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PA R T I

ENTREPRENEURIAL
GOALS AND CONTEXT
Copyright © 2015. Wiley Textbooks. All rights reserved.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
Created from unive3-ebooks on 2019-10-11 04:54:06.
The national, regional and sectoral contexts can have a significant influence on the rate and
direction of innovation and entrepreneurship through the availability or scarcity of resources,
talent, opportunities, infrastructure and support. However, while context influences the rate
and direction, it does not determine outcomes. The education, training, experience and apti-
tude of individuals also have a profound effect on the goals and outcomes of innovation and
entrepreneurship.

Entrepreneurial Recognizing the Finding the Developing the Creating the

goals and context opportunity resources venture value

Learning
Copyright © 2015. Wiley Textbooks. All rights reserved.

The Innovation
Imperative

LEARNING OBJECTIVES
By the end of this chapter you will develop an understanding of:

• what ‘innovation’ and ‘entrepreneurship’ mean – and how they are essential for sur-
vival and growth
• innovation as a process rather than a single flash of inspiration
• the difficulties in managing what is an uncertain and risky process
• the key themes in thinking about how to manage this process effectively.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Innovation Matters
You don’t have to look far before you bump into the innovation imperative. It leaps out at
you from a thousand mission statements and strategy documents, each stressing how impor-
tant innovation is to ‘our customers/our shareholders/our business/our future’ and, most
often, ‘our survival and growth’. Innovation shouts at you from advertisements for products
ranging from hairspray to hospital care. It nestles deep in the heart of our history books,
pointing out how far and for how long it has shaped our lives. And it is on the lips of every
politician, recognizing that our lifestyles are constantly shaped and reshaped by the process
of innovation.

INNOVATION IN ACTION 1.1

Everybody’s Talking about It

• ‘We have the strongest innovation programme that I can remember in my 30-year career at
P&G, and we are investing behind it to drive growth across our business’ – Bob McDonald,
Chairman, President and CEO, Procter & Gamble
• ‘We believe in making a difference. Virgin stands for value for money, quality, innovation, fun
and a sense of competitive challenge. We deliver a quality service by empowering our employees
and we facilitate and monitor customer feedback to continually improve the customer’s
experience through innovation’ – Virgin Life Care (http://www.virginlifecare.co.za/aboutus/
aboutVirgin.aspx)
• ‘Adi Dassler had a clear, simple, and unwavering passion for sport. Which is why with the ben-
efit of 50 years of relentless innovation created in his spirit, we continue to stay at the forefront
of technology’ – Adidas (www.adidas.com)
• ‘Innovation is our lifeblood’ – Siemens (www.siemens.com)
• ‘We’re measuring GE’s top leaders on how imaginative they are. Imaginative leaders are
the ones who have the courage to fund new ideas, lead teams to discover better ideas,
and lead people to take more educated risks’ – J. Immelt, chairman and CEO, General
Electric
• ‘We are always saying to ourselves. We have to innovate. We’ve got to come up with that
breakthrough’ – Bill Gates, former chairman and CEO, Microsoft
• ‘Innovation distinguishes between a leader and a follower’ – Steve Jobs, co-founder and for-
mer chairman and CEO, Apple
• ‘John Deere’s ability to keep inventing new products that are useful to customers is still the
key to the company’s growth’ – Robert Lane, CEO, John Deere
Copyright © 2015. Wiley Textbooks. All rights reserved.

This isn’t just hype or advertising babble. Innovation does make a huge difference to
organizations of all shapes and sizes. The logic is simple: if we don’t change what we offer the
world (products and services) and how we create and deliver them, we risk being overtaken
by others who do. At the limit it’s about survival, and history is very clear on this point: sur-
vival is not compulsory! Those enterprises which survive do so because they are capable of
regular and focused change. (It’s worth noting that Bill Gates used to say of Microsoft that it
was always only two years away from extinction. Or, as Andy Grove, one of the founders of
Intel, pointed out, ‘Only the paranoid survive!’)

INNOVATION IN ACTION 1.2

…and It’s a Big Issue

• OECD countries spend $1500 billion/yr on R&D.
• More than 16 000 firms in the USA currently operate their own industrial research labs, and
there are at least 20 firms that have annual R&D budgets in excess of $1 billion.
• In 2008, 16.8% of all firms’ turnover in Germany was earned with newly introduced prod-
ucts; in the research-intensive sector this figure was 38%. During the same year, the German
economy was able to save costs of 3.9% per piece by means of process innovations.
• ‘Companies that do not invest in innovation put their future at risk. Their business is unlikely
to prosper, and they are unlikely to be able to compete if they do not seek innovative solutions
to emerging problems’ – Australian government website, 2006.
• ‘Innovation is the motor of the modern economy, turning ideas and knowledge into products
and services’ – UK Office of Science and Technology, 2000.
• According to Statistics Canada, the following factors characterize successful small and
medium-sized enterprises SMEs:
0 Innovation is consistently found to be the most important characteristic associated with success.
0 Innovative enterprises typically achieve stronger growth or are more successful than those
that do not innovate.
0 Enterprises that gain market share and increasing profitability are those that are innovative.

On the plus side innovation is also strongly associated with growth. New business is
created by new ideas, by the process of creating competitive advantage in what a firm can
offer. Economists have argued for decades over the exact nature of the relationship but they
are generally agreed that innovation accounts for a sizeable proportion of economic growth.
William Baumol points out that ‘virtually all of the economic growth that has occurred since
Copyright © 2015. Wiley Textbooks. All rights reserved.

the eighteenth century is ultimately attributable to innovation.’1

INNOVATION IN ACTION 1.3

Growth Champions and the Return from Innovation

Tim Jones has been studying successful innovating organizations for some time (see http://
growthchampions.org/about-us/). His most recent work has built on this, looking to try to
establish a link between those organizations which invest consistently in innovation and their
(continued)

subsequent performance.2 His findings

Audio Clip of an interview with show that over a sustained period of time
Tim Jones discussing the link there is a strongly positive link between
between innovation and growth is
available on the Innovation Portal
the two; innovative organizations are
at www.innovation-portal.info more profitable and more successful.

Survival and growth poses a problem for established players but a huge opportunity for
newcomers to rewrite the rules of the game. One person’s problem is another’s opportunity
and the nature of innovation is that it is fundamentally about entrepreneurship. The skill
to spot opportunities and create new ways to exploit them is at the heart of the innovation
process. Entrepreneurs are risk-takers, but they calculate the costs of taking a bright idea
forward against the potential gains if they succeed in doing something different – especially
if that involves upstaging the players already in the game.

INNOVATION IN ACTION 1.4

Global Innovation Performance

The consultancy Arthur D. Little conducts a regular survey of senior executives around the world
exploring innovation.3 In its 2012 survey of 650 organizations, the following emerged:

• Top quartile innovation performers obtain on average 13% more profit from new products
and services than average performers do, and 30% shorter time-to-break-even, although the
gap is narrowing.
Copyright © 2015. Wiley Textbooks. All rights reserved.

• There is a clear correlation between capability in innovation measurement and innovation success.
• A number of key innovation management practices have a particularly strong impact on
innovation performance across industries.

Of course, not all games are about win/lose outcomes. Public services like healthcare,
education and social security may not generate profits but they do affect the quality of life
for millions of people. Bright ideas when implemented well can lead to valued new services
and the efficient delivery of existing ones at a time when pressure on national purse strings
is becoming ever tighter. New ideas – whether wind-up radios in Tanzania or micro-credit
financing schemes in Bangladesh – have the potential to change the quality of life and the
availability of opportunity for people in some of the poorest regions of the world. There’s
plenty of scope for innovation and entrepreneurship and sometimes this really is about life
and death. Table 1.1 gives some examples.

TABLE 1.1 Where innovation makes a difference

Innovation is
about …. Examples
Identifying Innovation is driven by the ability to see connections, to spot opportunities
or creating and to take advantage of them. Sometimes this is about completely new
opportunities possibilities, for example by exploiting radical breakthroughs in technology.
New drugs based on genetic manipulation have opened a major new front
in the war against disease. Mobile phones, tablets and other devices have
revolutionized where and when we communicate. Even the humble window
pane is the result of radical technological innovation – almost all the window
glass in the world is made these days by the Pilkington float glass process
which moved the industry away from the time-consuming process of
grinding and polishing to get a flat surface

Case Study of James Dyson and his innovation-led business is available on the
Innovation Portal at www.innovation-portal.info

New ways Innovation isn’t just about opening up new markets; it can also offer new
of serving ways of serving established and mature ones. Low-cost airlines are still
existing about transportation, but the innovations firms like Southwest Airlines,
markets easyJet and Ryanair have introduced have revolutionized air travel and
grown the market in the process. Despite a global shift in textile and
clothing manufacture towards developing countries, the Spanish company
Inditex (through its retail outlets under various names, including Zara) has
pioneered a highly flexible, fast turnaround clothing operation with over
2000 outlets in 52 countries. It was founded by Amancio Ortega Gaona,
Copyright © 2015. Wiley Textbooks. All rights reserved.

who set up a small operation in the west of Spain in La Coruña – a region

not previously noted for textile production – and the first store opened there
in 1975. The company now has over 5000 stores worldwide and is the
world’s biggest clothing retailer; significantly, it is also the only manufacturer
to offer specific collections for northern and southern hemisphere markets.
Central to the Inditex philosophy is close linkage between design,
manufacture and retailing and its network of stores constantly feeds back
information about trends, which are used to generate new designs. It also
experiments with new ideas directly on the public, trying samples of cloth
or design and quickly getting back indications of what is going to catch on.
Despite its global orientation, most manufacturing is still done in Spain, and
it has managed to reduce the turnaround time between a trigger signal for
an innovation and responding to it to around 15 days
(continued)

TABLE 1.1 (Continued)

Innovation is
about …. Examples

Case Study of Zara and how it has used innovation around design and ‘fast
fashion’ to create new opportunities in a crowded and mature marketplace is
available on the Innovation Portal at www.innovation-portal.info

Growing new Equally important is the ability to spot where and how new markets can
markets be created and grown. Alexander Bell’s invention of the telephone didn’t
lead to an overnight revolution in communications – that depended on
developing the market for person-to-person communications. Henry Ford
may not have invented the motor car but in making the Model T – ‘a car
for Everyman’ at a price most people could afford – he grew the mass
market for personal transportation. And eBay justifies its multi-billion-dollar
price tag not because of the technology behind its online auction idea but
because it created and grew the market

Case Study of the Model T Ford is available on the Innovation Portal at

www.innovation-portal.info

Rethinking In most economies the service sector accounts for the vast majority of
services activity, so there is likely to be plenty of scope. And the lower capital costs
Copyright © 2015. Wiley Textbooks. All rights reserved.

often mean that the opportunities for new entrants and radical change are
greatest in the service sector. Online banking and insurance have become
commonplace but they have radically transformed the efficiencies with
which those sectors work and the range of services they can provide. New
entrants riding the Internet wave have rewritten the rule book for a wide
range of industrial games, for example Amazon in retailing, eBay in market
trading and auctions, Google in advertising and Skype in telephony

Case Study of Alibaba and the Taobao online shopping mall, one of the world’s
top ten most visited websites, is available on the Innovation Portal at
www.innovation-portal.info

TABLE 1.1 (Continued)

Innovation is
about …. Examples
Meeting Innovation offers huge challenges – and opportunities – for the public
social needs sector. Pressure to deliver more and better services without increasing the
tax burden is a puzzle likely to keep many civil servants awake at night. But
it’s not an impossible dream: right across the spectrum there are examples
of innovation changing the way the sector works. For example, in healthcare
there have been major improvements in efficiencies around key targets
such as waiting times. Hospitals like the Leicester Royal Infirmary in the
UK or the Karolinska Hospital in Stockholm, Sweden have managed to
make radical improvements in the speed, quality and effectiveness of their
care services, such as cutting waiting lists for elective surgery by 75% and
cancellations by 80%, through innovation

Case Studies of innovation in public services, Karolinska Hospital, Aravind

Eye Clinics and Narayana Hrudayalaya Hospitals (NHL), are available on the
Innovation Portal at www.innovation-portal.info

Improving At the other end of the scale Kumba Resources is a large South African
operations – mining company which makes another dramatic claim: ‘We move
doing what mountains.’ In Kumba’s case, the mountains contain iron ore and the
we do but company’s huge operations require large-scale excavation – and restitution
better of the landscape afterwards. Much of its business involves complex large-
scale machinery – and its ability to keep it running and productive depends
on a workforce able to contribute innovative ideas on a continuing basis
Copyright © 2015. Wiley Textbooks. All rights reserved.

Case Study of Kumba’s innovation activities is available on the Innovation Portal

at www.innovation-portal.info

INNOVATION IN ACTION 1.5

Finding Opportunities
• When the Tasman Bridge collapsed in Hobart, Tasmania in 1975, Robert Clifford was run-
ning a small ferry company and saw an opportunity to capitalize on the increased demand
(continued)

for ferries – and to differentiate his by selling drinks to thirsty cross-city commuters. The
same entrepreneurial flair later helped him build a company – Incat – that pioneered the
wave-piercing design which helped the company capture over half the world market for
fast catamaran ferries. Continuing investment in innovation has helped this company from
a relatively isolated island build a key niche in highly competitive international military and
civilian markets.
• ‘We always eat elephants’ is a surprising claim made by Carlos Broens, founder and head
of a successful tool-making and precision engineering firm in Australia with an enviable
growth record. Broens Industries is a small/medium-sized company of 130 employees
which survives in a highly competitive world by exporting over 70% of its products and
services to technologically demanding firms in aerospace, medical and other advanced
markets. The quote doesn’t refer to strange dietary habits but to the company’s confidence
in ‘taking on the challenges normally seen as impossible for firms of our size’ – a capabil-
ity which is grounded in a culture of innovation in products and the processes that go to
produce them.
• There has always been a need for artificial limbs and the demand has, sadly, significantly
increased as a result of high-technology weaponry such as mines. The problem is compounded
by the fact that many of those requiring new limbs are also in the poorest regions of the
world and unable to afford expensive prosthetics. The chance meeting of a young surgeon,
Dr Pramod Karan Sethi, and a sculptor, Ram Chandra, in a hospital in Jaipur, India has led
to the development of a solution to this problem: the Jaipur Foot. This artificial limb was
developed using Chandra’s skill as a sculptor and Sethi’s expertise and is so effective that those
who wear it can run, climb trees and pedal bicycles. It was designed to make use of low-tech
materials and be simple to assemble, for example in Afghanistan craftsmen hammer the foot
together out of spent artillery shells, while in Cambodia part of the foot’s rubber components
are scavenged from truck tyres. Perhaps the greatest achievement has been to do all of this
for a low cost: the Jaipur Foot costs only $28 in India. Since 1975, nearly one million people
worldwide have been fitted for the Jaipur limb and the design is being developed and refined,
Copyright © 2015. Wiley Textbooks. All rights reserved.

for example using advanced new materials.

• Not all innovation is necessarily good for everyone. One of the most vibrant entrepreneurial
communities is in the criminal world where there is a constant search for new ways of com-
mitting crime without being caught. The race between the forces of crime and law and order
is a powerful innovation arena – as work by Howard Rush and colleagues have shown in
their studies of cybercrime.

Case Study detailing a report on cybercrime is available on the Innovation Portal

at www.innovation-portal.info

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
www.innovation-portal.info
Created from unive3-ebooks on 2019-10-11 04:54:06.
Chapter 1 The Innovation Imperative 11

Innovation and Entrepreneurship

Innovation matters – but it doesn’t happen automatically. It is driven by entrepreneurship – a
potent mixture of vision, passion, energy, enthusiasm, insight, judgement and plain hard work
which enables good ideas to become reality. The power behind changing products, processes
and services comes from individuals – whether acting alone or embedded within organizations
– who make innovation happen. As the famous management writer Peter Drucker put it:4

Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an
opportunity for a different business or service. It is capable of being presented as a discipline,
capable of being learned, capable of being practised.

INNOVATION IN ACTION 1.6

Joseph Schumpeter
One of the most significant figures in this area of economic theory was Joseph Schumpeter, who
wrote extensively on the subject. He had a distinguished career as an economist and served as
Minister for Finance in the Austrian government. His argument was simple: entrepreneurs will
seek to use technological innovation – a new product/service or a new process for making it – to
get strategic advantage. For a while, this may be the only example of the innovation so the entre-
preneur can expect to make a lot of money – what Schumpeter calls ‘monopoly profits’. But of
course, other entrepreneurs will see what he has done and try to imitate it – with the result that
other innovations emerge, and the resulting ‘swarm’ of new ideas chips away at the monopoly
profits until an equilibrium is reached. At this point the cycle repeats itself: our original entrepre-
neur or someone else looks for the next innovation that will rewrite the rules of the game, and
off we go again. Schumpeter talks of a process of ‘creative destruction’, where there is a constant
Copyright © 2015. Wiley Textbooks. All rights reserved.

search to create something new which simultaneously destroys the old rules and establishes new
ones – all driven by the search for new sources of profits.
In his view ‘[what counts is] competition from the new commodity, the new technology, the
new source of supply, the new type of organization … competition which … strikes not at the mar-
gins of the profits and the outputs of the existing firms but at their foundations and their very lives.’5

Entrepreneurship plays out on different stages in practice. One obvious example is the
start-up venture in which the lone entrepreneur takes a calculated risk to bring something
new into the world. But entrepreneurship matters just as much to the established organiza-
tion which needs to renew itself in what it offers and how it creates and delivers that offering.
Internal entrepreneurs – often labelled as ‘intrapreneurs’ or working in ‘corporate entrepre-
neurship’ or ‘corporate venture’ departments – provide the drive, energy and vision to take
risky new ideas forward within that context.6 And of course, the passion to change things may

not be focused on creating commercial value but rather on improving conditions or enabling
change in the wider social sphere or in the direction of environmental sustainability – a field
which has become known as ‘social entrepreneurship’ (see Chapter 2).
This idea of entrepreneurship driving innovation to create value – social and com-
mercial – across the lifecycle of organizations is central to this book. Table 1.2 gives some
examples.
In the rest of the book, we use this lens to look at managing innovation and entrepreneur-
ship. We’ll use three core concepts:

• innovation. As a process which can be organized and managed, whether in a start-up ven-
ture or in renewing a 100-year-old business
• entrepreneurship. As the motive power to drive this process through the efforts of passion-
ate individuals, engaged teams and focused networks
• creating value. As the purpose for innovation, whether expressed in financial terms, employ-
ment or growth, sustainability or improvement of social welfare.

TABLE 1.2 Entrepreneurship and innovation

Stage in
lifecycle of an
organization Start-up Growth Sustain/scale Renew
Creating Individual Growing the Building a Returning to the
commercial entrepreneur business portfolio of radical frame-
value exploiting through adding incremental breaking kind
new technol- new products/ and radical of innovation
ogy or market services or innovation to which began the
opportunity moving into sustain the business and
new markets business and/ enables it to
Copyright © 2015. Wiley Textbooks. All rights reserved.

or spread its move forward as

influence into something very
new markets different
Creating social Social Developing Spreading the Changing the
value entrepreneur, the ideas and idea widely, system – and
passionately engaging diffusing it to then acting as
concerned others in a other commu- agent for the
to improve network for nities of social next wave of
or change change – entrepreneurs, change
something in perhaps in engaging links
their immediate a region or with main-
environment around a key stream players
issue like public sec-
tor agencies

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
www.innovation-portal.info
Created from unive3-ebooks on 2019-10-11 04:54:06.
Chapter 1 The Innovation Imperative 13

Innovation Isn’t Easy!

Coming up with good ideas is what human beings are good at – we have this facility already
fitted as standard equipment in our brains! But taking those ideas forward is not quite so
simple, and most new ideas fail. It takes a particular mix of energy, insight, belief and determi-
nation to push against these odds; it also requires judgement to know when to stop banging
against the brick wall and move on to something else.
It’s important here to remember a key point: new ventures often fail, but it is the ventures
which are failures rather than the people who launched them. Successful entrepreneurs recognize
that failure is an intrinsic part of the process. They learn from their mistakes, understanding where
and when timing, market conditions, technological uncertainties, etc. mean that even a great idea
isn’t going to work. But they also recognize that the idea may have had its weaknesses but that they
have not failed themselves but rather learnt some useful insights to carry over to their next venture.

INNOVATION IN ACTION 1.7

Failure Breeds Success

Thomas Edison was a pretty successful entrepreneur with over 1000 patents to his name and the
reputation for bringing many key technologies into widespread use, including the phonograph,
the electric telegraph and the light bulb; he also founded the General Electric Company, which is
still a major player today. He is famous for his attitude towards failure, typified by the search for
the right material to make the filament for his incandescent light bulb, where he explored over
1000 different options. He is reported as having said that the process did not involve failure so
much as ‘the elimination of a design that didn’t work, so we must be getting close’.
Copyright © 2015. Wiley Textbooks. All rights reserved.

While the road for an individual entrepreneur may be very rocky with a high risk of hit-
ting potholes, running into roadblocks or careering off the edge, it doesn’t get any easier if
you are a large established company. It’s a disturbing thought but the majority of companies
have a lifespan significantly less than that of a human being. Even the largest firms can show
worrying signs of vulnerability, and for the smaller firm the mortality statistics are bleak.
Many SMEs fail because they don’t see or recognize the need for change. They are inward
looking, too busy fighting fires and dealing with today’s crises to worry about storm clouds on
the horizon. Even if they do talk to others about the wider issues, it is very often to people in
the same network and with the same perspectives, for example the people who supply them
with goods and services or their immediate customers. The trouble is that by the time they
realize there is a need to change it may be too late.
But it isn’t just a small firm problem. There is no guaranteed security in size or in previ-
ous technological success. Take the case of IBM – a giant firm which can justly claim to have
laid the foundations of the IT industry and came to dominate the architecture of hardware

and software and the ways in which computers were marketed. But such core strength can
sometimes become an obstacle to seeing the need for change – as proved to be the case when,
in the early 1990s, the company moved too slowly to counter the threat of networking tech-
nologies – and nearly lost the business in the process. Thousands of jobs and billions of dol-
lars were lost and it took years of hard work to bring the share price back to the high levels
which investors had come to expect.
One problem for successful companies occurs when the very things which helped them
achieve success – their ‘core competencies’ – become the things which make it hard to see
or accept the need for change. Sometimes the response is ‘not invented here’: the new idea is
recognized as good but in some way not suited to the business.

