flowchart TD A[Schumpeter: new combinations] A --> B[New good] A --> C[New method of production] A --> D[New market] A --> E[New source of supply] A --> F[New industry organisation]
92 Innovations in Business
Innovation in business is the successful exploitation of new ideas to create economic value (UK DTI / Tidd-Bessant). The OECD Oslo Manual (4th ed., 2018) defines innovation as “a new or improved product or process (or combination thereof) that differs significantly from the unit’s previous products or processes and that has been made available to potential users”. The discipline draws from Joseph Schumpeter’s “new combinations” (1934), Drucker’s Innovation and Entrepreneurship (1985), Christensen’s disruptive innovation (1997), Chesbrough’s Open Innovation (2003), and the lean-start-up tradition. UGC-NET preparation typically anchors on Tidd-Bessant Managing Innovation, Trott Innovation Management, and Hisrich-Peters-Shepherd.
TipWorking definitions
| Term | Working definition |
|---|---|
| Invention | The first occurrence of an idea for a new product or process. |
| Innovation | The first commercialisation of an invention, or its successful application — Schumpeter; Tidd-Bessant. |
| Diffusion | The spread of an innovation across a population over time — Rogers. |
The familiar maxim is Innovation = Theoretical Conception × Technical Invention × Commercial Exploitation (Trott).
92.1 The Four “P”s of Innovation Space — Tidd & Bessant
Tip4P framework
| P | Domain | Example |
|---|---|---|
| Product | What an organisation offers | iPhone, Tesla Model 3 |
| Process | How the offering is created and delivered | Toyota Production System, RPA |
| Position | Where the offering is positioned | Tata Nano repositioned as smart-city car |
| Paradigm | Mental model of what the firm does | Apple shifting from device-maker to services platform |
The 4P framework subsumes Schumpeter’s five new combinations and the Oslo Manual’s four innovation types (product, process, marketing, organisational).
92.2 Schumpeter’s New Combinations
Schumpeter (1934) listed five forms:
92.3 Sources of Innovation — Drucker
In Innovation and Entrepreneurship (1985), Peter Drucker identified seven systematic sources of innovation, four internal and three external:
TipDrucker’s seven sources
| Internal | External |
|---|---|
| The unexpected (success, failure, outside event) | Demographics |
| The incongruity (between what is and what should be) | Changes in perception, mood, meaning |
| Process need | New knowledge |
| Industry / market structure changes |
The internal sources, in Drucker’s words, “are visible to people inside the industry”; the external sources require an outside-in lens.
92.4 Innovation Models
Three generations of innovation models inform business practice:
TipGenerational models
| Generation | Model | Logic |
|---|---|---|
| 1st (1950s–60s) | Technology-push (linear) | R&D → Manufacturing → Marketing → Customer |
| 2nd (1960s–70s) | Market-pull (linear) | Need → R&D → Manufacturing → Marketing |
| 3rd (1970s–80s) | Coupling / interactive | R&D and marketing coupled with state of the art and market need |
| 4th (1980s–90s) | Integrated parallel | Concurrent engineering, supplier integration |
| 5th (1990s+) | Systems integration & networking (Rothwell, 1994) | Strategic alliances, electronic data exchange |
| 6th (post-2003) | Open innovation (Chesbrough) | Ideas flow inward and outward across firm boundary |
92.5 Open Innovation
Henry Chesbrough’s Open Innovation model (Open Innovation, 2003) replaces the closed funnel with a porous one: ideas can enter from outside (in-bound), and unused internal ideas can be commercialised outside (out-bound). Examples include Procter & Gamble’s “Connect + Develop” (which sourced 50 %+ of new products externally), Tesla’s open patents (2014), IBM’s developerWorks, NASA’s open challenges, and InnoCentive’s prize-based platform.
92.6 Disruptive vs Sustaining Innovation — Christensen
TipDisruptive vs Sustaining
| Dimension | Sustaining innovation | Disruptive innovation |
|---|---|---|
| Performance | Improves on dimensions valued by mainstream customers | Worse on mainstream metrics, better on new metrics (price, simplicity) |
| Market | Existing high-end | New / low-end overlooked customers |
| Incumbent response | Wins typically | Loses unless ambidextrous |
| Examples | Successive iPhone models | Netflix vs Blockbuster; cloud vs on-premise |
92.7 Blue Ocean Strategy
Kim and Mauborgne (Blue Ocean Strategy, 2005) reframe innovation as value innovation — simultaneous pursuit of differentiation and low cost. The Eliminate–Reduce–Raise–Create (ERRC) grid and the Strategy Canvas are operational tools. Cirque du Soleil, Yellow Tail wine, Nintendo Wii, and Air Asia are textbook blue-ocean cases.
92.8 Design Thinking and Lean Start-Up
Design thinking (IDEO; Tim Brown, 2009) follows five phases — Empathise → Define → Ideate → Prototype → Test — and centres on user empathy. Lean Start-Up (Eric Ries, 2011) couples Build-Measure-Learn loops, Minimum Viable Product (MVP), validated learning, and pivot or persevere. Together with Agile (2001 Manifesto) and Scrum, these are the dominant innovation operating systems for software-led businesses today.
92.9 Frugal and Reverse Innovation
Frugal innovation — also called jugaad or Gandhian engineering — designs affordable, high-quality solutions for resource-constrained users (Navi Radjou, Jugaad Innovation; Anil Gupta, Honey Bee Network). The Tata Nano (2009), GE’s MAC400 portable ECG, Aravind Eye Care, Narayana Hrudayalaya open-heart surgery model, and PRADAN’s livelihood services are canonical Indian cases. Reverse innovation (Govindarajan & Trimble, 2012) proposes that innovation now flows from emerging markets to advanced ones, reversing the historical sequence.
92.10 Practice Questions
Q 01 Tidd-Bessant 4P Easy
Tidd and Bessant’s 4P framework of innovation includes Product, Process, Position and:
View solution
Correct Option: C
The 4P framework is Product, Process, Position, Paradigm — the last one referring to a shift in mental models of what the business does.
Q 02 Drucker Medium
Which of the following is NOT one of Drucker’s seven sources of innovation?
View solution
Correct Option: D
Drucker’s seven sources are the unexpected, incongruity, process need, industry/market structure change (internal) and demographics, perception change, new knowledge (external). Top-management support is a CEAI antecedent, not a source.
Q 03 Open innovation Medium
Open innovation, the model in which firms use both internal and external ideas, was popularised by:
View solution
Correct Option: A
Henry Chesbrough’s Open Innovation (2003) explicitly proposed the porous-funnel model in opposition to the closed R&D model.
Q 04 Blue ocean Medium
The Eliminate-Reduce-Raise-Create (ERRC) grid is associated with:
View solution
Correct Option: C
Kim and Mauborgne’s Blue Ocean Strategy uses the ERRC grid to operationalise value innovation alongside the strategy canvas.
Q 05 Lean start-up Easy
The “build-measure-learn” loop is a core idea of:
View solution
Correct Option: B
Eric Ries’ The Lean Startup (2011) prescribes Build-Measure-Learn loops with MVPs, validated learning, and pivot-or-persevere decisions.
Q 06 Reverse innovation Medium
GE’s MAC 400 hand-held ECG, designed for India and later sold worldwide, is a frequently cited example of:
View solution
Correct Option: A
Innovation born in an emerging market and later adopted in advanced economies is reverse innovation (Govindarajan & Trimble, 2012).
Q 07 Design thinking Medium
The five phases of design thinking — Empathise → Define → Ideate → ___ → Test — fill in the blank:
View solution
Correct Option: C
The Stanford d.school / IDEO sequence is Empathise → Define → Ideate → Prototype → Test, iterated as needed.
Q 08 Match the following Hard
Match the contributor with the concept:
| (P) Schumpeter | (1) Disruptive innovation |
| (Q) Christensen | (2) Open innovation |
| (R) Chesbrough | (3) Lean start-up |
| (S) Ries | (4) Creative destruction |
View solution
Correct Option: A
Schumpeter — creative destruction; Christensen — disruptive innovation; Chesbrough — open innovation; Ries — lean start-up.
ImportantQuick recall
- Tidd-Bessant 4P: Product, Process, Position, Paradigm.
- Schumpeter’s five new combinations; Drucker’s 7 sources of innovation.
- Open innovation (Chesbrough 2003) replaces closed R&D funnel.
- Christensen — disruptive vs sustaining; Kim-Mauborgne — Blue Ocean and ERRC.
- Design thinking (IDEO 5 phases); Lean Start-up (Build-Measure-Learn, MVP, pivot).
- Frugal/jugaad and reverse innovation — Tata Nano, MAC 400, Aravind Eye Care.