CHAPTER ONE

THE INNOVATION IMPERATIVE

1.1. Introduction
The national, regional and sectoral contexts can have a significant influence on the rate and
direction of innovation and entrepreneurship through the availability or scarcity of resources,
talent, opportunities, infrastructure and support. However, while context influences the rate and
direction, it does not determine outcomes. The education, training, experience and aptitude of
individuals also have a profound effect on the goals and outcomes of innovation and
entrepreneurship.
1.2. Innovation matters
You don’t have to look far before you bump into the innovation imperative. It leaps out at you
from a thousand mission statements and strategy documents, each stressing how important
innovation is to ‘our customers/our shareholders/our business/our future’ and, most often, ‘our
survival and growth’.
Innovation shouts at you from advertisements for products ranging from hairspray to hospital
care. It nestles deep in the heart of our history books, pointing out how far and for how long it
has shaped our lives. And it is on the lips of every politician, recognizing that our lifestyles are
constantly shaped and reshaped by the process of innovation.
This isn’t just advertising babble. Innovation does make a huge difference toorganizations of all
shapes and sizes. The logic is simple: if we don’t change what we offer theworld (products and
services) and how we create and deliver them, we risk being overtakenby others who do. At the
limit it’s about survival, and history is very clear on this point: survivalis not compulsory! Those
enterprises which survive do so because they are capable ofregular and focused change. (It’s
worth noting that Bill Gates used to say of Microsoft that itwas always only two years away from
extinction. Or, as Andy Grove, one of the founders ofIntel, pointed out, ‘Only the paranoid
survive!’).
On the plus side innovation is also strongly associated with growth. New business iscreated by
new ideas, by the process of creating competitive advantage in what a firm canoffer. Economists
have argued for decades over the exact nature of the relationship but theyare generally agreed
that innovation accounts for a sizeable proportion of economic growth.

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William Baumol points out that ‘virtually all of the economic growth that has occurred sincethe
eighteenth century is ultimately attributable to innovation.
Survival and growth poses a problem for established players but a huge opportunity
fornewcomers to rewrite the rules of the game. One person’s problem is another’s
opportunityand the nature of innovation is that it is fundamentally about entrepreneurship. The
skillto spot opportunities and create new ways to exploit them is at the heart of the
innovationprocess. Entrepreneurs are risk-takers, but they calculate the costs of taking a bright
ideaforward against the potential gains if they succeed in doing something different especiallyif
that involves upstaging the players already in the game.
Of course, not all games are about win/lose outcomes. Public services like healthcare,education
and social security may not generate profits but they do affect the quality of lifefor millions of
people. Bright ideas when implemented well can lead to valued new servicesand the efficient
delivery of existing ones at a time when pressure on national purse stringsis becoming ever
tighter. New ideas whether wind-up radios in Tanzania or micro-credit financing schemes in
Bangladesh have the potential to change the quality of life and theavailability of opportunity for
people in some of the poorest regions of the world. There’splenty of scope for innovation and
entrepreneurship and sometimes this really is about lifeand death.
Where innovation makes a difference? Innovation isabout ….
 Identifyingor creatingopportunities: Innovation is driven by the ability to see
connections, to spot opportunitiesand to take advantage of them. Sometimes this is about
completely newpossibilities, for example by exploiting radical breakthroughs in
technology.
 New waysof servingexistingmarkets: Innovation isn’t just about opening up new
markets; it can also offer newways of serving established and mature ones.
 Growing newmarkets: Equally important is the ability to spot where and how new
markets canbe created and grown.
 Rethinking services: In most economies the service sector accounts for the vast majority
ofactivity, so there is likely to be plenty of scope. And the lower capital costsoften mean
that the opportunities for new entrants and radical change aregreatest in the service
sector.

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  Meeting social needs: Innovation offers huge challenges and opportunities for the
publicsector. Pressure to deliver more and better services without increasing thetax
burden.
 Improvingoperations –doing whatwe do butbetter.
1.3. Innovation and Entrepreneurship
Innovation is important but it doesn’t happen automatically. It is driven by entrepreneurship
apotent mixture of vision, passion, energy, enthusiasm, insight, judgment and plain hard
workwhich enables good ideas to become reality. The power behind changing products,
processesand services comes from individuals whether acting alone or embedded within
organizationsthatmake innovation happen.
As the famous management writer Peter Drucker put it:“Innovation is the specific tool of
entrepreneurs, the means by which they exploit change as anopportunity for a different business
or service. It is capable of being presented as a discipline,capable of being learned, capable of
being practiced”.
Entrepreneurship plays out on different stages in practice. One obvious example is thestart-up
venture in which the lone entrepreneur takes a calculated risk to bring somethingnew into the
world. But entrepreneurship matters just as much to the established organizationwhich needs to
renew itself in what it offers and how it creates and delivers that offering.
Internal entrepreneurs often labelled as ‘intrapreneurs’ or working in ‘corporate
entrepreneurship’or ‘corporate venture’ departments provide the drive, energy and vision to
takerisky new ideas forward within that context.
And of course, the passion to change things maynot be focused on creating commercial value but
rather on improving conditions or enablingchange in the wider social sphere or in the direction of
environmental sustainability a fieldwhich has become known as ‘social entrepreneurship’.
This idea of entrepreneurship is driving innovation to create value social and commercialacross
the lifecycle of organizations.Table 1.1 gives some examples. At managing innovation and
entrepreneurship we’ll use three core concepts:
o Innovation: As a process which can be organized and managed, whether in a start-up
venture or in renewing a long lifebusiness.
o Entrepreneurship:As the motive power to drive this process through the efforts of
passionateindividuals, engaged teams and focused networks.

