Chapter 2 SOURCES OF INNOVATION

1. Strategic Management of Technological Innovation Melissa Schilling Chapter 2 SOURCES OF INNOVATION

2. 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. Sources of Innovation

3. 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? Sources of Innovation

4. Overview • Innovation can arise from many different sources and the linkages between them. Sources of Innovation

5. 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) • Risk taker (e.g., willingness to take reasonable risks) • Persistence (e.g., tolerate ambiguity and willingness to overcome obstacles) Sources of Innovation

6. 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) • In 1895 John Patterson, founder of National Cash Register (NCR), created the first sanctioned suggestion box program • Originators of adopted ideas were awarded $1 – a revolutionary concept • Honda – more than 75% of ideas are implemented • Bank One – idea repository where employees can collaborate • Creativity training programs • Culture that encourages (but doesn’t directly pay for) creativity. Sources of Innovation

7. 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: • Have mastered the basic tools and operations of the field in which they invent, but they will have not specialized solely on that field. • Are curious, and more interested in problems than solutions. • Question the assumptions made in previous work in the field. • 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 Innovation

8. Theory in Action – The Segway and the iBOT Sources of Innovation

9. Theory In Action – SegwayHuman Transporter • The Segway HT: A self-balancing, two-wheeled scooter invented by Dean Kamen http://www.usfirst.org/about/bio_dean.htm • Kamen holds 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 • Developing the Segway • DEKA http://www.dekaresearch.com/index.html has a balance of “ideation” and “execution” people • Philosophy of “kissing frogs”: produce and evaluate a wide range of potential solutions. • Segway required numerous external partnerships • By 2003, had been adopted primarily for commercial and industrial applications. Sources of Innovation

10. iBOT Mobility System • iBOT mobility system http://www.ibotnow.com/functions/mobility-system.html • Advanced wheelchair that enables users to climb stairs, negotiate sand, rocks and curbs • Incorporates a sophisticated balancing system • Predecessor to Segway • Collaboration with external partners • Venture capitalists • Silicon Sensing Systems developed the gyroscopic sensor system • Michelin developed unique “Balance” tires • Pacific Science helped create the Segway’s electronic motor • Saft developed a “smart charging” battery • Had to satisfy government regulations to be allowed on sidewalks Sources of Innovation

11. Transforming Creativity into Innovation • Innovation by Users • Users have a deep understanding of their own needs, and motivation to fulfill them. • Laser sailboat developed by Olympic sailors without any formal market research or concept testing based on their own preferences • Highly successful in the 70s and 80s • Indermil – a tissue adhesive based on Superglue. Managers tried to exploit Superglue’s tendency to bond to skin to develop an alternative to sutures for surgical applications. • Experiments in the 70s and 80s failed. • A presentation by a reconstructive surgeon who had operated on burn victims in response to the Bradford football stadium fire of 1985 brought the project back to life. • The doctors had used Superglue to repair skin and stick skin grafts in place. • Years later, the patients had almost perfect skin repair • The CEO gave his full support and serious funding. By 2003 the product was selling in 40 countries Sources of Innovation

12. 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 2001 there were approximately 5.3 million snowboarders in the United States and the US market for snowboarding equipment had surpassed $235 million Sources of Innovation

13. 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. • R&D thus refers to a range of activities that extend from early exploration of a domain to specific commercial implementations Sources of Innovation

14. Transforming Creativity into Innovation • Research and Development by Firms • Most firms consider in-house R&D to be their most important source of innovation. • A firm’s R&D expenditures as a percentage of its revenues has a strong correlation with its sales growth rate, sales from new products and profitability. Sources of Innovation

15. Transforming Creativity into Innovation • Research and Development by Firms • Science Push (50s and 60s) approach suggests that innovation proceeds linearly: Scientific discovery  inventionmanufacturing  marketing • Discoveries in basic science were the primary source of innovation which were then translated into commercial applications • Demand Pull (mid 60s) approach argued that innovation originates with unmet customer need: Customer suggestions  invention  manufacturing • Research staff would develop new products in efforts to respond to customer problems or suggestions • Most current research argues that innovation is not so simple, and may originate from a variety of sources and follow a variety of paths. • In-house R&D • Linkages to customers or other potential users of innovations • Linkages to external sources of scientific and technical info • Linkages to competitors, suppliers and complementors Sources of Innovation

