Essay Sample on Innovation Theories

Published: 2023-03-12
Essay Sample on Innovation Theories
Type of paper:  Essay
Categories:  Company Human behavior Business strategy Leadership style
Pages: 7
Wordcount: 1817 words
16 min read

Managing innovation ensures that the company remains competitive. It is crucial to maintaining its innovations. To achieve this several processes that need to be combined in this case, processes involved in innovation are incorporated in change management. Managing innovation place a company at a position where it can be able to handle opportunities that arise internally or externally. Furthermore, the company is in a position to invent new ideas, use new processes, and come up with new products.

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Various factors exist that play a part in innovation adoption by people in different adoption categories. These factors are a relative advantage. This the extent to which an innovation may prove to be better than what the people have been used to. For instance, is the innovation a better idea or a better product as compared to what was there previously. Compatibility is another factor that comes in, is the product or the idea in line with the previous experiences, or is their consistency what the adopters have been used to. The complexity of the innovation is another factor that influences are the innovation easy to understand or use. In this case, if the innovation is easy to understand, then adoption also becomes easy (Christensen, Bartman & Van 2016). The liability of the innovation is there a possibility to test the new products or ideas before one can become fully committed to the innovation, if it's possible, then it becomes easier to adopt the innovation. Finally, the ability to observe the results of adopting innovation influences innovation adoption. There are a few limitations associated with this theory; for example, the theory focuses on behavior adoption. It does not take into consideration behavior cessation. Another limitation is it fails to look at individuals' ability to adopt innovation in that it doesn't consider their resources (Rothman, 2004).

Innovations in organizations have long histories in the study of organizations as well as management research. However, the literature has not been uniform in the explanations as well as descriptions of these innovations. The diverse and precise concepts, like the new use and adoption, are frequently applied in presenting and defining innovation. Since a particular idea may neglect the dynamic parts, uniformity in descriptions may be considered as the most effective way of describing the phenomenon of change. Since the critical concept is likely to neglect the vital parts, uniformity in the description may be the most effective way of describing innovation's phenomenon. Besides, the attempts of building theories and generalizing innovations observe both innovation and its determinants are important.

As quoted by Marques (2011), a good theory should be useful in predicting events accurately as well as controlling them. This discussion has looked at the innovation theories in the Spotify organization. Spotify is a company that came into existence in 2006 and launched in 2008 it was founded by Daniel Ek and Martin Lorentzon the company is located in Stockholm in Sweden. It specializes in providing services of digital music, video streaming, and podcast (Voigt, Buliga, & Michl, 2017). The company prides itself on giving access to millions of songs across the world, ranging from the oldest to the latest. The company offers service for music playing for free, though to gain more services, one needs to upgrade, which is done at a fee ("Spotify - Web Player: Music for everyone," 2019). These theories are the; diffusion of innovation theory and Schumpeter's creative approach.

Innovation theories

Diffusion of Innovation Theory

The theory was developed in 1962 by E. M Rogers. The diffusion of innovation is considered among the oldest theories in social science. It came about through communication in social systems or groups of people products and ideas spread. As a result of diffusion, there is the adoption of new behaviors, ideas, and products by people in a certain social system. People start doing things differently from the way they were used; for example, people may change from the items they used to buy as a result of acquiring new behaviors (Kaminski, 2011). For the diffusion to take place, people must get to see the innovativeness or the uniqueness that is within the product, idea, or even that behavior. The process of adopting new ideas, behavior, or products does not occur at the same time to all people in the social system; some of the people may embrace the innovation more than the others. According to Kaminski (2011), there are differences in characters of people who embrace the innovations early and the late adopters of the innovation.

According to how people accept the adoption of innovation, they are grouped into categories. Most of the general population falls under the middle groups. Different categories of innovation adopters are appealed differently; therefore, different strategies should be used in innovation promotion.

Innovators - consist of a group of people who are adventurous and thirsty for new ideas, they come first in the adoption of any innovations they like trying new things. They are risk-takers and don't need to be appealed to make them adopt new ideas.

Early Adopters - the group consists of people who are ready to take and embrace new ideas. They always embrace change and are usually comfortable with it; they are very good at giving opinions and enjoy being in leadership. To appeal to this group of people, guidelines and manuals are enough. They are always willing and don't need to be convinced (Yu & Hang, 2011)

Early majority- these people don't possess leadership qualities; they follow what others are doing. Before they embrace new ideas, they have to be convinced through evidence witnessed. People in this group need to be appealed through success stories and evidence of the success of the innovation.

