Chapter 2

Introduction to Innovation Management

2.1 Innovation Management Through Management

of Knowledge and Education

‘Until philosophers become kings or until kings and princes in this world acquire the spirit
and power of philosophy .....states shall not be relieved from their demons-I believe the
same is true for human race…’
[Plato]

Many authors have dwelled on the idea that innovation can become object of ‘man-
agement’. For example, Burns and Stalker (1961) authored the book ‘Management
of Innovation’ partly based on a previous study of a research and development labo-
ratory of a local company.
In contrast to the past when innovations in enterprises appeared in a random and
disorganized way, in the post-war period emphasis was placed on the idea that inno-
vations could be systematized, even ‘planned’. The development of organizational
studies (e.g. Cyert and March 1963) and the study on management function
(e.g. Barnard 1938; Drucker 1999) laid new foundations for the understanding of
innovation process.
Therefore, a basis was created for a new sector of specialization and knowledge
in technology and organizations. However, managers do not fully or duly compre-
hend the management of knowledge and in many cases, professionals and academ-
ics, when talking about knowledge management; they practically mean management
of information and technologies.
In reality, knowledge management has to do more with the art of thoroughly
understanding the potentials of an organizational context and with the evaluation,
influence and the disclosure of tacit know how (Carayannis 2000).
A research by McKinsey in 40 companies in Europe, Japan and the USA showed
that many executives believe that knowledge management starts and ends with the
creation of specialized technological information systems.

© Springer International Publishing Switzerland 2015 27

E.G. Carayannis et al., Innovation and Entrepreneurship, Innovation,
Technology, and Knowledge Management, DOI 10.1007/978-3-319-11242-8_2
28 2 Introduction to Innovation Management

Some companies even take a step further to connect all information available and
construct models that would enhance performance thanks to improved processes,
products and their relations to consumers. These companies realize that the actual
knowledge requires companies themselves to develop ways whereby their employ-
ees shall understand previous connections, advancing beyond infrastructure touch-
ing upon all aspects of an enterprise (Hauschild et al. 2001).

2.1.1 The Role of Knowledge in Innovation

Given that innovations do not constitute a purely technological project, the knowl-
edge required for their successful management cannot be solely covered by science
and engineering. Innovations can be divided in two sectors:
• In technical knowledge and transfer of knowledge (Bohn 1994) and
• In learning regarding administrative methods offered for technology manage-
ment (Jelinek 1979).
An organization needs access to two kinds of knowledge, i.e. technical and
administrative in order to enhance systematic development of innovations.
For the benefit of the entire organization and not only of isolated individuals,
learning and knowledge should be accessible not only by the one who discovered
them but also by all parties involved, who should be in a position to use them, apply
them, modify and adopt them. Learning needs to be generalized in an organization, if
it wants to be real and not be downgraded to a ‘simple adjustment’. It needs to make
the transition from a simple reproduction to application, change and improvement.
‘Learning rules’ should be included, changed and adjusted without repeating blindly
older successful methods. Finally, if learning is to include innovations, it should also
include an administrative system for the present and the future (Jelinek 1979).
The most demanding point in research regarding knowledge application in inno-
vations is to sort out significant and information management-related information
from the opposite. The attributes of knowledge involved in the process of innova-
tions may present significant diversifications. Part of this knowledge will be clear
and shall take the form of technical documents, drafts or other documents, it shall
be codified and easy to determine; another part of knowledge shall be tacit, embed-
ded in the established organizational projects and can only be carried over through
socialization and cooperation. Therefore, the successful management of innovations
may clearly benefit from the systematic approach to knowledge management.
Knowledge, learning and their context of development constitute classical defini-
tions having been redefined in the context of information technology progress and
knowledge management. Knowledge management may be considered as a socio-
technical system made of tacit and clear business policies and attitudes. Said atti-
tudes and policies are facilitated through integration of information technology
tools, business processes as well as of the intellectual, human and social capital. The
capacity of individuals and of an organization to think rationally, to learn, express
2.1 Innovation Management Through Management of Knowledge and Education 29

themselves/itself and have a vision on collective or individual basis can be consid-

ered as a capacity of management and cognition.
Organizational memory, intelligence and mindset are important and decisive fac-
tors for cognitive processes both at individual and organizational level. According
to our opinion, the managerial and organizational part of cognitive process and
knowledge management drive to superior levels of knowledge and meta-knowledge.
What is knowledge really and how is it acquired?