INNOVATION IN ACTION 1.8

The ‘Not Invented Here’ Problem

A famous example of ‘not invented here’ was the case of Western Union, which, in the 19th cen-
tury, was probably the biggest communications company in the world. It was approached by one
Alexander Graham Bell, who wanted the company to consider helping him commercialize his
new invention. After mounting a demonstration to senior executives, he received a written reply
which said, ‘after careful consideration of your invention, which is a very interesting novelty, we
have come to the conclusion that it has no commercial possibilities … We see no future for an
electrical toy.’ Within four years of the invention, there were 50 000 telephones in the USA and
within 20 years five million. Over the next 20 years, the company which Bell formed grew to
become the largest corporation in the USA.

Sometimes the pace of change appears slow and the old responses seem to work well. It
Copyright © 2015. Wiley Textbooks. All rights reserved.

appears, to those within the industry that they understand the rules of the game and have a
good grasp of the relevant technological developments likely to change things. But what can
sometimes happen here is that change comes along from outside the industry – and by the
time the main players inside have reacted it is often too late.

INNOVATION IN ACTION 1.9

The Melting of the Ice Industry

In the late 19th century, there was a thriving industry in New England based upon the harvesting
and distribution of ice. In its heyday, it was possible for ice harvesters to ship hundreds of tons
of ice around the world on voyages that lasted as long as six months – and still have over half

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
www.innovation-portal.info
Created from unive3-ebooks on 2019-10-11 04:54:06.
Chapter 1 The Innovation Imperative 15

the cargo available for sale. By the late

1870s, the 14 major firms in the Boston
area of the USA were cutting around Case Study of the ice industry is
available on the Innovation Portal
700 000 tons per year and employing at www.innovation-portal.info
several thousand people. But the industry
was completely overthrown by the new
developments which followed from the
invention of refrigeration and the growth of the modern cold storage industry.

Of course, for others these conditions provide an opportunity for moving ahead of the
game and writing a new set of rules. Think about what has happened in online banking,
call-centre-linked insurance or low-cost airlines. In each case, the existing stable pattern has
been overthrown, disrupted by new entrants coming in with new and challenging business
models. For many managers business model innovation is seen as the biggest threat to their
competitive position, precisely because they need to learn to let go of their old models as well
as learn new ones. We also need to see that while for established organizations these crises are
a problem, they represent a rich source of opportunity for entrepreneurs looking to disrupt
an established order and create value in new ways.
In many cases the individual enterprise can renew
itself, adapting to its environment and moving into new
Case Study of how innovation has
things. Consider the example of the Stora company helped a 100-year-old company,
in Sweden: founded in the 13th century as a timber Marshalls, develop and grow is
cutting and processing operation it still thrives today – available on the Innovation Portal at
albeit in the very different areas of food processing and www.innovation-portal.info
electronics.
All of these examples point to the same conclusion.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Organizations need entrepreneurship at all stages in their lifecycle, from start-up to long-
lived survival. The ability to recognize opportunities, pull resources together in creative ways,
implement good ideas and capture the value from them are core skills.

Managing Innovation and Entrepreneurship

The dictionary defines ‘innovation’ as ‘change’; it comes from Latin in and novare, meaning ‘to
make something new’. That’s a bit vague if we’re trying to manage it; perhaps a more useful defi-
nition would be ‘the successful exploitation of new ideas’. Those ideas don’t necessarily have to
be completely new to the world, or particularly radical; as one definition has it: ‘innovation does
not necessarily imply the commercialization of only a major advance in the technological state
of the art (a radical innovation) but it includes also the utilization of even small-scale changes in

technological know-how (an improvement or incremental innovation).’7 Whatever the nature

of the change the key issue is how to bring it about, in other words how to manage innovation.
Can we do it? One answer comes from the experiences of organizations that have survived
for an extended period of time. While most organizations have comparatively modest lifes-
pans, some have survived at least one and sometimes multiple centuries. Looking at the expe-
rience of these ‘100 club’ members – firms like 3M, Corning, Procter and Gamble, Reuters,
Siemens, Philips and Rolls-Royce – we can see that
Case Studies about long-term
much of their longevity is down to having developed a
innovation success in businesses, capacity to innovate on a continuing basis. They have
3M, Corning and Philips Lighting, are learnt, often the hard way, how to manage the process
available on the Innovation Portal at and, importantly, how to repeat the trick. Any organiza-
www.innovation-portal.info tion can get lucky once but sustaining it for a century or
more suggests there’s a bit more to it than that.
It’s the same with individuals: ‘serial entrepreneurs’ may start many different businesses
and what they bring to the party is an accumulated understanding of how to do it better. They
have learnt and built long-term capability into a robust set of skills.
Over the past hundred years, there have been many attempts to answer the question of
whether we can manage innovation. Researchers have looked at case examples, at sectors, at
entrepreneurs, at big firms and small firms, at success and failure. Practising entrepreneurs
and innovation managers in large businesses have tried to reflect on the ‘how’ of what they
do. The key messages come from the world of experience. What we’ve learnt comes from the
laboratory of practice rather than some deeply rooted theory.
The key messages from this knowledge base are that successful innovators:

• explore and understand different dimensions of innovation (ways in which we can change
things)
• manage innovation as a process
• create conditions to enable them to repeat the innovation trick (building capability)
• focus this capability to move their organizations forward (innovation strategy)
Copyright © 2015. Wiley Textbooks. All rights reserved.

• build dynamic capability (the ability to rest and adapt their approaches in the face of a
changing environment).

In the following sections we’ll explore each of these themes in a little more detail.

Dimensions of Innovation:
What Can We Change?
One approach to finding an answer to the question of where we could innovate is to use a
kind of ‘innovation compass’ exploring different possible directions.
Innovation can take many forms but we can map the options along four dimensions, as
shown in Table 1.3.

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Chapter 1 The Innovation Imperative 17

TABLE 1.3 Dimensions for innovation8

Dimension Type of change
Product Changes in the things (products/services) an organization offers
Process Changes in the ways these offerings are created and delivered
Position Changes in the context into which the products/services are introduced
Paradigm Changes in the underlying mental models which frame what the
organization does

For example, a new design of car, a new insurance package for accident-prone babies
and a new home-entertainment system would all be examples of product innovation. And
change in the manufacturing methods and equipment used to produce the car or the home-
entertainment system, or in the office procedures and sequencing in the insurance case, would
be examples of process innovation.
Sometimes the dividing line is somewhat blurred. For example, a new jet-powered sea
ferry is both a product and a process innovation. Services represent a particular case of this
where the product and process aspects often merge. For example, is a new holiday package
a product or process change?
Innovation can also take place by repositioning the perception of an established product
or process in a particular user context. For example, an old-established product in the UK is
Lucozade, originally developed as a glucose-based drink to help children and invalids in con-
valescence. These associations with sickness were abandoned by the brand owner, Beechams
(part of GlaxoSmithKline), when it relaunched the product as a health drink aimed at the
growing fitness market, where it is now presented as a performance-enhancing aid to healthy
exercise. In 2014, the brand was sold to Suntory for around $1.35bn. This shift is a good
Copyright © 2015. Wiley Textbooks. All rights reserved.

example of ‘position’ innovation. In similar fashion Häagen Dazs created a new market for
ice cream, essentially targeted at adults, through position innovation rather than changing the
product or core manufacturing process.
Sometimes opportunities for innovation emerge when we reframe the way we look at
something. Henry Ford fundamentally changed the face of transportation not because he
invented the motor car (he was a comparative latecomer to the new industry) or because he
developed the manufacturing process to put one together (as a craft-based specialist industry
car-making had been established for around 20 years). His contribution was to change the
underlying model from one which offered a hand-made specialist product to a few wealthy
customers to one which offered a car for Everyman at
a price he could afford. The ensuing shift from craft to
mass production was nothing short of a revolution in Video Clip about the Model T Ford is
the way cars (and later countless other products and available on the Innovation Portal at
services) were created and delivered. Of course, mak- www.innovation-portal.info
ing the new approach work in practice also required

extensive product and process innovation, for example in component design, in machinery
building, in factory layout and particularly in the social system around which work was
organized.
Examples of ‘paradigm’ innovation – changes in mental models – include the shift to low-
cost airlines, the provision of online insurance and other financial services and the reposition-
ing of drinks like coffee and fruit juice as premium ‘designer’ products. They involve a shift in
the underlying vision about how innovation can create social or commercial value. The term
‘business model’ is increasingly used and this is another way of thinking about ‘paradigm
innovation’. We explore this theme in detail in Chapter 16.
Table 1.4 gives some examples of paradigm innovation.

TABLE 1.4 Examples of paradigm innovation

Business model innovation How it changes the rules of the game
‘Servitization’ Traditionally, manufacturing was about producing and
then selling a product. But, increasingly, manufacturers
are bundling various support services around their prod-
ucts, particularly for major capital goods. Rolls-Royce, the
aircraft engine maker, still produces high-quality engines
but it has an increasingly large business around services
to ensure those engines keep delivering power over the
30-plus-year life of many aircraft. Caterpillar, the specialist
machinery company, now earns as much from service con-
tracts, which help keep its machines running productively,
as it does from the original sale
Ownership to rental Spotify is one of the most successful music-streaming
companies with around eight million subscribers. It shifted
Copyright © 2015. Wiley Textbooks. All rights reserved.

the model from people’s desire to own the music they

listened to towards one in which they rented access to a
huge library of music. In similar fashion, Zipcar and other
car rental businesses have transformed the need for car
ownership in many large cities
Offline to online Many businesses have grown up around the Internet and
enabled substitution of physical encounters, for example in
retailing, with virtual ones
Mass customization and New technologies and a growing desire for customiza-
co-creation tion have enabled the emergence not only of personalized
products but platforms on which users can engage and
co-create everything from toys (e.g. Lego), clothing (e.g.
Adidas) to complex equipment like cars (Local Motors).

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Chapter 1 The Innovation Imperative 19

TABLE 1.4 (Continued)

Business model innovation How it changes the rules of the game

Case Studies of these companies are available on the Innovation

Portal at www.innovation-portal.info

Experience innovation Moving from commodity through offering a service towards

creating an experience around a core product, for example
Starbucks making a coffee shop into a place where people
can meet and chat, use Wi-Fi, read books and do a host of
activities as well as buy and drink coffee.

Paradigm innovation can be triggered by many

different things: new technologies, the emergence of Video Clip of Finnegan’s Fish Bar
showing the ideas around 4Ps model
new markets with different value expectations, new
applied to a simple food business is
legal rules of the game, new environmental conditions available on the Innovation Portal at
(climate change, energy crises), etc. For example, the www.innovation-portal.info
emergence of Internet technologies made possible a
complete reframing of how we carry out many busi-
nesses. In the past, similar revolutions in thinking were
triggered by technologies like steam power, electricity, Tool to help you explore the 4Ps
mass transportation (via railways and, with motor cars, approach is available on the
Copyright © 2015. Wiley Textbooks. All rights reserved.

roads) and microelectronics. And it seems very likely Innovation Portal at

that similar reframing will happen as we get to grips www.innovation-portal.info
with new technologies like nanotechnology or genetic
engineering.

From Incremental to
Radical Innovation…
Another thing to think about is the degree of novelty
involved. Clearly, updating the styling on our car is not Activities to explore incremental
the same as coming up with a completely new concept car and radical innovation are available
which has an electric engine and is made of new composite on the Innovation Portal at
www.innovation-portal.info
materials as opposed to steel and glass. Similarly, increas-
ing the speed and accuracy of a lathe is not the same thing

as replacing it with a computer-controlled laser forming process. There are degrees of novelty
in these, running from minor, incremental improvements right through to radical changes,
which transform the way we think about and use them. Sometimes these changes are com-
mon to a particular sector or activity, but sometimes they are so radical and far-reaching that
they change the basis of society, for example the role played by steam power in the Industrial
Revolution or the ubiquitous changes resulting from today’s communications and computing
technologies.

…to Components and Systems

Innovation is often like a set of Russian dolls: we can change things at the level of components
or we can change a whole system. For example, we can put a faster transistor on a microchip
on a circuit board for the graphics display in a computer. Or we can change the way several
boards are put together into the computer to give it particular capabilities – a games box, an
e-book, a media PC. Or we can link the computers into a network to drive a small business
or office. Or we can link the networks to others into the Internet. There’s scope for innova-
tion at each level – but changes in the higher-level systems often have implications for lower
down. For example, if cars, as a complex assembly, were suddenly designed to be made out
of plastic instead of metal, it would still leave scope for car assemblers but would pose some
sleepless nights for producers of metal components!
Figure 1.1 illustrates the range of choices, highlighting the point that such change can
happen at the component or sub-system level or across the whole system.

SYSTEM
LEVEL
New generations
New versions e.g. MP3 and Steam power,
Copyright © 2015. Wiley Textbooks. All rights reserved.

of motor car, download vs. ICT ‘revolution’,

aeroplane, TV CD and bio-technology
cassette music

Advanced
New components materials to
Improvements
for existing improve
to components
systems component
performance
COMPONENT
LEVEL
INCREMENTAL RADICAL
(‘doing what (‘new to the (‘new to
we do better’) enterprise’) the world’)

FIGURE 1.1 Types of innovation

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Chapter 1 The Innovation Imperative 21

A Process Model for Innovation and

Entrepreneurship
Rather than the cartoon image of a light bulb flashing on above someone’s head, we need to
think about innovation as an extended sequence of activities – as a process. Whether we are
looking at an individual entrepreneur bringing their idea into action or a multi-million-dollar
corporation launching the latest in a stream of new products, the same basic framework applies.
We can break it down to the four key steps we mentioned earlier:

• recognizing the opportunity

• finding the resources
• developing the idea
• capturing value.

Figure 1.2 illustrates this model.

Recognizing the Opportunity

Innovation triggers come in all shapes and sizes and from all sorts of directions. They could
take the form of new technological opportunities or changing requirements on the part of
markets. They could be the result of legislative pressure or competitor action. They could be
a bright idea occurring to someone as they sit, Archimedes-like, in their bathtub. They could
come as a result of buying in a good idea from someone outside the organization. Or they
could arise from dissatisfaction with social conditions or a desire to make the world a better
place in some way.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Entrepreneurial Recognizing the Finding the Developing the Creating the

goals and context opportunity resources venture value

Learning

FIGURE 1.2 A model of the entrepreneurial process

The message here is clear: if we are going to pick up these trigger signals then we need
to develop some pretty extensive antennae for searching and scanning around us – and that
includes some capability for looking into the future.

Finding the Resources

The trouble with innovation is that it is by its nature a risky business. You don’t know at the
outset whether what you decide to do is going to work out or even that it will run at all. Yet
you have to commit some resources to begin the process. So how do you build a portfolio of
projects which balance the risks and the potential rewards? (Of course, this decision is even
tougher for the first-time entrepreneur trying to launch a business based on his or her great new
idea – the choice there is whether to go forward and commit what may be a huge investment
of personal time, the mortgage, family life, etc. Even if they succeed, there is then the problem
of trying to grow the business and needing to develop more good ideas to follow the first.)
So this stage is very much about strategic choices. Does the idea fit a business strategy, does it
build on something we know about (or where we can get access to that knowledge easily) and do
we have the skills and resources to take it forward? And if we don’t have those resources, which
is often the case with the lone entrepreneur at start-up, how will we find and mobilize them?

Developing the Idea

Having picked up relevant trigger signals, made a strategic decision to pursue some of them and
found and mobilized the resources we need, the next key phase is actually turning those potential
ideas into some kind of reality. In some ways this implementation phase is a bit like making a
kind of ‘knowledge tapestry’, by gradually weaving the different threads of knowledge (about
technologies, markets, competitor behaviour, etc.) into a successful innovation.
Early on it is full of uncertainty but gradually the picture becomes clearer – but at a
cost. We have to invest time and money and find people to research and develop ideas and
conduct market studies, competitor analysis, prototyping, testing, etc. in order to gradually
improve our understanding of the innovation and whether it will work. Eventually, it is in a
Copyright © 2015. Wiley Textbooks. All rights reserved.

form which can be launched into its intended context – an internal or external market – and
then further knowledge about its adoption (or otherwise) can be used to refine the innovation.
Developing a robust business plan which takes all of this into consideration at the outset is
one of the key elements in entrepreneurial success.
Throughout this implementation phase, we have to balance creativity – finding bright
ideas and new ways to get around the thousand and one problems which emerge and get the
bugs out of the system – with control – making sure we keep to some kind of budget on time,
money and resources. This balancing act means that skills in project management around
innovation, with all its inherent uncertainties, are always in high demand! This phase is also
where we need to bring together different knowledge sets from many different people – so
combining them in ways which help rather than hinder the process and raise big questions
around teambuilding and management.
It would be foolish to throw good money after bad, so most organizations make use of some
kind of risk management as they implement innovation projects. By installing a series of ‘gates’
as the project moves from a gleam in the eye to an expensive commitment of time and money, it
becomes possible to review and if necessary redirect or even stop something which is going off
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Chapter 1 The Innovation Imperative 23

the rails. For the solo entrepreneur it is in this stage that judgement is needed – and sometimes
the courage to know when to stop and move on, to let go and start again on something else.
Eventually, the project is launched into some kind of marketplace: externally, people who
might use the product or service or, internally, people who make the choice about whether to
buy into the new process being presented to them. Either way, we don’t have a guarantee that
just because the innovation works and we think it the best thing since sliced bread they will feel
the same way. Innovations diffuse across user populations over time. Usually, the process follows
some kind of S-curve shape. A few brave souls take on the new idea and then gradually, assuming
it works for them, others get on the bandwagon until finally there are just a few diehards (lag-
gards) who resist the temptation to change. Managing this stage well means we need to think
ahead about how people are likely to react and build these insights into our project before we
reach the launch stage – or else work hard at persuading them after we have launched it!

Capture Value
Despite all our efforts in recognizing opportunities, finding resources and developing the venture,
there is no guarantee we will be able to capture the value from all our hard work. We also need
to think about, and manage, the process to maximize our chances – through protecting our
intellectual property and the financial returns if we are engaged in commercial innovation or in
scaling and spreading our ideas for social change so that they are sustainable and really do make
a difference. We also have an opportunity at the end of an innovation project to look back and
reflect on what we have learnt and how that knowledge could help us do things better next time.
In other words, we could capture valuable learning about how to build our innovation capability.

The Context of Success

It’s all very well putting a basic process for turning ideas into reality in place. But it doesn’t
take place in a vacuum. It is subject to a range of internal and external influences that shape
what is possible and what actually emerges. This process doesn’t take place in a vacuum; it is
shaped and influenced by a variety of factors. In particular, innovation needs:
Copyright © 2015. Wiley Textbooks. All rights reserved.

• Clear strategic leadership and direction, plus the commitment of resources to make this happen.
Innovation is about taking risks, about going into new and sometimes completely unexplored
spaces. We don’t want to gamble, simply changing things for their own sake or because the fancy
takes us. No organization has resources to waste in that scattergun fashion: innovation needs a
strategy. But, equally, we need to have a degree of courage and leadership, steering the organiza-
tion away from what everyone else is doing or what we’ve always done and towards new spaces.
In the case of the individual entrepreneur this challenge translates to one in which a
clear personal vision can be shared in ways which engage and motivate others to buy into
it and to contribute their time, energy, money, etc. to help make it happen. Without a com-
pelling vision, it is unlikely the venture will get off the ground.
• An innovative organization in which the structure and climate enables people to deploy
their creativity and share their knowledge to bring about change. It’s easy to find prescrip-
tions for innovative organizations which highlight the need to eliminate stifling bureau-
cracy, unhelpful structures, brick walls blocking communication and other factors stopping
good ideas getting through. But we must be careful not to fall into the chaos trap. Not all
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24 Part I Entrepreneurial Goals and Context

innovation works in organic, loose, informal environments or ‘skunk works’; indeed, these
types of organization can sometimes act against the interests of successful innovation. We
need to determine appropriate organization, that is the most suitable organization given the
operating contingencies. Too little order and structure may be as bad as too much.
This is one area where start-ups often have a major advantage – by definition they are
small organizations (often one-person ventures) with a high degree of communication and
cohesion. They are bound together by a shared vision and they have high levels of coopera-
tion and trust, giving them enormous flexibility. But the downside of being small is a lack
of resources, and so successful start-ups are very often those which can build a network
around them through which they can tap into the key resources they need. Building and
managing such networks is a key factor in creating an extended form of organization.
• Proactive links across boundaries inside the organization and to the many external agen-
cies who can play a part in the innovation process: suppliers, customers, sources of finance,
skilled resources and of knowledge, etc. Twenty-first-century innovation is most certainly
not a solo act but a multiplayer game across boundaries inside the organization and to the
many external agencies who can play a part in the innovation process. These days it’s about
a global game and one where connections and the ability to find, form and deploy crea-
tive relationships is of the essence. Once again, this idea of successful lone entrepreneurs
and small-scale start-ups as network builders is critical. It’s not necessary to know or have
everything to hand but to know where and how to get it.

Figure 1.3 shows the resulting model: what we need to pay attention to if we are going
to manage innovation well.

Strategic vision and direction

Pro-active linkages

Entrepreneurial Recognizing the Finding the Developing the Creating the

goals and context opportunity resources venture value

Learning

Innovative organization

FIGURE 1.3 The resulting model: What we need to pay attention to if we are going to manage
innovation well

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Chapter 1 The Innovation Imperative 25

How Can We Make Change Happen?

What are the actions involved in innovation and how can we use this understanding to help
us manage the process better? What comes into our minds when we think of innovation tak-
ing place?

INNOVATION IN ACTION 1.10

Making Ideas Happen

If someone asked you, ‘When did you last use your Spengler?’ they might well be greeted by a
quizzical look. But if they asked you when you last used your ‘Hoover’, the answer would be
fairly easy. Yet it was not Mr Hoover who invented the vacuum cleaner in the late 19th century
but one J. Murray Spengler. Hoover’s genius lay in taking that idea and making it a commercial
reality. In similar vein, the father of the modern sewing machine was not Mr Singer, whose name
jumps to mind and is emblazoned on millions of machines all round the world. It was Elias
Howe, who invented the machine in 1846 and Singer who brought it to technical and commer-
cial fruition. Perhaps the godfather of them all in terms of turning ideas into reality was Thomas
Edison, who during his life registered over 1000 patents. Products for which his organization
was responsible include the light bulb, 35mm cinema film and even the electric chair. Many of
the inventions for which he is famous weren’t in fact invented by him – the electric light bulb, for
example – but were developed and polished technically and their markets opened up by Edison
and his team. More than anyone else Edison understood that invention is not enough – simply
having a good idea is not going to lead to its widespread adoption and use.
Copyright © 2015. Wiley Textbooks. All rights reserved.

