Innovation and Reverse Innovation

Question: Explain Innovation and Reverse Innovation. Answer: Business phenomenon refers to something, which is very impressive and remarkable in a business environment. It implies that some unique strategic thinking of a company that is path breaking. This kind of business phenomenon adds significant value to the organization and every other business follows the same strategy for the development of the organization. This paper will focus on the business phenomenon: Innovation and Reverse Innovation. Innovation creates value to the organization. Innovation is possible through strategic thinking planning. With proper planning the innovation of the organization will lead to success of the company. Moreover, it leads to growth of the firm and consumers can avail more modern and innovative products and services. Strategic thinking of a company induces innovation and creativity. Innovation requires resource utilization and this can be done through proper strategic planning. Innovation is a part of strategic planning (Rothaermel 2015). To create ideal future, innovation assists the company to do something out of its comfort zone that exceeds the expectations of customers and companys requirement. Innovation should be meaningful; therefore, through proper strategic planning that includes the requirement of the customers; company and the employees, proper innovation takes place. To attain success of the firm because of highly added value to the company, the innovation should be benchmarking. The innovation should incorporate effective plans and involve employees ideas in order to ensure that the companys innovation is the best practice of the industry. When the company successfully implements the strategic thinking by initiating innovation process, then it will add value at every level of the organization (ODonohue 2015). Innovation creates competing elements and value management enables the stakeholders to understand the value of the new creation. Innovation helps an organization to be more competitive. Through value management of the company, unique value will be provided for customers. The aim of any strategy of a company is focused on producing new value through innovation. The strategic thinking of a company also incorporates planning of reverse innovation. in this process goods are developed by inexpensive model to meet the demand. Reverse innovation removes the expensive par t of the earlier innovation (Johnston and Bate 2013). However, this approach is not so competitive in nature but this helps to increase profit from selling of the products to the affluent section of the society. However, this enables the company to earn significant revenue. The reverse innovation process is mostly used in the developing countries. This kind of process also requires strategic planning, as it is important to understand the market for this kind of products. Whether this will create value to the consumers and add value to the company, depends on the fact how much the audience will accept the lower cost product. It is clear that, the innovation of product and reverse innovation brings something new to the society. It might be a new product or new process of production or an improved product. Therefore, this business phenomenon is important to be discussed. This assignment will discuss the review of the theory on this topic. It will also critically analyze application of the theoretical perspective of this business phenomenon. Literature Review Definition Innovation Due to social, economic and technological changes are the features of the global market place, it is important to adapt changes. Hence, to cope up with the changes innovation plays an important role in order to enhance the performance of the firm in building competitiveness. There is high interest of innovation studies as value judgment is attached to it. Scholars have defined innovation as an adoption of change. They emphasis on adoption, that is beyond the concept of new ideas. Innovation of production process is completed only when the innovation and operational structure of the company is achieved. Innovation is defined into six types of activity, such as, new services; new products; new methods of production; new sources of supply; opening new markets and new organizing way. Innovation performs as a key driver to deal with the problem of quantity; quality and speed (Davenport 2013). Therefore, creating new value proposition become a problem. The companies seek to maximize the se arch for new value and design it in the form of a new products; new process or new method of doing business. In this regard, the scholars referred that innovation is the capability of the organization to create new value proposition for the stakeholders. There are many variables that link to the innovation capability are, organizational culture; leadership; resources and participation of supplier, customer and employee. Innovation is a multidimensional concept as it is used to analyze performance of the business; firms innovation etc. Innovation not only implies the product or process innovation but also indicates innovation in the management system and in the organization. The authors of innovation pointed out three sequential components: innovation as an outcome; innovation as a process and innovation leadership. Crossan and Apaydin (2010) stated that innovation is exploitation; incorporation; production or adoption of a value added novelty in economic social and economic area. Innovation Generations Literature has identified that, there are various models that explain the innovation process. According to the Rothwell (2012), innovation process can be classified into five generations. During the first generation, the innovation was dominated by technology-push model. Here, innovation is interpreted as progressing way of R D. Innovation took place only in terms of manufacturing new products in the market. It was seen as a linear process, which assumed that the market is