2.1.2 Knowledge/Meta-Knowledge

‘The biggest ancient-Greek breakthrough was the removal of explanations on what was
happening to the world by the field of religion and magic and the creation of a new kind of
explanations, i.e. rational ones being the object of a new kind of research.’
[Peter Checkland 1981, p. 32]

Many definitions have been advocated at times for knowledge and organizational
knowledge. Beckman (1998) grouped a raft of remarks and drew up some useful
definitions related to knowledge and organizational knowledge:
• Knowledge is organized information that can be utilized for problem solving
(Carayannis 1999).
• Knowledge is information that has been organized and analyzed in order to be
understood and utilized for problem solving or decision making (Turban 1992).
• Knowledge includes direct and indirect restrictions imposed on objects (units),
functions and relations in combination with specific and general heuristic and
reasoning processes that take part in the model under formation (Sowa 1999).
• Knowledge consists of truths and convictions, estimates and concepts, judg-
ments and expectations, methodologies and know-how (Wiig 1993).
• Knowledge groups perceptions, experiences and processes considered sound
and true, that direct thought, behavior and human communication (van der Spek
and Spijkervet 1997).
• Knowledge is a rational thought on information in order to guide the implemen-
tation of projects, problem solving and decision making aimed at performance,
learning and teaching (Beckman 1997).
• Organizational knowledge is the collective sum of human-centered assets,
intellectual property assets, infrastructure assets and market assets (Brookings
1996).
• Organizational knowledge is processed information included in programs
and processes facilitating action. Such knowledge has been acquired through
systems, processes, products, regulations and the organizational context
(Myers 1996).
Beckman (1997) suggests the method of Hierarchization of Knowledge that
involves five levels and where knowledge can climb upwards from lower levels
toward a superior level.
30 2 Introduction to Innovation Management

Nonaka and Takeuchi (1995) classified accessibility to knowledge in two

categories, in inherent and clear, while Beckman (1997) identifies the following
three stages of accessibility: tacit, implicit and explicit:
• Tacit (human mind, organization)—possibility of indirect access, always with
difficulty, through knowledge elicitation and behavior observation.
• Implicit (human mind, organization)—accessible through querying and discus-
sion, but informal knowledge must first be located and then communicated.
• Explicit (documents, computer)—directly accessible, documented into formal
knowledge sources that are often well-organized.

2.1.3 Knowledge–Learning Relation

‘Even if the first step in the course of a historic invention is the result of a conscientious
decision, in this case as in any other case, the spontaneous idea-the instinct or the intuition-
does play a significant role. In other words, the unconscious does take part, whose contri-
bution is decisive. Therefore, conscious effort is not exclusively responsible for the result.
The unconscious gets into the picture at some point with its almost invisible objectives and
its intentions. Reason on its own is not enough’
[Carl Jung 1958]

First researches on organizational learning focused more on the effort to describe

the learning process in the organizational-business environment without necessarily
recognizing the regulatory role of learning (Cyert and March 1963; Nelson and
Winter 1982; Levitt and March 1988). Learning, as an activity in an organization, in
a business corresponds to the unification of individual efforts and of the interaction
relationships in groups.
Organizational learning, therefore, is converted into a process governing the rela-
tions among individuals through mechanisms, such as disclosure of information,
communication and the cognitive environment. Some authors utilize the version of
‘cognitive learning’, highlighting thus the actions to identify the pathways that
would improve organizational learning through certain systems (Senge 1990;
Ciborra and Schneider 1992). Based on this tenet, companies with better organiza-
tional learning are expected to have a better performance in the market compared to
the rest of companies.
Other authors stress that learning is likely to mitigate an organization’s perfor-
mance. Huber (1991) reports that ‘units may learn to do something right in the
wrong way or may learn to do something wrong in the right way’.
Ineffective or unsuitable learning processes may deprive a company from its
competitive advantage, if they contribute to the erroneous connection between man-
agement activities and company performance (Levitt and March 1988). Even the
effective learning processes may be undermined by the market changes and the
environmental conditions that render them non relevant or in the worst case dwindle
the company’s performance.
2.1 Innovation Management Through Management of Knowledge and Education 31

Learning activities, therefore, may turn into basic disadvantages from basic
advantages. It is also probable that technological learning shall eliminate competi-
tion, inflict a short term blow on the organization’s competitiveness but yield a higher
performance long term, if the market adapts to new technologies (Christensen 1997).
In this way, there is no linear relation between learning and an organization’s perfor-
mance. What is more likely happening is that improvement of performance depends
on quality (and not on quantity) of cognitive learning.

