still-cheaper clones
against Compaq.
Relationship between Creativity, Invention & Innovation
Creativity is related to imagination, but innovation is related to
implementation
Creativity is the capability or act of conceiving something original or unusual.

Invention: An invention is a novel product, device, process, or concept.
Innovation: An innovation is the introduction of a newer and better solution
that meets new requirements or existing market needs.
Creativity is the ability to think and act in ways that are new and novel. In our
minds, there are two kinds of creativity, innovation and invention
Consider the microprocessor. Someone invented the microprocessor. But by itself,
the microprocessor was nothing more than another piece on the circuit board. Its
what was done with that piece the hundreds of thousands of products, processes
and services that evolved from the invention of the microprocessor that required
innovation.
The following are the major differences between Creativity and Innovation:
1. The quality of thinking new ideas and putting them into reality is creativity.
The act of executing the creative ideas into practice is innovation.
2. Creativity is an imaginative process as opposed to innovation is a productive
process.
3. Creativity can never be measured, but Innovation can be measured.
4. Creativity is related to the generation of ideas which are new and unique.
Conversely, Innovation is related to introduce something better into the
market.
5. Creativity does not require money. On the other hand, innovation requires
money.
6. There is no risk involved in creativity, whereas the risk is always attached to
innovation.
Innovation Life Cycle
Life cycle of innovations can be described using the 's-curve' or diffusion curve.
The concept of the S-Curve is used to determine performance in regard to time or
effort. These are extremely important due to the fact that understanding where you
are in regard to this system determines how you should proceed in regard to
innovation strategy. It can also assist you in understanding your current risks and
how to avoid certain pit-falls common to products or services in certain phases of
maturity.
There exist four major stages of innovation. These are Ferment, Takeoff, Maturity,
and Discontinuity.
1. Era of Ferment This phase is in the beginning of the S-Curve pattern of

innovation. It is when the product/ industry is completely new. As a result a
dominant design in the market hasnt been established yet. Therefore, the
competition between the various players in the industry is fierce. As a result,
usually at this stage most of the resources are spent on research and
development.
2. Takeoff - In this phase, due to the ability to overcome a major technical
obstacle or the ability to satisfy a demand of the market, the product/industry
have been adopted by the early majority and managed to cross the chasm

and a dominant design has been established already. Hence, the market will
be characterized with a rapid growth in production, and the product will move
quickly towards a full market acceptance.
3. Maturity - Here, the product is adopted almost completely by society and is
usually approaching a physical limit. Due to the strong competition among
the major players in the market which is clearly defined at this stage, most of
the resources at this point are spent on improving the production processes
and making them cheaper. Therefore, oftentimes the products at this stage
become completely standardized and the innovations at this stage are
considered incremental.
4. Discontinuity - At this phase the innovation occurs, as a new S-Curve pattern
can rise. Since the previous product/ industry reaches an era of maturity,
there is an opportunity for a new product to appeal to the innovators
segment in the population and they will start a new product life cycle which is
usually considered as the Disruption. A great example of this was the
transition from film cameras to digital cameras.
The s-curve maps growth of revenue or productivity against time. In the early stage
of a particular innovation, growth is relatively slow as the new product establishes
itself. At some point customers begin to demand and the product growth increases
more rapidly. New incremental innovations or changes to the product allow growth
to continue. Towards the end of its lifecycle, growth slows and may even begin to
decline. In the later stages, no amount of new investment in that product will yield a
normal rate of return
The s-curve derives from an assumption that new products are likely to have
"product life" i.e., a start-up phase, a rapid increase in revenue and eventual
decline. In fact the great majority of innovations never gets off the bottom of the
curve, and never produces normal returns.
Innovative companies will typically be working on new innovations that will
eventually replace older ones. Successive s-curves will come along to replace older
ones and continue to drive growth upwards. In the figure above the first curve
shows a current technology. The second shows an emerging technology that
currently yields lower growth but will eventually overtake current technology and
lead to even greater levels of growth. The length of life will depend on many factors.
To understand the concept of the S-Curve Better, lets use the audio industry as an
example. At start, at the ferment stage, there was the Cassette tape which was
invented by Phillips. Then, at the Takeoff phase, Sony has invented the Walkman
that had the ability to answer the customers demand of listening to their Cassette
outside. As a result of Sonys success, the market has arrived to its maturity as a
number of competitors manufactured similar devices (Phillips, Sony, TDK, Maxwell,
etc.)

