ABSTRACT

The knowledge-driven economy affects the innovation process and the approach to innovation.
The traditional idea that innovation is based upon research (technology-push theory) and
interaction between firms and other actors is replaced by the current social network theory of
innovation, where knowledge plays a crucial role in fostering innovation. In the knowledge-
driven economy, innovation has become central to achievement in the business world. With this
growth in importance, organisations large and small have begun to re-evaluate their products,
their services, even their corporate culture in the attempt to maintain their competitiveness in the
global markets of today. The more forward-thinking companies have recognised that only
through such root and branch reform can they hope to survive in the face of
increasing competition. t the same time, organisations in both the public and private sector
have launched initiatives to develop the methodologies and tools to support entrepreneurship and
the management of innovation in business. !igher education establishments, business schools
and consulting companies are developing appropriate
Table of Contents
1
Abstract...........................................................................................................................................2
1.0 Introduction..............................................................................................................................4
2.0 Theories of innovation.............................................................................................................4
".# Technological push................................................................................................................$
2.2 Market- pull theory.......................................................................................................... 5
2.2.1 Technology Push Vs Market- pull theory.................................................................7
".% Innovation derived from linkages between actors in the market...................................&
".$ Innovation derived from linkages technological networks........................................#%
2.5 Innovation derived fro social net!orks............................................................1"
4.0 conclusion................................................................................................................................15
References.....................................................................................................................................16

2
1.0 Introduction
ccording to 'Innovation (anagement and the )nowledge *riven +conomy,' from the
+uropean ,ommission *irectorate-general for +nterprise ,"--$, the evolution of theories of
innovation management can be e.plained by the increasing importance of social ingredients in
/the e.planation of innovation, which was originally based solely on tangible forms of capital.
This progressive inclusion of social ingredients can be illustrated by reviewing five successive
theories that have been deemed important by innovation specialists0
i. Innovation derived from science (technology push).
ii. Innovation derived from market needs (market pull).
iii. Innovation derived from linkages between actors in markets.
iv. Innovation derived from technological networks.
v. Innovation derived from social networks
2.0 Theories of innovation
2.1 Technolo! "ush
The first e.plicit theory of innovation management is the 'technology push theory' or
'engineering theory of innovation.' In this theory the innovation opportunities, i.e. the
opportunities to improve the products or the manufacturing processes, are found in the uptake of
research results.
ccording to this theory, basic research and industrial 12* are the sources of new or improved
products and processes. The production and uptake of research follows a linear se3uence from
the research to the definition of a product and specifications of production, and the application of
technology to make a product that conforms to the specifications defined by research that has
also produced patents and scientific publications. (4ee 5ig #)
#
The limitations of engineering solutions were recogni6ed in the #&7-s, resulting in an alternative
view that sources of ideas for solutions should originate from the market. This alternative view
gave birth to the 'market pull theory' of innovation.
2.2 #ar$et%&ull theor!
This theory still gives a central role to research as a source of knowledge to develop or improve
products and processes. This theory sees the first recognition of organi6ational factors as
contributors in innovation theory8 the technical feasibility was still considered as a necessary
condition of innovation, but no longer sufficient in itself for successful innovation.
9rgani6ational competency had to be taken into account to ensure successful innovation as
innovation is a responsibility of all business units and departments, their involvement needs to be
determined accordingly (Tucker, "--"). In this conte.t, an organi6ation:s ability to identify,
ac3uire, and utili6e (e.ternal) ideas can be seen as a critical factor in regards to its market
success (;ahra and <eorge, "--"). This so-called =5ront-+nd of Innovation: is therefore one of
the most important areas of corporate management as shown in figure > below.
In this framework, there is a specific differentiation between single process steps on one hand
and organi6ational responsibilities on the other hand. ?oeddrich identified company-specific
"
preconditions for the successful management of front end activities, which were confirmed by
several other studies
Technology and technology-oriented companies, especially in the business-to-business area, are
traditionally more influenced by new technologies than other companies. !owever, firms in the
business-to-consumer sector focus more on end-users, and, therefore, market-induced impulses.
The related scientific discussion regarding the =right: innovation management and especially the
=best: source of innovation is similar to the 3uestion of whether the chicken or egg came first.
The 3uestion becomes even more comple. since there are several e.amples of successful
technology-oriented companies as well as market-oriented ones. Therefore, the 3uestion is not
which view is right or wrong, but if there is a practicable way to combine both views or even
e.tend them to other related factors
In order to build a common understanding of market pull and technology push activities, some
fundamental considerations will be introduced.
