Managing Innovation Report

This report examines Airbnb's innovation strategy, focusing on the Diffusion of Innovation theory and Blue Ocean Strategy. It analyzes how Airbnb has successfully implemented these theories to disrupt the hospitality industry, creating a unique and profitable business model. The report also explores Airbnb's future innovation pathways and its potential for continued growth.

MANAGING INNOVATION

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Innovation theory....................................................................................................................1
PART 2............................................................................................................................................6
About Airbnb..........................................................................................................................6
Application of the theories in Airbnb.....................................................................................6
Future innovation pathways...................................................................................................9
Blue ocean strategy.................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Innovation can be defined as a process that includes various activities to uncover new
ways to do things. In modern meaning, innovation is a creative idea, new thoughts, imaginations
in the form of technologies or method. Diffusion is essential in managing the innovation, it
researches examines how ideas are spread among group of peoples. The study aims to
understand how Airbnb manage innovation. The Airbnb is a privately held global company that
operates hospitality service and online marketplace. The report will critical analyse various
innovation theories such as; diffusion of innovation theory and Schumpeter's Theory of
Innovation. The history of innovation in Airbnb, future innovation pathway will also discuss in
the report. Lastly, the report will discuss the business model of the organisation.
PART 1
Innovation theory
Diffusion of innovation theory
This theory of innovation developed by Everett M. Rogers in 1962. It is a procedure by
which an innovation is communicated through certain channels over time among the members of
a social system (Biemans, 2018). It is the theory that state how, why and what rate new
technologies and new ideas spread trough cultures. Innovation can be brought up by changing
the methods of transportation or production, or new product production procedure, or bringing
changes in the industrial organisation, entering into new markets, etc. Innovation doesn't mean to
invent something new rather than it refers to application of commercial techniques such as new
material, technology, methods, tools or even source of energy.
An innovation consist;
 Introduction of a new method of production or sale of product that is not yet experienced
in the branch of Hospitality industry.
 Finding a new source of semi- finished goods or raw material and find out whether this
source already exists or it has to be created. New structure of the organisation such as destruction or creation of monopoly position.
Diffusion and adoption of innovation
Diffusion is a macro process that is concerned with the spread of a new product from its
sources to the consuming people and adoption is a micro process that is concerned with the
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stages through which clients passes when deciding to reject or accept a new product or service
(Talukder, 2016).
There are various stages of adoption in diffusion of innovation;
 Awareness- In this stage the individual is exposed to the innovation but there is lack of
full information about the innovation.
 Interest- After being aware about the innovation, now individual becomes interested in
the new idea and seeks additional information about it.
 Evaluation- the person mentally applies the innovation to his present and anticipated
future situations and then evaluate and decides whether to try it or not.
 Trial- After evaluating and deciding, individual makes full use of the innovation Adoption- If the person being satisfied with the invention, he decides to continue the use
of the innovation.
Rogers' Diffusion of innovation curve
The curve of Rogers describe and classify the adoption of innovation into number of
specific groups (Roger Adoption Curve, 2018). The base of this adoption and innovation curve is
that various individuals are having different behaviours to adoption.
Innovators- They are the person who take the risk to come out with some innovation.
Early Adopters- Persons who take the initiating at very first level to adopt the innovation.
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Illustration 1: Innovation Curve
(Source: Roger Adoption Curve, 2018)

Early Majority- Those are next to adopters in accepting the change.
Late Majority- This kind of population adopts the change and new ideas only after accepted by
the early majority.
Laggards- They are kind of traditional people who cares for old ways and only accept the change
if it becomes tradition and mainstream.
Diffusion process
Innovation
Firm oriented innovation- It treats the newness of a product or services from the perspective of
the organisation who producing or marketing it.
Product oriented innovation- It focuses on the features inherent in the goods itself and on the
effects of the features on consumers (Santacreu, 2015).
Innovation are of following types;
 Continuous innovation- Modification and improvement in an existing product of the
company.
 Dynamically Continuous innovation- This kind of innovation may involve the
alteration of an existing product or creating of a new product, but organisation does not
generally alter the established buying pattern and product use of consumer Discontinuous innovation- under this innovation, organisation do production of entirely
new products that cause consumers to alter their buying behaviour pattern.
Market oriented innovation- Under this innovation, organisation judges the newness of the
products in term of how much exposure customers have on the new product.