The Discontinuity phase appeared when Sony and Phillips have developed the
compact disk and by doing so, disrupted the market and started a new S-Curve.
Conclusion
The S-Curve of Innovation is a robust framework that can be used to analyze various
industries at their different stages and to explain their successes and failures. The
model has a lot of empirical evidence and assisted researchers in understanding
what occurred in the semiconductors industry, the telecommunications market, the
hard drives global market and many more.
Why Innovation & Entrepreneurship?
Entrepreneurship cannot survive without innovation
Innovation and Entrepreneurship is focused on developing knowledge, skills and
understanding of how an innovative idea, product or process can be used to form a
new and successful business, or to help an existing firm to grow and expand.
Innovation is the specific tool of entrepreneurs, the means by which they exploit
change as an opportunity for a different business or a different service. It is capable
of being presented as a discipline, capable of being learned, capable of being
practiced. Entrepreneurs need to search purposefully for the sources of innovation,
the changes and their symptoms that indicate opportunities for successful
innovation. And they need to know and to apply the principles of successful
innovation.
- Peter Drucker
What is Entrepreneurship?
Entrepreneurship has traditionally been defined as the process of designing;
launching and running a new business, which typically begins as a small business,
such as a startup company, offering a product, process or service for sale or hire,
and the people who do so are called 'entrepreneurs'.

It has been defined as the "capacity and willingness to develop, organize, and
manage a business venture along with any of its risks in order to make a profit."
According to Stevenson, entrepreneurship is the pursuit of opportunity
beyond resources controlled.
An entrepreneur has been defined as "a person who starts, organizes and manages
any enterprise, especially a business, usually with considerable initiative and risk
rather than working as an employee. An entrepreneur runs a small business and
assumes all the risk and reward of a given business venture, idea, or good or
service offered for sale.
Entrepreneurship is often associated with uncertainty, particularly when it involves
creating something new for which there is no existing market. Even if there is a
market, it may not translate into a huge business opportunity for the entrepreneur.
A major aspect in entrepreneurship is that entrepreneurs embrace opportunities
irrespective of the resources they have access to.
Entrepreneurship involves being resourceful and finding ways to obtain the
resources required to achieve the set objectives. Capital is one such resource.
Entrepreneurs need to think out-of-the-box to improve their chances of obtaining
what they need to succeed. According to management experts, vast majority of
entrepreneurs desire to be in control of their own life and they cant find this beyond
entrepreneurship. Studies have demonstrated that people derive great satisfaction
from their entrepreneurial work.
A number of entrepreneurs are of the opinion that managing their own business
offers far greater security than being an employee elsewhere. They feel
entrepreneurship enables them to acquire wealth quickly and cushion themselves
against financial insecurity. Additionally, an entrepreneurs future is not at peril
owing to the faulty decisions of a finicky employer. So, while some people feel that
being employed is less risky, entrepreneurs feel that they are better off starting a
business of their own.
Today, there is the increasing awareness about entrepreneurship. People arent
confining themselves to one business. They are following one business with another.
Such entrepreneurs are referred to as serial entrepreneurs. Sometimes these
entrepreneurs become angel investors and invest their money in startup
companies. As a person gains greater insight into business and entrepreneurship,
his chances of succeeding in business improve
Importance of Innovation in Entrepreneurship
The economy is composed of enterprises and businesses. Our economy has

survived because the industry leaders had been able to adapt to the
changing times and supplied mostly the communities needs. Any small
business is integral to the economy. Without it, our economy would not
survive. But a business must also sustain itself, be able to constantly evolve
to fulfill the demands of the community and the people. In every business, it
is imperative to be industrious, innovative and resourceful.
Entrepreneurship produces financial gain and keeps the economy afloat,
which gives rise to the importance of innovation in entrepreneurship.
Entrepreneurs are innovators of the economy. It is not just the scientist who
invents and come up with the solutions.
The importance of innovation in entrepreneurship is shown by coming up with
new way to produce a product or a solution. A service industry can expand
with another type of service to fulfill the ever changing needs of their clients.
Producers can come up with another product from the raw materials and byproducts.
The importance of innovation in entrepreneurship is another key value for the
longevity of a business. Entrepreneurs and businesses began with a need.
They saw the need within the community and among themselves that they
have come up with a solution. They seize the opportunity to innovate to make
the lives more comfortable. And these solutions kept evolving to make it
better, easier and more useful. Entrepreneurs must keep themselves abreast
with the current trends and demands. Manufacturers are constantly
innovating to produce more without sacrificing the quality.
Companies and enterprises keep innovation as part of their organization.
Innovations contribute to the success of the company. Entrepreneur, as
innovators, see not just one solution to a need. They keep coming up with
ideas and do not settle until they come up with multiple solutions. Innovation
is extremely important that companies often see their employees creativity
as a solution. They come up with seminars and trainings to keep their
employees stimulated to create something useful for others and in turn,
financial gain for the company.
Other factors that raises the importance of innovation in entrepreneurship is
competition. It stimulates any entrepreneur to come up with something much
better than their competition in a lower price, and still be cost-effective and
qualitative.
Small businesses see the importance of innovation in entrepreneurship. They
were able to compete with large industry and see their value in the economy.
Small businesses are important as they are directly involved in the
community and therefore, contribute to their financial and economic gain.
These small businesses know exactly what community needs and fulfill them.
All things start small.
Innovation is important not just in entrepreneurship. As individuals, we are
innovators by adapting well to our needs and create our own solutions.

