The Business of Innovation

Jay Mitra

• Publisher: SAGE Publications Ltd
• Year: 2017
• ISBN:
  9781473987654
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

Moving beyond the narrow confines of a "how to" of Innovation management, The Business of Innovation sets out to track, trace and provide testimonies of innovation practice in small to large-scale organisations from countries around world.

Through a combination of contemporary economic and social theory, and an array of practical examples from a wide range of sectors and industries, Jay Mitra offers critical insight into how global innovation works, where it works and most importantly, who makes it work, with an emphasis on innovative women.

Suitable for postgraduate, doctoral and MBA students on business management and innovation courses and practitioners looking for a critical insight into the business of innovation.

1 An Introduction to Technological Change and Innovation

Scope and Objectives

• An introduction to the meaning and significance of technological change for innovation, growth, economic and social development.
• A focus on developed economies where technological change has been most pronounced in the last two centuries.
• Critical appreciation of underpinning economic theories that help to explain the relationship among technological change, the knowledge production function, exogenous and endogenous growth, spillover effects, innovation and economic growth.
• An understanding of the contexts of technological change and the significance of organisational and social change generated by advances in technology and innovation.

Introduction

The connection between innovation, entrepreneurship and technical change is predicated upon the idea that their mutual interdependence leads to improved economic performance at the level of the firm, the industry, the region and the nation. Changes in technology and their use enable the creation of new products and services. The mobilisation of resources through the formation or growth of firms characterises the entrepreneurial process which brings these new products and services to the market. With the gradual diffusion of these innovations, incumbent technologies and businesses give way to new and more productive counterparts. Firms enjoy higher levels of productivity, consumers take advantage of either cheaper or better value products and services for which they may be willing to pay more, new jobs are created, we obtain a better quality of goods and services, and the gross domestic productivity of the nation increases over time. Technical advance prompts the creation of new products and services, the formation of new firms, and economic growth.

Economies grow because of numerous factors that enable growth to occur. Increases in market size enable increases in gains from trade, resulting from the division of labour and competitive resource pools. Investment in physical and human capital causes economic growth. Another key source is technological change (Lipsey et al., 2005). Understanding how the growth process is linked to technical change, innovation and entrepreneurship is vital for any business and policy makers. Understanding the drivers and effects of innovation and entrepreneurship is critically important because we are all conscious of the fact that technical change is related to improvements in performance at the level of the individual business, the industrial sector in which the firms are located, and at the regional and national levels (Link and Siegel, 2007).

An ambitious start-up needs to identify and use key new technologies which give them an advantageous position compared with an incumbent. An existing business has to weigh up options of using its current portfolio of technological assets against possible new improvements, based on the relative returns that can be generated from either option, the opportunity cost forgone for not using the new offering and the strategies adopted by competitors. At the regional level, and across both developed countries and fast-growing emerging economies, it has become commonplace now to see substantial investments in technology-based economic development activity. The consideration of research and development and its commercialisation at universities, together with knowledge transfer, licensing agreements and academic spin-offs, are just some of the activities that are placed on regional economic development agendas. At the national level, even if economic, industrial, fiscal and monetary policies are not determined directly by innovation and entrepreneurship, they are perceived as being crucial for all of these policies.

Incorporating innovation and entrepreneurship within these policy frameworks is given more than lip service by governments. Witness the European Union’s agenda for innovation and the Framework Programmes now being given a further uplift with the Horizon 2020 project, India’s Knowledge Commission reports and proposals, and China’s R&D investment in lithium batteries, solar and wind energy, fintech and cross-border co-operative innovation (‘One Belt, One Road’) to appreciate how and why technological change and its corollary, innovation, now permeate policy-level discussions and programmes.