ready for the output of R D activities. It was believed that more is the engagement on the R D activity; the more would the innovations that are beneficial to the market and society. The second-generation innovation put focus on innovation in the marketing strategy. The market played a crucial role in the innovation process. The innovation was driven by the needs of the customers, therefore, it is known as market- pull model. The market was considered as the source of the ideas for conducting the research and de velopment. The third generation innovation process shifted to coupling model. The proponents have described is as a complex intra and extra organizational communication path, that links in-house functions and firms to broader technological and scientific community and marketplace (Anderson et al. 2012). This model has drawn attention to the significance of feedback. This process is influenced by the interactions of technological and market forces. The fourth generation innovation is an alternative model of the coupling model. The approach of product development process was based around a sophisticated functional integration and parallel activities. The information sharing process became efficient as the 4th generation innovation process promotes the cross-functional parallel development and more effective integration. The fifth generation or the present generation of innovation process resembles the networking processes. Rothwell (2012) has opined that this innovation process can be called as systems integration and networking process. This approach has generated due to mutual R D relationships; increasing international strategic alliances and growing consciousness of supply chain management; networking connections between large and small firms (James et al. 2014). Linkage to external networks and relations with the customers have been given importance in this generations innovation activities. The firms of the present generation stress on the networking among the organization and the role that competition plays in improving the innovation. Studies have also emphasized on the impact of geographical location to innovative capacity and identified that the networking is the major component of advancing the innovation capacity of the firm. Level Analysis Authors have pointed out that phenomenon of innovation has different levels of analysis. Broadly, they can be classified into industry- level; firm- level; subunit level; regional- level; national level. Industry level innovation refers to extra or intra-industry development of the innovation. The extra-industry level stresses on the aspects of that make distinction between innovation development pattern and innovation magnitudes. The intra-industry level stresses on differences in the time of adoption of innovation across firms and inferences of the innovation for performance of various organizations (Harrison et al. 2014). The firm or organization level innovation involves the process of outcome approach of the innovation. The process approach explains a broad range of events and orders central to innovation process. The outcome approach finds out the contextual; structural and behavioral features of innovation. The sub-unit level of analysis indicates the departmental innovation d ecision-making factors and communication that affect the R D unit; diversity in the RD team and also the tenure of the R D group. The geographic level of innovation emphasize on innovation capacity of the nation and contributing aspects of the level of input devoted to innovation and aspects that drive research and development activity of the nation (Malecki 2013). Regional level analysis is same as the national level analysis; the difference is that innovation can differ with respect to the region within the same nation. The firm level innovation can be classified into three categories: diffusion; organizational innovativeness and process theory (Kilic et al. 2015). The studies of diffusion try to explain and predict the rates of innovation adoption and the pattern over the time and space. The unit of analysis is innovation itself that has an extra-organizational focus. Organizational innovativeness focuses on the factors that influence the tendency of the firm towards the innovation. Unit of analysis is the organization. The process theory explains the processes of innovation by focusing on the way of implementation of the innovations by the organizations (Brockhoff, Chakrabarti, and Hauschildt 2013). Process of innovation is the unit of analysis. The literature on regional innovation is the complex networks of social informal relationships within a certain region that in order to develop the local innovative capacity through synergetic and combined learning process. Many literatures have looked int o the fact that spatial elements affect the innovative behavior. This concept has incorporated the significance of the social elements and transfer of know-how; imitation of managerial practices etc. national level analysis is group institutions that support innovative activities within the country. Innovation Process Gerybadze et al. (2012) described the innovation process as a stage that starts from strategic planning; innovation planning; idea generation; screening; selection of project; development of project; testing the market; production; introduction of the market and controlling the innovation. Literature reviews that innovation process depends on several dimensions: direction; source and locus. Direction dimension takes into account how the process starts and develops be it top-down or bottom-up. The source dimension involves the ideation behind the innovation that is internal source and adoption of innovation invented already that is external source. The locus dimension describes the extent of a process of innovation whether firm only or the network. According to Narvekar and Jain introduced three-stage innovation process, those are, ideation, incubation and demonstration (Volberda, Van