Managing Innovation: A Case Study on Spotify's Strategies

This report provides a comprehensive analysis of Spotify's innovation strategies, focusing on the application of Frugal Innovation Theory. It begins with an introduction to innovation and its importance, followed by an overview of the theory itself. The report then examines Spotify's historical development, highlighting how the company has applied frugal innovation to its services, such as music streaming, podcasts, and personalized playlists. The analysis includes the benefits and limitations of the theory, along with specific examples of how Spotify has implemented it, such as cost-effective improvements and features that attract customers. Furthermore, the report explores the future applications of frugal innovation in Spotify, discussing how the company can continue to leverage this approach to maintain its competitive edge in the dynamic music industry. Overall, the report provides insights into how Spotify uses innovation and strategic planning to stay ahead in the competitive market. The report delves into principles of innovation, problem-solving, system-based innovation, the role of passion, effective communication, and the encouragement of comparison. The analysis also covers the benefits and limitations of frugal innovation, with a focus on how Spotify adapts its strategies to changing market trends and customer preferences, ensuring its continued growth and success.

Managing Innovation

Table of Contents
INTRODUCTION ..........................................................................................................................3
What is innovation......................................................................................................................3
Theory of innovation...................................................................................................................5
Application of Frugal Innovation Theory in Spotify in the context of historical development..6
Application of Frugal Innovation Theory in Spotify in the context of Future............................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
Books and journals....................................................................................................................11

INTRODUCTION
The world is dynamic and to compete today it is important to regularly innovate and
make changes in the products and services so as to compete in the market. Innovation is a
ongoing process and needs to be used by companies. To grow and make profits along with
creating a good image in the market and that helps to attract more customers. It is important to
know about the current market trends and then make development and innovation in the product
and service offered. With new innovative ideas the business is able to become successful and
also contributes to growth of the economy. Innovation is a process that helps the company to
make research and know about the needs and development that customers and provided them
updated product. Spotify is a Swedish audio streaming and media services provider that was
launched in October 2008. The company has its headquarters in Stockholm, Sweden. This report
is based on principles of innovation used in Spotify (Barlatier and Mention, 2020). There is use
of theory and its pros and cons that describe the process of innovation in the company. The
background of the company and its development process. The application of theory in near
future and how it helped company.
What is innovation
It is a process under which the products and services of company goes through new
development that means the old product is innovated and has got new innovation that leads to
new features, textures and size of products. Innovation helps the products to get new features that
helps to gain competitive advantage and by making policies and strategies. To compete in this
dynamic market and gain more loyal customers it is ought by company to provide its customers
new and developed products. The nature and preference of customers keep on changing and so it
desired by companies as that will help them to gain more profit and contribute to economy. The
principles of innovation are discussed below:
Problems creating new ideas: When an organisation faces some problems then there comes the
role of innovation as the new solution is taken out. The solution of that problem is somewhere
innovating idea (Binder and Mantovani, 2017). As due to problem many questions arise and by
answering those questions there is idea that improves the situation in the organisation. This is a
good way to find the solutions and to develop product that is needed by the customers as there is

need to development in today's time. Spotify analyses the trends in the market and then makes
innovation.
System based innovation: There is always a systematic way in which innovation takes place.
There is are formal and informal ways of research. The system in like flow of targets, internal
execution, assistance and continuous improvement. Spotify has used formal systems and worked
based on ethics by following the rules and regulations and wants to become most largest music
provider. Everything that is done in a systematic way is successful and that has helped company
to satisfy needs and wants of the customers.
Innovation require passion: Innovation is a easy process but there is requirement of passion to
be able to innovate in a proper manner. The person who has interest and passion can execute it
effectively (Cook and Van der Veer Martens, 2019). So it is important to have knowledge as well
as interest in the field. With passion the company and managers are able to achieve the desired
goals by making strategies that would make new development in the product that is desired by
the customers.
Effective communication: It is important for organisation to tell and communicate well about
the trends and ongoing captivities to its employees, as they may have idea. The organisation that
follows proper communicating channels are able to make the employees participate in decision
making and they give new ideas to the company that helps them to innovate the products and
services. The better the communication system the more is organisation successful. Spotify
communicates in a well manner with its employees and the employees participate in giving
ideas.
Encourage comparison: There is lot of difference between cultures and religion and there are
changes between them. These difference give rise to inventions and innovation means a new
product is developed (LEE and SAVELYEVA, 2017). There are opportunities that arise due to
those differences and facilitates the innovation process. So this is important to understand them
and take measures as and when they are required.
Above mentioned are some principles of innovation that are driving the innovation
process and brings changes in the product and services offered by Spotify.