2.1.3.1 Types of Learning

‘Computo, ergo sum. Particeps sum, ergo sum. Cogito, ergo sum.’
[René Descartes]

We believe there are three levels of learning, taking the previous theory into consid-
eration, regarding the impact of learning on formulating a company’s potential and
the change of its mode of operation (Carayannis 1994a, b, c; Carayannis and
Kassicieh 1996). Three degrees of technological learning match this hierarchy:
• Functional learning
• Tactical learning
• Strategic learning
In functional learning, the accumulation of experience and learning takes place
by learning new things (Carayannis 1994b). It is a short term to mid-term perception
of learning that focuses on new or improved capabilities on the basis of knowledge
offered by the organization. This type of learning contributes to managing basic
organizational capacities, (Prahalad and Hamel 1990), competition strategies
(Porter 1991) and resources allocation (Andrews et al. 1965).
In tactical learning we learn new tactics to apply the already accumulated expe-
rience and learning processes (we redefine the basic rules and the contingencies
involved in our short term functional context): we create new models for eventual
unexpected events pertaining to decision making, by modifying or improving
the rules for decision making (Carayannis 1994b). This is the means to lead to a
long term perception of learning, ending up in the company’s re-establishment and
re-planning. Tactical learning facilitates companies in exploring new opportunities
for the organization in a more performing and effective way and to reinforce or
combine the already existing basic capacities, creating innovative concepts for more
competitive advantages.
With strategic learning we develop and learn (internalization and institutional-
ization) novel views in relation to the enterprise’s–organization’s functional
environment or the view of the world (Hedberg 1981) and we therefore assimilate
new learning strategies (Cole 1989). We redefine the fundamental characteristics
(rules and contingencies) taken into account for decision making or the fundamental
characteristics of our functional context. It is a very long term concept on learning
that focuses on the reformulation of ‘tools’ (methods and processes) used for an
32 2 Introduction to Innovation Management

organization’s reestablishment and re-planning (Bartunek 1987; Bateson 1972,

1991; von Krogh and Vicari 1993; Nielsen 1993). The strategic learning degree
involves the broadening and review of concepts regarding the limits and capabilities
of a company’s strategic environment. Strategic learning contributes to rapid prog-
ress towards a new competitive environment and to ‘increasing the learning curve
gradient and rate through improved and innovative projects adopted by organiza-
tions’ (Carayannis 1994b, pp. 582–583). The result is what other authors call
‘change of the rules of the game’ (Brandenburger and Nalebuff 1996; D’Aveni
1994) or the ‘creation of new ecologies for the enterprises’ (Moore 1996). The com-
pany paves a new way towards a conceptual formulation of its operations, its market
and the entire competitive environment, acquiring a greater strategic flexibility not
only vis-à-vis the course of its works but also regarding the influence and mentoring
of its remaining operations.

2.1.3.2 Learning/Meta-Learning

Learning is the first process used by companies to modify their capacities in order to
better respond to the environment. In the case of learning, as it happens with the
majority of basic concepts, there is no absolute matching as to what is being learned,
how it happens and how it is being managed. In finance, learning refers to quantita-
tive and measurable improvements in operations adding value. For the management,
learning is the source of ‘sustainable competitive performance’ (Dodgson 1993)
while in the literature on innovations, learning is considered a source of ‘compara-
tive innovative performance’ (Dodgson 1993). According to Doz (1996), inside an
organization there is a distinction between cognitive learning and behavioral learn-
ing. The process of cognitive learning arises in case the members of a company real-
ize the need for change under certain conditions, while behavioral learning appears
when the company’s cognitive projects indeed change (application of cognitive
learning). Broadening even more the concept of learning, we could say that the orga-
nizational learning involves a new form of behavior being reproduced in the entire
company, driving towards a broad change within the organization (Teece et al. 1997).

2.1.3.3 Knowledge Management

Knowledge management is defined as the ‘systematic, clear and premeditated cre-

ation, renewal and knowledge application in order to enhance as much as possible
the knowledge-related company’s performance and the revenues derived from the
elements of knowledge’ (Wiig 1993). Sveiby (1998) defines knowledge management
as ‘the art of creating value from an organization’s intangible assets’. Sveiby (1998)
distinguishes two basic kinds of activities regarding knowledge management:
• The first one refers to knowledge management as management of information and
• The second kind as management of people.
2.1 Innovation Management Through Management of Knowledge and Education 33

