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Research, over the last 50 years, has consistently linked innovation with business success. Innovation is shown as a major contributory factor in the growth of firms (Mansfield, 1968, 1971); new products and processes, the fastest growing product groups or ‘clusters' (Freeman, 1974); rise and dominance of large corporations ascribed to the use of new technology (Temin, 1979); better business performance related to the higher measures of innovation (Cavanagh and Clifford, 1983); levels of competitiveness linked with the levels of innovativeness (Dosi, 1988); firms using innovation to differentiate their products from competitors, twice as profitable (Pavitt, 1991); innovation a key element of business success (Nonaka and Takeuchi, 1995); high growth companies getting a higher percentage of sales from new products relative to competitors, (O’Gorman, 1997); new product development leading to greater sales volume and enhanced profitability (Kotler, 1999); innovating firms having lower probability of stagnant or declining employment in comparison to non-innovating firms (Frenz et al, 2003) and innovative businesses growing more than non-innovative businesses (European Commission, 2004).
Dictionary definitions of innovation usually focus on the development and successive refinement of inventions into usable products or techniques that are deemed worthy of being launched in a market or used internally within an enterprise (Frenz and Oughton, 2005). Amongst scholars, however, there is a fair amount of noticeable disagreement on the definition of innovation. This is attributed to the heterogeneity of sources and outcomes of innovation, which makes it difficult to identify and analyse (Dosi, 1988) and is partly responsible for often-conflicting outcomes of research on innovation (Le Bars et al., 1998 and Grunert et al., 1997).
As inventions and innovations are associated phenomena, innovation scholars make it a point to clarify the distinction between the two. It is explained that though invention is a prerequisite for many innovations, it is only when an invention is exploited commercially that it results in innovation (Brenner, 1990). Another, though less popular approach to distinguish innovation from inventions has been to claim that inventions relates to new ideas in general whereas innovations are ideas that are new within a specific context (Van de Ven et al., 1989; Damanpour and Evan, 1984 and Damanpour, 1987).
From yet another perspective, a distinction is made between innovation and R&D, where R&D is shown to be concerned with the commitment of resources to research and the refinement of ideas aimed at the development of commercially viable products and processes whereas innovation is concerned with subsequent product (or service) development process. From this perspective, the following linear model of the process of innovation is visualised
Innovation, however, is considered a nebulous concept. Godin (2002) believes that the ambiguity in meaning is caused by the following factors
Factors 2 and 3 in the above do not appear to be valid as the taxonomy of innovation described later in this chapter clarifies these issues. The precarious link between R&D and innovation, however, is indeed not understood adequately and its consequences in Scotland in the shape of a flawed government policy are discussed in this thesis in some detail in Chapter 5. The more important point, however, is that the seeming ambiguity in meaning of innovation is superficial and as will be explained later in this chapter, it is possible to accommodate all notions of innovation within a unifying concept of innovation-span.
The earliest definitions of innovation are credited to Joseph Schumpeter (1934), who arguably is the most influential early writer on entrepreneurship and innovation and their pivotal role in the process of economic change. He includes five manifestations of innovation in its definition:
The influence of the Schumpeterian vision of innovation persists to this day and can be seen in the European Commission’s Green Paper (1995) on innovation that defines it as “…renewal and enlargement of a range of products and services and the associated markets, the establishment of new methods of production, supply and distribution, the introduction of changes in management, work organisation and the working conditions and skills of the workforce” and in Edquist’s (2001) summary description of innovations as new creations of economic significance normally carried out by firms (or sometimes by individuals).
OECD (1981), however, takes a more restricted view of innovation and limits it only to new product and/or process development effort, though it has a more comprehensive vision of product, in which it also includes social services. It defines innovation as “the transformation of an idea into a new or improved saleable product or operational process in industry and commerce or into a new approach to a social service”. This view of innovation thus consists of:
The Oslo Manual (OECD, 1997), on which Europe-wide Community Innovation Surveys are based, limits its view of innovation to technological products and processes (TPP) which are defined as “all those scientific, technological, organisational, financial and commercial steps, including investment in new knowledge, which actually, or are intended to, lead to the implementation of technologically new or improved products or processes”. For the purpose of measurement, it considers a firm innovative “if it produces one or more technologically new or significantly improved products or processes in a three-year period”.
Some analysts also emphasise the beneficial effects of innovation. In one such view, innovation is described as the “intentional introduction and application within a role, group or organisation of ideas, processes, products or procedures new to the relevant unit of adoption designed significantly to benefit the individual, the group, the organisation or wider society” (West and Farr, 1990).
The UK government’s Department of Trade and Industry has probably the broadest and most comprehensive definition of innovation. It describes it as “the successful exploitation of new ideas” and explains that it “involves new technologies or technological applications, which can deliver better products and services, new, cleaner and more efficient production processes and improved business models. For consumers, it means higher quality and better value goods, more efficient services and higher standards of living. For businesses, it means sustained or improved growth. For a company or organisation, innovation delivers higher profits for its owners and investors. For employees, innovation means new and more interesting work, better skills and higher wages” (Department of Trade and Industry, 2003).