One of the problems we have in managing anything is that how we think about it shapes
what we do about it. So if we have a simplistic model of how innovation works, for example
that it’s just about invention, that’s what we will organize and manage. We may end up with
the best invention department in the world, but there is no guarantee that people will ever
actually want any of our wonderful inventions! If we are serious about managing innovation,
we need to check on our mental models and make sure we’re working with as complete a
picture as possible. Otherwise, we run risks like those in Table 1.5.

Configuring the Innovation Process: Building Capability

Whatever their size or sector, all organizations are trying to find ways of managing this pro-
cess of growth and renewal. There is no right answer: every organization needs to aim for the
most appropriate solution for its particular circumstances. They develop their own particular
ways of doing things and some work better than others. Any organization can get lucky once
but the real skill in innovation management is being able to repeat the trick. And while there

TABLE 1.5 The problem with partial models

If innovation is only
seen as… …the result can be
Strong R&D capability Technology which fails to meet user needs and may not be
accepted: ‘the better mousetrap nobody wants’
The province of spe- Lack of involvement of others, and a lack of key knowledge and
cialists in white coats experience input from other perspectives
in the R&D laboratory
Meeting customer Lack of technical progression, leading to inability to gain competi-
needs tive edge
Technological Producing products the market does not want or designing pro-
advances cesses which do not meet the needs of the user and are opposed
The province of large Weak small firms with too high a dependence on large customers
firms
Breakthrough changes Neglect of the potential of incremental innovation. Also an inability
to secure and reinforce the gains from radical change because the
incremental performance ratchet is not working well
Associated with key Failure to utilize the creativity of the remainder of employees, and
individuals to secure their inputs and perspectives to improve innovation
Internally generated The ‘not invented here’ effect, where good ideas from outside are
resisted or rejected
Externally generated Innovation becomes simply a matter of filling a shopping list of
needs from outside and there is little internal learning or develop-
ment of technological competence
Copyright © 2015. Wiley Textbooks. All rights reserved.

are no guarantees, there is plenty of evidence to suggest that firms can and do learn to manage
the process for success, by consciously building and developing their innovation capability.
These issues apply across the board, though solutions to them may take us in different
directions depending on where we start from. A start-up business may not need much in the way
of a formal and structured process for organizing and managing innovation. But a firm the size
of Nokia will need to pay careful attention to structures and procedures for building a strategic
portfolio of projects to explore and for managing the risks as the project moves from ideas into
technical and commercial reality. Equally, a large firm may have extensive resources to build a
global set of networks to support its activities, whereas a start-up may be vulnerable to threats
from elements in its environment it simply didn’t know about, never mind being connected to.
This core process runs through any successful innovation, from a lone entrepreneur right
up to IBM or GlaxoSmithKline. Of course, making the model work in practice requires con-
figuring it for different situations, for example in a large company ‘recognizing the oppor-
tunity’ may involve a large R&D department, a market research team, a design studio, etc.,

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Chapter 1 The Innovation Imperative 27

whereas all of this could go on in a lone entrepreneur’s head. Finding the resources may
involve bringing different departments together in a large organization, but a lone innovator
will have to create networks. Attracting support may involve a lone entrepreneur making a
pitch to venture capitalists, whereas in a large organization the business case may be put to a
monthly project portfolio meeting.
Allowing for the fact that we will organize and manage in different ways depending on
different kinds of organizations, it is still possible to identify some generic recipes or condi-
tions that help the innovation process to happen effectively. As we mentioned earlier, there
has been plenty of research around this question and the Further Reading and Resources sec-
tion at the end of the chapter lists some good examples of these studies. But one of the most
important points to make at the outset is that organizations and individuals aren’t born with
the capability to organize and manage this process: they learn and develop it over time, and
mainly through a process of trial and error. They hang on to what works and develop their
capabilities in that – and they try to drop those things which don’t work.
For example, successful innovation correlates strongly with how a firm selects and man-
ages projects, how it coordinates the inputs of different functions, how it links up with its
customers, etc. Successful innovators acquire and accumulate technical resources and mana-
gerial capabilities over time; there are plenty of opportunities for learning – through doing,
using, working with other firms, asking the customers, etc. – but they all depend upon the
readiness of the organization to see innovation less as a lottery than as a process which can
be continuously improved.
Another critical point to emerge from research is that Tool to help you assess areas where
an organization may need to improve
innovation needs managing in an integrated way; it is not its innovation management capability,
enough just to be good at one thing. It’s less like running the Innovation Fitness Test, is
a 100-metre sprint than developing the range of skills to available on the Innovation Portal at
compete effectively in a range of events in the pentathlon. www.innovation-portal.info
Copyright © 2015. Wiley Textbooks. All rights reserved.

What, Why and When: The Challenge of

Innovation Strategy
Building a capability to organize and manage innovation is a great achievement, but unless
that capability is pointed in a suitable direction the organization risks being all dressed up
with nowhere to go! And for entrepreneurs starting a new venture the challenge is even
greater: without a clear sense of direction, a vision you can share with others to excite and
focus them, the whole thing may never take off.
So the last theme we need to consider is where and Activity to explore this theme,
how innovation can be used to strategic advantage. strategic advantage through
innovation, is available on the
Table 1.6 gives some examples of the different ways Innovation Portal at
in which this can be achieved, and you may like to add www.innovation-portal.info
your own ideas to the list.

TABLE 1.6 Strategic advantages through innovation

Mechanism Strategic advantage Examples
Novelty in product Offering something no one else Introducing the first (Walkman,
or service offering can fountain pen, camera, dishwasher,
telephone bank, online retailer,
etc.) to the world
Novelty in process Offering it in ways others cannot Pilkington’s float glass process,
match – faster, cheaper, more Bessemer’s steel process, Internet
customized, etc. banking, online bookselling, etc.
Complexity Offering something others find Rolls-Royce and aircraft engines
difficult to master (only a handful of competitors can
master the complex machining and
metallurgy involved)
Legal protection Offering something others cannot Blockbuster drugs like Zantac,
of intellectual do unless they pay a licence or Prozac, Viagra, etc.
property other fee
Add/extend range Move basis of competition (e.g. Japanese car manufacturing,
of competitive from price of product to price and which systematically moved the
factors quality, or price, quality, choice) competitive agenda from price to
quality, to flexibility and choice,
to shorter times between launch
of new models, and so on – each
time not trading these off against
each other but offering them all
Timing First-mover advantage (being first Amazon.com, Yahoo – others can
can be worth significant market follow, but the advantage sticks to
share in new product fields) the early movers
Copyright © 2015. Wiley Textbooks. All rights reserved.

Fast-follower advantage (some- Personal digital assistants (iPads)

times being first means you and smartphones have captured a
encounter many unexpected huge and growing share of the mar-
teething problems, and it makes ket. In fact, the concept and design
better sense to watch someone were articulated in Apple’s ill-fated
else make the early mistakes Newton product some five years
and move fast into a follow-up before Palm launched its success-
product) ful Pilot range – but problems with
software and especially handwrit-
ing recognition meant it flopped. By
contrast, Apple’s success with iPod
as an MP3 player came because
it was quite late into the market
and could learn and include key
features into its dominant design

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Chapter 1 The Innovation Imperative 29

TABLE 1.6 (Continued)

Mechanism Strategic advantage Examples
Robust/platform Offering something which pro- Sony’s original Walkman architec-
design vides the platform on which other ture which has spawned several
variations and generations can generations of personal audio
be built equipment (minidisk, CD, DVD,
MP3, iPod)
Boeing 737 (over 30 years old, the
design is still being adapted and
configured to suit different users)
remains one of the most success-
ful aircraft in the world in terms of
sales
Intel and AMD with different
variants of their microprocessor
families
Rewriting the Offering something which repre- Typewriters vs. computer word
rules sents a completely new product processing, ice vs. refrigerators,
or process concept – a different electric vs. gas or oil lamps
way of doing things – and makes
the old ones redundant
Reconfiguring Rethinking the way in which bits Zara and Benetton in clothing, Dell
the parts of the of the system work together (e.g. in computers, Toyota in its supply
process building more effective networks, chain management
outsourcing and coordination of a
virtual company)
Transferring Recombining established ele- Polycarbonate wheels transferred
across differ- ments for different markets from application market like rolling
Copyright © 2015. Wiley Textbooks. All rights reserved.

ent application luggage into children’s toys –

contexts lightweight micro-scooters
Others Innovation is all about finding new Napster began by writing software
ways to do things and to obtain which would enable music fans
strategic advantage – so there will to swap their favourite pieces via
be room for new ways of gaining the Internet – the Napster program
and retaining advantage essentially connected person-to-
person by providing a fast link. Its
potential to change the architec-
ture and mode of operation of the
Internet was much greater, and
although Napster suffered from
legal issues followers developed a
huge industry based on download-
ing and file sharing

The problem isn’t the shortage of ways of gaining competitive advantage through innova-
tion but rather which ones to choose and why. It’s a decision all organizations have to take,
be it a start-up deciding the (relatively) simple question of go/no go in terms of trying to enter
a hostile marketplace with its new idea or a giant firm trying to open up new market space
through innovation. And it’s not just about commercial competition. The same idea of stra-
tegic advantage plays out in public services and social innovation. For example, police forces
need to think strategically about how to deploy scarce resources to contain crime and main-
tain law and order, while hospital managements are concerned to balance limited resources
against the increasing demands of healthcare expectations.

Creating an Innovation Strategy

Putting an innovation strategy together involves three key steps, pulling together ideas around
core themes and inviting discussion and argument to sharpen and shape them. These are:

• Strategic analysis: what could we do?

• Strategic selection: what are we going to do, and why?
• Strategic implementation: how are we going to make it happen?

Let’s look at each of these in more detail.

Strategic Analysis
Strategic analysis begins with exploration of innovation space: where could we innovate and
why would it be worth doing so? A useful place to start is to build some sense of the overall
environment, to explore the current threats and opportunities and the likely changes to these
in the future. Typically, questions here relate to technologies, to markets, to underlying politi-
cal trends, to emerging customer needs, to competitors and to social and economic forces.
It’s also useful to add to this map some sense of who the players are in the environment: the
particular customers and markets, the key suppliers and the number and type of competitors.
Within this framework it’s also important to reflect on what resources the organization
Copyright © 2015. Wiley Textbooks. All rights reserved.

can bring to bear. What are its relative strengths and weaknesses and how may it build and
sustain a competitive advantage?
Tools to help with this mapping
(It’s important to remember that these are tools to
exercise, such as PEST analysis, help start a discussion – not accurate measuring devices.
Rich pictures, SWOT and Five There are real limitations to how much we can know
forces strategic analysis, are about an environment which is complex, interactive and
available on the Innovation Portal at constantly changing, and there are often wide differences
www.innovation-portal.info
about where the strengths and weaknesses actually lie.)
Having explored this environment, we need to
understand the range of possibilities. Where can we
innovate to advantage? What kinds of opportunities
Activity to map the innovation
environment using these tools is exist for use to create something different and capture
available on the Innovation Portal at value from bringing those ideas into the world?
www.innovation-portal.info We can think about strategy as a process of explor-
ing the space defined by our four innovation types – the

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 1 The Innovation Imperative 31

PARADIGM
(MENTAL MODEL)

(incremental... radical)
PRODUCT
PROCESS INNOVATION
(SERVICE)
(incremental... radical) (incremental... radical)

(incremental... radical)

POSITION

FIGURE 1.4 Exploring innovation space

4Ps mentioned earlier. Each of our 4Ps of innovation can take place along an axis running
from incremental through to radical change; the area indicated by the circle in Figure 1.4 is
the potential innovation space within which an organization can operate.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Where it actually explores and why – and which areas it leaves alone – are all questions for
innovation strategy. And for new-entrant entrepreneurs this can provide a map of explored and
unexplored territory, showing where there is open opportunity, where and how to tackle exist-
ing players, etc. It also provides a useful map for social innovation: where could we create new
social value, where is there unexplored territory, where and how could we do things differently?
Table 1.7 gives some examples of innovations mapped onto this 4Ps model.

Strategic Selection
The issue here is choosing out of all the things we could do which ones we will do – and
why? We have scarce resources so we need to place our bets carefully, balancing the risks and
rewards across a portfolio of projects. There are plenty of tools to help us do this, from simple
financial measures like payback time or return on investment through to complex frameworks
which compare projects across many dimensions. We look more closely at this toolkit and the
different ways we can make decisions under uncertainty in Chapter 8.

TABLE 1.7 Some examples of innovations mapped onto the 4Ps model
Incremental: do what
Innovation type we do but better Radical: do something different
‘Product’: what Windows 7 and 8 replacing Vista New to the world software (e.g. the
we offer the world and XP, essentially improving first speech-recognition program)
existing software
New versions of established car Toyota Prius’s hybrid engines
models (e.g. the VW Golf essen- (bringing a new concept) and the
tially improving on established car Tesla high-performance electric car
design)
Improved performance incandes- LED-based lighting (using com-
cent light bulbs pletely different and more energy
efficient principles)
CDs replacing vinyl records Spotify and other music-streaming
(essentially improving on storage services (changing the pattern
technology) from owning to renting a vast
library of music)
Process: how we Improved fixed-line telephone Skype and other VOIP systems
create and deliver services
that offering Extended range of stock-broker- Online share trading
ing services
Improved auction house eBay
operations
Improved factory operations Toyota Production System and
efficiency through upgraded other ‘lean’ approaches
equipment
Improved range of banking ser- Online banking and now mobile
Copyright © 2015. Wiley Textbooks. All rights reserved.

vices delivered at branch banks banking in Kenya and the

Philippines (using phones as an
alternative to banking systems)
Improved retailing logistics Online shopping
Position: where Häagen Dazs changing the target Addressing underserved mar-
we target that market for ice cream from chil- kets – for example the Tata Nano
offering and the dren to consenting adults aimed at emerging but relatively
story we tell poor Indian market with car priced
about it around $2000
Airlines segmenting service Low-cost airlines opening up air
offering for different passenger travel to those previously unable
groups – Virgin Upper Class, BA to afford it (create new market and
Premium Economy, etc. disrupt existing one)

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Chapter 1 The Innovation Imperative 33

TABLE 1.7 (Continued)

Incremental: do what
Innovation type we do but better Radical: do something different
Dell and others segmenting Variations on the ‘One laptop per
and customizing computer child’ project (e.g. Indian govern-
configuration for individual users ment $20 computer for schools)
Online support for traditional University of Phoenix and others
higher education courses building large education busi-
nesses via online approaches to
reach different markets
Banking services targeted at key ‘Bottom of the pyramid’
segments (e.g. students, retired approaches using a similar
people) principle but tapping into huge
and very different high-volume/
low-margin markets (e.g. Aravind
Eye Clinics, Cemex construction
products)
Paradigm: how Bausch & Lomb moved from ‘eye Grameen Bank and other micro-
we frame what wear’ to ‘eye care’ as its busi- finance models (rethinking the
we do ness model, effectively letting go assumptions about credit and the
of the old business of specta- poor)
cles, sunglasses (Raybans) and
contact lenses, all of which were
becoming commodity busi-
nesses and moved into newer
high-tech fields like laser surgery
equipment, specialist optical
devices and research in artificial
eyesight
Copyright © 2015. Wiley Textbooks. All rights reserved.

Dyson redefining the home iTunes platform (a complete

appliance market in terms of system of personalized
high-performance engineered entertainment)
products
Rolls-Royce (from high-quality Amazon, Google, Skype (redefining
aero engines to becoming a ser- industries like retailing, advertis-
vice company offering ‘power by ing and telecoms through online
the hour’) models)
IBM (from being a machine Linux, Mozilla, Apache (moving
maker to a service and solution from passive users to active
company, selling off its computer communities of users co-creating
making and building up its new products and services)
consultancy and service side)

The challenge is for individuals and organizations

Tool to help you with strategic to be aware of the extensive space within which innova-
selection, competency mapping, is
available on the Innovation Portal at
tion possibilities exist and to try to develop a strategic
www.innovation-portal.info portfolio which covers this territory effectively, balanc-
ing risks and resources. So how can we choose which
options will make sense for us? It’s helpful to consider
two complementary themes in answering this question:
Activity designed to help you explore
this tool, harvesting knowledge crops, • What is our overall business strategy (where we are
is available on the Innovation Portal at
trying to go as an organization) and how will innova-
www.innovation-portal.info
tion help us get there?
• Do we know anything about the direction we want
to go in – does it build on something we have some
Case Studies of Kodak and Fujifilm, competence in (or have access to)?
(who faced significant challenges
when redeploying core technological Of course, competencies may become superseded
knowledge into new markets) and are by shifts in the technological area. Sometimes they
available on the Innovation Portal at
www.innovation-portal.info
can destroy the basis of competitiveness (competence-
destroying), but they can also be reconfigured to
enhance a competitive position (competence enhanc-
ing). A famous study by Tushman and Anderson gives a
Case Study Philips Lighting, which wide range of examples of these types of change.9
used novel lighting technologies But it isn’t just technical knowledge. Google’s
to enhance its position in the expertise is based not only on a powerful search engine
global lighting market, is available
but also on using the data that helps it build to offer
on the Innovation Portal at
www.innovation-portal.info services in advertising. Major retailers like Tesco and
Wal-Mart have rich and detailed understanding of cus-
tomers and their shopping preferences and behaviour.
Strengths can also come from specific capabilities,
Copyright © 2015. Wiley Textbooks. All rights reserved.

Case Study describing Tesco’s things which an organization has learnt to do to help it
approach to building a deep stay agile and able to move into new fields. Virgin as a
understanding of its customers’ group of companies is represented across many differ-
changing needs is available
on the Innovation Portal at
ent sectors but the underlying approach is essentially
www.innovation-portal.info the original entrepreneurial one which Richard Branson
used when setting up his music business.

INNOVATION IN ACTION 1.11

Assessing Competencies and Assets

Richard Hall is an experienced coach and researcher on innovation and entrepreneurship. He
distinguishes between intangible assets and intangible competencies. Assets include intellectual

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Chapter 1 The Innovation Imperative 35

property rights and reputation. Competencies include the skills and know-how of employees,
suppliers and distributors, and the collective attributes which constitute organizational culture.
His empirical work, based on a survey and case studies, indicates that managers believe the most
significant of these intangible resources to be company reputation and employee know-how, both
of which may be a function of organizational culture. Thus, organizational culture, defined as
the shared values and beliefs of members of an organizational unit, and the associated artefacts
become central to organizational learning. This framework provides a useful way to assess the
competencies of an organization, and to identify how these contribute to performance.

Strategic Implementation
Having explored what we could do and decided what we are going to do, the third stage in
innovation strategy development is to plan for implementation. Thinking through what we
are going to need and how we will get these resources, who we may need to partner with,
what likely roadblocks may we find on the way – all of these questions feed into this step.
Of course, it isn’t a simple linear process. In practice, there will be plenty of discussion
of these issues as we explore options and argue for particular choices, But that’s the essence
of strategy: a conversation and a rehearsal, imagining
and thinking forward about uncertain activities into the
future. Tools to help with strategic planning,
To help do this we have a number of tools, again such as FMEA, potential problem
analysis and project management, are
ranging from the simple to the complex. We could, for
available on the Innovation Portal at
example, make a simple project plan which sets out www.innovation-portal.info
the sequence of activities we need to carry out to make
our innovation come alive. That would help us identify
which resources we need and when and could also high-
Activity to help you explore strategic
light some of the potential trouble spots so we could planning for implementation is
Copyright © 2015. Wiley Textbooks. All rights reserved.

think through how we would deal with them. Many available on the Innovation Portal at
tools add a dimension of ‘What if?’ planning to such www.innovation-portal.info
project models – trying to anticipate key difficulties and
take a worst-case view so suitable contingency plans
can be made. Activity to help you explore some
It’s also worth thinking through and challenging of the challenges in preparing and
presenting a business case, Dragons’
the underlying strategic concept – the business case for
Den, is available on the Innovation
doing whatever it is we have in mind. Once again, build- Portal at www.innovation-portal.info
ing a business case or thinking through the underlying
business model provides a powerful way of making our
assumptions explicit and opening them up for discus-
Tools to help you with this activity,
sion and challenge. (We look in detail at the role of busi- such as the business model canvas,
ness models as a way of capturing value in Chapter 16, are available on the Innovation Portal
but the tools for working with these ideas are very help- at www.innovation-portal.info
ful at this early strategic planning stage.)

Beyond the Steady State: The Challenge of Discontinuous

Change and the Need for Dynamic Capability
Most of the time innovation takes place within a set of rules of the game which are clearly
understood, and involves players trying to innovate by doing what they do (product, process,
position, etc.) but better. Some manage this more effectively than others do, but the rules of
the game are accepted and do not change.
But occasionally something happens which dislocates this framework and changes the
rules of the game. By definition, these are not everyday events but have the capacity to
redefine the space and the boundary conditions. They open up new opportunities but also
challenge existing players to reframe what they are doing in the light of new conditions.
Taking advantage of the opportunities – or seeing the threats early enough and doing some-
thing different to help deal with them – requires an entrepreneurial approach which new
entrants have but which may be difficult to revive in an established organization. So under
these conditions we often see disruption of the old market and technological order and new
rules of the game.
The important message is that under such conditions (which don’t emerge every day)
we need different approaches to organizing and managing innovation. If they try to use
established models which work under steady-state conditions, organizations are likely to
find themselves increasingly out of their depth and risk being upstaged by new and more
agile players. The risk is clear if organizations fail to keep pace: there are plenty of examples
of major corporations which began with an innovative flourish but ended up beaten by their
failure to innovate fast enough or in the right directions. The examples of great photographic
pioneers Kodak and Polaroid are graphic reminders that competitive advantage doesn’t
always last even if you are a major spender on R&D and have powerful marketing skills.
That raises a general point. We have spent a long time in this chapter talking about
building innovation management capability. But in a changing world we also need to be
able to step back and review our position, looking at our capability and fine-tuning it. There
are some behaviours which we should keep on with, maybe increasing our commitment
to them. And there may be others which worked in the past but are no longer so relevant.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Importantly, there will always be new tricks to learn, new skills to acquire. (Think about
the ways in which the Internet has changed the innovation game, opening up many more
players, allowing rich links and connections, enabling knowledge flows. That simply wasn’t
the case thirty years ago and an organization trying to manage innovation today using its
recipe book from back then would be in deep trouble!)
This idea of reviewing and resetting our innovation management approaches is termed
dynamic capability and building it is a core theme which will run through the book.
Finally, it’s worth remembering some useful advice from an old but wise source. In his
famous book The Prince Niccolò Machiavelli gave a warning to would-be innovators.