Den Bosch and Mihalache 2014). It is suitable for technological innovation process and examines the n ature and association between innovation and intellectual capital. This process is used to explain the process of learning and the company generates flow of new knowledge; proficiency and capability. Firms Performance Many scholars have recognized the significance of innovation on the performance of the firm. A firm introduces changes in their structure and processes with the target to improve over its performance. Studies have found that high performance of the firm and rate of innovation of the firm has strong relationship. It has bee also identified that technical and administrative innovation contributed to the performance of the company. The climate of the organization, communication, personnel policies and interdepartmental relations can be changed by the administrative innovations. These kinds of innovation have more impact on long run. Hence, innovativeness can be determined by the capability of maintaining balance between the technical and social systems. In literature, it has also been found that synergies between two types of innovation and overall corporate performance can be provided through the association between administrative and technical innovation. Innovations play a meditation al role between performance and market orientation. Gunday et al. (2011) has classified firms performance in terms of production; innovation; market and finance. Innovation has positive impact on the firms performance in the manufacturing industries. The innovation is the main driver of firms performance and this should be considered as the integral part of the business strategy in order to enhance the operational performance. It has been found that, when the firm has achieved significant market performance when it has given priority to innovation and manages innovation through strategic thinking. According to Salomo et al. (2013) innovation has significant indirect performance impacts intervened by innovativeness of the organizations new product portfolio. Some organizations establish strategic alliances and joint venture in order to improve the rate of success from innovation. By networking with the external scientists in new areas to lead an entire new business is a crucial part of the company (Ngo and OCass 2013). For example, to develop new car by BMW, it relocated its members from finance; engineering; production; design; marketing and purchasing to a separate unit to work collaboratively. These kinds of teams are small and flexible and considered as creative organization. To keep the business alive with sufficient competency, the management of the company emphasizes on innovation. Innovation of product, management, process and corporate values keep the organizations expanding and changing (Prajogo 2016). A company cannot survive without innovation in the long run. It is important to recognize the need for change in th organization. Small and medium enterprises often fail because they do not see any incentive in introducing new product to create a niche market, where they have to change for surviving. Large firms invest on product innovation and process innovation. Reverse Innovation Reverse innovation is the new way of innovation in the developing nations. In this process the firms produces low-priced products that generates huge demand by the low income group. The product can be developed by the developed western world in the developing nations and returned back to the western countries, or, firms of the developing nations produce low price products, that are going to disorder the price structure in the western companies. The economical innovations are referred as reverse innovation. The product through reverse innovation attracts cost sensitive customers. Govindarajan and Euchner (2012) postulated that reverse innovations are the low cost innovations that diffuse into the less developed nations from the developed nations. Reverse innovation is the creation first adopted in the less developed market before they trickle up to the rich nations as well. However, the concept arises to produce low cost product for the affluent people; in the western world, the rever se innovation is used to serve the rich customers for a distinct purpose. For example, low cost ECG machine developed in India is used in the ambulances in western nations, as installing high cost ECG machine is impractical. It challenges the belief that innovation flows from the advanced nations. The literatures have found that low-income countries no longer receive innovation from the rich countries. They are now capable of innovating their own needs at a subsistence cost (Govindarajan and Trimble 2013). The western firms engage in reverse innovation because their subsidiaries in the low-income countries have different roles than the roles of the headquarters. The western companies entered the market of developing countries in order to reap the benefits out of R D and skills of innovation to their home countries. technology in emerging economies changes in the reverse direction from distribution to production, then to development to research. The products from reverse innovation have high cost advantages than the prevailing solutions. This is a process of strategically rethinking to reduce the cost of production for the development of the company. Gupta (2013) opined that reverse innovation is a management philosophy developed newly, that integrates specific requirement of the weaker section of the society. Some have considered reverse innovation as frugal. However, many have opined that frugal innovation is designed mainly to offer products to the affluent segments, whereas, reverse innovation refers to developing new products in developing nation that are then modified for sale in developed nation (Nunes and Breene 2011). This difference is important because reverse innovation is main challenge for western firms as R D is rapidly becoming important in the emerging