Innovation is one of the important catalysts to the sustainable organizational growth and performance. The term of innovation is already used over the century ago and innovation meaning is focus more on the changes or improvement made by the organization either to their product/services, processes and paradigm.
Innovation is the use of new technological and market knowledge to offer a new product or service that customer want and the new product must new, lower cost and the attributes of the product are improved with the attributes that never existed in the market before. The concept of innovation also defined as the process of making changes of something established by introducing something new that adds value to customers and contributes to the knowledge store of the organization.
In simple words, innovation is described as a change that is made to the product and services and also to the process. Innovation has a significant relationship between technology and knowledge. In order to create, add values and changes based on the innovation, the component of new knowledge is a vital sources. The new knowledge can be technological or market related. Technological knowledge is knowledge of components, linkages between components, methods, processes, and technique that to go into a product or services. Market knowledge is the knowledge about the distribution channels, product applications and customer expectation, preferences, needs and wants.
There are four broad categories of innovation called as ‘4Ps’ of Innovation:
- Product Innovation where classify as change in the things (products or services) which an organization offers,
- Process Innovation is the changes in the ways in which they are created and delivered,
- Position Innovation is the changes made in the context in which the products or services are introduced,
- Paradigm Innovation is changes in the underlying mental models which frame what the organization does.
In innovation mechanism, there are two types of static model of innovation which is the Radical Innovation and Incremental Innovation. Radical innovation is defined as major changes that are made in something established and incremental innovation is the innovation that uses existing forms or technologies as a starting point. Both types of incremental and radical innovation affect the technological and market-related competencies of a firm in different ways.
Open Innovation vs. Closed Innovation
For the open innovation theory, this theory is firstly described by Henry Chesbrough. Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology. The paradigm of open innovation leads the research & development to an open system.
Open Innovation denotes, on the one hand, the use of external and internal knowledge sources to accelerate internal innovation and, on the other hand, the use of external paths to markets for internal knowledge. On the modern worlds nowadays, most of everything in industry are made using machines and advance technology. So that, the production of new products and services are fast and also can be produced in huge amounts. In retailing, the advances in computing and communications are bringing retailers into closer contact with their customers as well as their suppliers, enabling them to provide more variety with fewer inventories than ever before.
On the modern era, Innovation paradigm has shift from the closed model of innovation to open innovation model.
The closed innovation model is the paradigm where the process leading to innovation is completely controlled; all the Intellectual property is developed internally and kept within the company frontiers until the new products is released on the market.
In case of closed model of innovation, the firm has to rely heavily on their internal core competencies and potential as a result of right of intellectual property. The implicit rules of closed innovation described as follows:
- A firm should hire the best and smartest people.
- Profiting from innovative efforts requires a firm to discover, develop, and market everything itself.
- Being first to market requires that research discoveries originate within the own firm.
- Being first to market also ensures that the firm will win the competition.
- Leading the industry in R&D investments results in coming up with the best and most ideas and eventually in winning the competition.
- Restrictive Intellectual Property management must prevent other firms from profiting from the firm’s ideas and technologies.
In open innovation models, the firms used the external sources technologies and knowledge to improve the internal innovation process and the firm also capable to commercialize the internal innovation via their own distribution channel by external pathways.
The open innovation principle is the contrast and reflected to the closed innovation model. The principle of open innovation is shown as follows:
- A firm does not need to employ all the smart people, but rather work with them inside and outside the firm.
- Internal innovation activities are needed to claim some of the significant value which can be created by external innovation efforts.
- In order to win the competition, it is more important to have the better business model than getting to market first.
- Winning the competition does not require coming up with the best and most ideas, but to make the best use of internal and external ideas.
- Proactive Intellectual Property management allows other firms to use the firm’s Intellectual Property. It also considers to buy other firms’ Intellectual Property whenever it advances the own business model.
The model of closed innovation on the present time are steadily eroded because of the several of reason such as when the employees of some company changes their jobs, they will bring together the knowledge and the knowledge then will flows from one firm to another. It is contrast to the open innovation model where the knowledge can be shared and gathered by the community and society that not directly involved with the organization.