©2009 prentice hall 4-1 m738 management of technology lecture 4 sources of innovation

©2009 Prentice Hall4-1

M738 Management of Technology

Lecture 4

Sources of Innovation


Learning Objectives

• Define a technological opportunity • How opportunities for technological innovation are generated by

changes in technological, political, regulatory, social, and demographic

• Identify the different loci of innovation, and explain how different institutions contribute to technological innovation

• Describe the roles played by the public sector in the national innovation system

• Identify the different components of research and development• Describe the different ways that organizations link research and

development activities• List the different forms of innovation• Interpret the effects of industry on the forms of innovation

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Creativity

• Creativity: The ability to produce work that is useful and novel. 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)

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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

Methods of encouraging/tapping organizational creativity:• Idea collection systems (e.g., suggestion box)• Creativity training programs• Culture that encourages (but doesn’t directly pay for)

creativity.

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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.


Sources of Opportunity

• Three major sources of opportunity for innovation Technological change Political and regulatory change Social and demographic change

• All sources of innovation can operate separately or in combination


Technological Change

• One of the most important triggers because technological change allows people to do things that could not be done before or only could be done in a less efficient manner

• Many technological changes do not make any innovations possible, while others generate a multitude of opportunities

• Delay can occur because complementary technologies, or technologies that are used along with the focal technology, need to be invented before an innovation can be developed

Moore’s Law

Gilder’s Law

Metcalfe’s Law


Important Attributes of Technological Change

• Influence opportunities for innovation The magnitude of the change The generality of the change

The commercial viability of the change • Predicting the relationship between

technological change and the opportunity for innovation is difficult because the relationship is not always one-to-one: Leads to the creation of additional opportunities, and

it is rarely immediate


Political and Regulatory Activity

• Sometimes makes innovation possible by providing subsidies that pass off the cost of innovation

• Prompts firms to create new products and processes to solve problems created by regulation

• Spurring competition between firms • Providing access to resources that permit the

development of new products and services


Political And Regulatory Change


Social and Demographic Change

• Create opportunities by altering people’s preferences, and by creating demand for products that had not existed before Social trends Demographic trends Shift in perception


Social and Demographic Change


Combination

• Opportunities for innovation are often the result of many different types of changes


Locus of Innovation

• Business undertakes most of the research and development conducted in the United States

• The government plays an important role in the technology innovation process by conducting research, paying for research done by others, and by serving as a lead customer

• Individuals conduct much less of the technological innovation than they once did

• Universities help firms innovate by training students, by conducting research, and by licensing technology developed by their faculty, staff and students

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Overview

• Innovation can arise from many different sources and the linkages between them.

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• Innovation by UsersUsers have a deep understanding of their own

needs, and motivation to fulfill them.E.g., Laser sailboat developed by Olympic

sailors

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The Birth of the Snowboarding IndustryFirst snowboards not developed by sports

equipment manufacturers; rather they were developed by individuals seeking new ways of gliding over snow• Tom Sims made his first “ski board” in wood shop

class.• Sherman Poppen made a “snurfer” as a toy for his

daughter – later held “snurfing” contests• Jake Burton added rubber straps to snurfer to act

as bindingsBy 2001 there were approximately 5.3 million

snowboarders in the United States

Theory In Action

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Theory in ActionDean Kamen

The Segway HT: A self-balancing, two-wheeled scooter.

Invented by Dean Kamen• Described as tireless and eclectic• Kamen held more than 150 U.S. and foreign

patents• Has received numerous awards and honorary

degrees• Never graduated from college• To Kamen, the solution was not to come up with a

new answer to a known problem, but to instead reformulate the problem


Research and Development

• Companies can, and do, create innovations through deliberate investment in research and development efforts designed to create new products and services, and new processes for providing them

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• Research and Development by FirmsResearch 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.

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• Research and Development by Firms Most firms consider in-house R&D to be their most

important source of innovation.

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• Research and Development by FirmsScience Push approaches suggest that

innovation proceeds linearly:Scientific discovery inventionmanufacturing marketing

Demand Pull approaches argued that innovation originates with unmet customer need:Customer suggestions invention manufacturing

Most current research argues that innovation is not so simple, and may originate from a variety of sources and follow a variety of paths.


