Introduction to Innovation:

Definition, Key Terms and Types of Innovation

Prof. Dr. Andreas Aulinger
Univ.-Prof. Dr. Michael Stephan

Frankfurt School of Applied Sciences Innovation Management: Introduction to Innovation 1

 Chapter overview: What's in it for you?

Table of Contents
1. What is “Innovation”?
Key Concepts and Basic Terms
2. Process Perspective of Innovation (Management):
Innovation as an Entrepreneurial Process
3. Types of „Innovation”
Implications for Innovation Management
4. Business Model Innovation:
A New Perspective in Innovation Management

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 1. What is “Innovation”?

Key Concepts and Basic Terms

Frankfurt School of Applied Sciences Innovation Management: Introduction to Innovation 3

1. Inventions and Scientific Discoveries versus Innovation

Discoveries and Inventions

 At the outset of all technological innovation processes stand discoveries and / or inventions.
 Where exactly is the difference between inventions and discoveries?
„We discover what before existed, though to us unknown; we invent what did not
before exist“ Noah Webster (1828): An American Dictionary of the English Language
 However, the borderline between inventions and discoveries is fuzzy!
→ e.g., Liquid Crystal Displays (invented/discovered by chance by a botanizer)
 Who are the key players in the innovation process?
 Researchers and scientists at universities or research
institutes (e.g. Max Planck-Institutes, Fraunhofer Focus of the lecture:
Innovation
Institutes in Germany)
Management!
 Engineers, technicians and scientists in companies
Management
 Private inventors and handymen principles are
irrelevant
Source: Burr/Stephan/Werkmeister (2011), p. 494 f.

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1. Inventions and Scientific Discoveries versus Innovation

Discoveries and Inventions result from Fundamental and Applied Research Activities

 Scientific fundamental research comprises activities which lead to the generation of generic
knowledge with regards to physical, biological, chemical and sociological phenomena.
E.g. research in the area of fuel cell (physical chemistry: hydrogen generation and storage for fuel cells,
functionality of fuel cells).

 Applied research is concentrated on solving concrete (technical) problems.

e.g. development of fuel cells for the application in cars (reduction of weight, size etc.).

 Outcome and input: Systematic and codified knowledge about scientific-technical

relationships is outcome of research activities as well as the basis (input) for the main part
of all inventions and discoveries.
 But not all discoveries/inventions result from scientific research (e.g. the wheel)

Source: Burr/Stephan/Werkmeister (2011), p. 494 f.

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1. Inventions and Scientific Discoveries versus Innovation

Basics in Terminology: What exactly is / means „INNOVATION“?

Innovation versus Invention and Discovery
The term „Innovation“ is of Latin origin and incorporates „NEW“ (Nova):
→ A new idea that has not existed before.
What is the difference between innovation and invention (or discovery)?
→ Inventions / technical discoveries are pre-requisites for Innovation.
But Innovation is more!
→ Innovation is the first commercial use of an invention / technical discovery.
Schumpeter was the pioneer who distinguished „Invention“ from „Innovation“:
→ „Innovation means successful market introduction of inventions“
Innovations are either new products or new production processes (or business methods).
Innovation i.n.s. versus Innovation i.b.s.
Innovation i.n.s. is the first market introduction of a new product or production process.
Innovation i.b.s. means the wide diffusion of an invention (like the iPhone).
Source: Burr/Stephan/Werkmeister (2011), p. 494 f.

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1. Inventions and Scientific Discoveries versus Innovation

Innovation in a narrow sense Innovation in a wide sense

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2. Process Perspective of Innovation (Managament)

Innovation from an Process Perspective

Four General Steps and Activities in Innovation

 Research and Development: includes all activities and processes that aim at the
generation of new technological knowledge (basic and applied research).
 Market Introduction: Turning an inventions/discoveries into Innovation; steps include
production ramp-up, training of the workers, innovation marketing
 Market Diffusion: Marketing and Market expansion of the new product (explore new
markets and reach more and more customers)
 Imitation of the innovation by competitors

Source: Burr/Stephan/Werkmeister (2011), p. 494 f.

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2. Process Perspective of Innovation Managament

Stages in the Innovation Process

Research & Market Market Imitative

Activity
Development Launch Penetration Competition

Innovation
Result Invention in a narrow Diffusion Imitation
sense

Innovation (in a wide sense)

Source: Burr/Stephan/Werkmeister (2011), p. 494 f.

