Innovation Business Plan and Collaboration PDF

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Innovation Business Plan and Collaboration 1 Introduction Innovation environment is a discontinuous and unpredictable environment. In such cases, predictions are difficult to be made, Companies that operate in innovative sectors like software, information technology and electronics need to be prepar...

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Innovation Business Plan and Collaboration 1

Introduction Innovation environment is a discontinuous and unpredictable environment. In such cases, predictions are difficult to be made, Companies that operate in innovative sectors like software, information technology and electronics need to be prepared for change at every moment. This can be achieved by the preparation of a business plan. A business plan will define a set of business goals, the reasons why they are believed attainable, and the plan that will assist reaching those goals. It will serve as a guideline in the case future decisions and non-desirable developments. Also, risks can be mitigated and innovation effort can be boosted by collaboration. Companies that join resources, knowledge and expertise have much more chances for survival. Innovative Environment and Discontinuities Innovation comes in many variances (Henderson & Clark, 1990). Incremental, radical and architectural types of innovation are some of these variances. Incremental innovations introduce relatively minor changes in an existing product and exploit the potential of the current design. Incremental innovations usually reinforce the dominance of the established design. Incremental innovations do not cause disruption in current markets. On the other hand, radical and architectural innovations are based on a different set of engineering and scientific principles. Radical innovations change completely the dominant design and introduce a new one much more efficient than its predecessor, while architectural innovations change the arrangement of the components within the dominant design. These two types of innovation usually cause a discontinuity in the current market, open up entirely new markets and they are the cause of the creation of completely new applications of the product (Dewar & Dutton, 1986). This discontinuity enables new firms to enter the market while creating problems for large and established organizations. Projects withing discontinuous environments have certain characteristics. These are that they

Innovation Business Plan and Collaboration 2 are a) long-term b) highly uncertain and unpredictable c) sporadic d) non-linear e) stochastic d) context-dependent (Rice, O'Connor, Peters, & Morone, 1998). From these characteristics it is revealed that such projects are highly complex and risky. This fact makes conventional management techniques unsuitable for managing innovation projects. Thus, practices must be employed for the reduction of complexity. Complexity can be reduced with proactive work, like the development of a business plan, and problem decomposition. Both of these activities are a prerequisite for another tool that can reduce complexity and increase productivity. This tool is collaboration in various forms between innovative organizations. Discontinuities in innovation can create new opportunities to companies but they can also create new problems. These problems may appear when competitors, through radical innovations, change the market environment and force existing players towards a strategy shift. Therefore, businesses operating within innovative environments must be prepared in the case of such disruptive introductions in the market scene by competitors. Such prepapation can be the outcome of a competitor analysis that will be performed during the implementation of the business plan. At this point, the importance of a solid business plan in place needs to be highlighted. Companies that have developed their business plan and have assessed the risks of innovation will be prepared for such disruptions in the innovative enviromnent. Importance of Business Plans Although, a standard way of developing and presenting a business plan does not exist, a solid and convincing plan is always needed for a start-up business and especially an innovative new company (Tidd & Bessant, 2009). This is because in every start up attempt, the road ahead is not always clear. Innovations start from a bright idea or a “eureka” moment but this is not enough for an idea to become a reality. During early days of operation, innovative start-ups face numerous dilemmas and need to make decisions about issues that have not been considered at the beginning. Innovation

Innovation Business Plan and Collaboration 3 leaders have to make decisions and choices from a plethora of alternatives for a number of issues, like identification of products, marketing, financing and contingency plans. Thus, the lack of a predefined strategy in all parts of a project’s lifecycle and an achievable target can lead to conflicts and mismanagement. Another reason for developing an attractive business plan is the potential of attracting venture capital. Venture capital is financial capital which is provided to early-stage, high-potential, high risk, growth startup companies. Venture capitalists make money by owning equity in the companies they invest in, which and usually have a novel technology or business model in high technology industries, such as biotechnology, information technology and software. Usually, innovative ideas are not accompanied with the analogous resources for the accomplishment of the inspiration. On the other hand, capital owners do not have often brilliant ideas on how to take advantage of their fortune. Therefore, joint ventures through venture capital investment are a common way of combining capital and innovative ideas. But the joining of these two innovation forces, capital and knowledge, comes with the agreement on the business plan. Venture capitalists will risk their money only if someone proves to them that a high possibility for high investment returns exists. This proof can be demonstrated through a proper business plan. As a result, the development of a successful business plan is a basic task for the attraction of venture capital by candidate start-ups. Based on the above, guidelines for a creating a business plan have been proposed by scholars and experts. Kaplan et al. (2007) propose that a typical business plan must have the following sections a) details of the product or service b) assessment of the market opportunity c) identification of target customers d) barriers to entry and competitor analysis e) experience, expertise and commitment of the management team f) strategy for pricing, distribution and sales g) identification and planning of key risks h) cash-flow calculation, including break-even points and sensitivity j) financial and other requirements of the business. All the above are important for the success of any business and must be

