Enterprises today act under a big pressure by other enterprises, which offer the same or similar production or service, or they are under the pressure of the customers who expect more and more from the product they consume. In order to face with the new conditions and situations, enterprises are made to continuously search for new ways of production, namely offering new products or enhancing existing ones. In other words, they should continuously introduce innovations. But, what in fact do innovations represent?
Innovation is a process of transforming the new ideas, new knowledge into new products and services. Joseph Schumpeter defines innovation as an activity which leads to new producing function, new product. He divides this activity in several steps, as follows(1):
- Introducing a new product: The entrepreneur should produce, namely introduce a new product which can be easily sold and which is not offered in the market.
- Introducing a new method of production: Innovation should offer a new scheme of production which through existing inputs can lead to an increased output, decrease of costs per unit product, introduction of new inputs and change of existing ones.
- Opening new markets: Innovations can increase the sell in new regions, and also increase the number of customers.
- Finding of appropriate sources of raw materials: The raw material supplier can often lower raw materials ‘quality or increase their price and this directly influences over the quality and the selling price of the new product. Therefore, the entrepreneur should find an appropriate source of inputs, which are needed for production of new products.
- Establishing a new organization in the industry: Schumpeter describes this step as an entrance of the entrepreneur in the monopoly market, where there has been no competition previously; or creating conditions through which the entrepreneur would take the monopoly position in the market.
Pierre Lionnet(2) defines innovation as a process by which a novel idea is brought to the stage where it eventually produces money…It is a dynamic technical, economic and social process involving the interaction of people coming from different horizons, with different perspectives and different motivations.
Innovations represent a process, namely an activity of creating a new product or service, new technologic process, new organization, or enhancement of existing product or service, existing technologic process and existing organization.
According to the given definition, if we analyze its separate elements, we can say that we classify: innovations in production – development or enhancement of a specific product; innovations in services – offering new or enhancing of existing services; innovations in process – finding of new ways of organizing and combining inputs in the process of production of specific products or services; and innovations in management creating new ways of organizing business resources. The importance and definition of innovations can be explained from several aspects. From the aspect of customers, innovation means products with better quality and better services, which together mean a better way of life. From the aspect of businesses, innovation means sustainable growth and development, realization of great profit. For the employees, innovation means new and more interesting job, which requires more mental faculty, which results in higher salaries. From the aspect of whole economy, innovation represents a bigger productivity and prosperity for all.
In daily conversation, terms like innovation, invention, creativity and science are often used interchangeably. But, for academics, researchers and policymakers there are important distinctions between these terms and these distinctions give each term a unique, specific meaning. Invention is the first occurrence of an idea for a new product or process, while innovation is the first attempt to carry it out into practice (3). Creativity is thinking about new things, while innovation is making new things. Creativity is an ability to develop new ideas and ways of facing problems and possibilities, while innovation is an ability to perform creative solutions in order to enhance people ‘s life. Hence, enterprises can be successful only if they invent and make new things, or if they make the old ones in a new way (See table 1)(4).
According to Tom Cannon(5), the distinction between these terms is as below:
- Creativity represents an opportunity to create new appearance, content or process by combining existing inputs or factors of production.
- Inventiveness is a process of creating something new, which assigns a contribution to the level of overall mankind knowledge.
- Innovation is linked to the definitive marketing of the new product, service or techno-logic process, which is a result of the inventiveness.
Innovation represents one of the essential characteristics of small businesses. According to some statistical data, in all countries, small businesses constitute the majority of enterprises, and as a result of this, they face the most severe competition. In order to survive in this competition, they are made to be innovative. Small businesses are centers of initiatives for innovative attempts. Innovations that are ascribed to small businesses are air-conditions, zippers, helicopters, computers, video recorders, cameras, optical scanners, contact lenses, etc.