When referring to the characteristic features of innovations, different types of innovations are generally distinguished in theory and practice. Depending on the understanding of the concept of innovation employed, these can be differentiated in a narrower or wider sense.
In the narrower sense, one distinguishes between product and process innovations. If the concept of innovation is interpreted more comprehensively, innovations refer not only in a technical-functional sense to products and processes, but additionally to economic, organizational and social aspects. In the case of product innovations, we deal with new or significantly improved products and services with which an enterprise aims at specific target markets. In particular for young enterprises, new products and major further developments of existing ones are a critical factor for success. It is true that often young enterprises have only one core product at their disposal which offers a short-term growth potential, but in the long-term it must be complemented with other products in order to safeguard the existence of the enterprise and allow further growth.
Process innovations are new or significantly improved manufacturing or process-techniques or methods of providing services. They are mostly directed towards an improvement of the performance of an enterprise, e.g., through increases in productivity or efficiency. Improvements can refer to material- or information related processes. Individual target areas are, for instance, cost-reduction, decrease of through-put times, reduction of employed production factors but also quality increases.
The finance, personnel and time resources of young enterprises are usually limited and not available on a large scale. These enterprises therefore often focus on product innovations. Frequently, this means that process and operational innovations (and thus internal operational efficiencies) are often neglected. Scope for cost reductions is not recognized and remains unexploited.
On a broader scale, social innovations are often associated with changes in the interaction and communication of people within an enterprise or organization. For instance, social innovations may aim at a higher level of job-satisfaction or improving working conditions. In this way social innovations, especially in young enterprises, can have a significant effect on the internal acceptance and the success of innovation processes. In an ideal case, creativity could, for instance, be encouraged, communication might be improved and the commitment of employees to the enterprise could be strengthened.
Structural innovations are often assigned to social innovations in the relevant literature. They include organizational changes within enterprises which may be brought changes brought about by innovative improvements of organizational structures and procedures. During the growth process of a young enterprise in particular, critical periods can occur in which structural innovations may offer a suitable solution.
Social and structural innovations are closely connected to process innovations and the three are in fact interdependent. If the concept of innovation is interpreted in a very wide sense, it must, however, be noted that not every change in enterprises and other organizations is a social innovation, and that structural changes within an organization are not necessarily a structural innovation either [Entrepreneurship in a European Perspective, p.104-105].
According to other scholars, the most common innovation types include: product, process, service and business models as shown in the following figure:
Figure 1 – Types of innovation
Source: [5, p.9]
In some cases, the market entry may involve a combination of innovation types. For example, Google developed a highly advanced Internet search engine which could be considered as a service innovation but chose an innovative business model to generate dramatic growth in revenues, profitability and shareholder value from this technology. In fact, this Google business innovation has created a whole new business model paradigm within the IT industry [Managing Sustainable Innovation: The Driver for Global, p.10].
An example of business model innovation which has had a major impact in poor countries such as Bangladesh, is the Grameen Bank. This is a microfinance organization and community development bank started in Bangladesh that makes small loans, called microcredits, to the impoverished without requiring collateral. The system is based on the idea that the poor have skills that are under utilized. The bank also accepts deposits, provides other services, and runs several development oriented businesses including fabric, telephone and energy companies. The organization and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize in 2006. The Bank today continues to expand across the nation and still provides small loans to the rural poor. As of mid-2006, the Grameen Bank branches numbered over 2,100 and its success has inspired similar projects around the world [Managing Sustainable Innovation: The Driver for Global, p.10].
A new hand-held music player, such as the iPod, or a new mobile phone such as the iPhone are recent examples of product innovation [Managing Sustainable Innovation: The Driver for Global, p.9].
Thus, different types of innovations are discussed in the next post (to be continued).
Research on the innovation term has progressed along a variety of courses rather than a single one; it encompasses diverse types of varying in scope, depth, and objective. The concept of innovation has been established in the business literature a long time ago, starting with Schumpeter’s proposal (1934) of firms that survive and grow through innovations ‑ the creation of temporary monopolies by creating new products and processes, creating new markets, new supply sources, and new types of industry organization. This was later extended to include other areas of innovation such as innovation in finance, organization, and management. Parallel to these views, innovation is conceptualized in many different ways and studied with different perspectives. Therefore, it is possible to see various definitions in the literature.
Innovations are efficient devices for gaining share in both mature and new markets by founding creative synergy that provides welfare. Although it is possible to make innovations within times, the major difficulty is making it continuously and to guarantee sustainability. Some innovations are simply built on what is already there, requiring modifications to existing functions and practices; but some innovations change the entire order of things, making the old ways obsolete.
