Untitled Flashcards Set

CHAPTER 2

Sources of Innovation

SYNOPSIS OF CHAPTER

In this chapter we discuss the role of creativity as the underlying process for the generation of

novel and useful ideas. Individual creativity is considered to a function of intellectual abilities,

knowledge, thinking styles, personality traits, intrinsic motivation and environment. Firm

creativity is more than the sum of member creativity. Firm creativity is also a function of the

organizational structure and the strategic management approach employed.

The chapter moves on to explore how creativity is transformed into innovative outcomes by the

separate components of the innovation system (e.g., individuals, firms, etc) and the linkages

between the different components.

The last part of the chapter focuses on the role of innovation networks in new product/process

development. Firms are most likely to collaborate with customers, suppliers, and universities,

though they also may collaborate with competitors, producers of complements, government

laboratories, nonprofit organizations, and other research institutions. Emphasis is placed on

developing an understanding of technological clusters including how they are formed and the

benefits associated with them. The role of knowledge transfer in the creation of clusters is

demonstrated in the context of Silicon Valley.

TEACHING OBJECTIVES

1. To help students understand the relationship between creativity and innovation.

2. To explore, quantitatively and qualitatively, the role played by individuals, firms,

universities, governments, and non-profits in innovation.

3. The chapter highlights the role of collaborative networks in innovation, including

technological spillovers, and technology clusters.

LECTURE OUTLINE

I) Overview

a. Innovation can arise from many different sources including individuals, firms, universities,

government laboratories and incubators, and private non-profit organizations.

b. Firms are well suited to innovation activities because they are highly motivated by the need

to remain competitive and because have the management systems needed to organize their

resources to achieve an organizations’ objectives.

c. An even more important source of innovation is the networks that link innovators together.

These networks leverage a broader range of knowledge and resources than an individual

entity could.

II) Creativity

a. Creativity is defined as the ability to produce work that is useful and novel (i.e. different and

surprising when compared to prior work). The most creative works are novel at the individual

producer level, the local audience level, and the broader societal level. When a product is novel

to its creator but know to everyone else it is referred to as a reinvention.

b.

Individual creativity is a function of intellectual abilities, knowledge, personality,

motivation, and environment. Researchers have argued that the most important capability

is the ability to look at problems in unconventional ways.

i. Intellectual abilities include intelligence, memory, the ability to look at problems

in unconventional ways, evaluate alternatives and articulate them to others. Some

people are also better able to engage in primary process thinking, and to rapidly

generate many associations or follow paths of association out more steps.

ii. Too much knowledge can result in an inability to think beyond the existing logic

and paradigms of a field while too little knowledge can lead to trivial contributions

iii. The most creative individuals can distinguish important problems from

unimportant ones.

iv. Self-efficacy, tolerance for ambiguity, and a willingness to overcome obstacles

and take reasonable risks are the personality traits most important for creativity.

v. Intrinsic motivation has also been shown to be very important for creativity;

extrinsic motivators (e.g., monetary rewards, awards) can sometimes undermine

creativity.

c. Organizational creativity is a function of creativity of the individuals within the organization

and a variety of social processes and contextual factors that shape the way those

individuals interact and behave.

i. The creativity of individuals can be amplified or thwarted by an organization’s

structure, routines, and incentives. Common methods of tapping employee

creativity include 1) the suggestion box, 2) idea management systems (Google,

Honda, BankOne).

d.

Idea collection systems such as suggestion boxes, or idea management systems are only a

first step. Managers can be trained to signal (through verbal and nonverbal cues) that each

employees thinking and autonomy is respected. Employees can also be trained to use

creativity tools such as using analogies or developing alternative scenarios. You may want

to discuss the various ways that Google inspires creativity as described in the Theory in

Action box.

III. Translating Creativity into Innovation

a. Innovation occurs when new ideas are implemented into some useful form (e.g. new product

or process).

b. The Inventor has been the focus of much study and there is significant disagreement over

whether inventors are born or made. It is also important to note that the qualities that make an

individual inventive do not necessarily make that individual entrepreneurial.

i. Inventors are often portrayed as eccentric and doggedly persistent scientists. One

ten-year study of inventors showed that the most successful inventors:

1. Have mastered the basic tools and operations of the field in which they

invent, but 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.

You may want to ask students to suggest examples that you can compare

such as Elon Musk or Steve Jobs. This is also a good place to discuss the

Theory in Action on “What Breakthrough Innovators Have in Common.”

c. Users are another important source of innovation. Users are keenly aware of their unmet needs

and have the greatest motivation to find ways to meet those needs. You may want to bring up

how doctors started using Superglue to repair skin in emergency situations as discussed in

text..

d. Firms are a very important engine of innovation. Firms consider their own research and

development spending to be their most important resource for innovation.

i. "Research" can refer to both basic research and applied research.

