Why internal & external knowledge is key for innovation success

18 January 2023 Consultancy-me.com 3 min. read
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Innovation is the lifeblood of business growth and development. Without innovation, organizations face the inevitable threat of falling behind and eventually being made obsolete. Paul Lalovich, partner at Agile Dynamics, outlines why knowledge should be considered one of the key factors of innovation – and hence future success.

In the age of the knowledge economy, innovation is a main source of competitiveness. It leads to the creation of new value or business ideas, which in turn contributes to the growth of any organization. The ability to innovate helps in increasing the revenue and profit margins of an organization by making it competitive in its industry.

In practice, innovation is a process of continuous improvement and growth, and one that involves not only stakeholders from core innovation functions, but also key experts from across the business.

Paul Lalovich, partner at Agile Dynamics

Sourced from literature, there are three mains avenues for innovation:

Process innovation concentrates on enhancing the efficiency and inner operations of an organization's procedures to produce, bring together, or deliver the product. The focus is on improving the delivery of products and services.

Product innovation is when an organization can present improved, distinguished, or even new products to the market to satisfy the needs of the consumers. Product innovation concentrates on the market and depends on robust abilities like quality, efficiency, speed, and flexibility, whereas process innovation has its place within the space of technical domain.

Business model innovation is about using innovation to transform the core activities of an organization, from its strategy and business model to product-market mix.

The key role of knowledge

In the innovation lifecycle, knowledge plays a central role. Knowledge is indispensable to the capacity of an organization to innovate and favorably compete with others, causing it to be a strategic resource.

Based on what is known as the knowledge-based vision, the performance of the organization lies in its capacity to create, blend, recombine, and make use of knowledge.

Within any organization, knowledge is normally formed internally and/or by the outward acquisition of information and know-how. The two are also inter-linked – outward knowledge on form example markets and technologies is key for generating knowledge utilised internally by research and development units.

For successfully embedding outside-in knowledge, an organization’s ‘knowledge absorptive capacity’ is vital. Research has shown that organizations with a greater absorptive capacity are more inclined to undertake product, process, organizational, or even marketing innovations.

Learning from the outside

Absorptive capacity is described as the capacity of an organization to acknowledge the value of fresh outward information, integrate it, and implement it for business goals. Most studies back the idea of absorptive capacity directly or indirectly prompting innovation and related organizational financial outcomes.

Over the years, the procedures of absorption of outward knowledge have grown into key aspects for innovation in organizations, enabling them to better adjust to transformations within their landscape.

According to recent research, two vital gaps restrict deep hypothetical and empirical progresses in the management of absorptive capacity.

Foremost, some programs of research have considered diverse proportions of absorptive capacity, while this dimensional separation of the construct and its function is not clear, conceptually and practically. Most studies have concentrated on the relationship between the diverse measures of absorptive capability and the innovation performance of a firm.

To remain at the forefront of knowledge, organizations cannot depend only on their external knowledge but must progress their absorptive capacities to dynamically source new knowledge. This requires methods that enable deep and continuous learning, allowing organizations to disperse and use the knowledge as a catalyst of fresh innovation endeavours.

The maturity of an organization’s absorptive capacity builds on a range of pillars, including its leaning heritage, a mutual language, the presence of cross-functional, the culture, as well as problem-solving capability of team members.