2.1.3.4 Cognitive/Meta-Cognitive Process

The cognitive capacity is people’s ability to estimate, interpret and raise arguments
on environmental, conceptual or organizational stimuli and the meta-cognitive
capacity is the ability to ‘make thought on their thoughts, just like meta-learning
means learning things related to or for learning’ (Carayannis 1994a).
The processes for the creation, transfer, selection, acquisition, storage and recov-
ery of knowledge could be dealt with from an information technology (Shannon and
Weaver 1949), meta-cognitive (Simon 1969; Sternberg and Frensch 1991; Halpern
1989) and linguistic perspective (Chomsky 1993).
In this context, the person who solves human problems and the manager of tech-
nologies is considered equally technician and worker (Schon 1983), at the same
time ‘synthetic’ and ‘divisive’ (Mintzberg 1989). Persons, groups and organizations
are based on multi-level learning and reverse learning (Carayannis 1992, 1993,
1994a, b, c; Dodgson 1993) to create, preserve and increase the ability of groups,
persons and organizations to transfer and assimilate embedded and non-embedded
(von Hippel 1988) technologies in the form of artifacts, convictions and evaluation
programs (Garud and Rappa 1994) or in the form of inherent and explicit knowl-
edge (Polanyi 1958, 1966; Nonaka 1988, 1994). It is also very important to under-
stand that individual and organizational learning and knowledge are entities that
complete and reinforce each other through the organizational memory. Moreover,
the learning process should be supported by an accurate and specific organizational
memory in order to create, preserve and constantly renew the company’s stock in
skills and capabilities: In case of an organization that is about to learn something
new, memory allocation, memory accuracy and the conditions it is used constitute
the basic characteristics of the organization (Weick 1979) (see Carayannis 1994b,
2001). It is important to remember that ‘knowledge does not develop in a linear way,
by collecting data and applying a method of assumptions and conclusions but it
resembles more a spiral line with a rising course so that each time we reassess a
previous position or opinion, it is done under a new perspective’ (Carayannis
1994b). This conceptual perception lays the ground for the development of an
Organizational Cognition Spiral—OCS (Carayannis 1998a, b, c), as part of a model
to manage organizational knowledge. Intuition, defined by Weick as ‘inherent
expertise’, relates to all these concepts (Davenport and Prusak 1998, p. 11)
combined with meta-knowledge, which is knowledge (consciousness) over the
knowledge one possesses (Carayannis 1998a, b, c).

2.1.4 The Model of Organizational Cognition Spiral

The model being suggested contributes to the comprehension of basic issues

involved in organizational knowledge management. The model identifies different
knowledge situations constituting the two-dimensional function: of knowledge (K)
and of meta-knowledge (MK), as defined above, and includes successive ‘cycles of
34 2 Introduction to Innovation Management

Fig. 2.1 Knowledge cycles (Carayannis, GWU lectures, 2000–2009)

knowledge’ a person or organization can go through and pass from four stages of
knowledge or ignorance. As we shift from one cycle to the next and to the following
one, the overall level of knowledge and meta-knowledge increases (see Fig. 2.1)
(Carayannis 1998a, b, c).
Usually, but not always, according to Tables 2.1 and 2.2 (end of paragraph), tran-
sition takes place from ignorance of ignorance (you do not know what you ignore)
to knowledge of ignorance (you know what you do not know), to knowledge of
Table 2.1 Process and technology-available knowledge conversions
Conversion Procedures available Available technologies
A (III->I) From Problem solving Decision-making tools
knowledge of Internally motivated knowledge discovery Interactive modeling
Ignorance to
Active learning
knowledge from
knowledge Focus on efficiency
B (IV->III) Cooperation procedures Groupware
From ignorance Internally motivated discovery of after-knowledge GDSS
of ignorance to
Value elicitation Videoconfereding
knowledge of
ignorance Target recognition Brainstorming
Facilitation
Active learning
Focus on efficiency
C (IV->II) Osmosis knowledge Information infrastructure
From ignorance Externally motivated knowledge discovery Access mechanisms—networks
of ignorance to
Knowledge creation LANs
ignorance of
knowledge Passive learning WANs
Focus on efficiency Internet and Intranet
Circumvention the paradox of knowledge Data sources
and productivity of information technology
Data storage
Distributed databases
D (II->I) From Protection of intellectual property Intelligent Agent Technologies
ignorance of Outdoor motivated discovery of after-knowledge Collaborative filters
knowledge to
Management of intellectual capital Data mining
knowledge of
knowledge Passive learning Neural networks
Focus on efficiency
E (III->II) Implicit learning from top to bottom Tools for decision making for
From technological infrastructure
knowledge of Internalization of knowledge/vertical planning Access mechanisms: networks
ignorance to
Externally and internally motivated emergence LANs
ignorance of
and crystallization of a theoretical example
knowledge
Transfer of focus from efficiency to effectiveness WANs
Circumvention the paradox of knowledge and Internet and Intranet
productivity, technology, information
Data sources
Data storage
Distributed databases
Groupware
GDSS
Videoconfereding
Brainstorming
F (II->III) Explicit learning from the bottom up Groupware
From ignorance Obsolescence of knowledge/substitution GDSS
of knowledge to
Externally and internally motivated theoretical Videoconfereding
knowledge of
examples shifts change sign reference standards
ignorance
(“gestalt switches”)
Cleavage of the paradox of knowledge and Brainstorming
productivity of information technology
Transfer of focus from efficiency to effectiveness Learning capable Intelligent
agents or Interfaces
36 2 Introduction to Innovation Management

