Social Communities and Open Innovation
Understanding the Role and Impact of Social Communities, Networking and Web 2.0 on Innovation
Term Paper 2010 13 Pages
“Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth” states Peter F. Drucker.
Innovation is the introduction of new things, ideas or ways of doing something according to the Oxford Advanced Learner’s Dictionary. But if we go deeply into its meaning, innovating is not only creating something new but rather creating something new that is made useful for people (McKeown, 2008). Innovation is a positive change that can be reflected in new products, services, processes and even business models. There is a very important difference between an innovation and an invention. An invention is the process of concreting an idea and turning it into reality, which can be a product. Nevertheless this product will be an innovation only if it fulfils the demands of a specific market and creates value for the consumers. In other words, an innovation is the commercialization of an invention.
Once having understood the importance of innovation this paper will take you through the different sources of innovation and the open innovation model, so it makes it easier to follow the relation and the influence social communities have on them.
To give a background for the content of this paper it is important that some concepts are understood. For starters, Web 2.0 is the interactive and collaborative Internet, where people not only can download applications and read information online, but rather upload files and share things in a dual way of communication with other people online. People interact with other users and can give their opinion on everything whenever they want to. It is through social communities that people interact mainly with each other by writing, commenting and sharing posts, comments, articles, photos, videos and applications among other things.
2.1 Why is Innovation so important?
Innovation has become a very popular concept because of its vital importance. Successful companies like Apple, Google, Microsoft, IBM and Toyota understand that they need to innovate in order to become and remain leaders in the market, so its shows the ranking of the 25 Most Innovative Companies in 2010 from Bloomberg Business Week, where these companies occupy respectively the first five places. Not without a reason states Steve Jobs “Innovation distinguishes between a leader and a follower”. Furthermore, innovation is the factor with the major impact on contribution to future growth with 25% according to the 6thAnnual Global CEO Survey conducted by Pricewaterhouse Coopers in conjunction with the World Economic Forum (2003).
There are several reasons why innovation is so important for the growth of economies and societies. On one hand the technology and environment are constantly changing and they do it rapidly. There are always more competitors entering the market and new products are constantly being launched. As a consequence of globalization, economies are removing commercial and political barriers in order to facilitate the trade worldwide. Therefore companies need more than ever a competitive advantage for their strategies to survive and succeed, since industrial structures are changing and products are turning more homogenous and more difficult to differentiate. On the other hand the customers are every day more demanding; they expect more from the companies, higher quality, lower prices and increased customization. Furthermore, innovation not only creates and accelerates growth, increases both the productivity and economic wealth but it can also be used for reducing the environmental damage.
Innovations can be classified into incremental innovation, market innovation, technological innovation or radical innovation, depending on the previously existence of the technology and the market in which the innovation is being made. It can be clearly observed in the following graph.
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Figure 1. Types of Innovation
Different types of innovation require different strategies and thus this classification. An incremental innovation is based on a developed technology used in an existing market, for instance a new digital camera with better quality and more megapixels. A market innovation is for example when a company decides to launch a product that is already commercialized somewhere else in a new country or region where did not exist. The technological innovation refers to a new technology in an existing market, for instance the mp3 player in the already existing electronic market where compact discs, minidiscs and cassettes were previously commercialized. Finally, the radical innovation refers to the highest degree of innovation where a totally new technology generates a new market demand, which is the case of the transition from horses to cars.
2.2 Sources of Innovation
An innovation is, as already defined, quite more than a bright idea. Nevertheless many innovations originated from a bright idea and creative minds. Therefore, there are several creative-thinking techniques, for instance the well known brainstorming or other techniques attached to questioning, diagramming and attribute listing, which pursue the change of perspectives in people so they can think “outside the box” (Michalko, 2006).
The sources of innovation can be found rather between companies, universities, laboratories, suppliers and customers than inside them (Graf, 2006). According to Peter F. Drucker (1993) there are mainly seven sources where innovations come from. The first source is the unexpected, which can be an unexpected success, an unexpected failure or even an unexpected outside event. An unexpected success or failure in a company can be a sign that there is a market or a segment, which is not being exploited or that the consumers are changing their preferences. The second source relates to the incongruities or discrepancies between what something should be and what it actually is. Particularly incongruities in economic realities of an industry, between the perceived and actual customer values and expectations or within the rhythm of a process can open the way to an innovation. The third source is the process need, where an innovation can be created by supplying a missing link. Such was the case of the pharmaceutical salesman William Connor who added a preservative to an already discovered enzyme in order to be able to maintain it under refrigeration and so improved the process of cataract surgery. The fourth source is industry and market structures, followed by