Chapter 8: Innovation in Entrepreneurship.
WHAT IS INNOVATION?
Innovation is the process of introducing new or improved ideas, products, or methods to
solve problems and meet customer needs. It keeps businesses competitive, relevant, and
capable of growth. According to Drucker (2002), innovation is not just theory—it’s practical
work that brings real solutions.
Entrepreneurs must stay creative and make bold decisions to lead in dynamic markets.
Innovation helps them unlock opportunities and increase value for their customers.
Creative Destruction
Innovation often causes disruption. Schumpeter (1934) coined the term "creative
destruction" to describe how new ideas make old ones obsolete. This process can lead to
the closure of businesses, job losses, or outdated products being replaced.
However, this disruption is a necessary part of capitalist progress. It drives development by
replacing less efficient systems with better ones, ultimately improving society (Hughes et al.,
2018)
THE INNOVATION PROCESS: 7 KEY STAGES
1. Idea Generation Innovation begins with an idea, often sparked by:
Market saturation or overcrowding
Crises within the business
Changes in the environment
Customer complaints or feedback
New competitors Entrepreneurs generate ideas proactively (planning for innovation) or
reactively (responding to challenges). The goal is to identify profitable and impactful
opportunities.
2. Concept Advocacy & Screening After generating ideas, the next step is to assess which
ones are feasible. This involves:
Checking for required tools or technologies
Analyzing available resources
Determining if the idea is realistic or too futuristic Only ideas that show potential to solve
real problems and succeed in the market move forward.
3. Business Analysis This stage focuses on the business side:
How much will it cost to develop?
What are the potential returns?
What risks are involved? Entrepreneurs conduct market research, cost forecasting, and risk
analysis to decide if the idea is financially viable.
4. Preparation Entrepreneurs gather information and resources to support innovation. This
includes:
Conducting deep market research
Identifying demand and market size
Evaluating risks and competition Resources can be bought (like software or machines) or
developed through R&D or partnerships.
5. Concept Development Here, the idea becomes a working solution through:
Building prototypes
Running lab tests and market trials
Making improvements based on feedback If the prototype performs well and customers
respond positively, the idea is ready for the market.
6. Introduction & Expansion The innovation is launched. Entrepreneurs use marketing
strategies to:
Create awareness
Build interest
Ensure accessibility to the target market After initial launch, the product enters a
maintenance phase where it is fine-tuned based on user experience.
7. Learning & Re-Innovation Innovation is a cycle. Whether the outcome is success or failure,
there are always lessons. Smart entrepreneurs analyze feedback and results to improve
future innovations and avoid repeating mistakes.
SOURCES OF INNOVATION
Peter Drucker outlined several key sources where innovation opportunities come from:
1. Unexpected Success These can reveal unexplored potential. Entrepreneurs should analyze
the reason for success and find ways to replicate or scale it.
2. Unexpected Failure Failures signal shifts in demand or flaws in the process. Understanding
them can lead to valuable innovations.
3. Incongruities These are mismatches between what is and what is expected. For example:
Low profits despite high demand
Industry assumptions vs. actual customer behavior
Misaligned customer perceptions
4. Process Needs Innovations often fix weak links in workflows. Improvements may involve
eliminating delays, improving quality, or boosting efficiency.
Drucker’s criteria for process innovation:
A clear objective
A self-contained process
A missing or weak link
Realizable improvement potential
5. Demographic Changes Changes in age, education, population size, or income levels create
new market demands. For example, an aging population increases demand for healthcare
services.
6. Change in Perception Even without changes in facts, people’s attitudes can shift. Products
once seen as luxuries may become essentials (e.g., computers or smartphones).
7. New Knowledge Scientific or technological discoveries can transform entire industries.
These innovations often take longer and require greater investment, but they offer high
rewards.
PRINCIPLES OF EFFECTIVE INNOVATION
1. Start Small, Scale Big
Test innovation on a small scale before expanding to reduce risk.
2. Simplicity and Focus
Innovations should be easy to understand and address a specific need.
3. Continuous Analysis
Always monitor innovation sources for new opportunities.
4. Customer-Centric Thinking
Focus on solving customer problems and listening to their feedback.
5. Innovation as a Discipline
Approach innovation systematically, with clear roles and structured processes.
6. Comprehensive Innovation
Innovate across all aspects of the business, not just products.
7. Foster Innovation Culture
Encourage all team members to share ideas and support innovation efforts.
8. Planned Abandonment
Let go of outdated or unprofitable products. Ask:
1. Does it still add value?
2. Is it worth the resources?
3. Can we focus on something better?
9. Promotion and Adoption
Innovation needs support through marketing. Entrepreneurs must:
1. Raise awareness
2. Communicate benefits
3. Help customers feel confident using the new solution
THE ROLE OF INNOVATION IN ENTREPRENEURSHIP
1. Wealth Creation
Innovation leads to new products, services, and processes that generate income and
economic value.
2. Strategic Growth
It allows businesses to adapt, improve, and remain competitive.
3. Long-Term Success
Innovation ensures sustainability and resilience in changing environments.
4. Facilitating Change and Growth
Entrepreneurs who innovate take leadership positions in the market by staying ahead of
trends and solving emerging problems.
