Because learning changes everything.

Chapter 2
Sources of Innovation

Strategic Management of
Technological Innovation, 7th Edition
Melissa A. Schilling

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 The Rise of Cultured Meat
In late 2017, Bill Gates, Jeff Bezos, Jack Ma and others began funding
efforts to grow “clean meat”.
• Growth in demand for meat expected to outpace supply.

• Animal production has large negative impacts environment: greenhouse

gasses, heavy water and energy use.

• Animal production is inefficient: 1 calorie of beef requires 23 calories of inputs

versus 3 required for one calorie of “clean meat”.

Developing clean meat.

• Jason Matheny founded New Harvest to promote research; collaborated with
Dutch scientist and government.
• Early efforts were very expensive ($1200 for first meatball).
• By 2021 there were dozens of startups, and Eat Just had already launched
cultured chicken.

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 The Rise of “Clean Meat”
Discussion Questions:
1. What were the potential advantages of developing cultured
meat? What were the challenges of developing it and bringing
it to market?
2. What kinds of organizations were involved in developing clean
meat? What were the different resources that each kind of
organization brought to the innovation and what were their
motives?
3. What are the challenges to gaining wide market acceptance of
cultured meat, and how could these organizations facilitate
that? Can you think of other products or services that faced
similar challenges?

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

Access the text alternative for these images.

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 Creativity 1

Creativity: The ability to produce work that is useful and

novel.
Individual creativity is a function of:
• Intellectual abilities (for example, ability to articulate ideas).
• Knowledge (for example, understand field, but not wed to paradigms).
• Personality (for example, confidence in own capabilities).

• Motivation (for example, rely on intrinsic motivation).

• Environment (for example, support and rewards for creative ideas).

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 Creativity 2

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

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 Theory in Action 1

Inspiring Innovation at Google.

Google uses a range of formal and informal mechanisms to
encourage its employees to innovate, including:
• 20% Time (all engineers are encouraged to spend 20% of their time
working on their own projects).
• Recognition awards.

• Google Founders’ Awards.

• Ad sense Ideas Contest.

• Innovation reviews.

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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 2

What Breakthrough Innovators Have in Common.

A study of individuals (published in “Quirky: The remarkable story of the
traits, foibles, and genius of breakthrough innovators who changed the
world” identified as serial breakthrough innovators identified some key
commonalities:
1. They felt a sense of “separateness and tended to challenge rules.
2. They had intense faith in their ability to achieve their objectives.
3. They were keenly idealistic.
4. They began with modest means and worked very hard for their
success.
5. They were often self taught.

Understanding how these factors helped them become

breakthrough innovators reveals how anyone can nurture
breakthrough innovation potential.
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 Transforming Creativity into Innovation 1

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.
• For example, Laser sailboat developed by Olympic sailors;
Indermil tissue adhesive based on Superglue; early
snowboards.

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 Transforming Creativity into Innovation 2

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 3

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 4

Firm Linkages with Customers, Suppliers, Competitors,

and Complementors.
• Most frequent collaborations are between firm and their
customers, suppliers, and local universities.

Collaborates with: North America (%) Europe (%) Japan (%)

Customers 44 38 52
Suppliers 45 45 41
Universities 34 32 34

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 Transforming Creativity into Innovation 5

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 6

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 7

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.

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 Transforming Creativity into Innovation 8

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.

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 Total R&D Expenditures and Percent of R&D
Funds by Performing Sector, by Country 2017

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 Innovation in Collaborative Networks 1

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 2

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.

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 Innovation in Collaborative Networks 3

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 (for example, better
roads, utilities, schools, etc.).
Agglomeration downsides:
• Increased competition, knowledge leakage, congestion and pollution.
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 Innovation in Collaborative Networks 4

Likelihood of innovation activities being geographically

clustered depends on:
The nature of the technology.
• For example, 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.
• For example, 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.
• For example, 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 5

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 (for example, patents, copyright,
trade secrets).
• Nature of underlying knowledge base (for example, tacit, complex).
• Mobility of the labor pool.

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 Research Brief
Do Grant Innovation Prizes Work?
Prizes are most useful where traditional monetization methods might be
poor, for example,
• when patent rights are weak.
• when development process takes so long as to be economically
unattractive.
• when benefits will be so diffuse as to lead to underinvestment in public
good.
Example.
• Xprize Foundation’s NRG COSIA Carbon Xprize for removing CO2 from the
atmosphere.
• 48 teams entered the competition, nine made it to final round, vying for two
prizes worth $10 million each.

Prizes can induce a wide range of participants to enter and yield a

diverse array of solutions. The collective investment of participants may
be much greater than the prize itself.
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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?
5. Several studies indicate that the use of collaborative research
agreements is increasing around the world. What are some reasons
collaborative research might be becoming more prevalent?

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 Supplemental Video
A short video on.
Sources of Innovation: Individual Creativity.
https://youtu.be/j3jKzYnzC6c

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 Because learning changes everything. ®

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© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 Accessibility Content: Text Alternatives for Images

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 Overview – Text Alternative
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A pentagram contains firms, universities, government funded

research, private nonprofits, and individuals interconnected
to each other.

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 Total R&D Expenditures and Percent of R&D Funds by
Performing Sector, by Country 2017 – Text Alternative
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The data is shown for business, higher education, gross R and D expenditures in
billion dollars, government, private nonprofit. The values for the United States for
the year 2017 reads: Business, 73. Government, 10. Higher education, 13.
Private nonprofit, 4. The values for China for the year 2017 reads: Business, 78.
Government, 15. Higher education, 8. The values for Japan for the year 2017
reads: Business, 79. Government, 8. Higher education, 12. Private nonprofit, 1.
The value for Germany for the year 2017 reads: Business, 69. Government, 14.
Higher education, 18. The values for South Korea for the year 2017 reads:
Business, 79.5. Government, 11. Higher education, 9. Private nonprofit, 1. The
values of France for the year 2016 reads: Business, 65. Government, 12. Higher
education, 21. Private nonprofit, 2. The values of India for the year 2015 reads:
Business, 44. Government, 53. Higher education, 4. The values of the United
Kingdom for the year 2016 reads: Business, 68. Government, 7. Higher
education, 23. Private nonprofit, 3. The graph representing the gross R and D
expenditures in billion dollars has the values: the United States, 530. China, 480.
Japan, 170. Germany, 110. South Korea, 100. France, 80. India, 50. The United
Kingdom, 50.

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 Innovation in Collaborative Networks – Text 2

Alternative
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An illustration shows the worldwide technological collaboration

network in the year 1995. The dense web of connected firms is
seen mostly on the right. The central part of the web has the
company names: IBM Corporation, Motorola Incorporated, and
Hewlett Packard Company. To its right, an illustration shows the
worldwide technological collaboration network in the year 2000.
The once dense web is spread out into different parts. The spread
out sections includes: Seven eleven Japan Company Limited,
Stressgen Biotechnologies Corporation, Elan Corporation PLC,
Bayer AG, Monsanto Company, CSIRO, Magazine House
Company Limited, Qualcomm Incorporated, Toyota Motor
Corporation. The central part of the web includes the companies:
Matsushita Electric Industrial, Sun Microsystems Incorporated,
Hitachi Incorporated, Microsoft Corporation.
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