UNIT – I – INNOVATION AND ENTREPRENEURSHIP

ECONOMIC ACTIVITY – Economic activity is the activity of making, providing,

purchasing, or selling goods or services. Any action that involves producing, distributing, or
consuming products or services is an economic activity. Economic activities exist at all levels
within a society.

Additionally, any activities involving money or the exchange of products or services are
economic activities.

e.g. - Running a restaurant: Economic Activity

NON-ECONOMIC ACTIVITY – Non-economic activity is an activity performed gladly,

with the aim of providing services to others without any regard to monetary gain.

Those human activities which are undertaken for personal satisfaction or to satisfy human
sentiments are non economic activities.

Activities which are undertaken to satisfy social, religious cultural and sentimental
requirements are called non-economic activities.

e.g. House wife cooking

BUSINESS – It is a continuous production and distribution of goods and services with the
aim of earning profits under uncertain market conditions.

“It is a form of regular activity conducted with an objective of earning profits for the
benefit of those on whose behalf the activity is conducted”.

“All creative human activities relating to the production of goods or services for
satisfying human wants are known as business”.

Invention, innovation, and entrepreneurship are words frequently thrown around by

politicians, theorists, and entrepreneurs alike to generally describe the act of bringing a
product or idea into the world.

INVENTION – Invention is an intellectual exercise in connecting the dots. It’s the eureka
moment when you connect multiple problem statements with existing solutions from other
spaces, parallel or unrelated, and come up with a new combination of thought that solves the
problem statement that you have discovered. It is a mental event.

An inventor is the person who synthesizes the problem statement and solutions into a novel
solution that solves some unique problem. This definition of an invention is completely
indifferent to what you do with the invention afterwards; you can be an inventor and not have
done anything at all other than the mental exercise. This type is common at universities, but
innovators exist in university environments as well.
INNOVATION – is an ongoing process of getting an invention to a point where it has an
application value of some kind. That doesn’t happen automatically, because technology is
only useful if somebody uses it. Unlike knowledge, technology doesn’t have any intrinsic
value.
If you find a cure for cancer and it doesn’t teach you anything new about biology, or
the human body, and is just a particular mix of stuff that works, then it has no value until it
actually cures somebody’s cancer. We need innovators, because technology needs to be
used.
The boundaries around the innovation process are sloppy, but roughly include all the steps
between invention and pre-commercialization, or possibly commercialization. This is the
period when you start thinking not just about your idea, but what you need to do to make it
work in practical terms. You experiment, you fiddle around, you find out that it doesn’t work
on current computers, and you adjust it in some way to make it practically realizable.

In the act of innovation, you might also invent new things. But equally important, you are
going to generate a lot of practical know how. This is where the bulk of value in a
technology start-up is created.

ENTREPRENEURSHIP – is separate from this. Entrepreneurship is about driving

innovation in a constrained environment (e.g. limited money or time). Often this happens in a
start-up, but it’s perfectly possible to be an entrepreneur inside a large corporation if the
constraints are in place.
An entrepreneur’s job is not just to bring the technology to market, or to the
commercialization stage; the job of the entrepreneur is to create and maintain the
environment that allows innovation to occur (people, money, goals, etc.).

TYPES OF INNOVATION

Innovation varies in scope, time for completion and organisational and societal impact.
Categorisation of any kind usually involves areas of duplication, where the lines between one
category and another overlap.

We will overview the main types of innovation and simplified classification. We also need to
note that categorising an innovation is not a science and any one innovation can be positioned
into different categories by firms.

FOUR MAIN TYPES OF INNOVATION (BY INNOVATION OBJECT) - As an object

of the innovation, the Oslo Manual concentrates on four innovation types:

1) Product Innovation – is the introduction of a good or service that is new or significantly

improved with respect to its characteristics or intended uses. This includes significant
improvements in technical specifications, components and materials, incorporated
software, user friendliness or other functional characteristics.

