ABSTRACT

The knowledge-driven economy affects the innovation process and the approach to innovation.

The traditional idea that innovation is based upon research (technology-push theory) and

interaction between firms and other actors is replaced by the current social network theory of

innovation, where knowledge plays a crucial role in fostering innovation. In the knowledge-

driven economy, innovation has become central to achievement in the business world. With this

growth in importance, organisations large and small have begun to re-evaluate their products,

their services, even their corporate culture in the attempt to maintain their competitiveness in the

global markets of today. The more forward-thinking companies have recognised that only

through such root and branch reform can they hope to survive in the face of

increasing competition. At the same time, organisations in both the public and private sector

have launched initiatives to develop the methodologies and tools to support entrepreneurship and

the management of innovation in business. Higher education establishments, business schools

and consulting companies are developing appropriate

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Table of Contents

Abstract...........................................................................................................................................2

1.0 Introduction..............................................................................................................................4

2.0 Theories of innovation.............................................................................................................4

2.1 Technological push................................................................................................................4

2.2 Market- pull theory........................................................................................................................5

2.2.1 Technology Push Vs Market- pull theory...............................................................................7

2.3 Innovation derived from linkages between actors in the market...................................9

2.4 Innovation derived from linkages technological networks........................................13

2.5 Innovation derived from social networks...........................................................................14

4.0 conclusion................................................................................................................................15

References.....................................................................................................................................16

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1.0 Introduction

According to "Innovation Management and the Knowledge Driven Economy," from the

European Commission Directorate-general for Enterprise ,2004, the evolution of theories of

innovation management can be explained by the increasing importance of social ingredients in

`the explanation of innovation, which was originally based solely on tangible forms of capital.

This progressive inclusion of social ingredients can be illustrated by reviewing five successive

theories that have been deemed important by innovation specialists:

i. Innovation derived from science (technology push).

ii. Innovation derived from market needs (market pull).

iii. Innovation derived from linkages between actors in markets.

iv. Innovation derived from technological networks.

v. Innovation derived from social networks

2.0 Theories of innovation

2.1 Technology Push

The first explicit theory of innovation management is the "technology push theory" or

"engineering theory of innovation." In this theory the innovation opportunities, i.e. the

opportunities to improve the products or the manufacturing processes, are found in the uptake of

research results.

According to this theory, basic research and industrial R&D are the sources of new or improved

products and processes. The production and uptake of research follows a linear sequence from

the research to the definition of a product and specifications of production, and the application of

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technology to make a product that conforms to the specifications defined by research that has

also produced patents and scientific publications. (See Fig 1)

The limitations of engineering solutions were recognized in the 1960s, resulting in an alternative

view that sources of ideas for solutions should originate from the market. This alternative view

gave birth to the "market pull theory" of innovation.

2.2 Market-pull theory

This theory still gives a central role to research as a source of knowledge to develop or improve

products and processes. This theory sees the first recognition of organizational factors as

contributors in innovation theory; the technical feasibility was still considered as a necessary

condition of innovation, but no longer sufficient in itself for successful innovation.

Organizational competency had to be taken into account to ensure successful innovation as

innovation is a responsibility of all business units and departments, their involvement needs to be

determined accordingly (Tucker, 2002). In this context, an organization’s ability to identify,

acquire, and utilize (external) ideas can be seen as a critical factor in regards to its market

success (Zahra and George, 2002). This so-called ‘Front-End of Innovation’ is therefore one of

the most important areas of corporate management as shown in figure 5 below.

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In this framework, there is a specific differentiation between single process steps on one hand

and organizational responsibilities on the other hand. Boeddrich identified company-specific

preconditions for the successful management of front end activities, which were confirmed by

several other studies

Technology and technology-oriented companies, especially in the business-to-business area, are

traditionally more influenced by new technologies than other companies. However, firms in the

business-to-consumer sector focus more on end-users, and, therefore, market-induced impulses.

The related scientific discussion regarding the ‘right’ innovation management and especially the

‘best’ source of innovation is similar to the question of whether the chicken or egg came first.

The question becomes even more complex since there are several examples of successful

technology-oriented companies as well as market-oriented ones. Therefore, the question is not

which view is right or wrong, but if there is a practicable way to combine both views or even

extend them to other related factors

In order to build a common understanding of market pull and technology push activities, some

fundamental considerations will be introduced.

Dealing with technology means to handle different stages of research and therefore special

management duties and responsibilities (see Fig. 1).

