Managing Innovation: Theory Application and Case Study Report

This report provides an in-depth analysis of innovation theories, specifically disruptive and architectural innovation, and their application in a real-world context using Spotify as a case study. The report begins with definitions of key innovation concepts and then evaluates the theories, outlining their principles and processes. It then explores the historical development of Spotify, detailing its business model and how it has applied innovation to gain a competitive advantage. The report also considers the future development context, speculating on how Spotify might continue to leverage innovation to maintain its market position. The report concludes with a summary of the findings and a discussion of the benefits and limitations of the innovation theories, making it a valuable resource for understanding innovation in the digital media landscape. The report also includes a detailed analysis of Spotify's business model, its application of freemium models, and its strategies for customer engagement and growth.

Managing innovation report

Table of Contents
INTRODUCTION...........................................................................................................................3
DEFINITION ..................................................................................................................................3
Evaluation of the theory...............................................................................................................5
Application of the innovation theory in the historical development context. .............................6
Application of innovation theory in the future development context..........................................8
CONCLUSION ...............................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Innovation means which apply new ideas and creativity which are useful for the company. It
also means that when the company launches new products in the market which help the company
in increasing their market share. Innovation is done by proper research and development. There
are various types of innovation like product, marketing, process, organizational innovation.
Disruptive innovation means when the small company which have limited resources challenge
the establish business of the market. In this the established company do not focus on the new
company, but they focus on their profits. All the innovation cannot be called as the disruptive
innovation. Architectural innovation means in which company arrange the components into the
new architecture to get the high level of performance. Desktop photocopiers is the example of
architectural innovation. Spotify is the media service providing company. The company offer
music and podcasts company also give additional feature with paid subscription like offline
listening etc.
DEFINITION
Disruptive theory is a procedure through which a micro company, who is having less resources,
is able to give threat to well established business by coming at the bottom of the market and
continuing to move up market.
Process of disruptive innovation theory
Development of ideas for new business
Development of new ideas is the initial stage of disruptive theory. In most companies research
and development has the responsibility for new innovations, R&D department identify the new
features of the product to give threat to their competitor, after knowing the needs of customers
companies can get relevant ideas to enter in the market.
Incubation: validation of new ideas
In this process company identifies whether the idea meets the market test or not, do the
customers accept the new product or not? Whether people like it or not? Will it get succeed or
not in the market? Through this process company get to know who are their target customers and
who are not.
Scaling: growing the new venture

In this stage the idea get passed and it takes a form of new venture. But company faces the issue
of scaling. For new business it's difficult to get success at scaling, because a new venture has to
add new customers and to capture the market so that they can give tough competition to others.
Principles of disruption
Companies rely on customer and investors
Company always depends on its potential customers and investors for funds. Good customers
don't want cheap & low quality product. They want the best quality as they pay for it. Because
company depends on the customer for profit, they have to give best to its customers.
Market don't survive, hard to inspect
Everyone knows that market is evolving but it is hard to say that for how long market will
survive. The planning tools don't work in disruptive technologies.
Technology supply cannot equal to market demand
Companies compete firmly to achieve high-margin profit. They try to give better product to the
existing customers without realizing that they are breaking the needs of general market and they
are not leaving any space for lower-cost technologies to enter in the market.
Do the opposite
Doing the opposite can help the company in increasing the market share. Company should come
out from the comfort level and should do intrinsic research so that they can launch innovative
products in the market. If company do different then it will attract the crowd because nowadays
consumers want something different.
Aim beyond
Company should aim beyond the expectations. Company should not let their past or future stop
in taking any decisions. company have the data they should take help from the research to gain
knowledge of the market and then come with the plan which can help in gaining success in the
future.
Imagine the possibilities
Company have imagined possibilities in the innovative ideas. They should have to keep faith in
the innovation. As innovation is the risky thing but if it became successful then can help the
company to achieve the objective. Company should also motivate their teams in such a way that
they help the company in making profits.
Reject limits

