Instructor’s Manual
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.
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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, style of thinking,
personality, motivation, and environment. Researchers have argued that the most important
capability is the ability to look at problems in unconventional ways.
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i. 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
ii. The most creative individuals can distinguish important problems from
unimportant ones.
iii. Self-efficacy, tolerance for ambiguity, and a willingness to overcome obstacles
and take reasonable risks are the personality traits most important for creativity.
iv. Intrinsic motivation has also been shown to be very important for 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).
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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 raise the example of Dean Kamen (from the Theory in
Action) here and ask students how he illustrates these characteristics.
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. Innovation by users can blossom into wholly new industries, as demonstrated
by the snowboarding example provided in the Theory in Action box.
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.
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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. Collaboration can occur in alliances, research consortia, licensing arrangements,
contract research and development, joint ventures, and other arrangements.
b. 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.
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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)
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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 conducte 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.
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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. 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.
f. 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 others’
proprietary knowledge. Clustering can also lead to traffic congestion, high housing costs, and
higher concentrations of pollution.
h. 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.
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i. 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.
j. Knowledge Brokers are firms or individuals that play a particularly important role in an
innovation network because they transfer information between different domains and exploit
synergies created by combining existing technologies. Hargadon and Sutton identify Robert
Fulton and Thomas Edison as knowledge brokers
i. Fulton recognized that steam engines could be used to propel steamboats.
ii. Edison was known for borrowing from different industries to create products
such as the telegraph, telephones, generators and vacuum pumps.
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