FBLT092 Risk Management For Innovation and Invention 

Answer:

Differences between innovation and invention 

In current time, technology is changing on the continuous basis in the business operations. Now, various improvements are done in the technologies in order to make new inventions and innovations in the every part of the life. But, it must be noted that there are some differences between innovations and inventions. So, it is important to understand the concept of inventions and innovations based on their definitions.

Invention-

The term ‘invention’ refers to the act of designing, discovering and acting a specific method, device or process which is not invented earlier. This is generally a scientific idea based on the experiments and researches for turning into tangible objects. The invention can be used for developing new product or improving any old product in the new one. Various countries are imposing various rules to have copyrights on the products.

Innovation-

Innovation can be described as the transforming the idea into reality. Innovation is considered as the changing process to add the values in various products and services to satisfy the customers. Companies adopt the process of innovation to meet up the necessities of the consumers by providing them better quality products. Innovation includes creating new product, process, service, and technology based on the requirements of present market. The procedures of innovation are useful in developing new ideas based on the demands of consumes (Barreau, 2002).

Key differences 

There are some differences in the process of innovation and invention and those are described below:

• The invention is basically connected with the development of new product. On t
  
  he other hand, innovation is related to adding innovative values and implanting change in already existing product.
• Invention is all about new and innovative ideas based on the theories and on other side; innovation is all about practically execution of new ideas.
• Invention requires scientific skills but innovation basically requires various sets of strategic, technical and marketing skills (Surbhi, 2016).
• Invention generally takes when new idea comes in the mind of scientist. Apart from this, innovation takes place when there is the need of improvement in the existing product or any new product.
• Next, invention is the process of single product. On the other hand, innovation is about the process or combination of various products and services (Sheffer, 2011).
• The inventions can only be done in research and development department of the company but, innovation is connected with all the divisions of the company effectively.

Implementation of innovation in energy industry

The energy industry has a vital part in the context of global economy. The prices of oil, gas and other sources of the energy impact economies of various countries. So, it is well known that the oil and gas industry is the important aspect for the expansion and growth of the countries in terms of economy. In the oil and gas sector, innovation is essential for the success and growth of the organizations. For the discussion in the report, SHELL Oil Company is taken. SHELL Oil Company is the famous oil and gas company in UK which is operating since 1897 and now it is the largest company in all over the world. It is analyzed that there is strong relation between innovation and successful companies. Innovation in the oil and gas industry is focused on increasing the population along with the safety and security of the operations (Shell, 2017). Basically, innovation is about identifying new ways and availability of materials in the changing scenario. The oil and gas company has to deal with the challenging environment so it needs to ensure safety and security of the employees. There are some ways to implement the innovation successful in the oil company like SHELL Oil Company (Pree & Louw, 2008).

• Initially, it is essential for the company to have the portfolio of innovation. To achieve the growth and success, balanced portfolio is one of the key essentials. It includes perfect combination of radical innovations and investments for the innovation process.
• Next, it is crucial to develop an innovative culture for the success and growth of Oil Company. In the oil and gas industry, there is the importance of talent, measurement and finding partners. Although, it is challenging for the company but with the innovative culture, company can achieve this level. Innovative culture provides the opportunity to the company to achieve high profile projects. The innovative culture includes the development of tolerance of risk and failure (O'Raghallaigh, Sammon & Murphy, 2011).
• Further, innovation focuses on using smart people in the business by the company. Various innovative companies work in partnership with various companies for innovation. In case of Oil Company, partnership is important due to long lead times and high costs incurred in the oil and gas advancements. SHELL Oil Company has done partnership with various suppliers and partners to gain competitive advantage in the industry (Berkhout, Hartmann & Trott, 2010).
• At last, the process of innovation is involved in gathering various ideas through the steps of idea prioritization, experiments and decision making process by which company can grow in market. The process of idea collection allows the company for the development of the business. For the advanced innovations, company focuses on various operation models i.e. corporative venturing, incubators, design thinking and open innovation.

By adopting the above discussed fundamentals, SHELL Oil Company will achieve higher level of projects along with the innovative ideas. Company will have strong competitive advantage with proper, careful planning and well defined strategy (Osinovskaya & Andronova, 2017).

