CHAPTER -THREE

SOURCES OF INNOVATION

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 1. Introduction

• Where do innovations come from?

Innovation is a process of taking

ideas forward, revising and refining

them, weaving the different strands

of ‘knowledge spaghetti’ together

towards a useful product, process or

service.
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• Innovation comes from many other

directions, and if we are to manage it
effectively we need to remind
ourselves of this diversity.
• Figure below indicates the wide
range of stimuli which can begin the
innovation journey. Let’s look at
some of these in more detail.
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 2. Knowledge Push
• One source of innovation is scientific research. And

although there have always been solo researchers,

from a very early stage this process of exploring and

codifying at the frontiers of knowledge became a

systematic activity which involved a wide network of

people sharing their ideas.

• In the twentieth century the rise of the large

corporation brought with it the emergence of the

research laboratory as a key instrument of progress.

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• For example, the rise of the huge global
pharmaceutical industry was essentially about big
R&D expenditure, much of it spent on development
and elaboration punctuated by the occasional
breakthrough into blockbuster drug territory.
• Similarly, the semiconductor and the computer, and
other industries which depend on it, have a long-
term trajectory of continuous improvement
interspersed with occasional breakthroughs.

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 3. Need Pull
• Knowledge push creates a field of possibilities, but not

every idea finds successful application and one of the

key lessons is that innovation requires some form of

demand if it is to take root.

• Bright ideas are not, in themselves, enough; they may

not meet a real or perceived need and people may not

feel motivated to change. In its simplest form this idea

of ‘need pull’ innovation is captured in the saying

‘necessity is the Mother of invention’.

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• Innovation is often the response to a real or
perceived need for change and so we need to
develop a clear understanding of needs and
find ways to meet those needs.
• Low-cost airlines have found innovative
solutions to the problem of making flying
available to a much wider market, while
microfinance institutions have developed
radical new approaches to help bring banking
By:
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 Cont’d
• Need pull innovation is particularly important at
mature stages in industry or product life cycles
when there is more than one offering to choose
from competing depends on differentiating on the
basis of needs and attributes, and/or segmenting
the offering to suit different adopter types.
• It is also important to recognize that innovation is
not always about commercial markets or
consumer needs.

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 4. Making Process Better
• Of course, needs are not just about external
markets for products and services. We can see the
same phenomenon of need pull working inside
the business, as a driver of process innovation.
• Squeaking wheels’ and other sources of
frustration provide rich signals for change, and
this kind of innovation is often something which
can engage a high proportion of the workforce
who experiences these needs first hand.
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 Cont’d

• This approach provided the basic

philosophy behind the total quality

management movement in the 1980s,

the business process re-

engineering ideas of the 1990s and

the current widespread application of

concepts based on the idea of lean

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• This kind of process improvement is of particular

relevance in the public sector where the issue is

not about creating wealth but of providing value

for money in service delivery.

• Many applications of lean and similar concepts

can be found which apply this principle, for

example in reducing waiting times or improving

patient safety in hospitals, in speeding up

delivery of services like car taxation and passport12

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 Lean Thinking
• Lean is a way of thinking about creating needed value with
fewer resources and less waste. A lean is practices consisting
of continuous experimentation to achieve perfect value with
zero waste. Lean thinking and practices occur together.
• Lean thinking is management framework made up of a
philosophy, practices and principles which aim to help
practitioners improve efficiency and the quality of work.
• Lean thinking encourages whole organization participation.
The goal is to organize human activity to deliver more
benefits to society and value to individuals while eliminating
wastes.
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 Processes of Lean Thinking
5. Seek 1.
Perfectio Identify
n Value

4. 2.Map
Establish the Value
Pull Stream

3. Create
Flow

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 5. Whose Needs? Working at the Edge

• One very interesting source of innovation

lies at the edges of existing markets.

• It poses a problem for existing players

because the needs of such fringe groups are

not seen as relevant to their ‘mainstream’

activities and so they tend to ignore them or

to dismiss them as not being important.

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• For much of the time there is stability

around markets where innovation of the do
better variety takes place and is well
managed.
• Close relationships with existing customers
are fostered and the system is configured
to deliver a steady stream of what the
market wants and often a great deal more.
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• Meeting these needs not only creates

a new market but can also destabilize

the existing one as customers there

realize their needs can be met with a

different approach.

• This phenomenon is known as

disruptive innovation.
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• Disruptive innovation focuses our attention on

the need to look for needs which are not being

met, poorly met or sometimes where there is

an overshoot.

• Each of these can provide a trigger for

innovation and often involves disruption

because existing players do not see the

different patterns of needs.

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• One powerful source of ideas at the edge
comes from the developing world, where
conditions are every different and radically
new innovation options are beginning to
emerge.
• Typically, the conditions in these markets
are characterized by high volumes of
demand, millions of people wanting goods
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and services but limited financial
 6. Emerging New Markets at the Base of
the Pyramid
• On a global scale there is growing interesting

in what have been termed the bottom of the

pyramid’ (BOP) markets.

