The role of innovation in creating and destroying the competitive advantage of modern firms cannot be over-estimated. A report by the European Union in 2002 identified four key drivers of entrepreneurship and small firm development which highlighted the importance of innovation. These included:

1. Continuous technological developments
2. Shorter product life-cycles
3. Increasingly demanding consumers
4. Global competition

Small and medium-sized enterprises (SMEs) have always been considered to be more adept at innovation compared to larger bureaucratic enterprises owing to their flat structures, absence of functional barriers and the lack of bureaucratic procedures which facilitate the sharing of ideas, information and knowledge.

Innovation is even more important to small start-up firms that need to offer unique benefits in terms of their products and services so as to attract customers who would otherwise buy from their competitors.

Although SMEs may have an advantage over their larger rivals in terms of their ability to nurture innovation-friendly environments, they cannot emulate the large investment budgets of their bigger rivals when it comes to in-house idea-generation and research and development. However, recent developments in the field of ’open-source`, or user-centred, innovation has made it possible for SMEs to compete more aggressively with their larger rivals – sometimes leading to substitute products.

Instead of new product ideas being developed within the research laboratories of organisations (the in-house approach) new products and services are now being sourced from existing customers and clients of organisations. For example, practitioners of extreme sports, from windsurfing to ice climbing, play a significant role in the development of equipment which is subsequently mass-produced by manufacturers. Surgical equipment companies are often led towards new products by surgeons (i.e. keyhole surgery) whilst the Linux operating system was developed by members of the open-source software community. Finally, the toolkits approach has been used by companies including Flavors and Fragrances which supplies customers with the tools to design their own food flavours. Product development is left to users who are in the best position to know exactly what they want.

As customer expectations are increasing it is logical to use their input when designing and shaping new products and services. Not only are such inputs invariably free but they are a natural source of incremental innovation and therefore differentiation.

Since one of the strengths of being an SME is the closeness of the entrepreneur to the customer, an `open source` / user-generated approach is an ideal way of overcoming the obstacles of high R&D budgets and at the same time creating a differentiated unique selling proposition (USP). Knowledge is now so widely distributed via the Internet and travels so fast that great ideas can come from customers over a wide geographic area which is not confined purely to large organisations.

Moreover, as it becomes increasingly difficult to protect new ideas for any length of time, lead–time advantage and speed to market become key areas of competitive advantage. The agility and fast responsiveness of small entrepreneurial firms therefore places them in a very strong position when it comes to exploiting the advantages of pro-active consumers or prosumers.

3M, the industrial products group, has had programmes in place since 1996 to harness ideas generated by lead-users. Working out where great ideas come from is one of the big mysteries of modern management. Corporate research laboratories and in-house product development groups are only part of the answer. Breakthrough products and processes can come from start-ups, competitors, university campuses and rank-and-file employees. So open source innovation is  another route to innovation that doesn’t cost the earth as the likes of MySpace, Facebook, YouTube and Wikipedia will testify.

Further reading

• Open Innovation by Henry William Chesbrough, published byHarvard Business School Press
• Experimentation Matters: Unlocking the Potential of New Technologies for Innovation byStefan Thomke, published by Harvard Business School Press
• The Third Wave by Alvin Toffler, published byBantam
• Democratizing Innovation by Eric von Hippel, published by MIT Press

About the author

Nigel Walton is an associate lecturer for the Open University and the University of Worcester, specialising in strategy, entrepreneurship and international marketing. He previously worked as a management consultant, primarily advising medium-sized companies with growth problems.

So it’s time for me to eat crow, or depending on your taste, humble pie. Not so long ago I was confidently predicting a drawn out battle between two high definition disk formats; HD-DVD and Blu-ray. HD-DVD, backed by Toshiba and the DVD standards body offered cheaper players but only a limited range of titles; Sony’s Blu-ray was more expensive but had a larger library of movies. It seemed likely that the two formats would continue to co-exist, confusing purchasers who would continue to vote with their feet and carry on buying DVDs. Suddenly everything changed; HD-DVD is dead. On February 19th, Toshiba announced that it would immediately stop manufacturing HD-DVD players and recorders. In little over a month, HD-DVD had gone from a viable format for the future of movies to a technological cul-de-sac. What had gone wrong?

