Unit 1

RCA 204, Innovation & Entrepreneurship
UNIT-I: INNOVATION AND ENTREPRENEURSHIP (8 HRS)
What is innovation and entrepreneurship? Innovation Types and sources, recognizing opportunities,
acting on the opportunities, innovation strategies and management, strengthening the national
innovation system, fostering innovation and entrepreneurship
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What is Innovation?
“Innovation is the key element in providing aggressive top-line growth and for increasing bottom-line
results"
The process of translating an idea or invention into a good or service that creates value or for which
customers will pay.
To be called an innovation, an idea must be replicable at an economical cost and must satisfy a specific
need. Innovation involves deliberate application of information, imagination and initiative in deriving
greater or different values from resources, and includes all processes by which new ideas are generated
and converted into useful products.
“Effective knowledge management can be a key (ing) ingredient of innovation as it can feed a continual
flow of ideas into the process. “
Prepared by Neelam Rawat

“While knowledge management focuses, primarily, on learning from the past and on current good
practices, innovation focuses on experimentation, prototyping, and the creation of the good practices of
tomorrow.”
In Ernst and Young, they identified four mega-processes in each company. All business processes then
become sub-processes of the mega-processes of ‘Sell, Serve, Develop People, and Develop New
Products and Services’. Underpinning each of these mega-processes is knowledge.
Innovation has the capacity to improve performance, solve problems, add value and create competitive
advantage for organizations. Innovation can be broadly described as the implementation of both
discoveries - inventions and the process by which new outcomes, whether products, systems, processes
or organizational forms, come into being (Williams, 1999).
The process of innovation depends heavily on knowledge, particularly since knowledge represents a
realm far deeper than simply that of data, information and conventional logic.
The potential of Knowledge Management (KM) creates the intellectual capital as sources of innovation
and renewal; business strategy should be focusing more on these issues.
To do this, I am going to briefly discuss three things:
• What does innovation really mean, especially in a global knowledge economy?
• What can history teach us about successful innovation in organizations?
• How do we bridge knowledge management and innovation?
Wikipedia says that innovation can be considered as “the useful application of new inventions or
discoveries. “
It distinguishes here between invention and innovation. Invention is an idea that is made manifest, and
innovation, is ideas that are applied successfully in practice. So the key words here are the ‘successful
application’ of ideas.
• Creativity is an individual ability that can lead to an intact invention or idea by the creative
person.
• Innovation is the process to convert invention or idea into a marketable product or service.
• Entrepreneurship is an individual characteristic that leads the innovation process successfully in
bringing a product or offering a new service to market despite many obstacles.
Because entrepreneurship requires a special kind of creativity and entrepreneurship in the entire
process, from initial idea generation to finance sale, all require creativity.
Innovation is synonymous with risk-taking and organizations that create revolutionary products or
technologies take on the greatest risk because they create new markets.
Imitators take less risk because they will start with an innovator's product and take a more effective
approach. Examples are IBM with its PC against Apple Computer, Compaq with its cheaper PC's against
IBM, and Dell with its still-cheaper clones against Compaq.

Relationship between Creativity, Invention & Innovation
Creativity is related to ‘imagination’, but innovation is related to ‘implementation’
• Creativity is the capability or act of conceiving something original or unusual.
• Invention: An invention is a novel product, device, process, or concept.
• Innovation: An innovation is the introduction of a newer and better solution that meets new
requirements or existing market needs.
Creativity is the ability to think and act in ways that are new and novel. In our minds, there are two kinds
of creativity, innovation and invention
Consider the microprocessor. Someone invented the microprocessor. But by itself, the microprocessor
was nothing more than another piece on the circuit board. It’s what was done with that piece — the
hundreds of thousands of products, processes and services that evolved from the invention of the
microprocessor — that required innovation.
The following are the major differences between Creativity and Innovation:
1. The quality of thinking new ideas and putting them into reality is creativity. The act of executing
the creative ideas into practice is innovation.
2. Creativity is an imaginative process as opposed to innovation is a productive process.
3. Creativity can never be measured, but Innovation can be measured.
4. Creativity is related to the generation of ideas which are new and unique. Conversely, Innovation
is related to introduce something better into the market.
5. Creativity does not require money. On the other hand, innovation requires money.
6. There is no risk involved in creativity, whereas the risk is always attached to innovation.

Innovation Life Cycle
Life cycle of innovations can be described using the 's-curve' or diffusion curve. The concept of the S-
Curve is used to determine performance in regard to time or effort. These are extremely important due
to the fact that understanding where you are in regard to this system determines how you should
proceed in regard to innovation strategy. It can also assist you in understanding your current risks and
how to avoid certain pit-falls common to products or services in certain phases of maturity.
There exist four major stages of innovation. These are Ferment, Takeoff, Maturity, and Discontinuity.
1. Era of Ferment – This phase is in the beginning of the S-Curve pattern of innovation. It is when
the product/ industry is completely new. As a result a dominant design in the market hasn’t been
established yet. Therefore, the competition between the various players in the industry is fierce.
As a result, usually at this stage most of the resources are spent on research and development.
2. Takeoff - In this phase, due to the ability to overcome a major technical obstacle or the ability to
satisfy a demand of the market, the product/industry have been adopted by the early majority
and managed to cross the chasm and a dominant design has been established already. Hence,
the market will be characterized with a rapid growth in production, and the product will move
quickly towards a full market acceptance.