• This term comes from a book by C.K. Prahalad

who argued that 80% of the world’s

population lived on incomes below the

poverty line around $2 a day and therefore

did not represent markets in the traditional20

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 Cont’d

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 Cont’d
• But seeing them as a vast reservoir of
under-served needs opens up a significant
challenge and opportunity for innovation.
• Solutions to meeting these needs will have
to be highly innovative but the prize is
equally high access to a high-volume low-

margin marketplace. The base of this

pyramid consists of 4 billion people with
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• Over a billion people of the BOP earn less than
1 USD per day. Most of these 4 billion people
live in rural villages, urban slums, or
shantytowns.
• Usually these people have little or no formal
education.
• These people are hard to reach via the
conventional means of communication and
distribution channels.
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 Cont’d
• The quality and quantity of products and
services available to these people is
usually inferior.
• Low-income markets present a prodigious
opportunity for the world’s wealthiest
companies to seek their fortunes and bring
prosperity to the aspiring poor.
• Companies need to be radically innovative
to
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 7. Crisis-Driven Innovation
• Sometimes the urgency of a need can have a
forcing effect on innovation, the example of
wartime and other crises supports this view.
• For example, the demand for iron and iron
products increased hugely during the Industrial
Revolution and exposed the limitations of the
old methods of smelting with charcoal.
• It created the pull which led to developments
like the Bessemer converter.
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• In similar fashion the energy crisis has created a
significant pull for innovation around alternative energy
sources and an investment boom for such work.
• A powerful example of the impact crisis can have on
driving innovation can be seen in the context of major
humanitarian crises, for example after devastating
earthquakes or hurricanes.
• The need to improvise solutions around logistics,
shelter, health care, water and sanitation, and energy
force a rapid pace of innovation.

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 8. Towards Mass Customization
• Another important source of innovation
results from our desire for customization.
• Markets are not made up of people
wanting the same thing we all want
variety and some degree of
personalization.
• And as we move from a time where
products are in short supply to one of
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 Cont’d

• Mass customization (MC) is the ability to

offer highly configured bundles to suit

different market segments with the ideal

target of total customization.

• There are different levels of customizing

from simply putting a label specially made

for insert your name here on a standard

product right through to sitting down with a28

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 Cont’d

• Understanding what it is that customers

value and need is critical in pursuing a

customization strategy and it leads,

inevitably, to the next source of innovation

in which the users themselves become the

source of ideas.
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 9. Users as Innovators
• In many cases users are ahead of the game,
their ideas plus their frustrations with existing
solutions lead them to experiment and create
something new.
• And sometimes these prototypes eventually
become mainstream innovations.
• And the idea does not stop with products: it is
very relevant to services and the public sector.

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 Cont’d
• Sometimes user-led innovation involves a
community which creates and uses
innovative solutions on a continuing basis.
• Increasing interest is being shown in such
crowd-sourcing approaches to co-creating
innovations and to finding new ways of
creating and working with such
communities.
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 10. Watching Others-and Learning from Them

• Another important source of innovation

comes from watching others. Imitation is
not only the sincerest form of flattery but
also a viable and successful strategy for
sourcing innovation.
• For example, the reverse engineering of
products and processes and development
of imitations even around impregnable
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 Cont’d
• Much of the rapid progress of Asian
economies in the post-war years was
based on a strategy of copy and develop,
taking Western ideas and improving on
them.
• In this process enterprises make
structured comparisons with others to try
to identify new ways of carrying out
particular processes or to explore new33
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 Cont’d
• The learning triggered by benchmarking
may arise from comparing between similar
organizations or it may come from looking
outside the sector but at similar products
or processes.
• One of the most successful applications of
benchmarking has been in the
development of the concept of ‘lean’
thinking, now widely applied to many34
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 Cont’d

• The origins were in a detailed

benchmarking study of car
manufacturing plants during the 1980s
which identified significant performance
differences and triggered a search for
the underlying process innovations
which were driving those differences.

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 11. Recombination Innovation,
Regulations and Futures and
Forecasting
• Another wrong assumption which we often

make about innovation is that it always has to

involve something new to the world.

• The reality is that there is plenty of scope for

crossover: ideas and applications which are

commonplace in one world may be perceived

as new and exciting in another.

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 Cont’d

• This is an important principle in sourcing

innovation where transferring or

combining old ideas in new contexts a

process called recombinant innovation

which can be a powerful resource.

• The Reebok pump running shoe, for

example, was a significant product

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innovation in the highly competitive world
 Cont’d
• Design Works, the agency which came up with the

design, brought together a team which included

people with prior experience in fields like

paramedic equipment (from which they took the

idea of an inflatable splint providing support and

minimizing shock to bones) and operating theatre

equipment (from which they took the micro-

bladder valve at the heart of the pump

mechanisms.
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 Cont’d
• Many businesses are able to offer rich
innovation possibilities primarily because
they have deliberately recruited teams
with diverse industrial and professional
backgrounds and thus bring very different
perspectives to the problem in hand.

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 Cont’d
• Thomas Edison’s famous ‘Invention Factory’
in New Jersey was founded in 1876 with the
grand promise of ‘a minor invention every ten
days and a big thing every six month or so’.
• It was able to deliver on that promise not
because of the lone genius of Edison but
rather from taking on board the recombinant
lesson: Edison hired scientists and engineers
from all the emerging new industries of early-
twentieth-century USA.
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 Cont’d
• In doing so, he brought experience in technologies and

applications like mass production and precision machining

(gun industry) telegraphy and telecommunications, food

processing and canning, automobile manufacture.

• Some of the early innovations which built the reputation

of the business, for example the teleprinter for the New

York Stock Exchange were really simple crossover

applications of well-known innovations in other sectors.

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