Invention — creating something new (a discovery, a prototype, a patent)
Innovation — commercialising that invention so it creates value in the market
The gap between the two is where most ideas die — execution matters as much as creativity
Schumpeter: "creative destruction" — innovation destroys old industries and creates new ones
Sustains competitive advantage — rivals can copy current products but struggle to match a pipeline
Enables premium pricing — genuinely new products face less price competition
Supports growth into new markets (Ansoff: new products for new or existing markets)
Without innovation, products age, margins erode, and firms become vulnerable to disruption
Developing a new or significantly improved product. iPhone, Dyson vacuum, Beyond Meat.
New or improved method of production. Toyota Production System, 3D printing, AI-assisted design.
New way of creating or capturing value. Spotify (subscription vs purchase), Airbnb (asset-light).
New marketing approach — influencer marketing, viral campaigns, personalisation at scale.
Don't only think of innovation as new products — the exam rewards answers that consider process and business model innovation too
New tech + new market. Highest risk/reward. e.g. first smartphone.
Existing tech, new market application. e.g. Netflix streaming to replace DVD.
New tech reconfigured for existing market. e.g. digital camera replacing film.
Existing tech + existing market. Lowest risk. e.g. iPhone 15 vs 14.
Most firms focus on incremental innovation — but radical innovation creates the biggest competitive moats
Basic (pure) research — curiosity-driven; no immediate commercial goal; done mainly by universities
Applied research — directed at specific commercial outcomes; done by firms with a target product in mind
Development — turning applied research into a working prototype or product
UK firms spend ~£25bn pa on R&D — pharma, defence, tech are biggest spenders
Amazon (~$85bn), Alphabet (~$45bn), Microsoft (~$27bn) — top global R&D spenders (2023)
R&D intensity = R&D spend ÷ Revenue — comparator across industries
Pharma: ~15-20% R&D intensity. Retail: <1%
High failure rate — only ~1 in 10,000 drug compounds becomes a medicine
Long time to payback — pharma R&D can take 10-15 years before revenue
Rivals may develop a competing product first — R&D race can be wasteful
Protects inventions for 20 years. Must be novel and not obvious. Applicant must disclose how it works.
Protects brand names, logos, slogans. Indefinitely renewable. Identifies origin.
Protects creative works (music, writing, software). Automatic — no registration needed. 70 years post-death.
Confidential business information. No registration — protected by secrecy. e.g. Coca-Cola formula, KFC recipe.
Patents create temporary monopoly → premium pricing + licensing revenue
Trademarks protect brand equity — consumers know what they're getting
IP can be licensed to others — revenue stream without production costs
IP portfolios are a strategic asset — valuable in M&A (Google bought Motorola partly for its patents)
All R&D done internally — ideas flow in and products flow out; no external collaboration
Firm controls entire process and all IP
Risk: "not invented here" syndrome — dismissing good external ideas
Example: Bell Labs historically (internal only)
Henry Chesbrough (2003): firms benefit from using external ideas AND allowing their internal ideas to be used outside
Collaboration with universities, start-ups, suppliers, even competitors
Examples: LEGO Ideas (crowdsourced product designs), Procter & Gamble "Connect + Develop"
Risk: IP leakage; loss of control over innovations
Depends on: IP sensitivity, available budget, speed requirements, industry norms
Most large firms now use a hybrid — internal R&D core + selective open innovation
Psychological safety — people must feel safe to propose wild ideas without ridicule
Slack time — Google's famous "20% time" (Gmail was born here)
Reward failure fast — Amazon's "Day 1" mentality; experiment often, learn cheap
Cross-functional teams — diverse perspectives spark unexpected combinations
Leadership signal — CEOs who publicly celebrate experiments set the tone
Monopolies: have resources to invest in R&D but may lack competitive pressure to do so
Oligopolies: R&D races are common — firms must innovate to maintain position
Perfect competition: no surplus profit to fund R&D — innovation rare
Key argument: some market power (via patents) is necessary to incentivise innovation
Kaizen (continuous improvement) — many small innovations, every employee contributes, incremental gains compound over time
Big-bang R&D — large bets on transformative breakthroughs; moonshot thinking
Japan (Toyota): world-class via Kaizen — operational excellence, zero defects
Silicon Valley (Google X, SpaceX): moonshots — accept most will fail, but one success can be transformative
Kaizen: lower risk, consistent improvement, but may miss radical breakthroughs
Big-bang: higher variance — most fail, but successful bets create durable competitive moats
Best strategy likely depends on industry: stable markets → Kaizen; dynamic markets → moonshots
A pharmaceutical company develops a new drug compound and secures a 20-year patent. This PRIMARILY provides the firm with:
Spotify moved from a music download model (existing technology) to a streaming subscription model, transforming how music was consumed and displacing iTunes. According to the innovation matrix, this BEST describes:
Which of the following BEST defines the difference between invention and innovation?
A business asks its customers to submit product ideas online, then uses the best submissions to develop new products (LEGO Ideas model). This is an example of: