This study presented the better understanding of innovation and linked up with organisational growth through theoretical perspective.

1. Entrepreneurship
The role of innovation in firm
growth
Prepared by
Fasih Khalid
Research Student
Contact: fasih.khalid@gmail.com

2. The role of innovation for entrepreneurial start-up and/or firm growth
Innovations is a modern technique in the modernisation world, but it’s a method integral to
human development. The letter innovation is deriving from Latin verb ‘innovare’ or innovus;
into new. Schumpeter (1934) was the first who introduce innovation. Schumpeter induce that
innovation is a manifestation of the five categories such as, developing an industrial enterprise,
identify new resource (material and raw material), developing new product or modifies existing
product and services. Innovation contains a different method of learning and discover new form
of organisation, new product or production process. Kotler (1997) describe the innovation as
system, process, method, product or service significantly modified or new, which has been a
marketable attainment. Drucker (1985) argues that innovation is a particular system of an
entrepreneur in which opportunities are being exploit in the favour of business. Venkatarman
N. (1994), describe the innovation as a result of particular modification in the operations of
business that firm performs, it takes in line with internal and external requirements. In 20th
century J. Tirole (2000) mentioned the innovation as a radical process and ability of the
company to lower the production cost and maintain the monopoly in the market. (Mitea et.al
2011)
However, innovation refer to a product and services that has undergone in significant
improvement in terms of its basic characteristics, components, technical specification and
manual of use but empirical studies has suffered from lack of consensually on innovation
definition. However, one aspect common to many definitions is that innovation is about
something new to put in practice successfully. (Mitea et.al 2011)
This essay will discuss the innovation across the firm’s performance. By discussing how
innovation plays an essential role in firm’s growth and how it adds values in business. In this
research innovation is the primary focus to identify the firm’s growth.
There are many researches analysing effect of innovation in firm’s performance or the
categories that have influence to shape firm performance. Joseph Schumpeter’s framework
was the starting point of firm dynamics as an evolutionary process associate to the deliverance
of innovation in new marker. The interpretation of the Schumpeter’s is relied on the firm’s
capacity to produce new product in market along with the firm growth. Schumpeter’s argue
that as a result of interaction of firms with consumers, market is not in static equilibrium, who
maximize firm objective (profitability). Schumpeter’s discovered that innovation located at the

3. heart of development and aggregate the firm growth. Realistically firm decision over
innovation reflects different aspect (David B et.al 2014). According to Duguet (2006) formal
and informal resources of firms are accompanied by diversified knowledge sources and
different aspect of spill overs are essential for developing radical innovation. Vasco et.al (2013)
also noted that all these characteristics are not statistically important in the matter of
incremental innovation, whereas source of knowledge and goods are more essential in
innovation.
There are several literature and appropriate link between innovation and firm growth in
developing nations: micro literature on firm growth, literature on FDI, literature on innovation
and growth, and technology spill over firm growth. Since Solow 1956, research paper, it has
been identified that rate of characteristics accumulate growth is not a part of economic. The
endogenous growth literature discover that innovation system is a major source of growth.
(Micheline Goedhuys et.al 2011)
Realistically, innovation can increase the firm growth in different way. Characteristically four
dimensions demonstrate and employed in the literature to evaluate growth. These dimensions
are market performance, innovative performance, financial performance and production
performance.
Innovation has considerable effect on firm growth by manufacturing and modifies efficient
market position that deliver competitive advantage and effective performance. Vast number of
researcher has been devoted to focus on innovation performance, whereas, results indicate that
there are positive attraction among innovation and firm growth. Mostly researcher has
examined product and process innovation as a common tool. Miller (2001), expressed that most
organisation acquire technology innovation to sustain competitive advantage in their market.
Miller also argue that, most of the researcher has neglect the marketing and organisational
innovation which are equally important for growth and essential for firm operations.
A marketing innovation is the application of the new technique of marketing include in product
placement, promotion, packaging and product design. Marketing innovation technique
specifically target the addressing customer’s needs more effectively and positing the firm in
way to maximize the sales through new methods. Marketing innovation is potentially associate
with 4P’s, design, packaging, promotion and along with properties. (Gurhan Gunday et.al
2011)

