The Purpose & Nature of Innovation (AQA A Level Business): Revision Note

The importance of innovation

• Innovation means introducing something new, or significantly improving something that already exists, within a business

  • Product innovation is new or improved goods and services offered to customers

  • Process innovation is new or improved ways of producing, delivering or organising a business's operations

• Innovation is different from invention

  • Invention means creating something entirely new

  • Innovation includes applying, improving or commercialising an idea, whether it is original or builds on existing technology

• Businesses of any size or sector can innovate, from a small business improving how it takes orders, to a large business developing an entirely new product

Example

A coffee chain introduces a mobile app allowing customers to order and pay ahead of collection, improving the process without changing the product itself

The value of innovation

• Innovation can create new revenue streams and open access to new markets

• It improves efficiency and reduces costs when applied to processes rather than products

• It can help a business respond to changing customer needs, technology and market trends

• It builds long-term resilience, as businesses that fail to innovate risk becoming outdated compared to competitors

• It can strengthen brand image as it positions a business as modern and forward-thinking

Example

A supermarket introduces self-checkout technology to speed up the shopping experience and reduce staffing costs

Challenges of innovation

High cost

• Research, development and testing of new ideas can require significant investment before any return is seen

Example

A car manufacturer invests heavily in developing electric vehicle technology, but faces years of losses before the new models become profitable

High risk of failure

• Many new products or processes don't succeed commercially, despite the investment made

Time-consuming

• Developing and testing new ideas can take months or years before they are ready to launch

Protecting new ideas

• Competitors may copy successful innovations unless they are protected, for example through patents

Example

A small technology start-up patents its new app design after discovering a larger competitor had begun developing a similar product

Resistance to change

• Employees or customers may be reluctant to adopt new products or ways of working

Balancing innovation with existing operations

• Pursuing new ideas can distract resources and management attention away from core business activities

Example

A confectionery manufacturer delays a new product launch after its research team is pulled onto solving a problem with its existing production lines

Ways of developing innovation

Research and development (R&D)

• Research and development (R&D) is the systematic investigation and experimentation a business carries out to develop new or improved products, processes or technologies

  • This can range from small-scale product testing to large, dedicated research departments or laboratories

Example

A pharmaceutical company invests heavily in R&D to develop new medicines, testing many potential treatments before finding ones that work

Advantages and disadvantages of research and development

Talent acquisition and retention

• Talent acquisition and retention means attracting and keeping skilled, creative employees who can generate and develop new ideas

• Innovative businesses often compete to recruit specialists and offer incentives to retain them, since employee expertise and creativity lead to new ideas

Example

Google offers high salaries, flexible working and creative freedom to attract and retain talented software engineers

Cross-functional teams

• Cross-functional teams bring together employees from different departments, such as marketing, finance and operations, to work on projects together

  • Combining different perspectives and expertise can generate more creative solutions than employees working within a single department alone

Example

A clothing retailer forms a cross-functional team of designers, marketers and supply chain staff to develop a new sustainable product range

Intrapreneurship

• Intrapreneurship means encouraging employees to act like entrepreneurs within a business, developing new ideas, products or processes as if running their own venture

  • Businesses may give employees time, a budget or freedom to explore new ideas independently

Example

3M has run a "15% time" policy since 1948, allowing employees to spend 15% of their working hours on projects of their own choosing.

This intrapreneurial approach led directly to some of the company's best-known products, including the Post-it Note, invented by scientist Art Fry during his allotted time