Innovation management has become an urgent need for researchers and firms to survive in the competitive world, where economical environment, market dynamics and emerging technologies are changing rapidly (Drejer, 2002). In my opinion, understanding the process of innovation management from beginning to end might facilitate finding more innovative solutions, as Schilling (2005) argues many innovative ideas may fail to commercialize because of wrong attempts done in the process. In this report, I will start discussing the innovation process by defining the product, process and service innovation and their relationships. After that, I will review sources of innovation to understand where the ideas come from and how they are linked to product, process and service innovation. Then, I will analyze the relationship between innovation and knowledge sharing to reach the sources of innovation. Afterward, I will continue to describe Stage-Gate model to comprehend how companies adopt innovative ideas and discuss team types used widely in innovative processes. Lastly, I will argue the Stage-Gate model in-depth to figure out the innovativeness level of it, because I think commercialization of innovative ideas has the potential to improve our daily lives and environment.
2. Reviewing Innovation Management
2.1. Product, Process, and Service Innovation
Product, process and service innovations have definitions differentiating each from others. Product innovation is about improving the tangible products in different levels, which can be seen as incremental improvements, additional features to product families, future products and inventive products (O'Sullivan and Dooley, 2009). Process innovation is about integrating innovation to key processes of the business, and it has a significant effect on not only decrease in cost and time, but also increase in quality and flexibility (Davenport, 1993). Service innovation is an adoption of novel services to the new or existing clients, or providing existing services to the new client (Damanpour, Walker and Avellaneda, 2009). Despite their distinctive definitions, they have interrelations. I will discuss these relations by comparing product and process innovation, and product and service innovation.
To begin, the product and process innovation might benefit from each other. The process innovation sometimes has an accelerator effect on product innovation of a firm by decreasing the errors and increasing the quality, or vice versa (Schilling, 2005). For example, a new production method is found for curing hair loss by the R&D department of a medical firm, and the new product is created with the help of this process. It means that the new developments in the process innovation can not only speed up the process, but also make the final product innovative in a radical way. Moreover, as Schilling (2005) states in the UPS example, in which more effective distribution system is seen as a product innovation by the firm, but a process innovation by the customers, product and process innovation can be perceived differently from different customer segments.
Moreover, as it was stated in the Lecture 2, product and service innovation have differences in terms of intangibility, simultaneity, and perishability (Dolfsma, 2015). According to O'Sullivan and Dooley (2009), the product innovation is tangible and it finishes after selling the product making the customer involvement less than the service innovation. Also, unlike service innovation, it can be stored in terms of perishability (Dolfsma, 2015). For instance, Samsung smartphones are perceived by the customers as tangible and inperishable products, and they use these phones to the end of their life cycles without any expectation of development. However, the Android system used in these smartphones is perceived as a service, and they expect continuous development after the purchase. As it can be seen in this example, product and service innovation are linked to each other, and they can be used together in the same concept to benefit from each other.
2.2. Sources of Innovation
Product, process and service innovations require innovative ideas from different sources. In general, innovative ideas come from two sources; internal sources as employees and R&D units of the firms, and external sources as customers, non-profit communities, suppliers, competitors, other nations, and R&D units of the universities and governments (von Hippel, 1988). I want to discuss the usage of different sources in product, process and service innovation.
For the product innovation, customers can be considered as an important source for the manufacturers. Customers and manufacturers transfer the information to each other with several ways, such as customer surveys prepared by the manufacturers, field surveys done by engineers and scientists, or in-house demonstration surveys, and this knowledge sharing has scientific benefits for the customers and commercial benefits for the manufacturers (Riggs and von Hippel, 1994). To sustain the product innovation, I believe that including customers to idea generation process is essential because they are the ones who will use the product. If manufacturers fail to provide innovative, creative and real solutions, the product will not be commercially successful. For example, home appliances company wants to develop a new tea maker, but they need to understand customers' changing needs and problems related to existing products. If customers have their own solutions to prepare tea, for instance, manufacturers should focus on it, and it will help them to be commercially successful.
For the process innovation, customers and competitors can be seen as important sources. Davenport (1993) mentions that firms can develop innovative processes by building customer relationships and benchmarking. However, Davenport (1993) discusses that it is more difficult to get innovative ideas from customers. I agree with this idea since technical knowledge is an important factor for process innovation, but customers may not have this knowledge and be aware of the innovation process. However, firms can get more innovative ideas from competitors or firms in different sectors by collaborating and keeping updated, as seen in the example of improving order management process by benchmarking video conferencing in J.C. Penney fashion stores (Davenport, 1993).
