Technological innovation

The OECD/EC definition focuses on what is innovated – product, process, marketing or organisation – rather than how or why people or organisations choose to use an innovation, or how an innovation might be produced. Similarly, in the UK, the Department for Business, Innovation and Skills (BIS) defines innovation as: ‘The process by which new ideas are successfully exploited to create economic, social and environmental value.’ (BIS, 2011). Again, this definition draws our attention towards two fundamental features of innovation: that a new idea or invention is not by itself enough, and that it needs to be part of a wider process that realizes value.

Discontinuous innovation

Of course, this viewpoint runs counter to the strong tendency in contemporary societies to think of innovation only in terms of new products – which is an understandable trend given the scale and frequency with which the public are regularly bombarded with advertising for ‘stuff’, and particularly technological artefacts such as, ever ‘smarter’ phones, mini remote controlled drones, apps for just about everything, and many other forms of techie gadget. Yet arguably the greatest single innovation of the 20th century (and still as significant today) – the one which most changed society, the patterns of living and our economies – was not a new product but a?process, a way of producing a product. Henry Ford’s production line for manufacturing automobiles made them affordable for the first time to people on moderate incomes. But it also had a profound impact on the way in which work within Ford’s factories was structured and carried out. In came the production line, with workers carrying out the same tasks, at a set speed, over and over for the duration of their shift.

The benefits (and costs) arising from Ford’s process innovation, obviously had a significant and lasting impact on the world for consumers and manufacturers and more widely. But there are, of course, many newer examples of technological innovations (and inventions) that have enabled more wide ranging process and organisational innovation – most obviously, the advent of the internet and World Wide Web.

These examples and many others of similar magnitude are frequently referred to as ‘discontinuous innovation’ in that they:

involve a fundamental change in an approach or technology. Every now and then a disruptive event occurs that changes markets, industries and even societies … Such world changing events give rise to a wave of discontinuous innovation across many industries. This has a destabilising – or disruptive – effect for established firms. (Together with management innovation, discontinuous innovation constitutes higher order innovation, which can be the source of lasting competitive advantage)

(Bessant et al., 2009, p. 7)

Clearly, both Ford and the internet are examples of discontinuous innovation. In practice, however, what most organisations and people experience are examples of innovation that are more incremental in nature and more limited in scope and scale. Nevertheless, as the quotation above indicates, it is discontinuous innovation that is the ‘game-changer’. It is worth noting, however, that evidence has existed for some years that demonstrates that organisations that are first to market with an innovative product or services are frequently less successful than those who follow on later (Rogers, 2003; Hippel, 2005). Why this arises is particularly important in a commercial setting, of course, and thus why some firms outperform others has been a long running subject of interest to researchers and commentators from a wide range of academic disciplines. Furthermore, in an age when it has become widely accepted that innovation is an important force in driving economic growth and creating various forms of value – as well as essential to the success or survival of any organisation, whether commercial or not – this issue takes on a far broader significance.

Innovation capabilities

There are competing views and theories as to how to explain this and other key characteristics of innovation, of course. This course provides an introduction to one approach that has become increasingly popular over recent decades: the dynamic capabilities approach or perspective (also referred to as a framework). Put briefly, this approach argues that as new bases of competitive advantage have become more significant across ever more globalised markets, so old ways of examining competition – such as Porter’s ‘Five Forces’ framework (Porter, 1985, cited in Teece, 2011) – have become increasingly redundant because they are ‘not up to the task of revealing the dominant logic of value capture in most new industries, as well as many of the old.’ (Teece, 2011, p. 4). Consequently, firms (and organisations more generally, it can be argued) need to develop a much more comprehensive view of the environment(s) in which they do, or seek to, operate. For example, the ‘components’ of these environments stretch well beyond buyers and suppliers. They include local labour markets (particularly for skilled workers), legal and regulatory systems, education systems (particularly the university sector), banking and finance, and national, regional and pan-national political and governmental systems and situations (e.g. the EU, OECD, etc.).

This course begins by explaining the genesis of the capabilities approach – which lies in the resource-based view (RBV) of organisations – before moving on to discuss resources, competences and capabilities. A word of warning about RBV terminology is in order however. The terminology can be confusing, with different terms used to describe similar things, and the same things labelled differently across the literature. Unfortunately, this is the nature of the RBV/capabilities beast, as it is with other topics across not just academia but management consulting and journalism, for example. As such, it is a feature of the subject that cannot be avoided when citing or drawing on work from across the field. Nevertheless, effort will be made to mitigate this issue wherever possible.

The resource-based view of organisations

Since the 1950s scholars and researchers of innovation have tried to analyse and explain innovation and what makes some organisations successful at it while other organisations are not (e.g. Penrose, 1959; Wernerfelt, 1984; Kim and Chang, 2009). An increasingly influential sector of this research has focused on the resources held by an organisation and how these are managed and used. The resource-based view of the firm (RBVF), or, put more simply, the resource-based view (RBV) as this approach is now known, argues that the essence of competition – and thus the basis for the success of an organisation – centres on an organisation’s resources, not its goods and services. Thus RBV research and theorising seeks to analyse the relationship between organisations and innovation by focusing on the resources and capabilities organisations possess and questions whether it is the level of resources or the deployment of such resources that leads to differences in firm performance (DeSarbo et al., 2007; Newbert, 2007).

Leaving aside, for the moment, the observation that it might be a bit of both, it is necessary at this early stage to note the relationship between capabilities and resources and why the distinction is important. The nature of the relationship is often reflected in definitions of capabilities, such as ‘Capabilities, defined as the?ability to deploy resources effectively?so that inputs can be transformed into desirable outcomes, may be at the root of why two firms that have similar resources obtain drastically different levels of performance.’ (Emphasis added.) (Menguc, et al., 2014, p. 315). In this example, a capability is fundamentally an ‘ability’ to do something: ‘deploy resources effectively’.