Models of innovation 

The innovation in every sector depends upon various models as it is not the process of one model. There are various models of innovation which are important for the successful implementation of the innovations in any business sector. The description of various models of innovation is given below:

First and second generation model-

Initially, there is first generation model of innovation which shows simple linear structure of technology push era. The technology push is focused on the assumption that the innovations in terms of technology can be done based on the manufacturing, applied research, marketing and engineering to get successful results.

Further, second generation model of innovation is focused on the market pull era. This innovation model identifies the market demands significantly. This model basically identifies and generated new ideas for the business operations in the market along with the research and development so that the needs of the customers can be fulfilled. This model focuses on the customers’ need rather the developing the products by the scientific advances (Verworn & Herstatt, 2002). 

Third generation model-

This model is considered as the coupling or chain-linked model of innovation. The specialty of this model is that this is based on the interaction and feedback from the customers and other people so that need of innovation can be identified effectively. This model basically focuses on the innovation process with the combination of interaction between science and technology. So, this model has various independent stages of innovation. 

Forth generation model-

Forth generation model of innovation is considered as the parallel or integrated model having the objective to replicate the high level of incorporation with the various companies. The model shows various important functional areas overlapping between the various departments and actions of the company. This model basically analyzes the concept of external incorporation of the company with various suppliers and government agencies.

Fifth generation model-

This model is known as networking model of innovation. According to fourth generation model, innovation is the process of distribution of networking which is important for implementing the changes in the companies. Innovation needs different inputs such as universities, suppliers, customers and competitors to get effective outputs. Fifth generation model is concerned with the introduction of innovation procedures. It is focused on communicating with the whole networking system to enhance the effectiveness and to gain competitive advantage by the strategic actions (Tidd, 2006). 

Sixth generation model-

The sixth generation model of innovation is considered as the open innovation model including paradigm shift. This model supports the process of open innovation by which company can achieve competitive advantage in the business operations. This can be done by relying on the internal ways to operate in the market and engaging with the external factors to get better position in the market (Chesbrough, 2003).  

Innovation model in oil and gas industry cases 

In the various cases of oil and gas sector, most effective and suitable model will be open model of innovation. Open model of innovation includes the strategy adopted by the company to improve the innovation efficiency of the business operations. Open innovation is effective to gain competitive advantage so companies in the oil and gas sector must manage this effectively while implementing this model. There is the need to implement various employment methods, models of interaction, pattern of knowledge, and selection of external patterns for the teamwork.

In case of oil and gas industry, company can adopt various routes in terms of open innovations. The activities in the open innovation can be defined as the distribution by various departments of the company or centralized process. The team of open innovation is focused on setting and motivating the process of open innovation. The first route in the open innovation is strategically driven process or top-down process. This process has allowed the company to collect the feedback based on various initiatives and actions (PWC, 2013).

Role of Systematic risk management  

Based on the research, it is observed that there are many sources of risks available in the business which can negatively impact on the business process. There are wider ranges of catagories that affect uncertainly on the projects. For understanding the different aspects of the risk, it is crucial to assume the risk as the systematic process. Risk in the business can be classified as the people, political, customers, suppliers, partners, financial and market risk (Van et al, 2007).

Pinwheel Risk Management Action Framework

The Pinwheel shows how SHELL Oil Company has better align its strategy, planning and risk process to enhance the performance and governance in the industry. This framework is used by SHELL Oil Company to reveal how high management and other employees work together with the ongoing strategy of the company. The Pinwheel action framework of SHELL Oil Company includes continuous exchange of the relevant information between the business units, top management and staff members. 

This process includes an in-depth analysis of the trends. To evaluate the business intelligence, the review of external factors and forces is done. Company conducts PESTEL analysis and focus on some areas i.e. Political and regulatory, economic, social and consumer, technological, environmental and legal. Along with this, SHELL Oil Company also evaluates the business competitors. In the business intelligence process, company focuses on the actions to be competitive in the industry. For SHELL Oil Company, it is an opportunity to redefine the objectives, strategic priorities and aspiration, vision and mission. The clarity in the objectives and vision is important. Vision of SHELL Oil Company is to be best company in the oil and gas industry based on the strengths, high dividends and providing high quality customer experience.

Further, by the Pinwheel framework, SHELL Oil Company defines its goals and objectives along with the clear and finish line of goals. Further, next step is to develop the strategic priorities and review the current strategy. Potential threats and challenges in the adopted strategies are also identified by the company. Next steps are taking critical initiatives, implementing projects, budgets and operating plans, monitoring critical initiatives and analyzing the strategic performance in the industry.