Company should not do operations with the fixed limit or with the fixed products. They should
push themselves if company want to beat the competition. For the long time survival innovation
is must.
Architectural innovation theory:
Definition
Architectural innovation theory defines the assortment of existing technologies in an improvised
form so that company can relaunch in the market.
Principles of architectural innovation theory
Launching into new market with existing technology
This approach works on improvisation only. Any company who wants to launch in the market
with available technology the only way to get succeed is improvisation. Company can improvise
its old technology to compete with the competitors. With the help of improvised technology
company can win the heart of its existing as well as new customers. This technique will help the
company to reach at the margin profit.
Mitigation of risk
In this technology company has very low chances of meeting risk because company already has
customer base in the market. People know the name and fame of the company. If company again
relaunch its technology in an improvised form customer do like it and it helps the company to
expand the customer base as well as market capitalisation.
To attain the requirement of new market
As the technologies are increasing, market is also getting new products every day. So it becomes
necessary for the old company to provide new and improvised form of products and technologies
to its existing customers so that they don't switch to others.
Become noticeable
Company should launch their products in the new market in such a way that they are noticeable
because if people notice the company then only they will buy product from them. If they will not
notice, then how can people buy innovative products from them.
Process of architectural innovation theory

Determine the rules of governance
In this process company try to determine the rules for accounting and responsibilities so that it
does not affect its customer base. Company plan to set the new rules and processes as well.
Defining lead innovation process
In this process company try to bring improvement in its old technology to compete with its
competitors. With the help of this process company try to touch the competitive edge.
Evaluation of the theory
Disruptive innovation theory:
in this theory market is the old only but launching new or innovative products. Disruptive
innovation gives the opportunity to grow the company.
Benefits of theory:
Disruptive innovation helps in growth of the company. It is beneficial for the consumers as well
as for the competitors because in this, company provide cheap and better products in the market.
Start-ups and small companies get benefit from that to compete with other big companies by
making the new market segment. Copyright and patent can also be done of the new ideas.
Company gets many benefits of the Disruptive innovation. Company can generate new ideas by
taking the feedback from the employees and from the customers. Young fresh talented
employees can give many creative ideas to the company and consumer can also tell the company
that what is their preferences (Christensen and et.al., 2018).
Limitations of the theory:
Disruptive innovation needs a different strategy process. This theory can create unnecessary
problems or issues. To understand what is the need of the market is not an easy task. It requires
proper research and every time research is a complex and time-consuming process. Research also
demand high expense. In this business cannot achieve good profit in short period. If company
want to earn profit then they have to wait for the long period. Venture capitalists can also create
problems in that.
Architectural innovation theory:
In this innovative theory market is new but the technology or product will be the same.
Benefits of theory:
In this theory company can get the advantage of the existing technology because already trying
and testing is done in the existing market. So when entering the new market can be the benefit. In

this, company charge high prices of their innovative products before competitor also launched
that product in the market. When the company launch the innovative product then it will improve
the brand value of the company. When innovative products launched in new market then it has
power to attract many customers (McDowall, 2018).
Limitations of the theory:
it is the expensive and time-consuming process. And also the complex process. If new market
will not accept the innovative products, then it will cause wastage of the resources of the
company. Sometimes it causes heavy loss. If company will manufacture new products and not on
the reasonable price but at the high price, then there are chance that fewer people will buy and
company can even not get the return on investment. If the new market does not accept the
product, then it can hurt the reputation of the company.
Application of the innovation theory in the historical development context.
Company background – Spotify is a digital audio and music streaming service provider which
has its headquarters in Sweden. It provides access to millions of songs which are totally free only
the customer has to sign up using their email address. This platform connects the artists with the
fan The source of making income by Spotify is through premium accounts and advertising. It is
a Swedish based company which is known to provide the basic music streaming service free of
charge. It also provide a feature of offline listening and commercial free listening and the
customer can search music based upon different artist, album or genre (Voigt, Buliga. and Michl,
2017). There are certain principle partners of Spotify which are employees, users, the creative
community, brands and investors. Spotify is based on freemium based business model which is
the combination of free service which are ad supported and a premium subscription based
service. The basic service are free but the additional features and services are based on paid
subscriptions. The company makes most of the revenue from the subscription. All age groups are
included in their customer segment. They also use package strategy to serve the interest of
different segment. They focus on growth through new user business model by innovations. The
freemium business model allows the customers to use basic software services for free and pay
charges for the upgraded services and additional features (Holm. and Günzel-Jensen, 2017). This
is a new business model being introduced to drive trail which further leads to recurring revenue
and profit growth. The business model canvas includes value proposition of Spotify which is
subscription based streaming music service. It is a tool which describe the business idea and