Examples of product innovation: first portable MP3 player; introduction of ABS

braking, GPS (Global Positioning System) navigational systems or other subsystem
improvements in cars.
2) Process Innovation – is the implementation of a new or significantly improved
production or delivery method. This includes significant changes in techniques,
technology, equipment and/or software.

Examples of new production methods are the implementation of new automation

equipment on a production line or the implementation of computer-assisted design for
product development. An example of a new delivery method is the introduction of a bar-
coded or active RFID (Radio Frequency Identification) goods-tracking system.

3) Marketing Innovation – is the implementation of a new marketing method involving

significant changes in product design or packaging, product placement, product
promotion or pricing.

Marketing innovation is aimed at better addressing customer needs, opening up new

markets, or newly positioning a firm’s product on the market, with the objective of
increasing the firm’s sales. The distinguishing feature of a marketing innovation
compared to other changes in a firm’s marketing instruments is the implementation of a
marketing method not previously used by the firm. It must be part of a new marketing
concept or strategy that represents a significant departure from the firm’s existing
marketing methods. New marketing methods can be implemented for both new and
existing products.

For example, the first use of a significantly different media or technique – such as
product placement in movies or television programmes – is a marketing innovation. An
organisational innovation is the implementation of a new organisational method in the
firm’s business practice, workplace, organisation or external relations.

4) Organisational Innovation – can be intended to increase a firm’s performance by

reducing administrative costs or transaction costs, improving workplace satisfaction
(and thus labour productivity), gaining access to non-tradable assets (such as non-
codified external knowledge) or reducing costs of supplies.

The distinguishing features of an organisational innovation compared to other

organisational changes in a firm are the implementation of an organisational method
that has not been used before in the firm.

Examples: the first implementation of practices for employee development and

improving worker retention, such as education and training systems; the first
introduction of management systems for general production or supply operations,
such as supply chain management systems, business reengineering, lean production
and quality-management systems.

INCREMENTAL, RADICAL AND BREAKTHROUGH INNOVATION

1) Incremental Innovation – includes the modification, refinement, simplification,

consolidation, and enhancement of existing products, processes, services, and
production and distribution activities. The majority of innovations fall in this
category.
Some examples of incremental innovation:
  Many versions of Sony's Walkman are not the original but all the models that
followed and were built on a common platform.
 Most automobiles, with annual minor improvements that over years provided
significant benefits in safety, efficiency and user comforts.
2) Radical Innovation – involves introducing new products or services that develop into
major new businesses or spawn new industries, or that cause significant change in a
whole industry and tend to create new values.
Example of radical innovation: banking business has gone through at least a mild
metamorphosis – ATM machines, funds available just about any place in the world
with the appropriate plastic card.
3) Breakthroughs – take people by surprise. They are rare events, arising from
scientific or engineering insights. They are called "breakthroughs" because they do
something that most people did not realize was possible. Breakthroughs create
something new or satisfy a previously undiscovered need. Big breakthroughs often
have uses and effects far beyond what their inventors had in mind. Breakthroughs can
launch new industries or transform existing ones. Breakthroughs are also called
“Disruptive innovation”.
Example of breakthrough innovation: the first EARS laser printer was made by
Xerox. This laser printer could print 60 copies a minute at 600 dots per inch. No one
had ever built anything like this before

INNOVATION TYPES BY INNOVATION SOURCE – The OECD in Oslo Manual

systematised innovation types by dividing the source of innovation into two groups: R&D
and non-R&D

The main idea of this systematization is to show that not all innovation processes in firms
have to be developed or/and implemented in co-operation with R&D institutions
(universities, research institutes, etc.).

Moreover, the majority of innovative SMEs are not linked to any R&D institution. Few of
them have their own R&D departments (in-house R&D), while others are innovating due to
their skilled personnel.

