SOURCE OF INNOVATION

Learning Objectives

1. Identify the internal sources of

innovation.
2. Analyze the external sources of
innovation.
3. Evaluate the importance of internal and
external sources of innovation
4. Compare the functions of internal and
external sources of innovation.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 3
 Introduction

 Sources of innovation can be defined as the

supply of knowledge that an organization
utilizes to enhance innovation and achieve
success in the marketplace.
 Various sources of innovation from internal and
external sources

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 4
 Introduction

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 5
 Internal Sources

 Internal sources is defined as ideas or

knowledge of innovation generated from
inside the organization.
 Any of the functions within a firm's value
chain can be a source of innovation.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 6
Innovation Management All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 7
 Employees

 Employees become one of the main sources

of innovation.
 Employees should know the specific part of
the areas that they are involved with so that
innovation will come naturally and directly.
 Firms need to encourage their employees
– Support from management
– Focus on innovation specifically
– Brainstorming

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 8
 Employees
 Employee Driven Innovation (EDI)
– generation and implementation of new ideas,
product and processes originated by a single
employee or by joint efforts of two or more
employees.
– About the ability and the will of the management and
the workers to take initiatives to improve the quality of
goods and services.
– All employees have potential for creative thinking and
should be able to contribute to innovation.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 9
 In-house R&D

 Research and Development (R&D) is a

process intended to create new or
improved technology that can provide
a competitive advantage at the
business, industry, or national level.
 During the process the researcher will
find new things that will benefit to the
business organization.
 The reward can be very high, but the
process is complex and risky.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 10
 Process Need

 perfects a process which already exists

 replace a link that is weak
 redesigns an existing process

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 11
 External Sources

 All business organization is affected by

changes in their external environment and these
changes can be other sources of innovation.
 As organizations struggle to realign with their new
business environment, they must innovate their
products and services or processes accordingly.
 External sources of innovation have become an
important complement to the business internal
capabilities.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 12
Innovation Management All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 13
 Customers/Users

 It is widely recognized that the innovative

process often involves interaction between the
manufacturer and users of products.
 Usually such interaction between producers and
end users involves not only an exchange of
technical knowledge but also important
information about market requirements and
trends

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 14
 Customers/Users

 Their ideas plus their frustrations with existing

solutions lead to experiment and prototyping
and create early versions of what eventually
become mainstream innovation
 An innovation must add value to customers to
make them purchase or consume the product or
service that offer in the market.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 15
 Customers/Users

 Example: Pickup truck at Detroit

– Start on the farms and homesteads
– The inventors adapted their cars by removing
seats, welding new pieces on and cutting of
the roof. (the process of prototyping and
developing the early model )
– Later car manufacturer pick up on the idea and
begin the incremental innovation to refine and
mass produce the vehicle.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 16
 Competitors

 They provide benchmark to which product or

service to be pursued further.
 To remain relevant in the market, business needs
to do something different compared to it’s
competitors.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 17
 Supplier
 Suppliers of machine, equipment and material
can bring important insight into the organization
of production, logistics and other functions.
 Suppliers deal with many business organization
or customer and receive feedback directly from
their customer.
 Vital to manage the flow of materials and
information across the entire value chain.
– to enhance integration with suppliers and
customers

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 18
 Spill-overs
 occur when a firm benefits from another firm's
investment in R&D.
 2 situations:
– one firm making an investment in R & D that
leads to a scientific discovery or the
development of a new product that other
firms are able to imitate or copy.
– if the firm that has developed the new product
chooses not to commercialize it, it might
license it to others.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 19
 University

 Universities have their own R&D department and

are actively involved in research and innovation.
 The role of universities in the innovation system is
particularly important in countries specialized in low-
technological industries.
 The commercialization of university knowledge
(especially knowledge from university-based
technologies) has increased considerably due to
patenting, joint ventures in research and firm
creation (spin-offs from universities).
Innovation Management All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 20
 Research Organization
 Includes an entity irrespective of its legal status
either organized under public or private law or way
of financing.
 The primary goal is to conduct fundamental
research, industrial research or experimental
development and subsequently disseminate their
results by way of teaching, publication or
technology transfer.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 21
 Research Organization

1. Public Research Institution (PRO)

performs research activities as part of its mission and
receives at least some public funding to support these
activities.
PROs are essentially ‘knowledge factories’ and as
such links with them have become an important
knowledge sourcing strategy for industrial firms in
knowledge-intensive industries.
Research areas: primary commodities, industry and
engineering to national healthcare.
Innovation Management All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 22
 Research Organization

2. Contract Research Organization (CRO)

provides support mostly to the pharmaceutical,
biotechnology, and medical device industries in the
form of research services outsourced on a contract
basis.
Example of CRO services are: biopharmaceutical
development, biologic assay development,
commercialization, preclinical research, clinical
research, clinical trials management, and
pharmacovigilance

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 23
 Think Tanks
 Think tanks or policy institutes are organizations that
performs research and advocacy concerning topics
such as social policy, political strategy, economics,
military, technology, and culture.
 Most policy institutes are non-profit organizations, which
some countries such as the United States and Canada
provide with tax exempt status.
 Other think tanks are funded by governments, advocacy
groups, or businesses, or derive revenue from
consulting or research work related to their projects

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 24
 Independent Researchers
 Independent researchers are not part of a university,
government, or corporation but may have close
relationships with larger institutions such organizations.
 The benefits:
– the company can remove any suspicion of bias in the
findings.
– Accuracy of the research will have a direct effect on the
impact of the changes
– The results will be processed effectively and the
subsequent recommendations will carry more weight.

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 25
 Summary

 In business, innovation can come from a variety of

different sources.
 The sources of innovation can be grouped into internal
and external sources

Innovation Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2015 1– 26