Chapter 2:

Creativity, Innovation
and
Entrepreneurship
 Introduction
 Entrepreneurship and innovation are widely regarded as an
important basis for competitive advantage in a rapidly changing
international business environment, enhancing capabilities for
sustainable business growth, economic activity and the wealth of
nations.
 Entrepreneurship relates to the discovery, evaluation and
exploitation of opportunities in the process of business start-up,
creation and growth; entrepreneurial dynamism is key to economic
renewal and growth .
 Innovation relates to the development, adoption and exploitation
of value-added activities in economic and social areas; a key factor for
competitiveness and growth
 WHAT IS INNOVATION

• Defining innovation is not as easy as it would seem. Most of us think we know what innovation is,
but we have our own frames of how to define it.
• Some have defined innovation as invention plus exploitation. In other words, it is not only the act of
creation but the inventor or someone actually taking that product to market and selling it to people.
• Essentially, innovation is the successful commercial exploitation of new ideas. It includes the
scientific, technological, organizational, financial, and business activities leading to the commercial
introduction of a new (or improved) product or service.
• Firms compete successfully when they offer new, better, and/or cheaper products and services,
which their customers can use to advantage, and which their competitors cannot provide.
 Cont’d…
• Innovation is both a necessary means and a desirable end for businesses in a
fast moving global economy. It is about managing a process that delivers
either new products and services to the customers, efficiently, effectively and
faster than the competition, or about enhancing the delivery of existing
products and services by process improvement.
• Generally, innovation involves managing a complex mix of procedures in a
context that often conditions the way the end result will be achieved.
WE THINK BIG, DREAM BIG AND ACHIEVE BIG
 BROAD DEFINITION OF INNOVATION

• The term ‘innovation’ has its roots from the Latin word ‘novus’,
which means ‘new’ and is derived into the verb ‘in+novare’ that
covers the meaning ‘to make new’.
• Therefore, in the broadest context, ‘to innovate’ is ‘to begin or
introduce (something new) for the first time’, and ‘innovation’
has the meaning of ‘the act of introducing something new’ (The
American Heritage Dictionary, 2000).
 INNOVATION…

• Innovation is the embodiment, combination, and/or synthesis of knowledge in novel,

relevant, valued new product, processes or services” (Leonard and Swap, 1999).

• According to the Product Development Management Association, the act of

‘innovation’ ‘…includes invention as well as the work required to bring an idea or
concept into final form’ (Rosenau, 1996).

• Innovation also involves many more parts of a firm than the ‘technology’ areas.
Decisions on strategy, organization, finance, marketing, and location of business are
made alongside those related to research, design, and operations
 INNOVATION…

• According to Tidd et al. (2001), “innovation is more than simply coming up

with good ideas; it is the process of growing them into practical use.”
• According to Schumpeter (1942), innovations are the driving forces leading a
capitalist economy run. He poses “the fundamental impulse that sets and keeps
the capitalist engine in motion comes from new consumer goods, the new
methods of production or transportation, the new markets, the new forms of
industrial organization that capitalist enterprise creates”
• The Oslo Manual defines innovation as; “An innovation is the
implementation of a new or significantly improved product (good or
service), or a process, new marketing method, or a new
organizational method in business practices, workplace
organization or external relations.”
• The Advisory Committee on Measuring Innovation in the 21st
Century Economy defines innovation as; “An innovation is the
design, invention, development and/or implementation of new or
altered products, services, processes, systems, organizational
structures, or business models for the purpose of creating new value
for customers and financial returns for the firm”.
 Creativity—Essential to survival
• If you truly want to build a great business, you need to apply creativity
to it.
• As an entrepreneur, you are paid to solve problems and you need
business creativity to find and develop solutions that no one else has
thought of yet.
• A little creativity will keep you sane and might just save your butt in
the crazy life of a startup founder.
• The more you can develop your creative edge, the more of a
competitive advantage you give yourself. The more you survive.
 Design thinking
• Design thinking is a non-linear, iterative process that teams use to
understand users, challenge assumptions, redefine problems and
create innovative solutions to prototype and test.

• Involving five phases—Empathize, Define, Ideate, Prototype and

Test.
• It is most useful to tackle problems that are ill-defined or
unknown.
 The creative process: creativity to entrepreneurship
• While all creative people apply unique methods and thought
processes to their work, there are five stages that most creators
subconsciously follow while pursuing their creative endeavors.

• The five stages of the creative process each flow logically into the
next phase of the process.