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Chapter 1 The Innovation Imperative 37

Chapter Summary
• Innovation is about growth, about recognizing opportunities for doing something new
and implementing those ideas to create some kind of value. It could be business growth;
it could be social change. But at its heart is the creative human spirit, the urge to make
change in our environment.
• Innovation is also a survival imperative. If an organization doesn’t change what it offers
the world and the ways in which it creates and delivers its offerings, it may well be in
trouble. And innovation contributes to competitive success in many different ways: it’s
a strategic resource to getting the organization where it is trying to go, be it delivering
shareholder value for private sector firms, providing better public services or enabling
the start-up and growth of new enterprises.
• Innovation doesn’t just happen. It is driven by entrepreneurship. This powerful mixture
of energy, vision, passion, commitment, judgement and risk taking provides the motive
power behind the innovation process. It’s the same whether we are talking about a solo
start-up venture or a key group within an established organization trying to renew its
products or services.
• Innovation doesn’t happen simply because we hope it will. It’s a complex process which
carries risks and needs careful and systematic management. Innovation isn’t a single
event, like the light bulb going off above a cartoon character’s head. It’s an extended
process of picking up on ideas for change and turning them through into effective reality.
The core process involves four steps:
0 recognizing opportunities
0 finding resources
0 developing the venture
0 capturing value.
Copyright © 2015. Wiley Textbooks. All rights reserved.

The challenge comes in doing this in an organized fashion and in being able to repeat
the trick.
• This core process doesn’t take place in a vacuum. We also know that it is strongly influ-
enced by many factors. In particular, innovation needs:
0 clear strategic leadership and direction, plus the commitment of resources to make
this happen
0 an innovative organization in which the structure and climate enables people to
deploy their creativity and share their knowledge to bring about change
0 proactive links across boundaries inside the organization and to the many external
agencies who can play a part in the innovation process (suppliers, customers, sources
of finance, skilled resources and of knowledge, etc.).
• Research repeatedly suggests that if we want to succeed in managing innovation we need to:
0 explore and understand different dimensions of innovation (ways in which we can
change things)

0 manage innovation as a process

0 create enabling conditions to enable them to repeat the innovation trick (building
capability)
0 focus this capability to move their organizations forward (innovation strategy)
0 build dynamic capability (the ability to rest and adapt their approaches in the face
of a changing environment).
• Innovation can take many forms but they can be reduced to four directions of change:
0 product innovation: changes in the things (products/services) an organization
offers
0 process innovation: changes in the ways in which they are created and delivered
0 position innovation: changes in the context in which the products/services are
introduced
0 paradigm innovation: changes in the underlying mental models which frame what
the organization does.
• Within any of these dimensions innovations can be positioned on a spectrum from
‘incremental’ (doing what we do but better) through to ‘radical’ (doing something com-
pletely different). And they can be stand-alone (component innovations) or form part of
a linked ‘architecture’ or system which brings many different components together in a
particular way.
• Building a capability to organize and manage innovation is a great achievement, but we
also need to consider where and how innovation can be used to strategic advantage.
Putting an innovation strategy together involves three key steps, pulling together ideas
around core themes and inviting discussion and argument to sharpen and shape them.
These are:
0 Strategic analysis: what could we do?
0 Strategic selection: what are we going to do, and why?
0 Strategic implementation: how are we going to make it happen?
Copyright © 2015. Wiley Textbooks. All rights reserved.

• Any organization can get lucky once but the real skill in innovation management is being
able to repeat the trick. So if we want to manage innovation we ought to ask ourselves
the following check questions:
0 Do we have effective enabling mechanisms for the core process?
0 Do we have strategic direction and commitment for innovation?
0 Do we have an innovative organization?
0 Do we build rich, proactive links?
0 Do we learn and develop our innovation capability?

• Most of the time innovation takes place within a set of rules of the game which are
clearly understood, and involves players trying to innovate by doing what they do
(product, process, position, etc.) but better. But occasionally something happens which
changes the rules of the game (e.g. when radical change takes place along the techno-
logical frontier or when completely new markets emerge). When this happens, we need
different approaches to organizing and managing innovation. If we try to use established

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 1 The Innovation Imperative 39

models which work under steady-state conditions we find ourselves increasingly out of
our depth and risk being upstaged by new and more agile players.
• For this reason, a key skill lies in building ‘dynamic capability’ (the ability to review and
reset the approach which the organization takes to managing innovation in the face of
a constantly shifting environment).

Key Terms Defined

Component innovation changes at the level of components in a bigger system, for example
a faster transistor in a microchip in a computer.
Creating value implementing an idea which makes an economic or social difference.
Discontinuous innovation radical innovations which change the rules of the game and open
up a new game in which new players are often at an advantage.
Dynamic capability the ability to review and reset the approach which the organization
takes to managing innovation in the face of a changing environment.
Entrepreneurship the powerful mixture of energy, vision, passion, commitment, judgement
and risk taking which provides the motive power behind the innovation process.
Incremental innovation small improvements to existing products, services or processes –
‘doing what we do but better’.
Innovation the process of translating ideas into useful new products, processes or services.
Invention coming up with a new idea.
Paradigm innovation changes in the underlying mental models which frame what the organ-
ization does.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Position innovation changes in the context in which the products/services are introduced.
Process innovation changes in the ways in which products/services are created and delivered.
Product innovation changes in products/services an organization offers.
Radical innovation significantly different changes to products, services or processes – ‘doing
something completely different’.

Discussion Questions
1. Is innovation manageable or just a random gambling activity where you sometimes get
lucky? If it is manageable, how can firms organize and manage it – what general prin-
ciples could they use?

2. ‘Build a better mousetrap and the world will beat a path to your door!’ Will it? What
are the limitations of seeing innovation simply as coming up with bright ideas? Illustrate
your answer with examples drawn from manufacturing and services.
3. What are the key stages involved in an innovation process? And what are the charac-
teristic sets of activities which take place at each stage? How could such an innovation
process look for:
a. a fast food restaurant chain?
b. an electronic test equipment maker?
c. a hospital?
d. an insurance company?
e. a new entrant biotechnology firm?
4. Fred Bloggs was a bright young PhD scientist with a patent on a new algorithm for
monitoring brainwave activity and predicting the early onset of a stroke. He was con-
vinced of the value of his idea and took it to market having sold his car, borrowed money
from family and friends and taken out a large loan. He went bankrupt despite having a
demonstration version which doctors he showed it to were impressed by. Why might his
failure be linked to having a partial model of how innovation works – and how could
he avoid making the same mistake in the future?
5. How does innovation contribute to competitive advantage? Support your answer with
illustrations from both manufacturing and services.
6. Does innovation matter for public services? Using examples, indicate how and where it
can be an important strategic issue.
7. You are a newly appointed director for a small charity which supports homeless people.
How could innovation improve the ways in which your charity operates?
8. Innovation can take many forms. Give examples of product/service, process, position
and paradigm (mental model) innovations.
Copyright © 2015. Wiley Textbooks. All rights reserved.

9. The low-cost airline approach has massively changed the way people choose and use
air travel – and has been both a source of growth for new players and a life-threatening
challenge for some existing players. What types of innovation have been involved in
this?
10. You have been called in as a consultant to a medium-sized toy manufacturer whose
range of construction toys (building bricks, etc.) has been losing market share to
other types of toys. What innovation directions would you recommend to this com-
pany to restore its competitive position? (Use the 4Ps framework to think about
possibilities.)
11. Innovation is about big leaps forward, eureka moments and radical breakthroughs – or
is it? Using examples from manufacturing and services, make a case for the importance
of incremental innovation.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 1 The Innovation Imperative 41

12. Describe, with examples, the concept of platforms in product and process innovation
and suggest how such an approach could help spread the high costs of innovation over
a longer period.
13. What are the challenges managers could face in trying to organize a long-term steady
stream of incremental innovation?

3. Little, A.D. (2012) Global Innovation Excellence Survey, Frankfurt: ADL

Consultants.
4. Drucker, P. (1985) Innovation and Entrepreneurship, New York: Harper & Row.
5. Schumpeter, J. (1943) Capitalism, Socialism and Democracy, New York: Harper.
6. Pinchot, G. (1999) Intrapreneuring in Action: Why You Don’t Have to Leave a
Corporation to Become an Entrepreneur, New York: Berrett-Koehler Publishers.
7. Rothwell, R. and P. Gardiner (1984) Design and competition in engineering. Long
Range Planning, 17(3): 30–91.
8. Francis, D. and J. Bessant (2006) Targetting innovation and implications for capa-
bility development, Technovation, 25: 171–83.
9. Tushman, M. and P. Anderson (1987) Technological discontinuities and organiza-
tional environments, Administrative Science Quarterly, 31(3): 439–65.

Deeper Dive explanations of innovation concepts and ideas are

available on the Innovation Portal at www.innovation-portal.info

Quizzes to test yourself further are available online via the

Innovation Portal at www.innovation-portal.info

Summary of online resources for Chapter 1 –

all material is available via the Innovation Portal at
www.innovation-portal.info

Cases Media Tools Activities Deeper Dives

• James Dyson • Model T Ford • 4Ps for innova- • Incremental • Servitization

• Zara • Finnegan’s Fish tion strategy and radical
• Model T Ford Bar • Innovation innovation
• Alibaba • Tim Jones Fitness Test • Strategic
• Taobao • PEST analysis advantage
• Karolinska • Rich pictures through
Hospital • SWOT innovation
• Aravind Eye • Five forces stra- • Mapping
Clinics tegic analysis the strategic
• Narayana • Competency environment
Hrudayalaya mapping • Harvesting
Hospitals (NHL) • FMEA knowledge
• Kumba • Potential prob- crops
Resources lem analysis • Strategic
• Cybercrime • Project planning for
• Ice industry management implementation
• Marshalls • Business model • Dragons’ Den
• 3M canvas
• Corning
• Philips Lighting
Copyright © 2015. Wiley Textbooks. All rights reserved.

• Lego
• Adidas
• Local Motors
• Kodak
• Fujifilm
• Tesco

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Chapter 2

Social Innovation

LEARNING OBJECTIVES
By the end of this chapter you will develop an understanding of:

• social entrepreneurship and social innovation

• social entrepreneurship as an organized and disciplined process rather than a well-
meaning but unfocused intervention
• the difficulties in managing what is just as much an uncertain and risky process as
‘conventional’ economically motivated innovation
• the key themes needed to manage this process effectively.
Copyright © 2015. Wiley Textbooks. All rights reserved.

INNOVATION IN ACTION 2.1

Grameen Bank and the Development of Microfinance

One of the biggest problems facing people living below the poverty line is the difficulty of getting
access to banking and financial services. As a result they are often dependent on moneylenders
and other unofficial sources – and are often charged at exorbitant rates if they do borrow. This
makes it hard to save and invest, and puts a major barrier in the way of breaking out of this
spiral through starting new entrepreneurial ventures. Awareness of this problem led Muhammad
Yunus, Head of the Rural Economics Programme at the University of Chittagong, to launch
a project to examine the possibility of designing a credit delivery system to provide banking
(continued)

services targeted at the rural poor. In 1976, the Grameen Bank Project (grameen means ‘rural’ or
‘village’ in Bengali) was established, aiming to:

• extend banking facilities to the poor

• eliminate the exploitation of the poor by moneylenders
• create opportunities for self-employment for unemployed people in rural Bangladesh
• offer the disadvantaged an organizational format which they can understand and manage by
themselves
• reverse the age-old vicious circle of ‘low income, low saving and low investment’ into a virtu-
ous circle of ‘low income, injection of credit, investment, more income, more savings, more
investment, more income’.

The original project was set up in Jobra (a village adjacent to Chittagong University) and
some neighbouring villages and ran during 1976–1979. The core concept was of ‘microfinance’ –
enabling people (and a major success was with women) to take tiny loans to start and grow tiny
businesses. With the sponsorship of the central bank of the country and support of the nationalized
commercial banks, the project was extended to Tangail district (a district north of Dhaka, the capi-
tal city of Bangladesh) in 1979. Its further success there led to the model being extended to several
other districts in the country, and in 1983 it became an independent bank as a result of government
legislation. Today, Grameen Bank is owned by the rural poor, whom it serves. Borrowers of the
bank own 90% of its shares, while the remaining 10% is owned by the government. It now serves
over five million clients and every month enables 10 000 new families to escape the poverty trap.
Grameen Bank has moved into other areas where the same model applies, for example
Grameen Phone is one of the largest mobile telephone operators in Asia but bases its model on pro-
viding communication access to the poorest members of society through innovative pricing models.
Copyright © 2015. Wiley Textbooks. All rights reserved.

What Is ‘Social Innovation’?

In this book, we’re looking at the challenge of change – and how individuals and groups of
entrepreneurs, working alone or inside organizations, try to bring this about. We’ve seen that
innovation is not a simple flash of inspiration but an extended and organized process of turn-
ing bright ideas into successful realities, changing the offering (product/service), the ways in
which it is created and delivered (process innovation), the context and the ways in which it is
introduced to that context (position innovation) and the overall mental models for thinking
about what we are doing (business model or ‘paradigm’ innovation).
Above all, we’ve seen that getting innovation to happen depends on a focused and deter-
mined drive – a passion to change things, which we call ‘entrepreneurship’. Essentially, this is
about being prepared to challenge and change, to take (calculated) risks and put energy and
enthusiasm into the venture, picking up and enthusing other supporters along the way. If we

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 2 Social Innovation 47

think about successful entrepreneurs they are typically ambitious, mission-driven, passionate,
strategic (not just impulsive), resourceful and results-oriented. And we can think of plenty
of names to fit this frame: Bill Gates (Microsoft), Richard Branson (Virgin), James Dyson
(Dyson), Larry Page and Sergey Brin (Google) and Jeff Bezos (Amazon).
But we could also apply these terms to describe people like Florence Nightingale,
Elizabeth Fry or Albert Schweitzer. And while less famous than Gates or Bezos, there are some
impressive individuals around today who have made a significant mark on the world through
getting their ideas into action. As the Ashoka Foundation comments, ‘Unlike traditional busi-
ness entrepreneurs, social entrepreneurs primarily seek to generate “social value” rather than
profits. And unlike the majority of non-profit organizations, their work is targeted not only
towards immediate, small-scale effects, but sweeping, long-term change.’
For example, as well as Muhammad Yunus, the
founder of Grameen Bank (that has now been replicated
Case Study of Aravind Eye Clinics is
in 58 countries around the world), Dr Venkataswamy available on the Innovation Portal at
founded the Aravind Eye Clinics. His passion for finding www.innovation-portal.info
ways of giving eyesight back to people with cataracts
in his home state of Tamil Nadu eventually led to the
development of an eye care system which has helped
thousands of people around the country.
A social entrepreneur uses the same process of Video Clip of Aravind Eye Clinics is
entrepreneurship that we saw in Chapter 1 but does so available on the Innovation Portal at
www.innovation-portal.info
to meet social needs and create value for society. These
are people who undoubtedly fit our entrepreneur mould
but target their efforts in a different, socially valuable
direction. Key characteristics of this group include:

• Ambitious. Social entrepreneurs tackle major social issues – poverty, healthcare, equal
opportunities, etc. – with the underlying desire, passion even, to make a change. They may
work alone or from within a wide range of existing organizations, including those which
Copyright © 2015. Wiley Textbooks. All rights reserved.

mix elements of non-profit and for-profit activity.

• Mission driven. their primary concern is generating social value rather than wealth; wealth
creation may be part of the process but it is not an end in itself. Just like business entrepre-
neurs, social entrepreneurs are intensely focused and driven, even relentless, in their pursuit
of a social vision.
• Strategic. Like business entrepreneurs, social entrepreneurs see and act upon what others
miss: opportunities to improve systems, create solutions and invent new approaches that
create social value.
• Resourceful. Social entrepreneurs are often in situations where they have limited access
to capital and traditional market support systems. As a result, they must be exceptionally
skilled at mustering and mobilizing human, financial and political resources.
• Results-oriented. Again, like business entrepreneurs, social entrepreneurs are motivated
by a desire to see things change and to produce measurable returns. The results they seek
are essentially linked to ‘making the world a better place’, for example through improving
quality of life, access to basic resources or supporting disadvantaged groups.

Social innovation has a long tradition, with examples dating back to some of the great
social reformers. For example, in the 19th century in the UK the strong Quaker values held
by key entrepreneurial figures like George Cadbury led to innovations in social housing,
community development and education as well as in the factories which they organized and
managed. As Geoff Mulgan and colleagues point out: ‘The great wave of industrialization
and urbanization in the nineteenth century was accompanied by an extraordinary upsurge of
social enterprise and innovation: mutual self-help, microcredit, building societies, coopera-
tives, trade unions.’1

ENTREPRENEURSHIP IN ACTION 2.1

Tateni Home Care

Veronica Khosa was frustrated with the system of healthcare in South Africa. A nurse by trade,
she saw sick people getting sicker, elderly people unable to get to a doctor and hospitals with
empty beds that would not admit patients with HIV. So Veronica started Tateni Home Care
Nursing Services and instituted the concept of ‘home care’ in her country. Beginning with prac-
tically nothing, her team took to the streets providing care to people in a way they had never
received it: in the comfort and security of their own homes. Just years later, the government had
adopted her plan and through the recognition of leading health organizations the idea is spread-
ing beyond South Africa.

Source: Ashoka Foundation website, https://www.ashoka.org/fellow/veronica-khosa, accessed

20th December 2014.

Major social innovations include the kindergarten, the cooperative movement, first
Copyright © 2015. Wiley Textbooks. All rights reserved.

aid and the Fair Trade movement, all of which began with social entrepreneurs and spread
internationally.
The growth in social innovation has also been accel-
Video Clips of Grameen Bank and
Anil Gupta’s Honey Bee network are erated through enabling technologies around informa-
available on the Innovation Portal at tion and communication. These days, it becomes easier
www.innovation-portal.info to reach many different players and to combine their
innovative efforts into rich and new types of solu-
tion, for example mobilizing patients and carers in an
online community concerned with rare diseases or using
Case Study of the rare diseases mobile communications to help deal with the aftermath
project is available on the Innovation
Portal at www.innovation-portal.info
of humanitarian crises – reuniting families, establish-
ing communications, providing financial aid quickly via
mobile money transfers, etc.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 2 Social Innovation 49

ENTREPRENEURSHIP IN ACTION 2.2

Samasource
An innovative application of mobile communications has been to create employment oppor-
tunities for disadvantaged groups using ‘microwork’ principles. ‘Impact sourcing’ is the term
increasingly used to describe the use of advanced communication technologies to permit par-
ticipation in global labour markets by disadvantaged groups. Increasingly, many tasks – such as
translation, proofreading, optical character recognition (OCR) clean-up or data entry– can be
carried out using crowd-sourcing approaches. Amazon’s Mechanical Turk is extensively used in
this fashion. Social entrepreneurs like Leila Janah saw the potential for applying this approach,
and her Samasource organization now provides employment for around 2000 people on very
low incomes in rural areas.2 The increasing availability of mobile communications allows for
mobilizing and empowering this group and an increasing number of US high-tech companies are
sourcing work through her organization.
The model is not simply low-cost outsourcing; through a network of local agencies
Samasource provides not only direct employment opportunities but also training and development
such that workers become better able to participate in the growing network of online knowledge
work. Organizations like Samasource recognize the risk that the model could simply be used to
exploit very low wage rate workers. Its business model requires partners to employ people earning
less than $3/day and reinvest 40% of revenues in training, salaries and community programmes.
There are similarities to microfinance: the underlying business model is essentially extending
a well-known principle (business process outsourcing) to a new context (educated but marginal-
ized people on low incomes who could play a role as knowledge workers). Samasource mobilizes
people in a variety of countries and contexts, including rural villages, urban slums and even
refugee camps. The model is diffusing widely; other organizations such as DigitalDivideData3
(originally established in S.E. Asia in
2001 and now employing nearly 1000
Copyright © 2015. Wiley Textbooks. All rights reserved.

Video Clips of an interview with

people in Cambodia, Laos and Kenya) Leila and another from a user’s
and Crowdflower4 perform similar in- perspective on Samasource are
tegrating roles, bringing disadvantaged available on the Innovation Portal at
www.innovation-portal.info
groups into the online workforce.

Different Players
Social innovation involves the same core entrepreneurial process of finding opportunities,
choosing amongst them, implementing and capturing value, but it plays out in a number of
different ways, which we explore briefly.

Individual Start-ups…
In many cases, social innovation is an individual-driven thing, where a passion for change
leads to remarkable and sustainable results. They include people like:

• Amitabha Sadangi of International Development Enterprises (India), who develops low-

cost irrigation technologies to help subsistence farmers survive dry seasons
• Anshu Gupta, who has formed a channel for recycling clothes and fabric to meet the needs
of rural poor in India. He initiated Goonj in 1998 with just 67 items of clothing; today, his
organization sends out over 40 000 kg of material every month, in 21 states.
• Mitch Besser, founder and medical director of the Cape Town-based programme, moth-
ers2mothers (m2m), which aims to reduce mother-to-child transmission of HIV and pro-
vide care to women living with HIV. He founded mothers2mothers with one site in South
Africa in 2001. It has grown to more than 645 sites in South Africa, Kenya, Lesotho,
Malawi, Rwanda, Swaziland and Zambia.
• Tri Mumpuni, executive director of Indonesian NGO IBEKA (People Centred Economic
and Business Institute), strives to bring light and energy into the lives of rural populations
through the introduction of micro-hydropower plants
Video Clips of interviews with Melissa to more than 50 villages.
Clark-Reynolds and Suzana Moreira,
both of whom set up social innovation (These and other examples can be found on the Ashoka
projects, are available on the Innovation
Portal at www.innovation-portal.info
website, www.ashoka.org, website which links a global
community of social entrepreneurs.)

Not Just Passionate Individuals

But social entrepreneurship of this kind is also an increasingly important component of ‘big
business’, as large organizations realize that they only secure a licence to operate if they can
demonstrate some concern for the wider communities in which they are located. ‘Corporate
social responsibility’ (CSR) is becoming a major function in many businesses and many make
Copyright © 2015. Wiley Textbooks. All rights reserved.

use of formal measures – such as the triple bottom line – to monitor and communicate their
focus on more than simple profit-making.

INNOVATION IN ACTION 2.2

Innovation and Assisted Living

BT, the UK telecommunications firm, has – under strong pressure from the regulator – a respon-
sibility to provide services for all elements of society but it has used the connections in this
‘stakeholder network’ to move early into understanding and creating services for what will be a
major expansion in the future with an ageing population. By 2026, 30% of the UK population
will be more than 60 years old. The pilot innovation is based on placing sensors in the home

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 2 Social Innovation 51

to monitor movement and the use of power and water: if something goes wrong, it triggers an
alarm. It has already begun to generate significant revenues for BT but has also opened up the
possibility of relieving pressure on the NHS for beds and services. Estimates suggest savings of
around £700 million of this kind if fully deployed. Most significantly, the initial project can be
seen as a stepping stone, a transitional object to help BT learn about what will be a huge and
very different market in the future.