Entrepreneurs are the same. The innovation in entrepreneurship helped the
country by changing with the times and producing new products and service
from ones that already exists. And, being innovative has helped us become
successful in all our endeavors.
Types of Innovation
Broadly, four categories of Innovation:
1.
2.
3.
4.
Breakthrough
Sustaining
New Market
Disruptive
This gives us a good basic framework for determining what type of innovation we
might want to pursue. Sometimes, we have well defined problems, sometimes we
dont. Sometimes its clear who is best equipped to tackle a problem, sometimes it
isnt. By asking ourselves those two questions, we can outline a successful
approach.
Breakthrough
Breakthrough innovations are generally considered out-of-the-blue solutions that
cannot be compared to any existing practices or techniques. These innovations
employ new technologies and create new markets.
For example, Tim Berners-Lee, a software engineer, created a network of
interconnected computers to share and distribute information easily and cheaply in
1980. This network developed into the Internet. Tim never thought about what
customers wanted when he created his network.
From a strategic perspective, breakthrough innovations are usually along the lines
of high benefit or differentiation potential. Thomas Kuhn called this revolutionary
science because it involves a paradigm shift. In this case, the problem is well

defined, but the path to the solution is unclear, usually because those involved in
the domain have hit a wall.
Transistors and the discovery of the structure of DNA are both good examples of
breakthrough innovation.
But in getting back to the original point companies who live and die through
premium products will need to continually innovate with breakthrough products in
order to remain successful.
Examples:
One of the best cited examples of breakthrough innovation on the tech front
is the first iPhone. By harnessing new technology, Apple was able to bring a
fundamentally new product to market, creating new demand in the process.
Microsoft has also rethought its business model to develop a breakthrough
innovation in the form of Office 365. This saw the company go from selling its
Office suite as a product, paid for on a one-off basis, to offering it as a
monthly or annual subscription.
Sustaining Sustaining innovations in products or services are incremental. Also

called Incremental Innovation.
Sustaining innovations evolve existing technologies to be more accessible, efficient,
cost effective, etc. They do not establish a new market but rather offer an
evolutionary version or add-on to existing technology. Sustaining ideas have to do
with improving the current product by developing generations 2, 3, 4, 5 and so on
until the product reaches the end of its life cycle. Normally large companies are very
good at creating sustaining innovations because their resources, business processes
and cultures are setup in a way to enable sustaining efforts
With regards to strategy, sustaining products are all about milking the breakthrough
product (a benefit leadership strategy) by extending its life cycle as long as it can
go. Most breakthrough products will not last very long without a sustaining effort
behind them. And this sustaining effort is where profitability is maximized because
unnecessary costs can be removed and the benefits of the product (the value
proposition) can steadily improve. For example, Windows XP is an incremental
innovation
New Market - A lot of managers think of new markets in terms of geography such
as entering an emerging market like India or China. New market innovations refers
to applying a current product in a new way and sometimes even for a different
segment of customers. New market innovations can be extraordinarily successful if
executed well. In some cases, all it takes to introduce a product into a new market is
educating your customers, both current and new, about the other things your
product can do. The strategy behind new market innovations can fall on either cost