concept of the company. It gives convenience to the customers by not downloading the files and
clogging up the memory of the phone when listening to music and also they provided addition
feature of adding up new songs and podcasts constantly which are new released in the market so
that customers do not have to buy music. The business model is diversified and their improved
internet connectivity for uninterrupted music is the key for their popularity. It also gives personal
touch to the customer experience. There are various channels through which they reach out
customers by their website Spotify.com, can also connect to external devices like speakers, smart
watches and tabs. Even the customer can play it on TV. Lets the whole family enjoy the music
under one payment. It also notifies events to the customers which they like around them. They
maintain customer relationship through online an offline streaming, HD sound quality, provide
user friendly and automated app (Ojasalo. and Ojasalo, 2018).
Historical background – The idea of streaming music popped up in the minds of Daniel and
Martin when the people were buying music CDs in bulk or indulging in illegal downloading of
music album. They developed this platform in response of growing piracy problem. They
adopted the streaming access model which helped to reverse their declining revenue. As it started
growing they focused on adding value to the customer music taste and adding new artists in their
music ecosystem. They afterwards entered a new phase after offering their IPO and entered into
the growth stage. They decided to expand their customer base through expanding into the new
markets and achieving profitability by the same. They adopted go-to market strategy which
enabled the company to capture organic customers. They also drive into social platforms to
expand their distribution networks (Rietveld, 2018). They also circulated news of Lady Gaga's
new song streamed million of times on Spotify. This gave Spotify a boost and in further years
they also released desktop music manager. Spotify also partnered with Coca-cola for marketing
purpose which helps them in generating new source of income. The innovation theory in
development of Spotify can be architectural and disruptive. Architectural innovation is taking the
existing technology and services reconfiguring it into the new market (Park, Ro. and Kim,
2018). It is improvement in services and advanced features and launching into the new market.
When the objective is to capture new users and the risk is also low in this type of innovation
theory as the technology is also successful and proven in the existing market. Spotify can also
adopt disruptive innovation theory also known as stealth innovation in which new technology is
applied to the current users.

Application of innovation theory in the future development context
The future development of Spotify is to add 2-7 million premium subscribers and total of
328-348 million monthly active users in the coming time. Spotify is going for architectural
innovation theory as they are planning to expand their user base but the core value and
component remains the same. This innovation theory worked good in increasing the users as
long as the market is receptive. Also going for disruptive innovation theory as they are planning
to add new artists and technologies for their existing users. As according to this theory Spotify
can apply new technologies to their existing users and subscribers. They are hiring people to
work on their hardware projects as they are investing into new innovations by launching their
own voice-activated home entertainment devices. They are also planning to become a content
owner in which they will be signing artists and their records directly. This will give Spotify a
right to give license to their rivals and gives an extra edge over others. Spotify also sees an
opportunity in podcasts and decides to increase their episodes of podcasts which is a disruptive
innovation which means they are enhancing the podcasts library and they are also planning to
include licensed music in their podcasts (Vecchiato, 2017). They are focusing on making the
music more affordable, convenient and legal to listen. Their future plans also included partnering
with other big brands. The company is also planning to increase the prices to earn greater
revenues. It focuses more on growth than margins as number of creators are hiking up and
engaging with the platform. It also focuses on discovering new artists as it leads to more music
consumption. They are also planning to introduce a duo premium payment plan in which people
living under one roof can take benefit of this plan. The company believes that making the user
experience greater and treating it as a priority can help in their success rates. Also helping the
customers finding their type of podcasts and music is also key to attract customers. The
discovery option can enhance their user experience. Taking the first mover advantage which
means Spotify may be first to release new albums and take the license for the same. This can act
as a unique approach as people will be assured that latest albums or music released will be
provided to premium subscribers of Spotify this will increase the number of subscriptions. This
will also increase the rate of sharing the recommendation by the users to their family, friends etc.
Some creative ideas for Spotify can be to sell concert tickets at discount to their premium
subscribers. They can also use the analytics to engage their customers like pooping songs on
their birthdays. They can also request influencers to include their name in their blogs and vlogs

