Managing Innovation at Made.com: A Schumpeterian Analysis

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MANAGING INNOVATION ASSESSMENT
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Table of Contents
Introduction......................................................................................................................................2
Background of the company............................................................................................................2
Innovation theory.............................................................................................................................2
Historical development of the product of the company by using the innovation theory.................4
Possible future development pathways of the product of the company’s products or services......6
Contributing factors of this company in the commercial success of the products of the company 8
Social impact of the innovative products of the company...............................................................9
Conclusion.......................................................................................................................................9
Reference List................................................................................................................................10
Appendix:......................................................................................................................................12
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Introduction
The present study will carry out an in-depth analysis of an innovative organization. The
organization, which has been selected for the present study is Made.com, which is a very well
known designer furniture and home ware company of the United Kingdom. Innovation is a
process to make an idea which makes value of a product or service (Kerber, 2017). Innovation
management is the combined process by which the organizations relate the innovative ideas with
the other aspects of companies. In this present context, the theory of innovation of Schumpeter
will be described. Moreover, the process by which the mentioned company applies this theory to
develop their existing products is explained in this study. The development pathways of the
future products of this organization by applying the theory of innovation have also been
described. Lastly, the contributing factors in the commercial success of the products of this
company and the social impacts of the innovation theory with respect to the concerned company
have been explained as well.
Background of the company
Made.com is a renowned brand of United Kingdom. Ning Li, Julien Callede and Chloe
Macintosh established this company in March 2010. Its headquarters is in London. It expanded
its branches in various other European countries. The company deals with various kinds of
designer furnitures and home appliances such as beds, sofas, dining tables etc. The vision and
mission of this company is to serve the customers anti ordinary products (Made.com, 2019). The
company researches about the present trends of designs and always involves changing the style
of their design.
Innovation theory
Schumpter’s theory of innovation
In the present context, Schumpeter’s theory of innovation will be used. It is used in the business
cycle of several organizations. It is very helpful to business operations as it helps to provide the
adequate capital to the business and it also helps to increase profitability of the companies
(Fritsch, 2017). The chosen organization Made.com use this to develop the new products as it
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focuses on the changes of the investment plans which are accompanied by the monetary
expansion and this monetary expansion is one of the major factors of the fluctuation process in
the business operations (Aghion et al., 2015). The theory of Schumpeter posits the innovation
process of business and this innovation process helps to increase the investments and reduce the
fluctuations of the business operations (Witell et al., 2016).
In this theory, the cyclic processes are described, which are the main result of various
commercial and industrial factors of the business organizations. The innovation process includes
creation of new services, products and methods of transportation and productions (Knell, 2015).
It is extremely essential to note in this context that the theory does not involves any kind of new
invention but it supports various commercial applications such as new and fresh sources,
methods, technology and materials.
The model of Schumpeter comprises of two different stages to innovate the business cycle
namely, the first approximation and second approximation. The first stage helps to emphasize on
the primary impacts of the innovative ideas of business operations and the second stage of this
model helps to identify all subsequent responses that are obtained from various applications of
the innovative ideas (Piperopoulos, 2016).
First Approximation:
In this stage, the business cycle starts with an economical system, which is in equilibrium. In this
stage, the marginal revenue is similar to the marginal cost and the price is also equal to the
average cost. In this economical status that is in equilibrium, if the organization intends to launch
a new process of production or to launch a new product or services then the company needs the
help of bank credit. However, in the economic status that is in equilibrium, it is not possible for
the companies to take bank credit. In this situation, the business organizations have to raise the
price of the products. The companies also use innovative ideas to raise additional funds for the
companies (Coccia, 2018).
However, in a particular level, the increase of the price of products causes the reduction of
profitability of the companies. In this particular point, the companies have to pay back all the
credits of bank by the profits of that time while the price of product was increased. After that the
business operation has to launch new innovative ideas to change the production process or to
launch some new products and services (Rahdari et al., 2016).
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Second Approximation
This stage identifies the results of the first approximation. The main aspect of this second stage is
speculation. In this process, the customers of the business organizations also want that the
product price increased. If the product price is increased the business operation goes to debt in
the future and the business organizations can acquire durable goods to the consumers in low
price (Howaldt et al., 2016). The heavily indebtedness of the product price causes the fall of the
price at the last point. It is very difficult to the customers and investors to meet the obligations. In
this situation, the companies face extreme difficulties for its survival in the competitive market
(Bloch, 2017).