Table 2.2 Content and technology-enabled knowledge states

State Enabling content Enabling technologies
State I: K, MK • Internally-driven knowledge • Decision support tools
Awareness of discovery • Interactive modeling
awareness • Active learning
• Focus on effectiveness
State II: K, MK • Collaborative processes • Groupware
Ignorance of • Internally-driven meta- • GDSS
awareness knowledge discovery • Videoconferencing
• Value elicitation • Brainstorming
• Objectives identification
• Facilitation
• Active learning
• Focus on effectiveness
Stage III: K, MK • Knowledge osmosis • Information infrastructure
Awareness of • Externally-driven knowledge • Access mechanisms: networks
ignorance discovery – LANs
• Knowledge creation – WANs
• Passive learning – Internet and intranet
• Focus on efficiency • Data sources
• Bypassing of knowledge & IT – Data warehouses
productivity paradox – Distributed databases
Stage IV: K, MK • Individual privacy protection • Intelligent Agent Technologies
Awareness of • Externally-driven meta- • Collaborative filters
ignorance knowledge discovery • Data mining
• Intellectual capital management • Neural networks
• Passive learning
• Focus on efficiency
E (III→II) • Top down tacit learning • Tools form making technology
From • Knowledge internalization/ infrastructure decisions
Awareness of routinization • Access mechanisms: networks
ignorance • Externally & internally-driven – LANs
to conceptual paradigm emergence – WANs
Ignorance of and crystallization – Internet and intranet
awareness • Transition of focus from • Data sources
effectiveness to efficiency – Data warehouses
• Bypassing of knowledge & IT – Distributed databases
productivity paradox • Groupware
• GDSS
• Videoconferencing
• Brainstorming
F (II→III) • Bottom up explicit learning • Groupware
From • Knowledge obsolescence/ • GDSS
Ignorance of substitution • Videoconferencing
awareness • Internally & externally-driven • Brainstorming
to conceptual ‘gestalt switches’/ • Learning-capable intelligent
Awareness of paradigm shifts agents or interfaces
ignorance • Transition of focus from
efficiency to effectiveness
• Resolution of knowledge & IT
productivity paradox
2.2 Difference Between Innovation–Invention 37

knowledge (you know what you know: result of research, discovery and learning)
and finally to ignorance of knowledge (you do not know what you know: as a result
of continuing practice, knowledge become inherent (Carayannis 1998a, b, c).
For the sake of simplicity, we assume that the dimensions are at two levels and
represent presence and absence of knowledge and meta-knowledge. Therefore,
the levels of the two dimensions are represented as K/˜K and ΜK/˜ΜK. These
two levels over the two dimensions end up in totally four states of knowledge:
1. ˜ΜK, ˜K (ignorance of ignorance)—[You do not know what you do not know]
2. ΜK, ˜K (knowledge of ignorance)—[You know what you do not know]
3. ΜK, K (knowledge of knowledge)—[You know what you know]
4. ˜ΜK, K (ignorance of knowledge)—[You do not know what you know]
Organizations may sustain any of the above situations including possibly cur-
rent, desirable or intermediate levels. The situations can be represented as follows
(Fig. 2.1).
Knowledge management can be considered as the process of managing transi-
tions between the aforementioned four situations (Carayannis 1998a, b, c).
The revolutionary transformation of knowledge is by nature differential and
thorough (Carayannis 1992, 1993, 1994a, 1994b, 1996, 1997, 1998a, b, c, 1999,
2001, 2002), because it consists of reverse knowledge, knowledge and meta-
learning, differentiates older from new experiences, selects and preserves the use-
ful measures for knowledge and unifies the lessons taught (Carayannis 1998a, b, c).
This process reflects the dynamics of a complex progress, at individual and orga-
nizational level, from the information, knowledge, wisdom and intuition data. In
this way, constantly broadening and increasingly deeper levels of organizational
knowledge (Choo 1998) are attained and quantitative and qualitative modifications
are in place in the stock and flow of knowledge of an organization and individuals.