16. Transforming Creativity into Innovation • Firm Linkages with Customers, Suppliers, Competitors, and Complementors • Include alliances, participation in research consortia, licensing arrangements, joint ventures • Most frequent collaborations are between firm and their customers, suppliers, and local universities. • Firms considers users their most valuable source of new ideas • Complementors are organizations that produce complementary goods such as DVD moves for DVD players Sources of Innovation

17. 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 (the ability of an organization to assimilate and utilize new knowledge) that enables it to better use information obtained externally. Sources of Innovation

18. 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. • Offices that facilitate the transfer of technology developed in a research environment to commercial applications (see article from WSJ) • Revenues from university inventions are still very small, but universities also contribute to innovation through publication of research results. Sources of Innovation

19. Transforming Creativity into Innovation • Universities and Government-Funded Research • In 1950s and 1960s US govt funded over 65% of R&D money, 26% by 2000 but slack picked up by industry • Dollar amount of government funding has increased despite percentage drop • Governments invest in research through: • Their own laboratories • Science parks (foster collaboration between govt, universities and private forms) and incubators (provide funding and advice to nurture the development of new technology that has potential for important societal benefits but highly uncertain direct returns) • Grants for other public or private research organizations Sources of Innovation

20. Transforming Creativity into Innovation • Private Nonprofit Organizations • Many nonprofit organizations do in-house R&D, fund R&D by others, or both. Top 20 US Nonprofit R&D performers, 1997 Sources of Innovation

21. 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 Sources of Innovation

22. Innovation in Collaborative Networks • Technology Clusters are regional clusters of firms that have a connection to a common technology e.g., Silicon Valley’s semiconductor firms, lower Manhattan’s multimedia cluster • Though today’s information technology enables fast, cheap and easy communication across the globe, knowledge does not always transfer so easily • Encompass an array of industries that are linked through relationships between suppliers, buyers and producers of complements. Sources of Innovation

23. Innovation in Collaborative Networks • Agglomeration Economies (benefits firms reap by locating in close geographical proximity to each other): • Proximity facilitates knowledge exchange. • A willingness to exchange through building trust via interaction • Develop common ways to understand and articulate the knowledge • 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.) Sources of Innovation

24. Innovation in Collaborative Networks • Downside of Agglomeration Economies • Proximity of many competitors serving a local market can lead to competition that reduces their pricing power via a vis buyers and sellers • Increase in the likelihood of a firm’s competitors gaining access to the firm’s proprietary knowledge • Can lead to traffic congestion, excessively high housing costs and increased pollution Sources of Innovation

25. 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. • Pharmaceutical industry is clustered in the UK and France, not in Germany or Italy • May be a result of the national systems of research funding and the need to share complex technological expertise • Clothing manufacturing is clustered in Italy but not in the other three • may be due to cultural factors that influenced the historical rise of industrial districts Sources of Innovation

26. Innovation in Collaborative Networks • Technological spillovers (spread of knowledge across organizational or regional boundaries) 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 • e.g.,a firm’s patenting activities and profits were influenced by the R&D spending of other firms and universities in its geographical region (Adam Jaffe) • Significant influence on innovative activity Sources of Innovation

27. 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. • They possess the ability to recognize and capture potential solutions that may be matched to problems in an unexpected way • Seek to exploit potential synergies of combining existing technologies • Robert Fulton saw steam engines used in mines and applied them to boats • By serving as a bridge between two separate groups of firms, brokers can find unique combinations of knowledge possessed by the two groups. • Thomas Edison’s lab borrowed ideas from different industries to create innovations in telegraphs, telephones, phonographs, light bulbs and many others Sources of Innovation

28. 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? Sources of Innovation