• As you embark on your own creative process, unleash your mind

and let your ideas grow through the five stages of creativity.
 1. Preparation stage
• As you begin the creative journey, the first stage involves prep
work and idea generation.
• This is when you gather materials and conduct research that could
spark an interesting idea.
• Brainstorm and let your mind wander, or write in a journal to
foster divergent thinking; this will help you consider all possible
approaches to building out your idea.
• In this first part of the process, your brain is using its memory
bank to draw on knowledge and past experiences to generate
original ideas.
 2. Incubation stage:
• When you have finished actively thinking about your idea, the
second stage is where you let it go.
• Part of creative thinking is taking a step away from your idea
before you sit down to flesh it out.
• You might work on another project or take a break from the
creative process altogether—regardless, you are not consciously
trying to work on your idea.
• Walking away from your idea might seem counterproductive, but
it’s an important stage of the process.
• During this time, your story or song or problem is incubating in
the back of your mind.
 3. Illumination stage:
• Sometimes called the insight stage, illumination is when the “aha”
moment happens.
• The light bulb clicks on as spontaneous new connections are
formed and all of that material you’ve gathered comes together to
present the solution to your problem.
• In this third stage, the answer to your creative quest strikes you.
• For example, you overcome writer’s block by figuring out the
ending to your story.
• It can take you by surprise but after the incubation stage, an idea
has emerged.
 4. Evaluation stage:
• During this stage, you consider the validity of your idea and
weigh it against alternatives.
• This is also a time of reflection when you look back at your initial
concept or problem to see if your solution aligns with your initial
vision.
• Business professionals might
do market research to test the viability of the idea.
• During this phase, you might go back to the drawing board or you
might forge on, confident in what you’ve come up with.
 5. Verification stage:
• This is the final stage of the creative process.
• It’s when the hard work happens.
• Your creative product might be a physical object, an
advertising campaign, a song, a novel, an architectural
design—any item or object that you set out to create,
propelled by that initial idea that popped into your head.
• Now, you finalize your design, bring your idea to life, and
share it with the world.
 Techniques for improving the creative process
• Individual Assignment
Read about the following techniques for improving the creative process and prepare
notes on each.
1) Brainstorming
2) Brainwriting
3) Synectics
4) Radial-diagram technique
5) Nominal group technique
6) Metaphors
7) Object Stimulation
8) Manipulative verbs
9) Heuristic ideation
10) Suggested integration of problem elements (SIL)
11) Morphological analysis
12) Breakthrough Thinking
13) Guided Fantasy
14) Wishful thinking
15) Rich pictures
16) Force field analysis
17) Associations/ images
18) Wildest idea
19) Peaceful setting
20) Progressive abstraction
21) Lotus Blossom technique
22) Bug list technique
23) Interrogatories
24) Problem reversal
25) Assumption Reversal
26) Attribute association
27) Dimensional analysis
28) Boundary examinations
29) Disjointed incrementalism
30) Decomposable matrices
 Types of Innovation
• Product innovation, which can provide both technological,
biological or medical solutions, such as an improved cook stove
that reduces CO2 emissions, a new form of rice better equipped to
sustain flooding, and a new malaria vaccine;
• Process innovation, such as a new way of paying for solar power
through mobile technology, and a new way to collect the views of
young people through text messages;
• Marketing innovation, such as a new agent system to allow for
input suppliers in agriculture to sell to small holders; and
• Organisational innovation, such as changes in management
structures and new strategic partnerships.
THEORY AND HISTORY OF INNOVATION
The theory of innovation dates back to early studies on the capital
system. It was Bacon, at the beginning of the 17th century, who
suggested a ‘science-created utopia’ on the role of the developments
in science and technology in society.
Later, Adam Smith, in the second half of the 18th century, suggested
technological change as a major concern for the development
industrial production.
In the first half of the 19th century, Marx put forward the view that
technological advancements –and improved industrial production-
had displaced the ‘worker,’ causing confusion in the social order .
Lately, it was Schumpeter, in the first half of the 20th century, who
first mentioned ‘innovation’ as “keeping the capitalist engine in
motion.” Schumpeter suggested innovations to be imperative for
economic growth, commercial profit, and thus, public wealth.
During the course of the development of the theory of innovation,
scholars with different approaches including the classical economists,
the Marxists, the neo-classical theorists, the Schumpeterians, post-
Keynesians, and post-Schumpeterians have had significant
contributions.
In Schumpeter’s ‘Theory of Economic Development’, innovations stimulate
new innovations, constituting ‘clusters of innovations,’ open new profitable
opportunities, obtain profit and growth in the economy, and finally result with
an enhancement in the standard of life of the public. Schumpeter suggests that
each cluster of innovation –innovations subsequently appearing– is “…an
avalanche of consumers’ goods that permanently deepens and widens the
stream of real income” (Schumpeter, 1942).
According to Schumpeter, the process of economic development could be
divided into three clearly separate stages.
•The first stage implies technical discovery of new things or new ways of
doing things which Schumpeter refers to as invention. In the subsequent stage
innovation occurs, i.e. the successful commercialization of a new good or
service stemming from technical discoveries or more. Generally, anew
combination of knowledge (new and old). The final step in this three stage
process-imitation concerns a more general adoption and diffusion of new
products or process to market.
Innovation Models
Linear Innovation Model
 Cont’d…
• Coombs et al. (1987) describe a dominant linear
model of the innovation process, according to which
“innovation is a sequence of stages, starting
from either R&D or some perception of
demand and ending with a product sold on
the market.”
• In this model, the input of each stage is the
output of the previous stage in a linear
fashion.
 Cont’d…
• OECD (1992) explains this model as “the development,
production, and marketing of new technologies
followed a well-defined time sequence that originated in
research activities, involved a product development phase,
then led to production and eventual commercialization.”
• This linear model of the innovation process is challenged
with an ‘interactive model’ in the contemporary
approaches to the innovation process (OECD, 1992).
The interactive model of the innovation process is
characterized by continuous interaction and feedback,
which emphasizes the central role of design (OECD,
1992).
This model can be visualized as a path “starting with the
new market opportunity and/or a new science and
technology-based invention; this is necessarily followed by
the ‘analytical design’ for a new product or process, and
subsequently leads to development, production and
 Cont’d…
• Rothwell (1992) suggests that there are five generations of
innovation models that evolved over time, originating from the
linear model of the innovation process.
• The complexity and interconnection of the model, and the
feedback it supplies, increases with the evolution of each
generation.
• In the ‘fifth generation’ of innovation models, Rothwell (1992)
describes innovation as a process with a supreme level of
interaction, within the company or with external resources,
assisted by IT (Information Technology) networking systems.
 FIRST GENERATION INNOVATION MODEL