INNOVATION TYPES BY STRATEGY – Innovation by firms’ innovation strategy can be

divided into two groups: open innovation and closed innovation -

1) Open Innovation – consists of strategies by which firms can acquire technologies

they need and exploit technologies they have developed. In open innovation firms get
their technology from multiple sources. Open strategies for innovation seek efficiency
through effective partnering. Nobody ever created a breakthrough with open
innovation.
2) Closed Innovation – employs strategy of hiring the smartest technical people in an
industry. It assumes that a firm must itself develop its own new products and services
and be the first company to get them to market. It assumes that the firm that leads the
industry in R&D spending will eventually lead the market. Finally, it assumes that a
 company should hold on to its intellectual property tightly to keep the competition
from benefiting from the ideas.

SOURCES OF INNOVATION

The 7 sources of innovative opportunity were listed by Peter Drucker in his book “Innovation
and Entrepreneurship.

1) The unexpected: Innovations can take place unexpectedly. They can happen by
chance. Someone might just stumble upon a new idea or product. There is a long list
of unexpected innovations in human history. Even fire is considered an unexpected
innovation that humans stumbled upon. Another example is the dynamite. However,
an interesting thing to note is that several important innovations in our history have
happened unexpectedly. Many times while scientists are looking for something, they
stumble upon something else.

2) Incongruities: When the need is incongruent with the supply, innovation might be
born. In an attempt to resolve the existing incongruities people might innovate. For
example as the population of cars grew there was a shortage of parking area. In an
attempt to solve the incongruity between parking area and parking shortage, the smart
car was born. Smart car is a small car that can fit in small spaces. Incongruities can be
an important source of innovation. It is basically in the human nature to try to fill the
incongruities he sees around him.

3) Market structure: An existing market structure can also give rise to chances for
innovation. This is how Google was born. Google shaped the search engine market.
Before Google the search engines were not as perfect and Google brought all of it in
order. There was so much information scattered over the World Wide Web. Google
made this information searchable. Thus, the World Wide Web gave rise to a market
structure where a search engine like Google could flourish. The World Wide Web
paved way for interconnection. Google created a search engine that was linked to all
the searchable data.

4) Necessity: Necessity is the mother of invention but it is also the mother of innovation.
Let us say Microscope. It was born out of the need to delve deeper into the microbial
world. Needs always set us thinking. Innovation is based upon bright ideas. The
human mind thinks of new things that can better fulfill an existing need. In this
process he thinks of filling his needs in new ways and by devising new products and
mechanisms.

5) Demographics: Our lifestyles can also be a source of innovation. We all have our
lifestyle needs. For example we feel the need to smoke. However, since smoking is
dangerous, we made e-cigarettes to satisfy the urge. Lifestyle needs are not small
needs and their fulfilment and important requirement for us. This is where innovators
sometimes find major opportunities.

6) Changing perception: Changing perception regarding things can also give birth to
innovation. Earlier, the overweight people were seen as healthier than the leaner ones.
 However, the social perception of healthy has undergone a big change where fat
people are seen as obese and unhealthy. People feel the need to remain leaner and
healthier. Based upon this changed perception, a flood of healthy and low calorie
foods came to the market.

7) Knowledge: New knowledge can also be a source of innovation. Whether it is nano-

technology, biotechnology or even artificial intelligence, new knowledge in any area
is a source of innovation. The science keeps progressing. Every year new areas are
discovered and much gets added to the existing base of human knowledge. This new
knowledge paves way for innovations that can sometimes be life changing. Healthcare
is an area that has overtime been heavily affected by such innovations whether they
emerge from the fields of biotechnology or nanotechnology. However, one can find
many more such examples in his daily life. There can be some other sources of
innovation also apart from the ones Drucker discussed. Innovation can be born out of
passion or adventure or even of a hobby.

RECOGNIZING OPPORTUNITIES

Opportunity - An opportunity is a favorable set of circumstances that creates a need for a

new product, service or business.

An opportunity is a favorable set of circumstances that creates a need for a new

product, service or business.
Three Ways to Identify an Opportunity – There are three ways to identify an opportunity -

1) Observing Trends – Trends create opportunities for entrepreneurs to pursue.