4. Secondly innovation process is the application of improved and modified significant mode of
delivery and production. Which particularly involved new equipment, software and techniques.
In order to deliver the significant modified product and lower the unit cost by increasing
quality, process innovation could be considering as effective tool. According to Fagerberg e.al
(2004), (OECD Oslo Manual, 2005) in the international journal of production and economics
state that process innovation seems to have potential reflection on employment and growth of
income, because of its cost cutting nature, which could have hazy effect. (Gurhan Gunday et.al
2011). For example, LEGO found in 1932 a wooden toys manufacture. In 1994 company
brought plastic injection modelling machine for toy manufacturing and flourished for many
years with its innovative toys. In fact, in 2004 Dutch innovative toy maker declared bankrupt.
Company had become anxious about plastic producing product with low cost, so company
started diversifying the activities like, action figures, theme parks and television show, but
unfortunately all these activities counted as non-profitable. Hence, Company used innovative
structure mapping within strategic coordination and implement innovation actions through
cross functional team. The team evaluate the activities and split the LEGO’s innovation
activities in to eight distinctive categories. Such as, Business model – revenue pricing, Core
process – sales, operations, financial planning, Messaging – advertisement, website
development, Platform – developing new for blocks, Enabling process – market planning
forecasting, Sales channel – direct marketing, retailer. In result LEGO develop the new product
line with this new structure. As player can develop different board game every time they play
with LEGO bricks. The game was launched in Germany and United Kingdom in 2009 and
around the world in 2010. (Bruton et.al 2011)
Thirdly an organisation innovation is the process of implementation new techniques in the
business practice of the firm or external relations. Organisation innovation have a potential to
enhance the firm performance by lower down the transaction cost, supplies cost, administrative
cost, obtains access to non-tradable assets, and enhancing workplace satisfaction.
Conceptually, the application of process innovation can be distinguishing in three categories,
behaviour, product and technology related innovation. According to the technology prospect,
innovation comes from basic enthusiasm to depart from old technology and adopt new
technology in the organisation. (Cevahir Uzkurt et.al 2013). For example, during the mid -
1990s, IBM encountered the vast challenge in open system computing to win business
application for large scale. The company had a challenge to modify its mainframe product to
transaction processing. To overcome this problem, IBM have to grow through all its business

5. operations: how it designed its branding strategies, fulfil the customer’s need through market
segmentation, the development of product and even company’s business hierarchy. The
changes that company made since these areas are insightful. (Meyer et.al 2005).
To look over the firm growth through innovation prospect, this essay links the technology in
this study to explore whether technology innovation vary over the firm growth.
In the global market place, in order to stay competitive companies, need to be driven more
innovation in their products and services. This need has become essential and grow over the
years. According to PWC report (2011), during the recession mostly CEOs emphasised on the
growth and anticipated that technology is the main drive to enable innovation. PWC found
during its survey in 2011 that 80 percent of CEOs agreed that innovation sustain and drives
efficiencies in competitive advantage. Whereas, 70 percent of the CEOs are investing in
information technology ‘IT’ to lower down the cost and become more competent. (PWC2012)
Even the paramount technology can’t carry the victory without aiming on corporate strategy
and goal. It is essential to have clear vision of where the cooperate if heading, as it will explain
and set the context for the role of innovation to determine the way they need to organise change
and enabling profitable growth.
Innovation can manipulate in different ways, whether it’s a business model that explain the
value that company deliver or whether it’s a technology change that distinguish the products
and service that company deliver.
The degree of innovation can range from totally new to a little modification. As new innovation
can be characterised as a breakthrough or incremental innovation, depending on the nature of
the innovation. Innovation with the minor changes or improving existing service can be
characterise as incremental innovation. On the other hand. Significant new technology, offer
potential customers benefits as compare to existing product line and overcome the demand that
considerably changing is stated as breakthrough innovation. According to Roger, 2003, and
Song and Di Benedetto, 2010 in the journal of business and marketing, mentioned that in
breakthrough innovation, organisation required a knowledge and innovation capabilities
because breakthrough innovation is consisted of complexity. (Colin C.J et.al 2013).
However, in order to improve the breakthrough innovation, it is essential for companies to
lower down their institutional limitation. Chesbrough (2003) proposed the model to go beyond
the boundaries known as open innovation. Chesbrough (2003) state that open innovation is a