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 o Creating value. As the purpose for innovation, whether expressed in financial terms,
employmentor growth, sustainability or improvement of social welfare.

Table 1.1.Innovation and Entrepreneurship

Stage in
lifecycle of an Start-up Growth Sustain/scale Renew
organization
Creatingcomm Individual Growing Building aportfolio Returning to theradical
ercialvalue Entrepreneure thebusinessthrough ofincrementaland framebreakingkindof
xploiting new addingnew radicalinnovationtosustain innovationwhich began
technologyor products/services thebusiness and/ or spread thebusiness andenables
marketopportu ormoving intonew itsinfluence intonew markets it tomove forward
nity markets assomething
verydifferent
Creating social Socialentrepre Developing Spreading the Changing thesystem
value neur,passionat the ideas and idea widely, andthen acting asagent
elyconcerned engaging diffusing it to other for thenext wave of
to improveor others in a communities change
changesometh network for of social
ing intheir change entrepreneurs,
immediateenvi perhaps in engaging links
ronment a region or with mainstream
around a key players
issue like public sector
agencies

1.4. Innovation Isn’t Easy!

Coming up with good ideas is what human beings are good atwe have this facility alreadyfitted
as standard equipment in our brains! But taking those ideas forward is not quite sosimple, and
most new ideas fail. It takes a particular mix of energy, insight, belief and determinationto push
against these odds; it also requires judgment to know when to stop bangingagainst the brick wall
and move on to something else.
It is important here to remember a key point: new ventures often fail, but it is the ventureswhich
are failures rather than the people who launched them.
Successful entrepreneurs recognizethat failure is an intrinsic part of the process. They learn from
their mistakes, understanding whereand when timing, market conditions, technological
uncertainties, etc. mean that even a great ideaisn’t going to work. But they also recognize that the

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idea may have had its weaknesses but that theyhave not failed themselves but rather learnt some
useful insights to carry over to their next venture.

While the road for an individual entrepreneur may be very rocky with a high risk of
hittingpotholes, running into roadblocks or careering off the edge, it doesn’t get any easier ifyou
are a large established company.
It’s a disturbing thought but the majority of companieshave a lifespan significantly less than that
of a human being. Even the largest firms can showworrying signs of vulnerability, and for the
smaller firm the mortality statistics are bleak.
Many SMEs fail because they don’t see or recognize the need for change. They are
inwardlooking, too busy fighting fires and dealing with today’s crises to worry about storm
clouds onthe horizon. Even if they do talk to others about the wider issues, it is very often to
people inthe same network and with the same perspectives, for example the people who supply
themwith goods and services or their immediate customers. The trouble is that by the time
theyrealize there is a need to change it may be too late.
But it isn’t just a small firm problem. There is no guaranteed security in size or in
previoustechnological success.
One problem for successful companies occurs when the very things which helped themachieve
successtheir ‘core competencies’ become the things which make it hard to seeor accept the need
for change. Sometimes the new idea isrecognized as good but in some way not suited to the
business.
All of these issues point to the same conclusion.
Organizations need entrepreneurship at all stages in their lifecycle, from start-up to long-
livedsurvival. The ability to recognize opportunities, pull resources together in creative
ways,implement good ideas and capture the value from them are core skills.
1.5. Managing Innovation and Entrepreneurship
The dictionary defines ‘innovation’ as ‘change’; it comes from Latin in and novare, meaning
‘tomake something new’. That’s a bit vague if we’re trying to manage it; perhaps a more useful
definition would be ‘the successful exploitation of new ideas’. Those ideas don’t necessarily
have tobe completely new to the world, or particularly radical; as one definition has it:
‘innovation doesnot necessarily imply the commercialization of only a major advance in the

