Unit 27-L.O.1 Evaluate possible sources for a new and innovative business idea

Course: Pearson BTEC Levels 4 and 5 Higher Nationals in Business

The best source for a new idea is from anything you have experienced firsthand. Books and mentors are great sources, but ideas come most naturally when you are immersed in the problem you want to solve.

If your idea is too much of a risk and not yet ready to develop, build on an existing business model that has already worked for someone else. Look for newer businesses with fewer competitors or established businesses that have been successful in the past but maybe stagnating now (e.g., Target’s retail woes).

Finally, consider creating your own “mini-business.” This will allow you to test out your ideas on a small scale before committing more resources to them.

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Sources of business ideas

External/macro-environmental sources of change that create opportunities (Drucker’s 7 sources of innovation, STEEP factors)

This concept is known as Drucker’s 7 sources of innovation, which he discusses in his book Innovation and Entrepreneurship (1985). Though Drucker does talk about many sources of innovation, the STEEP factors are what people primarily refer to when they use the phrase “Drucker’s 7 sources of innovation”. These factors support innovative practices:

1. Sociology – understanding social changes.

2.Technology – understanding technical advances.

3.Economics – understanding economic changes.

4.Environment – understand the natural environment we live in.

5.Politics– understand political changes, and it includes both international and domestic politics.

6.Ethics – understanding ethical frameworks under which to work and live our lives., including legal/regulatory frameworks.

7.Psychology – understanding of people’s behavior and motivations. This is the most important factor in my view, but it was not included as one of Drucker’s 7 sources of innovation (but you’ll notice that I added it).

The role of the ‘entrepreneur’ in weighing up opportunities, threats, and personal capacity to translate the opportunity into a business idea.

The entrepreneur is crucial to successful business development.

This person is the one who will use their skills, networks, and connections to turn a business idea into a thriving venture.

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Entrepreneurs must weigh up opportunities, threats, and risks before determining whether the opportunity is worth taking. They need to have an imagination that turns an idea or invention into something profitable, as well as understanding current market conditions and the capacity to translate those ideas onto paper as viable plans for the future.

Typically entrepreneurs are self-starters who do not need anyone else’s permission in order to produce change. Their ability to push boundaries beyond what they initially thought was possible makes them perfect entrepreneurs but not all people can fit this role or even want it right now from life at present.

Personal situational factors and knowledge.

The first thing that you have to realize about entrepreneurship is that it usually does not come all at once. Entrepreneurship can be learned and developed over time but if you want to jump in with both feet, you have to realize that it’s going to take hard work and a drive on your part as an individual.

If you don’t possess those qualities or are lazy by nature or just think that it will be easier to get someone else to do the actual work for you than doing it yourself, then this is probably not the right type of field for now.  You also need to understand the type of knowledge required so that you don’t waste time learning something that has no value towards what your goals would be as an entrepreneur.

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Types of innovation:

The scope of innovation, particularly in relation to small firms.

Many people think of innovation as a one-time event where you come up with an idea and then move on to the next. However, in reality, innovation is almost always a process that places emphasis on developing ideas into something useful or practical. Most innovations are incremental but some can be quite radical in nature.

The largest debate that occurs within the field of Innovation & Small Firms focuses on what type of changes will occur beyond those brought about by major technological breakthroughs.  Large firms have more resources at their disposal which allows them to focus more on specific areas where they want to achieve success and eventually experience economies of scale which lead to lower prices for products and/or services.

Smaller firms generally don’t have access to such and vast pool of capital to draw from so they need to be more creative with their ideas and methods.

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Some small firms are able to innovate by finding solutions that exist within smaller markets which allow them to serve niche customers that larger companies generally ignore or undervalue.

The biggest challenge for innovation is simply getting started as there are many factors that can prevent an idea from ever reaching the prototype stage. One problem is funding, if a firm does not have adequate funds on hand then it will have a tough time moving any type of project forward without additional investors or financing.

Another factor involved in innovation is overcoming resistance to change even from those who may benefit greatly from new ideas or discoveries.

The different types of innovation: product and process innovation; incremental vs big bang; Schumpeter’s sources of innovation.

Product innovation involves producing a new product or service.

Process innovation is the application of innovative techniques to increase efficiency in an existing process.

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Incremental innovations are small improvements on already existing products, whereas big-bang innovations completely revolutionize the business environment

Schumpeter’s sources of innovation are called four “gales” that innovate the economy.

The first “gale” of innovation is technological obsolescence.

This comes about through the invention of a new product or process that renders existing ones obsolete.

The second gale of economic growth comes through the discovery of new scientific knowledge.

This may occur in several ways:

1.by inventing a new product based on such knowledge;

2.by making an existing one more productive;

3.by discovering previously unknown uses for such products:

e.g. penicillin can be used to treat bacterial infections rather than just curing syphilis.

The third source of innovation is the introduction of  completely new goods, marking a radical departure from existing ones

e.g. cars replacing horses as means of transportation, or electricity and telephones replacing steam engines.