Systematic approach of risk management in the business is crucial for the effective decision making process which must be more flexible, more controlled and more consistent (European commission, 2010). It is analyzed that proper risk management plan must include some process and those are described below:

• Identifying risk in the projects which will be faced by the company,
• Setting right and appropriate framework,
• Evaluating the identified risk,
• Setting most suitable responses towards the identified risk,
• Managing and monitoring the risk when project is completed, and
• Implementing post-project process for monitoring 

Initially, it is necessary to identify the potential risks in the project. In the process of risk analysis, it is observed that how the risks are created, what are negative impacts of risks, screening out and ranking them to monitor effectively. Proper analysis of risk is very useful for the company to analyze the potential risks associated with the projects.

Recommendations 

There are some methods which should be used by the company to analyze the risk. There are some recommendations for the oil and gas companies for effective risk management process. 

• There are some models i.e. Monte Carlo simulation, Event Tree analysis, Fault Tree analysis, failure mode and effect analysis, Hazard identification method and risk mapping method (Hernández, Noruzi & Sariolghalam, 2010) which should be used by the companies.
• Risk management is crucial for the company to minimize the probability of failure. There are some steps which should be taken by the company while implementing risk management.
• Company should focus on some activities i.e. maintaining market position, project selection, regulatory compliance, IT flexibility and capital availability. There is the need of deep understanding of the environment to implement the risk management plan effectively.

References 

Barreau, S., (2002), Innovations and External Growth Strategy: The Case of Oil and Gas Supply and Service Companies, 57(2), pp. 193-203

Berkhout, A., Hartmann, D., & Trott, P., (2010), Connecting Technological Capabilities with Market Needs using a Cyclic Innovation Model: R&D Management, 40(5), pp. 474-490

Chesbrough H., (2003), Open Innovation: The New Imperative for Creating and Profiting from Technology, Boston: Harvard Business School Press

European commission, (2010), Risk management in the procurement of innovation, accessed on 30^th October 2017 from https://ec.europa.eu/invest-in-research/pdf/download_en/risk_management.pdf

Hernández, J. G., Noruzi, M. R., & Sariolghalam, N., (2010), Risk or Innovation, Which One Is Far more Preferable in Innovation Projects: International Journal of Marketing Studies, 2(1)

O'Raghallaigh, P., Sammon, D., & Murphy, C., (2011), A re-conceptualisation of innovation models to support decision design: Journal of Decision Systems, 20(4), p. 369

Osinovskaya, I. V., & Andronova, I. V., (2017), The Role of Innovative Decisions in the Development of Oil and Gas Companies: International Journal of Energy Economics and Policy, 7(2), 346-351

Pree, N. and Louw, L., (2008), A framework for managing the innovation process, CapeTown: South Africa, 2008

PWC, (2013), Gateway to growth: innovation in the oil and gas industry, accessed on 30^th October 2017 from https://www.pwc.com/gx/en/oil-gas-energy/publications/pdfs/pwc-gateway-to-growth-innovation-in-the-oil-and-gas-industry.pdf

Sheffer, D. A., (2011), INNOVATION IN MODULAR INDUSTRIES: IMPLEMENTING ENERGY-EFFICIENT INNOVATIONS IN US BUILDINGS, accessed on 30^th October 2017 from https://gpc.stanford.edu/sites/default/files/d013_0.pdf

Shell, (2017), WHO WE ARE, accessed on 30^th October 2017 from https://www.shell.com/about-us/who-we-are.html

Surbhi, S., (2016), Difference Between Invention and Innovation, accessed on 30^th October 2017 from https://keydifferences.com/difference-between-invention-and-innovation.html

Tidd, J., (2006), A review of innovation models discussion paper 1: Science and Technology Policy Research Unit, Tanaka Business School, University of Sussex

Van  W.,  Riaan,  Bowen,  Paul,  Akintoye,  Akintola,  (2007),  Project  risk  management practice, The  case  of  a  South  African  utility  company: International  Journal  of  Project Management, 26,  pp. 149?163

Verworn, B. & Herstatt, C., (2002), The Innovation Process: an Introduction to Process Models, Working Paper No. 12, Technical University of Hamburg