Model Underlying Investment In R&D


Types of R&D

• Basic Research: the effort to understand the technical or scientific principles in a field

• Applied Research: the effort to understand technical or scientific principles with a specific commercial goal in mind

• Development: the effort to use technical knowledge to produce something of commercial use


Why Firms Conduct R&D

To create new technologies that provide the basis for new products and services

To develop products to replace those threatened by substitutes

To differentiate products from those of competitors

To create strong intellectual property positions

To absorb externally generated ideas


Top 20 R&D-Spending Corporations In 2003


R&D Intensity of Different Industries


Costs of R&D

• Investments in basic research are uncertain• The financial returns rarely occur in the short

term• Almost all of the financial returns from R&D

projects are generated by a handful of projects, many years after the investments are first made

• Lock companies into strategies that are difficult to change

• Investments in R&D are difficult to appropriate


The Costs and Benefits of R&D


Linking Research and Development

• To capture the returns to basic research: Not easy due to Research being undermined when it

is closely tied to Development Employment is unappealing to researchers if required

to spend too much time on development Transitioning technology from basic research to

applied development is difficult and time consuming Research scientists often have difficulty transferring

information about their discoveries to development engineers


Encouraging productive links between research and development

• Give researchers financial incentives to work on projects that are aligned with development goals

• Require your research laboratories to use the same equipment and materials as your product development laboratories

• Expose basic researchers to development, perhaps for a temporary period when they first join your company

• Make fit with company strategy a criterion in the evaluation of proposals for research funding

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Innovation in Collaborative Networks

• Collaborations include (but are not limited to): Joint ventures Licensing and second-sourcing agreements Research associations Government-sponsored joint research programs Value-added networks for technical and scientific

exchange Informal networks

• Collaborative networks are especially important in high-technology sectors where individual firms rarely possess all necessary resources and capabilities

External Sources

• Alibaba www.alibaba.com


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• Technology Clusters are regional clusters of firms that have a connection to a common technology

• May work with the same suppliers, customers, or complements.

• Agglomeration Economies:– Proximity facilitates knowledge exchange.– 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.)

BASIC CHARACTERISTICS OF CLUSTERS

• Strategic associations of companies • Established on the bases of a value chain• Dominate sectors;• United against external competition• Complementary industries • Common local interest• Formal and informal relations between firms• Gives small and medium enterprises economic

power of large consumers and mass producers

Source: Professor Michael E. Porter, Harvard University, Council on Competitiveness , Monitor Company Group LP and On the Frontier, 2001.

The California Wine Cluster

Atlanta Information Technology Cluster

Other Electronic Components

Instruments

Communications Services

Software

Peripherals

Electronic ComponentsElectronic Componentsand Assembliesand Assemblies

Computers

Source: Clusters of Innovation Initiative Report: Council on Competitiveness, Harvard Institute on Strategy & Competitiveness, Cluster Mapping Project , U. S. County Business Pattern Data; ontheFRONTIER interviews

Distribution Related Services

Parts

CommunicationsEquipment

Universities and Training Institutions

Georgia Tech, Emory Community Colleges

Cluster OrganizationsTechnology Alliance of GA; Georgia Research

AllianceAmong National Leaders (1–5)Competitive (6–20)

Position Established (21–40)

Less Developed (41+)

Research Organizations Georgia Research

Alliance, Georgia Tech Institutes,

GCATT

Specialized Risk CapitalVC firms, Angel Networks

Specialized Services(Banking, Accounting,

Legal,)

Government Policy and Government Policy and Regulatory Environment Regulatory Environment GRA, Yamacraw, ICAPPGRA, Yamacraw, ICAPP

OmahaTelemarketingHotel ReservationsCredit Card Processing

Wisconsin / Iowa / IllinoisAgricultural Equipment

DetroitAuto Equipmentand Parts

RochesterImaging Equipment

Western MassachusettsPolymers

BostonMutual FundsMedical DevicesMgmt. ConsultingBiotechnologySoftware and NetworkingVenture CapitalHartfordInsurance

