The methodology for the systematic description of innovations in a market economy is based on international standards. A Group of National Experts on Science and Technology has been set up within the Organization for Economic Co-operation and Development to coordinate the collection, processing, and analysis of information on science and innovation.
She developed and adopted the document Guide to Frascati (in the Italian city of Frascati – 1963). The provisions in this Frascati Manual are updated periodically to reflect changes in strategies and scientific and technical policies at the national and international level and in the organization of research and development. The last edition of the Frascati Manual was adopted in 1993. It contains the basic concepts related to research and development.
Innovation is the result of creative activity aimed at developing new types of products
According to the Frascati Management, innovation is defined as the result of innovation activity, which is realized in a new or improved product introduced on the market, a new or improved technological process used in practice, or a new approach to social services.
In the dictionary “Scientific and technical progress” innovation means the result of creative activity aimed at developing, creating, and disseminating new types of products, technologies, implementation of new organizational forms, etc. P. Drucker defines innovation as “an action that allocates resources with a new ability to produce material goods (values)”. He recognizes that innovation is not changing management, but a purposeful search for change that can benefit entrepreneurship. “Innovation, according to Drucker, is a special tool for entrepreneurship.”
He sees innovation as one of the main reasons for the existence of any organization. According to P. Drucker, the organization has two and only two functions: to introduce innovations and to move them to the market. All other activities are designed to support them. He considers innovation to be key for every enterprise, seeks to elevate it to the rank of a systematic process, not subject to the vagaries of the imagination.
P. Drucker proves that innovation is not only a technological phenomenon but equally social. Many of the most significant innovations of the last two centuries, he said, have been social rather than technical: commercial bank services, the modern university, postal retail, the unified medical services system. They have also been realized in life socially: their success is the result of the joint work of members of society. Innovation is not a privilege of an artist.
Innovation is a tool for entrepreneurs
P. Drucker argues that innovation is a special tool for entrepreneurs, a means by which they use change as a chance to start a new business or service. The success of entrepreneurship depends on the constant search for ideas for change of internal and external nature. The innovation has a systemic character and in its implementation leads to changes in all or some elements of the system. Read more: What is innovation management?
This is because not every innovation is carried out in an isolated environment, and its successful implementation requires the interaction of various elements of complex processes. The introduction of the new product is usually associated with changes in technology and organization of production, the use of new systems to stimulate labor, etc.
Minor changes in socio-economic and other systems can be defined as improvements (improvements). They do not affect the normal functioning of the system and are characterized by relatively little impact on the dynamics of the development of the application site. Innovation, on the contrary, has a cross-functional character, creates a “quality” leap, breaks old rules, leads to going beyond the system. The terms innovation and innovation process are close, but not ambiguous. The innovation process is related to the creation, absorption, and dissemination of innovations.
An invariable feature of innovation is novelty and production applicability. Commercial realization is considered as a potential property, the achievement of which requires certain efforts. Therefore, innovation – the result – must be considered inseparable from the innovation process. Innovation is equally inherent in all three properties – novelty, applicability, commercialization. There are not many concepts that are as difficult to define as the concept of innovation. In its original meaning, it is “creating something new” or “creating something new.” As innovation is used very often, it can take on different meanings in different contexts. The word innovation can refer to the process of introducing new goods.
The same invention can lead to different innovations once it enters the market. The word innovation can be the creation of new goods. In this case, the words innovation and creativity can sometimes be the same. Innovation may have the status of an organizational function, a special mission of a department in the enterprise, and may not differ in meaning from the concept of change management. In the mouth of politics, innovation can mean some social good, ie. a good that all sections of society must strive for.
If we pay attention to other areas of knowledge – anthropology, paleontology – innovation will be a characteristic feature of human nature. Innovation puts and puts into practice different ideas, not only in the organization but also in its environment. Implementation in practice means that the buyer will recognize what it is: a good or service. Novelty and value are determined by the buyer, not the innovator who generated it. The words creativity and innovation are often used simultaneously. If you have to use one term, you usually have to use the other term.