The most important trends are:

• Economic forces.

• Social forces.

• Technological advances.

• Political action and regulatory change.

It’s important to be aware of changes in these areas.

i) Economic Forces - Economic trends help determine areas that are ripe for new
startups and areas that startups should avoid.
For example - A weak economy favors startups that help consumers save money. An
example is GasBuddy.com, a company started to help consumers save money on gas.
ii) Social Forces - Social trends alter how people and businesses behave and set their
priorities. These trends provide opportunities for new businesses to accommodate the
changes.
For example - Increasing interest in health, fitness, and wellness, Emphasis on
alternative forms of energy.
iii) Technological Advances - Advances in technology frequently create business
opportunities. Once a technology is created, products often emerge to advance it.
Examples of Entire Industries that Have Been Created as the Results of
Technological Advances Computer industry like Internet, Biotechnology, Digital
photography
iv) Political Action and Regulatory Changes - Political action and regulatory changes
also provide the basis for opportunities.
For example - Laws to protect the environment have created opportunities for
entrepreneurs to start firms that help other firms comply with environmental laws and
regulations.
2) Solving a Problem - Sometimes identifying opportunities simply involves noticing a
problem and finding a way to solve it. These problems can be pinpointed through
observing trends and through more simple means, such as intuition, serendipity, or
change.
For example - A problem facing the India and other countries is finding alternatives
to fossil fuels.
 A large number of entrepreneurial firms, like this wind farm, are being launched to
solve this problem.
3) Finding Gaps in the Marketplace - A third approach to identifying opportunities is
to find a gap in the marketplace
A gap in the marketplace is often created when a product or service is needed by a
specific group of people but doesn’t represent a large enough market to be of interest
to mainstream retailers or manufacturers.
Specific Example - In 2000 Tish Cirovolv realized there were no guitars on the
market made specifically for women. To fill this gap, she started Daisy Rock Guitars,
a company that makes guitars just for women.

ACTING ON THE OPPORTUNITIES

A feasibility study is an analysis used in measuring the ability and likelihood to complete a
project successfully including all relevant factors. It must account for factors that affect it
such as economic, technological, legal and scheduling factors.

Components of a Feasibility Study

There are several components of a feasibility study:

Description: A layout of the business, the products and services it will offer, and how it will
deliver them.

Market feasibility: Description of the industry, the current and future market potential,
competition, sales estimations and prospective buyers.

Technical feasibility: The details on how a company will deliver goods or services,
including transportation, business location, technology needed, materials and labour.

Financial feasibility: A projection of the amount of funding or start-up capital needed, what
sources of capital a business can and will use, and what is the return on investment.

Organizational feasibility: A definition of the corporate and legal structure of the business.
This may include information about the founders, their professional background and the skills
they possess necessary to get the company off the ground and keep it operational.

STRATEGIES FOR INNOVATION

1) Establish A clear sense of direction: Changing cultures involves changing minds,