Although many studies have been performed about innovation, it is hard to find a commonly accepted definition. In an epistemological meaning, innovation can be described as doing something new.
Since the subject is related to technical innovations, it is something new for the market. According to Schmookler (1966), if a company develops a new product or service, uses new techniques or inputs, it means that it achieves a technical change. This company would be accepted as a performer of a new thing, and this action is regarded as innovation [Innovation Policies, Business Creation and Economic Development: A Comparative Approach, p.38].
Innovation is also creation and development of new products and processes. In another definition, innovation can be regarded as a “process of using new ideas in new product development”.
Most innovations simply build on what is already available, requiring modification to existing functions and practices, but some innovations change the entire order of things, making obsolete the old ways.
The literature on innovation has made a useful distinction between radical and incremental innovation according to the importance or degree. Though scholars identified the organizational or environmental dynamics affecting each degree of innovation, some of them believe that the countries’ development level is an important determinant for the degree of innovation [Innovation Policies, Business Creation and Economic Development: A Comparative Approach, p.38].
Radical innovations are said to involve revolutionary departures from existing technologies and practices. Radicalism can be described as the degree of departure from existing products. Some studies show that both radical and incremental innovations are important to the economic sustainability in industries that are dependent on competitive research and development for long-term survival. As radical innovations are important for gaining competitive advantage, it is said to contribute to development and profitability.
Although radical innovations have a potential to yield much, they may have higher project costs and a higher risk of failure.
On the other hand, incremental innovations can be described as products in the existing market or technology, which have improvements and advantages thereof. Incremental innovations are minor changes on existing products. Incremental innovations are related with minor changes in existing technology and as a result they contain lower ambiguity [Innovation Policies, Business Creation and Economic Development: A Comparative Approach, p.39].
Innovations can be characterized by typical features, including novelty, uncertainty and risk, complexity, realization of the innovation, as well as conflict and resistance in the market. It is generally accepted that an innovation must be something new, with the degree of novelty being important either for the enterprise itself or for the market. Innovations are also associated with uncertainties and risks, especially with regard to their future market success [Entrepreneurship in a European Perspective, p.101].
To be continued on the following posts:
Innovation types
Previous posts:
Fostering Innovative Development Of Enterprises In The Countries Of The European Union.
It is now widely recognized that innovation is a key growth driver and, therefore, a high priority for senior executives worldwide. The top ranking companies around the world in terms of sustainable growth and profitability are leaders in innovation. Companies that embrace innovation and build well-managed systems to ensure that innovation permeates the entire company culture will very likely achieve sustainable high revenue growth and strong shareholder returns.
Countries are also increasingly recognizing the importance of innovation as a driver for Gross Domestic Product (GDP) growth and many are proactively taking measures to create the right infrastructure to facilitate innovation.
Furthermore, countries that build both a foundation of science and technology and a strong innovation infrastructure will experience strong GDP growth and high living standards, as measured by GDP per capita. By contrast, countries that are unable to create and sustain an innovation foundation and infrastructure, will struggle to compete and raise living standards in the increasingly competitive global economy [Managing Sustainable Innovation: The Driver for Global Growth, p.1].
In the current globalization scene, nations are aiming to provide sustainable and long-term economic welfare. As the competitiveness is related to rapid technological changes, many firms are positioning knowledge-based technological products and services on their core business. Innovation is a necessity for the firms that compete in environments where change is pervasive, unpredictable, and continuous. In order to achieve competitive success in an economic sense, it is necessary to create value. Innovations, as a way of creating value, are the source of economic growth. Therefore, interest on innovation for gaining competitive advantage in global markets is increasing [Innovation Policies, Business Creation and Economic Development: A Comparative Approach, p.37].
New products are the source of economic growth. Therefore, it is important to give priority to innovation and the development of new products. This process is subject to a high degree of uncertainty in terms of the low probability of success and high costs for the research process. Indeed it is possible to say that there is a mutual relationship between development level and new product innovation. As the development level increases, the welfare of the country increases, and more sources become available for research and development (R&D) that is supportive of new product innovations. Considering the fact that developing countries are unable to save enough capital to create and maintain their own technological base, it would be difficult to expect radical innovations originated from such countries due to its risky and costly nature. A more suitable way is to absorb technologies and develop them, which is exactly suitable for the scope of incremental innovations [Innovation Policies, Business Creation and Economic Development: A Comparative Approach, p.41].
To be continued on the following posts:
The definition and concepts of innovation.