Historical development of the product of the company by using the innovation theory
Made.com mainly dealt with several home appliances when it started its business. After that, the
organization started to sale various other products such as LED glass dinner pendant, 12 piece
dinner set, Luciano corner sofa and and 4 seat corner sofa (Made.com, 2019). The company
faced some issues while they launched the Luciano corner sofa. It needed more capital and fund
to launch the product.
The company applied the Schumpeter’s theory of innovation when they launched their products.
The company followed two stages of this theory to collect the capital of the Luciano corner
sofas. There are many other companies who already launched those same products. Therefore,
the company has to face severe competition in the market. They had to invest more money to
manufacture and launch new product
Schumpeter’s theory of innovation
First Approximation
In this particular stage, the company first studied the market of the Luciana Corner sofa. They
had identified the market competition as other leading brands deals with same product. Therefore
the marketing experts of the company understood that the company had to invest more capital to
launch this product. This extra investment is used by the company to adopt the advance
technology. The company had to add many other features in the product to make the product
different and trendy. This was the only way to attract the customers to their products.
The company had to take loans from the banks to raise the fund and it also used some personal
loans from the investors. The company used the Schumpeter’s model of innovation in that
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particular situation. The company increased the price of the existing products as it was very
popular among the consumers. While the product price was increased, the consumer still
purchased the products in high price. This increasing price helped the company to earn more
profit than before. The company used that extra profit to return the debt of the banks and the
investors. In this way, the company launched Luciana Corner sofa in the previous days.
The company used the debt amount to improve the technological supports. It helped the
company to produce better quality Luciana Corner sofa. Quality was a very significant aspect for
the development of that product. The customers were attracted to the corner sofa for its quality
and trendiness.
Second Approximation:
As per the theory of Schumpeter, the second approximation deals with all the results those are
created by the first stage of this model (Schumpeter, 2017). While in the previous time,
Made.com tried to launch the Luciana Corner sofa, the company used first approximation stage
of this theory to collect adequate capital. The company used speculation stage in case of second
approximation. It identified all the results of the first approximation. It identified that, their share
price was fallen due to increase in the price of the product. Moreover, the company also
identified that the customers were distracted from the company’s product for high price. The
customers went to the other companies who provide the existing products in lower price.
Along with that, some positive impacts were also shown by the company. The new product
became popular among the customers. The company gained more profit with help of the new
product. Therefore, the marketing experts of the company took decision to provide the existing
products such as dining tables, front sofas, and tea tables in a reasonable price and increase the
quality of the new products that were meant to be launched during that time.
The company also tried hard to repay all the bank credits and loans of the investors with help of
that extra profit. In this way, the company developed the Luciana Corner sofa and launched it in
the market. Now, it is one of the best selling products of this company. The company earns
0.25% of the annual profit by selling the corner sofas (Made.com, 2019). In the present time, the
company also launched various new varieties of corner sofas such as high back corner sofa, matt
finish corner sofa, and corner sofa for 3 persons and many others. Therefore, the Schumpeter’s
theory of innovation helped the company to develop new products in the previous time.
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However, it is a fact, that in the last stage of this model, the profitability was decreased at a point
while the customers go to the other brands that provide the same product in lower price.
Possible future development pathways of the product of the company’s products or services
The business leaders of this company are willing to launch some new and unique products by
which the profitability of this company can be increased in future. The market researcher of this
company has studied the market and found some new facts about the company and the customers
of this company. It has been found that the company earns a huge amount of money by selling
the furniture. However, as per the present trends, the customers like to furnish their rooms with
the matching furniture such as dining table, bed, wardrobe, centre table, chairs and sofas
(Batabyal and Beladi, 2016). They like to decorate their drawing rooms, bed rooms or dining
rooms with same kinds of furnishing products, which are of similar color and design. For
instance, same color and same design furniture, beds, and chairs. Therefore, the business leaders
of the company have made a decision to manufacture and sell matching furniture. The marketing
experts forecast that the company can gain more profit with help of these new products.
The company is willing to apply Schumpeter’s theory of innovation to launch new products in
future. Therefore, the company will consider the two stages of the mentioned theoretical model.
Schumpeter’s theory of innovation
First approximation
In this stage, the company will be in a equilibrium situation. The company has to invest all the
capitals to develop and manufacture the existing products. On the other hand, the company will
need more capital to manufacture new products. The company has to increase the technological
support. Only the advance machines and technology can design those new products. Therefore,
the technological costs, manufacturing costs, maintaining cost and energy cost will increase in
future. The company has to collect a huge amount of capital.