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 2. Innovation Process at Mercedes Benz Car (MBC) Group
Which sort of
Daimler & Mercedes MBC starts to think innovations
about the successor Decisions about the
research activities are should be build
of the E-Class which product architecture,
seperate and upstream to into the car?
-90 Monate will be launched next number of variant
development activities
year models etc.

Start
Early Front Project Concept
Strategy Market
Processes Launch Book
Phase Introduction
Corporate
Strategies -90 Months -60 M -54 M -48 M -0 M
and Goals

No Link to Cars low Maturity high

Research Overall Car Development Process

Innovation Management
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2. Innovation Process in Science- and Technology-based Ventures / Start-ups

Phases of the Entrepreneurial Process and Relevant Management Tasks

Basic research, Process development,

Technology and
technological research, innovation marketing
product development,
market research and and ramp-up of
prototyping, business
competition analysis organizational
model development
structures

Pre-seed / seed phase Ramp-up of business Expansion / Scale-up

Profits / Losses Sales

Profits
(cumulated)

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 Chapter overview: What's in it for you?

Table of Contents
1. What is “Innovation”?
Key Concepts and Basic Terms
2. Process Perspective of Innovation (Management):
Innovation as an Entrepreneurial Process
3. Types of „Innovation” Part 2
Implications for Innovation Management
4. Business Model Innovation:
A New Perspective in Innovation Management

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 3. Types of „Innovation”

Implications for Innovation Management

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3. Types of Innovation – Product versus Process Innovation

Process Innovations:
Process innovations are innovations in the way an organization conducts its business,
such as in techniques of producing or marketing goods or services.
Product innovations aim at an increase in efficiency.

Product Innovations:
Product innovations are embodied in the outputs of an organization – its goods or services.
Product innovations aim at an increase in effectiveness
Product innovations can enable process innovations and vice versa.
What is a product innovation for one organization might be a process innovation for another:
E.g., UPS creates a new distribution service (product innovation) that enables
its customers to distribute their goods more widely or more easily
(process innovation)

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 3. Types of Innovation – Product versus Process Innovation
Popular Product Innovations: The light bulb

Inventor: John Wellington Starr

1845 Wellington files the bulb-invention for a patent – however, the
lighting performance was rather bad (< second)
1879 Thomas Alva Edison experiments with more than 6,000
materials for the bulb wire and finally goes for a cotton material
1879 The first commercial bulb of Edison has a life cycle of 40 hours !
1881 Edison sells 500.000 bulbs to New York City
2000: All around the world, more than 40 billion bulps are in operation
2010: The European Union has decided to substitute traditional bulbs
with modern energy saving technologies

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 3. Types of Innovation – Product versus Process Innovation

Popular Product Innovations: The cardiac pacemaker

Inventor: Dr. Paul Zoll, Boston

1850 Surgeons discover, that the human heart can be
stimulated electrically
1887 Discovery: Electrical impulses can be measured with
scientific apparatus - „Electrocardiogram“
1952 First cardiac pacemaker is put into practice – the first
pacemaker was a bulky machine with the size of a fridge,
the patient has to carry the pacemaker on a trolley
1958 First implantation of a cardiac pacemaker by Siemens (a
device with the size of a cigarette box)
Today Micro-invasive implants, pacemakers have the size of
microchips, patients can live with a pacemaker now
more than 12 years

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3. Types of Innovation – Product versus Process Innovation
Popular Process Innovations: 3D Printers

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3. Types of Innovation – Radical versus Incremental Innovation
Traditional categorization of innovation types with regard to the extent of the technological
change (degree of newness) – A dichotomy

1. Radical innovation:
 Innovations that initialize a new direction of technological development.
 Radical innovations often enforced by start-ups and entrepreneurs.
2. Incremental innovations:
 Small improvements of established products do not cause a new dominant design.
 Prevalent view: established competitors control all incremental innovations

Extended view: Henderson & Clark (1990)

Prevalent distinction into incremental vs. radical innovation is not sufficient
Grand Design: Impact of Innovation on the Product Architecture: The design of the product and
the relationships between the individual parts components
Individual functionalities: Impact of innovation on single parts / technologies