3. Maturity - Here, the product is adopted almost completely by society and is usually approaching
a physical limit. Due to the strong competition among the major players in the market which is
clearly defined at this stage, most of the resources at this point are spent on improving the
production processes and making them cheaper. Therefore, oftentimes the products at this stage
become completely standardized and the innovations at this stage are considered incremental.
4. Discontinuity - At this phase the innovation occurs, as a new S-Curve pattern can rise. Since the
previous product/ industry reaches an era of maturity, there is an opportunity for a new product
to appeal to the innovators segment in the population and they will start a new product life cycle
which is usually considered as the Disruption. A great example of this was the transition from
film cameras to digital cameras.
The s-curve maps growth of revenue or productivity against time. In the early stage of a particular
innovation, growth is relatively slow as the new product establishes itself. At some point customers begin
to demand and the product growth increases more rapidly. New incremental innovations or changes to
the product allow growth to continue. Towards the end of its lifecycle, growth slows and may even begin
to decline. In the later stages, no amount of new investment in that product will yield a normal rate of
return
The s-curve derives from an assumption that new products are likely to have "product life" – i.e., a start-
up phase, a rapid increase in revenue and eventual decline. In fact the great majority of innovations
never gets off the bottom of the curve, and never produces normal returns.
Innovative companies will typically be working on new innovations that will eventually replace older
ones. Successive s-curves will come along to replace older ones and continue to drive growth upwards.
In the figure above the first curve shows a current technology. The second shows an emerging
technology that currently yields lower growth but will eventually overtake current technology and lead
to even greater levels of growth. The length of life will depend on many factors.
To understand the concept of the S-Curve Better, let’s use the audio industry as an example. At start, at
the ferment stage, there was the Cassette tape which was invented by Phillips. Then, at the Takeoff
phase, Sony has invented the Walkman that had the ability to answer the customers’ demand of
listening to their Cassette outside. As a result of Sony’s success, the market has arrived to its maturity as
a number of competitors manufactured similar devices (Phillips, Sony, TDK, Maxwell, etc.)
The Discontinuity phase appeared when Sony and Phillips have developed the compact disk and by
doing so, disrupted the market and started a new S-Curve.

Conclusion
The S-Curve of Innovation is a robust framework that can be used to analyze various industries at their
different stages and to explain their successes and failures. The model has a lot of empirical evidence
and assisted researchers in understanding what occurred in the semiconductors industry, the
telecommunications market, the hard drives global market and many more.
Why Innovation & Entrepreneurship?
“Entrepreneurship cannot survive without innovation”
Innovation and Entrepreneurship is focused on developing knowledge, skills and understanding of how
an innovative idea, product or process can be used to form a new and successful business, or to help an
existing firm to grow and expand.
“Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an
opportunity for a different business or a different service. It is capable of being presented as a discipline,
capable of being learned, capable of being practiced. Entrepreneurs need to search purposefully for the
sources of innovation, the changes and their symptoms that indicate opportunities for successful
innovation. And they need to know and to apply the principles of successful innovation.”
- Peter Drucker
What is Entrepreneurship?
Entrepreneurship has traditionally been defined as the process of designing; launching and running a
new business, which typically begins as a small business, such as a startup company, offering a product,
process or service for sale or hire, and the people who do so are called 'entrepreneurs'.
It has been defined as the "capacity and willingness to develop, organize, and manage a business
venture along with any of its risks in order to make a profit."
According to Stevenson, “entrepreneurship is the pursuit of opportunity beyond resources controlled”.