According to Specht (2002), the stages of technology development and pre-development

activities belong to technology management. The field of R&D management is determined by

adding upstream fundamental research as well as product and process development. Finally,

innovation management includes the product and market introduction phase (Brem & Voigt

2009)

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2.2.1 Market pull vs. technology push

Generally, there are two common ways innovation impulses differ

(i) Market pull/demand pull/need pull: The innovations’ source is a currently inadequate

satisfaction of customer needs, which results in new demands for problem-solving (‘invent-to-

order’ a product for a certain need). The impulse comes from individuals or groups who (are

willing to) articulate their subjective demands.

(ii) Technology push: The stimulus for new products and processes comes from (internal or

external) research; the goal is to make commercial use of new know-how. The impulse is caused

by the application push of a technical capability. Therefore, it does not matter if a certain demand

already exists or not.

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Innovation also depends on factors such as business logic and environmental dynamics.

As the internal corporate innovation process is surrounded and influenced by external factors,

which are crucial for the company’s innovations (Brem, 2008; Lind, 2002), they are implicated

as well (Fahey and Narayanan, 1986):

(i) Political influences (government stability, taxation policy, social welfare, etc.),

(ii) Social cultural influences (income distribution, consumerism, education, etc.),

(iii) Environmental influences (protection laws, waste disposal,location, etc.),7

(iv) Economical influences (inflation, income, business cycles, etc.),

(v) Technological influences (government spending on research, speed of technology transfer,

rates of obsolescence, etc.) and

(vi) Legal influences (employment law, product safety, business legislation, etc.).

2.3 Innovation derived from linkages between actors in markets.

A new generation called the "chain-link" theories of innovation then emerged to explain the fact

that linkages between knowledge and market are not as automatic as assumed in the engineering

and market pull theories of innovation. There were two phases:

1. At the beginning of the 1980s, more attention was given to linkages between research and the

market via engineering, production, technology development, marketing and sales.

2. Later in the 1980s, the focus laid the stress on the information generated through the linkages

existing between the firm and its customers and suppliers.

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In these theories, innovation management is explained by combinations

of tangible forms of capital in conjunction with one intangible form of capital: data about

customers and suppliers.

The ‘”chain-link” model introduced by Kline and Rosenberg (1986) is a useful framework for

understanding how innovation occurs. Presented in Figure 1, it shows a central chain of

innovation (represented by C) involving the identification of a potential market, followed by the

design and testing of the idea, leading to market entry.

Crucially, at each stage in the development of the idea there are feed-back loops (f) to depict the

trial-and-error nature of the process. The most important source of feed-back (F) is from the

testing of the idea in the market. The links to the knowledge and research panels along the top of

the figure signify the circumstances under which the existing stock of knowledge (K) or research

(R), which might be thought of as new knowledge, is required. This might occur where problem-

solving is necessary as the idea is developed.

Thus, the problem might be solved by reference to the existing stock of knowledge (arrow 1 to

node K and arrow 2 back). For example, this could be achieved through reading scientific

publications or attending conferences. If the problem cannot be solved from the existing stock of

knowledge, it might be necessary to undertake research (arrow 3 to R). The outcome of this

research is uncertain as the problem may be insoluble (hence arrow 4 back is dashed).

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Source: Kline and Rosenberg (1986:290)

The model recognizes that existing technology or knowledge may not be sufficient to enable the

development of products and processes to meet identified market needs. A two-stage process,

indicated by the arrows labeled K and R, is often required to overcome technological problems.

First, a solution is sought from the stock of existing knowledge. If this is unsuccessful, then

research is needed to derive a solution. This leads to an increase in the stock of knowledge.

An important aspect of this model is the representation of research as coexisting with the

innovation process, rather than at the start of the linear model. At each stage in the innovation

process, if a technical problem needs to be solved, the first source of a solution is known science

or the stock of knowledge. If a solution is found this information is fed back to the innovation

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process. Where a solution is not found then research is needed and justified, and the solution, if

discovered, feeds back to the innovation process.

This does not mean that the research function only contributes to the innovation process when

technological difficulties are experienced in identifying customer needs. Research may result in

the broadening of technological opportunities, and the arrow labeled D represents this

technology-push link between new scientific knowledge and the innovation process.

In Kline and Rosenberg’s model, the market and science are complementary in the innovation

process. The market emerges as a stimulus for innovation, though perceived market needs can be

filled only where the associated technical problems can be overcome. New technological

opportunities are only commercially exploited where a market use exists.

One of the strengths of the model, and the reason it can be a worthwhile as a framework for

innovation policy, is its emphasis on the feedback process in the process of innovation. Product

specification, development, production, marketing and services functions co-operate to enhance

products and processes.

This relates directly to Bhide’s (2008) suggestion that managers, salespeople and customers are

potentially more important to the innovation process as researchers and scientists. Interaction

between these functions, even informally, may lead to new learning and innovation. This may

involve customers’ demands being fed back to designers, who can enhance new products, and to

production operatives, who can realize new ways of organizing processes to enhance efficiency.

