INTRODUCTION

Competition, known as a mutual struggle between different people or organizations working in a par­ticular field to achieve the same goal, is fostered by new dynamics that lead to the change in the concept of competition.

DOI: 10.4018∕978-1-4666-6268-1.ch002

power in the global arena. Therefore, in order to survive in today’s rapidly changing competitive environment, corporations must continuously change and renew their products and services as well as their production methods. This is only possible by adopting innovation in designing products and services as well as process dimen­sions throughout an organization. Since the early 1980s, the generations of innovation models have increased and begun to influence the internation­alization of research and development (Krahmer and Regerr, 1999, 51). Innovation, as a unique resource, has begun to take place in business as well as in competency models. However, sustain­able competitive advantage can only be accom­plished by the resources that cannot be imitated or substituted. This reveals the need for managing innovation practices within an organization. In this sense, the innovation phenomenon has become a necessity not only for manufacturing but also for the service sector due to its dynamic nature. This is also important for the financial services. Banks and insurance companies are of great importance for the allocation of the resources contributing to economic growth and employment (Etan, 1998, 1).

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Despite a great variety of research fields in the literature, the issue of innovation within its competitive dimensions seems far from signifi­cant research. This chapter is an attempt to fill the gap in the research of innovation and explore the emerging value of innovation phenomenon with a strategic perspective. In this respect, the paper aims to provide a better understanding of innovation that is required for the potential for providing competitive advantage for banks and insurance companies. The paper proceeds as fol­lows: The first section draws a conceptual frame­work of innovation. The second section explores the importance of innovation in business, along with various types of innovation and the relation­ship between innovation and competition. The third section outlines the fundamental innovation strategies that financial services implement in today’s financial sector, especially in the cases of the Turkish Banks and Insurance Companies.