Question 2: THE SOURCES OF INNOVATION
“Innovation comes from saying NO to 1,000 things.” -Steve Jobs
Innovation can be defined as the process of converting an idea into a productive service that creates a value for the inventor or for which customers are willing to pay. “Innovation processes are complex, uncertain, somewhat disorderly, and subject to changes of many sorts” (KLINE et.al, 1986 pg. no:275). Now referring to the above statement a question arises, where does innovation emerge from. There are so many answers for this question because there are many sources for innovation. However, in case of industries (micro and meso level) innovation is based on need of the industry or based on the need of their customer. It can be innovation in technology or process or in both, that may help firms to improve profit, market share, in price reduction or all of these.
2.1 Sources of innovation:
There are many sources of innovation some of them are:
Scientific understanding: It’s a type of innovation where a new idea emerges based on how the problem is understood, which open all new way of thinking for solving the problem. But time taken for solving the problem may be more.
Technological advances originating outside the sector: It’s a type of innovation where development is done to already existing technology by doing some changes in the product. It may be in terms of material used or tools used etc.
Feedback from buyers/users (user innovation): In this type innovation is based on what the user wants which in turn helps produces to improve products more. By getting feedback from user’s, problems in the existing technology is solved. Feedback maybe from consumer, professionals or other companies etc.
Intra-sectorial learning in terms of technological advances: It’s a type of innovation in which new idea arises when other problems are trying to be solved. It’s a type of incremental innovation where one problem leads to development in the whole new technology.(Source: Lecture 5 “Sources of innovation”, Eugenia Perez Vico)
3. INDUSTRY LIFE CYCLE (ILC)
The world of technology is improving very fast, be it the smartphones, automobile, food industry, IT, etc. If we wonder how all this is possible? Answer lies in how people around the globe adapt to the new technology and how the evolution of industries take place. “The study of evolution of an industry by studying all the changes that happen in it is called as Industry Life Cycle”
There are different phases in evolution, that shows the progress of that industry and how to improve it. In ILC model we discuss about three phases (based on lecture 7, slides15-17, Magnus Holmen) namely
Source: Magnus Holmen lecture 7, slide 11, ILC
3.1 Fluid Phase:
This is the starting phase of the industry or a new product. Here new idea developed into a marketable product for the industry. There are very few customers who buy the product, and there is very little or no direct competition at this phase of ILC. Challenges in this phase are making customers to understand your product, getting market share, inefficient processes etc. The level of organization will be in the entrepreneurial or organic level.
3.2 Transitional Phase:
In this phase there are major changes that takes place in the company like changes in process and design. Production will be in masses due to less differentiation in design. There will be very tough competition to get market and customer share. The challenges will be to compete with prominent design product that is already well established in the market. Some companies fail in innovating a prominent design or the go for merge with other companies for survival. The structure of the organization will be more formal with groups.
3.3 Specific phase:
This is a phase where there is many small innovations and improvements in the product quality. Here the company grows rapidly from low sales to high sales and reaches stability. Product and its components will be standardised. The will only be few competitors for the consolidated market share. The organizational structural will be of traditional hierarchy with vertical power flow. The process will be efficient with good capital. The challenges in this phase are keeping up with developing technology and making debatable innovations and decisions.
4. INDUSTRY LIFE CYCLE MODEL AND INNOVATION
In every phase of industrial life cycle there is innovation, which contribute to the growth of the industry. Here I will explain how innovation plays a major role in every phase of industrial life cycle. In an industry there can be innovations in every field but we will discuss innovations in product and process.
In this phase rate of innovation is high. The innovation will mostly in product development. This is where an idea is made marketable. Once there is a development of a new idea there will be lots of problem which needs to be solved, so that the industry grows in the market and get customers.
First the idea should be understood completely and based on the understanding a marketable solution should be found. Usually there will many new solutions, which leads to many applications of the product. Next when the idea is to be bought to the market, existing old technology is used. But the existing technology may be inefficient and needs to be upgraded, which may lead to new way for innovation. Here the innovation may be in adapting a new material or new machine or any other technology to improve the product.
After the product is brought into the market there will be competition for market share and customer share. The feedback on the product by the customer is important in this phase. Using the feedback product can be improved. There can be two types of feedback one from the customers and one from inside of the company.
In this phase the rate of innovation will be high. The innovation will in making changes in process. In this phase there will be increase in production and number of customers. As the number of customers increases feedbacks also increases. Using the feedbacks problems in the product can be found. Then problems can be analysed and understood to find solutions. Usually in this phase the problems may be related in standardizing the product. Standardization may be in design, material or the process of manufacture. The standardising can be done by improving and adapting new technologies. In this phase also feedback from the customers and people in industry is important. It helps to improve the product and to get majority market share by improving quality and reducing price of the products. At the phase the company reaches high on its innovation. By the end of this phase the company reaches maturity and high on sales.