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2. Types of Innovation – Radical, Incremental, Modular and
Architectural Innovation

The extended view leads to four different types of innovation

 Radical innovation:
a.) New dominant design – architectural changes/ adjustment of components
b.) New technological concepts – innovation of components, new functionalities
 Incremental innovation:
a.) Old dominant design, no architectural changes
b.) Revision/improvement of single components, basic concept is still the same
 Modular innovation (e.g.digital vs. analogue phones):
a.) Design/architecture remains the same
b.) „Radical“ changes of individual component technologies
 Architectural innovation:
a.) Reconfiguration of existing components, radical design changes
b.) Basic functionalities and individual components remain unchanged

Frankfurt School of Applied Sciences Innovation Management: Introduction to Innovation 19

3. Types of Innovation – Radical, Incremental, Modular and
Architectural Innovation

Strong effect
Fundamental changes Architectural Radical
in the overall design Innovation Innovation
of the product
Impact of innovation
on the product
architecture/design
Weak effect
No significant changes Incremental Modular
in the product Innovation Innovation
archticture

Weak effect Strong effect

Core concepts of Core concepts of single
single components remain or several components are
the same changed fundamentally

Effect of innovation on individual core

concepts / single product components.
Source: Henderson, Clark (1990, p. 12)

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3. Types of Innovation – Market Pull versus Technology Push Innovation

Impulse for Innovation: Where is the Prime Source and Locus?

Market-pull Innovation
Market-pull is Customer-driven
Customer-needs are the driving force
Customers play a crucial role in innovation management
Innovation is „pulled“ by the market

Technology-push-Innovation
Technology-push comes from the R&D department, „Laboratory-
driven“
Technology-push is „pushed“ by the firm

Examples?

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3. Types of Innovation – Market Pull versus Technology Push Innovation

Impulse for Innovation: Where is the Prime Source and Locus?

Market-pull Innovation Technology-push-Innovation

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3. Types of Innovation – Social Innovation

Beyond Traditional Product Innovation: Social Innovation

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3. Types of Innovation – Social Innovation

Beyond Traditional Product Innovation: Social Innovation

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 4. Business Model Innovation

A New Perspective in Innovation Management

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4. Business Model Innovation

Business Model Innovation: Beyond Product and Process Innovation

Fundamental change of parameters in established business models or
creation of a fundamentally new business model.
Prime objective is to differentiate the offer / USP from competitors and to
better satisfy customer needs

Frankfurt School of Applied Sciences Innovation Management: Introduction to Innovation 26

4. Business Model Innovation

Source: https://wallpapercave.com/caterpillar-wallpaper-hd
Case Study

Frankfurt School of Applied Sciences Innovation Management: Introduction to Innovation 27

4. Business Model Innovation

own design/preperation
Source: (http://www.businessmodelalchemist.com/tools;
Case Study Old Business Model
Key partners Processes Value Proposition Cus. Relationships Custom. Segments

Manufacturing+Sales, Personal contact via

Government Tech-Push-Innovation Heavy-duty machines dealer network
Resources Sales Channels
Construction firms
Suppliers (by size and type)

Factory + Dealer Network (Repair) Services Dealers

Industry
Cost Structure Revenue Streams

R&D Manufacturing Marketing Team

+ Sales Product Sales Service Fees

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4. Business Model Innovation

own design/preperation
Source: (http://www.businessmodelalchemist.com/tools;
Case Study New Business Model on Top of Old
Key partners Processes Value Proposition Cus. Relationships Custom. Segments

Data-driven action Deeply integrated

Resources Sales Channels

Construction firms
Uptake Data Mining (by technological affinity
and innovativenss)

Smart Data, Cat Digital, „Smart Iron“

Connect
Cost Structure Revenue Streams

Team Maintenance & Data Centers Solution Fees

Development

Frankfurt School of Applied Sciences Innovation Management: Introduction to Innovation 29

Concrete Cases
Group
Assignment

Identify and Classify and Example of commercially successful

green / social innovation:
 Identify a concrete example
 Portray the innovation and the relevant players
 Classify the innovation:
a.) Product- or process innovation, business model innovation?
b.) Incremental, radical, modular, architectural?
b.) Market-pull versus technology push
 Analyse the business model
 Prepare a short presentation (about 10 minutes)

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