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technological stateof the art (a radical innovation) but it includes also the utilization of even
small-scale changes inthe cargo available for sale.
Whatever the natureof the change the key issue is how to bring it about, in other words how to
manage innovation.Can we do it? One answer comes from the experiences of organizations that
have survivedfor an extended period of time.
While most organizations have comparatively modest lifespans,some have survived at least one
and sometimes multiple centuries. Looking at the experienceof these ‘100 club’ membersfirms
like 3M, Philips, Corning, Procter and Gamble,we can see thatmuch of their longevity is down to
having developed acapacity to innovate on a continuing basis. They havelearnt, often the hard
way, how to manage the processand, importantly, how to repeat the trick.
Any organizationcan get lucky once but sustaining it for a century ormore suggests there’s a bit
more to it than that.
It’s the same with individuals: ‘serial entrepreneurs’ may start many different businessesand
what they bring to the party is an accumulated understanding of how to do it better. Theyhave
learnt and built long-term capability into a robust set of skills.
Over the past hundred years, there have been many attempts to answer the question ofwhether
we can manage innovation. Researchers have looked at case examples, at sectors,
atentrepreneurs, at big firms and small firms, at success and failure. Practising entrepreneursand
innovation managers in large businesses have tried to reflect on the ‘how’ of what theydo. The
key messages come from the world of experience. What we’ve learnt comes from thelaboratory
of practice rather than some deeply rooted theory.
To manage innovation successfully, innovators:
 Explore and understand different dimensions of innovation (ways in which we can
changethings)
 Manage innovation as a process
 Create conditions to enable them to repeat the innovation trick (building capability)
 Focus this capability to move their organizations forward (innovation strategy)
 Build dynamic capability (the ability to rest and adapt their approaches in the face of
achanging environment).
1.6. Dimensions of Innovation
Innovation can take many forms but we can map the options along four dimensions, asshown in

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Table 1.2.Dimensions for innovation
No Dimension Type of change
1 Product Changes in the things (products/services) an organization offers
2 Process Changes in the ways these offerings are created and delivered
3 Position Changes in the context into which the products/services are introduced
4 Paradigm Changes in the underlying mental models which frame what theorganization
does
For example, a new design of car, a new insurance package for accident-prone babiesand a new
home-entertainment system would all be examples of product innovation. Andchange in the
manufacturing methods and equipment used to produce the car or the homeentertainment system,
or in the office procedures and sequencing in the insurance case, wouldbe examples of process
innovation.
Sometimes the dividing line is somewhat blurred. For example, a new jet-powered seaferry is
both a product and a process innovation. Services represent a particular case of thiswhere the
product and process aspects often merge.
Positioning Innovation is about repositioning, captivating a product or service and offering it in
a novel market, or with a novel slant. Position-centered innovations also relate to conversion in
how a specific process or product is perceived or used.
Position based innovations also relate to change in how a specific process or product is perceived
or used. Example of passion innovation- pants were developed for people as clothing material
and now it is seen as a fashion statement depending on the style and material.
Paradigm’ innovationrefers to the shift in the underlying mental model via a change in the
business status quo. A prime example in the case of paradigm innovation is the advent of the
iPhone and smartphone growth. Before these came up the way consumers absorbed the
information in a very different way, be it newspaper commercials, TV advertisements, websites,
magazines, etc. As smartphone technology grew, most people switched to consuming data via
their phones.
1.7. A process Model for Innovation and Entrepreneurship
Rather than the cartoon image of a light bulb flashing on above someone’s head, we need tothink
about innovation as an extended sequence of activities as a process. Whether we arelooking at an

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individual entrepreneur bringing their idea into action or a multi-million-dollarcorporation
launching the latest in a stream of new products, the same basic framework applies.
We can break it down to the four key steps we mentioned earlier:
 Recognizing the opportunity
 Finding the resources
 Developing the idea
 Capturing value.
Figure 1.1.A model of the entrepreneurial process

i. Recognizing the Opportunity: Innovation triggers come in all shapes and sizes and from all
sorts of directions. They couldtake the form of new technological opportunities or changing
requirements on the part ofmarkets. They could be the result of legislative pressure or
competitor action. They could bea bright idea occurring to someone as they sit, Archimedes-
like, in their bathtub. They couldcome as a result of buying in a good idea from someone
outside the organization. Or theycould arise from dissatisfaction with social conditions or a
desire to make the world a betterplace in some way.
ii. Finding the Resources: The trouble with innovation is that it is by its nature a risky business.
You don’t know at theoutset whether what you decide to do is going to work out or even that
it will run at all. Yetyou have to commit some resources to begin the process. So this stage is
very much about strategic choices. Does the idea fit a business strategy, does itbuild on
something we know about (or where we can get access to that knowledge easily) and dowe
have the skills and resources to take it forward? And if we don’t have those resources, whichis
often the case with the lone entrepreneur at start-up, how will we find and mobilize them?