leadership or benefit leadership. The reason is because if you have a product that is
basically a premium value product (benefit leadership) in its existing form and you
manage to successfully apply that product to a new use case then the value of your
product will need to be weighed in light of the alternatives for the new use case.
For example, if Arm and Hammer baking soda costs $4/box while most other baking
soda brands cost around $2/box then its safe to assume that the Arm and Hammer
baking soda is viewed as a benefit leader product. In other words, it performs the
job of baking better than the lower cost alternatives. However, when used as a
fridge deodorizer that same $4/box price will need to be weighed against other
deodorizer products. For example if most fridge deodorizers costed an average of
$8/bottle (or whatever the embodiment) then the Arm and Hammer baking soda is
essentially a cost leader against the alternative deodorizers. This scenario is often
what can make some products so successful when applied in a new way.
Disruptive Disruptive innovation generates new markets and values, in order to disrupt
existing ones
A disruptive innovation is an innovation that helps create a new market and value
network, and eventually goes on to disrupt an existing market and value network
(over a few years or decades), displacing an earlier technology
Disruptive Innovation = Simple, Low Cost Solution to Your Customers Problem
Clayton Christensen introduced the concept of disruptive innovation in his classic
book The Innovators Dilemma. These tend to be new approaches to old products
and services. Example: Google Glass
There are many examples of disruptive innovation over the years. One classic
example is Dell. When Michael Dell was a college student he realized that he could
order parts, assemble computers on his own and ship them directly to his customers
over the internet cheaper than he could buy a computer at retail store. This insight
led him to create a new business model (disruptive) for selling computers order
online directly from Dell and have it shipped within a few days to the customer. The
cost savings were substantial simply because Dell was able to cut out the middle
men in the channel. The benefits for the consumer were also slightly higher because
it allowed them to customize their computer to meet their exact specifications. This
model ushered in an era of dis-integration for the computer industry. Dell was
technically not a manufacturer of the computer components but rather an
assembler of other outsourced components into a final product. This led to further
modular designs in computers and to further modularity in the computer industry.
7 Sources of Innovative Opportunity

Reference:
http://mylesclarku.blogspot.in/2012/09/7-sources-ofinnovation-by-peter-drucker.html
The Unexpected
The Unexpected is exactly what it sounds like, you have to expect the Unexpected if
you want to have a successful business. The unexpected could mean failure,
success, surprised etc. We must be ready for anything. The whole market could
change dramatically by peoples unexpected decisions.
The Incongruity
Incongruities are basically thinking differently. Not only thinking differently from
your competitors, but also thinking differently from society. What it says to you need
to find a creative idea to sell, and you can only do this by thinking differently to
discover a new invention or idea. When I think of thinking differently Steve Jobs
comes to mind and all of his inventions. A good example of this would be how Steve
Jobs and apple created the iphone it was one of a kind at the time, no one else
combined both music and a cell phone in one Facebook is a company that nailed it.
Prior to the social networks prolific rise Myspace was the dominant player, but it
had its downfalls. Facebook wisely noted what Myspace was vs. what should be and
built that platform.
Process Need
Process need. Process need is similar to Incongruities in that you must think
differently than the everyone else. If there is a glitch or something missing in
society or in a business you must find a innovative way to fix it.
Process need involves identifying your companys process weak spots and
correcting or redesigning them. This is a task oriented solution meaning that the
source of innovation comes from within your existing capabilities and ways of doing
business not the market.
An example might be a restaurant that identifies that people wait too long for their
entrees and so decides to hire another chef to speed up creation times.
Essentially your company will want to look for all weak links and eliminate them.
Industry and Market Structure Change
This topic is related to the "Unexpected" if you are a business owner you must
expect the unexpected in your industry or market. Other business's from within or
even from without your market could change your market.

Your industry and the market are in continual flux. Regulations change and some
product lines expand while others shrink. Firms should continually be on the watch
for this.
One example is deregulation. When a previously regulated industry becomes open
there is historical precedence for companies that enter early to be very successful.
Other things to watch out for are the convergence of multiple technologies and
structural problems that occur from time to time (often immediately following an
industry boom).
Demographics
Demographics are essentially the change in population. We constantly see
changes occur in populations, income levels, human capital (education) and age
ranges. Smart firms are constantly paying attention to this.
When it comes to the baby boomers businesses have been following them
constantly as they got older. At present they are one of the largest as well as the
most affluent demographic groups with high levels of disposable income.
Combining demographic data with segmentation and targeting is a powerful
method of accurately meeting a target markets desires.
Changes in Perception, Meaning, and Mood
Perception is the way people perceive something. In the business world the general
public might perceive an industry a certain way that could be good or bad.
Perception changes over time. For example 50 years ago people did not know the
affects of tobacco. So now more and more people are staying away from cigarettes
so there is less advertising.
Over time populations and people change. The way they view life changes, where
they take their meaning from, and how they feel about things also is modified over
time and smart companies must pay attention to this in order to capitalize (and
avoid becoming forgotten, a relic of ages past).
Here are two really good examples. First is a principle called down aging which
refers to people who look at 50 as being 40. Industries have responded to this, most
notably in the cosmetic and personal care industry which provides plenty of
solutions to help these people look younger. Full industries are creeping up that
make people feel younger. Have you spotted any lately?
Religion is another example. Across the world weve seen Islam and atheism rise.
Companies should adapt as overall meaning changes in culture.
New Knowledge

