Appendix 1: Understanding innovation
A1.1 INNOVATION AND ENTREPRENEURS Why Companies Innovate In this appendix, we will present a concise overview of some mechanisms of technological dynamics and innovation. Companies innovate because they compete. If they do not compete, for instance in centrally planned economies, they have no need for innovation. The Darwinian jungle of the free enterprise system requires companies to defend their products and services constantly. One way of doing so is by improving quality–cost ratios. If new technology is applied to upgrade existing products and services, we call it defensive innovation. Successful defensive innovation allows a ﬁrm to maintain its competitive power but not to improve it.160 To realise growth, companies have to launch new products or services. Oﬀensive innovation aims at a signiﬁcant improvement of the competitive position of the ﬁrm, either by launching new technology-based products that will drive the old, inferior, products out of the market, or by creating completely new products that oﬀer solutions to entirely new problems. Taken together, technological innovation helps enterprises realise new business and defend existing positions. Technological innovations are often accompanied by organisational innovations. Quinn describes a number of what he calls ‘organisational revolutions’ that accompanied technical innovations in the information industry.161 Innovations in services often have a technological as well as an organisational component,162 another argument for transdisciplinary research including, in this case, technological as well as organisational research. Innovation thus changes competitive power. New technology, and especially radically new technology, gives ‘ﬁrst-movers’ the opportunity to obtain...
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