• From the 1950s to the middle of the 1960s, rapid industrial

expansion and new technology opportunities lead to the belief
that more research and development results in successful
products (Rothwell, 1994).
• It is a technology push
 FIRST GENERATION…

Design and
Basic science
engineering
manufacturing marketing sales
SECOND GENERATION INNOVATION MODEL
• In the second-generation, middle of 1960s to early 1970s, the
companies within the US had a lot of competition, the
employment rate was static and the productivity was increasing.
In that time products were developed due to the demand of the
market with existing technologies. The market as source of ideas
is opposed to the first generation (Rothwell, 1994).
 CONT’D…

Market Needs Development Manufacturing Sales

 THIRD GENERATION INNOVATION MODEL

• Bochm and Frederick (2010) call the third generation the

portfolio management. The others name it coupling model,
interactive model or the combination of push and pull.
 State of the art
NEW TECHNOLOGY In science and technology
Technology push

Idea Marketing and Commercial

Generation Development Manufacturing
Sales Product

MARKET Pull
NEW IDEA Need of the society
And the market Place
 TYPE/FORM OF INNOVATION…
• A process innovation replaces “…one production, a new method of
production, or consumption good by another, which serves the same or
approximately the same purpose, but is cheaper” (Schumpeter, 1934).
• According to him, process innovations also include introducing new
materials or supplies that have the potential of producing a unit of a
product cheaper (Schumpeter, 1934).
• The purpose of process innovation is to increase the efficiencies or the
effectiveness of an organization.
 Cont’d…
• Process innovation is the adoption of new significantly improved
production methods. These methods may involve changes in
equipment or production organization or both. The methods
may be intended to produce new or improved products which
cannot be produced using conventional plants or production
methods or to increase the production efficiency of existing
products (OECD, 1992).

• The most common actions that address process innovation are new product
development, restructuring, reengineering, and value destruction.
 Process innovation…Restructuring
• A major reorganization of a firm is often referred to as
restructuring.
• It involves substantive changes in communication and
coordination patterns within the organization.
• Most organizations experience a constant level of small
changes in their processes, tasks, and people.
Cont’d…
• A major reevaluation is commonly caused by events such as:
1.Information is not reaching the proper people to make
timely decisions; this leads to slow decision making.
2.Opportunities and threats are missed by the organization.
3.A disruption has occurred in the firm s environment that has
caused the firm extreme stress.
 RESTRUCTURING…REENGINEERING

• Reengineering requires fundamental rethinking and radical

redesign of work processes.

