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A Comparative Study of Innovation Practices in Business

1. Results of interviews with corporate executives and senior innovation officers in

four of the largest publically-traded companies and one government agency in
the Chicago area provide some insight into how businesses approach innovation.

2. The dictionary defines innovation as “the introduction of something new”.

Regardless of the type of innovation – whether it be product, process, or service
– it results in significant change. This change could be as simple as changing the
way we do something routine: a breakthrough that provides a substantial benefit
to the customer, or one that dramatically increases the revenue or profitability of
the company.

3. Participants interested in breakthrough innovation believe ‘if innovation doesn’t

deliver bottom-line results, it is just creativity’. Indeed, the very definition of
innovation for Afuah (2003) is ‘invention plus commercialization.’ The relationship
of innovation to financial performance was well demonstrated by Kim and
Mauborgne (l997). In manufacturing environments, they found that while 86% of
product launches involved some small improvements to existing models – that is
incremental changes, they accounted for only 62% of total revenues and 39% of
total profits, The remaining 14% of launches, the real breakthrough innovations –
generated 38% of total revenues and a huge 61 % of total profits.

4. Innovation may offer one significant way that companies can gain an advantage.
Utterback’s (1994) concept of ‘dominant design’ provides insight into how
innovation can create a temporary monopoly situation that will weaken
 competitive forces, however, when an innovative product or service is launched,
rivals typically begin to copy it (once patents run out). Hence it is necessary for
the company to continuously seek further ways to innovate.

5. Every innovation process has Its strengths and weaknesses, but it seems that
when a company sets up a systematized innovation process it communicates the
importance of innovation to the entire organization. In these companies, more
resources are devoted to development. The best companies have learned to
systematize the process (Hargadorn & Sutton 2000).

6. The primary disadvantage of having a structured innovation process is speed to

market – the more structure, the longer the lead time is from idea to product. The
only company that described its process as ‘quick’ did not have such a process.
Employees were empowered to solve problems and create new products for the
customer by responding to demand. While this benefits customers, the company
stated it lacked systems to share learning with other segments of the
organization. A potential disadvantage of this approach, according to Utterback,
is that evolutionary change can be missed when companies are too focussed on
pleasing customers.

7. The most challenging aspect of any innovation is determining marketability. No

company said It lacked creative ideas or creative people, but many ideas require
significant resources to test, develop, and launch. Millions of dollars are at stake,
so an element of risk-taking is required. Taking risks is generally defined as being
able to drive new ideas forward in the face of adversity. Publically traded
companies have a major dilemma. To guarantee a leadership position they have
to stay on the leading edge of innovation. This requires a long-term approach and
a high tolerance for risk. Investors especially in a down economy, want short-term
results. As investors’ tolerance for risk decreases, so does the company’s ability
to lake the significant financial risk necessary to create breakthrough changes;
however, most recognize that investing in innovation is the ‘right thing to do’.

8. One company actively pursues a rather unusual strategy of acquiring innovation

by purchasing other smaller companies or partnering with specialized companies.
 This enables the acquiring company to bring a product to market more quickly
and gives the smaller company access to funds it might not otherwise have.

9. How can a company involve all its employees in the innovation process? It may
be as simple as requesting new ideas. A brainstorming session during a staff
meeting needs only take 30 minutes. Another system is to use existing
suggestions box processes, Involving employees in idea generation can reap
some large benefits at a very low cost. Only modest monetary rewards are
necessary for successful innovation ideas, especially since many companies
have found that employees place a high value on recognition.

10. In most organizations, teams are extensively used to evaluate ideas, but rarely to
generate them. Companies need to learn how to construct teams for the purpose
of innovation. A team member should be selected for their tendency to be more
creative or more risk-taking. This could markedly increase innovation output.
According to Hargadon and Sutton, using teams to capture and share ideas is
one method of keeping ideas alive – a key step in the innovation process. Good
ideas need to be nurtured by teams and incorporated into the information and
communication system of the company.

11. In conclusion, innovation can be difficult to structure. It is the authors’ perception

that even the most innovative companies in the sample under-invest in market
research during the concept refining phase. The risk could be reduced
considerably by the adoption of this strategy but, of course, it could not have
culminated.