*ealing with technology means to handle different stages of research and therefore special
management duties and responsibilities (see 5ig. #).
ccording to 4pecht ("--"), the stages of technology development and pre-development
activities belong to technology management. The field of 12* management is determined by
adding upstream fundamental research as well as product and process development. 5inally,
innovation management includes the product and market introduction phase (?rem 2 @oigt
"--&)
5
2.2.1 #ar$et &ull vs. technolo! &ush
<enerally, there are two common ways innovation impulses differ
(i) (arket pullAdemand pullAneed pull0 The innovations: source is a currently inade3uate
satisfaction of customer needs, which results in new demands for problem-solving (=invent-to-
order: a product for a certain need). The impulse comes from individuals or groups who (are
willing to) articulate their subBective demands.
(ii) Technology push0 The stimulus for new products and processes comes from (internal or
e.ternal) research8 the goal is to make commercial use of new know-how. The impulse is caused
by the application push of a technical capability. Therefore, it does not matter if a certain demand
already e.ists or not.
$
Innovation also depends on factors such as business logic and environmental dynamics.
s the internal corporate innovation process is surrounded and influenced by e.ternal factors,
which are crucial for the company:s innovations (?rem, "--C8 Dind, "--"), they are implicated
as well (5ahey and Earayanan, #&C7)0
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(i) Folitical influences (government stability, ta.ation policy, social welfare, etc.),
(ii) 4ocial cultural influences (income distribution, consumerism, education, etc.),
(iii) +nvironmental influences (protection laws, waste disposal,location, etc.),
(iv) +conomical influences (inflation, income, business cycles, etc.),
(v) Technological influences (government spending on research, speed of technology transfer,
rates of obsolescence, etc.) and
(vi) Degal influences (employment law, product safety, business legislation, etc.).
2.' Innovation derived fro( lin$aes bet)een actors in (ar$ets.
new generation called the 'chain-link' theories of innovation then emerged to e.plain the fact
that linkages between knowledge and market are not as automatic as assumed in the engineering
and market pull theories of innovation. There were two phases0
#. t the beginning of the #&C-s, more attention was given to linkages between research and the
market via engineering, production, technology development, marketing and sales.
%
". Dater in the #&C-s, the focus laid the stress on the information generated through the linkages
e.isting between the firm and its customers and suppliers.
In these theories, innovation management is e.plained by combinations
of tangible forms of capital in conBunction with one intangible form of capital0 data about
customers and suppliers.
The =Gchain-linkG model introduced by )line and 1osenberg (#&C7) is a useful framework for
understanding how innovation occurs. Fresented in 5igure #, it shows a central chain of
innovation (represented by ,) involving the identification of a potential market, followed by the
design and testing of the idea, leading to market entry.
,rucially, at each stage in the development of the idea there are feed-back loops (f) to depict the
trial-and-error nature of the process. The most important source of feed-back (5) is from the
testing of the idea in the market. The links to the knowledge and research panels along the top of
the figure signify the circumstances under which the e.isting stock of knowledge ()) or research
(1), which might be thought of as new knowledge, is re3uired. This might occur where problem-
solving is necessary as the idea is developed.
Thus, the problem might be solved by reference to the e.isting stock of knowledge (arrow # to
node ) and arrow " back). 5or e.ample, this could be achieved through reading scientific
publications or attending conferences. If the problem cannot be solved from the e.isting stock of
knowledge, it might be necessary to undertake research (arrow % to 1). The outcome of this
research is uncertain as the problem may be insoluble (hence arrow $ back is dashed).
&
4ource0 )line and 1osenberg (#&C70"&-)
The model recogni6es that e.isting technology or knowledge may not be sufficient to enable the
development of products and processes to meet identified market needs. two-stage process,
indicated by the arrows labeled ) and 1, is often re3uired to overcome technological problems.
5irst, a solution is sought from the stock of e.isting knowledge. If this is unsuccessful, then
research is needed to derive a solution. This leads to an increase in the stock of knowledge.
n important aspect of this model is the representation of research as coe.isting with the
innovation process, rather than at the start of the linear model. t each stage in the innovation
process, if a technical problem needs to be solved, the first source of a solution is known science
or the stock of knowledge. If a solution is found this information is fed back to the innovation
1'
process. Where a solution is not found then research is needed and Bustified, and the solution, if
discovered, feeds back to the innovation process.