Two factors conspired to kill HD-DVD. The first was Sony’s technological wonder, the Playstation 3, which comes with a built-in Blu-ray player. After a troubled launch, the PS3 has begun to notch up impressive sales with more than 10 million sold to date (more than a million in the UK alone) – ten times the number of HD-DVD players that were sold during its lifetime. People may not have bought PS3 for movies, but they have certainly been experimenting with Blu-ray disks whose sales have been steadily climbing. The second nail in the coffin of HD-DVD was the decision by Warner Brothers to cease issuing new movies on the format. This left only Universal Studios and Dreamworks as committed to HD-DVD exclusivity for their movies. Within days of the Warner announcement; Woolworths in the UK and the colossal American chain WalMart said they were abandoning HD-DVD; the writing was on the wall for the format.

In the US and Japan, many retailers are compensating purchasers of HD-DVD players, either with cold, hard cash or with credits against the purchase of a Blu-ray player. On the software front, things are grim for HD-DVDs with most studios cancelling future releases; but HD-DVD users are enjoying a fire sale of existing titles as retailers dump their stocks, at the moment disks can be had for as little as £6 apiece – cheaper than DVDs! Existing HD-DVD players will continue to play regular DVDs, and in the event of one failing, Toshiba has stockpiled at least 8 years worth of spare parts. If, like me, you bought into HD-DVD, you will be able to enjoy it for many years to come.

The backers of Blu-ray, most notably Sony and the movie studios, are the victors. Toshiba might have lost this war, but it can easily afford to write off the costs of HD-DVD. The real losers in this war may well be consumers, and that is because we’re going to have fewer ways of enjoying our entertainment.

Region coding is part of a trend in media and computer software known as digital rights management (DRM) that aims to control how media can be used. DRM allows the publisher of a title to say where it can be played, on what machines, if it can be copied to another device, even whether the recording will evaporate after being played. You’ve almost certainly encountered DRM every time you play a DVD. When you first put a DVD into a player you will see a number of warnings about where the disk can be used and the consequences for pirating its contents. You may have noticed you cannot skip past these and get on with the movie – the DRM on the disk temporarily disables the functions that allow you to fast forward and go to the next track. The DRM on the disk also prevents you from copying its contents and from playing disks bought in one part of the world from working inside the UK. You can find a map of these ‘region codes’ on Wikipedia.

The DRM on DVDs was introduced as a reaction to the threat of piracy. Older, analogue technologies – such as audio and videotape can be easily copied, but the process is slow and the number of copies that can be created is very small. Crucially, as tape is repeatedly duplicated, the quality of the copies decreases – effectively limiting the number of pirated copies that could be circulated. However, when information is stored in digital form – such as on a DVD – it can be perfectly replicated an infinite number of times. These perfect copies can then either be written on to a blank disk, or distributed across the World over the Internet.

DVD’s DRM is a fairly elderly technology known as the Content Scrambling System (CSS). It was broken long ago and pirated versions of DVDs, stripped of all their DRM (often without the infuriating anti-piracy adverts found on genuine disks), can be found in most towns and cities and circulating on the Internet. When movie studios began to plan the move to high definition disks, they chose more powerful forms of DRM. Blu-ray’s protection is called BD+ and is generally thought to be superior to the AACS system found on HD-DVD as it allows manufacturers to continually upgrade their DRM against attacks. Unlike HD-DVD, Blu-ray also uses region coding to stop users playing and importing disks from other parts of the world. It is widely believed that the movie studios put their weight behind Blu-ray because of its stronger DRM, both because it offered better protection from piracy, and because it served to block the traffic in cheap disks from places such as the United States and Hong Kong.

DRM is not only found on DVDs, it is used by games companies to protect their products, in satellite and cable set-top boxes, on most music bought from online stores, even in the expensive HDMI cables needed to connect to high-definition television sets. Although there are a huge number of DRM technologies being used by various companies, most of them share a common technological root known as encryption; a field of mathematics concerned with scrambling information to shield it from prying eyes. Crucially, encryption is always reversible – that is the scrambled material can be restored to its original state by performing a decryption. Media documents controlled by DRM are distributed in an encrypted form and can only be decrypted by a user if they own both a decryption program and a second piece of information known as the key. The decryption is performed by dedicated microprocessors in the player using decryption keys stored in the player’s memory. If you use a software application such as Apple’s iTunes to play media files, your computer’s processor performs the decryption and the keys are stored in hidden files on your computer’s hard disk.