ProvidenceJewelryMarine Equipment

New York CityFinancial ServicesAdvertisingPublishingMultimedia

Pennsylvania / New JerseyPharmaceuticals

North CarolinaHousehold FurnitureSynthetic FibersHosiery

Dalton, GeorgiaCarpets

South FloridaHealth Technology Computers

Nashville / LouisvilleHospital Management

Baton Rouge / New OrleansSpecialty Foods

Southeast Texas / LouisianaChemicals

DallasReal Estate Development

WichitaLight AircraftFarm Equipment

Los Angeles AreaDefense AerospaceEntertainment

Silicon ValleyMicroelectronicsBiotechnologyVenture Capital

Cleveland / LouisvillePaints & Coatings

PittsburghAdvanced MaterialsEnergy

West MichiganOffice and Institutional Furniture

MichiganClocks

San DiegoGolf EquipmentBiotech/Pharma

MinneapolisCardio-vascularEquipmentand Services

Warsaw, IndianaOrthopedic Devices

ColoradoComputer Integrated Systems / ProgrammingEngineering ServicesMining / Oil and Gas Exploration

Las VegasAmusement / CasinosSmall Airlines

OregonElectrical Measuring EquipmentWoodworking EquipmentLogging / Lumber Supplies

SeattleAircraft Equipment and DesignSoftwareCoffee Retailers

BoiseInformation TechFarm Machinery

Geographical Distribution of Clusters

Source: Adapted from Professor Michael E. Porter, Harvard Business School

Local Cluster Strategy

• Milwaukee water Initative http://www.milwaukee7-watercouncil.com/wiki


• The creative center of the economy is tied to geographic location.

• Most innovative work occurs in face-to-face exchange within teams.

• Geographic clustering is a powerful mechanism for sharing personal knowledge.

Innovation is tied to Place

The Theory of Industry Clusters

Paul Romer Increasing returns associated with knowledge, not

the accumulation of capital and labor, are the key forces driving growth

Michael Porter Clusters, or critical masses of unusual competitive

success in particular business areas, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations.

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What’s So Good About Clusters?

• Increase Efficiency Efficient access to information, specialized inputs and

employees, institutions, and “public goods” Easier to achieve complementarities across businesses

• Spur Innovation Improved ability to perceive and respond to innovation

opportunities More rapid diffusion of improvements

• Facilitate New Business Formation Easier to identify opportunities for new businesses Lowers barriers to entry (including perceived risk)

Source: Professor Michael E. Porter, Harvard Business School

Industry Clusters Can Be Used as...

• An analytical tool (e.g., to better understand the economy and deploy resources strategically);

• An organizational tool (e.g., to engage industry leaders in a regional strategy and foster communication, networking and improvement among companies); and

• A service delivery tool (e.g., to provide high-value specialized services)

Traded ClustersTraded Clusters Local ClustersLocal Clusters Natural Resource-Driven IndustriesNatural Resource-Driven Industries

Note: 1999 data, except relative productivity which is 1997data, Patents data which is 1998 data.Source: Harvard Institute on Strategy & Competitiveness, Cluster Mapping Project ,

Share of Employment

Employment Growth,1993 to 1999

Average Wage

Relative Wage

Wage Growth

Relative Productivity

Patents per 10,000 Employees

Number of SICIndustries

32.1%

2.5%

$41,678

134.0

5.0%

144.1

20.48

592

32.1%

2.5%

$41,678

134.0

5.0%

144.1

20.48

592

67.1%

2.8%

$26,049

83.8

3.8%

79.3

1.38

241

67.1%

2.8%

$26,049

83.8

3.8%

79.3

1.38

241

0.8%

-0.1%

$31,264

100.5

2.5%

139.5

6.40

46

0.8%

-0.1%

$31,264

100.5

2.5%

139.5

6.40

46

Which Type of Clusters Matter Most?

Identifying Industry Clusters

Export Oriented:Many of the companies in the cluster sell products or services to companies outside the region.

Concentration:Employment in the cluster is more concentrated in the region than the national average, and the cluster is an existing or emerging area of specialization.

Business Interdependence: Businesses relate to each other through the buyer-supplier “food chain,” as competitors, or as partners.

Significant Size or Rapid Growth:The cluster is of a significant size or, if new, has an above average growth rate compared to that of the U.S. as a whole.