New knowledge of technology both scientific and non scientific. Business owners
must be in touch with todays technology to run their business. There are new
discoveries all the time that could affect your business.
As the speed of technological revolution increases there will be an ever increasing
number of opportunities that open up. The internet has been the most notable one
in the last couple decades but there have been a plethora of other industries and
opportunities pop up as a result of this technological revolution.
New knowledge is about more than just technology though; its about finding better
ways of doing things and improving processes. Your company should look to this
new knowledge for ways it can improve incrementally.
Intel does this constantly and its a major part of why theyre the leading processor
manufacturer today. Constantly paying attention to the latest in both academic
research as well as investing heavily in their own R&D, the company has managed
to find continual sources of innovation, driving its success.
Opportunity recognition/ recognizing opportunities

An opportunity is a favorable set of circumstances that creates a need for a new
product, service or business.
According to Drucker, identifying opportunities is about a systematic examination
of the areas of change that typically offer opportunities.
Opportunity recognition means proactively brainstorming a new business venture or
expansion idea. A small-business owner typically engages in opportunity recognition
at the point where he realizes he has an idea, strength or capability that matches
well with a particular target market. Entrepreneurial business owners constantly
seek new revenue streams. Those that seize ripe opportunities tend to perform best
financially.
Here, brainstorming means used to generate a number of ideas quickly.
Example: Shri Mahila Griha Udyog Lijjat Papad started in the year 1959 with a
modest loan of Rs 80, , the cooperative now has annual sales exceeding Rs 301
crore (Rs 3.1 billion). Shri Mahila Griha Udyog Lijjat Papad, popularly known as Lijjat,
is an Indian womens cooperative involved in manufacturing of various fast moving
consumer goods. In this way a small idea and initiative by few women became a
huge business entity, expanded all over India and even abroad, it provided
employment opportunities to a number of people and livelihood to its employees
with a sense of belonging and respect and standing in the society.

Example: For long-term viability and success, a company needs some ability to
recognize opportunities. Industries usually evolve based on societal changes,
customer preference changes or technological advances. The most innovative
company leaders who seize opportunities stay ahead of the competition in
delivering progressive solutions to customers. Steve Jobs recognized the
tremendous opportunity to make Apple a cutting-edge innovator in mobile
technology. Amazon.com founder Jeff Bezos similarly recognized the power of online
book sales long before traditional book sellers. He continued to seize opportunities
for product diversification after making a big splash with books.
Question: Describe the three general approaches entrepreneurs use to identify
opportunities?
Answer: Three ways to identify or recognize opportunities:
1. Observing trends
2. Solving a problem
3. Finding gaps in the marketplace
Question: Identify the four environmental trends that are most instrumental in
creating business opportunities?
Answer: Four environmental trends are as follows:
1.
2.
3.
4.
Economic forces
Social Forces
Technical Advances
Political and regulatory changes
Question: List the personal characteristics that make some people better at
recognizing business opportunities than others?
Answer: Four personal characteristics are:
1.
2.
3.
4.
Prior Experience
Cognitive Factors
Social Networks
Creativity
Question: Write five steps to generate creative ideas?

Answer: Preparation, Incubation, Insight, Evaluation and Elaboration
Opportunity Gap: An entrepreneur recognizes the problem and creates a business to
fill it.
Window of opportunity: The time period in which a firm or entrepreneur can
realistically enter a new market.

Idea: A thought, an impression or a notion.
Serendipitous Discovery: A chance of discovery made by someone with a prepared
mind.
Opportunity Recognition: The process of perceiving the possibility of a profitable
new business, or a product or a service.
Corridor principle: states that once an entrepreneur starts a firm, he or she begins a
journey down a path where corridors leading a new venture opportunities become
apparent.
Sole entrepreneurs: Entrepreneurs who identify their business ideas on their own.
Network Entrepreneurs: who identified their ideas through social contacts.
Opportunity Recognition Process
Alertness is defined as a process and perspective that helps some individuals to be

more aware of changes, shifts, opportunities and overlooked possibilities.
Entrepreneurs are successful because of their alertness to information on the
market condition and opportunity movements. Entrepreneurial alertness is the
ability that some people have to recognize competitive imperfections in markets.
Competitive imperfections exist in the markets when information about the
technology, demand or other determinants of competition in an industry not widely
understood by those operating in that industry. The existence of competitive
imperfections in markets suggests that it is possible for atleast some economic
actors in these market to earn economic profits. Thus, entrepreneurial alertness can
be thought of as the ability of some people to recognize opportunities to earn
economic profit.
Prior knowledge refers to an individuals distinctive information about a particular
subject matter which may be a result of work experience, education or other means.
With the stock of information and knowledge gained through life experiences,
certain people are able to make the connection to recognize the opportunity as it is
related to their available information.