An entrepreneur has been defined as "a person who starts, organizes and manages any enterprise,
especially a business, usually with considerable initiative and risk rather than working as an employee.”
An entrepreneur runs a small business and assumes all the risk and reward of a given business venture,
idea, or good or service offered for sale.
Entrepreneurship is often associated with uncertainty, particularly when it involves creating something
new for which there is no existing market. Even if there is a market, it may not translate into a huge
business opportunity for the entrepreneur. A major aspect in entrepreneurship is that entrepreneurs
embrace opportunities irrespective of the resources they have access to.
Entrepreneurship involves being resourceful and finding ways to obtain the resources required to
achieve the set objectives. Capital is one such resource. Entrepreneurs need to think out-of-the-box to
improve their chances of obtaining what they need to succeed. According to management experts, vast
majority of entrepreneurs desire to be in control of their own life and they can’t find this beyond
entrepreneurship. Studies have demonstrated that people derive great satisfaction from their
entrepreneurial work.
A number of entrepreneurs are of the opinion that managing their own business offers far greater
security than being an employee elsewhere. They feel entrepreneurship enables them to acquire wealth
quickly and cushion themselves against financial insecurity. Additionally, an entrepreneur’s future is not
at peril owing to the faulty decisions of a finicky employer. So, while some people feel that being
employed is less risky, entrepreneurs feel that they are better off starting a business of their own.
Today, there is the increasing awareness about entrepreneurship. People aren’t confining themselves to
one business. They are following one business with another. Such entrepreneurs are referred to as
“serial entrepreneurs.” Sometimes these entrepreneurs become angel investors and invest their money
in startup companies. As a person gains greater insight into business and entrepreneurship, his chances
of succeeding in business improve
Importance of Innovation in Entrepreneurship
 The economy is composed of enterprises and businesses. Our economy has survived because
the industry leaders had been able to adapt to the changing times and supplied mostly the
communities’ needs. Any small business is integral to the economy. Without it, our economy
would not survive. But a business must also sustain itself, be able to constantly evolve to fulfill
the demands of the community and the people. In every business, it is imperative to be
industrious, innovative and resourceful.
 Entrepreneurship produces financial gain and keeps the economy afloat, which gives rise to the
importance of innovation in entrepreneurship. Entrepreneurs are innovators of the economy. It
is not just the scientist who invents and come up with the solutions.
 The importance of innovation in entrepreneurship is shown by coming up with new way to
produce a product or a solution. A service industry can expand with another type of service to

fulfill the ever changing needs of their clients. Producers can come up with another product
from the raw materials and by-products.
 The importance of innovation in entrepreneurship is another key value for the longevity of a
business. Entrepreneurs and businesses began with a need. They saw the need within the
community and among themselves that they have come up with a solution. They seize the
opportunity to innovate to make the lives more comfortable. And these solutions kept evolving
to make it better, easier and more useful. Entrepreneurs must keep themselves abreast with the
current trends and demands. Manufacturers are constantly innovating to produce more without
sacrificing the quality.
 Companies and enterprises keep innovation as part of their organization. Innovations contribute
to the success of the company. Entrepreneur, as innovators, see not just one solution to a need.
They keep coming up with ideas and do not settle until they come up with multiple solutions.
Innovation is extremely important that companies often see their employees’ creativity as a
solution. They come up with seminars and trainings to keep their employees stimulated to create
something useful for others and in turn, financial gain for the company.
 Other factors that raises the importance of innovation in entrepreneurship is competition. It
stimulates any entrepreneur to come up with something much better than their competition in a
lower price, and still be cost-effective and qualitative.
 Small businesses see the importance of innovation in entrepreneurship. They were able to
compete with large industry and see their value in the economy. Small businesses are important
as they are directly involved in the community and therefore, contribute to their financial and
economic gain. These small businesses know exactly what community needs and fulfill them. All
things start small.
 Innovation is important not just in entrepreneurship. As individuals, we are innovators by
adapting well to our needs and create our own solutions. Entrepreneurs are the same. The
innovation in entrepreneurship helped the country by changing with the times and producing
new products and service from ones that already exists. And, being innovative has helped us
become successful in all our endeavors.
Types of Innovation
Broadly, four categories of Innovation:
1. Breakthrough
2. Sustaining
3. New Market
4. Disruptive

This gives us a good basic framework for determining what type of innovation we might want to pursue.
Sometimes, we have well defined problems, sometimes we don’t. Sometimes it’s clear who is best
equipped to tackle a problem, sometimes it isn’t. By asking ourselves those two questions, we can
outline a successful approach.
Breakthrough –
Breakthrough innovations are generally considered “out-of-the-blue” solutions that cannot be compared
to any existing practices or techniques. These innovations employ new technologies and create new
markets.
For example, Tim Berners-Lee, a software engineer, created a network of interconnected computers to
share and distribute information easily and cheaply in 1980. This network developed into the Internet.
Tim never thought about what customers wanted when he created his network.
From a strategic perspective, breakthrough innovations are usually along the lines of high benefit or
differentiation potential. Thomas Kuhn called this “revolutionary science” because it involves a paradigm
shift. In this case, the problem is well defined, but the path to the solution is unclear, usually because
those involved in the domain have hit a wall.
Transistors and the discovery of the structure of DNA are both good examples of breakthrough
innovation.
But in getting back to the original point – companies who live and die through premium products will
need to continually innovate with breakthrough products in order to remain successful.
Examples:
 One of the best cited examples of breakthrough innovation on the tech front is the first iPhone.
By harnessing new technology, Apple was able to bring a fundamentally new product to market,
creating new demand in the process.