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iii. Developing the Idea: Having picked up relevant trigger signals, made a strategic decision to
pursue some of them andfound and mobilized the resources we need, the next key phase is
actually turning those potentialideas into some kind of reality. In some ways this
implementation phase is a bit like making akind of ‘knowledge tapestry’, by gradually
weaving the different threads of knowledge (abouttechnologies, markets, competitor
behaviour, etc.) into a successful innovation.
Early on it is full of uncertainty but gradually the picture becomes clearerbut at acost. We have to
invest time and money and find people to research and develop ideas andconduct market studies,
competitor analysis, prototyping, testing, etc. in order to graduallyimprove our understanding of
the innovation and whether it will work. Eventually, it is in aform which can be launched into its
intended context an internal or external market andthen further knowledge about its adoption (or
otherwise) can be used to refine the innovation.
Developing a robust business plan which takes all of this into consideration at the outset isone of
the key elements in entrepreneurial success.
Throughout this implementation phase, we have to balance creativity finding brightideas and
new ways to get around the thousand and one problems which emerge and get the bugs out of the
system with control making sure we keep to some kind of budget on time,money and resources.
This balancing act means that skills in project management aroundinnovation, with all its
inherent uncertainties, are always in high demand! This phase is alsowhere we need to bring
together different knowledge sets from many different people socombining them in ways which
help rather than hinder the process and raise big questionsaround teambuilding and management.
iv.Capture the value : Capture ValueDespite all our efforts in recognizing opportunities,
finding resources and developing the venture,there is no guarantee we will be able to capture
the value from all our hard work. We also needto think about, and manage, the process to
maximize our chances through protecting ourintellectual property and the financial returns if
we are engaged in commercial innovation or inscaling and spreading our ideas for social
change so that they are sustainable and really do makea difference. We also have an
opportunity at the end of an innovation project to look back andreflect on what we have learnt
and how that knowledge could help us do things better next time.
In other words, we could capture valuable learning about how to build our innovation capability.

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The Context of SuccessIt’s all very well putting a basic process for turning ideas into reality in
place. But it doesn’ttake place in a vacuum. It is subject to a range of internal and external
influences that shapewhat is possible and what actually emerges.
This process doesn’t take place in a vacuum; it isshaped and influenced by a variety of factors. In
particular, innovation needs:
 Clear strategic leadership and direction, plus the commitment of resources to make this
happen.
Innovation is about taking risks, about going into new and sometimes completely
unexploredspaces. We don’t want to gamble, simply changing things for their own sake or
because the fancytakes us. No organization has resources to waste in that scattergun fashion:
innovation needs astrategy. But, equally, we need to have a degree of courage and leadership,
steering the organizationaway from what everyone else is doing or what we’ve always done and
towards new spaces.
In the case of the individual entrepreneur this challenge translates to one in which aclear personal
vision can be shared in ways which engage and motivate others to buy intoit and to contribute
their time, energy, money, etc. to help make it happen. Without a compellingvision, it is unlikely
the venture will get off the ground.
 An innovative organization in which the structure and climate enables people to
deploytheir creativity and share their knowledge to bring about change. It’s easy to find
prescriptionsfor innovative organizations which highlight the need to eliminate stifling
bureaucracy,unhelpful structures, brick walls blocking communication and other factors
stoppinggood ideas getting through. But we must be careful not to fall into the chaos trap.
Not allinnovation works in organic, loose, informal environments or ‘skunk works’;
indeed, thesetypes of organization can sometimes act against the interests of successful
innovation. We need to determine appropriate organization, that is the most suitable
organization given theoperating contingencies. Too little order and structure may be as
bad as too much.
This is one area where start-ups often have a major advantage by definition they aresmall
organizations (often one-person ventures) with a high degree of communication andcohesion.
They are bound together by a shared vision and they have high levels of cooperationand trust,
giving them enormous flexibility. But the downside of being small is a lackof resources, and so
successful start-ups are very often those which can build a networkaround them through which

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they can tap into the key resources they need. Building andmanaging such networks is a key
factor in creating an extended form of organization.
 Proactive links across boundaries inside the organization and to the many external
agencieswho can play a part in the innovation process: suppliers, customers, sources of
finance,skilled resources and of knowledge, etc. Twenty-first-century innovation is most
certainlynot a solo act but a multiplayer game across boundaries inside the organization
and to themany external agencies who can play a part in the innovation process. These
days it’s abouta global game and one where connections and the ability to find, form and
deploy creativerelationships is of the essence. Once again, this idea of successful lone
entrepreneursand small-scale start-ups as network builders is critical. It’s not necessary to
know or haveeverything to hand but to know where and how to get it.

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