markets (Goel and Singhal 2015). The reversely innovated products are developed for selling worldwide from the beginning. The primary situations that create possibility of reverse innovation ar e income gap; infrastructure gap and sustainability gap. The per capita income is very low in the emerging world; there is huge possibility that there will be a decent quality product will be produced at a lower cost. The most of the innovation is unattractive in rich world. The infrastructure gap is another motivation for reverse innovation. The demand for new and advanced infrastructure is more in the developing world than in the developed world. In the developed nations, advanced infrastructure is already present. Rich word only demand to replace the new infrastructure (Crisp 2014). Therefore, through reverse innovation, new products are developed at low cost for the emerging nations as well as to replace the infrastructure of the developed world. Another situation of innovation is created due to sustainability gap as well. Developing countries are dealing with environmental rigidity far sooner than the advanced nations. Therefore, some certain technological advancement or the ad vancement in the process of innovation is highly required in the underdeveloped region. Reverse innovation also requires shifting the power or the control from the headquarters and needs to reshape the models of the organization. Critical Analysis The linear model of innovation is inadequate for depicting the process of innovation. The critics of the linear model of first generation innovation have opined that this approach is oversimplified. The first reason is that the linear innovation model lacks to-and-fro process and the second reason is that it has placed too much emphasis on the research and development and other inputs of innovation are completely ignored. The major weakness of this model is that there is absence of feedback path within the process of development and from the market as well. Feedback is necessary for evaluating the performance of the firm. Kline and Rosenberg opined that the first generation model of innovation distorts the reality of innovation (Panopoulos and Sarri 2013). The second-generation model of innovation fails to consider the importance of the linkages to technological and scientific knowledge, which are essential element of the innovation; and only focused on market needs. It also neglects the other crucial inputs for innovation. The critiques opined that the innovation process of third generation is also sequential. It is complex as well. Various reviews seek the implication on the management issues of innovation process. Critiques have opined that organization may not involve in all stages of innovation. Hence, it is important to identify the deficiency of the organization in order to improve the overall success from innovation. The effectiveness of innovation process requires balance of all innovative factors like culture; leadership; participation etc (Davenport 2013). Moreover, implementation of innovation requires several techniques to support the innovation. The problem is that the process of innovation occurs as a sequence of tasks that requires coordination; interdependence of management and the control; communication and information stream. Process of innovation is necessary to create an environment to promote the technology breakthrough. Technical innovation is has less impact in the long run than administrative innovation, and instantly affect in the short run (Damanpour and Aravind 2012). Moreover, literatures reviewed suggest that even if innovation can yield positives benefits for business, it cannot be concluded that the innovation process equates performance of the business. Business performance is not an outcome of innovation alone. Success and failure of innovation process is considered to be necessary but it is not sufficient factor to affect the business performance and its survival. Moreover, it is not possible to quantify the relationship between innovative effort and innovations. This is because, the effort is measured by innovation cost; efficiency in resource usage and innovations is measured as impact on firm; profitability and market share. The strategy of innovation and hence investing in the R D activity can bring major benefits to the business. However, there are potential risks associated with it. An innovation can only offer competitive advantage if the rival firms are unable to replicate the process in their own products (Maughan 2012). Though, patent gives a protection from imitating the invented idea by other people, but some innovation is difficult to protect. The main disadvantage of innovation is that one innovation is made through huge innovation but all other companies are enjoying the benefits. Therefore, innovation sometimes faces problem of free riding. Sometimes research and innovation are speculative as there is no assurance that the company will earn significant revenue. It might also happen that due to long term development process, the research or the outcome is already innovated by the other firms. Hence, there is high risk associated with long run development process. R D demands a high rate of return as there is high risk involved in this activity (Schneider and Spieth 2013). Hence, the opportunity cost of investing for innovation is quite high. It has been reviewed from the literatures; innovation is costly due to high rates of failure. Moreover, critiques have opined that due to complexity and non-linearity and knowledge intensive investment the innovation is quite risky. In the industries, where the entry barriers are less stringent, there is hardly any incentive for an individual firm to innovate. Even if the innovation is successful, the costs involved in developing can be too high to avoid the risks. Performance measurement has four phases: design; implementation; use and maintenance. It has been criticized by the scholar that innovation will be a failure, if