2.2 Difference Between Innovation–Invention

There is a clear difference between the concepts of invention and innovation. The
famous economist Joseph Schumpeter (1942) was the first to have observed and
defined this difference: the ‘invention’ is the outflow of an applied research, while
‘innovation’ is the successful introduction of an invention in the market as a func-
tional solution (product or service). Scientific discovery is also assessed on the basis
of whether it has contributed to understanding natural phenomena. Due to the fact
that innovation includes specialized knowledge and the latter’s main attribute is its
being a public good, the state enshrines legally the intellectual rights of an inven-
tor–innovator by awarding him/her a patent, safeguarding thus for the benefit of the
inventor–innovator the economic exploitation of the new product in a specific geo-
graphical region and for a specific period of time.
It would be easier to understand innovation as an entrepreneurial process evolving
into a connection with scientific research, learning, market conditions and economy,
38 2 Introduction to Innovation Management

if we take into account the historic examples of inventors who took a step further and
proceeded to the commercial promotion of their inventions, become i.e. innovative
entrepreneurs. Such examples shed light on the true nature of innovation. Until the
end of the nineteenth century, scientists were not generally interested in the practical
application of their discoveries. One of the first scientists who proceeded to the tech-
nological application of his scientific discoveries was Justus Liebig, who, by the
middle of nineteenth century developed the first artificial fertilizer as well as a sig-
nificant meat extract which constituted the only means to preserve animal proteins
until the discovery of the refrigerator in 1880s. Moreover, in 1856 the English scien-
tist Sir William Perkin discovered the first synthetic dye and established later a
chemical industry to economically capitalize on his discovery.
One of the most successful, innovative inventors was the American Thomas Alva
Edison, who managed to be granted exclusive rights over more than 1,000 patents
throughout his life. Three of them were the light bulb, the cinema tape-film of
35 mm and the electric chair. His capacity to innovate, and not simply invent, i.e. his
capacity not only to have ideas but convert them into products being sold successively
in the market, helped to create a large enterprise (General Electric), with its worth
standing at circa 21.6 bn $ in 1920. In other words, Edison understood correctly the
two-way character of innovation requiring mobilization and coordination of two
forces, the technology promise and the market demand.
According to his biographer, Mathew Josephson, Edison had no intention to
dwell on organized research. He was driven to this option because he failed to man-
ufacture electric light that could be practically used. This failure made him more
determined and he decided to work on scientific research systematically. He was
aware of the scientific work conducted previously by other scientists and decided to
work hard to achieve what he wanted. Edison’s contribution to electricity is a very
good example of the ability to convert a commercial opportunity included in an idea
into a practical application. In case of inventing an electric bulb, Edison understood
that without an electrification point, the light bulb would be simply an idea with no
practical value. Therefore, he and his research team began the creation of an elec-
tricity generation and distribution infrastructure, including even the design of
switches, cables and floor lamps. Edison’s contribution proved that innovation is
something more than having new ideas. It is the process whereby new ideas acquire
practical application. Notwithstanding the diverging definitions of innovation as
regards the wording, all of them agree nevertheless that innovation is the elaboration
and exploitation of new ideas and not simply their fabrication and invention. The
interested reader may skim through the specialists of innovation, such as Freeman,
Rothwell & Gardiner, Drucker and M. Porter, Clayton Christensen, and others.
As regards invention in contrast to innovation, some of the most important inven-
tions of the nineteenth century were invented by persons whose name was forgotten.
The names we still remember are the names of entrepreneurs who transformed
inventions into a commercial value. For example, the vacuum cleaner was invented
by J. Murrey Spengler. However, it was W.H. Hoover, leatherwear manufacturer,
who launched it in the market. Similarly, the sewing machine was invented by Elias
Howe in Boston in 1846, who failed to promote it commercially, though he traveled
2.3 Types and Characteristics of Innovation 39

to England for that purpose. Returning to the USA, he found Isaac Singer to have
stolen his patent and having set up a thriving business of sewing machines.
Innovation is therefore the product of the nineteenth century, not of the twentieth
century, while invention has existed since primitive times. The driving force was to
envisage the opportunity to create new industries, such as the electric railway by
Edison. In the twentieth century innovation became the heart of technological effort
through systematic organization and institutionalization of applied research in labo-
ratories of Research and Technological Development.

