Where does innovation come from?

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We define “innovation” as an idea or product that is new to the sponsoring organization. A “discontinuous innovation” has the potential to alter existing consumption patterns, or else create new ones. For example, portable audio equipment has evolved from the radio, to the cassette tape player, to the compact disk players and to the digital audio player. At the extreme, a discontinuous innovation results in the creation of a new generic category of products, such as the GPS navigation system.

In contrast, “continuous innovations” involve introducing a new entrant into an existing category. Continuous innovations do not challenge established patterns of consumption behavior. A good example of this type of innovation is the smart phone. For this product, consumers already know what a phone is and how to operate it. From this perspective, the operation of a smart phone can be viewed as a combination of the functions associated with a mobile phone and the functions of a personal digital assistant (PDA). In a more recent offering, a smart phone combines the functions of PCs and Macs through applying the software and operating systems of each. As a result, consumers can access their current knowledge about existing products and then easily grasp the “smart phone” concept.

On the one hand, the process of innovation is the life blood of an organization. New product innovations are responsible for employment, economic growth, technological process, and high standards of living (Souder 1987). In a marketing context, innovation is crucial for the development of successful new products (both goods and services). On the other hand, it is a challenge to develop and evaluate these innovations. In brief, where do innovative ideas come from? We describe five sources of innovation: technical breakthroughs, non-technical idea development, ideas that emerge from environments, serendipity, and purposeful development. These various strategies are outlined in Table 13.1 and described in more detail in the following section.

Technical breakthroughs refer to product innovations that result from technical developments. New brands that have emerged from this process include MP3 players, GPS navigation devices, and cell phones. In the long run, it is consumers who decide how new technologies will be used. For instance, Guglielmo Marconi created the radio telegraph so that ships could communicate with each other on the high seas in 1894. However, other applications emerged, and everyday uses eventually multiplied. For instance, in 1921, the RadioShack Corporation was formed in Boston to sell equipment to “ham” operators. The company took its name from the small wooden building for radio equipment on ships. As more families adopted radios, it was a real challenge to develop content. Eventually, the advertising business model was created, and the funds that were provided by advertisers were used to sponsor the development of popular content (e.g. music, dramatic shows, variety shows) (Zinkhan 2005).

Non-technical development is another path to product innovation. This approach involves finding a niche in the market without making radical changes to the basic product category (i.e. in terms of the underlying technology). “Build a Bear Workshop” provides a good example of this style of innovation. Unlike other conventional stuffed animal manufacturers, the Build a Bear Workshop allows customers to choose their bear’s body, sound, clothing, stuffing, and heart. For example, a customer can choose, a lower-priced paper heart with their wish, or they can invest in a higher-priced electronic heart. After customers make choices, they then observe the production process in the shop. In this way, customers create their own custom-designed toy. This business model does not rely on developing new technology. However, there is a modified production process, as the stuffing and sewing machine are located in the retail store.

Ideas that emerge from environments refer to innovations that result from importing products from other cultures. Good examples of this style of innovation are Wal-mart in China and IKEA in the United States. Traditionally, there were no large-scale retail stores in Asian nations, such as Japan, Korea, China or India. Instead, small retailers or mom-and-pop stores dominated. Large-retail stores are now achieving success in Asian nations, through importing the idea of economies of scale, which, in turn enable one-stop shopping and lower prices. Similarly, IKEA achieved great success in the US and China through importing the idea of a warehouse-type retail setting from Europe. IKEA offers high-quality furniture and home interior products for lower prices. Consumer assembly is often required.

Serendipity plays a role in product innovation. The word serendipity derives from “serendip,” which means “Sri Lanka” in Persian. The fairy tale, The Three Princes of Serendip, tells the story of three men who continuously discover something that is completely unrelated to what they originally set out to find. Thus, the term “serendipity” describes a situation where one accidentally discovers something fortunate, while looking for something else entirely. For example, penicillin was discovered quite by accident when Alexander Fleming discovered that a mold contaminating one of his experiments possessed powerful antibacterial properties.

Purposeful development occurs when there is a strong need for certain goods or services. As described by Plato in The Republic: “Necessity is the mother of invention.” In other words, this type of innovation occurs when existing product lines cannot satisfy current needs or current demand. As a result, organizations are willing invest considerable funds (e.g. in terms of research and development or marketing research) to create a successful innovation. A good example of purposeful development is the heavy investment that pharmaceutical firms make to discover new prescription drugs. For inspiration, pharmaceutical scientists rely upon current developments in chemistry, physics, plant biology, and folk healing methods. In some instances, this kind of innovation might result from marketing research, where considerable demand is forecast in the marketplace.

It is also possible to create a new business model. Wal-Mart is a good example here, as the retailer applies the philosophy of low prices and cost cutting to every aspect of its operations, including logistics, employee compensation, managerial philosophy, packaging, merchandising, negotiations with suppliers, and so forth. This manner of innovation is discussed in more detail in the section which follows, “Product Categories.”