The entrepreneurial activities do not exist in a state of vacuum but rather it is
embedded in cultural and social context. Hence, it can be said that
entrepreneurship is embedded in social networks which facilitates the
entrepreneurial process by linkages among entrepreneurs, resources and
opportunities. Social network is a resource and a potential capital while social
capital is a network which is used to engage in productive economic activities
Innovation strategies and management
A strategy is nothing more than a commitment to a set of coherent, mutually
reinforcing policies or behaviors aimed at achieving a specific competitive goal.
Good strategies promote alignment among diverse groups within an organization;
clarify objectives and priorities, and help focus efforts around them. Companies
regularly define their overall business strategy (their scope and positioning) and
specify how various functionssuch as marketing, operations, finance, and R&D
will support it. But during my more than two decades studying and consulting for
companies in a broad range of industries, I have found that firms rarely articulate
strategies to align their innovation efforts with their business strategies.
Without an innovation strategy, innovation improvement efforts can easily become
a grab bag of much-touted best practices: dividing R&D into decentralized
autonomous teams, spawning internal entrepreneurial ventures, setting up
corporate venture-capital arms, pursuing external alliances, embracing open
innovation and crowd-sourcing, collaborating with customers, and implementing
rapid prototyping, to name just a few. There is nothing wrong with any of those
practices per se. The problem is that an organizations capacity for innovation stems
from an innovation system: a coherent set of interdependent processes and
structures that dictates how the company searches for novel problems and
solutions, synthesizes ideas into a business concept and product designs, and
selects which projects get funded. Individual best practices involve trade-offs. And
adopting a specific practice generally requires a host of complementary changes to
the rest of the organizations innovation system. A company without an innovation
strategy wont be able to make trade-off decisions and choose all the elements of
the innovation system.
What is Innovation strategy?
We think of strategy as making decisions about what you will not do just as much as deciding what you will do.
A plan made by an organization to encourage advancements in technology or
services, usually by investing in research and development activities. For example,
an innovation strategy developed by a high technology business might entail the
use of new management or production procedures and the invention of technology
not previously used by competitors.

Example: Wal-Mart's strategy is to combine cost leadership with as broad of an
appeal to the market as possible. Apple, in contrast, combines unique new products
with broad market appeal through a zealous focus on design and feature leadership.
The anomaly to this framework is Target. They have managed to straddle both cost
leadership and design leadership, however that decision had to have been made
with an appreciation for how difficult it is to accomplish.
When an organization realizes that they need an innovation strategy, what
are the five key things they need to consider very carefully when starting
to develop it?
The innovation strategy defines the role of innovation and sets the direction for
innovation execution. However, the role of innovation in helping organizations
achieve growth targets is often unclear and the revenue growth from innovation is
insufficient, unless managed with great rigor. While there is lots of theory about and
many good (and not so good) books on innovation strategy, many companies fail to
develop and execute an innovation strategy. We work with clients to help them take
a very pragmatic and execution-oriented view on this.
Following are five things that we believe make up a good innovation strategy:
1. An innovation strategy needs to be truly inspiring and should describe a
desirable future state for the company.
2. The innovation strategy needs to be ambitious in terms of providing the basis
to break away from the competition, beat the competition, and create new
spaces
3. The process of developing the strategy needs to be open
4. An innovation strategy must also be specific to the time in which it is
developed
5. An innovation strategy needs to be adaptive and to evolve over time
Innovation Management
Innovation management includes a set of tools that allow managers and engineers
to cooperate with a common understanding of processes and goals. Innovation
management allows the organization to respond to external or internal
opportunities, and use its creativity to introduce new ideas, processes or products
National Innovation System (NIS)

Innovation process should be treated in a systematic manner, so need a systematic
approach which integrates institutions to create, store and transfer the knowledge,
skills and artifacts. Linear model of Innovation starts with basic research then adds
applied research and development, and ends with production and marketing.
In reality, this translation does not follow a linear path from basic to applied R & D
and implementation. Instead, it is characterized by complicated feedback
mechanism and interactive relations involving science, technology, learning,
production, policy, and demand.
Definition of NIS
.. the network of institutions in the public and private sectors whose