and that takes time. But as with any initiative, a clear sense of the target helps to
speed the journey.
Your organization’s mission helps to organize and direct the creativity of its people.
What is the purpose of consistent innovation in your enterprise? Is it to add customer
value to existing products and services… to speed delivery… to increase on-time
arrivals?
Having a clearly articulated message allows everyone to focus on innovation where it
can deliver the greatest value. Innovation, as Peter Drucker has defined it, means
 creating a new dimension of performance. A sense of mission clarifies the direction of
performance and helps determine which new ideas to focus on.
2) Open communication: Open communication between management and employees
sets the stage for an atmosphere of trust. But if you want to establish a new, more
trusting culture, you can’t expect employees to take the first step.
Company leadership initiates the process of open communication by sharing
information with employees on a regular basis. This includes good news and bad.
Example Southwest Airlines’ policy of sharing information enabled the company to
weather the sudden increase in fuel costs during the 1990-91 Gulf War. The company
kept everyone informed as fuel prices soared. Southwest’s CEO Herb Kelleher sent a
memo to pilots asking for their help. Through inventive thinking, the pilots found
ways to rapidly drop fuel consumption without compromising safety or service.
3) Reduce Bureaucracy: While larger organizations are often considered less
entrepreneurial and inventive than their smaller counterparts, it’s not the size of your
company that inhibits innovation — it’s the systems. Bureaucracy slows down action
and is a serious impediment to innovation.
Smaller organizations can often move faster on implementing innovative ideas
because they have less bureaucracy. When Jack Welch was reengineering General
Electric he said, “My goal is to get the small company’s soul and small company’s
speed inside our big company.”
Faster implementation encourages further inventive thinking. Think for a minute. If
you had an idea for an innovation, and it required 6 weeks to clear channels and
another 3 weeks to get funding, would you have lost any impetus for further
contribution?
4) Instil a sense of ownership: An ownership mentality creates a powerful incentive for
inventive thinking. When an individual is clearly aware of how his or her interests are
aligned with those of the company, he or she has a strong reason to “go the extra
mile” to further the mission.
Stock ownership is a significant, if not essential, incentive for employees. However
on its own, profit-sharing doesn’t guarantee your employees will think like owners.
When employees don’t see how their individual efforts affect company profitability,
they tend to be passive and reactive. To encourage greater involvement, make sure
each employee knows how his or her work affects company performance.
5) Make sure recognition and rewards are consistent: While financial rewards are
often tied to innovations, rewarding only the individual or team responsible for the
“big idea” or its implementation, sets up a subtle competitive atmosphere that
discourages the smaller, less dramatic improvements.
Even team-based compensation can be counterproductive if teams are set up to
compete with each other for rewards. These incentives discourage the cross functional
collaboration so critical to maximum performance.
Companies that successfully foster an innovation culture design rewards that reinforce
the culture they want to establish. If your organization values integrated solutions, you
cannot compensate team leaders based on unit performance. If your company values
development of new leaders, you cannot base rewards on short-term performance.
 6) A tolerance for risk and failure: Tolerating a certain degree of failure as a necessary
part of growth is an important part of encouraging innovation. Innovation is a risk.
Employees won’t take risks unless they understand goals clearly, have a clear but
flexible framework in which to operate and understand that failures are recognized as
simply steps in the learning process.
Toyota’s Production System transfers quality management and innovation authority to
front-line plant workers. Workers are able to make adjustments in their work if they
see an opportunity for improvement. If the innovation works, it’s incorporated into
operations, if not, it’s chalked up to experience.
7) Eliminate projects and processes that don’t work: As your organization innovates
you need to practice what Peter Drucker calls “creative abandonment.” Projects and
processes that no longer contribute should be abandoned to make room for new,
progressive activities.
While no organization wants to squander financial resources on unprofitable
activities, it is actually the irreplaceable resource of time and employee energy that is
wasted if a company holds on to the old way of doing things.

STRENGTHENING THE NATIONAL INNOVATION SYSTEM

National Innovation System – There are two parts of national innovation system –

1) The Production of Knowledge

2) The Application of Knowledge

1) The Production of Knowledge

Research & Development
a. Scientists and Engineers:
i. Universities
ii. Government Labs
iii. Private Labs
b. Supporting Infrastructure:
i. Labs & Equipment
ii. Institutions
iii. Policies
iv. Funding Sources
Issues
i) Public Funding of R&D
ii) Private Funding of R&D
iii) Balance of R&D Portfolios
iv) R&D Infrastructure
v) Science, Math & Engineering Education
vi) Policy Climate for the Conduct of R&D
2) The Application of Knowledge

Problem Solving, New Products, Services, Efficient Processes

 i) Knowledge Producers
ii) Government Agencies
iii) Entrepreneurs
iv) Venture Capitalists
v) Business Managers
vi) Financial Institutions
Issues
i) Barriers to Deployment
 IPR
 Tax
 Regulatory Standards
ii) Skills & Workforce Issue
iii)Venture capital
iv) Bridging the gap between research & commercialization