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Innovation is a major engine of economic growth. While competition forces businesses to innovate, managers have no easy recipes at hand. From a public policy perspective, the challenge is even more obscure. Despite very aggressive innovation policies, Canada is a laggard when it comes to innovation, resulting in significantly lower productivity growth- and in the creation of an issue that has become a major national concern.

This paper attempts to shed light on this dilemma by presenting a global survey of over 1000 large and small firms-the MINE (Managing Innovation in the New Economy) survey-which documented innovation strategies and performance in all sectors of an economy. The survey led to the identification of six patterns of innovation, which we refer to as “innovation games.”

1. Current notions of innovation

Innovation can be broadly defined as new, value-creating applications of know-how in the economy. ⁱⁱ Joseph Schumpeter, the great economist of the first half of the twentieth century, was still very attached to the notion of innovation as science-based discoveries that trigger competitive races for market domination between innovators and imitators. Entrepreneurs, supported by venture capitalists, were deemed to play a central role in this innovation, as agents of rejuvenation, triggering what Schumpeter called a “creative destruction process.”

However, Schumpeter ⁱⁱⁱ also argued that large-scale firms with well-organized R&D operations could also be significant innovation agents. From that perspective, his followers advocated that governments should strongly support R&D through publicly financed research and tax measures. In the 1990s, Clayton Christensen, ^iv a professor of management at the Harvard Business School, enriched Schumpeter’s creative destruction model by introducing and describing the importance of disruptive innovation, , a concept that became very influential among managers. More recently, four other research-based insights have also emerged in the academic literature on innovation.

1. Modularity: An increasing proportion of innovations are associated with modular systems in which platforms coordinate assembled components. ^v
2. Interactions with customers: Markets are often created jointly, by innovators and clients. Reacting to prototypes, expert or pioneering customers provide strategic information to developers early in the process of market definition.
3. Ecosystem: Innovative firms often rely on the contributions of complementary firms. Ecosystems include contractors, independent innovators, venture capital or innovation-support agencies.
4. Openness: The open source movement in software was the first to challenge closed proprietary platforms in order to democratize innovation. With the rise of the Internet, content created by users has greatly stimulated independent innovations.

These new concepts enrich our understanding of innovation and have given rise to a rich “how-to” literature directed at managers. However, as of yet, no magic bullet has been found and views on how to stimulate innovation still differ greatly.

2. The MINE study

The MINE survey was directed (by co-author Roger Miller) to understand how businesses actually innovate and to assess the results of their innovation efforts. Detailed questionnaires were completed by senior managers of over 1000 firms all over the world concerning all aspects of the innovation process. Moreover, 200 case studies were conducted to enrich our understanding of the different dynamics of innovation. (http://www.minesurvey.polymtl.ca)

Statistical analyses enabled us to identify six clear patterns of innovation, which we call “games of innovation.” A further examination of the patterns suggests that innovation results from different and mutually exclusive scenarios of value creation, with each one reflecting a particular set of competitive conditions, and involving both collaboration and rivalry.

What works in one sector may not work in another. This view goes against the widely held belief that there are universal best practices for stimulating innovation. Indeed, the pursuance of one particular set of “best practices” can trap entire sectors of the economy in negative-sum competition, resulting in minimal innovation, slow growth, and low profits. Fortunately, it takes only one “player” to challenge established rules in a given sector.

Other economists have also argued that innovation is subject to a type of division of labour. For instance, Keith Pavitt, ^vi an English economist, identified four, sector-based trajectories of innovation: supplier-dominated, scale-intensive, specialized suppliers, and science-based. ^viiHowever, the large database provided by the MINE survey provided new insights and identified empirically clear patterns based on the competitive dynamics in a particular marketplace.

A further finding suggests that innovation is very much a result of the strategic intent of senior management. This applies to mature industries as much as emerging industries. MINE participants indicated that, on average, 38 percent of their profits were attributable to their own investments in innovation. Innovation is an integral part of business strategy, even if managers still have difficulty understanding how to encourage it.

3. Capturing the realities of innovation

The statistical analysis suggested that the six games were defined by a combination of two factors, the first one related to the market and the second to the architecture of products and services.

3.1 Market-creating innovations and in-market innovations

The competitive dynamics in a new market are quite different from those of an established one, thus leading to very different innovation patterns.  Market-creating innovations (MCI) generally emerge from the confluence of technologies at the cutting edge of development and are spurred by insights, serendipity, curiosity and big dreams, as well as positive reactions from pioneering customers. Such innovations trigger competitive races during which the product is defined and refined with early adopters - a mutual learning exercise.