Theory of innovation
Frugal innovation theory
This theory reflects the process of innovation in which it includes process, production and
organisation of production procedure. Innovation is essential in every organisation so that they
could provide new experience and choices to customer. Frugal innovation defines declining in
existing production procedure and make changes in cost and price so that customer could get
new product at new prices. According to this theory, organisation change the entire process of
production with new strategies, plan, resources as well as financial elements such as variable
and fixed cost. Companies are competing with large competition in differentiation of products
and prices. As every organisation moving in a race to leave behind their competitors. This
innovation theory is not being cost consuming because of existing resources. Spotify has
evaluated the innovation in their music services by making normal but effective amendments
which provide free music videos and podcasts with seasonal songs and setting up the list for
popular songs by systematic manner of segments (Sanz-Llopis and Ostermann, 2020). Their
innovative strategies make them cost effective and customers ease to try and contain most
popular features of spotify. The company contains the strategy of frugal innovation through
which it could build up the strategies according to the value of their services in consideration.
They utilise all their available resource in such a manner which increase their profit with less
amount of cost expenditure. By taking this strategy into consideration, innovative employees
make their critical role in thinking the best elements and raw materials which leave the mark of
their services for their competitors. Involving in this strategy set a power towards innovation and
adapting new market technologies. Spotify has made various amendments in their services by
making number of features in one app. Frugal innovation has some benefits as well as some
limitations. It depends on companies size, structure and contracts of expansion as this innovation
is the mainly effective for those companies who has intentions to make innovation in at regular
basis. Innovations are effective when the company understands its criteria of expansion to better
know and understand about this theory. Here are all the pros and cons of the using this theory.
Benefits of frugal innovation:
There are a lot benefits of evaluation of frugal theory of innovation. Spotify could make
their success by analysing these benefits which are mentioned below:

 This technique of innovation gives a unique way to reduce cost and high the sale price by
being cost effective in relation with new product and services.
 This technique helps the organisation to think about innovation in their company which
will prove to be a benefit for their success.
 Being cost effective is must. As in every country, customer believes in worth paying
product and service which fulfil their utility power. Countries like India, South Africa are
the most desirable people so that companies could make effective use of these technique.
 Companies like Spotify, which require regular innovation in their services to retain
customer interest. Using this theory, company could redesign or redevelop their existing
product by making it as a new in the market. This will helm them in large product line
and reputation in market development.
 By using this technique, Spotify could make their employee retention by paying them
high benefits in pay scale, compensation and extra bonus (Puhan, 2019). This could make
them reliable to provide high cost training and development program which eventually
rise in companies efficiency.
Limitations:
 Using this theory of innovation, companies could not set standard image into the market
as it cannot make effective contribution towards living standard of customers. As this
theory does not involve high quality production procedure.
 Due to high competition into the market, this theory does not make reliable contribution
in taking companies towards competitive edge. Cost reduction in products and services
lead to lower companies profit and turnover because in process of low quality raw
materials or semi finished goods which does not make appropriate product quality and
sometimes leads to decline in company reputation.
Application of Frugal Innovation Theory in Spotify in the context of historical development.
After analysing the past developments of Spotify has achieved numerous growth
opportunities in the external environment. The expansion of the company is successfully done
with the help of the engagement of the employees of the company in driving innovation in the
company. Today, the youth across the worldwide expects innovation in the operations and their
applications. The company achieve the innovative experiences by launching new programs in the