Some DRM schemes such as Apple’s FairPlay and Microsoft’s PlaysForSure tie media files to particular authorised computers. When you authorise a computer, the player software extracts information from that machine which might include information including your name, your registered email address, the unique serial number of machine’s CPU, the serial number of the operating system and so on. This information is used to generate the key needed to decrypt the media file. For both FairPlay and PlaysForSure users are restricted to playing a file on no more than five computers; if you try to play a file on an unauthorised computer or to authorise a sixth computer you will be unable to do so.

In Microsoft’s PlaysForSure scheme, machines need to be reauthorized when users upgrade from one version of Windows to another. Information about the machine is gathered, sent across the Internet to the PlaysForSure servers and a new key issued. And this process is now causing a problem because Microsoft is abandoning PlaysForSure in favour of its own Zune music player.

PlaysForSure was an attempt by Microsoft to eat into Apple’s dominance of the music player market. Rather than build a single device to compete against the iPod, Microsoft produced the PlaysForSure standard. Any manufacturer could then build devices PlaysForSure compliant devices with Microsoft collecting a small fee for each machine sold. Music, wrapped in DRM, could then be bought from a number of online stores that supplied music in Microsoft’s Windows Media Format. The idea was that competition between manufactures would quickly drive the price of their players below that of the iPod and users would gradually switch to the more affordable product, allowing Microsoft to steal Apple’s crown.

For any number of reasons, PlaysForSure was a failure and have Microsoft switched to copying Apple’s business model. They designed their own music player, the Zune (so far only available in America) that plays music bought through the dedicated Zune Marketplace online store. Rather than have Zune compete against iPod and PlaysForSure, Microsoft has chosen to kill PlaysForSure by simply switching off the authorisation servers. As soon as the servers are switched off it will no longer be possible to get new PlaysForSure keys from Microsoft. Anyone buying a new machine or upgrading their version of Windows after that date will find they can’t play music purchased from Microsoft’s old MSN Music store. Microsoft originally intended to switch the servers off on August 31st 2008, but after a furious customer reaction, have since extended the scheme, now excitingly branded 'Certified for Windows Vista', until 2011. Hot on Microsoft’s heels, the troubled Yahoo! corporation announced that it would be shutting down the DRM servers that authenticated its Unlimited Music Store from September 2008. This time, following angry complaints from customers, Yahoo! agreed to refund the purchase cost of any music bought through Unlimited.

DRM is turning into a public-relations disaster for media companies. Customers are increasingly chaffing against the artificial restraints placed on their use of products, and more and more of them are realising that DRM only affects law-abiding customers. Pay for a DVD or Blu-ray and you can’t make a copy for your laptop or your iPod, you’re forced to sit through adverts, you can’t even buy a cheaper version of the disk from another country. Pirate copies of TV programmes, music, movies and video games are available on the Internet; they look identical but have none of the restrictions. Piracy exists because it serves consumers’ desires and until the movie studios make their official disks every bit as attractive as the illegal copies, piracy will continue to thrive.

But it is possible that DRM is nothing more than a passing phase in the media industry. Amazon in the US and iTunes now allow people to purchase MP3 versions of music which can be freely copied between devices. As a testament to its popularity, it took just a few months for Amazon to become the second-largest retailer of music in the United States after the iTunes Music Store and it is growing at a much faster rate than the Apple Store. Despite fears from the industry, there has been no explosion in piracy; just many more satisfied customers and an expanding marketplace. Perhaps it’s time for Hollywood to wake up and begin treating the people who pay its wages like responsible adults.

About the author

Mike Richards joined the Open University in 1996 to help trial teaching over the Internet. Since then he has taught courses ranging from an introduction to robots to the engineering works of Leonardo da Vinci; but has spent most of his time writing about security - everything from the Enigma machines to e-shopping. He is currently working on a new course exploring the world of ubiquitous computers; imagine a world where computers so small and cheap they can be put in everyday objects - smartphones today, smartclothes tomorrow.

