Chapter 3: Theory
This chapter discusses innovation from an organizational viewpoint and how important it is. It then talks about innovation governance and its impacts on organizations. Finally, it highlights the innovation in the UAE as a country.
3.1 Definition of Innovation from an Organization Perspective
Economists consider innovation as an essential concept concerning the growth and success of businesses regardless of their size, profitability rates as well as the products or services they offer. Therefore, innovation is a crucial element of entrepreneurship. Firms that are highly innovative not only establish but also sustain a competitive advantage over businesses that are not innovative. Business innovation typically involves the capability of employees and the management of an organization to think in a creative and different manner regarding the use of resources that help them achieve their objectives (Garriga et al., 2012). Also, innovation assists an organization to improve its overall governance, which ensures it performs at a better or higher level. This argument, therefore, brings up the question of what is innovation, especially from an organizational perspective. When answering this question, it is important to point out that for a company to be regarded as innovative, it must create or improve its products or services to create value to its customers or clients, while being profitable (Iren & Tee, 2017). Additionally, a business must recognize an opportunity in the market or solve an existing problem.
Schumpeter (1934) defined innovation as a new approach to doing things from an economic outlook. Therefore, based on this definition, commentators view innovation as any change, creation, or modification that a company undertakes in its processes to create value for its products or services from a consumer perspective, which will be beneficial to the firm through an increase in overall sales (Schumpeter, 1934). Schumpeter felt that for any business to be considered innovative, it has to undergo some form of operational changes that improve its products or services in terms of quality, prices, or both. He also distinguished it from invention because according to him when one takes into consideration invention by itself, it does not necessarily lead to profitability or creation of value. However, innovation is an activity that is undertaken with the aim of improving the value of a product, or service with the purpose of increasing profitability (Ahrens et al., 2017). Therefore, innovation can be more about economics than technology. It is also highly likely to take place during the production process, as opposed to the Research and Development phase. It is also imperative to point out that there is no single most effective way of achieving innovation in an establishment. The reason for this is that different factors can contribute or lead to innovation. These include employees, the management, and societal and technological developments that affect any given industry (Anaya et al., 2015). In addition to that, various skills are associated with the innovation ability of the personnel working in a company. These skills include the communication skills of the employees, their entrepreneurial instincts, level of creativity, and their adaptability to various market changes. Another important aspect that should be noted is that, in most cases, innovation takes place in an uncertain environment, and although the innovators may speculate about its expected results, they are also uncertain (Parker, 2012). Therefore, for an organization to increase its innovation capability it must:
- Increase investments in the R&D department to make it more efficient.
- Appoint visionary leadership that supports the creative ideas of its employees.
- Ensure its organizational structure and culture are adequate and allocate proper resources to explore the innovative ideas that have been formulated.
Drucker (1985) points out that innovation positively correlates to successful entrepreneurship. He adds that for new business ventures to be financially successful, they have to be able to create a product, or service through their unique innovation strategies to generate a high number of sales. The reason for this is that the new products or services will solve an existing problem, or create a unique need for the customers, and therefore increase their purchase tendencies.
For existing and successful companies, Drucker (1985) proposes that they can realize innovation through a systematic process. This proposition means managers in these organizations should have a direct, and positive influence on innovation, which will lead to the improvement of their products, or services, leading to increased profits. Sullivan (2010) adds that innovation is a skill that organizations can develop through training and mentorship programs. For an organization to be innovative, it requires leaders who are willing to take risks and are ready for change and ambiguity. These leaders should be willing to communicate and collaborate with the employees for the organization to realize its innovation capacity.
OECD (2005) provides the following definition for innovation; "An innovation is the implementation (commercialization) of a new or significantly improved product (good or service), or process, or a new marketing method, or a new organizational method in business practices, workplace organization or external relations (OECD, 2005)." Based on this definition, for innovation to be achieved, it must affect the products (goods, or services) of a certain organization. It can also transform the organizational processes that an organization undertakes, the marketing methods that the management implements, and even the way an organization operates. For instance, an organization can become more innovative by simply changing the way it generates its ideas. For instance, it can encourage its employees who are inventive to willingly share their ideas with managers, who then decide whether to implement them.
Borrowing from the above arguments, this research defines innovation as 'creative activities that businesses adapt to solve problems, increase consumer value, thus, enhancing sales and revenue.' This definition is viable for an organization can identify a market opportunity by addressing a certain problem, realize the needs of its customers or prospective clients, and through its innovation strategies, create a product or service that addresses this problem (McCann & Oxley, 2012). The result of a company's creativity is that a business can create a product or service that the customers will perceive as valuable, hence, leads to an increase in their purchasing behavior, and ultimately increased profits for an organization. Berkun (2007) states that innovators possess the ability to recognize a problem in their industry and the talent to solve that problem. Innovation is also applicable to all organizations irrespective of their size, market value, the industry, profitability rate, and even its number of employees (Berkun, 2007).
There are different aims of innovation, which can lead to economic development and organizational growth. For instance, there are instances when innovation leads to the production of a new product (Volberda et al., 2010). Also, innovation can facilitate the creation of new processes of production or new sources of supply. In this case, businesses can use different innovative approaches to promote economic growth and development of an organization. However, firms need to ensure they properly manage their innovation strategies to achieve economic growth.
While most companies have made valuable, or high investments in their business processes, and even tools of product to develop, and re-modify their products, or services, they have invested little regarding innovation strategy, and execution. For most of these companies, their innovation processes mainly involve brain-storming ideas from some of the employees, which is noted down, and then implemented whenever an organization sees an opportunity. While this may be effective in various cases, it does not bring out the innovative capability of a business. Innovation governance is an important concept for an organization as it helps the organization determine the critical decisions that it will follow, assess the costs, and also the value of these products.
The first step when it comes to innovation management for an organization is the assessment of the business environment. This phase entails examining and observing the primary market segments, regulatory laws, competitiveness of the business environment, needs of the customers, and overall costs of meeting these needs. By assessing the business environment, a business will be able to determine its goals, and objectives, and create a roadmap to achieve these goals. By having a clear roadmap to create, or re-model products, or services, the business will have an improved framework to improve its decision-making processes. This will be achieved through management support of the new ideas, and adequate flow of information in the organization (people will be more willing to share their ideas because the management will support them, or they will not be liable for punishment as long as their ideas are within the goals of the company). Assessing business environment, therefore, is very vital for sustainable innovation because it allows an organization to identify the most important opportunities that can add value and competitive advantage to the organization.
Development of ideas is the second stage in the innovative process. Corporates derive innovation ideas by assessing their external and the internal environments, which helps to identify the possible opportunities, market change, shifts in consumer perception, new knowledge, and process needs that an organization can use to increase the value of the existing products or even create new products. Incremental innovation is very important in the process of value addition, and regular research can help organizations to identify opportunities to increase their innovative capabilities. However, in an organization set up, customers are a significant source of ideas and can direct a business innovation strategy because every organization seeks to improve innovation by meeting the changing needs of the consumers.
Portfolio management and concept development can be used to achieve a strategic organization target. Managers base portfolio management investment decisions in which the innovation-decision match the organization objectives and balances the risk involved in the innovative process. On the other hand, concept development includes the evaluation of the innovation opportunity to ensure that it can add value to an organization. It also helps to ensure that the new concept is sustainable to achieve the strategic objective of the business. The strategic objective is achieved through the creation of a new product and its launch in the market successfully (Hassan 2015).
3.2 Impact of Innovation Governance
Business leaders should consider innovation as a holistic process. That is, they should take account of the short- and long-term goals and...
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