Requirements for a Scientific Theory of Innovation

Why Is a Theory of Innovation Necessary?

The nature of success in business is almost self-obvious. The company that creates a greater value for its respective market will prosper but competitors will only get what is left for them by the leader. Repeating this difference in value year after year, and success will be permanently associated with that initially leading organization. It seems so simple, but is it?

Key Problem of Business

According to a study conducted by Royal Dutch Shell, the average life is 40 to 50 years. The time of being a market leader is even shorter. Leaders, thus, continue rising and falling. There are a lot examples of failures; they are so amazing that after studying the history of business, scientists wrote that “…permanently excellent industries and companies do not exist.

There are two aspects of this situation that raise the brows: 1) the entities, unlike human beings, are at least theoretically immortal and 2) the loss of leadership is universal; entities die too often. Why? There must be a fundamental root cause behind this phenomenon, which must be understood in order to find an effective solution to this problem. Without identifying the root cause, the risk of failure is high: no enterprise is immune and no executive is safe.

Problem Analysis

Since products or services are purchased to solve consumers’ problems, the competition between entities can be presented as a competition between the value propositions that the entities offer to their customers. Every value proposition goes through the life cycle process presented in the Figure 1. This universal process ends up with the market’s judgment of the value proposition, which leads to its acceptance or rejection, resulting in the financial gain or loss, which is then perceived as a success or failure.

Figure 1: Life Cycle of a Value Proposition

The goal of sustaining success can only be achieved if a company continually comes up with value propositions that are accepted by the market. To avoid variability of results (failures), as operation management, the process of competition must be controlled in its entirety. That is why the best-run enterprises use all the methods that have been proven over time to cut variability in the results produced by such diverse corporate activities as procurement, manufacturing, distribution, marketing, design, sales, etc.

Despite all their operational achievements, however, there is still one stage in the value proposition life cycle that lacks any control. It is the first stage of the process, which forms the content of a future value proposition – the value proposition conceptualization stage. Value creation is possible through both innovation and optimization. While both are valid approaches, innovation is the one that creates new features and provides significant competitive advantage. The first stage of the value proposition life cycle, however, can be considered as the stage of innovation. This first stage, in itself, is a complex process consisting of a number of procedures depicted in the Figure 2: identification of market requirements for a future product (service); formulation of problems that need to be solved to meet the requirements; analysis and solution of the problems; solution evaluations that also include identification of potential consequences (both positive and negative) resulting from a planned change; and, finally, formulation of the future value proposition concept, which is the foundation for the rest of the production cycle. Depending on how sound the foundation is, the cycle results will vary greatly.

Figure 2: The Process of Innovation

There is one important observation. Since the period from the inception of a value proposition until its presentation to the market in the form of a product or a service takes time (often years), controlling innovation really means to know not what the market’s present needs are, but what they will be in the future. It is the same as shooting a moving target; nobody tries to shoot at the location where the target is now but where the target will be. Currently, companies do not have reliable methods to accurately identify the future of the market’s needs, which makes control of the process of innovation impossible in principle.

Since the entire chain is as strong as its weakest link, an inability to control the first stage, innovation, automatically leads to the situation where no company can control the results of competition, which, in turn, results in a company’s inability to continuously succeed and, ultimately, control its own destiny. The inability to control the process of innovation is the root cause behind the cessation of growth, market losses and eventual mortality of the business enterprises.

Requirements for a Scientific Theory of Innovation

There is only one reliable method to control any kind of activity. That is the creation and use of science. Science allows improving problem-solving capabilities, forecasting capabilities and objective judgment capabilities regardless of the area of application. It enables better control of risk, more effective management and more consistent results.

Next, it is necessary to define innovation and establish the criteria for judging such a theory, based on the logic previously introduced.

Definition 1: Innovation is a process of value creation, which consists in changing the composition of a set of variables describing a system.
Definition 2: Innovation is an outcome out of the process that fits Definition 1.

While the second definition enables alignment with a “typical” understanding of what innovation is, the first (the primary) definition provides most of the benefits.

1. The definition breaks down the process of innovation into a rigid set of stages, each having its own unique goal, input and output. The further work can (and should) go in the direction of defining them, identifying the most effective tools, processes and best practices for each of the stages.

2. Acceptance of innovation as a process clearly points at the need to control each separate stage of this process in order to avoid inconsistency (variability) of results, as is prescribed by the operation management theory and various quality methodologies.

3. Defining innovation as a process and identifying the sequence of stages that constitute the process also enables the assigning of importance to each of the stages; the earlier a stage is, the more important it is because it predetermines a direction of the subsequent process.

4. One of the benefits of defining innovation as a process is the potential to define a set of requirements that any theory of innovation must satisfy. In this case, a theory must:

§ Have the capability to address identified issues – analyze and solve existing problems;

§ Have predictive capabilities and identify future needs (problems) of a respective system’s environment;

§ Provide objective criteria for judging novel concepts – especially, the theory must provide the means to evaluate the upcoming innovation’s potential for future success or failure in the marketplace;

§ Be objective – maximally independent from its user; and

§ Be universal – work for a system of any nature.

Date: 2016-04-22; view: 1098