 Microsoft has also rethought its business model to develop a breakthrough innovation in the
form of Office 365. This saw the company go from selling its Office suite as a product, paid for on
a one-off basis, to offering it as a monthly or annual subscription.
Sustaining – Sustaining innovations in products or services are incremental. Also called Incremental
Innovation.
Sustaining innovations evolve existing technologies to be more accessible, efficient, cost effective, etc.
They do not establish a new market but rather offer an evolutionary version or add-on to existing
technology. Sustaining ideas have to do with improving the current product by developing generations 2,
3, 4, 5 and so on until the product reaches the end of its life cycle. Normally large companies are very
good at creating sustaining innovations because their resources, business processes and cultures are
setup in a way to enable sustaining efforts
With regards to strategy, sustaining products are all about milking the breakthrough product (a benefit
leadership strategy) by extending it’s life cycle as long as it can go. Most breakthrough products will not
last very long without a sustaining effort behind them. And this sustaining effort is where profitability is
maximized because unnecessary costs can be removed and the benefits of the product (the value
proposition) can steadily improve. For example, Windows XP is an incremental innovation
New Market - A lot of managers think of new markets in terms of geography such as entering an
emerging market like India or China. New market innovations refers to applying a current product in a
new way and sometimes even for a different segment of customers. New market innovations can be
extraordinarily successful if executed well. In some cases, all it takes to introduce a product into a new
market is educating your customers, both current and new, about the other things your product can do.
The strategy behind new market innovations can fall on either cost leadership or benefit leadership. The
reason is because if you have a product that is basically a premium value product (benefit leadership) in
its existing form and you manage to successfully apply that product to a new use case then the value of
your product will need to be weighed in light of the alternatives for the new use case.
For example, if Arm and Hammer baking soda costs $4/box while most other baking soda brands cost
around $2/box then it’s safe to assume that the Arm and Hammer baking soda is viewed as a benefit
leader product. In other words, it performs the job of baking better than the lower cost alternatives.
However, when used as a fridge deodorizer that same $4/box price will need to be weighed against
other deodorizer products. For example if most fridge deodorizers costed an average of $8/bottle (or
whatever the embodiment) then the Arm and Hammer baking soda is essentially a cost leader against
the alternative deodorizers. This scenario is often what can make some products so successful when
applied in a new way.
Disruptive -
Disruptive innovation generates new markets and values, in order to disrupt existing ones

A disruptive innovation is an innovation that helps create a new market and value network, and
eventually goes on to disrupt an existing market and value network (over a few years or decades),
displacing an earlier technology
Disruptive Innovation = Simple, Low Cost Solution to Your Customer’s Problem
Clayton Christensen introduced the concept of disruptive innovation in his classic book “The Innovator’s
Dilemma”. These tend to be new approaches to old products and services. Example: Google Glass
There are many examples of disruptive innovation over the years. One classic example is Dell. When
Michael Dell was a college student he realized that he could order parts, assemble computers on his own
and ship them directly to his customers over the internet cheaper than he could buy a computer at retail
store. This insight led him to create a new business model (disruptive) for selling computers – order
online directly from Dell and have it shipped within a few days to the customer. The cost savings were
substantial simply because Dell was able to cut out the middle men in the channel. The benefits for the
consumer were also slightly higher because it allowed them to customize their computer to meet their
exact specifications. This model ushered in an era of dis-integration for the computer industry. Dell was
technically not a manufacturer of the computer components but rather an assembler of other
outsourced components into a final product. This led to further modular designs in computers and to
further modularity in the computer industry.
7 Sources of Innovative Opportunity
Reference: http://mylesclarku.blogspot.in/2012/09/7-sources-of-innovation-by-peter-drucker.html
The Unexpected
The Unexpected is exactly what it sounds like, you have to expect the Unexpected if you want to have a
successful business. The unexpected could mean failure, success, surprised etc. We must be ready for
anything. The whole market could change dramatically by people’s unexpected decisions.
The Incongruity
Incongruities are basically thinking differently. Not only thinking differently from your competitors, but
also thinking differently from society. What it says to you need to find a creative idea to sell, and you can
only do this by thinking differently to discover a new invention or idea. When I think of thinking
differently Steve Jobs comes to mind and all of his inventions. A good example of this would be how
Steve Jobs and apple created the iphone it was one of a kind at the time, no one else combined both
music and a cell phone in one Facebook is a company that nailed it.
Prior to the social network’s prolific rise Myspace was the dominant player, but it had its downfalls.
Facebook wisely noted what Myspace was vs. what should be and built that platform.
Process Need

