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Why is innovation so important for firms to compete in many industries? Illustrate your response using company and/or industry examples.
Innovation is a process by which an idea or invention is translated into a good or service. For an idea to be called innovation, it must be replicable at an economical cost that satisfies specific needs. It involves purposeful application of information, imagination, and initiative in obtaining greater or different value from resources, and involves all procedures through which new ideas are generated and converted into new useful products. Innovation through years has taken center stage in transforming the world. In this section, we shall look at how innovation has helped firms compete favorably and citing examples (Rahul, 2005, p. 105).
The 3M Company in the US has maintained its competitive edge by its culture of encouraging creativity and innovation within the company itself. For instanced it has simple set rules that are used for sustaining its creative environment. The company tolerates failure by promoting risk taking and experimentation (Katz, 1988, p. 45). It is believed that more than 25% of the company's profits come from the products produced in the last five years. In addition, the company motivates its employees by adding bonuses to employee's salary to the success of new ideas. This has helped 3 M Company to dominate on the market regardless of many competitors present.
Researchers at Hewlett-Packard Company (HP) are encouraged to spend more than 10% of their time toying with pet projects in order to come with innovative ideas that later help improve the company's products. HP labs are also open 24 hours daily and it utilizes small divisions with decentralized decision making to promote innovation. This has increased the sales of HP products across the world due to improved product quality. In addition, HP has maintained it position as a market leader in computer accessories across the globe due to its continued innovation culture.
The "Office of Innovation" model developed by Eastman Kodak Company, has since been embraced and implemented by several leading companies across the globe in order to maintain their competitive advantage in the marketplace. Organizations like Amoco Corp., the US Air Force, and Bell Canada (Tim, 1987, p. 6). In essence, Office of Innovation has a mechanism of drawing people together to brainstorm on ideas. This mechanism allows free-flow and cross-fertilization of ideas within the company which later transforms into innovation for the company (Kuhn, 1988, p. 178).
What are the characteristics of industries that exhibit particularly short technology cycles and what are the characteristics of industries that exhibit particularly long technology cycles?
Technology life cycle describes the economic/commercial gain of a product through the expense of research and development phase, and the financial return during its vital life. Technology cycle begins with the birth of the new technology and ends when the technology reaches its limits and is replaced by a newer, substantially better technology. Some industries have short technology cycles while others have long technology cycles. This section is going to discuss the characteristics of industries with short technology cycles as well those with long technology cycles (Skalak, 2002, p. 202).
Short technology cycles
Industries with short technology cycles are those with rapid innovations to change products within a short period. These firms face competition from other players in the industry; for them to maintain a competitive advantage over their competitors they need to have high quality products that are in line with consumer demands.
Examples of Industries characterized by short technology life cycles include ICT, electronics, and Telecommunications. These companies encourage open innovation collaborating with other companies in order to keep up with new developments in and around their industries. Short technology cycles also demand heavy investment in Research and Development to ensure that they keep up with market trends. This also helps the industry to do direct foreign investments. Innovation specifically is the backbone of short technology industries, as firms wish to see concrete results from their R&D expenditure. Pressure to develop products rapidly is high in these particular industries (Katter, 1998, p. 134).
Long technology cycles
Industries characterized by long Technology Cycles have strong protection of intellectual property rights; such companies include pharmaceutical, chemical, paper, and other material industries. Their technology is much protected from their competitors and hence they face less competition as compared to short technology industries. Innovation within these firms is less rapid because they do not invest heavily in research and development.
Consequently, products produced by long technology cycles have demand for a very long period of time. Take for instance, a Toyota car can stay on the market for a very long period of time without depreciating its value as compared to a Nokia phone. Product development technology is designed to be in operation for a substantial period of time (Kanter, 1997, p. 301).
In conclusion, short and long technology cycles dependently rely on innovation. For this matter, you will find that firms with short technology cycles heavily depend on new ideas to come with rapid products that phase out older products on the market. Under short technology cycles, the management is always up beat to make sure that it meets customer demands through research and development. On the other hand, Long technology cycle firms have product protection rights that do not allow new comers in the market to produce their substitute products. In addition, their products are designed to last longer without depreciating.