The concept of innovation
The concept of innovation

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The concept of innovation

1 Invention and innovation

The terms ‘invention’ and ‘innovation’ are sometimes used interchangeably, although the concepts are readily distinguished. As you will see here, it is helpful to make a distinction in the context of organisational analysis. First consider what you understand by the term invention.

Activity 1

Take two minutes to think about how you would answer the question ‘What is an invention?’.


Most people would probably associate an invention with something which is tangible and new. Inventions use new knowledge to create something new, perhaps an artefact, service or a piece of equipment. Inventions are useful if they have the potential to enable people to do things in different and better ways, or do things which they would like to do but could not have done before. They are useful if they can satisfy a need or desire which would otherwise go unmet, but inventions cannot always be put to an immediate beneficial use.

As individuals, everyone benefits from past inventions. For example, if the wheel had not been invented many years ago, people would not have been able to benefit from the forms of transport which incorporate the wheel. Carts and horse-drawn carriages, bicycles, motor cars, buses and trains all required the prior invention of the wheel.

Figure 1
Figure 1 Four types of transport

Activity 2

Take a few minutes to consider the question: ‘Do inventions always confer benefits?’. Make a note of your thoughts.


Inventions can only confer benefits if they are useful in helping individuals and organisations to achieve purposes and objectives. The wheel was a useful invention because it achieved the purpose of enabling people to travel and transport goods more easily from one place to another. It is an essential part of the motor car which can help to achieve objectives such as getting to work on time. However, inventions can also have negative effects, for example pollution as a result of emissions from motor cars. An invention can benefit an organisation if it reduces costs, increases the effectiveness of product or service provision, or enables an organisation to supply customers with new products and services. However, reducing costs (for example by the use of technology) may actually mean redundancies for some employees.

This assumes that one can always foresee how inventions can be used to help achieve purposes and objectives (and the negative effects associated with them). An invention which does not serve any immediate purpose we have, or which cannot be used to achieve an objective, does not confer any benefit. The concept of invention implies that applications of knowledge create something new, but inventions can only lead to useful innovation when people are able to see how they can serve their purposes. Another way of putting this is to say that not all inventions lead to innovations.

The concept of innovation implies that benefit is derived from applications of new market or technological knowledge. Sometimes it can take a long time for an invention to lead to innovation. In 1972, Intel invented the microprocessor. Given the widespread use made in developed countries of computers and computer technologies today, this was clearly a potentially useful invention. However, Intel did not derive any benefit from its invention until the late 1980s and 1990s. It was not able to put its invention to a productive commercial use immediately and did not reap the benefits until it could.

Figure 2
Figure 2 ‘Magnificent invention! Now, lets get the people in Marketing to figure out what it can do!’

Michael Porter (1990) has also implied the need to distinguish between invention and innovation. He writes that innovation is defined as: ‘a new way of doing things (termed invention by some authors) that is commercialized’ (p. 780). From Porter's strategic perspective, inventions need not result in something tangible. A ‘new way of doing things’ need not be the result of a new piece of equipment. However, devising or discovering ‘a new way of doing things’, a new product or service, is not on its own a sufficient condition for a profit-making organisation to make a profit, or for a non-profit-making organisation to achieve its aims and objectives more effectively. New processes, products and services must also be put to a productive commercial use. The point is that innovations are of practical use in providing new or improved products or services and/or enabling people and organisations to do things more effectively and/or efficiently. Inventors, organisational or individual, can only benefit from inventions which they can exploit for gain.

It is perhaps appropriate here to stress the difference between product and process innovation. Product innovation relates to the development of a new product, for instance a new piece of equipment such as the personal computer (PC). However, when an organisation adopts this innovation to enable it to perform its operations more effectively and efficiently, it can be classed as a process innovation. In effect it is impacting on the process of the organisation's activities. Keep in mind that what may be innovative for one organisation may be ‘old hat’ for another.

Process innovation is not confined to the use of new equipment in an organisation but, as Porter's definition of innovation suggests, can also refer to a new way of doing things. It is therefore important to remember that when we refer to technology in this course, we are defining it in its widest possible sense to include new equipment, machinery and internet technologies, as well as new ways of organising work, bound up in the systems, processes and procedures of an organisation and not necessarily involving physical equipment and products.

Activity 3

0 hours 5 minutes

In the light of the discussion so far, note down what you understand by the terms invention and innovation.

Figure 3
Figure 3


An invention is a new process, product or service derived from new ideas and knowledge. It is an application of knowledge which creates something new. The use of knowledge generated much interest during the 1990s and has a direct relationship with the HR function in that it is suggested that in order to be innovative organisations must create conditions in which the creation and utilisation of knowledge can be maximised.

Porter's definition of innovation suggests that innovation is invention coupled with commercialisation. Innovation which puts new knowledge to productive use can create and commercialise entirely new processes, products or services of the type which we often associate with the term invention, but it can also lead to the development of improved processes, products and services.

Activity 4

0 hours 5 minutes

Suggest one or two ways in which innovation might benefit an organisation.


Innovation may create new products or services to serve new markets, enabling an organisation to expand its market base or range of beneficiaries. Alternatively, it may lead to product or service improvements, such as better quality or service flexibility. For example, some medical conditions that were formerly treated by major surgery are now treatable with keyhole surgery. Factors such as these can influence customer perceptions of a company and its market offerings. Customers may be willing to pay more for products and services which they consider are superior in some way to alternatives. Innovation may also enable an organisation to produce existing or improved products and services more efficiently at a lower cost. Again, in linking innovation to business functions, striving for effectiveness and efficiency relates to the operations function. This is not always driven by an improvement in products and technologies but can also involve innovation in working methods, such as group or teamwork, which can be, but is not always, enabled by technologies.

New markets provide a new source of revenue for organisations that sell their products (be they for-profit or not-for-profit), as revenues are determined by the quantities and price of output sold. Improved products and services which are in consequence differentiated from those of competitors can sometimes command a higher price. With or without changes or improvements to the products and services an organisation provides, innovations in organisational processes can improve the effectiveness and/or efficiency of provision. Effectiveness can be a differentiating factor and the more efficient an organisation is, the lower the cost. Innovation can therefore increase revenues and/or reduce costs, and so increase profits of businesses or the ability for not-for-profit organisations to expand services without additional donations.

In donor-funded or tax-funded organisations, such as a government-funded hospital, innovations may also make it possible to meet the needs it serves more effectively and efficiently. New and less expensive drugs could enable doctors to treat more people with particular ailments without additional taxation. Better quality health care provision would enable the hospital to achieve better results. Lower costs enable donor-funded or tax-funded organisations to achieve more with their existing allocation of resources.

As the contrast above indicates, the aims and objectives of profit-making and non-profit-making organisations may differ, but innovation can play an important role in helping both types of organisation to achieve them. It can open new markets and/or create opportunities for related activities, all of which impact on the business functions.

Activity 5

Can you recall what an organisation must achieve to benefit from innovation?


We have already indicated that organisations benefit from innovations which enable them to offer new or improved products and services, and are consequently differentiated. They also benefit from innovations which enable them to offer products and services more effectively and/or at a lower cost.

Functional innovations can lead to more effective or efficient functional activity, but because functional activities are related in the value chain, innovations in one functional area have implications for others. In the end, successful innovations at functional level can be of wider benefit to the organisation because of their impact on the functioning of the value chain.


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