Process need. Process need is similar to Incongruities in that you must think differently than the
everyone else. If there is a glitch or something missing in society or in a business you must find a
innovative way to fix it.
Process need involves identifying your company’s process weak spots and correcting or redesigning
them. This is a task oriented solution meaning that the source of innovation comes from within your
existing capabilities and ways of doing business – not the market.
An example might be a restaurant that identifies that people wait too long for their entrees and so
decides to hire another chef to speed up creation times.
Essentially your company will want to look for all weak links and eliminate them.
Industry and Market Structure Change
This topic is related to the "Unexpected" if you are a business owner you must expect the unexpected in
your industry or market. Other business's from within or even from without your market could change
your market.
Your industry and the market are in continual flux. Regulations change and some product lines expand
while others shrink. Firms should continually be on the watch for this.
One example is deregulation. When a previously regulated industry becomes open there is historical
precedence for companies that enter early to be very successful. Other things to watch out for are the
convergence of multiple technologies and structural problems that occur from time to time (often
immediately following an industry boom).
Demographics
Demographics are essentially the change in population. We constantly see changes occur in populations,
income levels, human capital (education) and age ranges. Smart firms are constantly paying attention to
this.
When it comes to the baby boomers businesses have been following them constantly as they got older.
At present they are one of the largest as well as the most affluent demographic groups with high levels
of disposable income.
Combining demographic data with segmentation and targeting is a powerful method of accurately
meeting a target market’s desires.
Changes in Perception, Meaning, and Mood
Perception is the way people perceive something. In the business world the general public might
perceive an industry a certain way that could be good or bad. Perception changes over time. For example
50 years ago people did not know the affects of tobacco. So now more and more people are staying
away from cigarettes so there is less advertising.

Over time populations and people change. The way they view life changes, where they take their
meaning from, and how they feel about things also is modified over time and smart companies must pay
attention to this in order to capitalize (and avoid becoming forgotten, a relic of ages past).
Here are two really good examples. First is a principle called “down aging” which refers to people who
look at 50 as being 40. Industries have responded to this, most notably in the cosmetic and personal care
industry which provides plenty of solutions to help these people look younger. Full industries are
creeping up that make people feel younger. Have you spotted any lately?
Religion is another example. Across the world we’ve seen Islam and atheism rise. Companies should
adapt as overall meaning changes in culture.
New Knowledge
New knowledge of technology both scientific and non scientific. Business owners must be in touch with
today’s technology to run their business. There are new discoveries all the time that could affect your
business.
As the speed of technological revolution increases there will be an ever increasing number of
opportunities that open up. The internet has been the most notable one in the last couple decades but
there have been a plethora of other industries and opportunities pop up as a result of this technological
revolution.
New knowledge is about more than just technology though; it’s about finding better ways of doing things
and improving processes. Your company should look to this new knowledge for ways it can improve
incrementally.
Intel does this constantly and it’s a major part of why they’re the leading processor manufacturer today.
Constantly paying attention to the latest in both academic research as well as investing heavily in their
own R&D, the company has managed to find continual sources of innovation, driving its success.
Opportunity recognition/ recognizing opportunities
An opportunity is a favorable set of circumstances that creates a need for a new product, service or
business.
According to Drucker, identifying opportunities is about “a systematic examination of the areas of change
that typically offer opportunities”.
Opportunity recognition means proactively brainstorming a new business venture or expansion idea. A
small-business owner typically engages in opportunity recognition at the point where he realizes he has
an idea, strength or capability that matches well with a particular target market. Entrepreneurial
business owners constantly seek new revenue streams. Those that seize ripe opportunities tend to
perform best financially.

Here, brainstorming means used to generate a number of ideas quickly.
Example: Shri Mahila Griha Udyog Lijjat Papad started in the year 1959 with a modest loan of Rs 80, , the
cooperative now has annual sales exceeding Rs 301 crore (Rs 3.1 billion). Shri Mahila Griha Udyog Lijjat
Papad, popularly known as Lijjat, is an Indian women’s cooperative involved in manufacturing of various
fast moving consumer goods. In this way a small idea and initiative by few women became a huge
business entity, expanded all over India and even abroad, it provided employment opportunities to a
number of people and livelihood to its employees with a sense of belonging and respect and standing in
the society.
Example: For long-term viability and success, a company needs some ability to recognize opportunities.
Industries usually evolve based on societal changes, customer preference changes or technological
advances. The most innovative company leaders who seize opportunities stay ahead of the competition
in delivering progressive solutions to customers. Steve Jobs recognized the tremendous opportunity to
make Apple a cutting-edge innovator in mobile technology. Amazon.com founder Jeff Bezos similarly
recognized the power of online book sales long before traditional book sellers. He continued to seize
opportunities for product diversification after making a big splash with books.
Question: Describe the three general approaches entrepreneurs use to identify opportunities?
Answer: Three ways to identify or recognize opportunities:
1. Observing trends
2. Solving a problem
3. Finding gaps in the marketplace
Question: Identify the four environmental trends that are most instrumental in creating business
opportunities?
Answer: Four environmental trends are as follows:
1. Economic forces
2. Social Forces
3. Technical Advances
4. Political and regulatory changes
Question: List the personal characteristics that make some people better at recognizing business
opportunities than others?
Answer: Four personal characteristics are:
1. Prior Experience
2. Cognitive Factors
3. Social Networks
4. Creativity
Question: Write five steps to generate creative ideas?

