Chapter 2

SOURCES OF INNOVATION
 OVERVIEW
 Innovation can arise from many different sources
 Individuals
 Research efforts of Universities
 Government labs
 Nonprofit organizations

 Prime engine of innovation is firms because:

 Greater resources then individuals
 Management systems to marshal for collective purpose
 Strong incentive to develop differentiating new products over
nonprofit organizations

Sources of Innovation 2
 OVERVIEW
 Innovation can arise from many different sources and the linkages between them.
 Networks of innovators that leverage knowledge and other resources from multiple
sources
 One of the most powerful agents of technological advance

Sources of Innovation 3
 EXAMPLE OF INNOVATION
NETWORK
 Procter & Gamble (Connect + Develop)

 Apportunity- Djuice

Sources of Innovation 4
CREATIVITY
 Creativity:The ability to generate new and useful ideas. Ability
to produce work that is useful and novel

 A productcould be novel to the person who made but not to

everyone else. Which is called reinvention

 The most creative works are novel at:

 Individualproducer level
 Local audience level
 Broader societal level

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CREATIVITY
 Individual creativity is a function of:

 Intellectual abilities (e.g., ability to articulate ideas)

 Knowledge (e.g., understand field, but not wed to paradigms)
 Style of thinking (e.g., choose to think in novel ways)
 Personality (e.g., confidence in own capabilities)
 Motivation (e.g., rely on intrinsic motivation)
 Environment (e.g., support and rewards for creative ideas)
 Risk taker (e.g., willingness to take reasonable risks)
 Persistence (e.g., tolerate ambiguity and willingness to overcome obstacles)

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INDIVIDUAL CREATIVITY
 Most important intellectual abilities for creative thinking
includes:

 Look at the problem in unconventional ways

 The ability to analyze which ideas are worth pursuing
 Ability to articulate those ideas to others and convince them
 Balance between knowledge and creativity (e.g. GIVEN imaging camera Pill)

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ORGANIZATIONAL CREATIVITY
Organizational Creativity is a function of:
 Creativity of individuals within the organization
 Social processes and contextual factors that shape how those individuals interact and
behave
 Organizations structure, routines and incentives could thwart individual creativity or
amplify it
Methods of encouraging/tapping organizational creativity:
 Idea collection systems (e.g., suggestion box)
 In 1895 John Patterson, founder of National Cash Register (NCR), created the first

sanctioned suggestion box program

 Originators of adopted ideas were awarded $1 – a revolutionary concept
 Honda – (EDIS) more than 75% of ideas are implemented and employees are
awarded through recognition
 Bank One – (One great Idea) idea repository where employees can collaborate via

intranet
 Creativity training programs: Culture that encourages (but doesn’t directly pay for)
creativity. 8

 IDEO: encourages making mocks and prototypes

TRANSFORMING CREATIVITY INTO
INNOVATION
 Innovation is the implementation of creative ideas into some
new device or process.
 Requires combining creativity with resources and expertise.
 Inventors
 One ten-year study found that inventors typically:
1. Have mastered the basic tools and operations of the field in which they invent,
but they will have not specialized solely on that field.
2. Are curious, and more interested in problems than solutions.
3. Question the assumptions made in previous work in the field.
4. Often have the sense that all knowledge is unified. They will seek global
solutions rather than local solutions, and will be generalists by nature
 Such individuals may develop many new devices or processes but
commercialize few.
 Such individuals may be inventive but not entrepreneurial. They may not
patent or commercialize their work.

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THEORY IN ACTION – THE SEGWAY AND
THE IBOT

Sources of Innovation
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 IBOT MOBILITY SYSTEM
 iBOT mobility system
 Advanced wheelchair that enables users to climb stairs, negotiate sand,
rocks and curbs
 Incorporates a sophisticated balancing system
 Predecessor to Segway

 Collaboration with external partners

 Venture capitalists
 Silicon Sensing Systems developed the gyroscopic sensor system
 Michelin developed unique “Balance” tires
 Pacific Science helped create the Segway’s electronic motor
 Saft developed a “smart charging” battery
 Had to satisfy government regulations to be allowed on sidewalks
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 TRANSFORMING CREATIVITY INTO
INNOVATION
 Innovation by Users
 Users have a deep understanding of their own needs, and motivation to
fulfill them.
 Laser sailboat developed by Olympic sailors without any formal market research
or concept testing based on their own preferences

 Indermil – a tissue adhesive based on Superglue. Managers tried to exploit

Superglue’s tendency to bond to skin to develop an alternative to sutures for
surgical applications.
 Experiments in the 70s and 80s (Wound Closure) failed.