The fourth source of growth is the discovery of new markets

e.g. the worldwide market opened by America in the 20th century, or that opened up by India in more recent times.

Without such discoveries, technology has no outlet and may actually atrophy.

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The difference between invention and innovation and the role of creativity.

The invention is the creation of some new thing or concept.

We can distinguish three types here:

1.The creation of products and services that did not exist before.

Examples could include the modern car, a personal computer, the telephone,  television, etc.

2.The discovery of new applications for existing things (i.e., innovation).

Examples might include using satellite technology to provide global telephony or using silicon to make computers smaller and more energy-efficient.

3. The commercialization of scientific discoveries, such as gene therapy to cure genetic diseases. Innovation involves making changes in an existing product or service so that it will be more marketable (e.g., adding extra features), or improving its production methods so that it can be sold at a lower cost.

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Examples might include Water purification filter company hollow fiber membrane or vaccination.

4. The commercialization of completely new products and services that did not exist previously (i.e., invention).

Innovation involves making changes in an existing product or service so that it will be more marketable (e.g., adding extra features), or improving its production methods so that it can be sold at a lower cost.

Role of Creativity

Creativity cannot be isolated from innovation, as most innovations require some form of creativity. Creativity is an essential element in the ongoing search for innovative solutions.

Creativity facilitates the generation and adoption of new ideas and helps sustain innovative work over long periods. The term “creative” has been used in many ways to cover a complex set of phenomena that are poorly understood (Baer 2003).

This article uses it more narrowly for work done by individuals who create or produce original works—artists, inventors, writers, composers, scientists—and less broadly to include actions such as developing variations on existing technologies and developing new business strategies. It also excludes ordinary mental processes involved in most problem solving and decision making, which involves integrative thinking as opposed to generating original ideas (Newell 1973).

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Creativity involves making new and potentially useful connections between existing concepts or approaches. Creative people tend to come up with unusual combinations of existing elements that allow them to solve problems in novel ways.

This article will first discuss the various kinds of creative work done by individuals, then turn attention to organizations where innovation is a central goal. We will conclude with a discussion of how organizations can foster more innovative work on the part of their employees through effective leadership and management practices. The evidence suggests that creativity does not require genius; it is developed through practice, persistence, patience, hard work, and other skills that can be taught and learned.

Exploring the difference between a product or service idea and a business idea.

A product or service idea is just the beginning of your business. You have to figure out how to earn money from it, and that’s called creating a business. A business idea involves marketing, branding, operations, and management? all of these things are necessary before you even think about turning on the lights in your new office building we’ll call “Home Sweet Home.”

A simple example would be if you had a great new recipe for Chili. A product or service idea would be that people only like chili with beans in it but yours is different because there are no beans. You’ll need to combine this with some clever marketing (for instance, telling everyone you’re taking a stand against all veggies). Next, you need to enter into a lease agreement with a building. Now, this might sound like it’s all figured out but that is far from the case. You’ll need to consider whether your product can be made on-site or you have to bring it in from an offsite source. In fact, there are many factors that will go into whether or not you should move forward with opening up a Chilibowls franchise.

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Innovation and location and the role of ‘clusters’ in fostering innovation amongst small firms.

Location is a key factor in fostering innovation amongst small firms. Innovation often springs from local character and the unique challenges of that location. The Australian company Atlassian, for example, owes some of its success to the roots of its founder Scott Farquhar.

A study by GEM also found that “firms located in emerging destinations were 11% more innovative than those located elsewhere”. Thus, it pays dividends for entrepreneurs to explore and research locations where they have chances to do better and experience great personal growth.

Clusters are an important business strategy for fostering innovation and economic growth. Clusters can consist of one or larger firms, suppliers, service providers, and subcontractors that create jobs and have a direct impact on the local community economy.

They also shape the specific nature of research and technological development at universities by facilitating formal collaborations with industry partners, such as those sponsored by zones focusing on biomedical incubators or nanotechnology incubators.

The key to maximizing competitive advantage through clusters is to make sure there is geographic diversity in your cluster location choices. The lack of geographical dispersion could make it hard for companies operating from a single country alone to develop the skills needed to compete internationally because they would not have firsthand knowledge about global customer needs.

Exploring creativity:

Understand and practice using creativity techniques to generate ideas

It’s common to feel stuck when faced with a challenge. But there are many techniques you can use to help an idea for the creative problem-solving surface.

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The mind is designed to function more effectively under stress, so one technique is to squeeze yourself into a tight spot’, or ask yourself difficult and uncomfortable questions in order to break through the wall of thoughts blocking your ability to come up with new ideas or avenues. Which might be something like finding out what’s the worst-case scenario for the problem, then posing this as a question: “What if they never buy anything?

‘ What do we do if our prices go down?” Finding different perspectives on problems will also often give you new insights about which direction you should take things in order to find a solution.

A group of skateboarders, for example, might be able to come up with an innovative idea that not a single engineer or designer would have thought of on their own. So if you put people who are used to making do with whatever they can get into a situation where they are forced to think outside the typical constraints and existing patterns, then new ideas will often pop up.

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