Our project on the organisation of innovation requires us to examine the meaning and impact of technical change at level of the firm. In other words, we are concerned with the organisational component of innovation, the uses of technology for innovation and the necessary mobilisation of resources with which to harness those technologies for new products. The organisational component is to be found in new firms that are created to manage the innovation process and in existing firms that search for strategies to compete against the odds with new products, services and structural organisational change (i.e. changes in modes of practice, approaches to management, organisational structure and forms of interaction with the outside world).

What firms do in aggregate has direct implications for economic growth. How they engage in the innovation process through R&D and other means has a bearing not only on firms and their growth, but also on governments because the latter are keen to foster business activity that can spur economic growth. Where such innovation occurs, and where it does not, also have implications for firms, governments and support services. As we will see later, location matters: proximity to other innovative firms can have beneficial effects for firms seeking a new location, while it makes it strategically important for governments to concentrate scarce resources where there is a greater likelihood of their optimisation. The significance of the organisational component is, therefore, embedded in the geography of the firms and in the networks of interaction with private and public agencies, competitors, suppliers, distributors and other players.

But first we need to obtain an understanding of technological change and how that process relates to innovation.

Understanding Technological Change

Technology can be defined as the physical representation of knowledge (Link and Siegel, 2007). The creation of any useful product provides evidence of the assumptions about knowledge or information that contributed to its creation. While science helps us to understand knowledge, technology is concerned with its application in various contexts. In this sense technology can be considered to be an output that emerges from a formal, rational or specifically undertaken process with a particular purpose. Different technologies are characterised by the varied amounts of information that are embedded in them and their production is dependent on knowledge (which is produced by research and experience). Invention can be regarded as the creation and development of a new technology; its first or new application in a specific context is then the first application of the invention.

At the heart of innovation brought about by technical change is the production of knowledge, referred to in the economics literature as the knowledge production function (KPF). This function best explains why innovation is important. Understanding the underpinning theories that have evolved especially since the 1950s can be a useful starting point for a critical discussion. KPF is central to economic arguments about innovation and entrepreneurship. It has a close link with prevalent theories of opportunity recognition, exploitation and realisation which form the hallmark of the literature on entrepreneurship. New knowledge creates new opportunities which, when exploited, can be realised in the form of new products, services and organisations. As we will discuss below, this link is not as obvious as it perhaps sounds. It has taken some time for economists to make the connection and accept the symbiotic relationship, even though Schumpeter had articulated the relationship back in 1934! In trying to make sense of the value of technological change and its relationship with innovation, entrepreneurship and business performance, we need to navigate complementary and overlapping spaces of firms, geography, institutions and policy. This calls for a basic level of understanding of the development of theories of economic growth. We do so first by taking a short journey in the theoretical space of modern economic growth.

Technological Change and Old Growth Theories

Economic growth was of considerable interest to Adam Smith and other classical economists, but the orthodoxies of general equilibrium theory and the reality of the Great Depression of the 1930s obscured its significance. Unemployment rather than economic growth per se was the main macroeconomic obsession until the Second World War, when there was a new interest among public policy makers who were keen to find ways in which to rebuild their ravaged economies. The availability of national economic and product statistics, pioneered by Simon Kuznets, spawned new research activity.

In a specific chapter, ‘Economic of growth’, in his 1952 publication A Survey of Contemporary Economics, Moses Abramovitz noted that a certain level of output was a function of the quantity of land, labour and capital, and factors such as the social and economic conditions, including the industrial an...

Table of contents

• Cover
• Half Title
• Acknowledgements
• Title Page
• Copyright Page
• Acknowledgements
• Contents
• About the Author
• Foreword
• Preface
• Acknowledgements
• 1 An Introduction to Technological Change and Innovation
• 2 The Innovative Environment
• 3 Systems and Institutions of Innovation
• 4 Innovation Policy and the Role of Government
• 5 The Characteristics and Features of Innovative Organisations
• 6 Innovation and the Types and Size of Firms
• 7 Innovative People
• 8 Types of Innovation
• 9 The Process of Innovation
• 10 Forms of Innovation
• 11 Measuring Innovation
• Epilogue
• References
• Index