the innovate product is not accepted in the market. The major disadvantage regarding innovation is that, innovation requires extensively high level of investment that might not be paid back during the life cycle of the product (Rothaermel 2015). The concentration of resources on the new product ignores the necessity for marketing of the existing product and maintaining the quality of the existing product. Moreover, innovation does not always produce superior products or the new innovated process is not always efficient. Hence, the effort or the investments become a waste for the organization. Innovation alone may not lead to improve in the business performance; the firm must have capacity to implement the innovation. Critics have also mentioned that innovation of technology reduces the dependency of the company on the labor force (Boons et al. 2013). This is highly debatable issue as this leads to loss of job . Therefore, the concept of innovation is highly criticized by the people. In addition to this, even if the innovation is not labor saving, it might be possible that due to implementation of the process, the employees may find it difficult to adapt the change. During incorporating the changes, the employees are supposed to be on the learning curve; therefore, the productivity declines in the short run. The performance of business might improve but overall impact of innovation is quite doubtful in nature. As discussed, the as workers lose job due to technical changes resulting from innovation. As a result of this, jobless people have to come to grips with the change in paradigm. Innovation is also criticized because; process innovation may lead to economies of scale that drives down the rivals and results into monopoly power. This might cause market to fail. Due to the disadvantages of innovation, most companies are engaged in reverse innovation. The reverse innovation enables firms to reduce the high cost of product innovation. Innovation is referred as knowledge development (Berchicci 2013). Small firms lack innovation but they are engaged in certain innovation activities. The source of knowledge in the small firms is the imitation of knowledge from bulk innovation (Westney 2013). Hence, they cannot have competitive advantage over others. Hence, through reverse innovation no significant knowledge is developed; therefore, it is believed that contribution of innovation is more than the reverse innovation. However, the disadvantages of reverse innovation is that, to relocate the operations of the MNCs to the developing nations, it requires some times; and cost and energy to invest (Yip and McKern 2014). This is a lengthy process and may require huge cost. Critiques have also opined that the reverse innovation is risky as customers may not prefer low cost products, as they may perceive a low quality of the innovated product. In this kind of case, reverse innovation is risky, as the market may not accept the product. The product of reverse innovation is mostly risky in the developed nations, as the market is niche there. Conclusion The report has discussed about a business phenomenon, reviewed the literature and critically analyzed it. Innovation and Reverse innovation is chosen as a topic as it is considered as a random and unpredictable phenomenon. All firms have same probability of innovating and ensuring the competitive advantages. However, some innovations are successful and some fail. In this report, the literature regarding the innovation has been reviewed. The literature has reviewed definition of innovation. The generations of innovations have also been explained. The report has also reviewed different levels of innovation. The process of innovation has also been described. The literature mainly focuses on the business performance of the firm. The report also aimed to describe the concept of reverse innovation. The report also critically analyzed the idea of innovation. The report has described the problem of different generations of innovation. It has also criticized that the process of innovation req uires proper coordination, without which the entire effort might be failed. Moreover, some effect of innovation is instant and some takes a long span to be realized. It has been realized that innovation has significant positive impact on the performance of the business, as it allows to be more competitive in the market. In spite of this fact, there is high risk associated with innovation. The report has described the advantages of reverse innovation and identified that how this kind of innovation is growing in the developing nations. To capture the share of the low-income segment, reverse innovation is considered as a best practice. From the above discussion, it is clear that, innovation is inevitable for every organization. Innovation leads to path breaking business practices, which achieves high levels of profit. However, the other firms can use an innovation of another firm as well, if it is not protected properly. Hence, copying a innovated product or the new process then it cau ses high risks for the firm that has invested to innovate. The paper has criticized this kind of disadvantages of the innovation in a business. The firms need proper strategic thinking for innovating a product, however, it is more important to implement the innovation strategically, that needs to have proper planning. It has been identified that innovation adds value to the organization and hence, it is important for the organizations to invest in the innovation and reverse innovation. References Andersson, M., Johansson, B., Karlsson, C. and Lf, H. eds., 2012.Innovation and growth: from RD strategies of innovating firms to economy-wide technological change. OUP Oxford. Berchicci, L., 2013. Towards an open RD system: Internal RD investment, external knowledge acquisition and innovative performance.Research Policy,42(1), pp.117-127. Boons, F., Montalvo, C., Quist, J. and Wagner, M., 2013. 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