Answer: Preparation, Incubation, Insight, Evaluation and Elaboration
Opportunity Gap: An entrepreneur recognizes the problem and creates a business to fill it.
Window of opportunity: The time period in which a firm or entrepreneur can realistically enter a new
market.
Idea: A thought, an impression or a notion.
Serendipitous Discovery: A chance of discovery made by someone with a prepared mind.
Opportunity Recognition: The process of perceiving the possibility of a profitable new business, or a
product or a service.
Corridor principle: states that once an entrepreneur starts a firm, he or she begins a journey down a path
where “corridors” leading a new venture opportunities become apparent.
Sole entrepreneurs: Entrepreneurs who identify their business ideas on their own.
Network Entrepreneurs: who identified their ideas through social contacts.
Opportunity Recognition Process
Alertness is defined as a process and perspective that helps some individuals to be more aware of
changes, shifts, opportunities and overlooked possibilities. Entrepreneurs are successful because of their
alertness to information on the market condition and opportunity movements. Entrepreneurial alertness
is the ability that some people have to recognize competitive imperfections in markets. Competitive
imperfections exist in the markets when information about the technology, demand or other
determinants of competition in an industry not widely understood by those operating in that industry.
The existence of competitive imperfections in markets suggests that it is possible for atleast some
economic actors in these market to earn economic profits. Thus, entrepreneurial alertness can be
thought of as the ability of some people to recognize opportunities to earn economic profit.
Prior knowledge refers to an individual’s distinctive information about a particular subject matter which
may be a result of work experience, education or other means. With the stock of information and
knowledge gained through life experiences, certain people are able to make the connection to recognize
the opportunity as it is related to their available information.

The entrepreneurial activities do not exist in a state of vacuum but rather it is embedded in cultural and
social context. Hence, it can be said that entrepreneurship is embedded in social networks which
facilitates the entrepreneurial process by linkages among entrepreneurs, resources and opportunities.
Social network is a resource and a potential capital while social capital is a network which is used to
engage in productive economic activities
Innovation strategies and management
A strategy is nothing more than a commitment to a set of coherent, mutually reinforcing policies or
behaviors aimed at achieving a specific competitive goal. Good strategies promote alignment among
diverse groups within an organization; clarify objectives and priorities, and help focus efforts around
them. Companies regularly define their overall business strategy (their scope and positioning) and
specify how various functions—such as marketing, operations, finance, and R&D—will support it. But
during my more than two decades studying and consulting for companies in a broad range of industries, I
have found that firms rarely articulate strategies to align their innovation efforts with their business
strategies.
Without an innovation strategy, innovation improvement efforts can easily become a grab bag of much-
touted best practices: dividing R&D into decentralized autonomous teams, spawning internal
entrepreneurial ventures, setting up corporate venture-capital arms, pursuing external alliances,
embracing open innovation and crowd-sourcing, collaborating with customers, and implementing rapid
prototyping, to name just a few. There is nothing wrong with any of those practices per se. The problem
is that an organization’s capacity for innovation stems from an innovation system: a coherent set of
interdependent processes and structures that dictates how the company searches for novel problems
and solutions, synthesizes ideas into a business concept and product designs, and selects which projects
get funded. Individual best practices involve trade-offs. And adopting a specific practice generally
requires a host of complementary changes to the rest of the organization’s innovation system. A
company without an innovation strategy won’t be able to make trade-off decisions and choose all the
elements of the innovation system.
What is Innovation strategy?
“We think of strategy as making decisions about what you will not do - just as much as deciding what
you will do”.
A plan made by an organization to encourage advancements in technology or services, usually by
investing in research and development activities. For example, an innovation strategy developed by a
high technology business might entail the use of new management or production procedures and the
invention of technology not previously used by competitors.
Example: Wal-Mart's strategy is to combine cost leadership with as broad of an appeal to the market as
possible. Apple, in contrast, combines unique new products with broad market appeal through a zealous
focus on design and feature leadership. The anomaly to this framework is Target. They have managed to

straddle both cost leadership and design leadership, however that decision had to have been made with
an appreciation for how difficult it is to accomplish.
When an organization realizes that they need an innovation strategy, what are the five key things they
need to consider very carefully when starting to develop it?
The innovation strategy defines the role of innovation and sets the direction for innovation execution.
However, the role of innovation in helping organizations achieve growth targets is often unclear and the
revenue growth from innovation is insufficient, unless managed with great rigor. While there is lots of
theory about and many good (and not so good) books on innovation strategy, many companies fail to
develop and execute an innovation strategy. We work with clients to help them take a very pragmatic
and execution-oriented view on this.
Following are five things that we believe make up a good innovation strategy:
1. An innovation strategy needs to be truly inspiring and should describe a desirable future state
for the company.
2. The innovation strategy needs to be ambitious in terms of providing the basis to break away
from the competition, beat the competition, and create new spaces
3. The process of developing the strategy needs to be open
4. An innovation strategy must also be specific to the time in which it is developed
5. An innovation strategy needs to be adaptive and to evolve over time
Innovation Management
Innovation management includes a set of tools that allow managers and engineers to cooperate with a
common understanding of processes and goals. Innovation management allows the organization to
respond to external or internal opportunities, and use its creativity to introduce new ideas, processes or
products
National Innovation System (NIS)
Innovation process should be treated in a systematic manner, so need a systematic approach which
integrates institutions to create, store and transfer the knowledge, skills and artifacts. Linear model of
Innovation starts with basic research then adds applied research and development, and ends with
production and marketing.
In reality, this translation does not follow a “linear” path from basic to applied R & D and
implementation. Instead, it is characterized by complicated feedback mechanism and interactive
relations involving science, technology, learning, production, policy, and demand.

