**6. Established frameworks for interpreting empirical results in innovation and entrepreneurship studies**

In this section, we explore and propose a framework that we can use to interpret anticipated empirical results in innovation and entrepreneurship studies. To do this, we need to identify and discuss innovation and entrepreneurship and the key components. Thereafter, we use our understanding of innovation and entrepreneurship and the key components to interrogate the literature on determinants and dimensions of innovation and the established frameworks that we can potentially use to interpret research findings. In sum, we explicitly link innovation and entrepreneurship to its key attributes and variables and, consequently, propose an interpretive framework.

#### **6.1 An introduction to innovation**

Several authors such as [1, 25, 34, 35] describe innovation as formulating and implementing creative ideas at the industry level, company level or business unit level. Innovation is employed to develop a product, improve a process, commercialise a product or service and solve a problem. Therefore, we can differentiate between (i.) administrative versus technical innovation, (ii.) process versus product innovation and (iii.) incremental versus radical innovation. We detail the last grouping because that is the focus of this research.

#### *A Conceptual Framework for Researching Disruptive Innovation and Innovative Business Models DOI: http://dx.doi.org/10.5772/intechopen.111808*

Incremental innovation implies improving on an existing product, service, process, technology, equipment, material, tool or portfolio, whilst radical innovation involves creating a product, service, process, technology, equipment, material, tool or portfolio that previously did not exist [30, 36]. There is great interest into the speed at which organisations enter into the technological space [37], leading to a wide range of nomenclature. This includes Freeman's [38] well-known typologies or strategies, namely: offensive, dependent, traditional, opportunistic, imitative and defensive as well as proactive versus reactive and follower versus leader. The others are prospectors, defenders, analysers and reactors [39]; entrepreneurial versus conservative innovators [40] and proactive versus reactive innovators [41].

The question obviously is, 'what is useful for the South African context?' We think it is the entrepreneurship aspect in innovation because of its business connotation. This implies some detail on the business model innovation that provides for improving the structure, competitive advantage, value proposition and ability to link suppliers and customers [42]. Therefore, rather than introducing a product or service, a business model as an innovation implies introducing new processes to become or remain market leaders. As stated earlier, a study by Zott and Amit [22] suggests that an innovative business model—efficiency, lock-in complementarities and novelty contributes to a firm's success. A business model qualifies as innovation if and only if it provides substantial economic value such as creating additional demand or enlarging the customer base [43].

Shirky [44] has, however, argued that successful new business ventures tend to be those without a perfect business model and, therefore, are flexible, enabling entrepreneurs to adjust and change when the situation allows. Earlier, Andries and Debackere [45] had suggested that formulation and adjustment of business models should be in line with a firm's evolution and lifecycle. Therefore, formulation and fine-tuning business models should be an ongoing process so that the models meet the changing needs of markets. Teece [46] refers to such an approach to business modelling as push and pull. This approach allows entrepreneurs to project future scenarios and, therefore, anticipate possible problems way before they occur [47]. In sum, business models are key to innovation and entrepreneurship because, as George and Bock [48] have argued, they '…represent a unique opportunity to unlock the entrepreneurial process, evaluate the firm configuration effects, and describe and forecast the entrepreneurial outcomes' *p*461. Any good innovative idea should be supported by an innovative and suitable business model.

Two more concepts that are important are open innovation and disruptive innovation. Chesbrough [49] defines open innovation as the ability of an organisation to use'… knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively' *p*2. This implies explicit use of internal and external systems and technologies to create value and enhance competitive advantage. Implementing open innovation provides for increased profitability [50]. However, as Bianchi and colleagues [51] have argued, implementing open innovation in small and medium-sized enterprises is a challenge because of limited financial resources and a lack of specialised knowledge. Therefore, Hossain [52] has recommended a policy that should assist small and medium-sized enterprises to adapt and implement open innovation.

We now turn to disruptive innovation, another important term that several authors have interrogated, and therefore, as Markides [43] argues, it is a debatable terminology. The literature is clear that entrepreneurs have a choice to either establish a business based on a new idea or emulate what other businesses are doing. The former is disruptive because a new idea or technology can cause new waves or change habits in the market. Therefore, disruptive innovation is a new product, service, process, technology, equipment, material, tool or portfolio that emerges and threatens to replace the existing one [53]. Alternatively, it can be a successful product, service, process, technology, equipment, material, tool or portfolio that allows an organisation to change competitive rules or create new trends [54]. Disruptive innovation has two main features. First, it provides simplicity, affordability and an unexpected replacement of the status quo. Second, disruptive innovation is an ongoing gradual process and takes time to eventually change the way things are done, customer mind-sets and consumer preferences [55].

Thormond, Herzerg and Lettice [53] have suggested a four-stage disruptive or radical innovation cycle, that is, opportunity recognition (generating and refining ideas), opportunity development (creating credible business cases), solution development (selecting compelling business cases and formulation long-term action plans) and exploitation. The last stage involves selecting marketing channels, distribution methods and investment decisions. Further, [53] point out that disruptive innovation might be an effective starting point for new business ventures. However, like open innovation, lack of funding might stifle adequate research on the idea. Other barriers include insufficient knowledge on the industry, reliance on customer perceptions and inability to challenge the innovation status quo. In sum, innovations arise from different circumstances and result in varying competitive advantages. Therefore, one has to exercise caution and not just group them into one category or under the same description.

