9.2 - Assessing innovation

• Businesses need to come up with new ideas if they want to stay ahead of the competition
• Forms of Innovation


  • New Ideas
  • New Products
  • New Processes
• Innovation


  Thinking of a new idea and putting it into action, in the form of a new product or a new process
• Product Innovation


  • Making new goods/services or improving existing ones
• Product Innovation


  • Car manufacturers are constantly innovating new features to put on their latest models
• Process Innovation


  • Putting in place new or improved production and delivery methods
• Process Innovation


  • In 2007, Amazon Prime was launched in the UK
• New ideas can come from anywhere in the business, but many businesses have a Research and Development (R&D) department that drives innovation
• Businesses are always looking for ways to innovate as it can help them to stay ahead of competition, expand their markets and increase their market share
• The pressure to innovate is greater in some industries than others- eg. in the technology industry businesses need to constantly innovate new products or they will fall behind their competitors
• Some industries


  • Particularly fast moving
  • Need to constantly develop new products
• Innovation


  Can have benefits and drawbacks for a business
• Businesses can initially charge higher prices for innovative products and services


  Before their competitors bring similar products to market
• Being innovative can be good for a firm's reputation


  If they've been the first to launch exciting new products in the past, people will naturally be interested in their future products
• Innovations in processes


  Can help add value to existing products and services
• Businesses with lots of innovative products


  Can take advantage of economies of scope
• Innovation can be a very costly and time consuming process


  Businesses risk running out of money if they invest too much into R&D and don't get the products to market quickly enough
• Businesses can end up wasting resources


  By developing something customers don't want
• Businesses might not be able to produce the new product on a large scale at a low enough cost


  There is no guaranteed return on investment
• Businesses risk ruining their reputation


  If the innovative product is poor quality
• Innovation


  Affects Functional Areas of the business
• FINANCE


  • R&D for innovative products is expensive, so the finance department might need to raise extra working capital to pay for it
  • For more about ways of raising finance
• OPERATIONS

  • Innovation in production methods might mean that the operations department has to set some of its budget aside to spend on expensive new machinery
  • They will also need to organise training for employees to get them up to speed with the new methods
• MARKETING

  • The amount of market research a company does is increased when researching a new idea -the risks and costs are high, so they need to be sure customers want or need the product
  • Innovative products require changes to the marketing mix
  • Marketing might use a different pricing strategy (usually skimming) for an innovative product
  • Promotional activity increases too - there's often a lot of PR (public relations) activity when a new product is launched
• HUMAN RESOURCES


  • Innovation can mean there's a change in staffing needs - if a company suddenly decides to RESOURCES focus heavily on R&D they might need more skilled staff
  • HR also needs to make sure that the business has the right culture for innovation to thrive
  • In a culture where staff are scared of the consequences of failing, workers are unlikely to want to take risks
  • HR needs to find ways of encouraging employees to take risks, e.g, by rewarding people who try new things
• New Product Development (NPD)


  Six Stages from Idea to Launch
• Research and Development (R&D) department


  Can turn raw ideas gathered through market research into innovative new products using the new product development process
• New Product Development Process


  1. Idea

  2. Analysis and Screening

  3. Development

  4. Value Analysis

  5. Test Marketing

  6. Launch
• Idea Stage


  • The business comes up with new ideas, explores and develops existing ideas or modifies competitors' ideas
  • New ideas can come from brainstorming in a group, from employee suggestions or from R&D department meetings
  • New ideas are also discovered through market research finding out what consumers want, or from customers submitting requests to a firm
  • Businesses can sometimes also use already patented ideas (for a fee)
• Analysis and Screening Stage


  • The business wants to see if the product can be produced and sold at a profit
  • All aspects of the idea are investigated-whether there's a potential market for it or not, based on market research, whether the technology and resources exist to develop it, whether a competitor has an existing patent on a similar idea
  • At this stage, a prototype may be made to see what the product will be like
• Development Stage


  • The R&D department develop a working prototype
  • They test it scientifically, and tweak the design to make the functional design (how it works) and aesthetic design (how it looks, feels or smells and tastes if it's a food) as good as possible
  • This is the real "meat" of research and development
• Value Analysis Stage


  • The business tries to make the product good value for money
  • This means balancing the function, features and appearance of a product with the cost of making, warehousing and distributing it
  • The goal is to make a product that is good value for both business and consumer
• Test Marketing Stage


  • The business sometimes sells the new product in a limited geographical area, and then analyses consumer feedback on the product, price and packaging
  • This allows modifications to be made before a wider launch
• Launch Stage


  • A successful launch requires enough stock of the product to be distributed across the market
  • It also needs an effective promotional campaign in place to inform retailers and consumers about the product and persuade them to buy it
• As well as the work of the Research and Development department, there are other ways that businesses can innovate
• Kaizen


  Continuous form of Innovation
• Kaizen approach to innovation


  1. Encouraging employees to improve the way they work and the processes they use all the time

  2. Over a long period of time these small kaizen changes can add up and lead to innovation
• Kaizen


  • Giving workers some control over decision making
  • Whenever there's a problem, workers are encouraged to ask 'why?' until they get to the root of the problem
• Benefits of using kaizen to drive innovation


  • The company doesn't have to spend lots of time and money on research and development
  • The processes become more efficient all the time
• The kaizen approach probably won't lead to innovative new products as workers aren't really encouraged to think about the wants and needs of the customer