• Often firms are using processes in the firm that were developed
many years before and are no longer relevant.

• Reengineering requires the firm to think about each step in their

work processes and why does the firm do things the way it does.
 Cont’d…
• Reengineering has five specific goals:
 Increasing productivity

 Optimizing value to shareholders

 Achieving quantum results

 Consolidating functions

 Eliminating unnecessary levels and work

Product Innovation
• One common description of ‘new product development’ is “the
process that transforms technical ideas or market needs
and opportunities into a new product on to the market”
(Walsh et al., 1992).
• ‘New product development’ and ‘technological innovation’
concepts are often subject to confusion.
• Walsh et al. (1992) illustrates the difference of new product
development from technological innovation as “the ‘new
product’ concerned might involve only changes in form,
components, materials, or even just packaging rather than
changes in operation principle or technology”.
Levels of Innovation
 Incremental
Radical
Rothwell and Gardiner (1988) connect the
New to the company products activate importance of incremental innovations to
companies to achieve process innovations the high rates of technological change.
that aim cost-reduction and risk According to them, during periods of high
minimization and incremental product rates of technological change, there exist
innovations relatively few radical innovations in each
industry.
Innovation Strategy
According to the words of management guru Peter Drucker each
organization needs one key competence: innovation.
Innovation is the process by which businesses improve their
competitiveness and profitability by creating and/or adopting
relevant new products and ideas.
Innovations result in the development of new products and
services, new features in existing products and services, and new
ways to produce or sell them or a different approach to any other
process within the company.
• In both the International and European Journal of Innovation Management not a
single result is found when searching for the term “innovation strategy”.
• If, in its simplest form a company’s strategy is defined as a plan designed to achieve
a particular long-term aim, then an innovation strategy can be defined as a plan,
which will enable a company to achieve its long-term goals through the use of
innovation.
• “An innovation strategy helps firms decide in a, cumulative and sustainable
manner, about the type of innovation that best match corporate objectives”
• If strategy is defined as a guide for the allocation of resources in order to achieve
the company’s objectives then: “An innovation strategy guides decisions on how
resources are to be used to meet a firm’s objectives for innovation and thereby
deliver value and build competitive advantage.
• An innovation strategy guides decisions on how resources are to be
used to meet a firm’s objectives for innovation and thereby deliver
value and build competitive advantage
Managing Current Business Innovation Creating Future Business
Strategy

Focus: Doing things differently

Focus: Doing things Better
 Why Innovation strategy is Important?

 Creating and appropriating returns from innovations is a key source of competitive

advantage for a firm.
 Complex, risky, and expensive activities, such as R & D, product and services innovation
design, operations, networking, and collaboration, can hamper a firm’s competitive
position and may result in piecemeal, short-term focused, and potentially conflicting
outcomes unless they are guided by choices that build synergies and grow expertise
cumulatively.
 Why Innovation strategy is Important?

 Globalization of technology and markets, with many potential new

customers, suppliers, partners, and competitors in different parts of the
world, requires companies to take a strategic approach to their innovation
activities to provide focus within an ever-expanding set of opportunities
and threats.
 Why Innovation strategy is Important?

 Organizational structures and innovation processes that firms adopt to

encourage technological innovation need to relate to the corporate
strategy pursued by the firm, and vice versa; for example, R & D can be
organized according to whether the firm aims to support an innovation
leader or follower position.
 Why Innovation strategy is Important?

 Unless firms can articulate their long-term strategic aims for innovation, it
is difficult for them to communicate with and benefit from public-sector
science and technology policies in areas such as basic science, regulation,
and standards creation. They are also less likely to be able to build long-
term technological collaborations with partners or to find patient
investors.
 Why Innovation strategy is Important?