Definition of NIS
 “ .. the network of institutions in the public and private sectors whose activities and interactions
initiate, import, modify and diffuse new technologies.” (Freeman, 1987)
 “ .. the elements and relationships which interact in the production, diffusion and use of new,
and economically useful, knowledge ... and are either located within or rooted inside the borders
of a nation state.” (Lundvall, 1992)
 “... a set of institutions whose interactions determine the innovative performance ... of national
firms.” (Nelson, 1993)
 “ .. the national institutions, their incentive structures and their competencies, that determine
the rate and direction of technological learning (or the volume and composition of change
generating activities) in a country.” (Patel and Pavitt, 1994)
 “.. that set of distinct institutions which jointly and individually contribute to the development
and diffusion of new technologies and which provides the framework within which governments
form and implement policies to influence the innovation process. As such it is a system of
interconnected institutions to create, store and transfer the knowledge, skills and artifacts which
define new technologies.” (Metcalfe, 1995)
The National Innovation System (also NIS, National System of Innovation) is the flow of technology and
information among people, enterprises and institutions which is key to the innovative process on the
national level. According to innovation system theory, innovation and technology development are
results of a complex set of relationships among actors in the system, which includes enterprises,
universities and government research institutes.
Why we need it?
The NIS policies and programs help to enhance a country’s innovative and technological capacity while
NIS approach offers improvements over alternative frameworks that conceptualize technological
development in terms of inputs (e.g. science funding) and outputs (e.g. publications and patents). As a
result, NIS brings to help policy makers develop approaches for enhancing innovative performance in the
knowledge-base economies of today (Feinson).
How it has been used?
The purpose of analyzing a Technological Innovation System is to analyse and evaluate the development
of a particular technological field in terms of the structures and processes that support or hamper it. The
basic steps that are taken are the following:
First, we analyze the structure of the innovation system. These are the actors, institutions, networks and
technology that make up the system. Examples of actors are organizations responsible for education,
R&D, industrial activities, and consumers. Examples of institutions are supportive legislation and
technology standards. Examples of networks are the linkages between organizations in research projects

and advocacy coalitions. Technology is part of the innovation system as it enables and constrains the
activities of actors in the innovation system. Second, we analyze how the system is functioning.
Finally, after we have established at what state of development a technological innovation system is, we
can analyze the system problems that block the well-functioning of the innovation system.
Measuring how innovation systems are functioning is considered as the big breakthrough in innovation
systems research, so Hekkert et al. (2007) the following functions of innovation systems are put central:
1. entrepreneurial activities,
2. knowledge development,
3. knowledge exchange,
4. guidance of the search,
5. formation of markets,
6. mobilization of resources,
7. Counteracting resistance to change.
Focusing on functions allows us to address the performance of an innovation system. In other words: the
structure presents insight in who is active in the system, the system functions present insight in what
they are doing and whether this is sufficient to develop successful innovations. In addition to
quantitative indicators, the functioning of an innovation system needs to be assessed by experts or key
stakeholders that are active in the innovation system.

The reason to evaluate the innovation system by means of expert opinions is that it is impossible at the
moment to solely evaluate an innovation system based on quantitative criteria. The reason for this is that
technologies and regions are different from each other and that it is impossible to define an optimal
configuration of the innovation system. Consequently, benchmarking innovation systems is difficult; what
works in one country may not work in another country. Furthermore, the development of an innovation
system often depends strongly on the competition in other parts of the world and very often has very
technology specific dynamics. For some technologies much more R&D funding is necessary than for
others. Therefore, the best way to assess the functioning of the innovation system is by involving a
sufficient amount of experts in the evaluation.
Operations of National Innovation system
“Innovation is a creative and interactive process involving market and non-market institutions.”
Governments need to play an integrating role in managing knowledge on an economy-wide basis by
making technology and innovation policy an integral part of overall economic policy. This requires co-
ordinated contributions from a variety of policies in order to:
• Secure framework conditions that are conducive to innovation, such as a stable macroeconomic

environment, a supportive tax and regulatory environment, and appropriate infrastructure and
education and training policies.
• Remove more specific barriers to innovation in the business sector and increase synergies
between public and private investment in innovation.
Technology and innovation policy should complement broader structural reforms in many fields (e.g.
competition, education and training, financial and labor markets), by focusing on the following key
objectives:
1. Building an innovation culture
2. Enhancing technology diffusion
3. Promoting networking and clustering
4. Leveraging research and development
5. Responding to globalization.
Johnson and Jacobsson (2000) outline five primary functions:
• Create ‘new’ knowledge;
• Guide the direction of the search process;
• Supply resources, i.e. capital and competence;
• Facilitate the creation of positive external economies (in the form of an
 exchange of information, knowledge, and visions); and
• Facilitate the formation of markets. (Johnson and Jacobsson, 2000, 3-4)
Other researchers have provided a somewhat expanded list including:
• to create human capital;
• to create and diffuse technological opportunities;
• to create and diffuse products;
• to incubate in order to provide facilities, equipment, and administrative support,
• to facilitate regulation for technologies, materials, and products that may enlarge the market
and enhance market access;
• to legitimize technology and firms;
• to create markets and diffuse market knowledge;
• to enhance networking;
• to direct technology, market, and partner research;
• to facilitate financing; and
• to create a labor market that [can be utilized]. (Rickne, 2000, as cited in Edquist, 2001)