For the service innovation, customers, other firms and employees can be considered as sources (Ordanini and Parasuraman, 2010). According to the findings of Ordanini and Parasuraman (2010), collaborating with business partners and customers has a significant role, and they give the example about how the comments of hotel customers improved the service design, and how this improvement inspired other business partners to improve their services. Moreover, ideas can be generated internally. For example, experiences of the employees can lead to service innovation (Ordanini and Parasuraman, 2010).
2.3. Innovation and Knowledge Sharing
As it is discussed in the previous part, innovative ideas may come from the outside of the firm, and sometimes inside of the firm. As van der Eijk (2015) discussed in the Lecture 6, if ideas are gained from inside and outside, it is called open innovation, whilst if the ideas are developed only inside of the firm, it is called close innovation. As it is discussed in the lecture, open innovation may be seen as a key for successful ideas, because it enables knowledge sharing that uses formal and informal networking to generate new ideas (van der Eijk, 2015). I will discuss advantages and disadvantages of open innovation, and continue with the importance of networking.
Advantages of open innovation are reducing cost for R&D, accelarating the development processes of the firms, collaborating with customers, targeting true market, creating synergy with ideas from inside and outside, and viral marketing (van der Eijk, 2015). In my opinion, open innovation can help firms to understand the real problems of customers. With knowledge sharing, firms have better ideas about what is the need of market, and they can use this knowledge to create more sustainable solutions. On the other hand, disadvantages of open innovation are losing competitive advantage by sharing knowledge, revealing confidential knowledge unintentionally, controlling problems because of complexity and adapting external innovation strategies (van der Eijk, 2015). To avoid these problems, firms need to find good solutions so that they can be organized more when collaborating. For example, they can create teams to control the system in an organized way. Also, when they are collaborating they can make detailed contracts with firms not to reveal information.
Although knowledge sharing creates innovative ideas, it is difficult for the firms to collect the ideas from internal and external sources, so, to overcome this problem, firms use formal networking including meetings, reports, team works, training programs, and IT systems (Ipe, 2003). Also, firms use informal networking, consisting of talking, listening and discussing in related activities like conferences or phone calls, to collect the ideas (Kobayashi, 1995). In addition, I think firms might organize other activities to collect the ideas from the employees. For example, they may carry out internal and external competitions, and they can build rewarding systems, such as giving incentives to motivate the employees.
2.4. Adoption of innovation: Stage-Gate Model
After discussing the ways to get the innovative ideas, it is important to move to the next stage for commercialization. As Schilling (2005) discusses, one of the common methods used by researchers and managers to adopt ideas is using the go/kill decision points. Stage-Gate Model by Robert G. Cooper is a common method with these points, which is especially used for new product development (Cooper, 2001). Therefore, I will describe this model in this part.
As it is seen in Figure 1 (Cooper, 2008, p. 215), this model includes five stages with defined plans and activities, and five gates with defined criteria, visible deliverables and outputs for go/kill decision making (Cooper, 2008). Also, each stage includes involvement of a project team or leader to carry the concept to the next stage (Cooper, 1990).
Figure 1: Typical Stage-Gate Model, Robert Cooper, 2008, p. 215, retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1540-5885.2008.00296.x/pdf
Cooper (1990) explains the process as following:
Gate 1: The first go/kill decision is made in this gate as an initial screening. The criteria to make go decision are decided by the firms in terms of their strategy, opportunity cost of the idea, its competitive advantage and so on.
Stage 1: It is considered as a low-cost stage. Some preliminary and secondary researches are done, such as user focus groups and library research to understand the feasibility of the project, the market need and the product potential.
Gate 2: Evaluation is done by using the information collected in Stage 1. Firms again assess their criteria including basic financial calculations to make go/kill decision.
Stage 2: The concept development finishes, and a detailed and technical analysis is done in this stage. It includes analyzing the requirements related to the operational process, like manufacturing, marketing and financial analysis.
Gate 3: This gate is used to understand whether the concept is worth to invest heavy money. The assessment is done according to the data collected in the Stage 2.
Stage 3: It includes finalization of the concept in a very detailed way, where a new business plan, financial analysis and operational plan are done.
Gate 4: This gate is used to reassess the concept in terms of the degree of attractiveness and new financial analysis.
Stage 4: The whole concept is tested in terms of operational, commercial and financial ways. The idea is prototyped and tested, and the financial analysis is revised again before the launch.
Gate 5: After this gate, process cannot be killed. For the decision making, the financial analysis has a significant role, and also other data collected in Stage 4 is used for the assessment .
Stage 5: It is the implementation phase in terms of marketing, launch and operational plans.
Post implementation review: After commercialization, the concept is reviewed, and the data is created to use for the future projects.
Although this model is good to gain ideas, it has some controversial aspects. I will discuss the Stage-Gate model more in the in-depth research.
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