A broad and narrow approach to the interpretation of innovation
In modern economic literature, there is a broad and narrow approach to the interpretation of innovation. In a broad sense, innovation means making changes by introducing something new. Within the given approach the different specialists define the innovation either as a result of purposeful creative activity, the practical application of which leads to significant changes in the functioning of the system, or as a process of implementing the new, instead of the existing but obsolete.
In the narrow sense, innovation is a technical solution implemented in practice. In market conditions, a sign of innovation is its novelty for the consumer. The product (product, method, service, etc.) must be new to the specific consumer (for the specific market) and not necessarily have a global novelty (be new to all). In modern conditions, one of the motives for creating innovations is competition in the market, ie. innovation is related to the market.
Competition stimulates the organization to develop and implement the novelty to maintain market position or to adopt a new segment and thus gain additional competitive advantages (depending on the innovation strategy of the company).
The links between innovation and the market are interdependent: unsatisfied market demand stimulates the creation and implementation of innovations; on the other hand, the appearance of innovations on the market changes the ratio of supply and demand, creates new market segments, creates new market needs.
The process of creating and implementing innovations is aimed at obtaining a positive effect. In the event of a crisis in the enterprise, the timely introduction of innovations can help to eliminate the emerging danger and prevent the crisis.
However, the positive effect of innovation is not always achievable, as innovation is a specific product. This specificity consists in the uncertainty that arises in the practical use of innovation, especially in the introduction of product innovations on the market. Thus, about 90% of innovations are not perceived by the market, as several factors affect the effectiveness of the implementation of the innovation and make it difficult to predict the scale of its spread. Example: In 1950, Sony launched the tape recorder, a technical device with excellent performance.
According to experts, the buyers had to fill the company with orders. “We were deeply mistaken,” said Akio Morita, founder, and president of Sony. “The tape recorder wasn’t the most necessary thing people wanted.” We couldn’t sell it. ”
The terms creativity and innovation are different
The two terms creativity and innovation differ in the following areas. Some of the definitions of creativity are the following: Creativity is the ability to create new ideas; Creativity is the ability to combine the acquired knowledge in new combinations; “Creativity is about looking for and finding something that society has not yet found.”
Innovation is a process, and creativity is a set of habits or abilities that make this process possible. Creativity is an activity (mainly mental) that results in innovation. Innovation is the tangible or visible result of creativity. These two terms refer to different structures. Creativity is usually considered individual and somewhat capricious. It is difficult to plan and even more difficult to manage.
Innovation, on the other hand, is seen as an organized collective process that brings economic or market benefits. Governments, for example, are more willing to support innovation research than creative research. Innovation is an area of high risk. For this reason, the introduction of new science-intensive products on the market must be preceded by a properly organized advertising campaign, in the process of which the consumer is informed about the characteristics of the novelty.
The information provision of the innovation processes is considered to be the main element of the implementation and large-scale dissemination of innovations. The innovation is the result of planned and coordinated activities of the subjects of the innovation process: designers, constructors, technologists (research institutes, engineering companies), investors (financial organizations or large companies, venture funds), implementing companies. The quality management of innovations significantly reduces the risks and this leads to an increase in the effect of their implementation. Changes that occur spontaneously in enterprises are not the work of innovation.
The innovation can be characterized as follows:
- 1. Innovation is the result of purposeful planned creative activity of people, designed to improve the existing system. Reference: “What is Organizational Strategic Planning“, https://ossalumni.org
- 2. Innovation is a novelty realized in practice.
- 3. Objects of changes made as a result of the implementation of innovations may be technical, technological, organizational and managerial, financial, social, environmental, legal, and other areas.
- 4. Innovation can overcome macro- and micro-crisis crises by increasing competitiveness.
- 5. Innovations are associated with risks.
When considering the problems of the nature of innovation, it is appropriate to distinguish between the concepts of innovator and imitator. The innovator uses innovation for the first time, which is a novelty not only for him but for the whole society. The one who uses an already existing innovation that is new to him but not to others is called the imitator. He applies an innovation that is known and available outside his organization. The innovator is the holder of an entrepreneurial function in the organization.