2.3 Types and Characteristics of Innovation

2.3.1 Types of Technological (and Non-technological)

Innovation

The types of innovation vary depending on the object, the sector it refers to, the
scope or its intensity. These types are not independent one from the other. There
exist though some recognizable attributes, without having dividing lines. The types
of innovation are classified in three groups.

Innovation
Types

According to object According to sector According to intensity

a) Product innovation a) Organizational innovation a) Incremental innovation

b) Process innovation b) Technological innovation b) Radical innovation

In the first group the classification is based on the object innovation refers to:
• Product or Service Innovation and Process Innovation.
The Product or Service Innovation refers to the case when an enterprise intro-
duces a new product in the market or provides a new service. Process Innovation is
in place when an enterprise introduces new elements in its production process or its
operation, being used for the production of a product or the provision of a process.
In some cases the dividing line between these two types is not clear. Separation
depends on the organization involved. The emphasis placed by companies on
every type of innovation differs depending on the company’s stage of development.
In the first stages, when the company is small, it adopts product innovations mainly.
As the company grows and becomes more complex, it adopts process innovations
too. The development of new products is a risky venture as it may inject big
profits in an enterprise, if the venture succeeds, but it could also lead to failure.
40 2 Introduction to Innovation Management

On the contrary, process innovations, whereby higher production volume, low

production cost and higher sales are sought after, are less radical, hence entailing
lower risk for the enterprises adopting them.
In the second group the classification is based on the sector innovation refers to:
• Administrative or Organizational Innovation and Technological Innovation.
The Administrative or Organizational Innovation appears in the administra-
tion sector and affects the organizational system of an enterprise, consisting of
business executives and the relations between them. In other words, the
Administrative Innovation is the introduction of a new administrative system or a
new administrative process; it does not introduce a new product or service but influ-
ences indirectly their introduction or the production process thereof.
The Technological Innovation pertains to the technological sectors of an enter-
prise, comprising the equipment and the procedures for raw materials and informa-
tion transformation into products or services. Technological Innovation refers to the
creation, improvement and expansion of the procedures sustained by the products.
Technological innovation may refer to the adoption of a new idea relating to a new
product or service, or the introduction of new elements in production processes or
service provision of an enterprise.
Administrative Innovations are primarily adopted by large enterprises with more
complex structures. These enterprises face bigger problems in auditing and coordi-
nating various departments and try to solve such problems through administrative
innovations. However, it seems that an increasing number of small enterprises
implement Technological Innovations, striving in this way to gain a competitive
advantage.
In the third group the classification is based on the intensity and scope of
innovation:
• Incremental Innovation and Radical Innovation.
Incremental Innovation is the one leading to a relatively small deviation from
current practices. It is introduced to improve old products or procedures, without
intervening to the existing structure and strategy of the enterprise. Radical
Innovation brings about fundamental changes in the activities of an enterprise and
expresses a significant deviation from current practices. It gives momentum to new
business activities, strategies and structures and introduces totally new products.
On average, Radical Innovations are adopted less frequently compared to gradual
innovations. They constitute a bigger challenge for the existing structure, as regards
determination of executives’ duties and cause strong reactions upon the application
thereof. They seem more complicated to the members of an enterprise because they
are more original and they provoke a higher degree of uncertainty for their condi-
tions of development and application. Usually large enterprises with higher success
rates than smaller ones introduce Radical Innovations because the type of these inno-
vations requires technical knowledge and stock of resources. Moreover, large enter-
prises possess the financial resources capable to absorb the largest part of the cost, in
the event of failure and for this reason large enterprises act in a more decisive way.
2.3 Types and Characteristics of Innovation 41

2.3.2 Characteristics of Innovation

The characteristics of innovation are classified in three axes.