#### **6.2 Determinants and dimensions of innovation**

Some factors, attributes, variables or determinants—internal or external within a given context—can increase an entity's capability to innovate, whilst others inhibit innovation. **Figure 2** presents Crossan and Apaydin's [1] framework of organisational innovation. More broadly, the figure has innovation classified into (i.) leadership as well as institutional and organisational arrangements for innovation, (ii.) innovation as a process, and (iii.) innovation as an outcome. Further, note that leadership as well as institutional and organisational arrangements for innovation provide for determinants of innovation—grouped at the individual and group level, organisational level and process level—whilst innovation as a process and innovation as an outcome provide for dimensions of innovation. The determinants of innovation include frameworks—upper echelon theory, resource-based view, dynamic capabilities and process theory—that one can use to interpret empirical results emanating from an innovation and entrepreneurial study.

Several authors have discussed the determinants of innovation including those presented in Crossan and Apaydin [1]. For example, Tipping and Zefran [56] as well as Hossain [52] argue that using an explicit innovative strategy, the mission, goals and strategy of new business ventures should be aligned to their absorptive and desorptive capacities. Absorptive capacity implies the ability to sense, apply and utilise newly acquired knowledge, whilst desorptive capacity implies being able to use external knowledge to one's advantage [57]. Such integration embeds innovation in the day-today activities of an organisation.

Earlier, Hausman [58] has argued that the close relationship between entrepreneurs and their customers in small businesses allows for quick reaction to customer needs and market demands. However, this does not give them an upper hand because *A Conceptual Framework for Researching Disruptive Innovation and Innovative Business Models DOI: http://dx.doi.org/10.5772/intechopen.111808*

#### **Figure 2.**

*Crossan and Apaydin's [1] framework of organisational innovation.*

they still lag behind in product innovation and technology adoption [59] probably because they also need human and financial resources and market influence to innovate more effectively [59, 60]. However, as Rosenbusch, Brinckmann and Bausch [60] have also argued, excessive resource allocation to an innovation idea without the capability to turn the idea into a viable offering can affect venture performance negatively. Therefore, apart from developing an innovative product or service, a new business venture should take a holistic strategic approach towards innovation orientation – including business modelling [61]. This will lead to an effective allocation of resources, creation of ambitious goals and nurturing of a long-term sustainable innovation culture.

Further, Rosenbusch, Brinckmann and Bausch [60] have argued that innovation orientation adopted by the entrepreneur and a focus on innovation outputs influence innovation. New business ventures with a strong approach towards innovation orientation are able to transform ideas into innovative offerings. Further, Croissan and Apaydin [1] state that knowledge management provides documenting generation of ideas and innovation systems for future reference. The leadership of an organisation can use cultural arrangements to create an enabling environment and encourage taking risks and trying new ideas.

Also, Cooper and colleagues [62] have discussed portfolio management with particular focus on the return on investment and risk. They argue that effective strategic management of resources through careful selection of projects to pursue as well as

foresee what the organisation should look like in the future is a key determinant of innovation. Similarly, Bessant [63] has also discussed project formulation, implementation and management as key determinants of innovation. Formulation should involve modifying or adjusting an idea as well as trying it out first before the actual roll-out. Implementation and management should effectively attend to transforming inputs or ideas into actual innovation deliverables using a variety of tools including problem-solving cycles. Adams and colleagues [64] have discussed commercialisation and marketing to turn innovation activities into commercial value. Though important, this determinant is usually outsourced.

Croissan and Apaydin [1] provide for the self-evident dimensions for measuring innovation processes, which include level, driver, direction, source and locus as well as nature, which is also a dimension for measuring innovation outcomes. The dimensions for measuring innovation outcomes include form, magnitude, referent and type. According to Gopalakrishnan and Damanpour [34], the focus of the magnitude and referent dimensions is the degree of newness or originality of an idea and if adapted, then 'is the change incremental or radical?' It is the latter change that gave rise to the 'disruptive innovation' terminology. The technical typology dimension includes product and process specification, whilst the administrative typology dimension is centred on organisational structure and human resources.

Another important determinant, probably just implied by Crossan and Apaydin [1] if not missing, is technology. Ndabeni [33] points out that technology and, therefore, consumer preference and demand are changing faster than before. Therefore, to sustain new business ventures and remain competitive, small and medium entrepreneurs should adapt their business approaches to embrace technology [65]. For this reason, Ndabeni [33] has argued that only if they can embrace technology, South African small and medium entrepreneurs can generate employment and increase economic endogenous growth – that is, growth in the long run driven by technological factors and knowledge [66].

Much more contextualised, Booyens [5] has proposed six determinants or rather factors that enhance innovation in a firm – that is, (i.) educated or skilled labour workforce; (ii.) creativity, personal attributes and entrepreneurship; (iii.) investment in research and development; (iv.) knowledge systems; (v.) knowledge networks as well as (vi.) public support to private innovation. Obviously, *an educated or skilled labour workforce* is an essential ingredient in innovation efforts because of its potential to generate and improve upon knowledge [5, 67, 68]. Without a doubt, *creativity, personal attributes and entrepreneurship* provide for innovation [5]. This explains the heightened focus on how psychological foundations, skills and knowledge influence innovation [69]. Further, Schumpeter's 1940 theory of business cycles and development is categorical on the role of entrepreneurship in innovation [5, 70].

Booyens [5] states that *investment in research and development* is the backbone of innovation and provides for detailed exploration of solutions to key societal problems. Unfortunately, there is little or ineffective innovation in the South African manufacturing sector largely because of minimal financial and human resource investment in research and development [68]. According to Wolf [71], *knowledge systems* include creating an 'appropriate incentives regime to correct market and institutional failures in capturing technological knowledge and learning, including policy planning for the economy's long-term competitiveness' *p*4. As Booyens [5] points out, this certainly fosters innovation. Similarly, *knowledge networks* amongst producers, creators and users provide for transfer of knowledge, which is an important determinant of innovation because it facilitates information exchange and collaboration.