Consumer oriented innovation- The newness in the products and services is based on the
perception of customers for the product rather than on physical features or market realities.
Channels of communication
How quickly innovation spread through the market is depends on the channel of
communication (Biemans, 2018). This process make organisation able to create communication
channels that is oriented towards preferences and behaviours of the target category of adopters.
For example; Internet, banner, TV, radio, e-commerce, etc.
Social System
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It refers to the physical, social or cultural environment in which people belong and within
they function. It is of two types; Traditional social system, Modern social system. It may
influence the entire society to reject or accept new product.
Time
It is the backbone of diffusion process that concerned with proper timing of introduction
of innovation into the market.
Stages in Diffusion
Once the innovation has begun to diffuse there will be differing uptakes from customers.
The first group to buy will be the early adopters who are likely to buy the products. The late
adopters will be the last, those who accept it once it has been in the marketplace for a long time
and when it is the accepted norm ( Diffusion Process, 2019). Airbnb have adopted this approach
that could be significant as a benchmark for others.
Start-up
This is the beginning of the stage of innovation. This starts when the product, service or
industry is completely new. It results in dominant design in the market that as not been
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Illustration 2: Diffusion of Innovation
(Source: Diffusion Process, 2019)

established therefore, the competition between various competitors in the market is fierce. Under
this stage most of the resources of the company are spent on R&D.
Take-off
This is the second stage of this is the product and service have been adopted by the early
majority and managed due to the ability to overcome a major technical obstacle or the capability
to satisfy a demand of the market (Knott and Turner, 2019). Hence, the market will be
characterized wit a rapid growth in production and the product will move immediately towards
the acceptance of full marketplace.
Maturity
In this phase the product is adopted almost completely by society and is usually
approaching a physical limit. Most of the resources are spent on improving the production
process and reducing the costs (Kumar and et. al., 2017). Therefore, often times the products at
this phase become completely standardise and the innovation at this stage are considered
incremental.
Discontinuity
In this phase, innovation occurs. The existing products reach an era of maturity and there
is an opportunity for a new product to appeal to the innovators segment in the population
(Larsson and Larsson, 2017).
Advantage and disadvantage of diffusion of innovation
Diffusion of innovation in society is essential as cultural evolution (Santacreu, 2015). It is
important for the organisation as it convince various levels of customers to engage with their
good and services. This theory is in line with various other investment theories regarding
business cycle that is beneficial for the company to understand what actually innovation refers
to. The innovation does not refer to the invention rather it can take place in the form of
commercial application of new technology, change in methods, new resources and new source of
energy (Santacreu, 2015). The theory help businesses to grow by considering consumers need
and develop plans accordingly. According to the Rogers, the curvy process is almost exclusively
the result of the innovation of new ideas and thoughts in the organisation, both commercial and
industrial. The model helps an organisation to understand how a purchaser adopts and engages
with new technologies and products over time.
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There are some downsides and limitations also of diffusion of innovation that decision
makers of the organisation need to consider; It had been analysed that consumers are not a great
risk taker and there are chances of great risk of failure in bringing new ideas to the marketplace.
Under this, organisation do not take culture into consideration that is a disadvantage.
Innovation means the changes in the production and transportation methods of goods of a
new product and operation, expansion in new markets, change in the organisation, etc.
Innovation in organisation is the major reason for increased investment and fluctuation of the
company. Innovation can be in product, process, organisational and marketing (Van Lancker and
et. al., 2016).
Rogers argued that anyone who is seeking profit must be innovative. According to the
theory innovation is considered as an important driver of competitiveness. For instance, internet
has acted as a catalyst for creative destruction (Knott and Turner, 2019). Internet has allowed
organisation to compete in markets outside of their geographic location, reach more customers,
create efficiencies and cut the cost in manual process as well as pioneer new technologies for
doing business.
PART 2
About Airbnb
Airbnb is a global company that operates an online marketplace and hospitality services
and deliver its services through its website and mobile apps. The company was founded in 2008
and headquartered in San Francisco (Kumar and et. al., 2017). Airbnb has been awarded as one
of the most innovative company of 2017-18. The CEO of the company introduced new
experiences and local adventure that expand the market of host based hospitality into tours. They
are mainly engaged with guests, hosts and safety mechanisms. Airbnb currently covers more
than 81000 cities over 191 countries worldwide.