festival seasons (Furr, O'Keeffe and Dyer, 2016). For example, during the Christmas phase, the
company have launched a song with ringing bells and voice of Santa is collaborated in that song.
This features have attracted many youths across the globe due to which the company have
introduced innovation after analysing the current era of age. Also, the company have applied
many models in order to engage their customers towards their new developed innovative theme.
This involves Spotify for artist and open music play model. In this music industry can launch
their new songs and can continue to provide services to their customers. It have also, installed
effective software which will reduce their operational cost. In the recent view the company have
launched a feature called secret genius which have elevated the image of the music artist in the
industry. In this when the user listen the song then the name of the artist will be featured in the
app. This feature will help in enhancing the knowledge of the user regarding the music industry
and will help in enhancing the image recognition of the music artist. These were the past
innovation of the company. These have acted as the growth prospects for the company. In order
to survive in the competitive industry, the company is planning to work more on the frugal
theory which will enhance their loyal customer base.
This theory have played a crucial role in the developing the growth prospects and
enhancing the productivity of the company. Moreover this theory have also improved the
engagement of the customers in the music industry which have increased their market share.
Through the implementation of this theory, the company will be able to serve their effective
services to their large customer base (Nikas, Doukas and van der Gaast, 2017). The user always
attempt to listen the favourite song but sometimes they are unable to remember the artist or the
name of the song. But due to the innovative acknowledgement of Spotify, the users are now able
to improvise their music knowledge efficiently. The Spotify play button allow to publish the
content over the websites, blogs and social media platforms. It have also developed a software in
which there is no need for an installation process. These models have ensured that the company
will be able sustain their competitive edge in the industry. This have played an effective role to
ensure that the customers will respond to their new patterns of innovation. The company always
emphasizes on the study of the market trends which will help them in deciding the area of
innovation. Then the company uses innovative methods in their product and service development
that will ensure that the company will be able to attain the success in the near future. Spotify
focuses on the experiences of the customers with their services and tries to search for those

artists who are famous among the youth (Ombrosi, Casprini and Piccaluga, 2019). As this will be
able to engage the youth towards their innovative acknowledged idea of development. In this
relation the company also introduce new artist through their services which will help them in
creating an differentiated services among their competitors.
Application of Frugal Innovation Theory in Spotify in the context of Future.
In present scenario, it is analysed that frugal innovation is the process that helps to beat
with rising competition in the market. Day to day increasing in commercialisation and
industrialisation, competition is rising on regular basis. That gives threat and challenge to
organization. Threat and challenge depends on the reaction of organization that how they deal
with them. There are many ways that helps to beat competition and even that they lead the
business world. Spotify is the organization that provides service for listening music and many
related activities. It is analysing that innovation is the winning strategy of Spotify that help to
grow and success in the market. There are many other companies that providing same services to
customers, so it becomes a challenge for Spotify that how they can overcome with competition
rivalry (Parida, Patel and Wincent, 2017). Due to the digital transformation, government give
main focus on digitalisation that help to grow their firm. It gives positive affect on organisation
because of government support.
Every organisation do innovation because it is not a new process that nobody knows
about it. In this respect, organisation already do innovation with their creative ideas. But the
problem is arise i.e. the expanse that occur in making innovative product. It is analysed that
organisation can not focus on their cost of productions that occurs during innovation of products
that makes product expansive and reduce sales of organization. So this is the problem that occur
and Spotify have to make solution for this problem. Frugal innovation theory give help to Spotify
that they innovate their products with less cost of productions. In laymen language, it is the
process in which organisation change their process of making products so that they can reduce
their cost of products and available to customers at reasonable prices. Spotify perform this task
very well that they innovate their process of services. It is analysed that earlier songs were
listening by people through cassettes that shows historical methodology for listening musics.
But due to increasing competition in the business environment, Spotify innovate their products
and services i.e. providing musics through online streaming. They innovate their process that