This does not mean that the research function only contributes to the innovation process when
technological difficulties are e.perienced in identifying customer needs. 1esearch may result in
the broadening of technological opportunities, and the arrow labeled * represents this
technology-push link between new scientific knowledge and the innovation process.
In )line and 1osenberg:s model, the market and science are complementary in the innovation
process. The market emerges as a stimulus for innovation, though perceived market needs can be
filled only where the associated technical problems can be overcome. Eew technological
opportunities are only commercially e.ploited where a market use e.ists.
9ne of the strengths of the model, and the reason it can be a worthwhile as a framework for
innovation policy, is its emphasis on the feedback process in the process of innovation. Froduct
specification, development, production, marketing and services functions co-operate to enhance
products and processes.
This relates directly to ?hide:s ("--C) suggestion that managers, salespeople and customers are
potentially more important to the innovation process as researchers and scientists. Interaction
between these functions, even informally, may lead to new learning and innovation. This may
involve customers: demands being fed back to designers, who can enhance new products, and to
production operatives, who can reali6e new ways of organi6ing processes to enhance efficiency.
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The implication is that some functions within the model may reside within the business, though
others may not. ?usinesses need not rely on their own 12* effort, but may access knowledge
that e.ists outside the business.
The implication of the models of science-push and market-pull models presented here is that
there is more than one source of innovation. policy that seeks to support innovation in
businesses must therefore consider a range of potential drivers.
2.4 Innovation derived fro( technoloical net)or$s.
t the end of the #&C-s and during the #&&-s, a technological networks theory of innovation
management was developed by a new group of e.perts under the label of 'systems of
innovation.' !ere the theorists assumed that innovative firms are linked to a highly diversified
set of agents through collaborative networks and the e.change of information. This view stressed
the importance of sources of information that are e.ternal to the firm0 clients, suppliers,
consultants, government laboratories, government agencies, universities, etc.
The theory of innovation which presumes that new technologies emerge from a firmHs
accumulated stock of skills. mong these we distinguish technological and networking skills.
We e.amine two aspects of innovating firms0 their inclination to adopt a technological
innovation, and their propensity to implement innovation alone or with other firms. !istorical
conditions pertaining to organi6ational skills are e.amined to account for these aspects. mong
the most important are a firmHs cumulative stream of technological proBects that have some
affinity to the new technology. second important antecedent can be inferred from a firmHs
history of technological networking. Eetworking includes licensing, Boint ventures and long-term
contracts and can be formed for technological reasons, or for reasons having to do with the
12
delivery of products and services. Eetworking is deemed important for facilitating access to
strands of technology that are alien to a firm. Dinkages are also conducive for contemplating
strategic partnerships through which a firm can share the risks of innovation with others and
which make such partnerships comparatively easy. The study e.amined a sample of Inited
4tates commercial banks during the period #&JJ-#&CJ, some of which were engaged in a new
technology0 home banking. The findings indicate that technological networking is the best
predictor of technological innovation. They reveal also that firms with e.tensive networking are
more likely to implement the innovation with strategic partners. 5inally, the paper discusses the
implications of the findings for organi6ation design and proposes an e.panded theoretical
framework for organi6ational innovation.
2.5 Innovation derived fro( social net)or$s
5inally, the 'social network' theory of innovation management is based on two
earlier ideas and one new insight. The earlier ideas are that innovation is determined by research
(technology push theory) and by unordered interaction between firms and other actors
(technological networks theory). The insight is that knowledge plays a more crucial role in
fostering innovation. The growing importance of knowledge as a production factor and as a
determinant of innovation can be e.plained by the continuous accumulation of technical
knowledge overtime, and by the use of communications technologies that make that knowledge
available very rapidly on a worldwide scale.
The evolution from a technological network perspective of innovation management to a social
network perspective has been led by the challenge to transform information into knowledge (e.g.
information conte.tually connected to the development or improvement of products or
processes). )nowledge-based innovation re3uires not one but many kinds of knowledge.
1#
5urthermore, it re3uires the convergence of many different kinds of knowledge retained by a
variety of actors.
Conclusion
+ven before the current economic crises, governments across the globe were pushing an
Kinnovation agenda.G This push has become even more pronounced as the recession continues to
pressure governments to respond. In the science-push innovation policy frameworks in place in
+urope, and those slowly being rolled out in the I.4., most of the funding for research from
government is channeled through higher education institutes. It is hoped that research in these
academic laboratories will generate technological breakthroughs and, in turn, new products,
services and process
References*
1"
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