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The implication is that some functions within the model may reside within the business, though

others may not. Businesses need not rely on their own R&D effort, but may access knowledge

that exists outside the business.

The implication of the models of science-push and market-pull models presented here is that

there is more than one source of innovation. A policy that seeks to support innovation in

businesses must therefore consider a range of potential drivers.

2.4 Innovation derived from technological networks.

At the end of the 1980s and during the 1990s, a technological networks theory of innovation

management was developed by a new group of experts under the label of "systems of

innovation." Here the theorists assumed that innovative firms are linked to a highly diversified

set of agents through collaborative networks and the exchange of information. This view stressed

the importance of sources of information that are external to the firm: clients, suppliers,

consultants, government laboratories, government agencies, universities, etc.

The theory of innovation which presumes that new technologies emerge from a firm's

accumulated stock of skills. Among these we distinguish technological and networking skills.

We examine two aspects of innovating firms: their inclination to adopt a technological

innovation, and their propensity to implement innovation alone or with other firms. Historical

conditions pertaining to organizational skills are examined to account for these aspects. Among

the most important are a firm's cumulative stream of technological projects that have some

affinity to the new technology. A second important antecedent can be inferred from a firm's

history of technological networking. Networking includes licensing, joint ventures and long-term

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contracts and can be formed for technological reasons, or for reasons having to do with the

delivery of products and services. Networking is deemed important for facilitating access to

strands of technology that are alien to a firm. Linkages are also conducive for contemplating

strategic partnerships through which a firm can share the risks of innovation with others and

which make such partnerships comparatively easy. The study examined a sample of United

States commercial banks during the period 1977-1987, some of which were engaged in a new

technology: home banking. The findings indicate that technological networking is the best

predictor of technological innovation. They reveal also that firms with extensive networking are

more likely to implement the innovation with strategic partners. Finally, the paper discusses the

implications of the findings for organization design and proposes an expanded theoretical

framework for organizational innovation.

2.5 Innovation derived from social networks

Finally, the "social network" theory of innovation management is based on two

earlier ideas and one new insight. The earlier ideas are that innovation is determined by research

(technology push theory) and by unordered interaction between firms and other actors

(technological networks theory). The insight is that knowledge plays a more crucial role in

fostering innovation. The growing importance of knowledge as a production factor and as a

determinant of innovation can be explained by the continuous accumulation of technical

knowledge overtime, and by the use of communications technologies that make that knowledge

available very rapidly on a worldwide scale.

The evolution from a technological network perspective of innovation management to a social

network perspective has been led by the challenge to transform information into knowledge (e.g.

information contextually connected to the development or improvement of products or

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processes). Knowledge-based innovation requires not one but many kinds of knowledge.

Furthermore, it requires the convergence of many different kinds of knowledge retained by a

variety of actors.

Conclusion

Even before the current economic crises, governments across the globe were pushing an

“innovation agenda.” This push has become even more pronounced as the recession continues to

pressure governments to respond. In the science-push innovation policy frameworks in place in

Europe, and those slowly being rolled out in the U.S., most of the funding for research from

government is channeled through higher education institutes. It is hoped that research in these

academic laboratories will generate technological breakthroughs and, in turn, new products,

services and process

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References:

1. Innovation management and the knowledge –driven Economy. European Commission,

January,2004

2. Integration of market pull and technological push in the corporate front end and

innovation management- Insights from the German software industry by Alexander

Brem, Kaigo-Ingo Voigt, 2009

3. Re-Imagining innovation: hold the scientists and bring in the practitioners, by Declan

Jordan, July/August 2009

4. Innovation management and greek entrepreneurship by Christos P Kisros and John

Hatzikian ,2006

5. Tucker, R.B., 2002. Driving Growth through Innovation. Berrett-Koehler Publishers, San

Francisco.

6. Zahra, S.A., George, G., 2002. Absorptive capacity: a review, reconceptualization, and

extension. Academy of Management Review 27 (2),185–203.

7. Boeddrich, H.J., 2004. Ideas in the workplace: a new approach towards organizing the

fuzzy front end of the innovation process. Creativity and Innovation Management 13 (4),

274–285.

8. Fahey, L., Narayanan, V.K., 1986. Macro-environmental Analyses for Strategic

Management. West, St. Paul.

9. Brem, A., 2008. The Boundaries of Innovation and Entrepreneurship—Conceptual

Considerations and Selected Theoretical and EmpiricalAspects. Gabler, Wiesbaden.

10. Specht, G., 2002. F&E Management: Kompetenz im Innovationsmanagement. Scha¨ ffer-

Poeschel, Stuttgart.

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