Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin
 Chapter 2

Sources of Innovation

Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin
Getting an Inside Look:
Given Imaging’s Camera Pill
• 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.

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Getting an Inside Look:
Given Imaging’s Camera Pill
Discussion Questions:
1. What factors do you think enabled
Iddan, an engineer with no medical
background, to pioneer the
development of wireless endoscopy?
2. To what degree would you characterize
Given’s development of the camera pill
as “science-push” versus “demand-
pull”?
3. What were the advantages and
disadvantages of Iddan and Meron
collaborating with Dr. Swain’s team?
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Overview

• Innovation can arise from many different

sources and the linkages between them.

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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;
Google’s idea management system)
• Creativity training programs
• Culture that encourages (but doesn’t directly pay
for) creativity.

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Translating 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.
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Theory in Action

Dean 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

2-9
Transforming Creativity into
Innovation
• Innovation by Users
• Users have a deep understanding of their
own needs, and motivation to fulfill them.
• While manufacturers typically create
innovations to profit from their sale, user
innovators often initially create innovations
purely for their own use.
• E.g., Laser sailboat developed by Olympic
sailors; Indermil tissue adhesive based on
Superglue; early snowboards

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Theory In Action

The Birth of the Snowboarding

Industry
• First 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 bindings
• By 2008 there were approximately 5.9
million snowboarders in the United States
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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.

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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.

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Transforming Creativity into
Innovation
• Research and Development by Firms
• Science Push approaches suggest that
innovation proceeds linearly:
Scientific discovery  invention  manufacturing 
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.

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Transforming Creativity into
Innovation
• 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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Transforming Creativity into
Innovation
• Firm Linkages with Customers,
Suppliers, Competitors, and
Complementors
• External 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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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
• 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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Transforming Creativity into
Innovation
• 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

Fig. 2.6: Percent 0.8

0.7
of R&D Funds by 0.6
Source and 0.5
0.4 Industry
Country, Selected 0.3
0.2 Government
Years (2004-2006) 0.1 Higher education
0
Private nonprofit
Abroad

2-18
Transforming Creativity into
Innovation
• Private Nonprofit Organizations
• Many nonprofit organizations do in-house
R&D, fund R&D by others, or both.
• The top nonprofit organizations that conduct
a significant amount of R&D include
organizations such as the Howard Hughes
Medical Institute, the Mayo Foundation, the
Memorial Sloan Kettering Cancer Center,
and SEMATECH.
• Collectively, US nonprofit organizations
spent $10.5 billion on R&D in 2006.

2-19
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 research is especially important in
high-technology sectors where individual firms
rarely possess all necessary resources and
capabilities

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Innovation in Collaborative
Networks
• As firms forge collaborative relationships, they
weave a larger network that influences the
diffusion of information and other resources.
• The size and structure of this network changes
over time due to changes in alliance activity.
1995 2000
StressgenBiotechnologiesCorp

Seven-ElevenJapanCoLtd

ElanCorpPLC

IBMCorp
BayerAG
MatsushitaElectricIndustrial

HitachiLtd SunMicrosystemsInc
MotorolaInc

Hewlett-PackardCo MicrosoftCorp

MonsantoCo

CSIRO

MagazineHouseCoLtd

QUALCOMMInc

T oyotaMotorCorp

2-21
Innovation in Collaborative
Networks
• 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.)

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Innovation in Collaborative
Networks
• 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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Innovation in Collaborative
Networks
• 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

2-24
Research Brief

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.

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Discussion Questions
1. What are some of the advantages and disadvantages of a)
individuals as innovators, b) firms as innovators, c) universities
as innovators, d) government institutions as innovators, e)
nonprofit organizations as innovators?

2. What traits appear to make individuals most creative? Are these

the same traits that lead to successful inventions?

3. Could firms identify people with greater capacity for creativity

or inventiveness in their hiring procedures?

4. To what degree do you think the creativity of the firm is a

function of the creativity of individuals, versus the structure,
routines, incentives, and culture of the firm? Can you give an
example of a firm that does a particularly good job at nurturing
and leveraging the creativity of its individuals?

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