6. purposive use of inflow and outflow of the information to enable and grow internal innovation
and also increase the external market for innovation prospective. This approach stress on the
elastic use of resources and reconfiguration the innovation progression with the third party. It
allows the companies to gain competitive benefit through open synchronisation. By adhering
this approach companies can start to sell or share their internal resources to develop value
through third party (Colin C.J et.al 2013). As Gassmann et.al 2010, suggest, firms can still
integrate their outward resources into their own innovation operations.
The application of open innovation process has increasingly become popular among
multinational companies. The open innovation process has pioneered industries such as,
electronics, software, biotech, telecom and pharma, while the electronic and software industries
are progressively developing and following open innovation development. The leading
industries like Microsoft and SAP has starting developing innovation lab in universities in order
to enhance their absorptive capability for inside – outside innovation process. Noticeable
examples in electronics industries are Xerox’s Polo Alto Research centre, Philips’ innovation
park, IBM’s open source Imitative and Siemen’s open innovation program. In today’s world,
most of electronic suppliers has takin innovation at strategic level of the company. BT (British
Telecom) has associate incubation activities with Swisscom and Deutsche telecom. Whereas,
in pharma and Biotec industries innovation has become strategic mode such as, Pfizer in is
licensed with Lipitor and Bayer with its creative centre Eli Lilly. (Oliver Gassmann et.al 2010)
Firms with the supplement of external resource activities of their own innovation projects can
enjoy more than the firm that perform innovation and R&D activities in house.
Despite this, there are several other factors of innovation that provide substantial benefit to
firm, in which most dramatic factor is leadership. According to the Global Business and
Organisational excellence journal, many surveys has been conduct in innovation companies
such as, Microsoft, Apple, Virgin and Google ranked top regularly and stories of their leaders
remarkably recurring the topic of magazines and management books. Many researcher and
philosopher had identified the leadership behaviour is one of the most prominent trait in
innovation. Innovative leader role is to generate ideas, inspiration, a vision, strategy and
structure to build around the organisational culture with flexibility to support business. To
contrast this innovation with-out leaders, such what would Apple be without Steve Jobs?
Roland Bel (2009),

7. Roland Bel (2009), state that higher the leadership the higher the organisation and can drive
and promote innovation. For example, Richard Branson at Virgin, Steve Jobs at Apple, where
the leader at the top motivate the whole firm. And critical role of CEO is to directly influence
and lead the organisation innovation. It also argues that innovation doesn’t come from the top,
it can come from any level, such as 3M mentioned that sometime bottom up innovation is
better than top innovation. However, the primary role of an innovative leader is to deliver a
vison that people can identify. Roland Bel (2009),
‘A charismatic style involves communicating with vision, energizing, and accelerating
innovation process, while a strategic style consists of using power to innovate, committing,
employees to innovation and enabling employees to be involve’. Roland Bel (2009),
Recent literature offers the broad picture of the different empirical analysis and factors. The
empirical studies give the broad picture across the firm growth and innovation and provide link
among these initiative with evidence. Firm level of innovation can be expected to have potential
impact on the productivity and sales growth of the company. In contrast to this some scholar
describe the complexity of researching link between innovation and firm growth and suggest
that for better understanding of the firm growth and innovation, heterogeneous pattern should
need to bring in consideration among firm. (David B et.al 2014)
In summarising the research and drawing from the organisational prospective and innovation
theories and its impact on the firm growth. This study highlights the better understanding of
the innovation topic. Moreover, this literature express that innovation activities help the
industry to growth and empirically study suggest, open innovation is one dynamic capabilities
of firm to enhance. Chesbrough (2010), state that open innovation activities allow the firm to
support the different development with coordination. Research and practice have
acknowledged that firm interest plays an essential role in innovation. This research
characteristically develops and operationalised concept and theories for assessment and
observation. As the environment changes, the concept of rivalry change. However, R&D in the
organisation not only confined the innovation, rather there are many more opportunities. In the
current global environment, the rule of innovation has change. Different studies and researches
indicate that open innovation is effective application in current trend because in intensive and
complex marketing environment only company with open innovation can grow by involving
technological and industrial environment development.

8. In order to sustain competitive advantage in rivalry environment, firm required to be vigilant
to choose appropriate application of innovation through coordination with other organisations.
To create the value in organisation, it should utilize the innovation philosophies and evidence
in commercialisation of the firm. Many companies like P&G, Lucent and IBM open the
innovation centre to maximize the firm performance and realise that because of the complexity
of market and technology uncertainty increase the risk of firm growth. Though innovation
companies can enhance their growth and sustain competitive advantage through transcend the
boundaries.
Further to the limitation of this research, which can consider the future research for quality of
work. Future research can adopt different approach to evaluate the firm growth though
technological innovation can develop questionnaire on the basis of innovation nature. There
are different approaches that effect firm growth however, future research can also examine and
research in depth the more types of innovation that help organisations to grow. Future research
can also bring in consideration the financial impact, such as funding the innovation in
companies with SME companies and also suggest larger firm regarding allocating of their
innovation resources.

9. Reference
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