The company has to take loans from the banks and investors in benefit of the company’s good
will in the market. It will help the company to raise the funds and capitals. However, the
company has to pay huge amount of interests on the credits and it will aim to repay all the loans
and debts with five years. Therefore, the company applies the first stage of the model and
increases the price of the existing products. In the previous time, the company faced some
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problem as then the company just started up the business. However, in present time the company
may not face that much of problems as now it gained popularity. Therefore, the company can
easily increase the product price. In the primary stage of this model, the company can earn more
profit and use it to provide the interest cost of the loans and debt of the banks and investors.
With help of the capitals and investment money of the investors, the company can adopt advance
mechanism. The advance machines are very significant for the new products (Carroll and
Helfert, 2015). The company has to gain the faith of the customers by providing them better
quality products. It also invests much to train the employees. The manufacturing process of the
new products needs more advance skills of the employees. In the present time, promotion and
advertising is a very important part of marketing. It helps to gain popularity in new markets with
new products. Now, the company spends 2.35% of the annual profit in the promotional
campaigns and after launching new products, the company has to spend more money in the
promotional activities (Made.com, 2019).
Second Approximation
In the second stage, the company will examine all the results of the first approximation. There
are some very common results that can happen after raising the product price of existing
products. Now, the total revenue of this company is 25.13 billion US dollar.
However, after launching new products in the market, the annual profitability of the company
will increase in two ways such as: the increasing price of the existing products and the profit
from the new products. However, the company has to use this more profit very carefully as the
company has to pay the interests to the bank and the investors along with that the company will
pay all the credits within next 5 years. In this way, the company can maintain the manufacturing
cost of the new products. There are some negative impacts may happen on the company if they
apply Schumpeter’s theory in the launching of new products (Dunne et al., 2016). In the first
phase of this model, the company will increase the price of the existing products. Though this is
a very popular and trustworthy company, there are many other leading brands who deal with
home appliances. Therefore, the customers may get attracted to the other companies who will
provide the furniture in lower prices (Ferreira et al., 2017). Thus, the marketing experts have to
be conscious about the customer’s purchasing decision. In this way, the company can launch the
new product in a logical manner. It will also help the company to gain business success.
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Contributing factors of this company in the commercial success of the products of the
company
There are several contributing factors that help the company to gain the successes both
commercially and industrially such as financial factor, marketing aspect, operations,
development process of the people and strategic focus of the company (Brannon and Wiklund,
2016).
In the business organizations, the commercial success is measured by the patent products of the
company. Some key factors are there which have to be completed by the company and only then
the company can be considered as a commercially successful organization. The key factors of the
commercial success are client management process, risk management process, billing the
customers and marketing the existing and new products.
In the present era, Made.com follows innovation theory in the strategic focus and marketing
factor to gain commercial success.
Strategic focus
The marketing experts of the company focus on the marketing strategy while developing any
new products. They follow the innovation model of Schumpeter and make strategy on the price
of the existing product. They increase the price of existing products to collect adequate capital
for new launching product. In this way, the company gains more profitability that helps in the
adoption process of new technology, people’s training and development process.
Marketing Factor
The company also follows innovative theory on the marketing factors. The marketing department
is very significant for the business operation of the corporate organization. Made.com spends
more money to promote new products to gain expected commercial success. The marketing
experts advise the quality department to increase the product quality. It increases the customer’s
satisfaction. In the other hand, the company earns more money by applying the first
approximation of the theory and spends more percentage of the profit to promote the new
products. The marketing team uses various promotional techniques such as TV commercials,
social media platform, phone calls, and online campaigns.
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Social impact of the innovative products of the company
The application of the innovation theory in the business process influences the social factors such
as social economy and development of population. The innovative model includes the increasing
of company’s capital and profitability and technological advancement (Carayannis et al., 2017).
Socio-Economy
While Made.com’s profitability and capital increased according to the innovative theory, the
company will pay more as the income tax, sale tax and other various taxes. Government of the
country can use the currency for the nation and society. In this way, the socio-economic status of
the country will enrich by this process.
Development of People
While Made.com use advance technology in the work process according to innovative theory.
Therefore, the company has to provide proper training to the employees of the company. That
training process will increase the professional skill of the people. The people will become more
efficient and able to use updated devices and machines. The population of the society can be
developed and improved their professional skills with help of it.
Conclusion
It can be concluded in this present context that the business organizations use Schumpeter’s
innovation theory while the company wants to launch a new product. Made.com is a popular
company and the company also uses this theory in their development in previous time while
launching new products. The company will also use this theory in future. There are some
negative impacts of the theory on the organizations but it is a fact that the company can gain
commercial success with help of it. Some social impacts of this innovative process had been also
described in this context.
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