12. Most of the problems cited by participants were due to a low tolerance for risk –
by employees (what they would or would not say), and by committees, (being
afraid to invest money without knowing the return on investment). Raising the risk
tolerance would reduce the amount of analysis required to bring a new idea to
market, thus shortening the cycle time of new product/service development
According to psychologists Kahn and Hirshhorn, people come alive when they
feel safe. It is a threat and anxiety that inhibits them. It would follow that in order
for people in organizations to take risks, a lack of success must be tolerated. The
 organizations that manage risk most effectively transform those risks into
challenges and opportunities.

Questions
Questions 1-7

Look at the following theories (Questions 1–7) and the list of experts below.

Match the theories with the correct expert A-E. You may use any letter more than once.

1. A business cannot rely on the success of one good innovation.

2. A group approach is an effective way of generating innovation.
3. Employees are more creative in a culture that accepts failure.
4. Radical innovations will provide greater income than minor changes.
5. Businesses with a structured approach to innovation are more likely to succeed.
6. Innovation consists of a new idea combined with business potential.
7. A business that concentrates on responding to clients’ needs may overlook the
need for wider development.

List of experts

1. Afuah
2. Kim and Mauborgne
3. Utterback
4. Hargardorn and Sutton
5. Kahn and Hirshhorn

Questions 8-14

Complete each sentence with the correct ending A–I below.

8. Unfortunately the development of an organized innovation process ___________

9. One of the most difficult issues in innovation ___________

10. A company wanting to maintain a leading position in the business ____________

11. A different approach to achieving innovation _____________

12. Getting staff to come up with new ideas ______________

13. A recommendation for companies already committed to innovation ______________

14. The problem experienced by companies participating in the study _____________

1. can be to develop a sympathetic manufacturing environment.

2. must put time and money into innovation.
3. can be a very cost-effective way of achieving innovation.
4. may require a more sophisticated communication system.
5. may give rise to a lengthy period between the initial concept and the launch
6. could be attributed to an unwillingness to accept the risk
7. can be to work out the saleability of a future product
8. would be to put more money into the analysis of customer demand.
9. might involve collaboration with another company with particular expertise

Answers for A Comparative Study of Innovation

Practices in Business with Explanations
A Comparative Study of Innovation Practices in Business Reading Answers with

explanations are given below for your reference.

(Note: The text in Bold mentions the location and keywords for the justification.

The lines in italics show the referring lines of the passage.)

1. Answer: C

Explanation: The whole paragraph D explains that Innovation may offer one

significant way that companies can gain an advantage. Utterback’s (1994)

concept of ‘dominant design’ provides insight into how innovation can

create a temporary monopoly situation that will weaken competitive forces,

however, when an innovative product or service is launched, rivals typically

begin to copy it (once patents run out). Hence it is necessary for the

company to continuously seek further ways to innovate.

2. Answer: D

Explanation: 5th and 6th line of paragraph J depicts that According to Hargadon

and Sutton, using teams to capture and share ideas is one method of

keeping ideas alive – a key step in the innovation process. Good ideas

need to be nurtured by teams and incorporated into the information and

communication system of the company.

3. Answer: E

Explanation: 3rd,4th,5th, and 6th line of paragraph L mentions that According to

psychologists Kahn and Hirshhorn, people come alive when they feel safe.

It is a threat and anxiety that inhibits them. It would follow that in order for

people in organizations to take risks, a lack of success must be tolerated.

The organizations that manage risk most effectively transform those risks

into challenges and opportunities.

4. Answer: B

Explanation: 3rd and 4th line of paragraph C cites that The relationship of

innovation to financial performance was well demonstrated by Kim and

Mauborgne (l997). In manufacturing environments, they found that while

86% of product launches involved some small improvements to existing

models – that is incremental changes, they accounted for only 62% of total

revenues and 39% of total profits, The remaining 14% of launches, the real

breakthrough innovations – generated 38% of total revenues and a huge

61 % of total profits.

5. Answer: D

Explanation: The whole paragraph E describes that Every innovation process

has Its strengths and weaknesses, but it seems that when a company sets

up a systematized innovation process it communicates the importance of

innovation to the entire organization. In these companies, more resources

are devoted to development. The best companies have learned to

systematize the process (Hargadorn & Sutton 2000).

6. Answer: A

Explanation: 1st and 2nd line of paragraph C narrates that Participants interested

in breakthrough innovation believe ‘if innovation doesn’t deliver bottom-line

results, it is just creativity’. Indeed, the very definition of innovation for

Afuah (2003) is ‘invention plus commercialization.’