Market-creation races are now taking place in the personal digital assistant (PDA) domain, where Research in Motion’s Blackberry triumphed as the defining product, trouncing the start-up Treo, the creators of the Palm Pilot. Apple has joined the race with its iPhone, and mobile phone manufacturers such as Nokia, Erickson, Samsung, and Motorola are vying to offer the most innovative products. Some of these companies may end up having to drop out and join the ranks of former phone manufacturers.

Market creation often tends to be the territory of new entrants, catching incumbents by surprise. Incumbents typically disparage new and innovative products as unproven and unreliable. If and when incumbents finally do decide to jump in, their belated “me-too” products make them appear as laggards and compromise their market image.

In-market innovations (IMI) are found in established markets, fuelling competitive races to reduce costs or differentiate products through superior features or better targeted distribution. In established markets, customer needs are better known and technological leaps are seldom defining events. The resulting higher “predictability” allows innovation to be a key element of a firm’s competitive strategy,

In the MINE survey, about 75 percent of the participants were in in-market innovative games and 25 percent in market-creating ones. In-market innovations are more prevalent for the simple reason that the greater part of the economy is composed of structured, established markets, where innovating is the essence of competition. Indeed, over a ten-year period, the management of in-market innovations can make one corporation soar and another one plunge.

3.2 The architectural state of an innovation

The second factor that defines innovation games is the architecture of the product being innovated. Three states are possible:

• Stand-alone products: Innovative “stand alone” products are selected by buyers on the basis of their relative merits. For example, a better mouse trap, a new blockbuster drug, or a new type of batteries would fit into this category.
• Closed-system: This innovation is the integration of components into a closed system, such as a new jet engine, or a breakthrough software application. The innovator is typically a technical expert firm that works closely with a demanding client seeking higher performance.
• Platform: This innovation takes place in an open modular system. It may concern either a module that sits on the platform or the platform itself. The iPhone and the Blackberry, operating on wireless platforms, are such modules.

The combination of the above-mentioned factors yields six games, as illustrated in the table below. Since games are defined by the competitive dynamics, one game will tend to dominate in any particular industry or sector at a particular time. However, game shifts can occur. For instance, telephony and media broadcasting, once two different industries, are now in the midst of Battles of Architecture, as new delivery channels are being established. Conversely, as dominant architectures emerge in an industry, the games shift from market-creating innovations to in-market innovations.

table here!!!

If we assume that market-creating innovations generate twice as much added value as innovations in mature markets, we could infer that market-creating innovations account for about one-third of the economic growth attributable to technological progress, with innovations in established markets accounting for the rest. Although there are no acceptable metrics for measuring innovation, such a distribution appears reasonable. ^{viii ix}

4. The dynamics of the games of innovation

Games of innovation are coherent sets of strategies and rules for making decisions about innovations in different contexts and apply a specific logic to a particular situation. Each game is also characterized by an ecosystem of interdependent firms and institutions that are complementary to the innovators. The following is a brief description of each game.

4.1 Eureka! - Commercializing a new discovery

Closest to the science-based model of innovation, Eureka! games typically start with an inventor’s quest to match new knowledge-based solutions with unmet needs or underserved markets. When safety is critical, such as in pharmaceuticals, significant investments to meet regulations are required, thus favouring deep-pocket innovators.

Because they are easy to imitate once public, discoveries need to be protected by patents, creating valuable temporary monopolies and rewarding the high-risk, up-front investments Pressures to innovate are relentless as winning products eventually lose their edge or their legal protection. Firms must continuously invest in R&D to stay in the race or else migrate toward less innovative (and less profitable) products.

In the Eureka! game, the dominant innovation strategies call for recruiting the best possible technological talent, typically smart, intuitive, and fast-moving developers who maintain links with leading-edge science, and for building a balanced portfolio of research projects. Moreover, winners generally have superior marketing capabilities and, in the case of start-ups, organization-building capacities. Marketing is as important as discovery in this game. The pharmaceutical industry, a main player of this game, spends $1.80 on sales and promotion for every dollar spent on research. ^x

Eureka! is R&D-intensive. According to our survey, firms participating in this game spend 29.2 percent of sales on R&D. The ecosystem, also important in this game, is typically composed of a few large competitors, a cluster of ambitious well-supported start-ups, and many specialized but complementary firms.

4.2. Engineering Breakthroughs: Rethinking the way things are done