By engaging stakeholders directly, companies are also better able to avoid conflicts, or
to resolve them when they arise. In some cases, this involves directly engaging with activists
who are leading campaigns or protests against a company.

INNOVATION IN ACTION 2.3

Opening up Markets through Social Innovation

The UK ‘do-it-yourself’ home and garden retailer B&Q has been honoured for its work on dis-
ability where it has used CSR to drive improvements in customer services. What in retrospect
looks like a successful business strategy has in fact evolved through real-time learning from
partnerships between individual stores and local disability organizations. Following on from its
pioneering experiments in having stores entirely staffed by older people, B&Q wanted to ensure
that disabled people were able to shop in confidence and that they would be able to access goods
and services easily. In the UK alone, there are eight million disabled people. It is estimated that
the ‘disabled pound’ is worth £30 billion and is growing. However, B&Q also saw this initiative
as a way to improve wider customer care competencies: ‘If we can get it right for disabled people
we can get it right for most people.’ To begin the process of understanding what it was like to
Copyright © 2015. Wiley Textbooks. All rights reserved.

shop and work in B&Q as a disabled person, the company started by talking to disabled people
in a single store. It now has established 300 partnerships between store ‘disability champions’
and local disability groups to understand local needs and develop training on disability aware-
ness and service provision. B&Q sees these partnerships as a way for it to access ‘the incredible
amount of knowledge, commitment and enthusiasm which exists in this wide variety of organiza-
tions’. As a result all B&Q staff now take part in disability awareness training, they are improv-
ing store design and provide printed material in Braille, audio type, large print and CD-ROM.
They are also developing their ‘Daily Living Made Easier’ range of products from grab rails and
bath chairs through to visual smoke alarms and lightweight garden tools.

Sometimes there is scope for social entrepreneurship to spin out of mainstream innovative
activity. Procter and Gamble’s PUR water purification system offers radical improvements to
point-of-use drinking water delivery. Estimates are that it has reduced intestinal infections
by 30–50%. The product grew out of research in the mainstream detergents business but the

initial conclusion was that the market potential of the product was not high enough to justify
investment; by reframing it as a development aid, the company has improved its image and
opened up a radical new area for working.
In some cases, the process begins with an individual but gradually a trend is established
which other players see as relevant to follow, in the process bringing their resources and
experience to the game. An example here is the Fair Trade range of products, which were
originally a minority idea but have now become a mainstream item in many supermarkets.

Public Sector Innovation

Providing basic services like education, healthcare and a safe society are all hallmarks
of a ‘civilized society’. But they are produced by an army of people working in what is
loosely called ‘the public sector’ – and as we saw at
Video Clips of interviews with Helle-
the start of this book, there is huge scope for inno-
Vibeke Carstensen, describing efforts vation in this space. In many ways this sector repre-
to improve the Danish Ministry of sents a major application field for social innovation:
Taxation, and Lynne Maher, discussing while there may be concerns about costs and using
involving patients as ‘user innovators’, resources wisely, the fundamental driver is around
are available on the Innovation Portal
at www.innovation-portal.info
social change.5
Occasionally there is a radical innovation, for ex-
ample in the UK the setting up of a National Health
Service to provide healthcare for all, free at the point
Case Studies giving examples in
of delivery or the establishment of the Open University,
the healthcare setting, such as
NHS RED and Open Door, are which brought higher education within reach of everyone.
available on the Innovation Portal at But most of the time social innovation in the public sector
www.innovation-portal.info consists of thousands of small incremental improvements
to core services.

Innovation in the ‘Third Sector’

There is also a long tradition of innovation in the so-called third sector: the voluntary and
charitable organizations which operate to provide various forms of social welfare and ser-
vice. Some of these – for example Cancer Research UK
Case Studies of crisis-driven and Macmillan Cancer Relief – have created innova-
innovation describing activities in tion management groups which work to use the kind of
the humanitarian sector are available approaches we have been exploring in the book to help
on the Innovation Portal at
www.innovation-portal.info
improve their operations.

Supporting and Enabling Social Innovation

Social innovation is seen as having a major role in improving living standards, and so it has
attracted growing attention from a variety of agencies aiming to support and stimulate it. For
example, there are investment vehicles, like the Big Society Capital fund in the UK and spe-
cialist venture funds like Acumen in the USA, which provide an alternative source of capital.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 2 Social Innovation 53

And there are coordinating agencies – like the Young Foundation in the UK, which provide
further support for the mobilization and institutionalization of social innovation.
Another increasingly significant development is the setting-up by established organiza-
tions and successful business entrepreneurs of charitable foundations whose aim is explic-
itly to enable social entrepreneurship and the scaling
of ideas with potential benefits. Examples include the Video Clip of an interview with Simon
Nike Foundation, the Schwab Foundation, the Skoll Tucker of the Young Foundation
Foundation (established by Jeffrey Skoll, founder describing its social innovation
of eBay) and the Gates Foundation (established by approaches is available
on the Innovation Portal at
Microsoft founder Bill Gates and which increasingly www.innovation-portal.info
receives support from financier Warren Buffett).

Motivation: Why Do It?

It’s worth pausing for a moment to reflect on the underlying motivation for social innovation,
whether we are talking about passionate individuals, enlightened corporations, public sector
institutions or ‘third sector’ organizations.
Just as mountaineers climb peaks simply ‘because they are there’, sometimes the motivation
for innovating comes because of a desire to make a difference. Psychological studies of entre-
preneurs (see Chapter 9) suggest they often have a high need for achievement (n-Ach), which is
a measure of how far they want to make their mark on the world. High n-Ach requires some
evidence that a mark has been made – but this doesn’t have to be in terms of profit or loss on
a balance sheet. As we saw earlier, many people find entrepreneurial satisfaction through social
value creation, and even those with a long track record of building successful businesses may
find themselves drawn into this territory. For example, Bill Gates’ withdrawal from running
Microsoft to concentrate on the Gates Foundation and
other activities is the latest in a long line. Back in the Video Clip of a talk by Jeff Church,
Copyright © 2015. Wiley Textbooks. All rights reserved.

early 17th century, James Coram, a successful business- founder of NEKA, a social enterprise
man who had made his fortune in transatlantic trade, supporting clean water projects
in impoverished countries, is available
was so concerned with infant mortality in London that
on the Innovation Portal at
he set up the Foundling Hospital, pestering his friends www.innovation-portal.info
and colleagues to raise the funding to support the project.

INNOVATION IN ACTION 2.4

Different Types of Entrepreneurs

In an award-winning paper, Emmanuelle Fauchart and Marc Gruber studied the motiva-
tions and underlying psychological drivers amongst entrepreneurial founders of businesses in
(continued)

the sports equipment sector. Their study used social identity theory to explore the underlying
self-perceptions and aspirations and found three distinct types of role identity amongst their
sample. ‘Darwinians’ were primarily concerned with competing and creating business success,
‘Communitarians’ were much more concerned with social identities which related to participat-
ing in and contributing to a community and ‘Missionaries’ had a strong inner vision, a desire to
change the world, and their entrepreneurial activity was an expression of this.

Source: Derived from Fauchart, E.

Case Study of Eastville Community
and M. Gruber (2011) Darwinians,
Shop highlighting different but
complementary motivations of Communitarians, and Missionaries: The
social entrepreneurs is available role of founder identity in entrepreneur-
on the Innovation Portal at ship, Academy of Management Journal,
www.innovation-portal.info 54(5): 935–57.

Another important area where individuals have been a powerful source of social inno-
vation comes from the world of ‘user-innovators’. As we argue in Chapter 6, this class of
innovator is increasingly important and has often been at the heart of major social change.
Experiencing problems first-hand can often provide the trigger for change, for example in the
area of healthcare.

INNOVATION IN ACTION 2.5

User-led Social Innovation

One day, Louis Plante, a sufferer from cystic fibrosis, had to leave a concert because of excessive
coughing while sitting in proximity to a large speaker. Using his skills as an electronics technician,
Louis developed a device that could generate the low frequency vibrations. His primary goal was
to develop a treatment he would benefit from but he realized that his efforts could be valuable
for others and so he created a firm (Dymedso) to commercialize his solution.
Another CF affected person, Hanna Boguslawska, developed chest percussion with electri-
cal percussion and founded a firm named eper ltd to commercialize it: ‘My daughter, 26 with CF,
depended for most of her life on us, her parents to do her chest physiotherapy. So her independ-
ence was constantly compromised and
she hated it. On the other hand, we not
Video Clip of and links to a major always delivered the best physiotherapy;
patient innovation project are
available on the Innovation Portal at
simply because we were tired, or didn’t
www.innovation-portal.info have all this time required, or were sick.
Sure, you know all of this … Many times

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 2 Social Innovation 55

I was thinking about a simple solution,

which would deliver a good physiotherapy Video Clip of a talk by Tad
Golesworthy, who was diagnosed
and wouldn’t require a caregiver. And I am
with a terminal heart condition that
very happy I could do it. My daughter uses spurred him to design a new heart
my eper 100 (stands for electrical percus- valve, saving his and many other lives,
sor, and 100 symbolizes all my percussion is available on the Innovation Portal at
ideas which were never realized) all the www.innovation-portal.info
time. According to her it is much better
than the human hand and she can do it alone.’

Source: Habicht, H., P. Oliveira and V. Scherbatuik (2012) User innovators: When patients set out
to help themselves and end up helping many, Die Unternehmung – Swiss Journal of Management
Research, 66(3): 277–94.

Why Organizations Do It
As we’ve seen, it isn’t just individuals who undertake social innovation: it is increasingly part
of the offering by all kinds of business organization. There are several reasons for this, and
we focus on three:

• social innovation as securing a ‘licence to operate’

• social innovation as aligning values
• social innovation as a learning laboratory.

Licence to Operate
There is growing pressure on established businesses to work to a more socially responsible
agenda, with many operating a key function around CSR. The concept is simple: firms need
Copyright © 2015. Wiley Textbooks. All rights reserved.

to secure a ‘licence to operate’ from the stakeholders in the various constituencies in which
they work. Unless they take notice of the concerns and values of those communities, they
risk passive, and increasingly active, resistance and their operations can be severely affected.
CSR goes beyond public relations in many cases with genuine efforts to ensure social value
is created alongside economic value, and that stakeholders benefit as widely as possible and
not simply as consumers. CSR thinking has led to the development of formal measures and
frameworks like the ‘triple bottom line’, which many firms use as a way of expanding the
traditional company reporting framework to take into account not just financial outcomes
but also environmental and social performance.
It is easy to become cynical about CSR activity, seeing it as a cosmetic overlay on what
are basically the same old business practices. But there is a growing recognition that pursuing
social entrepreneurship-linked goals may not be incompatible with developing a viable and
commercially successful business.
This value is in both intangible domains like brand and reputation and increasingly in
bottom line benefits like market share and product/service innovation. And the downside of a

failure in CSR is that public perception of the organization can shift with a negative impact on
brands, reputation and ultimately performance. Concern in the UK over the tax arrangements
of Amazon, Starbucks and Google forced changes in their operating agenda, while the backlash
against fast-food meant that players like McDonald’s and KFC had to rethink their approach.

Aligning Values
A second reason for engaging in social innovation on the part of organizations is the motiva-
tional effects they get from aligning their values with those of their staff. Most people want
to work for organizations in which there is a positive benefit to society. Many see this as a
way of fulfilling themselves. Think of the motives for working in healthcare or education and
the sense is often one of vocation (a calling) rather than because of the more formal rewards.
Organizations which align with the values of their
staff tend to have better retention and the chance to
Video Clips of interviews with staff build on the ideas and suggestions of their staff – high
at a UK hospital working on various involvement innovation. This is also critical in those
innovation projects to improve patient organizations which operate with a small core staff and
care are available on the Innovation
Portal at www.innovation-portal.info
a large number of volunteers, for example in the charity
sector or in the case of social care.

Learning Laboratory
One other area where participating in social innovation may be valuable is in using it as an
extension of innovation search possibilities. Social innovations often arise out of a combina-
tion of widespread and often urgent need and severe resource limitations. Existing solutions
may not be viable in such situations and instead new solutions emerge which are better suited
to the extreme conditions.
As we have seen, meeting the needs of a different group with very different characteristics
to those of the mainstream population can provide a laboratory for the emergence of innova-
Copyright © 2015. Wiley Textbooks. All rights reserved.

tions which may well diffuse later to the wider population. There is clearly enormous demand
for such innovation to meet widespread demand for healthcare, education, sanitation, energy
and food across populations which do not have the disposable income to purchase these
goods and services via conventional routes.6
Humanitarian emergencies – such as earthquakes, tsunami, flood and drought or man-
made crises such as war and the consequent refugee problems – provide another example
of urgent and widespread need which cannot be met through conventional routes. Instead,
agencies working in this space are characterized by high
Case Studies of innovations triggered rates of innovation, often improvising solutions which
by social needs that have application can then be shared across other agencies and provide
in other areas, such as Aravind Eye radically different routes to innovation in logistics,
Clinics, Narayana Hrudayalaya Hospitals communication and healthcare.
(NHL) and Lifespring Hospitals, are
available on the Innovation Portal at
Learning from such experiments can lead to the
www.innovation-portal.info wider application of the underlying concepts, for
example GE’s best-selling portable ultrasound scanner

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Chapter 2 Social Innovation 57

emerged from a small project to meet the needs of midwives working in rural villages in India.
Other examples include changing business models in banking (based on the Grameen experi-
ence) and resilient logistics using lessons originally learned in humanitarian crises.7

INNOVATION IN ACTION 2.6

Mobilizing Stakeholder Innovation

The Danish pharmaceutical firm Novo Nordisk is deploying stakeholder innovation through
expansion and reframing of the role of its CSR activities. It has been consistently highly rated
on this, not least because it is a board-level strategic responsibility (specified in the company’s
articles of association) with significant resources committed to projects to sustain and enhance
good practice. It was one of the first companies to introduce the concept of the triple bottom line
performance measurement, recognizing the need to take into account wider social and societal
concerns and to be clear about its values.
But there is now growing recognition that this investment is also a powerful innovation
resource which offers a way of complementing its ‘mainstream’ R&D. For example, its DAWN
(Diabetes Attitudes, Wishes and Needs) programme, initiated in 2001, tried to explore attitudes,
wishes and needs of both diabetes sufferers and healthcare professionals to identify critical gaps
in the overall care offering. Its findings showed in quantitative fashion how people with diabetes
suffered from different types of emotional distress and poor psychological well-being, and that
such factors were a major contributing factor to impaired health outcomes. Insights from the
programme opened up new areas for innovation across the system. For example, a key focus was
on the ways in which healthcare professionals presented therapeutic options involving a combi-
nation of insulin treatment and lifestyle elements – and on developing new approaches to this.
Søren Skovlund, senior adviser at Corporate Health Partnerships, sees the key element as
‘the use of the DAWN study as a vehicle to get all the different people round the same table …
Copyright © 2015. Wiley Textbooks. All rights reserved.

to bring patients, health professionals, politicians, payers, the media together to find new ways
to work more effectively together on the same task … You can’t avoid getting some innovation
because you’re bringing together different baskets of knowledge in the room!’
DAWN provides an input to another set of activities operated by Novo Nordisk under
the banner of National Diabetes Programmes (NDPs). This initiative began in 2001 when the
company set about building a network of relationships in key geographical areas helping devise
and configure relevant holistic care programmes. Rather than a product focus, NDPs offer a
range of inputs, for example supporting the education of healthcare professionals or establishing
clinics for care of diabetic ulcers. Its CEO, Lars Rebien Sørensen, argues that ‘only by offering
and advocating the right solutions for diabetes care will we be seen as a responsible company.
If we just say “drugs, drugs, drugs”, they will say “give us a break!”’ This is clearly good CSR
practice – but the potential learning about new approaches to care, especially under resource-
constrained conditions, also represents an important ‘hidden R&D’ investment.
(continued)

For example, Tanzania was an early pilot. It was initially difficult to convince authorities
to take chronic diseases like diabetes into account since they had no budget for them and were
already fighting hard with infectious diseases. With little likelihood of new investment, Novo
Nordisk began working with local diabetes associations to establish demonstration projects.
It set up clinics in hospitals and villages, trained staff and provided relevant equipment and
materials. This gave visibility to the possibilities in a chronic disease management approach, for
example before the programme someone with diabetes might have had to travel 200 km to the
major hospital in Dar es Salaam, whereas now they could be dealt with locally. The value to the
national healthcare system is significant in terms of savings on the costs of treating complications
such as blindness and amputations, which are tragic and expensive results of poor and delayed
treatment. As a result, the Ministry of Health is able to deal with diabetes management without
the need for new investment in hospital capacity or recruitment of new doctors and nurses.
NDPs represent an experience-sharing network across over 40 countries. Much of the learning
is about the context of different national healthcare systems and how to work within them to bring
about significant change – essentially positioning the company for the co-evolution of novel models.

Enabling Social Innovation

We’ll see throughout the book how innovation doesn’t simply happen: it is a process which
can be organized and managed. Figure 2.1 reminds us of the model we introduced in
Chapter 1:
The process begins with seeking out opportunities, often new or different combinations
which no one else has seen, and working them up into viable concepts which can be taken
Copyright © 2015. Wiley Textbooks. All rights reserved.

Entrepreneurial Recognizing the Finding the Developing the Creating the

goals and context opportunity resources venture value

Learning

FIGURE 2.1 Process model of innovation and entrepreneurship

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Chapter 2 Social Innovation 59

forward. It’s then a matter of persuading various people – venture capitalists, senior man-
agement, etc. – to choose to put resources behind the idea rather than backing off or backing
something else. If we get past this hurdle, the next step is beginning to transform the idea into
reality, weaving together a variety of different knowledge and resource streams before finally
launching the new thing – product, process or service – into a market. Whether they choose to
adopt and use it, and spread the word to others so the innovation diffuses, depends a lot on
how we manage using other knowledge and resource streams to understand, shape and develop
the market. We also know that the whole process is influenced and shaped by having clear stra-
tegic direction and support, an underlying innovative and enthusiastic organization willing to
commit its creativity and energy, and extensive and rich links to other players who can help with
the knowledge and resource flows we need. Fuelling the whole is the underlying creativity, drive,
foresight and intuition to make it happen – entrepreneurship – to undertake and take the risks.
So how does this play out in the case of social entrepreneurship? Table 2.1 gives some
examples of the challenges

TABLE 2.1 Challenges in social entrepreneurship

What has to be
managed… Challenges in social entrepreneurship
Recognizing Many potential social entrepreneurs (SEs) have the passion to change
opportunities something in the world – and there are plenty of targets to choose
from, like poverty, access to education and healthcare. But passion
isn’t enough. They also need the classic entrepreneur’s skill of spot-
ting an opportunity, a connection, a possibility which could develop.
It’s about searching for new ideas that could bring a different solution
to an existing problem, for example the microfinance alternative to
conventional banking or street-level moneylending
As we’ve seen elsewhere in the book the skill is often not so much
Copyright © 2015. Wiley Textbooks. All rights reserved.

discovery (finding something completely new) as connection (making

links between disparate things). In the SE field, the gaps may be very
wide, for example connecting rural farmers to high-tech international
stock markets requires considerably more vision to bridge the gap
than spotting the need for a new variant of futures trading software.
So SEs need both passion and vision, plus considerable broking and
connecting skills
Finding Spotting an opportunity is one thing, but getting others to believe in
resources it and, more importantly, back it is something else. Whether it’s an
inventor approaching a venture capitalist or an internal team pitching
a new product idea to the strategic management in a large organiza-
tion the story of successful entrepreneurship is about convincing
other people

(continued)

TABLE 2.1 (Continued)

What has to be
managed… Challenges in social entrepreneurship
In the case of SE the problem is compounded by the fact that the
targets for such a pitch may not be immediately apparent. Even if you
can make a strong business case and have thought through the likely
concerns and questions, who do you approach to try to get backing?
There are some foundations and non-profit organizations but in many
cases one of the important skill sets of an SE is networking, the ability
to chase down potential funders and backers and engage them in the
project
Even within an established organization, the presence of a structure
may not be sufficient. For many SE projects the challenge is that they
take the firm in very different directions, some of which fundamentally
challenge its core business. For example, a proposal to make drugs
cheaply available in the developing world may sound a wonderful idea
from an SE perspective but it poses huge challenges to the structure
and operations of a large pharmaceutical firm with complex econom-
ics around R&D funding, distribution and so on
It’s also important to build coalitions of support. Securing support
for social innovation is often a distributed process, but power and
resources are often not concentrated in the hands of a single decision-
maker. There may also not be a board or venture capitalist to pitch the
ideas to. Instead, it is a case of building momentum and groundswell
And there is a need to provide practical demonstrations of what oth-
erwise may be seen as idealistic pipedreams. The role of pilots which
then get taken up and gather support is well-proven, for example the
Fair Trade model or microfinance
Copyright © 2015. Wiley Textbooks. All rights reserved.

Developing the Social innovation requires extensive creativity in getting hold of

venture the diverse resources to make things happen, especially since the
funding base may be limited. Networking skills become critical here,
engaging different players and aligning them with the core vision
One of the most important elements in much social innovation is
scaling up, taking what may be a good idea implemented by one
person or in a local community and amplifying it so that it has wide-
spread social impact. For example, Anshu Gupta’s original idea was to
recycle old clothes found on rubbish dumps or cast away to help poor
people in his local community. Beginning with 67 items of clothing,
the idea has now been scaled up so that his organization collects and
recycles 40 000 kg of cloth every month across 23 states in India. The
principle has been applied to other materials, for example recycling
old cassettes to make mats and soft furnishings (see www.goonj.org/)

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Chapter 2 Social Innovation 61

TABLE 2.1 (Continued)

What has to be
managed… Challenges in social entrepreneurship
Innovation Here the overall vision is critical: the passionate commitment to
strategy a clear vision can engage others, but social entrepreneurs can
also be accused of idealism and ‘having their head in the clouds’.
Consequently, there is a need for a clear plan to translate the vision
step-by-step into reality
Innovative Social innovation depends on loose and organic structures where the
organization/ main linkages are through a sense of shared purpose. At the same
rich networking time there is a need to ensure some degree of structure to allow
for effective implementation. The history of many successful social
innovations is essentially one of networking, mobilizing support and
accessing diverse resources through rich networks. This places a
premium on networking and broking skills

Audio Clip of a talk about using business skills in a social context given by Carmel
McConnel is available on the Innovation Portal at www.innovation-portal.info

The Challenges of Social Entrepreneurship

While changing the world with social innovation is possible, it isn’t easy! Just because there
Copyright © 2015. Wiley Textbooks. All rights reserved.

is no direct profit motive doesn’t take the commercial challenges out of the equation. If any-
thing, it becomes harder to be an entrepreneur when the
challenge is not only to convince people that it can be Case Study of Lifeline Energy, a social
done (and use all the tricks of the entrepreneur’s trade innovation, describing the difficulties in
to do so) but also to do so in a form that makes it moving from a ‘good idea’ to building
a sustainable, scalable venture is
commercially sustainable. Bringing a radio within reach
available on the Innovation Portal at
of rural poor across Africa is a great idea – but some- www.innovation-portal.info
one still has to pay for raw materials, build and run a
factory, arrange for distribution and collect the small
money from the sales. None of this comes cheap, and Video Clip of Red Button highlighting
setting up such a venture faces economic, political and some of the challenges facing
business obstacles every bit as hard as a bright start- social entrepreneurship is available
up company in medical devices or computer software on the Innovation Portal at
www.innovation-portal.info
working in a developed country environment.