7. Answer: C

Explanation: The last line of paragraph F represents that A potential

disadvantage of this approach, according to Utterback, is that evolutionary

change can be missed when companies are too focussed on pleasing

customers.
8. Answer: E

Explanation: 1st and 2nd line of paragraph G indicates that The most challenging

aspect of any innovation is determining marketability. No company said It

lacked creative ideas or creative people, but many ideas require significant

resources to test, develop, and launch.

9. Answer: G

Explanation: 1st,2nd, and 3rd line of paragraph G tells that The most challenging

aspect of any innovation is determining marketability. No company said It

lacked creative ideas or creative people, but many ideas require significant

resources to test, develop, and launch. Millions of dollars are at stake, so

an element of risk-taking is required.

10. Answer: B

Explanation: 5th,6th,7th,8th, and 9th line of paragraph G states that Publically

traded companies have a major dilemma. To guarantee a leadership

position they have to stay on the leading edge of innovation. This requires

a long-term approach and a high tolerance for risk. Investors especially in a

down economy, want short-term results. As investors’ tolerance for risk

decreases, so does the company’s ability to lake the significant financial

risk necessary to create breakthrough changes; however, most recognize

that investing in innovation is the ‘right thing to do’.

11. Answer: I
Explanation: 4th line of paragraph C justifies that In manufacturing

environments, they found that while 86% of product launches involved

some small improvements to existing models – that is incremental

changes, they accounted for only 62% of total revenues and 39% of total

profits, The remaining 14% of launches, the real breakthrough innovations

– generated 38% of total revenues and a huge 61 % of total profits.

12. Answer: C

Explanation: 4th,5th,6th, and 7th line of paragraph G notifies that Taking risks is

generally defined as being able to drive new ideas forward in the face of

adversity. Publically traded companies have a major dilemma. To

guarantee a leadership position they have to stay on the leading edge of

innovation. This requires a long-term approach and a high tolerance for

risk.

13. Answer: H

Explanation: 3rd and 4th line of paragraph F proves that Employees were

empowered to solve problems and create new products for the customer by

responding to demand. While this benefits customers, the company stated

it lacked systems to share learning with other segments of the organization.

14. Answer: F

Explanation: 1st line of paragraph L expresses that Most of the problems cited

by participants were due to a low tolerance for risk – by employees (what

they would or would not say), and by committees, (being afraid to invest

money without knowing the return on investment).

The Business of Space

Up until very recently space travel and exploration were solely the preserve of governments,
most notably the Russian and American. However, with the decline of government wealth and
the dramatic increase in personal wealth, the whole landscape of space travel is changing.

The first tentative steps into the commercialisation of personal space travel began when
billionaire Dennis Tito paid $20 million to ride on a Russian Soyuz spacecraft for a week’s holiday
on a space station. Since then, there have been seven space tourists who have paid large sums
of money for a space experience. Yet, collectively, their financial contribution is minute and
certainly would not appear to represent a feasible business.

Richard Branson, billionaire and entrepreneur, has formed Virgin Galactic, a spaceship company
with some very ambitious plans for space travel. Surprisingly, he is not alone; there are some 12
or 13 other space organizations worldwide with similar plans. Of course, there are setbacks, but
Virgin Galactic plan to have to pay flights beginning in late 2017, with tickets at $250,000 each.
Expensive? Yes! But there are over 20,000 people who have expressed interest, despite the
tragic death of a co-pilot during a test flight accident.

It seems that people who want to take short zero gravity suborbital flights are fully aware of the
dangers and are willing to take the risk. It is also worth noting that there were almost 2000
billionaires in the world in 2016, and that number is growing. So entrepreneurs like Richard
Branson may represent the tip of the iceberg of young rich investors who want to make their
childhood dreams of space travel come true.

Obviously, the key to the success of any business venture is to ensure that the price of the
product maximises sales and to reduce the very high costs of the vehicles and rockets needed to
do this. Currently, space vehicles can only be used once, so the race is on to develop reusable
space vehicles. It is this reusability that will break the ‘cost-barrier’ and bring this activity into the
price bracket where middle class and moderately wealthy people can afford it.
So what would you pay for a zero-gravity sub-orbital space trip? A recent, unscientific study,
amongst US millennials (people who became adults around the year 2000) suggested that if the
price of the flights was reduced by a factor of five – a figure entirely possible given the progress
being made with reusable vehicles – the yield would be about $20 billion a year of revenues for
the space tourism industry.