Continuum of collaborative activity

Jointly informnewsletters, electronic links, cluster directories

Jointly learnseminars, conferences, training

Jointly marketstrategic plans for exports, cluster brochures

Jointly purchasebuyer-supplier linkages

Jointly producebid on projects, joint ventures, federal labs

Jointly build economic foundationscenters of excellence, telecom, tech transfer,

How Do Clusters Develop? Initial (Natural) Resource Base

• Pittsburgh’s Steel

Historical Legacy (Large Local Markets)• Chicago’s food processing

Luck/Serendipity • Galveston’s Insurance

Supportive Business/Regulatory Environment • Wilmington’s Credit Cards

Consciously Designed Initiatives• Research Triangle’s Information Technology

Now, usually a mix of reasons…

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• Likelihood of innovation activities being geographically clustered depends on:The nature of the technology

• e.g., its underlying knowledge base or the degree to which it can be protected by patents or copyright, the degree to which its communication requires close and frequent interaction;

Industry characteristics• e.g., degree of market concentration or stage of the industry

lifecycle, transportation costs, availability of supplier and distributor markets; and,

The cultural context of the technology • e.g., population density of labor or customers, infrastructure

development, national differences in how technology development is funded or protected.

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Technological spillovers 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

Crowdsourcing

• Threadless www.threadless.com

• Quirky www.quirky.com/shop


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• 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– Led to rapid increase in establishment of technology-transfer

offices.

• Revenues from university inventions are still very small, but universities also contribute to innovation through publication of research results.

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• Universities and Government-Funded Research Governments invest in research through:

• Their own laboratories

• Science parks and incubators

• Grants for other public or private research organizations


Share of Federal Funding of Different Technical Fields


The Rise of Academic Research

Why Universities Transfer Technology

• Facilitate commercialization of research for the public good

• Reward, retain and recruit faculty, students

• Induce closer ties to industry

• Promote economic growth

The Technology Transfer Process

Research Disclosure IP Decision

IP Protection

Commercialization Strategy Licensing

$42.3

billion

10,270 patent

applications

17,382

disclosures

4,932 licenses

454 new companies3,278 issued

patents

Source: AUTM

Licensing Survey: FY

2005

Total Sponsored Research Expenditures - U.S. Universities

Source: AUTM Licensing Survey: FY 2000

Intellectual Property Trends - U.S. Universities

Gross License Income Received by U.S. Universities 1992-2000

0

200

400

600

800

1000

1200

1992

1993

1994

1995

1996

1997

1998

1999

2000

Income in Millions

Source: AUTM Licensing

Survey: FY 2000


Relationship Between Technology and Form of Innovation


Forms of Innovation and Technology Strategy

• Affects the value that can be generated and captured

• Affects ability to attract customers


Industry and the Nature of Innovation

• The nature of innovation varies across industries

• Depends on the production process in an industry: Non-assembled Simple assembled Assembled systems

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The Camera Pill: A capsule that is swallowed by patient that broadcasts images of the small intestine

Invented by Gavriel Iddan & team of scientists• Iddan was a missile engineer – no medical background• Project initiated by Dr. Scapa, a gastroenterologist• Iddan applied guided missile concept to problem of viewing

the small intestine Developing the Camera Pill

• Many hurdles to overcome: size, image quality, battery life• Formed partnership with Gavriel Meron (CEO of Applitec) for

capital to commercialize• Formed partnership with team of scientists lead by Dr. C. Paul

Swain to combine complementary knowledge• Resulted in highly successful, revolutionary product.

Getting an Inside Look: Given Imaging’s Camera Pill

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• Firm Linkages with Customers, Suppliers, Competitors, and Complementors Most frequent collaborations are between firm and their

customers, suppliers, and local universities.

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• Firm Linkages with Customers, Suppliers, Competitors, and ComplementorsExternal versus Internal Sourcing of Innovation

• External and internal sources are complements– Firms with in-house R&D also heaviest users of external

collaboration networks– In-house R&D may help firm build absorptive capacity that

enables it to better use information obtained externally.

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• Private Nonprofit OrganizationsMany nonprofit organizations do in-house

R&D, fund R&D by others, or both.

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Knowledge Brokers Hargadon and Sutton point out that some firms (or

individuals) play a pivotal role in the innovation network – that of knowledge brokers.

Knowledge brokers are individuals or firms that transfer information from one domain to another in which it can be usefully applied. Thomas Edison is a good example.

By serving as a bridge between two separate groups of firms, brokers can find unique combinations of knowledge possessed by the two groups.

Research Brief

©2009 prentice hall 4-1 m738 management of technology lecture 4 sources of innovation

Documents

technological opportunity

creativity of individuals

combining creativity

individual creativity

different loci of innovation

different ways

different institutions

naturesuch individuals