 A firm that identifies innovation as a strategic activity is more

likely to attract creative workers in search of exciting
opportunities in the ‘war over talent’
Innovation and Competitive
Advantage
• Increase added value for customers
• Reduce product/ service cost
• Increase innovation hit rate
• Improve product/ service quality
• Increase development efficiency
• Increase rate of product/ service introductions
• Shorten time to market
• Develop new product/ service categories
• Create new business models
Research Conducted by Neely et al.(2001) indicate
that positive outcomes in innovations provides
company with a significantly improved market share,
significantly improved competitive position and a
significant increase in customer value.
One of the strongest view on innovation’s ability to drastically improve a
company’s competitiveness was expressed by Schumpeter (1943) when he
wrote;
“But in capitalist reality as distinguished from its textbook picture, it is not…
(price) competition which counts but the competition from the new
commodity, the new source of supply, the new type of organization…
competition which commands a decisive cost or quality advantage and
which strikes not at the margins of the profit,…of the existing firms but at
their very lives. This kind of competition is as much as a bombardment is in
comparison with forcing a doctor.”
Management Teams For
Innovation
Managing Teams for Innovation and Success takes a
strategic, global approach to every aspect of teams:
creating, managing, and leading them. Great teams
can stimulate creativity and innovation, make an
organization more adaptive to market forces, and
drive breakthrough results
 National
Innovation System
The concept of national innovation systems rests on the premise that understanding the linkages
among the actors involved in innovation is key to improving technology performance.
Innovation and technical progress are the result of a complex set of relationships among actors
producing, distributing and applying various kinds of knowledge.
The innovative performance of a country depends to a large extent on how these actors relate to
each other as elements of a collective system of knowledge creation and use as well as the
technologies they use. These actors are primarily private enterprises, universities and public
research institutes and the people within them. The linkages can take the form of joint research,
personnel exchanges, cross patenting, purchase of equipment and a variety of other channels.
There is no single accepted definition of a national system of innovation.
A national system of innovation has been defined as follows:
 “ .. the network of institutions in the public and private sectors whose activities and
interactions initiate, import, modify and diffuse new technologies.” (Freeman, 1987) •
 “ .. the elements and relationships which interact in the production, diffusion and use of new,
and economically useful, knowledge ... and are either located within or rooted inside the borders
of a nation state.” (Lundvall, 1992)
“... a set of institutions whose interactions determine the innovative performance ... of
national firms.” (Nelson, 1993)
“ .. the national institutions, their incentive structures and their competencies, that determine
the rate and direction of technological learning (or the volume and composition of change
generating activities) in a country.” (Patel and Pavitt, 1994)
 The national innovation system is, according to leading innovation researchers, an “open,
evolving and complex system that encompasses relationships between and within
organizations as well as institutions and socioeconomic structures, which determines the rate
and direction of innovation and competence building emanating from processes of science-
based and experiencebased learning” (Lundvall et al., 2009).
 The innovation process is usually a long process that is based on the ability to combine new
building blocks of experience-based and/or scientific ideas and knowledge, resulting in new
products, processes and applications.
 Both the process and outcome depend on many different factors in society such as
interactions between people, the presence of people who have the necessary knowledge on
bringing products to the market, and the actual combining of knowledge from many actors,
testing and retesting until a useful product or service is in place.
 The innovation chain involves adding value to an original idea through a series of
development processes; from new ideas to commercial scale up. These processes may also be
categorized as knowledge sourcing, knowledge transformation and knowledge exploitation
Innovation is thus the result of a complex interaction between various actors and institutions.
Technical change does not occur in a perfectly linear sequence, but through feedback loops
within this system.
In the center of this system are the firms, the way they organize production and innovation and
the channels by which they gain access to external sources of knowledge. These sources might
be other firms, public and private research institutes, universities or transfer institutions – either
regional, national or international.
Here, the innovative firm is seen as operating within a complex network of co-operating and
competing firms and other institutions, building on a range of joint ventures and close linkages
with suppliers and customers.
 The Role Of
Innovation In
Entrepreneurship
 It helps to gain competitive advantage in his business
either due to cost advantage or due to differentiation of
product.
 Innovations in marketing and distribution help him gain
the market share quickly.
Innovation: Evaluation and Control
Once a firm chooses internal innovation as a strategy to gain competitive
advantage, it must determine what it hopes to accomplish (plan), then seek to
achieve those innovation goals (implementation), and ultimately, determine if
it is making progress toward those goals (evaluation). If it is not meeting those
goals, it must make the necessary changes to move in the desired direction
(control).
Therefore, evaluation and control test whether the organizations goals
are being met and if not, making changes necessary to achieve the goals
or amend the goals. The organization cannot assume that its goals and
actions will automatically lead to success or that its goals and objectives
will remain relevant over time.
Establish The Evaluation and Control Process
Objectives
(control)

Compare
Measure Establish take
Establish performance to
Inadequate Corrective
performance standards
Standards Action
(Evaluation) (Evaluation)
(control) (control)

If not adequate

Do nothing or
Reinforce Action
(control)
The end!!!!!