Innovation Business Plan and Collaboration 4 decided and planned before the initiation of any project. Even though frameworks and guidelines for the development of a successful business plan are proposed by scholars and experts, a lot of problems are identified in the submission of business plans to venture capitalists. Roberts notes that most entrepreneurs propose that they can do it better than anyone else but many times forget to demonstrate that anyone wants it (Roberts, 1991). Furthermore, he identifies a number of common problems with business plans submitted to venture capitalists. These problems are located the marketing plan, the management team, the technology plan and the financial plan. Based on research, a detailed marketing strategy is missing from half of the plans examined and three quarters of them fail to identify or analyze any potential competitors. Moreover, most business plans contain only basic financial forecasts and just 10 percent conduct sensitivity analysis. Based on the above findings, it becomes obvious why a business plan is important for any innovative company. Making business within an innovative environment entails a high factor of uncertainty and risk. A business plan can help a company to keep its activities on track, focus on predefined targets, assess at early stage potential threads and develop contingency plans. Also, a successful business plan can attract interest for investment and expand the company’s opportunities. As a result, innovation managers must give a high priority to the formation of a rigid business plan which will outline the important aspects of a business. Such a plan will identify the strategic advantages of the firm’s products, the customer needs and the product’s acceptance, the main competitors and key risks for the company and adequate contingency plans in case things don’t turn out as expected. Innovation and Collaboration Innovation is not a solo act but a multiplayer game. Smart firms have always recognized the importance of linkages and connections. These connections deal with getting close to the customers to understand their needs, working with suppliers to deliver innovative solutions, linking up with collaborators, research centers, even competitors to build and operate innovation systems (Tidd &

Innovation Business Plan and Collaboration 5 Bessant, 2009). Von Hippel (1988) claims that in technological activities, alliances and networks are the main sources of innovation. A diverse range of advantages may derive from collaboration and co-operation in the innovation process. Collaboration can have a potential role as a means of accessing external expertise to allow concurrent development to take place and accelerate the product development process. Networks may also allow firms to take advantage of potential agglomeration and informational advantages in both high-tech and more traditional sectors (Love & Roper, 2002). Collaboration in innovation can take many forms. Collaboration can mean corporate ventures, joint ventures, acquisitions, spin outs (Tidd & Bessant, 2009) or any other deliberate collaborative relationship between independent firms to perform business activities (Nieto & Santamaria, 2010). The type of the collaboration is decided in each according to the needs of the cooperating parts. Corporate ventures are likely to be most appropriate where the organization needs to retain a high degree of control over the business and needs assistnace on markets and technologies related to its activities. Joint ventures require the release of some control in return to some additional competencies of the partners. Joint ventures are appropriate in cases where a company needs to approach an unrelated market or an unrelated technology. Acquisitions or spin-outs, which are actually new businesses, usually are necessary and occur when the mission of the venture is not directly related with the missions of the current collaborators. Companies and managers need to select the suitable collaboration type for their case based on the company’s and project’s needs. Conclusion Ending, a rigid business plan is important for every company. It becomes even more necessary in the case of innovative firms. Discontinuities, uncertainties and high risks in innovation increase the need for a good business plan which will provide planning for all the subjects that the company needs to deal with. A good business plan will also become one of the foundations of a successful

Innovation Business Plan and Collaboration 6 collaboration. Successful collaborations based on solid business plans are the main sources of innovation. From these findings it can be concluded that managers of innovation companies must emphasize on the design of business plans and on the establishment of collaborations.

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References Dewar, R. D., & Dutton, J. E. (1986). Organizational Strategy and Structural differences for Radical vs Incremental Innovation. Management Science. Henderson, R. M., & Clark, K. B. (1990). Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms. Administrative Science Quarterly, 9-30. Kaplan, J. M., & Warren, A. C. (2007). Patterns of Entrepreneurship. New York: Johh Wiley & Sons Inc. Love, J., & Roper, S. (2002). The Organization of Innovation: Collaboration, Co-operation & multifuntional groups in UK and German Manufacturing. JEL. Nieto, M. J., & Santamaria, L. (2010). Technological Collaboration: Bridging the Innovation Gap between Small and Large Firms. Journal of Small Business Management, 44-69. Rice, M. P., O'Connor, G. C., Peters, L. S., & Morone, J. G. (1998). Managing Discontinuous Innovation. Research Technology Management, 52-58. Roberts, E. (1991). Entrepreneurs in high technology: Lessons from MIT and beyond. Oxford: University Press. Tidd, J., & Bessant, J. (2009). Managing Innovation. John Wiley and Sons. Von Hippel, F. (1988). Sources of Innovation. Oxford: Oxford University Press....