1. Product Axis: Product innovation is in place when a new or improved product is
launched in the market.
The parameters examined under this axis are the following:
• Market demand: Demand and acceptance of the product in the market is one of
the key criteria for product innovation. It is directly linked to the company’s
market share and to profit margin.
• Level of resonance: It is the level of target-customers locally, nationally or inter-
nationally; it is the product acceptance and market penetration yardstick.
• Optimal use of existing condition: It is examined whether the existing technol-
ogy is used in an optimal way relevant to the product and its production. It relates
to updating procedures and technology forecast.
• Price/Value: The price and value of a product is compared with the prices of
corresponding competitive products in the market.
• Compliance with the regulations: Compliance with the safety, health, environ-
mental regulations, etc. It is a characteristic of innovation because compliance with
the regulations could often lead to qualitative innovative changes on the product.
• Originality: It is examined whether the product is a new solution or encom-
passes changes compared to competitive products. These changes may concern
the product, its package, the way it is distributed or its use. It is also a way to
evaluate an enterprise’s approach to innovation.
• Offer of improvements: The product as an evolution of an existing technology,
in the sense of using new materials, the existence of new functions, the use of the
product in new applications. It defines whether the product brings about changes
on the basic design or its architecture.
• Coverage of operational needs: Coverage rate of specific operational needs,
customer needs, including over-coverage offering additional functions not fully
determined by customer demands. It relates to customer requirements analysis.
• Aesthetic: The product’s outward appeal is a criterion of innovation often under-
estimated; it constitutes though a key success factor.
• Adherence to intellectual property rules.
2. Process Axis: Process innovation is the introduction of new processes in product
development or the improvement thereof.
The parameters examined under this axis are the following:
• Market research: Market research may disclose alternative solutions regarding
design, price, distribution and product promotion and offers an estimate of prod-
uct acceptance and image in the market.
• Connection to target-customers: Frequency of contact between the company
and target-customers at local, national or international level. The main objective
is to establish a long lasting relation mainly with large customers.
42 2 Introduction to Innovation Management

• Access to new technology: Frequency of the company’s contact with the current
technological evolutions regarding production of product. It relates directly with
departments of R&D, design, cooperation with technological bodies, participation
in exhibitions, etc.
• Costing Methodology: Costing methodology in all stages of the product devel-
opment process. Analysis and accurate costing methodology is required to cut
the total product production cost.
• Compliance with the regulations: Compliance of the product development
process with the safety, health and environmental regulations, in parallel with the
procedures to verify all the above. Compliance of the development process with
the regulations often contributes to qualitative upgrading of the product.
• Technique of ideas development: The existence of specific techniques and
approaches for the elaboration of new ideas is examined; such ideas affect sig-
nificantly the development of a successful innovative product.
• Improvement techniques: The effort and the techniques to integrate new tech-
nologies and uses in the product are assessed.
• Emphasis on fulfilling operational needs: Focus of product development pro-
cess on the specific operational need the product addresses. It involves conver-
sion of requirements to product specifications and relates to the way the trade
mark participates in product development process.
• Focus on aesthetics in the design: The success of products using a fixed technol-
ogy and with fixed target-customers depends directly on their attractiveness and
their visual diversification vis-à-vis competitive products. The aesthetic aspect of
a product in combination with the analysis of its ergonomy is one of the main
targets of industrial design. The use of systems and design engineers is assessed.
• Formal procedures to protect copyright: It is examined whether the required
actions are taken to protect copyright. It is assessed whether an enterprise is
geared towards protecting patents and designs and whether the above methodol-
ogy constitutes its policy.
3. Management (organization) Axis: The introduction of changes in administration and
organization constitutes the administrative innovation that completes the first axis.
The parameters examined under this axis are the following:
• Feasibility study: It is the base (technical, economic, commercial) to decide
upon an investment.
• Formal procedures to ensure communication with target-customers: Such
procedures may include participation in exhibitions, sample distribution, meet-
ings with groups of customers, etc.
• Formal procedures to apply the best technology: One of the key indications of
innovation is systematic follow up of current technological evolution, the assess-
ment of the technological level of competitors, the identification of new tech-
nologies and the correct selection of the best technology.
• Cost control: Control is a systematic review process applied during the design
phase, in order to cut production cost, preserving at the same time the value and
References 43

the required operation specifications (value/price) and ensuring the product’s

sustainability and competitive price.
• Quality control: Formal control procedures during the design phase that include
use of methods to analyze and improve innovation process quality and processes
to safeguard rules applying to date.
• Organizational culture: Emphasis of organizational culture on innovation. It
has been evidenced that organizational culture relates directly to a company’s
innovativeness. Some elements of organizational culture placing emphasis on
innovation is the encouragement to create new ideas, the clarification of the
enterprise’s innovation policy to all employees, the determination of perfor-
mance measurement systems, personnel training etc.
• Quantitative controls with criteria to assess improvement of technology,
new materials, functions and uses: Introduction of controls with quantitative
data and minimum acceptance values to assess improvement of technology, new
materials, functions and uses. Processes for the integration and evaluation of new
technologies and methods by the company.
• Quantitative controls with criteria on the satisfaction rate of functional
needs: Introduction of controls with quantitative data and minimum acceptance
values to fulfill specific functional needs.
• Marketing and quality control processes for the aesthetic aspect of the prod-
uct: Introduction of marketing and quality control processes to assess and ensure
good product aesthetic appeal. It relates directly to production and testing of
originalities.
• Formal control to protect copyright: Formal control procedures to protect
copyright are examined.

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