Business Innovation

What is innovation?

The process of translating an idea or invention into a good or service that creates value or for which customers will pay. It is about creating something new, and improving existing systems, products and processes.

Innovations can lead to:

  • Improved economic outcomes
  • Survival and growth
  • Increased employment
  • Increased exports
  • Improved skills in the workforce
  • New ways of working such as virtual work groups
  • Better management of environmental impact




  • Improved productivity & reduced costs: A lot of process innovation is about reducing unit costs. This might be achieved by improving the production capacity and/or flexibility of the business – to enable it to exploit economies of scale.
  • Better quality: By definition, better quality products and services are more likely to meet customer needs. Assuming that they are effectively marketed, that should result in higher sales and profits.
  • Building a product range: A business with a single product or limited product range would almost certainly benefit from innovation. A broader product range provides an opportunity for higher sales and profits and also reduces the risk for shareholders.
  • To handle legal and environmental issues: Innovation might enable the business to reduce it carbon emissions, produce less waste or perhaps comply with changing product legislation. Changes in laws often force business to innovate when they might not otherwise do so.
  • More added value: Effective innovation is a great way to establish a unique selling proposition (“USP”) for a product – something which the customer is prepared to pay more for and which helps a business differentiate itself from competitors.
  • Improved staff retention, motivation and easier recruitment: Not an obvious benefit, but often significant. Potential good quality recruits are often drawn to a business with a reputation for innovation. Innovative businesses have a reputation for being inspiring places in which to work.


  • Competition: An innovation only confers a competitive advantage if competitors are not able to replicate it in their own businesses. Whilst patents provide some legal protection, the reality is that many innovative products and processes are hard to protect. One danger is that one research-driven, innovative company makes the initial investment and takes all the risk – only to find it is competing with many me-too competitors riding on the coat-tails of the innovation.
  • Uncertain commercial returns: Much research is speculative and there is no guarantee of future revenues and profits. The longer the development timescale the greater the risk that research is overtaken by competitors too.
  • Availability of finance: Like other business activities, R&D has to compete for scarce cash. Given the risks involved, R&D demands a high required rate of return. That means that for businesses that have limited cash resources, the opportunity cost of investing in R&D can be very high.


Product Innovation

Product Innovation is the creation and subsequent introduction of a good or service that is either new, or an improved version of previous goods or services. This is broader than the normally accepted definition of innovation that includes the invention of new products which, in this context, are still considered innovative.


Process Innovation

Process innovation is the implementation of a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software.


Factors affecting the success of innovation

  • Timing: Innovation is more likely to succeed during times of prosperity then times of economic depression.
  • Available and emerging technologies: Technological discovery or invention can provide the stimulus to initiate the innovation process.
  • Cultural Factors: Institutions that affect society’s basic values, perceptions preferences and behavior.
  • Political Factors: Laws, government agencies, pressure groups.
  • Economic Factors: Inflation, depression, unemployment, poverty.
  • Legal Factors: Administrative law– how government department works, Criminal laws– behaviors that damage the community, Industrial laws– relationships between employers and employees, Contract laws– agreements made between people; trade secrets etc

  • Marketing Strategies: approach used to achieve a marketing objective.



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