Case Study of Red Button is available on the Innovation Portal at

www.innovation-portal.info

The problem isn’t just the difficulty of finding resources. Table 2.2 lists some other examples
of the difficulties social entrepreneurs face when trying to innovate for the greater good.

TABLE 2.2 Challenges in social innovation

Problem area Challenges
Resources Not easily available and may need to cast the net widely to secure fund-
ing and other support
Conflicts While the overall goal may be to meet a social need, there may be con-
flicts in how this can be balanced against the need to generate revenue.
For example, Lifeline Energy wanted to provide simple communication
devices for the developing world and provide employment to disabled
people. The costs of the latter made the former difficult to achieve com-
petitively and set up a major conflict for the management of the enterprise
Voluntary nature Many people involved in social innovation are there because of core val-
ues and beliefs and contribute their time and energy in a voluntary way.
This means that ‘traditional’ forms of organization and motivation may not
be available, posing a significant human resource management challenge
‘Lumpy’ funding Unlike commercial businesses where a stream of revenue can be sued
to fund innovation in a consistent fashion, many social enterprises rely
Copyright © 2015. Wiley Textbooks. All rights reserved.

on grants, donations and other sources which are intermittent and

unpredictable
Scale of the The sheer size of many of the issues being addressed – how to
challenge provide clean drinking water, how to deliver reliable low-cost health-
care, how to combat illiteracy – means that having a clear focus is
essential. Without a targeted innovation strategy, social enterprises
risk dissipating their efforts

Video Clips of talks given by social entrepreneurs in India, Jane Chen and
Arunachalam Muruganantham, describing their challenges and ultimate success are
available on the Innovation Portal at www.innovation-portal.info

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Chapter 2 Social Innovation 63

Chapter Summary
• Innovation is about creating value and one important dimension of this is making
change happen in a socially valuable direction.
• ‘Social entrepreneurs’ – individuals and organizations – recognize a social problem and
organize an innovation process to enable social change.
• Just because there is no direct profit motive doesn’t take the commercial challenges out
of the equation. If anything, it becomes harder to be an entrepreneur when the challenge
is to convince people not only that it can be done (and use all the tricks of the entrepre-
neur’s trade to do so) but also that it can be done in a form which makes it commercially
sustainable.
• Social entrepreneurship of this kind is also an increasingly important component
of ‘big business’, as large organizations realize they only secure a licence to operate
if they can demonstrate some concern for the wider communities in which they are
located.
• There are also benefits which emerge through aligning corporate values with those of
employees within organizations.
• And there are significant learning opportunities through experiments in social innova-
tion which may have impacts on mainstream innovation.
• Making social entrepreneurship happen will require learning and absorbing a new set
of skills to sit alongside our current ways of thinking about and managing innovation.
How do we find opportunities which deliver social as well as economic benefits? How
do we identify and engage a wide range of stakeholders – and understand and meet their
very diverse expectations? How do we mobilize resources across networks? How do we
build coalitions of support for socially valuable ideas?
Copyright © 2015. Wiley Textbooks. All rights reserved.

Key Terms Defined

Social enterprise an organization that tries to pursue a double bottom line or a triple bot-
tom line.
Social entrepreneurship applying entrepreneurship to achieve social goals rather than (but
not excluding) financial reward.
Triple bottom line simultaneous assessment of a company’s performance against its finan-
cial and shareholder performance, its internal and external stakeholder expectations and
responsibilities, and its environmental responsibilities.

Discussion Questions
1. Give a man a fish and you feed him for a day. Teach a man to fish and he can feed himself
for life. How could you put this principle into practice through a social entrepreneurship
venture – and what would stop you making a success of this?
2. ‘Some problems have no solution’ – a somewhat pessimistic Japanese saying. How could
a social entrepreneur challenge this?
3. Jasmine Chang has approached you – as an innovation adviser – with a novel treatment
for childhood diarrhoea. How would you advise her to take this idea forward to make
a difference?
4. In many ways, taking a socially valuable concept to market has much in common
with ‘conventional’ new product development. Where do you see the similarities and
differences?

Peter Brinckerhoff’s Social Entrepreneurship: The Art of Mission-Based Venture Development

(John Wiley & Sons Ltd, 2000), Gregory Dees et al.’s Enterprising Nonprofits: A Tool-kit for
Social Entrepreneurs (John Wiley & Sons Ltd, 2001) and Robin Murray et al.’s The Open
Book of Social Innovation (The Young Foundation, 2010).
Case studies of projects like Grameen bank (www.grameen-info.org) and the wind-up
radio (www.freeplayenergy.com) also give insights into the process and the difficulties con-
fronting social entrepreneurs. A useful website here is www.howtochangetheworld.org/, as is
that of the Ashoka Foundation, www.ashoka.org. Prahalad’s book The Fortune at the Bottom
of the Pyramid is a useful collection of cases in this direction.

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Chapter 2 Social Innovation 65

References
1. Mulgan, G. (2007) Ready or Not? Taking Innovation in the Public Sector Seriously,
London: NESTA.
2. http://samasource.org/, accessed 20th December 2014.
3. www.digitaldividedata.org/, accessed 20th December 2014.
4. http://crowdflower.com/, accessed 20th December 2014.
5. Ramalingam, B., K. Scriven and C. Foley (2010) Innovations in International
Humanitarian Action, London: ALNAP.
6. Prahalad, C.K. (2006) The Fortune at the Bottom of the Pyramid, Upper Saddle
River, NJ: Wharton School Publishing.
7. Bessant, J., H. Rush and A. Trifilova (2012) Jumping the tracks: Crisis-driven
social innovation and the development of novel trajectories. Die Unternehmung –
Swiss Journal of Business Research and Practice, 66(3): 221–42.

Deeper Dive explanations of innovation concepts and ideas are

available on the Innovation Portal at www.innovation-portal.info

Quizzes to test yourself further are available online via the Innovation
Portal at www.innovation-portal.info

Summary of online resources for Chapter 2 –

all material is available via the Innovation Portal at
www.innovation-portal.info

Cases Media Tools Activities Deeper Dives

• Aravind Eye • Aravind Eye — — • Responsible

Clinics Clinics innovation
• Rare diseases • Grameen Bank framework
project • Honey Bee
• NHS RED • Leila Janah
• Open Door • User’s per-
• Crisis-driven spective of
innovation Samasource
• Eastville • Melissa
Community Clark-Reynolds
Shop • Suzana Moreira
• Narayana • Helle-Vibeke
Hrudayalaya Carstensen
Hospitals (NHL) • Lynne Maher
• Lifespring • Simon Tucker
Hospitals • Jeff Church
• Lifeline Energy • Patient innov-
• Red Button ation project
• Tad Golesworthy
• Patient care
Copyright © 2015. Wiley Textbooks. All rights reserved.

• Carmel
McConnel
• Red Button
• Jane Chen
• Arunachalam
Muruganantham

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Chapter 3

Innovation,
Globalization and
Development

LEARNING OBJECTIVES
By the end of this chapter you will develop an understanding of:

• the reasons for, and implications of, the uneven global distribution of innovation
• the main components of a national system of innovation, and how these interact to
influence the degree and direction of innovation in a country
• the challenges faced and the opportunities offered by emerging markets, in particular
meeting needs at ‘the bottom of the pyramid’.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Globalization of Innovation
Innovation and enterprise are central to the development and growth of emerging economies,
and yet their contribution is usually considered in terms of the most appropriate national pol-
icy and institutions, or the regulation of international trade. Macroeconomic issues are impor-
tant and national systems of innovation, including formal policy, institutions and governance,
can have a profound influence on the degree and direction of innovation and enterprise in a

country or region. Four factors have a major influence on the ability of a firm to develop and
create value through innovation:

• The national system of innovation in which the firm is embedded, and which in part defines
its range of choices in dealing with opportunities and threats.
• Its power and market position within the international value chain, which in part defines
the innovation-based opportunities and threats that it faces.
• The capability and processes of the firm, including research, design, development, produc-
tion, marketing and distribution.
• The ability to identify and exploit external sources of innovation, especially international
networks.

However, it is equally critical to consider a more micro perspective, in particular innova-

tion by firms and the entrepreneurship of individuals. Therefore in this chapter we examine
the respective roles of national systems and policy, the capabilities of firms, the initiative of
individual entrepreneurs and the interactions between these three perspectives.
In his best-selling book, The World is Flat: The Globalized World in the 21st Century
(Penguin, 2007), Thomas Friedman argues that developments in technology and trade, in
particular information and communications technologies (ICTs), are spreading the benefits
of globalization to the emerging economies, promoting their development and growth. This
optimistic thesis is appealing, but the evidence suggests the reality is rather more complex.
First, technology and innovation are not evenly distributed globally, and are not easily
packaged and transferred across regions or firms. For example, only about a quarter of the
innovative activities of the world’s largest 500 technologically active firms are located outside
their home countries.1 Second, different national contexts influence significantly the ability of
firms to absorb and exploit such technology and innovation. For example, state ownership
and the availability of venture capital both influence entrepreneurship.2 Third, the position
of firms in international value chains can constrain profoundly their ability to capture the
benefits of their innovation and entrepreneurship. Many firms in emerging economies have
Copyright © 2015. Wiley Textbooks. All rights reserved.

become trapped in dependent relationships as low-cost providers of low-technology, low-

value manufactured goods or services, and have failed to develop their own design or new
products.3
Since the 1980s, some analysts and practitioners have argued that, following the ‘globali-
zation’ of product markets, financial transactions and direct investment, innovation activities
should also become globalized. However, although striking examples of the internationaliza-
tion of R&D can be found (e.g. the large Dutch firms, particularly Philips, and some more
progressive German firms, such as Siemens), more comprehensive evidence casts doubt on the
strength of such a trend. The evidence from patent files and R&D data suggests that innova-
tion remains unevenly distributed across the world:

• The world’s largest firms perform about only 25% of their innovative activities outside
their home country. Overall, the proportion of R&D expenditure made outside the home
nation is growing, albeit slowly, from less than 15% in 1995.

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Chapter 3 Innovation, Globalization and Development 69

• Since the late 1990s, European firms – and especially those from France, Germany and
Switzerland – have been performing an increasing share of their innovative activities in the
USA, in large part in order to tap into local skills and knowledge in such fields as biotech-
nology and IT.
• The most important factor explaining each firm’s share of foreign innovative activities is
its share of foreign production. Firms from smaller countries in general have higher shares
of foreign innovative activities. On average, foreign production is less innovation-intensive
than home production.

Controversy remains both in the interpretation of this general picture and in the identi-
fication of implications for the future. Our own views are as follows:4

• There are major efficiency advantages in the geographic concentration in one place of stra-
tegic R&D for launching major new products and processes (first model and production
line). These include dealing with unforeseen problems, since proximity allows quick, adap-
tive decisions; and integrating R&D, production and marketing, since proximity allows
integration of tacit knowledge through close personal contacts.
• The nature and degree of the international dispersion of R&D will also depend on the com-
pany’s major technological trajectory, and the strategically important points for integration
and learning that relate to it. Thus, whereas automobile firms find it difficult to separate
their R&D geographically from production when launching a major new product, drug
firms can do so and instead locate their R&D close to strategically important basic research
and testing procedures.
• In deciding about the internationalization of their R&D, managers must distinguish
between becoming part of global knowledge networks, in other words being aware of,
and able to absorb, the results of R&D being carried out globally. Practising scientists
and engineers have always done this, and it is now easier with modern IT. However,
business firms are finding it increasingly useful to establish relatively small laboratories
in foreign countries in order to become strong members of local research networks and
Copyright © 2015. Wiley Textbooks. All rights reserved.

thereby benefit from the person-embodied knowledge behind the published papers; and
the launching of major innovations, which remains complex, costly and depends crucially
on the integration of tacit knowledge. This remains difficult to achieve across national
boundaries. Firms therefore still tend to concentrate major product or process develop-
ments in one country.
• Matching global knowledge networks with the localized launching of major innovations
will require increasing international mobility amongst technical personnel, and the increas-
ing use of multinational teams in launching innovations.
• Advances in IT have enabled spectacular increases in the international flow of codified
knowledge in the form of operating instructions, manuals and software. They may also
have some positive impact on international exchanges of tacit knowledge through telecon-
ferencing, but not anywhere near to the same extent. Product development and the first
stage of the product cycle will still require frequent and intense personal exchanges, and be
facilitated by physical proximity.

• The main factors influencing the decision of where to locate R&D globally are, in order
of importance:
1. the availability of critical competencies for the project
2. the international credibility (within the organization) of the R&D manager responsible
for the project
3. the importance of external sources of technical and market knowledge (e.g. sources of
technology, suppliers and customers)
4. the importance and costs of internal transactions (e.g. between engineering and
production)
5. cost and disruption of relocating key personnel to the chosen site.

INNOVATION IN ACTION 3.1

Frugal Innovation from Emerging Economies

An Economist Special Report argues that emerging economies are fast becoming sources of
innovation, rather than simply relying on low-cost labour, and appears to support the popular
belief that innovation is increasingly a global phenomenon.
Woolridge estimates that there are more than 20 000 multinational companies (MNCs)
originating from the emerging economies, and that the firms in the Financial Times 500 list from
the BRIC economies – Brazil, Russia, India and China – more than quadrupled in 2006–2008,
from 15 to 62. The focus of innovation is not confined to technological breakthroughs, but typi-
cally incremental process and product innovations, aimed at the middle or the bottom of the
income pyramid, such as the $3,000 car, $300 computer and $30 mobile phone, so-called frugal
innovation.
For example, in India Tata Consultancy Services (TCS) has developed a water filter which
uses rice husks. It is simple, portable and relatively cheap, giving a large family an abundant
Copyright © 2015. Wiley Textbooks. All rights reserved.

supply of bacteria-free water for an initial investment of about $24 and around $4 every few
months for a new filter. Similarly, General Electric’s Bangalore R&D facility has developed
a hand-held electrocardiogram (ECG) called the Mac 400. Through simplification, the
Mac 400 can run on batteries and fit in a rucksack, and sells for $800, instead of $2,000 for a
conventional ECG, which reduces the cost of an ECG test to just $1 per patient. These innova-
tions target two of India’s most common
health problems: contaminated water
and heart disease, which cause millions
Video Clip of C.K. Prahalad’s
of deaths each year.
discussion of the potential for
innovation at the ‘bottom of the Source: Derived from Wooldridge, A.
pyramid’ of market demand is
(2010) ‘The world turned upside down’,
available on the Innovation Portal at
www.innovation-portal.info The Economist, 15th April, Special
Report.

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Chapter 3 Innovation, Globalization and Development 71

Learning from Foreign Systems of Innovation

While information on competitors’ innovations is relatively cheap and easy to obtain, corpo-
rate experience shows that knowledge of how to replicate competitors’ product and process
innovations is much more costly and time-consuming to acquire. Useful and usable knowl-
edge does not come cheap. Such imitation typically costs between 60 and 70% of the original,
and typically takes three years to achieve. These conclusions are illustrated by the examples
of Japanese, Korean and Taiwanese firms, where very effective imitation has been sustained
by heavy and firm-specific investments in education, training and R&D.
Firms can benefit more specifically from the technology generated in foreign systems of
innovation. A high proportion of large European firms attach great importance to foreign
sources of technical knowledge, whether obtained through affiliated firms (i.e. direct foreign
investment) and joint ventures, links with suppliers and customers or reverse engineering. In
general, they find it is more difficult to learn from Japan than from North America and else-
where in Europe, probably because of greater distances – physical, linguistic and cultural.
Perhaps more surprising, European firms find it most difficult to learn from foreign publicly
funded research. This is because effective learning involves more subtle linkages than straight-
forward market transactions, for example the membership of informal professional networks.
This public knowledge is often seen as a source of potential world innovative advantage and,
as we discussed earlier, firms are increasingly active in trying to access foreign sources. In con-
trast, knowledge obtained through market transactions and reverse engineering enables firms
to catch up, and keep up, with competitors. East Asian firms have been very effective over the
past 25 years in making these channels an essential feature of their rapid technological learning.

INNOVATION IN ACTION 3.2

Technology Strategies of Latecomer Firms in East Asia

The spectacular modernization in the past 25 years of the East Asian ‘dragon’ countries – Hong
Kong, South Korea, Singapore and Taiwan – has led to lively debate about its causes. Michael
Hobday has provided important new insights into how business firms in these countries suc-
ceeded in rapid learning and technological catch-up, in spite of underdeveloped domestic systems
of science and technology, and of lack of technologically sophisticated domestic customers.
Government policies provided the favourable general economic climate: export orientation;
basic and vocational education, with strong emphasis on industrial needs; and a stable economy,
with low inflation and high savings. However, of major importance were the strategies and poli-
cies of specific business firms for the effective assimilation of foreign technology.
The main mechanism for catching up was the same in electronics, footwear, bicycles, sewing
machines and automobiles, namely the OEM (original equipment manufacture) system. OEM
is a specific form of subcontracting, where firms in catching-up countries produce goods to the
(continued)

exact specification of a foreign transnational company (TNC) normally based in a richer and
technologically more advanced country. For the TNC, the purpose is to cut costs, and to this
end it offers assistance to the latecomer firms in quality control, choice of equipment, and engi-
neering and management training. OEM began in the 1960s, and became more sophisticated in
the 1970s. The next stage in the mid-1980s was ODM (own design and manufacture), where
the latecomer firms learnt to design products for the buyer. The last stage is OBM (own brand
manufacture), where latecomer firms market their own products under their own brand name
(e.g. Samsung, Acer) and compete head-on with the leaders.
For each stage of catching up, the company’s technology position must be matched with a
corresponding market position, as is shown in the table.

Stage Technology position Market position

1. Assembly skills Passive importer pull
Basic production Cheap labour
Mature products Distribution by buyers
2. Incremental process change Active sales to foreign buyer
Reverse engineering Quality and cost-based
3. Full production skills Advanced production sales
Process innovation International marketing department
Product design Markets own design
4. R&D Product marketing push
Product innovation Own brand product range and sales
5. Frontier R&D Own brand push
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R&D linked to market needs In-house market research

Advanced innovation Independent distribution

Source: Hobday, M. (1995) Innovation in East Asia: The challenge to Japan, Guilford: Edward Elgar.

The slow but significant internationalization of R&D is also a means of firms learning
from foreign systems of innovation. There are many reasons why MNCs choose to locate
R&D outside their home country, including regulatory regime and incentives, lower cost or
more specialized human resources, proximity to lead suppliers or customers, but in many
cases a significant motive is to gain access to national or regional innovation networks.
However, some countries are more advanced in internationalizing their R&D than others. In
this respect, (some) European firms are the most internationalized, and the Japanese the least.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 3 Innovation, Globalization and Development 73

Managers report that the most important methods of learning about competitors’ innova-
tions are independent R&D, reverse engineering and licensing, all of which are expensive com-
pared to reading publications and the patent literature. More formal approaches to technology
intelligence gathering are less widespread, and the use of different approaches varies by company
and sector (Figure 3.1). For example, in the pharmaceutical sector, where much of the knowl-
edge is highly codified in publications and patents, these sources of information are scanned rou-
tinely, and the proximity to the science base is reflected in
the widespread use of expert panels. In electronics, prod- Tools to help you explore forecasting
uct technology roadmaps are commonly used, along with techniques, such as the Delphi
the lead users. Surprisingly, long-established and proven method and Scenarios, are available
on the Innovation Portal at
methods such as Delphi-studies, S-curve analysis and pat- www.innovation-portal.info
ent citations are not in widespread use.

National Systems of Innovation

In this section we examine how the national and market environment of a firm shapes its
innovation strategy. We first show that the ‘home country’ positions of even global firms have a
strong influence on their innovation strategies. The national influences can be grouped into three
categories: ‘competencies’ (workforce education, research), ‘economic inducement mechanisms’
(local demand and input prices, competitive rivalry) and ‘institutions’ (methods of funding,
controlling and managing business firms). For example, the largest numbers of European firms
amongst the technical leaders were to be found in the technological fields of industrial and fine
chemicals, and defence-related technologies (i.e. aerospace), which are fields of national tech-
nological strength, while the reverse is the case in electronics, capital equipment and consumer
goods. Japanese firms predominate in consumer electronics and motor vehicle technologies, and
US firms in fine chemicals and in raw-materials-based (i.e. oil, gas and food) and defence-related
technologies, again reflecting the technological strengths of their home countries.
Copyright © 2015. Wiley Textbooks. All rights reserved.

The strategic importance to corporations of home countries’ technological competencies

would matter little if they were all more or less the same, but they are not. Patterns of sectoral
specialization differ greatly, for example the Japanese pattern of strengths and weaknesses is
almost the opposite of that in the USA. In addition, countries differ in both the level and the
rate of increase in the resources devoted by business firms to innovative activities. Compare
Finland and Canada, both of whose economies rely heavily on natural resources; Finland’s
R&D expenditures have increased even more rapidly than Japan’s as a share of GDP, while
Canada’s increased only slightly.
A study of the innovation capabilities of European countries based on two Community
Innovation Surveys (which are conducted every four years by all nation-states within the
EU) and other data estimated the effects of different macro and micro factors on innovation.
Table 3.1 provides a summary of the results. Using patents as an indicator of innovation,
innovation at the national level is positively influenced by the size of the economy, foreign
competition in the domestic market, public expenditure on R&D and the availability of ven-
ture capital. It is negatively influenced by the presence of a relatively large number of small

Publication
Frequency

Publication

Patent frequency

Patent citation

Benchmarking

Expert panels

Product technology
roadmaps

Experience curves

Scenario analysis

Lead user analysis

Quality function
deployment

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Frequency of use (3=often, 0=never)
AUTO/MACHINERY ELECTRONICS PHARMACEUTICALS

FIGURE 3.1 Use of methods of technology intelligence by sector

Source: Derived from Lichtenthaler, E. (2004) Technology intelligence processes in leading European and North
American multinationals, R&D Management, 34(2), 121–34.

