The Value of Innovation (AQA A Level Business): Revision Note

Why innovation is important

• Innovation brings new products to customers and new processes that can lead to greater business efficiency

Incremental and disruptive innovation

Incremental innovation	Disruptive innovation
The gradual, small-scale improvement of products, services or processes over time	Developing a significant changed or entirely new product which disrupts the existing market
New features and upgrades are added to each new Apple iPhone release, such as improved camera performance and security features	Amazon's Kindle was the first affordable e-reader, which changed the market for books

Types of innovation

• Product innovation means creating a new good or service, or making a clear, valuable improvement to an existing one so that it meets customer needs more effectively than before

  • Examples include adding new features, better materials or a greener design

• Process innovation is the introduction of new or significantly improved ways of making, delivering, or supporting a product or service that increase efficiency, cut costs or raise quality

  • This may include new equipment, software, production methods or workflow designs

Innovation helps businesses to:

1. Keep ahead of competitors

   • Introducing new or improved products gives customers a clear reason to choose one firm over another

   • Updating production methods can also lower prices or raise quality, helping a business stay competitive in fast-moving markets

2. Improve profits through cost savings and added value

   • Process innovations (for example, better software, automation, or energy-efficient equipment) reduce waste and labour time, cutting the cost of each unit made

   • Product innovations can justify higher selling prices or create premium versions, increasing profit earned on every sale

3. Reach new customers and markets

   • Developing products with different features, sizes, or environmental benefits, and finding better ways to make or deliver them allows a business to serve groups it could not reach before

   • A wider customer base spreads risk and supports steady growth over time

Pressures on firms to innovate

1. Intensifying competition

   • When rival firms launch new models or features, a business risks losing customers unless it responds with fresh ideas of its own

2. Changing customer preferences

   • Shifts in lifestyle, fashion or concerns, such as demand for eco-friendly packaging or healthier ingredients, force firms to update products to stay relevant

3. Advances in technology

   • Breakthroughs in materials, digital tools, or production processes, such as 3D printing or AI, open the door to products that are smarter, faster, or cheaper than older versions

   • This puts pressure on businesses to adopt the latest technology too

4. Cost reduction targets

   • Rising labour, energy, or material costs encourage businesses to find quicker, less wasteful methods so each unit can be produced more cheaply

5. Need for higher capacity and speed

   • Growing demand or shorter delivery expectations (for example, next-day shipping) require faster production lines, better logistics software, or automation to handle larger volume without delays

6. Quality and compliance

   • Stricter quality standards and regulations, such as food safety rules or data protection laws, push firms to adopt new systems that guarantee consistent output and meet legal obligations

How do firms innovate?

• Businesses can encourage innovation by making small daily improvements (Kaizen), running formal research projects (R & D), encouraging employees to act like entrepreneurs (intrapreneurship), and studying top performers to copy best practice (benchmarking)

Protecting innovation and intellectual property

• Intellectual property rights (IPRs) protect inventions, creative works and some specialised processes from being copied

  • This protection encourages spending on research and development 

  • Possessing important IPRs can provide a valuable competitive advantage 

• There are three main types of IPRs

  • Copyrights

  • Patents

  • Trademarks

Comparison of intellectual property rights

1. Copyrights

   • Copyright grants the creator of an original work exclusive rights to its use and distribution for a limited time

   • It applies to creative, intellectual and artistic works including books, song lyrics, paintings and film scripts

   • Protection begins when a piece of work is created

     • It does not need to be formally registered

     • The © symbol may be applied to the work

     • Permission needs to be sought from the copyright holder to use the work 

   • In 2001 Dyson successfully sued Hoover for infringement of their bagless dual cyclone vacuum design

2. Patents

   • Patents give a business or inventor exclusive rights to make, use and sell an invention for a specified period

   • A detailed description including drawings/diagrams is filed with the government patent office

   • Patents provide inventors with a legal monopoly for a limited time

     • This allows them to control the use of their inventions and potentially profit from them

   • In 2022 Converse won a patent case against fashion designer Steve Madden's similar Winnona Sneaker design

Enforcing property rights

• IPRs can provide protection but pursuing breaches can be expensive, as court costs can be significant if a complaint is lost

  • Many businesses prefer to settle IPR disputes out of court

    • Arrangements to cease and desist from illegal use of designs, processes or trademarks

    • Agreeing compensation payments