Key segment of player in NIS
1. Government body
2. Bridging institute e.g. research council
3. Private enterprises
4. Universities
5. Other public and private organization
Organization for Economic Co-operation and Development (OECD)
On 30th September 1961, the Organization for Economic Cooperation and Development (OECD) shall
promote policies designed:
 to achieve the highest sustainable economic growth and employment and a rising standard of
living in Member countries, while maintaining financial stability, and thus to contribute to the
development of the world economy;
 to contribute to sound economic expansion in Member as well as non-member countries in the
process of economic development; and

 to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in
accordance with international obligations.
Systemic approaches are giving new insight into innovative and economic performance in the OECD
countries. Technology-related analysis has traditionally focused on inputs (such as research
expenditures) and outputs (such as patents). But the interactions among the actors involved in
technology development are as important as investments in research and development. And they are
key to translating the inputs into outputs. The study of national innovation systems directs attention to
the linkages or web of interaction within the overall innovation system. The smooth operation of
innovation systems depends on the fluidity of knowledge flows – among enterprises, universities and
research institutions. The mechanisms for knowledge flows include joint industry research,
public/private sector partnerships, technology diffusion and movement of personnel.
Fostering innovation and entrepreneurship
When it comes to fostering innovation and entrepreneurship, there is a big role of both governments
and corporate. They key is finding ways to work together. We can’t build a successful innovation
ecosystem without fostering both innovation and entrepreneurship. But how can governments and
corporations actually do this? What should they be doing to get the most of each of these activities?
There are three key ways governments can foster the interaction between innovation and
entrepreneurship:
Government Priorities
Developing the ecosystem: Governments are in a unique position to drive attraction related to
innovation and entrepreneurialism within a specific jurisdiction, whether the country of Australia,
individual states like New South Wales, or cities like Sydney and Melbourne. One of the most
foundational components of this is by lowering the risk of capital by providing a range of benefits – tax
measures, grants or other incentives. These types of government initiatives can help attract a range of
people and companies to a location, attract foreign capital and create a strong ecosystem where
innovators, entrepreneurs and corporate can come together to create more value than any one might be
able to do on their own.
Developing talent: Fostering talent is a significant role that governments must play in order to develop
the talent necessary to support an innovation economy. From pre-school to university, governments can
create and foster programs that support science, technology and other key areas of learning, while
encouraging students and those with a more entrepreneurial bent.
Shaping culture: While slow to change, the culture of a country provides the foundation for how people
live, work and play. When it comes to building an innovation economy, governments need to foster a
culture where innovation and entrepreneurship is encouraged, celebrated and rewarded. Fostering
talents and showcasing success stories like Scott Farquhar, Mike Cannon-Brookes, Matt Barrie and Jodie
Fox, who are all having an impact on a global stage, can go a long way toward this objective.

Corporate priorities
Companies can also do a lot to encourage both innovation and entrepreneurialism within their own
organizations. As a starting point, corporations need to focus on three critical areas:
Providing leadership: The way leaders act, talk and reward employees will determine whether innovation
and entrepreneurship can take root successfully. For boards and leadership teams, this may require
taking a longer-term view of investments, creating space for innovation to happen and developing
rewards and KPIs that highlight and reward the successes they want to encourage.
Fostering diverse input: Creativity often comes out of diversity - of vision, background, culture, working
style and any number of other factors. Companies need to focus on creating an environment where as
many people as possible are given an opportunity to share their voice, rather than one where unique
ideas are stomped on the minute they emerge. By encouraging diverse opinions, companies can create
an environment of creativity – where people can come together to examine ideas and possibilities
without the risk of failure.
Thinking inclusively: Companies need to move beyond the ‘single way to do things’ mentality and create
environments that are as inclusive as possible. This means creating ways to bring together both
innovators and entrepreneurs and fostering those intersection points. This could include various forms of
activities, from fostering internal innovation, to setting up a VC arm or working directly with start-ups to
explore how innovations can create value. Established corporations can harness and develop innovative
ideas from crowdsourcing
When it comes to fostering innovation and entrepreneurship, there is a big role for both governments
and corporate. The key is finding ways to work together to foster an ecosystem where both sides of the
equation are given a chance to thrive.
END OF UNIT 1

Unit 1

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Unit 1