In this phase the rate of innovation will be low. There will be many small innovations to improve the company overall and mainly the quality of the product. The innovation will mainly be in adapting new technology to already existing product. Scientific understanding of the technologies, getting feedbacks and trying to solve the problems will be the main aspects of this phase. The company will in stabilization in all the aspects. The rate of innovation starts to decline at the starting of the phase and finally stabilises.
5. EXAMPLE FOR THE MODEL
Keeping the above model, I will explain BANKING INDUSTRY’s industrial life cycle and innovation in it.
Banking is an ancient process which developed in 2000 BC in Babylonia and Assyria. We can see the evolution of banking in three main stages namely ancient banking, modern banking and digital banking. In ancient banking merchants lend grains for loans to farmers and traders. Usually temples were the banking place. In ancient Greece these temples started accepting deposits in form of gold and valuables and changed money.
It was in the 14th century that modern banking was developed. First bank “MEDICI BANK” was started in Italy. And in 1668 world’s first central bank “SWEDISH RIKSBANK” was opened in Sweden. Its only in the 1960s that digital banking emerged. Keeping this in, I will explain how innovation played a major in phases of banking industry.
Fluid phase: It all began in 2000 BC when traders and farmers carrying their good from place to another started giving grain loans. There were problems in giving and taking grain loans. Then money was introduced in temples for easy trade.
Scientific understanding: The idea of giving loans was developed because framers and traders faced problems while trying to business in other places.
Technological advances originating outside the sector: To ease the trading process money (hand-written bills at first) were introduced by the temple which can be used for further trading process.
Feedback from buyers/users (user innovation): At first hand written bills were given by taking grains from farmers and traders. As time passed people started facing problems by the hand-written bills, hence metal coins with symbols printed on it were introduced.
Intra-sectorial learning in terms of technological advances: Maintaining of heavy metal coins was getting difficult for the money lenders, that’s when papers notes came into existence (7th century China).
In this phase giving and taking loans in terms of grains and money to ease trading is the process innovation. Money and loans were the product innovation.
Transitional Phase: Era of Modern banking was started in England in 1600’s when cheques and permanent notes were introduces in bank. Then the banking process started getting developed. Modern banking follows a concept called “Fractional Reserve Banking”. After internet came into existence everything including banking started online services, that’s when internet banking started.
Scientific understanding: When the ancient banking was getting to complicated, to solve this complication a new system was developed to ease the process of banking. When people wanted access their account from anywhere and anytime, internet banking was introduced. Which solved many problems.
Technological advances originating outside the sector: In the new system of banking where it accepted deposits, taking loans and making investment. Like many other companies’ banks started their own websites, online services, and mobile banking.
Feedback from buyers/users (user innovation): When there were less banks and there was lots of people coming into the bank for money withdrawal. To ease this Automated Teller Machine (ATM) were introduced. Based on customer feedbacks services were added like international transfer, customer support, currency exchange, mobile banking, etc.
Intra-sectorial learning in terms of technological advances: Maintaining and counting of notes and detections of fake currency became a hectic task for the bank employees, which also consumed time. Hence currency counting machines were introduced. For more online protection there many safety protections taken like SWIFT network, data protection, etc.
The banking process will be standardised in this phase. In this phase currency notes, cheques, investment, online banking, mobile banking are the product innovation. Where as automated teller machines, international transfer, online transfer were the process innovation.
Specific phase: in this phase there will improvement in the banking process by giving best service. There lots of small improvements to make the banking process better.
Scientific understanding: Whenever there is anything related to internet there will threats related to it. Hence by analysing possible threats counter measures should be taken.
Technological advances originating outside the sector: Using good systems for protection against hacking and online. When technology improves in the world of internet, it can be adapted in making banking sector better.
Feedback from buyers/users (user innovation): In every phase of banking there will be feedback from the customers which helps to improve the services. In this phase feedback on internet and mobile banking will be of great use in to improving the service and the technology
Intra-sectorial learning in terms of technological advances: The world of internet and computer is very large. It is growing in a fast pace, in the same way the threats related to it also growing, everyday there will be ne threats which can be solved keeping the banks technology updated by continuously leaning from the outside world.
In this phase there is very little innovation in product. But in process innovation there is lots to improve. The improvement can be done in technology of internet banking and mobile banking process.
Industrial Life Cycle and Sources of Innovation are an integral part in evolution of an industry. In every phase of industrial life cycle there are several sources of innovation. In this paper we show how each source of innovation play their roles in each phase of industrial life cycle. We built a model based on it. And using banking industry as an example I explained how the four source of innovation play an important role in making the banking industry to grow, from ancient banking to modern banking to cashless digital banking. We conclude by saying that source of innovation is an important thing which helps a industry running.