Theoretical Approaches of Innovation Development

The study of innovation has been a relevant topic as academics, policy makers and

entrepreneurial representatives consider innovation as an initial basis of economic

welfare, the main factor of change and a competitive advantage. Innovation researches

have introduced a variety of innovation conceptual models based on different approaches.

Most of researches were based on Schumpeter’s theory of innovation factors where

the main motives for innovation were market size and structure. However, after the

comprehensive disclosure of specific industries and knowledge management features,

these factors were stated no longer relevant. It is argued that external factors, such as

external learning, knowledge surplus and the method of management are considered to

be much more important than specific features of the whole industry. Therefore

innovation can reduce costs of production, increase production and quality of goods or

services and create new markets. Any innovation that has a demand in comparison with

other products should increase company's profitability (Webster, 2004).

Innovation concept is characterized by the aspect of innovation development speed

which can be interpreted dually. First, the pace of innovation is based on duration of:

initiation of innovation, development of innovation and the new product delivery to the

market. According to Stalk (1993), in the world where product life cycle is shortening

steadily because of the rapidly changing environment and customer needs, the ability to

innovate becomes increasingly important. These circumstances have a significant impact

not only to introduce new products to the market but also do it faster than the

competitors (Prajogo, 2006). Second, the pace of innovation is related to how quickly a

company is able to embrace new technologies. This approach is based on five categories of

innovators, formulated by Rogers (1983): primary innovators, early successors, early

majority, late successors and laggards. Naturally, the early innovation successors will

benefit more significantly, although with a higher degree of risk (Prajogo, 2006).

According to Hong et al (2012), companies involve in the development or

implementation of innovation activities, because they seek to create a new or significantlyimproved product or process to increase profit and maintain or expand a market share.

Regarding significant innovations companies have a chance to dominate in the market or

become an industry monopolist. Arias-Aranda (2001) states that innovation concept is

related to the company’s innovativeness stability and continuity over time, as companies

strive to remain competitive.

New models of innovative research emphasizes the importance of innovation

development process, pointing out that innovators must work closely with the key

customers, suppliers and institutions that are enrolled in the innovation system. For this

reason, innovators often do not generate innovative products alone but build teams or

networks among reliable partners (Laursen and Salter, 2006). Banburry and Mitchell

(1995) argues that concept of innovation is related to the company's innovation strategy

and opportunities to introduce new products to the market, i.e. be an early entrant. In

some cases, these companies are trying to create new markets by a strategy based on the

first-mover advantage (Prajogo, 2006).

The systematic approach to innovation has been set due to the multiplicity of the

innovation concept. Innovation is regarded not only as an innovative feature, but as an

ongoing process - from research and development to the new products, i.e. goods or

services in the market. The process involves a number of entities that forms the

innovation system. There are many participants in the innovation dissemination process

so it is determined by various factors such as barriers between promoters of innovative

products and consumers, selected dissemination method, technology features,

characteristics of the product, market and other external factors (Bagdzevičienė and

Vasiliauskaitė, 2002).

Among many methods of seeking to distinguish innovations into certain categories,

the most characterized remains the distinction between product and process innovation,

although this demarcation is sometimes very blurry and unclear. This issue of separation

between product and process innovation is important because it allows a comparison of

manufacturing and service sector companies. Closeness between product and process

innovation is much stronger in services than in manufacturing. This happens mainly

because of users that make the processes in the service sector very clear and the overall

quality of service is immediately tangible and evaluated by consumers (Damanpour et al,

2009).

New products and services are at the top of necessity for economic growth. Therefore

it is relevant to review the scientific literature on what is the relationship between

innovation and business performance and to discuss the importance of innovation and the

value it gives to the company.

Knowledge derived during the process of innovation development is an essential

element of new technologies creation. The knowledge intensity and know-how of young,

entrepreneurial companies helps them to grow in the international scope and contribute

to the development of unique products. Knowledge that promotes the production of

unique goods or services allows global companies to satisfy specific market needs, thus

increasing their market share and sales and also helps to ensure a unique produc