Late majority- the people that lie in this group are rigid when it comes to change. They take time to accept new ideas. Until the majority has tried on the innovation, these individuals won't accept the innovation. For this category to accept the innovation, they have to be appealed ad convinced that people have been attempting the innovation and succeeded.

Laggards- the group consists of people who are very conservative and traditions bound. This is a group that is very hard to change; they dislike change. A lot is needed to ensure that this person gets on board that needs to be provided with statistics and be pressurized for them to embrace innovation.

Schumpeter's theory of innovation

Joseph Schumpeter was an economist from Australia who viewed innovation as an acute direction for the change of the economy and believed that this change is caused by innovation, market power as well as entrepreneurial activities. He, therefore, focused on the effects of capitalism by market innovation. He also aimed at understanding more how companies can innovate better and have a positive link with its size. According to him, small businesses are the more flexible and highest probability of innovating as compared to large companies. However, large organizations with monopolistic power have market power and better resources for innovations.

Schumpeter's innovation concept is in line together with other philosophies of business investment. Nevertheless, Schumpeter's innovation theory claims that changes in the investment of an organization and expansion in monetary are the main factors that lead to business fluctuations, and innovations in businesses are the main factors for increased profitability and effectiveness. According to him, the cyclical process in both commercial and industrial is almost exclusively in contributing to innovation. Through innovation, he meant changing both production and transportation processes, introducing new products, evolving the industrial organization, introducing new markets, among others. Therefore, innovation and invention are entirely different, since innovation is the profitable use of new resources, new technologies, new energy sources, as well as materials.

Schumpeter developed this theory into two stages to explain the innovation in his business further. These were the first and the second approximations. The early-stage emphasized on principle impact caused by innovation ideas while the second stage emphasized on subsequent feedback obtained resulted from using innovation. These stages are explained below in detail.

First application

In this stage, the system of the economy is in equilibrium, where the marginal cost and marginal revenue are equal, and the average value is similar to the prices. This only applies to an economy where unemployment is involuntary. In such a situation, if a business decides to introduce new methods in production, the same need to apply to be financed through financial institutions' credit. Since there is equilibrium in the economy, financing of new ventures may be a challenge due to a lack of surplus funds. As the financial institutions increase the funds in the businesses, there are increased prices on the inputs and withdraw them from less effectiveness.

On the other hand, increased expenditure leads to increased prices. In return, other firms are expanded as other firms try to imitate the products and their innovations, hence expanding the funding from financial institutions. the increased innovation leads to its adoption widely, and more products flow in the market, marking the beginning of expansion and prosperity ("What is Schumpeter's Theory of Innovation? definition and meaning - Business Jargons", 2019).

After reaching a certain level with the increased rate of outcomes, their costs, and profitability reduce. This is because more innovations do not occur quickly. Thus there might be no improved demand for the funds. At the same time, businesses that had borrowed funds from financial institutions start paying them back. This leads to the reduction of the currency supply, thus lowering the values further. The process of decreased prices is called a recession, and it continues until the equilibrium state is reinstated.

Second Approximation

The second approximations continue with the outcomes created in the first applications. The assumptions in the first approximations are the main factors in the second approximations. As the first approximation begins, most of the investors, especially those from capital goods industries, invest heavily to benefits from it in the second approximations (Bain & Kleinknecht, 2016). Consumers also have high expectations of the price increase in the future and currently acquire more durable products. In return, the most senior indebtedness ends up being chaos as prices start to decrease. As a result, both consumers and investors find it challenging to meet their responsibilities, leading to panic and depression (Leijonhufvud, 2018).

Schumpeter's theory of invention is instrumental in increasing business profitability. Nevertheless, it has the following critics; it is challenging and unsuccessful in appraising the objectives of the business sequence since its argument is based more on sociological factors than on commercial factors. The theory is not dissimilar from the excess investment method. Its only difference is that it causes changes in investment only when the country's economy is in its constant equilibrium. Just like any other theory in the business rotation, Schumpeter's innovation theory also leaves another critical factor that contributes to changes in economic dealings, that to say, the main and sole factors of economic fluctuations. Despite these critics, this theory is among the commonly accepted business innovation theories (Sledzik 2013).

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