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Chapter 3 Innovation, Globalization and Development 75

TABLE 3.1 European national systems of innovation and innovation capability

Regression coefficient on
NIS variable Patents granted Sales of new products
Public R&D expenditure +0.839 —
Firm expenditure on R&D — +0.421
Gross domestic product (GDP) +0.691 +0.310
Openness of national economy +0.319 –0.454
Availability of venture capital +0.200 —
Presence of SMEs –0.146 +0.621
External sources of innovation — +0.688
Presence of innovative firms — +0.591

Source: Derived from Faber, J. and A.B. Hesen (2004) Innovation capabilities of European nations:
Cross sectional analyses of patents and sales of product innovations, Research Policy, 33, 193–207.

and medium-sized firms, high company tax and a high level of economic prosperity. Using
relative sales of innovative products as an indicator of innovation, firm-level effects become
more evident: national innovation is positively influenced by the size of the economy, R&D
expenditure of firms, use of external sources of innovation and the presence of small and
medium-sized firms, but negatively influenced by economic prosperity and foreign competi-
tion in the home market. Put another way, macroeconomic conditions in a country and the
structure of the national economy have significant effects on innovation, measured by patent-
ing and sales of innovative products. At the national level, the innovative activities of firms
appear to have a stronger influence on sales of innovative products than patenting does.
In conclusion, the national system of innovation in which a firm is embedded matters
Copyright © 2015. Wiley Textbooks. All rights reserved.

greatly, since it strongly influences both the direction and the vigour of its own innovative activi-
ties. However, managements still have ample influence over their firms’ innovation strategies,
and firms can benefit from foreign systems of innovation through a variety of mechanisms.
Next, we identify and discuss the main national factors that influence the rate and direction
of technological innovation in a country: more specifically, the national market ‘incentives and
pressures’ to which firms have to respond, and the ‘institutions of corporate governance’.

Incentives and Pressures: National

Demand and Competitive Rivalry
Patterns of National Demands
Those concerned to explain international patterns of innovative activities have long recognized
the important influence of local demand and price conditions on patterns of innovation in local
firms. Strong local ‘demand pull’ for certain types of products generates innovation opportunities

for local firms, especially when the demand depends on face-to-face interactions with customers.
In Table 3.2 we identify the main factors that influence local demands for innovation, and give
some examples. In addition to the obvious examples of local buyers’ tastes, we identify:

• Local (private and public) investment activities, which create innovative opportunities for
local suppliers of machinery and production inputs, where competence is accumulated
mainly through experience in designing, building and operating machinery.
• Local production input prices, where international differences can help generate very dif-
ferent pressures for innovation (e.g. the effects of different petrol prices on the design and
related competencies in automobiles in the USA and Europe). High prices can also generate
pressure for substitute products, like synthetic fertilizers in Germany at the beginning of
the 20th century.
• Local natural resources, which create opportunities for innovation in both upstream extrac-
tion and downstream processing.

A more subtle, but increasingly significant influence is the role of social concerns and pres-
sure about the environment, safety and governance. For example, nuclear power as a techno-
logical innovation has evolved in very different ways in countries like the USA, the UK, France
and Japan. Similarly, innovation in genetically modified crops and foods has taken radically
different paths in the USA and Europe, mainly because of public concerns and political pressure.

TABLE 3.2 Local factors that influence the rate and direction of innovation
Factors in Examples
Local buyers’ tastes Quality food and clothing in France and Italy
Reliable machinery in Germany
Private investment activities Automobile and other downstream investments
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stimulating innovation in computer-aided design

and robots in Japan, Italy, Sweden and Germany
Public investment activities Railways in France
Medical instruments in Sweden
Coal-mining machinery in the UK (<1979)
Input prices Labour-saving innovations in the USA
Europe–USA differences in automobile
technology
Environmental technology in Scandinavia
Synthetic fertilizers in Germany
Local natural resources Innovations in oil and gas, mineral ores,
and food and agriculture in North America,
Scandinavia and Australia

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Chapter 3 Innovation, Globalization and Development 77

Competitive Rivalry
Innovation is always difficult and often upsetting to established interests and habits, and so local
demands by themselves do not create the necessary conditions for innovation. Both case studies
and statistical analysis show that competitive rivalry stimulates firms to invest in innovation and
change, since their very existence will be threatened if they do not. For example, comparison of
public policies towards the pharmaceutical industries in Britain and France show that the for-
mer was more successful in creating a demanding local competitive environment conducive to
the emergence of British firms amongst global leaders. German strength in chemicals is based on
three large and technologically dynamic firms – BASF, Bayer and Hoechst – rather than on one
super-large national champion. Similarly, the Japanese strengths in consumer electronics and
automobiles is based on numerous technologically active firms rather than a few giants (despite
the early efforts of the Ministry of International Trade and Industry, MITI, to promote national
champions and mergers; however, neither Sony nor Honda was a member of the Japanese
industrial groups, or zaibatsu). A relatively smaller size also reduces the severity of the task
of management to maintain corporate entrepreneurship. This is because managers can spend
more time familiarizing themselves with the innovative potentialities of the various businesses,
and can thereby avoid the dangers of managing divisions purely through financial indicators.
Thus although corporate policy-makers in large firms may often be tempted in the short
term to avoid strong competition – and to reap extra monopoly profits – by merging with
their competitors, the long-term costs could be considerable. Public policy-makers should be
persuaded by the evidence that creating gigantic national champions does not increase inno-
vation, quite the contrary, and therefore take countervailing measures. Lack of competitive
rivalry makes firms less fit to compete on global markets through innovation.
In many countries, national advantages in natural resources and traditional industries
have been fused with related competencies in broad technological fields that then become
the basis for technological advantage in new product fields (Figure 3.2). For example, in
Denmark, Sweden and Switzerland linkages with established fields of strength were the
basis of local technological accumulation: metallurgy and materials in Sweden, machin-
ery in Switzerland and Sweden, and chemistry and (more recently) biology in Switzerland
Copyright © 2015. Wiley Textbooks. All rights reserved.

and Denmark. Another example is the development of chemical engineering in the USA in
response to the challenges and opportunities of refining petrol.

Low
relative costs
Process Better
innovation relative value
Higher Growth in
relative quality market
share
Product Improved image/
innovation reputation/brand

FIGURE 3.2 Evolution from natural endowment to national specialization of innovation

Source: Clayton, T. and G. Turner (2012) Brands, innovation and growth. In Tidd, J. (ed.) From Knowledge
Management to Strategic competence: Measuring Technological, Market and Organizational Innovation. Imperial
College Press, London. Copyright Imperial College Press/World Scientific Publishing Co.

Similarly, firms in the UK and the USA are particularly strong in software and pharma-
ceuticals, both of which require strong basic research and graduate skills, but few production
skills; they are therefore particularly well matched to local skill structures. Japanese strength
in consumer electronics and automobiles is particularly well matched to its local strength in
production skills, as is the German strength in mechanical engineering.

Institutions: Finance, Management and Corporate Governance

Firms’ innovative behaviours are strongly influenced by the competencies of their managers
and the ways in which their performance is judged and rewarded (and punished). Methods
of judgement and reward vary considerably amongst countries, according to their national
systems of corporate governance, in other words the systems for exercising and changing cor-
porate ownership and control. In broad terms, we can distinguish two systems: one practised
in the USA and the UK and the other in Japan, Germany and its neighbours, such as Sweden
and Switzerland. In his book Capitalism against Capitalism, Michel Albert calls the first
the ‘Anglo-Saxon’ and the second the ‘Nippon–Rhineland’ variety. A lively debate continues
about the essential characteristics and performance of the two systems, in terms of innovation
and other performance variables. Table 3.3 is based on a variety of sources, and tries to iden-
tify the main differences that affect innovative performance.
In the UK and the USA, corporate ownership (shareholders) is separated from corporate
control (managers), and the two are mediated through an active stock market. Investors can

TABLE 3.3 National governance structures and innovation

Characteristics Anglo-Saxon Nippon–Rhineland

Ownership Individuals, pension funds, Companies, individuals, banks

insurers
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Control Dispersed, arm’s length Concentrated, close and direct

Management Business schools (USA), Engineers with business training
accountants (UK)
Evaluation of R&D Published information Insider knowledge
investments
Strengths Responsive to radically new Higher priority to R&D than to
technological opportunities dividends for shareholders
Efficient use of capital Remedial investment in failing
firms
Weaknesses Short-termism Slow to deal with poor invest-
Inability to evaluate firm-specific ment choices
intangible assets Slow to exploit radically new
technologies

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Chapter 3 Innovation, Globalization and Development 79

be persuaded to hold shares only if there is an expectation of increasing profits and share
values. They can shift their investments relatively easily. On the other hand, in countries with
governance structures like those of Germany or Japan, banks, suppliers and customers are
more heavily locked into the firms in which they invest. Until the 1990s, countries strongly
influenced by German and Japanese traditions persisted in investing heavily in R&D in estab-
lished firms and technologies, while the US system has since been more effective in generating
resources to exploit radically new opportunities in IT and biotechnology.
During the 1980s, the Nippon–Rhineland model seemed to be performing better. R&D
expenditures were on a healthy upward trend, and so were indicators of aggregate economic
performance. Since then, there have been growing doubts. The technological and economic
indicators have been performing less well. Japanese firms have proved unable to repeat in
telecommunications, software, microprocessors and computing their technological and com-
petitive successes in consumer electronics. German firms have been slow to exploit radically
new possibilities in IT and biotechnology, and there has been criticism of expensive and
unrewarding choices in corporate strategy, like the entry of Daimler-Benz into aerospace. At
the same time, US firms appear to have learnt important lessons, especially from the Japanese
in manufacturing technology, and to have reasserted their eminence in IT and biotechnology.
The 1990s also saw sustained increases in productivity in US industry.
However, some observers have concluded that the strong US performance in innova-
tion cannot be satisfactorily explained simply by the combination of entrepreneurial man-
agement, a flexible labour force and a well-developed stock market. They argue that the
groundwork for US corporate success in exploiting IT and biotechnology was laid initially
by the US Federal Government, with the large-scale investments by the Defense Department
in California in electronics, and by the National Institutes of Health in the scientific fields
underlying biotechnology.5 The influences institutions, incentives and competition have on
innovation and entrepreneurship are complex, as illustrated by the case of Russia.

INNOVATION IN ACTION 3.3

Building BRICs – Capabilities in Russia

Industry in Russia is still dominated by heavy industry, including oil, gas, defence and aerospace.
Consumer and service sectors are relatively poorly developed, reflecting national endowments
and the legacy of the communist, centrally planned era. For example, in 2001 oil and energy
accounted for about 70% of all industrial output, and 40% of total GDP. Similarly, hydrocar-
bons account for more than half of exports, followed by metals, which make up about a quarter
of overseas sales. Some higher-technology sectors have emerged from the earlier specialization
of the Soviet economy, such as space-launches, aviation and lasers, but these remain relatively
small niches. This absence of significant innovations is an interesting paradox, given the strong
national emphasis given to investment and training in science and technology.

(continued)

In the year 2000, Russia had more than 4000 formal organizations dedicated to science and
technology, including 2600 public R&D centres employing almost a million qualified scientists and
engineers. However, historically, the focus of these numerous organizations has been on basic sci-
entific research rather than on technological or commercial innovation. The focus has been on ‘big
science’ and the science-push model of innovation and growth, rather than a market or demand
coupled model. On the supply side, the prestigious Russian Academy of Sciences dominates this
system, and emphasizes disciplines traditionally seen as Soviet strengths in the theoretical and
physical, such as mathematics, chemistry and physics. The Academy has never had the responsibil-
ity or role to commercialize scientific research or to support the development of new processes or
products. While overall investment in science and technology has declined in Russia, the investment
in basic sciences has proportionally declined far less than investment in the applied sciences and
technologies. On the demand side, the traditional centrally planned, target-based structure did not
provide incentives or resources for firms to develop or seek such innovations. Given this industrial
structure and political legacy, the industrial research and design centres have failed to flourish: in
2000, there were fewer than 300 industrial R&D enterprises and around 400 design organizations.
Russia also has an unusual industrial structure by the size of enterprise. Compared to other
industrial economies, very large firms and very small enterprises are relatively underrepresented, and
instead in Russia medium-sized firms are the most common and economically significant. In most
advanced economies the very large firms are the main investors in formal R&D and development of
commercially significant innovations, whereas the microbusinesses provide a continuous outlet for
more entrepreneurial behaviour. Typically, medium-sized enterprises are less important as they lack
sufficient resources, but suffer from most of the disadvantages of size. They are also less likely to
participate in international joint ventures and alliances, or to receive foreign direct investment (FDI).
Unlike the case of many other emerging economies, FDI and international joint ventures
have played only a minor part in the development of the Russian economy. It accounts for only
around 5% of total investment in Russia, compared to more than 20% in other former Soviet
economies such as Hungary, Poland and Romania. The main foreign investments and associated
transfers of technological and managerial know-how have been in the oil industry, because of
Copyright © 2015. Wiley Textbooks. All rights reserved.

its significance to the Russian economy, and the food industry, which historically has been a low
national priority and has performed poorly. However, in most manufacturing and service sec-
tors there has been little foreign investment or influence, and little improvement or innovation.
There are many reasons for this relative isolation from international investment and innovation,
including problems of governance, including legal restrictions on ownership and the dominance
of dynastic insiders in the main industries. Therefore the institutional structure of Russia contin-
ues to constrain domestic and international innovation and entrepreneurship.
There are many cases of transfer of hard technologies in the oil and aerospace industries,
both into and out of Russia, but these are usually rather conventional licensing agreements,
with very little transfer or upgrading of critical managerial or commercial know-how. However,
there are examples of successful innovation, often as a result of individual technical entrepre-
neurs or spin-offs from public research organizations working with firms overseas. For exam-
ple, the Moscow Centre for SPARC Technology, founded by Boris Babayan, is funded by Sun
Microsystems and is active in the workstation market, but is based on supercomputer technology

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Chapter 3 Innovation, Globalization and Development 81

used in the Soviet space and nuclear industries. Similarly, ParaGraph, a Russian software com-
pany, is based on technology used by the military for pattern recognition, but works with Apple
to commercialize the technology.

Sources: Derived from D.A. Dyker (2006) Closing the EU East–West Productivity Gap, Imperial
College Press, London; and D.A. Dyker (2004) Catching Up and Falling Behind: Post-Communist
Transformation in Historical Perspective, Imperial College Press, London.

ENTREPRENEURSHIP IN ACTION 3.1

Russian Spirit
Spirit DSP is a world-leading provider of embedded voice and communication software products.
More than 200 million embedded voice channels in over 80 countries are based on Spirit’s tech-
nology (www.spiritdsp.com). Spirit’s award-winning multi-point full-duplex voice conferencing
engine is now inside collaboration solutions lately rolled out by Oracle and Macromedia. During
the past 10 years Spirit served over 200 global telecom OEMs and software vendors, including
Agere, Atmel, Ericsson, Furuno, HTC, Hyundai, Iwatsu, JRC, Kyocera, LG, Macromedia, Marconi,
Namco, NEC, Nortel Networks, Oracle, Panasonic, Philips, Samsung, Siemens, Tadiran, Texas
Instruments and Toshiba. Global top seven semiconductor vendors have installed Spirit voice and
communication software right on their
processors. This example may certainly be
an exception for emerging R&D sources Case Study of Spirit is available
but the fact is that the R&D centre is on the Innovation Portal at
www.innovation-portal.info
located in Moscow and the founder and
chairman of Spirit is Andrew Sviridenko.
Copyright © 2015. Wiley Textbooks. All rights reserved.

ENTREPRENEURSHIP IN ACTION 3.2

Russia’s Internet Ventures

Russia’s large domestic market, high barriers to entry and strong technical education have pro-
vided a unique opportunity for domestic Internet businesses.
Ozon is Russia’s equivalent of Amazon, established during the first Internet bubble in 1999.
It began selling books online within Russia, and has since expanded into broader e-commerce

(continued)

and has entered into Kazakhstan and Latvia. In 2013, it had 2100 employees and had sales of
$492 million.
Yandex is a Russian search engine business, similar to Google. The company was launched
in 1997, only eight days after Google. It expanded into Ukraine, Kazakhstan, Belarus and most
recently Turkey. In 2013, it had a domestic market share of 62%, reached 90 million users
monthly and employed 4300 across seven countries.
AlterGeo is a location-based social networking business. It’s most recent service is a res-
taurant mobile app, similar to the USA Foursquare service. However, Altergeo launched a year
before Foursquare. It won the best Russian start-up in 2013.

Source: J. Nickerson (2013) Russia’s next tech titans, Financial Times, 19th September, 10–11.

Positions in International Value Chains

Development of firms from emerging economies is much more than simply catching up with
those in the more advanced economies, and is not (only) the challenge of moving from ‘fol-
lowers’ to ‘leaders’. Global standards and position in international value chains can constrain
the ability of firms based in emerging economies to upgrade their capabilities and appropriate
greater value, but they also present ways in which these firms can innovate to overcome these
hurdles, for example by using international standards as a catalyst for change, or by reposi-
tioning themselves in local clusters or global networks. By position, we refer to the current
endowment of technology and intellectual property of a firm, as well as its relations with
customers and suppliers.

INNOVATION IN ACTION 3.4

Globetronics – Evolution of Global Supply Chains

Globetronics Bhd. was formed in 1990 by two Malaysians formerly employed by Intel. The
Malaysian Technology Development Corporation (MTDC) provided 30% of the venture capital,
and the company was subsequently floated in 1997 to raise additional capital for growth. The
company’s primary activities are similar to the majority of transnational semiconductor firms
based in Malaysia, and involve post-fabrication manufacture of semiconductors, including assem-
bly and packaging. Indeed, the company’s main customers are American and Japanese trans-
nationals. The significant difference is that domestic ownership and management have allowed
Globetronics to more easily capture value-added activities such as development and marketing.
The company now has seven business divisions and a new plant in the Philippines. Two
of the businesses are joint ventures with the Japanese firm Sumitomo. The relationship with

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Chapter 3 Innovation, Globalization and Development 83

Sumitomo began as a simple subcontracting agreement, but over the years a high level of trust
has been achieved and two joint ventures have been established. The first, SGT, was created
in 1994, and is 49% owned by Globetronics. It is the largest manufacturer in the world and
the only company outside of Japan to produce ceramic substrate semiconductor packages.
The second joint venture, SGTI, was created in 1996, and is 30% owned by Globetronics.
In both cases the Japanese partner has maintained majority ownership, but it is clear that
the Malaysian partner has made some progress in assimilating the technological and design
capabilities. This provides a promising model for companies in developing countries, to escape
dependent subcontracting relationships by using joint ventures to upgrade their technological
and market competencies.

Source: Tidd, J. and M. Brocklehurst

(1999) Routes to technological learn- Case Study of Aravind Eye Clinics
ing and development: An assessment of as an example of the importance of
accumulated tacit knowledge and
Malaysia’s innovation policy and perfor-
learning is available on the Innovation
mance, Technological Forecasting and Portal at www.innovation-portal.info
Social Change, 63(2), 239–57.

INNOVATION IN ACTION 3.5

Chip Design in Asia

In the case of complex innovations, physical proximity is normally an advantage in the organiza-
tion and location of design and development. However, a study of 60 electronics firms and 15
research organizations found that in the design and development of electronic chips there has
Copyright © 2015. Wiley Textbooks. All rights reserved.

been a growing geographic dispersion of organization and location. Over a decade, Asia’s share
of world chip design grew from almost nothing to around a third. It was forecast to reach a 50%
world share by 2008, led by Japan, South Korea, Taiwan and Singapore, with Malaysia, India
and China following fast.
The study concludes that two of the drivers of this trend are specific to the technology:
changes in design methodology, which allow the de-coupling of design stages and the design of
related components and sub-systems, and greater outsourcing and vertical specialization within
global innovation systems. Therefore, any generalizations regarding the globalization of innova-
tion are unwise.

Source: Derived from Ernst, D. (2005) Complexity and Internationalisation of Innovation:

Why is Chip Design Moving to Asia? International Journal of Innovation Management, 9(1),
47–74.

Building Capabilities and Creating Value

In this section, we discuss the importance of developing firm-level capabilities. Firms in emerg-
ing economies may pursue different routes to upgrading through innovation:6

• Process upgrading: incremental process improvements to adapt to local inputs, reduce costs
or to improve quality.
• Product upgrading: through adaptation, differentiation, design and product
development.
• Capability upgrading: improving the range of functions undertaken, or changing the mix
of functions (e.g. production versus development or marketing).
• Inter-sectoral upgrading: moving to different sectors (e.g. to those with higher
value-added).