Twenty billion dollars is an interesting figure, as it is about the same amount generated each year
by the film industry in the US through ticket, DVD and other sales. So now it is possible to make
an analogy between the business model of Hollywood and space travel. Which do you think is
more expensive? A Hollywood blockbuster, or the cost of a space launch? Back in the 1960s and
1970s, a space launch cost hundreds of times more than a Hollywood film. But as more money
came to be spent on Hollywood movies, the cost of space travel has been decreasing. One
particularly illustrative example is the comparison between the film Avatar, a movie about life on
an ‘exomoon, and the Kepler spacecraft. Both of these costs about $400 million dollars. So for
about half a billion dollars, you can either get a film about life on other planets, or you can pay for
a mission, which may actually find Earth-like worlds. As a scientist, which is the better deal?

So what really is in the future for space travel? Probably offers of suborbital travel by companies
like Virgin Galactic will become fairly common after the initial teething phase is over. Other
companies are developing space hotels, so people who can afford more than just the space trips
can spend their money holidaying in space. All the technologies allowing this to happen are
advancing very rapidly and most of this is happening in the private sector.

Space is going to get commercialised and this may not be a good thing. Do we really want to see
massive advertising signs in space? The moon littered with commercial rubbish? If this happens
it will be very hard to regulate. While there is in existence a Treaty of the Moon, to acknowledge
that no one can own the Moon or Mars, not one space-faring country has signed it.

The future of space travel has never been more exciting than it is now. Young children with
pictures of planets and space rockets on their bedroom have a greater chance than ever of
actually going into space than ever before. But at what cost?

Questions 14-18

Choose FIVE letters, A-l.

Write the correct letter in boxes 14-18 on your answer sheet.

NB Your answers may be given in any order

Below are listed some popular beliefs about commercial space travel.

Which five of these are reported by the writer of the text?

A Space travel today is no different than space travel in the 1960s.

B To date, the amount of space travel undertaken by private individuals could not sustain a
business.

C Richard Branson’s plans for commercial space travel may be described as ‘daring’.

D It is not surprising that Branson’s company is not the only company interested in commercial
space travel.

E Virgin Galactic’s proposed fares will be highly affordable to many.

F Individuals who want to fly into space are gamblers.

G Parallels can be drawn between space travel and the Hollywood movie industry.

H The rise of companies like Virgin Galactic is unconditionally positive.

I Laws governing space travel will be difficult to enforce.

14 ……..

15 ……..

16 ……..

17 ……..

18 ……..

Questions 19-26

Do the following statements agree with the information given in the Reading Passage?

In boxes 19-26 on your answer sheet, write

TRUE if the statement agrees with the information

FALSE if the statement contradicts the information

NOT GIVEN if there is no information on this

19 Space travel today remains under the control of the Russian and American governments.

20 The first commercial space passenger was Richard Branson.

21 The Virgin Group was established by Richard Branson in 1970.

22 Space vehicles are presently capable of being used more than once.

23 $20 billion is the amount that millennials currently spend on space travel.

24 The film ‘Avatar’ cost about $400 million to make.

25 It is unlikely that recycling will become common practice on the moon.

26 Children today have a better chance of realizing their dreams of space travel than children in
the 1960’s did.

Answer Key

Question No. Answer Question No. Answer

14. B 21. Not Given

C False
15. 22.

16. F 23. False

 17. G 24. True

18. I 25. Not Given

19. False 26. True

False
20.

Explanation
14 Answer: B

Question type: Multiple Choice Question

Answer location: Paragraph 2, line 2 – line 3

Answer explanation: In the mentioned lines, it is given “Since then, there have been seven
space tourists who have paid large sums of money for a space experience. Yet,
collectively, their financial contribution is minute and certainly would not appear to
represent a feasible business.”. In the light of the fact that space travel has been undertaken
by many private individuals but could not sustain a feasible business, the answer is B.

15 Answer: C

Question type: Multiple Choice Question

Answer location: Paragraph 3, line 1

Answer explanation: In the mentioned line, it is given “Richard Branson, billionaire and
entrepreneur, has formed Virgin Galactic, a spaceship company with some very ambitious
plans for space travel.”. This reference proves that Richard Branson’s plans for commercial
space travel may be described as ‘daring’ (ambitious). Hence, the answer is C.