There’s a lot of talk these days about flexible working, work-life balance and portfolio careers. Crèche-at-work schemes, job-shares and flexi-time have become commonplace. If so much is being done to help women be part of the work force why are women, especially mothers, turning away from traditional jobs, and becoming entrepreneurs?   

Mothers who do run their own business make an important contribution to the UK economy, £4.4 billion according to a recent estimate in a study commissioned by the Yellow Pages. This shows that the difference between the sexes when it comes to entrepreneurial ambition isn’t as wide as we may think. Many women in paid employment choose to set up their own businesses upon parenthood, not because they are unemployable but rather because it’s a lifestyle choice. Indeed, most were in other, more traditional, types of employment positions before starting up their businesses. As with most entrepreneurs, setting up their own business is often centered upon the drive to be their own boss, and, importantly, the flexibility that this gives.

Two reasons appear to dominate women’s decisions to start-up their own businesses after they become mothers. The first of these is the desire for greater flexibility and autonomy. This is a great incentive for women, despite the fact that the demands of juggling your own business with the pressures brought on by motherhood and a hectic home life can be very challenging. The second is the difficulty, or perceived difficulty, of returning to the jobs they held previously.

This issue recently came under the spotlight when legislation was introduced in April 2007 extending maternity leave entitlements. Whilst aimed at protecting the rights of mothers, as Nicola Brewer, chief executive of the Equality and Human Rights Commission said in July 2008, it had the unintended consequence of alienating some employers such as small business owners who see women of childbearing age as potentially a costly problem.

The legislation views women as primary child carers, which may stereotype the roles of women rather than improve the flexibility of working arrangements for both parents. This is compounded by the unhelpful views of some high profile businessmen. For example, Sir Alan Sugar of The Apprentice fame reportedly stated that many employers discarded the CVs of women of childbearing age. These scare stories can surely be seen as ‘push’ factors for women to go it alone in business.

The need for flexibility is reflected by the types of businesses that are established by women when compared to men. Men tend to opt for start-ups in construction, consultancy or IT. Popular choices for self-employed women are also start-ups in IT. In addition, they make more traditional choices in the areas of health and beauty, catering and childcare-related fields where flexibility and the link between their personal and professional interests are more apparent. However, about a third of all businesses started by mothers are now internet-based, showing the invaluable role of modern technology in enabling more flexible career strategies involving home working.

Websites such as elance have encouraged a boom in employing virtual administrators and PAs (personal assistants) who are based on the other side of the world, remotely organising clients’ emails and diaries, and booking meetings and travel all at a distance. More often than not these are mothers, who are being inventive with regards to the type of work they can accomplish from home.

FriendsReunited creator, Julie Pankhurst, founded the website in 1999 while expecting her first child. This business was sold for £175m in 2005. We should champion the successes of such high-profile female entrepreneurs who turn large profits, but also the large number of women who are small and micro business owners. My own research on home based businesses, such as small hotels and bed and breakfasts, shows that flexibility, autonomy, and the ability to combine home and family with rewarding work are important for women at all stages in their lives. As one such business owner explained to me:

“It works for me. I can fit other things in more easily now like the kids, and family and friends … just spending more time doing what I want to do and working from home. Although it’s a lot of hard work, you get used to that the longer you run a business. It’s very rewarding to have a successful business which is all your own work. I’m very proud of that… It just makes sense really for many women” 

However, when looking at entrepreneurs who want to combine parenthood with a rewarding career, it is important that we are not gender-biased. Some men also choose to start their own businesses while seeking to balance childrearing with career aspirations. The current economic downturn may make credit harder to come by for future entrepreneurs of both genders causing a decline in ‘mumpreneurs’. Let us hope that this doesn’t happen and that we continue to benefit from the boom in tycoon mothers – oh, and let’s not forget the fathers! 

Weblinks

• Maternity leave 'damages' careers
• 'Kitchen table tycoons' identified as new brand of female entrepreneurs
• Watch the Mum's the Business trailer
• Mum's the Business
• What makes an entrepreneur?
• The world of work
• Free OpenLearn course - Entrepreneurial behaviour

Courses

• Investigating entrepreneurial opportunities 

About the author

Dr. MariaLaura Di Domenico is a Lecturer in Organisational Behaviour at the OU Business School where she is responsible for research and teaching in organisation studies, small business, and entrepreneurship.