The innovators of Airbnb stated that most of the important innovation of their time were
created almost by accident. The researchers generally use internet to transfer data but they did
not think that the internet would revolutionise the world (Larsson and Larsson, 2017).
Application of the theories in Airbnb
According to Diffusion of innovation theory, Airbnb invent many products and services
under three major parts that is defined in the theory of innovation;
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 Research and Development based competencies
 Employee based competencies- New idea generation, development of knowledge
 Customer based competencies- Improving customer information and enhancing new
feature to improve communication channels
This theory help organisation in understanding various factors that cause uncertainty in
capitalist economy (Santacreu, 2015). It also gave understanding to the entrepreneur of Airbnb
the intensity of the risk involved in innovation as well as estimate invention on Research and
Development. They apply this theory in introducing their new innovation of idea of involving
homes in the accommodation sector.
There are following points that is applied by the organisation in their decision making for
any invention;
 According to the theory, knowledge matters because it represents the experience of
potential customers, the new idea, services. According to this, they are required to market
their new product and services effectively as the more consumers hears or sees about the
ideas, feature, product or technology they are more likely to engage with it (Talukder,
2016).
 Airbnb aims to convey effectively about the product to improve the sale. Under this they
utilise the communication channel to promote innovation in the society.
 They found the potential adopter of the innovative services and products.
For example; They add new feature in their mobile app and communicate this feature with their
social media handle to aware people with the latest feature.
By using the theories, Airbnb created new source of supply for hotel and hospitality
industry that never existed before. The theories enable them to understand what market is
demanding and the level of accepting and rejecting the changes.
Business model Airbnb
Business model refers to an organisation's plan that explains what services and products
are planned by the company to produce and market as well as how they will generate revenues
and profits including what expenses it will incur (Airbnb Business Model, 2018). Airbnb is a
community based two-sided online marketplace that helps connect travellers with local hosts. At
the current time, the company is present in more than 34000 cities across 190 countries. Along
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with it, Airbnb serve more than 35 million customers till date. Airbnb runs their business with
the help of an online platform that connects each component in the model.
Airbnb utilise Aggregator business model. The company does not have linear business
model like chain of traditional hotels. The key resources of the organisation are hosts and
individuals that are connected in various terms that enables it to develop incredibly fast at zero
marginal cost.
Following are the services and products that are delivered to the customers with invention
using the theory historically;
Airbnbmag
Airbnb has a vision to make travellers feel that they belong to the place they visit. The
vision as Dynamically Continuous of diffusion of innovation theory that enable them to add
innovation in their existing service or product, they add also new product to their business
model- Airbnbmag, which is far better than a normal guidebook. The purpose of using the theory
and developing innovation is to enable travellers uncover the place through the eyes of local.
Hosts- Hosts can put up their property for stay and if someone wishes to stay there, the
host get rent in exchange.
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Illustration 3: Business Model of Airbnb
(Source: Airbnb Business Model, 2018)

Travellers- They are the person who book the listed available spaces from local hosts
and can pay through the portal
Photographers- Besides the travellers and hosts, Business model of Airbnb also include
a huge network of freelance photographers in all the major cities of the world.
The channels are;
 Airbnb official website
 Airbnb mobile app
 Social media sites such as; Wechat, Facebook, YouTube
Business model of Airbnb is also termed as collaborative consumption or share economy
where people become both producers and consumers. Overall Airbnb Business model is unique
model that creates an innovative new market space that is beneficial to hosts, travellers as well as
mainstream hotel industry is also adopting the similar model.
Future innovation pathways
The future innovation pathway in the business model of Airbnb mainly focusing on
Cloud manufacturing, environmental monitoring, adding new feature to the real state. The
pathway of future innovation is depends on their long term vision to serve more people in
creative manner that motivate them to more innovation. They are planning to add more
interesting feature in their channels that is responsible for marketing, consumer engagement, etc.
Future innovation pathway approaches seeks to anticipate potential applicants of an emerging
technology by combining data. The business model of the organisation and relating issue is the
future pathway of innovation (Frow and et. al., 2015). It is a description of how the company
create, deliver and capture value. Airbnb is planning to redesign their business model to
accommodate open innovation.