The federal stimulus money ran out recently as per Rachel Baranick who is a deputy district director for SBA’s Santa Ana office. Her office looks after abroad spectrum of Sothern California lending. She also added that the federal stimulus program encouraged banks to give out more SBA loans for small business funding with greater than normal guarantees and recovering some fees paid by the loan borrower normally. This gave banks more flexibility to get lower down payments and also waive borrower fees.
Baranick explained that in the past SBA backed loans by giving out 75 to 85 % guarantee; however the stimulus benefits included that threshold raised to 90%. The small business funding of stimulus loans can be used to hire workers, cover start up expenses, purchase buildings and pay off debt.
According to Santa Ana’s SBA office, in Riverside County alone, 277 small businesses have got about $106.8 million as loans. A total of 770 small businesses got $454 million as small business funding in San Diego and Imperial counties since this program started in 2009. The more detailed information is not given out by San Diego’s SBA office.
Although the program ended temporarily, many expecting borrowers are waiting for the Congress to extend these benefits. The SBA has other programs; however the stimulus has more benefits.
There are other banking leaders that are not sure if this SBA program for small business funding was a good policy. The chief executive of Escondido based California Community Bank; Larry Hartwig doesn’t think that there is any credit crunch for small business funding. Hartwig, who has a $225 million assets institution that lends to about 1000 small businesses, that have annual sales in the region of $500,000 to $25 million stated that credit lines for small business funding have shrunk.
The owner of Tutoring Club in Temecula, Jason Guidos bought his franchise through financing from federal stimulus money. Taking help from the Small Business Administration (SBA), the services veteran got a loan of $84,000 via the US bank, over a year ago to pay $30,000 fee for the Tutoring Club franchise and also for the hidden expenses to start this venture. The small business funding also covered expenses including buying computers, books, internet hook ups and cash in order to keep the phone ringing and lights on.
Not only did he save money with the loan which was 90% guarantee by the government, it was a surprise that he had got the loan. Guidos explained that you could get a loan from many banks but they just would not provide small business funding for private business as they did not help startups. Guidos explained how he had got the loan in the midst of recession. People told that he needed to be in business for at least 3-4 years to get the loan. By getting the SBA loan he was able to do something that he would not have been able to do otherwise.
Small business funding was obtained by many private business owners such as Guidos in Riverside and San Diego region. They borrowed money from lenders who had given good terms on loans under SBA programs that were vitalized by federal stimulus money. There were also discussions in Washington DC of enlarging that program. However lenders are arguing that this program of throwing credit lines to entrepreneurs as a part of small business funding does not solve the main issue of employment creation.
Guarantees provided by the federal government for conventional SBA loans decrease the risk for banks due to federal stimulus money given out by the American Recovery and Reinvestment Act from 2009.
The US legislation geared up to help small business funding by raising quantity of loans awarded to the newer and already existing businesses. However, the legislation got stalled in Senate. This bill gives higher guarantee for loans, smaller fee and some other incentives to borrowers and lenders. The bill was passed; however it remained stagnant in partisan fighting as Senate was adjourned for summer break. Without the legislation getting passed, private business owners think that their capability of getting small business funding might be limited severely.
Almost 1,000 loans, backed by the government and approved under this program, are stuck in holding position until the government passes the new legislation to extend loan guarantees. Until that date, business owners who receive loans are left without the necessary small business funding. Other entrepreneurs are going to private money lenders for loans. However, their chances of getting loans become smaller without government involvement in support and backing.
The proposed legislation permits Small Business Administration (SBA) which is a federal agency to guarantee for 90% of loans made through the third party lenders like banks, community banks or credit unions. At the moment small business funding is available only with 50 to 70% guarantees. It makes the proposition less attractive and dangerous for lenders. Under the new legislation, SBA will get the authority for waiving points, reducing fees, and ask for smaller down payments for government backed loans. This also makes them more useful to the burgeoning business owners. SBA will set up a small business funding to supply $30 billion as stimulus money towards loans provided by community banks.
Democrats in Senate are committed to press forward the legislation after reconvening of Congress.
A lot of small business owners have complaints that financial institutions are not keen to lend, and most of the private businesses are unable to grow and hire employees. Small business funding obtained from a loan can help private business get more clients or more projects that transgresses into hiring more employees in a lot of the cases. In spite of that, complaints from entrepreneurs clearly indicate that lack of access to necessary funds is stopping the growth of their businesses and employment opportunities.