activities and interactions initiate, import, modify and diffuse new
technologies. (Freeman, 1987)
.. the elements and relationships which interact in the production, diffusion
and use of new, and economically useful, knowledge ... and are either located
within or rooted inside the borders of a nation state. (Lundvall, 1992)
... a set of institutions whose interactions determine the innovative
performance ... of national firms. (Nelson, 1993)
.. the national institutions, their incentive structures and their
competencies, that determine the rate and direction of technological learning
(or the volume and composition of change generating activities) in a
country. (Patel and Pavitt, 1994)
.. that set of distinct institutions which jointly and individually contribute to
the development and diffusion of new technologies and which provides the
framework within which governments form and implement policies to
influence the innovation process. As such it is a system of interconnected
institutions to create, store and transfer the knowledge, skills and artifacts
which define new technologies. (Metcalfe, 1995)
The National Innovation System (also NIS, National System of Innovation) is the flow
of technology and information among people, enterprises and institutions which is
key to the innovative process on the national level. According to innovation system
theory, innovation and technology development are results of a complex set of
relationships among actors in the system, which includes enterprises, universities
and government research institutes.
Why we need it?
The NIS policies and programs help to enhance a countrys innovative and
technological capacity while NIS approach offers improvements over alternative
frameworks that conceptualize technological development in terms of inputs (e.g.
science funding) and outputs (e.g. publications and patents). As a result, NIS brings
to help policy makers develop approaches for enhancing innovative performance in
the knowledge-base economies of today (Feinson).
How it has been used?
The purpose of analyzing a Technological Innovation System is to analyse and

evaluate the development of a particular technological field in terms of the
structures and processes that support or hamper it. The basic steps that are taken
are the following:
First, we analyze the structure of the innovation system. These are the actors,
institutions, networks and technology that make up the system. Examples of actors
are organizations responsible for education, R&D, industrial activities, and
consumers. Examples of institutions are supportive legislation and technology
standards. Examples of networks are the linkages between organizations in
research projects and advocacy coalitions. Technology is part of the innovation
system as it enables and constrains the activities of actors in the innovation system.
Second, we analyze how the system is functioning.
Finally, after we have established at what state of development a technological
innovation system is, we can analyze the system problems that block the wellfunctioning of the innovation system.
Measuring how innovation systems are functioning is considered as the big
breakthrough in innovation systems research, so Hekkert et al. (2007) the following
functions of innovation systems are put central:
1.
2.
3.
4.
5.
6.
7.
entrepreneurial activities,
knowledge development,
knowledge exchange,
guidance of the search,
formation of markets,
mobilization of resources,
Counteracting resistance to change.

Focusing on functions allows us to address the performance of an innovation
system. In other words: the structure presents insight in who is active in the system,
the system functions present insight in what they are doing and whether this is
sufficient to develop successful innovations. In addition to quantitative indicators,
the functioning of an innovation system needs to be assessed by experts or key
stakeholders that are active in the innovation system.
The reason to evaluate the innovation system by means of expert opinions is that it
is impossible at the moment to solely evaluate an innovation system based on
quantitative criteria. The reason for this is that technologies and regions are
different from each other and that it is impossible to define an optimal configuration
of the innovation system. Consequently, benchmarking innovation systems is
difficult; what works in one country may not work in another country. Furthermore,
the development of an innovation system often depends strongly on the
competition in other parts of the world and very often has very technology specific
dynamics. For some technologies much more R&D funding is necessary than for
others. Therefore, the best way to assess the functioning of the innovation system is
by involving a sufficient amount of experts in the evaluation.
Operations of National Innovation system
Innovation is a creative and interactive process involving market and

non-market institutions.
Governments need to play an integrating role in managing knowledge on an
economy-wide basis by making technology and innovation policy an integral part of
overall economic policy. This requires co-ordinated contributions from a variety of
policies in order to:
Secure framework conditions that are conducive to innovation, such as a

stable macroeconomic
environment, a supportive tax and regulatory environment, and appropriate
infrastructure and education and training policies.
Remove more specific barriers to innovation in the business sector and
increase synergies between public and private investment in innovation.
Technology and innovation policy should complement broader structural reforms in

many fields (e.g. competition, education and training, financial and labor markets),
by focusing on the following key objectives:
1. Building an innovation culture
2. Enhancing technology diffusion
3. Promoting networking and clustering
4. Leveraging research and development

5. Responding to globalization.
Johnson and Jacobsson (2000) outline five primary functions:
Create new knowledge;

Guide the direction of the search process;
Supply resources, i.e. capital and competence;
Facilitate the creation of positive external economies (in the form of an
exchange of information, knowledge, and visions); and
Facilitate the formation of markets. (Johnson and Jacobsson, 2000, 3-4)
Other researchers have provided a somewhat expanded list including:
to create human capital;

to create and diffuse technological opportunities;
to create and diffuse products;
to incubate in order to provide facilities, equipment, and administrative
support,
to facilitate regulation for technologies, materials, and products that may
enlarge the market and enhance market access;
to legitimize technology and firms;
to create markets and diffuse market knowledge;
to enhance networking;
to direct technology, market, and partner research;
to facilitate financing; and
to create a labor market that [can be utilized]. (Rickne, 2000, as cited in
Edquist, 2001)
Key segment of player in NIS