Blue ocean strategy
Blue ocean strategy is the simultaneous chase of differentiation and low cost to open up a
new market space and create new demand. Many organisations think that if they want to succeed
in business then they need to beat the competition in the market. But according to the Blue
Ocean strategy, the entrepreneurs should look for a market where there is no or less competition
so that there is a negligible pricing pressure. Airbnb operates in the market which is
differentiated as it provides bed and breakfast facilities at lower costs. (Knott and Turner, 2019).
This strategy states that innovation is very wide concept that is based on useful and original idea
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that help Airbnb to create value in their products that can appeal to the target mass of buyers.
The future innovation pathway of Airbnb focuses on blue ocean that mention that demand is
created rather than fought over. This strategy expands the boundaries of an existing product
invention. Airbnb takes share in revenue generated in each month. Instead of focusing on
competition they focus on Innovation that is more essential and beneficial for them (Kumar and
et. al., 2017).
Airbnb apply blue ocean strategy in social networking marketplace and room renting and
sharing. The strategy is based on process innovation as the business does not own any properties
but they provide a platform to their consumers and sellers through which they can service each
other. The strategy can be analysed using ERRC grid wherein organisation model eliminated the
hassles of booking rooms, locations, quality of services, costs, etc. By applying the blue ocean
strategy Airbnb able to reduce cost for consumers. The company offers many locations in any
place with innovative experience.
ERRC Grid
Eliminate Raise
 Big name hotel  Visual Design
 Variety of room types
 Social network influence
 Reviews of other guests
Reduce Create
 Price
 Safety
 Quantity of services
 Sense of belonging
 Home stay Accommodation
 Connect with local culture
 Interaction between guests and hosts
CONCLUSION
From the present study it has been evaluated that innovation is the key to success for
Airbnb. Innovation can be of technologies, new ideas, thoughts, changing the procedure of
production and providing services, change in business model, etc. The change is essential in
terms of effectively competing in the marketplace, attracting consumers, increasing sales and
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revenues, etc. Diffusion of innovation theory is used by the organisation in the study that allow
Airbnb to understand the way to introduce invent product to the customers and how to
effectively bring innovation in the products and services. It had been seeks to explain how
innovation are taken up by the population and the adoption and innovation theory is useful in
developing new products.
The study had shown that organisation make changes in their business model and
procedure to utilise innovative feature effectively in order to enhance productivity and profit. It
is important for the innovative organisation's leaders to clearly communicate that innovation is a
strategic imperative. It is essential for the organisation to understand that managing the
innovation is as important as inventing new product and service. The organisation use blue ocean
strategy that allow Airbnb to concentrate on innovation of their business model, products,
services not on the competition.
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REFERENCES
Books and Journals
Biemans, W., 2018. Managing innovation within networks. Routledge.
de Zubielqui, G. C. and et.al., 2016. Managing innovation networks for knowledge mobility and
appropriability: A complexity perspective. Entrepreneurship Research Journal. 6(1).
pp.75-109.
Frow, P. and et.al., 2015. Managing co‐creation design: A strategic approach to
innovation. British Journal of Management. 26(3). pp.463-483.
Knott, A. M. and Turner, S. F., 2019. An Innovation Theory of Headquarters Value in
Multibusiness Firms. Organization Science.
Kumar, V. and et.al., 2017. Managing Innovation and Operations in the 21st Century.
Productivity Press.
Larsson, J. and Larsson, L., 2017. Success factors for managing innovation projects in
production. International Journal of Manufacturing Technology and Management
(IJMTM).
Santacreu, A. M., 2015. Innovation, diffusion, and trade: Theory and measurement. Journal of
Monetary Economics. 75. pp.1-20.
Talukder, M., 2016. Managing innovation adoption: from innovation to implementation.
Routledge.
Van Lancker, J. and et. al., 2016. Managing innovation in the bioeconomy: An open innovation
perspective. Biomass and Bioenergy. 90. pp.60-69.
Vega-Jurado and et.al., 2015. Integrating technology, management and marketing innovation
through open innovation models. Journal of technology management & innovation. 10(4).
pp.85-90.
Online
Airbnb Business Model. 2018. [Online]. Available Through: <https://www.feedough.com/airbnb-
business-model/>.
Diffusion Process. 2019. [Online]. Available Through:
<https://www.sciencedirect.com/topics/computer-science/diffusion-process>.
Roger Adoption Curve. 2018. [Online]. Available Through:
<https://www.kentlai.com/writings/roger-adoption-curve>.
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