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The human civilization links to innovative activities, which have been reflected in all aspects of culture, society and science. However, the concept of innovation has just been studied systematically and scientifically since the early decades of the 20^th century.

The economist, Schumpeter is probably the pioneer, who firstly built the ground for discussion and theories on innovation. In his first theory that has been well known as

“Schumpeter Mark I”, Schumpeter (1934) provided that innovation is a combination of new or existing knowledge, resources, equipments, processes or market. Most often, the combination has been initiated by entrepreneurs. Therefore, in this theory the role of entrepreneur is very important for the development of innovation. This theory has attracted scholars in different fields, as the result, thousands of researches on innovation have been published in different journals. Amongst them, Damanpour and Evan (1984) thought that an innovation is reactions of firms to changes in the business environment.

Whilst, Dosi (1988) expressed that innovation is a process of exploring and learning new product, process and organization. Although, there have been different definitions and thoughts about innovation, the principle can be understood as: “Innovation is creating something new and implementing it successfully at a market.” (Brown and Ulijn, 2004).

In brief, most of scholars have consented in their researches that new product or process has been stemmed from the process of transforming new ideas to new products to be commercializing or new processes to be implementing vastly in markets.

Sometimes, the definition of innovation and invention can be confused. However, Fagerberg (2007) has distinguished the two definitions separately and an invention is understood simply as a new idea for a new product or process, where as innovation is the occurrence of a new product or process in the market. More specifically, Dunphy et al.

(1996) expressed that invention could be stemmed from new ideas rising from existing or new technologies. The process to turn an invention into innovation needs knowledge, capacity, skills, infrastructure, market, distribution system and financial capacity.

Looking at different view, product innovation or process innovation is the added value of invention (Dunphy, 1996).

The increasing amount of scientific papers on innovation crossing different fields indicates the interest of scholars over the world on innovation, so categorization of

innovation will help to better understand the nature of innovation and factors that influence new products or processes. The gained knowledge will help to ensure the success of the new product or process on the market. In accordance to the Schumpeter I and Schumpeter II, innovation is categorized into radical innovation and incremental innovation. Radical innovation is understood as basic change and not relying on any existing technology, while incremental innovation is relied on an existing technology with an aim to improve the efficiency or functionality of the product or process. Looking at the aspect of continuity and inheritance, radical innovation does not have these characteristic, while these two attributes are important for incremental innovation.

In the view of an entrepreneur, Schumpeter (1934) clarified these types of innovation into five sub-types of innovation, as the bellow:

1. introduction of a new product or a qualitative change in an existing product;

2. process innovation new to an industry;

3. the opening of a new market;

4. development of new sources of supply for raw materials or other inputs;

5. changes in industrial organization

After the attempt of Schumpeter, many scholars have tried to redefine and classify innovation in different ways. Amongst them, Kline and Rosenberg (1986), Trott (1988) and Bell and Pavitt (1993) mentioned that innovation was the general term for any of product innovation, process innovation, organizational innovation, production innovation, commercial/marketing innovation, service innovation or all of them. Furthermore, Damanpour (1991) classified innovation into two major classes: technical innovation and administrative innovation. Technical innovation was then defined as a type of innovation, which is the super set of product innovation, process innovation and service innovation, whereas administrative innovation comprises any of a new procedure, a new policy, and a new organizational form. Trott (1998) categorized innovation even further, so innovation can be any type of product innovation, process innovation, organizational innovation, production innovation, commercial/marketing innovation or service innovation. In a more open thought, (Fagerberg et al., 2004).suggested that innovation does not need to be new globally, it can be new locally as long as it is fitted to the local context.

In different approach, not only do Henderson and Clark (1990) look at the ways how components of a product or a process are built, but also how they are integrated.

According to the author, if innovation is only classified into the radical innovation and incremental innovation that will be hard to explain some unsuccessful innovations, even though they are considered obvious. Xerox can be an example that illustrates the above argument, as Xerox can be proud of the technical leadership in producing Photocopy machines. However, it was not successful in developing mini photocopy machines. So, the author has classified innovation into four types (see figure 2.1): radical innovation;

incremental innovation; modular innovation; architecture innovation. Amongst them, radical innovation is understood as a kind of innovation, not only does that influence very much on the knowledge of building components of a new product or a new process, but it also provides a new way of linking modules together. In another extreme, the incremental innovation does not require much change in the knowledge of creating and linking the modules. On the other hand, the modular innovation does not ask for much change in the knowledge of linking modules, but it requires much change in the knowledge of creating the module. In opposite, the architecture innovation focus more on the link between modules, but it relaxes on the knowledge of creating the module.

Figure 2.1: Henderson and Clark innovation model

Source: Henderson and Clark (1990)

Technology innovation plays an important role in leverage the productivity, alleviation the hazard, improvement of work safety, environmental protection and raising the quality of life. A recent research of Lee (2010) emphasized that technical innovation

High impact on architectural knowledge

Low impact on architectural knowledge

Low impact on component knowledge

High impact on component knowledge Radical

Innovation

Incremental Innovation

Modular Innovation Architectural

Innovation

brings economic benefits more than any other investment that pours into the company’s operation. Furthermore, technology innovation often comes with patents, which can be used to indirectly measure the innovativeness of firms. Therefore, in this research context, we concentrate on innovation process to identify the factors that influence firms’

innovation.