ate R & D staffs.INNOVATIONInnovation, a second element of technological change, draws directly on invention. While invention is “first discovery and proof of workability,” innovation is the first successful commercial introduction of a new product, the first use of a new method, or the creation of a new form of business enterprise. Innovation is of two broad types: product innovation, which involves new and improved products or services; and process innovation, which involves new and improved production or distribution methods. Unlike inventions, innovations, such as cannot be patented. Nevertheless, innovation is a major factor in competition since it sometimes enables a firm to “leapfrog” competitors by making their products or processes obsolete. For example, personal computers coupled with software for word processing unceremoniously pushed some typewriter manufacturers into relative obscurity.But innovation need not destroy existing firms. Aware that new products and processes can threaten their survival, existing firms have a powerful incentive to engage continuously in R & D of their own. Innovative new products and processes often enable these firms to maintain or increase their profit. The introduction of aluminum cans by Reynolds, disposable contact lenses by Johnson & Johnson, and scientific calculators by Hewlett-Packard are good examples. Thus, innovation can either diminish or strengthen existing market power. DIFFUSIONThe spread of an innovation through imitation or copying is known as diffusion. To take advantage of new profit opportunities or slow the erosion of their profit, new and existing firms emulate the successful innovations of others. Years ago McDonald’s successfully introduced the fast-food hamburgers; Burger King, Wendy’s, and other firms soon copied that idea. Chrysler Corporation profitably introduced a luxury version of its Jeep Grand Cherokee; others manufacturer...