reduce cost of making their cassettes and provide subscriptions at reasonable prices to the
customers. It is very effective process that organisation provide innovative services to attract
people so that they can increase their supply. Frugal innovation helps to organisation in future
perspective. Some important points are mentioned below:
 Frugal innovation theory help[s to organisation that they can predetermined their goals
with the brief analysis of market demand so that they make goods at reasonable prices. It
really helps in providing goods and service at reasonable prices so that their sales are
increasing with attraction of employees. It helps in increasing of profits margins because
it increase sales. Spotify innovate their products and services with the innovation of
digitalisation in their streaming of musics. So that they can provide some new
technologies in future (Poblete Lavanchy and Spulber, 2017).
 It also helps to arise new opportunities for Spotify so that they can take competitive
advantage with the help of innovation process. It developed economies of scale that
attract consumers and they can decide to purchase products and services. People who are
poor they can afford those goods and services that available at low cost.
 It raise the goodwill and brand image with the help of new innovation and modification
in existing products to provide goods and service that have different features. When
Spotify improve their technologies that enhances their goodwill and brand image that
help for propagating their services at wide scales.
 It also add some values in their products and services that reduce the threat of substitutes.
Due to increase in competition, it is analysed that Spotify try to innovate their products so
that they make different products and services that help to reducing the threat of
substitutes. It is the big challenge for organisation because of similarity of products and
services customer have a capability to changeable their brand because of high prices or
nay other reason. Customers can be change their brand and for that reason organisations
sales are reducing.
 It helps to forecast demands because of their new products and services that attracts
customers. With innovation at reasonable prices organisation lead business world and
give many benefits to organisation. It is very good for organisation that they achieve their
desired target and goals with increase in sales and revenues.

CONCLUSION
From the above report it can be concluded that innovation is the key for ensuring the
development and growth of the company in the complex situation. Also, this report focuses on
the principles and theories of innovation adopted by the company in order to survive in the
industry. Furthermore it explained about the application of the theory in the past and introduces
about future growth prospects of the mentioned company. The report have mentioned about the
future plan of the company by introducing the selected theory in their operations in order to
enhance their diversified services. It have also explained about the perspectives of the customer
regarding the industry and overview of the services provided by the company. Since innovation
is the main idea and how the company manages it in order to enhance their loyal customer base.
Also, it considers the benefits and limitations associated with the innovative theory
acknowledged by the company in their working environment. Also, the company have
developed many features and softwares that act as a base in order to grow in the external
environment. The company emphasizes on sustaining their differentiated services in their
operations in order to gain maximum profit out of it. The innovative business models ensure
continuous success by bring the company in the phase of maximum productivity and
profitability.

REFERENCES
Books and journals
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Scientific.
Binder, C. and Mantovani, A., 2017, September. Managing Innovation in an Unstable World:
Challenges of Global Competition for European Innovative and Proactive Firms.
In 2017 ENTRENOVA Conference Proceedings.
Cook, M. and Van der Veer Martens, B., 2019. Managing Exploratory Units in Academic
Libraries. Journal of Library Administration, 59(6), pp.606-628.
Furr, N., O'Keeffe, K. and Dyer, J. H., 2016. Managing Multiparty Innovation. Harvard business
review, 94(11), pp.76-83.
LEE, N. and SAVELYEVA, T., 2017. Managing Innovation & Sustainable Development with
Sustainable Development Goals.
Nikas, A., Doukas, H., and van der Gaast, W., 2017. Managing stakeholder knowledge for the
evaluation of innovation systems in the face of climate change. Journal of Knowledge
Management.
Ombrosi, N., Casprini, E. and Piccaluga, A., 2019. Designing and managing co-innovation: the
case of Loccioni and Pfizer. European Journal of Innovation Management.
Parida, V., Patel, P. C., and Wincent, J., 2017. Managing the front-end phase of process
innovation under conditions of high uncertainty. Quality & Quantity, 51(5), pp.1983-
2000.
Poblete Lavanchy, J. J. and Spulber, D., 2017. Managing Innovation: Optimal Incentive
Contracts for Delegated R&D with Double Moral Hazard.
Puhan, T. X., 2019. Managing Change and Innovation. Available at SSRN 3371800.
Sanz-Llopis, J. and Ostermann, M., 2020. Innovation in project management through framing
and challenge redefinition. International Journal of Managing Projects in Business.