1. Basic research does not focus on a specific immediate commercial application.

2. Applied research is directed at meeting a specific need or commercial objective.

ii. “Development” refers to activities that apply knowledge to produce useful devices,

materials, or processes.

e. A science-push approach to research and development views the process as linear, moving

from scientific discovery, to invention, to engineering, then manufacturing activities, and

finally marketing. This approach has been shown to have little real-world applicability. The

demand-pull model of research and development argues that innovation is driven by the

demand of potential users. Scholars have concluded that different phases of innovation are

likely to be characterized by varying levels of science push and demand pull.

IV. Firm Linkages with Customers, Suppliers, Competitors and Complementors

a.

b.

Collaboration can occur in alliances, research consortia, licensing arrangements, contract

research and development, joint ventures, and other arrangements.

The most frequent collaborations are between firms and their customers,

suppliers, and local universities.

c. Firms may also collaborate with competitors and complementors and the line between

complementor and competitor can become blurred making the relationships between firms

very complex and difficult to navigate.

d. In some circumstances, bitter rivals in one product category will collaborate in that product

category or in the development of complementary products.

i. For example, Microsoft competes against Rockstar Games in many video game

categories, yet also licenses many Rockstar games to play on the Xbox.

ii. The line between competitor and complementor can be tricky to manage. For

example, Google bought Motorola Mobility in 2011, many speculated that it would

give Motorola handsets preferential access to its Android operating system,

prompting other handset makers such as Samsung and HTC to question their

support of Google.

e. External and Internal Sources of Innovation are likely to be complements rather than

substitutes. Research by the Federation of British Industries shows that firms conducting

internal R&D were also the heaviest users of external collaboration networks. Presumably

doing in-house research and development helps to build the firm's absorptive capacity (i.e.

the firm’s ability to understand and make use of new information).

f.

Public research institutions such as universities, government laboratories and incubators

enable companies to develop innovations that they would not have otherwise developed.

i. Universities encourage their faculty to engage in research that may lead to useful

innovations but maintain sole discretion over the rights to commercialize the

innovation. A rapid growth in technology transfer offices occurred after congress

passed the Bayh-Dole Act in 1980.

ii. Government Funded Research is actively supported in many countries but the

ratio of R&D funding provided by industry and government varies significantly by

country. Government research takes place in government laboratories and through

the funding of science parks (fostering collaboration between national and local

government institutions, universities, and private firms) and incubators (focusing

on new business development) and grants for other public or private research

entities.

Show Graphs of R&D funding

iii. Private non-profit organizations including private research institutes, non-profit

hospitals, private foundations, professional or technical societies, academic and

industrial consortia, and trade associations, also conduct their own R&D activities.

V. Innovation in Collaborative Networks

a. There is a growing recognition of the importance of collaborative research and

development networks for successful innovation including joint ventures, licensing and

second-sourcing agreements, research associations, government -sponsored joint research

programs, value-added networks for technical and scientific interchange, and informal

networks.

b. The structure of such networks influences the flow of information and other resources

through the network. The size and density of the network can thus influence the innovation of

organizations that are embedded in the network. (

Show figures of global technology collaboration network

c. Firms in close geographic proximity are more likely to collaborate and exchange knowledge

(e.g. Silicon Valley’s semiconductor firms, lower Manhattan's multimedia cluster, or Modena

Italy's knitwear district).

d. Technology clusters often emerge because:

i. There are often economies of having buyers, suppliers, and complementors located

in close proximity.

ii. Proximity facilitates knowledge transfer. The exchange of complex or tacit

knowledge typically requires frequent and close interaction. Proximity influences a

firms’ willingness to exchange knowledge and firms’ ability to develop common

ways of understanding and articulating knowledge.

iii. Knowledge is held, to a large extent, in people, and people tend to be reluctantly

mobile. As a result knowledge tends to be regionally localized. For example,

Annalee Saxenian found that engineers in Silicon Valley were more loyal to their

craft than to any particular company, but they were also very likely to stay in the

region even if they changed jobs.

iv. Successful firms create a valuable labor pool that is attractive to new firms that

desire similar labor skills.

e.

f.

The increase in employment and tax revenues in the region can lead to improvements in

infrastructure (such as roads and utilities) schools, and other markets that service the

population.

The benefits firms reap by clustering together in close proximity are known as

“agglomeration economies.”

g.

The downsides to geographical clustering are that competition between the firms may

reduce their pricing power, increase the possibility of competitors gaining access to each

other’s proprietary knowledge. Clustering can also lead to traffic congestion, high

housing costs, and higher concentrations of pollution.

h.

i.

Studies have shown that the degree to which innovative activities are geographically

clustered depends on things such as: the nature of the technology, industry

characteristics, and the cultural context of the technology (e.g. population density of

labor or customers), infrastructure development, or national differences in the way

technology development is funded or protected.

Technological spillovers occur when the benefits from the research activities of one firm

(or nation, or other entity) spill over to other firms (or nations, or other entities). The rate

at which technology spillovers will occur is a function of the strength of protection

mechanism and the nature of the underlying knowledge.

i. Adam Jaffe and his coauthors found that the R&D spending of other firms

and universities in its geographical region influenced a firm’s patenting

activities and p profit’s.