 A presentation by a reconstructive surgeon who had operated on burn victims

in response to the Bradford football stadium fire of 1985 brought the project
back to life.

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TRANSFORMING CREATIVITY INTO
INNOVATION
 Research and Development by Firms
Research refers to both basic and applied research.
 Basic research aims at increasing understanding of a topic or
field without an immediate commercial application in mind.
 Applied research aims at increasing understanding of a topic or
field to meet a specific need.
Development refers to activities that apply knowledge to produce
useful devices, materials, or processes.
R&D thus refers to a range of activities that extend from early exploration
of a domain to specific commercial implementations

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 TRANSFORMING CREATIVITY INTO
INNOVATION
 Research and Development by Firms
 Most firms consider in-house R&D to be their most important source of
innovation.
 A firm’s R&D expenditures as a percentage of its revenues has a strong
correlation with its sales growth rate, sales from new products and
profitability.

Sources of Innovation 14
TRANSFORMING CREATIVITY INTO
INNOVATION
 Research and Development by Firms
 Science Push (50s and 60s) approach suggests that innovation proceeds
linearly:
Scientific discovery  inventionmanufacturing  marketing
 Discoveries in basic science were the primary source of innovation which were
then translated into commercial applications
 Demand Pull (mid 60s) approach argued that innovation originates with
unmet customer need:
Customer suggestions  invention  manufacturing
 Research staff would develop new products in efforts to respond to customer
problems or suggestions

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 TRANSFORMING CREATIVITY INTO
INNOVATION
 Firm Linkages with Customers, Suppliers, Competitors, and
Complementors
 Include alliances, participation in research consortia, licensing arrangements, joint
ventures
 Most frequent collaborations are between firm and their customers, suppliers, and
local universities.
 Firms considers users their most valuable source of new ideas
 Complementors are organizations that produce complementary goods such as DVD
moves for DVD players
 Example: Kodak & Fuji (Competitors V/s Complementors)

Sources of Innovation 16
TRANSFORMING CREATIVITY INTO
INNOVATION
 Universities and Government-Funded Research
 Universities
 Many universities encourage research that leads to useful innovations
 Bayh-Dole Act of 1980 allows universities to collect royalties on inventions funded
with taxpayer dollars
 Revenues from university inventions are still very small, but universities also
contribute to innovation through publication of research results.

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TRANSFORMING CREATIVITY INTO
INNOVATION

 Private Nonprofit Organizations

 Many nonprofit organizations do in-house R&D, fund R&D
by others, or both.
Top 20 US Nonprofit R&D performers, 1997

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INNOVATION IN COLLABORATIVE
NETWORKS
 Collaborations include
Jointventures
Licensing and second-sourcing agreements
Research associations
Government-sponsored joint research programs
Informal networks

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INNOVATION IN COLLABORATIVE
NETWORKS
 Technology Clusters are regional clusters of firms that have a
connection to a common technology e.g., Silicon Valley’s
semiconductor firms

 Firms that are proximate have an advantage of sharing information

frequently leading to greater productivity
 A cluster of firms with high innovation productivity can lead to more new
firms starting up in the immediate vicinity
 This may lead to increase in employment, new firms and entrepreneurship

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INNOVATION IN COLLABORATIVE
NETWORKS
Agglomeration Economies (benefits firms reap by
locating in close geographical proximity to each other):
 Cluster of firms can attract other firms to area.
 Supplier and distributor markets grow to service the cluster.

 Cluster of firms may make local labor pool more valuable by

giving them experience.

 Cluster can lead to infrastructure improvements (e.g., better

roads, utilities, schools, etc.)

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INNOVATION IN COLLABORATIVE
NETWORKS
 Likelihood
of innovation activities being geographically clustered
depends on:
 The nature of the technology
 Industry characteristics
 The cultural context of the technology
 Pharmaceutical industry is clustered in the UK and France, not in Germany
or Italy
 Clothing manufacturing is clustered in Italy but not in the other three

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INNOVATION IN COLLABORATIVE
NETWORKS
Technological spillovers (spread of knowledge across
organizational or regional boundaries) occur when the benefits from the
research activities of one entity spill over to other entities .
 Likelihood of spillovers is a function of:
 Strength of protection mechanisms (e.g., patents, copyright, trade
secrets)
 Nature of underlying knowledge base (e.g., tacit, complex)
 Mobility of the labor pool

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