this will be a great marketing technique to boost Spotify. They can also enhance their website
and can include news related to music or news related to people who are into this field. They can
also release their own talk shows and introduce new and young artist will are not getting
platform all this will add on to their network and popularity. Spotify can also include a
recommend or dedicate song option to the users with their loved ones this will help the app to go
viral and also users will recommend more and more to people and also they will feel a
connection with Spotify.
CONCLUSION
It can be concluded that innovation is adding something new to the product or service or
adding some value to the existing one. There are various types of innovation theory but the
theory best for Spotify are architectural innovation and disruptive innovation. Also their benefit
and limitation are specified in detail. Spotify is a music streaming service provider and follows a
freemium based business model which has two components which is free for basic music and
services and paid for additional ones. The business model canvas consist of value propositions,
customer relations of Spotify. There are many innovations and developments that Spotify has
done through years and also theory of architectural and disruptive innovation has contributed in
development of it. Also future plans of Spotify were identified such as company is also planning
to increase the prices to earn greater revenues, to invest in podcasts and decides to increase their
episodes of podcasts and discussed and also some creative ideas were suggested.

REFERENCES
Books and journals
Bondarenko, I.A., 2020, September. On the Traditional Attitude Towards Architectural
Innovation. In The 2nd International Conference on Architecture: Heritage,
Traditions and Innovations (AHTI 2020) (pp. 18-23). Atlantis Press.
Christensen, C.M. and et.al., 2018. Disruptive innovation: An intellectual history and directions
for future research. Journal of Management Studies. 55(7). pp.1043-1078.
Galunic, D.C. and Eisenhardt, K.M., 2001. Architectural innovation and modular corporate
forms. Academy of Management journal. 44(6). Pp.1229-1249.
Holm, A.B. and Günzel-Jensen, F., 2017. Succeeding with freemium: strategies for
implementation. Journal of Business Strategy.
McDowall, W., 2018. Disruptive innovation and energy transitions: Is Christensen’s theory
helpful?. Energy Research & Social Science.37. pp.243-246.
Ojasalo, J. and Ojasalo, K., 2018. Service logic business model canvas. Journal of research in
marketing and entrepreneurship.
Park, W.Y., Ro, Y.K. and Kim, N., 2018. Architectural innovation and the emergence of a
dominant design: The effects of strategic sourcing on performance. Research
Policy. 47(1). pp.326-341.
Rietveld, J., 2018. Creating and capturing value from freemium business models: A demand‐side
perspective. Strategic Entrepreneurship Journal. 12(2). pp.171-193.
Vecchiato, R., 2017. Disruptive innovation, managerial cognition, and technology competition
outcomes. Technological Forecasting and Social Change. 116. pp.116-128.
Voigt, K.I., Buliga, O. and Michl, K., 2017. Passion for Music: The Case of Spotify. In Business
Model Pioneers (pp. 143-155). Springer, Cham.
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