1.
2.
3.
4.
5.
Government body
Bridging institute e.g. research council
Private enterprises
Universities
Other public and private organization
Organization for Economic Co-operation and Development (OECD)

On 30th September 1961, the Organization for Economic Cooperation and
Development (OECD) shall promote policies designed:
to achieve the highest sustainable economic growth and employment and a
rising standard of living in Member countries, while maintaining financial
stability, and thus to contribute to the development of the world economy;
to contribute to sound economic expansion in Member as well as nonmember countries in the process of economic development; and
to contribute to the expansion of world trade on a multilateral, nondiscriminatory basis in accordance with international obligations.
Systemic approaches are giving new insight into innovative and economic
performance in the OECD countries. Technology-related analysis has traditionally
focused on inputs (such as research expenditures) and outputs (such as patents).
But the interactions among the actors involved in technology development are as
important as investments in research and development. And they are key to
translating the inputs into outputs. The study of national innovation systems directs

attention to the linkages or web of interaction within the overall innovation system.
The smooth operation of innovation systems depends on the fluidity of knowledge
flows among enterprises, universities and research institutions. The mechanisms
for knowledge flows include joint industry research, public/private sector
partnerships, technology diffusion and movement of personnel.
Fostering innovation and entrepreneurship
When it comes to fostering innovation and entrepreneurship, there is a big role of
both governments and corporate. They key is finding ways to work together. We
cant build a successful innovation ecosystem without fostering both innovation and
entrepreneurship. But how can governments and corporations actually do this?
What should they be doing to get the most of each of these activities?
There are three key ways governments can foster the interaction between
innovation and entrepreneurship:
Government Priorities
Developing the ecosystem: Governments are in a unique position to drive attraction
related to innovation and entrepreneurialism within a specific jurisdiction, whether
the country of Australia, individual states like New South Wales, or cities like Sydney
and Melbourne. One of the most foundational components of this is by lowering the
risk of capital by providing a range of benefits tax measures, grants or other
incentives. These types of government initiatives can help attract a range of people
and companies to a location, attract foreign capital and create a strong ecosystem
where innovators, entrepreneurs and corporate can come together to create more
value than any one might be able to do on their own.
Developing talent: Fostering talent is a significant role that governments must play
in order to develop the talent necessary to support an innovation economy. From
pre-school to university, governments can create and foster programs that support
science, technology and other key areas of learning, while encouraging students
and those with a more entrepreneurial bent.
Shaping culture: While slow to change, the culture of a country provides the
foundation for how people live, work and play. When it comes to building an
innovation economy, governments need to foster a culture where innovation and
entrepreneurship is encouraged, celebrated and rewarded. Fostering talents and
showcasing success stories like Scott Farquhar, Mike Cannon-Brookes, Matt Barrie
and Jodie Fox, who are all having an impact on a global stage, can go a long way
toward this objective.
Corporate priorities

Companies can also do a lot to encourage both innovation and entrepreneurialism
within their own organizations. As a starting point, corporations need to focus on
three critical areas:
Providing leadership: The way leaders act, talk and reward employees will
determine whether innovation and entrepreneurship can take root successfully. For
boards and leadership teams, this may require taking a longer-term view of
investments, creating space for innovation to happen and developing rewards and
KPIs that highlight and reward the successes they want to encourage.
Fostering diverse input: Creativity often comes out of diversity - of vision,
background, culture, working style and any number of other factors. Companies
need to focus on creating an environment where as many people as possible are
given an opportunity to share their voice, rather than one where unique ideas are
stomped on the minute they emerge. By encouraging diverse opinions, companies
can create an environment of creativity where people can come together to
examine ideas and possibilities without the risk of failure.
Thinking inclusively: Companies need to move beyond the single way to do things
mentality and create environments that are as inclusive as possible. This means
creating ways to bring together both innovators and entrepreneurs and fostering
those intersection points. This could include various forms of activities, from
fostering internal innovation, to setting up a VC arm or working directly with startups to explore how innovations can create value. Established corporations can
harness and develop innovative ideas from crowdsourcing
When it comes to fostering innovation and entrepreneurship, there is a big role for
both governments and corporate. The key is finding ways to work together to foster
an ecosystem where both sides of the equation are given a chance to thrive.
END OF UNIT 1

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Effective knowledge management can be a key (ing) ingredient of innovation as it

Prepared by Neelam Rawat