At the same time there are a lot of reports in recent times that banks are being more lenient and giving out more small business funding by easing requirements on the provision of small business loans. Most of the lenders are reluctant to finance small firms, because business defaulters are becoming regular and quite an issue. Although Brian Moynihan the CEO of Bank of America said recently that they are detecting a slight improvement in the situation of small business loan defaulters.
There are certain employers that get small business funding and also benefit from tax credits for small business. These are available to employers that hire new employees and keep the employee for a year. In the recent past the SBA was given some funding to improve the percentage of small business loans, however after the funding was dry, many owners complained that the SBA loans were not available. The legislation that was passed recently should supply more small business funding to SBA guaranteed loans and also provide tax credits to smaller businesses that are hiring employees.
Small business lending opportunities are available in some areas; however the overall lending is “down” as per the small business owners’ opinion.
The government despite recession backed private businesses by lending out billions of dollars ($711.3 billion in May 2009). Yet there are many wrong conceptions and myths about government backed business financing. To give an example, most small business owners assume that the government gives out grants in order to begin their own business. Here are presented some myths about government loans and small business grants and see the available financing for your business.
Who gets government grants?
Let’s first stop assuming that the government grants are available only to business owners. In fact if you have for profit business, then you are not eligible for these grants.
Government backed loans and how they work?
The government does not directly provide small business grants to business owners. However, it provides guarantees to your bank and lenders for the loan given out to your private business via SBA. This loan guarantee reduces the risk for the banks and lenders and coaxes them to provide more small business grants to the business owners that are not eligible for conventional loans.
To provide for your capital requirements, there are hundreds of financing schemes by the government that may benefit your business. They range from the very small start-up (also called microloans) to export assistance loans, loans for veterans, energy efficiency loans and help for businesses in need of disaster assistance.
Finding the right small business grant:
There are actually hundreds of loans backed up by the government under the administration of SBA that are developed to fulfill the needs of different types of businesses. For example, you might need financial assistance for starting a business, or for expanding the existing business into exports or for disaster assistance. You need to check out SBA Loan Guide that is available on Business.gov site before going for small business grants.
The second largest bank in the US, J.P. Morgan & Co, is ready to lower the interest rate charged for a line of credit to private businesses by 0.5 percent for every new hire which they make with the maximum limit of up to 3 hires.
The chairman and chief executive of the bank, Jamie Dimon, said in a press release that the bank encouraged businesses to take advantage of lower interest rates for small business grants which were a record low for many years and helped in creating more jobs to boost the economy of the US. Dimon met small business owners at the banks offices on Park Avenue, New York, in order to launch this program.
The program caters to new lines of small business grants of up to $ 250,000 or for the existing customers that raise lines of credit by $ 10,000 and more. The bank also held seminars in 11 different cities in the US in order to cater to the local private business owners and improve their sales.
Lending to private firms has been a hot issue during the downturn of the economy. Many banks got assistance from the US government in order to help reducing unemployment by lending money to entrepreneurs. The bankers argued that the credit worthy borrowers were not demanding enough money. There were severe losses incurred for Bank of America and other similar giants that lend small business grants to firms. However, many banks began to lend more money to small businesses. All banks reported a rise in lending activity to private businesses. In the first quarter of the year 2010, J.P. Morgan reported a rise of 31% compared to the previous year.
Bank of America recently committed $10 million in small business grants to nonprofit organizations that lend money to rural and smaller businesses. Lots of nonprofit lenders like CDFI’s or Community Development Financial Institutions have struggled to lend money to different communities in the US. These organizations normally receive funds via federal agencies; however restraints on funding driven by recession limited the ability of these entities to lend small business grants.
The Global Commercial Banking President of Bank of America David Darnell announced the decision at the National Urban League conference. He said that even very tiny grants empowered the CDFI’s to have leverage which was 10 times the actual amount lent as small business grants and it initiated a ripple effect. Darnell said it in a statement that Dow Jones Newswires reviewed. As per Bank of America, these grants may surmount to $100 million in a long term, low cost capital for the microloans of private businesses. Darnell also stated that this decision could transgress into major investment over the next 5 years.
This small business grant related commitment from the banking giant comes in the wake of Ben Bernanke, the Federal Reserve Chairman, expressing concern that the larger businesses are not doing well enough to be of assistance to smaller businesses.
Other banking companies are also committing to action. Mark Bernstein, the executive vice president of Wells Fargo & Co, said that his bank would not only provide funding for the organizations lending small business grants, but also was undertaking a program “second look” that was geared for finding alternative ways to fund the rejected applications.
Similarly J. P. Morgan Chase & Co has also dished out initiatives like offering reduced interest rates to the business customers for hiring workers.
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