To some extent firms in emerging economies face a reverse product–process innovation

lifecycle. We saw earlier that the most common pattern of evolution of technological inno-
vation in the industrialized world has been from product to process innovation on the one
hand and from radical to incremental innovation on the other. Initially, a series of different
radical product innovations emerge and compete in the market, but as the innovations and
markets evolve together a ‘dominant design’ begins to emerge, and the locus of innovation
shifts from product to process, and from radical to more incremental improvements in cost
and quality.
In contrast, in emerging economies the path of evolution is often reversed, and begins
with incremental process innovations, to produce an existing product at a lower cost or at a
lower quality for different market needs. As firms improve their capabilities they may then
begin to make product adaptations and changes in design, and eventually move towards
more radical product innovation. This has important implications for the type of capabilities
firms need to develop. For example, at first, the emphasis should be on incremental process
Copyright © 2015. Wiley Textbooks. All rights reserved.

improvement and development, which suggests innovation in production and organization,

rather than technological development or formal R&D. This suggests a hierarchy of capabili-
ties or learning, each adding greater value.
Therefore, upgrading consists of improvements and changes in the operation of complex
technical and organizational systems. This involves trial, error and learning. Learning tends
to be incremental, since major step changes in too many parameters both increase uncertainty
and reduce the capacity to learn. As a consequence, firms’ learning processes are path-depend-
ent, with the directions of search strongly conditioned by the competencies accumulated for
the development and exploitation of their existing product base. Moving from one path of
learning to another can be costly, even impossible, given cognitive limits – think of the prob-
lems of learning a foreign language from scratch.
However, dynamic capabilities typically involve long-term commitments to specialized
resources, and consist of patterned activity to relatively specific objectives. Therefore, dynamic
capabilities involve both the exploitation of existing competencies and the development of

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 3 Innovation, Globalization and Development 85

new ones. For example, leveraging existing competencies through new product development
can consist of de-linking existing technological or commercial competencies from one set
of current products and linking them in a different way to create new products. However,
new product development can also help to develop new competencies. For example, an
existing technological competence may demand new commercial competencies to reach a
new market, or conversely a new technological competence may be necessary to service an
existing customer.
The trick is to get the right balance between exploitation of existing competencies
and the exploitation and development of new competencies. Research suggests that over
time some firms are more successful at this than others, and that a significant reason for
this variation in performance is due to difference in the ability of managers to build, inte-
grate and reconfigure organizational competencies and resources. These ‘dynamic’ manage-
rial capabilities are influenced by managerial cognition, human capital and social capital.
‘Cognition’ refers to the beliefs and mental models which influence decision-making. These
affect the knowledge and assumptions about future events, available alternatives and asso-
ciation between cause and effect. This will restrict a manager’s field of vision, and influence
perceptions and interpretations. ‘Human capital’ refers to the learnt skills that require some
investment in education, training experience and socialization, and these can be generic,
industry- or firm-specific. It is the firm-specific fac-
tors that appear to be the most significant in dynamic
managerial capability, which can lead to different deci- Tool to help organizations identify and
develop capabilities to create value,
sions when faced with the same environment. ‘Social
Identifying innovative capabilities, is
capital’ refers to the internal and external relationships available on the Innovation Portal at
which affect a manager’s access to information, their www.innovation-portal.info
influence, control and power.

Building BRICs:
Copyright © 2015. Wiley Textbooks. All rights reserved.

The Rise of New Players

on the Innovation Stage
The current wave of innovation expansion has seen a focus on key countries known as the
BRICs – Brazil, Russia, India and China – but there are many other smaller economies surging
into the same space, for example Kazakhstan or South
Africa. They share a mixture of rich resource endow- Video Clips of talks by Nirmalya
ments, relatively young populations, large potential Kumar about India’s hidden innovation
domestic markets, reasonably developed infrastructure contribution and Nandan Nilekani
about the rise of software services are
and a technological base which provides them with a available on the Innovation Portal at
platform for growing and building innovation capabil- www.innovation-portal.info
ity to play on the wider global stage.

INNOVATION IN ACTION 3.6

Building BRICs – Capabilities in India

India has a population of around 1.1 billion, a large proportion of which is English-speaking, a
relatively stable political and legal regime, and a good national system of education, especially in
science and engineering. It has some 250 universities and listed 1500 R&D centres (although care
needs to be taken in the definitions used in both cases), and this has translated into international
strengths in the fields of biotechnology, pharmaceuticals and software. As a result Indian firms have
benefited greatly from the increasing international division of labour in some services and the sup-
port and development of software and services. India is now a global centre for outsourcing and
offshoring. Until the mid-1980s, the software industry was dominated by government and public
research organizations, but the introduction of export processing zones provided tax breaks and
allowed the import of foreign computer technology for the first time. The market liberalization of
1991 accelerated development and inward investment, and in 2005 India attracted inward invest-
ment of $6 billion (significant, but still only around a tenth of that attracted by China). Since then the
software and services industry in India grew by around 50% each year to reach $8.3 billion by 2000,
and employed 400 000, second only to the USA. In 2014, the IT services sector generated revenues of
US$ 108 billion. Unusually for India, which has historically pursued a policy of national self-reliance,
the industry is very export-oriented, with around 70% of output being traded internationally.
There are three broad types of software firms in India. First, those that specialize in a specific
sector or domain, for example accounting, gaming or film production, and these develop capa-
bilities and relationships specific to those users. Second, those that develop methods and tools to
provide low-cost and timely software support and solutions. The majority of the industry is in
this lower-value-added part of the supply chain, and is involved in low-level coding, maintenance
and design, and relies on a large pool of English-speaking talent which costs around 10% of that
in the USA or the EU. However, a third segment of firms is emerging that is more involved with
new product and service development.
Copyright © 2015. Wiley Textbooks. All rights reserved.

India’s version of Silicon Valley is around the southern city of Bangalore. This is home to a
large number of firms from the USA, as well as indigenous Indian firms. Large employers include
Infosys, and call and service centres here employ 250 000 operatives, including support services for
firms such as Cisco, Microsoft and Dell. IBM, Intel, Motorola, Oracle, Sun Microsystems, Texas
Instruments and GE all now have technology centres there. Texas Instruments was one of the few
major foreign firms to start up a development unit, in 1985, prior to the opening up of the India
economy in 1991. GE Medical Systems followed in the late 1980s and established a development
centre in Bangalore in 1990, which later resulted in a joint venture with the India firm Wipro
Technologies. GE now employs 20 000 people in India, who generate sales of $500 million. IBM
was one of the first investors in India, but later withdrew because of the onerous government policy
and restrictions in the 1980s. It returned after the government liberalized the economy, and its
Indian operations contributed $510 million in sales in 2005, employing 43 000 in India following
the acquisition of the Indian outsourcing company Daksh in 2004. In 2014, IBM announced plans
to invest over $1.2 billion in India to expand its global cloud computing services.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 3 Innovation, Globalization and Development 87

One of the challenges of the software and services industry in India is to increase value-added
through product and service development. To date the impressive growth has been based on win-
ning more outsourcing business from overseas and employing more staff, rather than on increasing
the value-added by new services and products. For example, the Indian software and service firm
Tata plans to increase the proportion of its revenue from new products from around 5% to 40%,
to make it less reliant on low-cost human capital, which is likely to become more expensive, and
more mobile. Ramco Systems developed an ERP system in the 1990s, which cost a billion rupees to
develop and involved 400 developers. By 2000, the company was profitable, with 150 customers,
half overseas. It has established sales and support offices in the USA, Europe and Singapore. In 2006,
the Indian outsourcing company Genpact (40% owned by GE of the USA) launched a joint venture
with New Delhi Television (NDTV) to offer digital video editing, post-production and archiving
services to media firms. The industry is worth $1 trillion, and 70% of all media work is now digital.
Based on patent citations, Indian firms rely much more on linkages with the science base and
technology from the developed countries, whereas China has a broader reliance, which includes its
Asian neighbours in other emerging economies, and specializes on more applied fields of technol-
ogy. Indian firms rely on technologies from USA firms most – about 60% of all patent citations,
followed by (in order of importance), Japan, Germany, France and the UK. In many cases, these
linkages have been reinforced by inward investment by MNCs, but in other cases they are the
result of Indians trained or employed overseas who have returned to India to create new ventures.
Infosys was one of the first and now one of the largest software and IT services firms in India.
It was created by entrepreneur N. R. Narayana Murthy with six colleagues in 1981 with only $250,
but revenues in 2014 were more than $8 billion in 2014. Murthy believes that ‘entrepreneurship is
the only instrument for countries like India to solve the problem of its poverty … it is our respon-
sibility to ensure that those who have not made that kind of money have an opportunity to do so.’

Sources: Woo, J. (2012) Technological Upgrading in China and India: What Do We Know?
OECD Development Centre Working Paper no. 308; N. Forbes and D. Wield (2002) From
Followers to Leaders: Managing Technology and Innovation, Routledge, London; IEEE (2006)
International Conference on Management of Innovation and Technology, Singapore; T.L.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Friedman (2007) The World is Flat: The Globalized World in the Twenty-First Century, Penguin,
London; India Brand Equity Foundation (2014), www.ibef.org.

INNOVATION IN ACTION 3.7

Building BRICs: Capabilities in Brazil

In his research, Fernando Perini examined the structure and dynamics of the knowledge networks in
the IT and telecommunications sectors in Brazil. The Brazilian government promoted the develop-
ment of the industry between 1997 and 2003 by the ‘ICT Law’ which provided tax incentives for

(continued)

collaborative R&D, following the liberalization of the economy in the early 1990s and the unsuc-
cessful period of import substitution. This policy promoted an overall private investment of more
than $2 billion in innovation, supporting partnerships in innovation projects inside a network of 216
companies and 235 universities and research institutes, but the lasting effects on firm and national
capabilities are more mixed. While the policy of tax incentives promoted a higher level of invest-
ments in innovation, it did not determine the direction or organization of innovation in the sector.
The study concludes that the effect of the tax incentives depends on the nature of the tech-
nology and industry structure. They were important in helping to create knowledge networks
in system and software technologies where MNCs were key players, but much less successful
in equipment, semiconductors, production process and hardware, where MNCs relied most on
internal R&D and their own international networks. However, the MNCs did develop new part-
nerships in product development in IT systems and software, mainly with new private research
institutes, rather than with established universities and research centres. Many of these private
research institutes have become network integrators in the Brazilian ICT sector, and act as tech-
nological partners in activities such as training, technological services and research.
However, a small number of MNCs still dominate the Brazilian market. More than 70%
of the total investments under the ICT Law were conducted by the top 15 MNC subsidiaries.
For example, Lucent entered Brazil through the acquisition of two main national telecom com-
panies, Zetax and Batik. In 2011 Alcatel-Lucent opened a new 15 400 square feet technology cen-
tre in São Paulo, to support the expansion of broadband and 4G mobile in Brazil, and in 2014
announced the start of construction of the Seabras-1 submarine fibre optic cable system between the
US and Brazil. The lab has competencies in both hardware and software, but there has been a shift
towards software because it is less influenced by the regulation of international trade. The lab includes
a new group of 50 engineers created in 2004 to develop competencies in optical access, specifically
an optical concentrator for public commutation networks. The interaction with the global R&D
community is very strong, in particular through the exchange of personnel. For example, the new
optical unit involved the exchange of 35 people for two months. In addition, Lucent has developed
local supply and research networks, and approximately 85% of its external activities are outsourced
Copyright © 2015. Wiley Textbooks. All rights reserved.

to FITec. FITec has facilities throughout Brazil, including Campinas, Belo Horizonte and Recife.
Siemens Mercosur has the longest and largest MNC presence in Brazil. The subsidiary has
developed technological capabilities mainly in telecommunications and since the ICT law expired
continues to invest more than twice that required by legislation. R&D at the subsidiary is divided
into six groups; the largest in Manaus, has 300 technical staff and specializes in Mobile Handsets
that supply global markets. In addition, the Networks development group in Curitiba has around
120 engineers and the Enterprise group
100 engineers. In relation to local techno-
Case Study of Instituto Nokia de logical partners, Siemens has focused on
Tecnologia (INdT), a joint venture with the upgrading of partnerships in the south,
the Brazilian government to work
including two local universities (UTF-PR
on solutions for local and global ICT
needs, is available on the Innovation and PUC-PR) and one private institute
Portal at www.innovation-portal.info (CITS), but the removal of public incentives
and shifts in the technology have increased

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 3 Innovation, Globalization and Development 89

the importance of the partnership with

CITS. However, the subsidiary has also
Video Clip of Ana Sena describing
invested in enabling institutes and post- the work of INdT in its Living Lab
graduate courses, for example it helped to aiming to meet the needs of the
create a new postgraduate degree in com- largely rural population of Amazonas
puter science in Manaus. Another initiative is available on the Innovation Portal
at www.innovation-portal.info
is the creation of an Innovation Portal to
register and process innovative ideas from
Brazilian companies and researchers.
Case Study of Natura, a cosmetics
Source: Perini, F. (2010) The Structure company using a similar model to
and Dynamics of the Knowledge the Body Shop’s, aiming to bring
Networks: Incentives to Innovation natural cosmetic products to a rapidly
growing international market is
and R&D Spillovers in the Brazilian available on the Innovation Portal at
ICT Sector, DPhil dissertation, SPRU, www.innovation-portal.info
University of Sussex, UK.

INNOVATION IN ACTION 3.8

Building BRICs — Innovation Capabilities in China

Since economic reform began in 1978, the Chinese economy has grown by about 9–10% each
year, compared to 2–3% for the industrialized countries. As a result, its GDP overtook Italy in
2004, France and the UK in 2005 and in 2014 was second only to the USA.
After two decades of providing the world economy with inexpensive labour, China is becom-
ing a platform for innovation, research and development. The formal R&D expenditure reached
Copyright © 2015. Wiley Textbooks. All rights reserved.

about 1.8% of GDP in 2014 (compared to an average of 2.4% of GDP in the advanced econo-
mies of the OECD, although Japan exceeds 3%), and the Chinese government aims to increase
R&D expenditure to 2.5% of GDP by 2020, and to make China a scientific power by 2050.
China’s policy has followed the East Asian model in which success has depended on techno-
logical and commercial investment by and collaboration with foreign firms. Typically, companies in
the East Asian tiger economies such as South Korea and Taiwan developed technological capabilities
on a foundation of manufacturing competence based on low-tech production, and developed higher
levels of capability such as design and new product development, for example, through OEM (own
equipment manufacture) production for international firms. However, the flow of technology and
development of capabilities are not automatic. Economists refer to spillovers of know-how from
foreign investment and collaboration, but this demands a significant effort by domestic firms.
Most significantly, China has encouraged foreign MNCs to invest in China, and these are
now also beginning to conduct some R&D in China. Motorola opened the first foreign R&D
(continued)

lab in 1992, and estimates indicate there were more than 1000 R&D centres in China by 2014,
although care needs to be taken in the definitions used. In 2014, the Chinese PC manufacturer
Lenovo acquired Motorola from Google. The transfer of technology to China, especially in the
manufacturing sector, is considered a major contributor to its recent economic growth. Around
80% of China’s inward FDI is ‘technology’ (hardware and software), and FDI inflows have
continued to grow. However, we must distinguish between technology transferred by foreign
companies into their wholly or majority-owned subsidiaries in China versus the technology
acquired by indigenous enterprises. It is only through the successful acquisition of technological
capability by indigenous enterprises, many of which still remain state-owned, that China can
become a really innovative and competitive economic power.
The import of foreign technology can have a positive impact on innovation, and for large enter-
prises the more foreign technology is imported, the more conducive to its own patenting. However,
for the small and medium-sized enterprises this is not the case. This probably implies that larger
enterprises possess certain absorptive capacity to take advantage of foreign technology, which in
turn leads to an enhancement of innovation capacity, whereas small and medium-sized enterprises
are more likely to rely on foreign technology owing to the lack of appropriate absorptive capacity
and the possibly huge gap between imported and its own technology. Buying bundles of technology
has been encouraged. These included ‘embodied’ and ‘codified’ technology: hardware and licences.
If innovation expenditure is broken down by class of innovative activity, the costs of acquisition for
embodied technology, such as machines and production equipment, account for about 58% of the
total innovation expenditures, compared with 17% internal R&D, 5% external R&D, 3% market-
ing of new product, 2% training cost and 15% engineering and manufacturing start-up.
It is clear that the large foreign MNCs are the most active in patenting in China. Foreign patent-
ing began in around 1995, and since 2000 patent applications have increased annually by around
50%. MNCs’ patenting activities are highly correlated with total revenue, or the overall Chinese
market size. This strongly supports the standpoint that foreign patents in China are largely driven
by demand factors. China’s specialization in patenting does not correspond to its export specializa-
tion. Automobiles, household durables, software, communication equipment, computer peripherals,
Copyright © 2015. Wiley Textbooks. All rights reserved.

semiconductors and telecommunication services are the primary areas. The semiconductor industry
in 2005, for example, was granted as many as fourfold inventions of the previous year. Patents by
foreign MNCs account for almost 90% of all patents in China, the most active being firms from
Japan, the USA and South Korea. Thirty MNCs have been granted more than 1000 patents, and
eight of these each have more than 5000: Samsung, Matsushita, Sony, LG, Mitsubishi, Hitachi,
Toshiba and Siemens. Almost half of these patents are for the application of an existing technology, a
fifth for inventions and the rest for industrial designs. Among the 18 000 patents for inventions with
no prior overseas rights, only 924 originate from Chinese subsidiaries of these MNCs, accounting
for only 0.75% of the total. The average lag between patenting in the home country and in China
is more than three years, which is an indicator of the technology lag between China and MNCs.
Examples of companies which have gone through significant changes in governance or finan-
cial structure include Tianjin FAW Xiali, which was transformed into a joint venture with Toyota,
TPCO, where debt funding was changed into equity and shareholding, which allowed higher invest-
ment in production capacity and technology development, and Tianjin Metal Forming, restructured

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 3 Innovation, Globalization and Development 91

to remove debt and in a stronger position to invest and be a more attractive candidate for a foreign
investment. Private firms like Lenovo, TCL, (Ningbo) Bird and Huawei have since prospered and
with belated government help are successful overseas. As a result of its success in telecommunica-
tions networks and mobile, Huawei achieved global sales of US $40 billion in 2014.
However, there are significant differences of innovation and entrepreneurial activity in dif-
ferent areas of China. The eastern coastal region is higher than the other regions, especially in
Shanghai, Beijing, Tianjin, whose entrepreneurial activity level is higher and continues to grow.
Beijing and the Tianjin Region, Yangtze River Delta Region (Shanghai, Jiangsu, Zhejiang) and
Zhu Jiang Delta Region (Guangdong) are the most active regions. Shanghai ranks first in most
surveys, followed by Beijing, but the disparity of the two areas has been expanding. The western
and north-western region is the lowest and least-improving area for entrepreneurial activity level,
and shows little change. Econometric models indicate that the main determinants for entrepre-
neurial activity are explained by regional market demand, industrial structure, availability of
financing, entrepreneurial culture and human capital. Technology innovation and rate of con-
sumption growth have no significant effects on the entrepreneurship in China.
Studies comparing successful and unsuccessful new ventures in China confirm the signifi-
cance of entrepreneurial quality in explaining the success of new ventures, especially business and
management skills, industrial experience and strength of social networks, the ubiquitous guanxi.
However, there remain significant regulatory and institutional challenges with complex ownership
structures, poor corporate governance and ambiguous intellectual property rights issues, especially
with public research, former state enterprises and university spin-offs and academic-run enterprises.

Sources: Woo, J. (2012) Technological Upgrading in China and India: What Do We Know? OECD
Development Centre Working Paper no. 308; Wang, Q., S. Collinson and X. Wu (eds) (2010)
Special Issue on Innovation in China, International Journal of Innovation Management 14(1); East
meets West: 15th International Conference on Management of Technology, Beijing, May 2006.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Innovation for Development

A characteristic of BRICS and other emerging economies is that they can be simultaneously very
advanced in terms of industrial and market development in some areas but also still at a rela-
tively early stage of development in others. India, for example, has satellite technology, a global
pharmaceuticals industry and some market-leading corporations but it also has huge problems of
healthcare, illiteracy and basic infrastructure. And other countries – notably in Africa and much
of Latin America – are still at a relatively early stage in their development of innovation capability.
But these conditions do not mean there is no scope for innovation. Indeed, there has been
something of a revolution in thinking as we have come to realize that learning to meet the
particular needs for goods and services in these spaces may actually offer radical new alter-
native pathways for innovation in more industrialized settings.
In his influential 2006 book The Fortune at the Bottom of the Pyramid, C.K. Prahalad
points out that most of the world’s population – around four billion people – live close to or

below the poverty line, with an average income of less than $2/day.7 In 2013, nearly half of
the world’s population, more than three billion people, still lived on less than $2.50 a day. It
is easy to make assumptions about this group along the lines of ‘they can’t afford it so why
innovate?’ In fact, the challenge of meeting their basic needs for food, water, shelter and
healthcare requires high levels of creativity – but beyond this social agenda lies a considerable
innovation opportunity. However, it requires a reframing of the ‘normal’ rules of the market
game and a challenging of core assumptions. Table 3.4 provides some examples.
Solutions to meeting these needs will have to be highly innovative but the prize is equally
high: access to a high-volume, low-margin marketplace. For example, Unilever realized the po-
tential of selling its shampoos and other cosmetic products not in 250 ml bottles (which were
beyond the price range of most ‘bottom of the pyramid’ (BoP) customers but in single sachets. The
resulting market growth has been phenomenal – and examples like this are fuelling major activity
amongst large corporations looking to adapt their products and services to serve the BoP market.

TABLE 3.4 Challenging assumptions about the bottom of the pyramid

Assumption Reality – and opportunity
The poor have Although low income the sheer scale of this market makes it interest-
no purchasing ing. And the poor often pay a premium for access to many goods and
power and do services (e.g. borrowing money, clean water, telecommunications and
not repre- basic medicines) because they cannot address mainstream channels
sent a viable like shops and banks. The innovation challenge is to offer low-cost, low-
market margin but high-quality goods and services across a potential market of
four billion people
The poor are Evidence suggests a high degree of brand and value consciousness,
not brand- so if an entrepreneur can come up with a high-quality, low-cost solu-
conscious tion it will be subject to hard testing in this market. Learning to deal with
this can help migrate to other markets, essentially the classic pattern of
Copyright © 2015. Wiley Textbooks. All rights reserved.

‘disruptive innovation’
The poor are By 2015, there are likely to be nearly 400 cities in the developing world
hard to reach with populations of over one million and 23 with over 10 million. Around
35% of these will be poor, so the potential market access is considerable.
Innovative thinking around distribution via new networks or agents (such
as the women village entrepreneurs used by Hindustan Lever in India or
the ‘Avon ladies’ in rural Brazil) can open up untapped markets
The poor are Experience with PC kiosks, low-cost mobile phone sharing and access
unable to to the Internet suggests that take-up rates are extremely fast amongst
use and not this group. In India the e-Choupal (e-meeting place) set up by the
interested tobacco company ITC enabled farmers to check prices for their prod-
in advanced ucts at the local markets and auction houses. Very shortly after that the
technology same farmers were using the Web to access prices of their soybeans at
the Chicago Board of Trade and strengthen their negotiating hand!

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Chapter 3 Innovation, Globalization and Development 93

For example, in the Philippines there is little in the way of a formal banking system for
the majority of people – and this has led to users creating very different applications for
their mobile phones where pay-as-you-go credits become a unit of currency to be transferred
between people and used as currency for various goods and services. In Kenya, the M-PESA
system is used to increase security: if a traveller wishes to move between cities he or she will
not take money but instead forward it via mobile phone in the form of credits which can then
be collected from the person at the other end. Apple Pay began to be introduced into the USA
and Europe in 2014, but Africa leads the world in mobile payment use, with nine African
countries having more mobile cash accounts like M-PESA, than conventional bank accounts.8
The potential exists to use this kind of extreme environment as a laboratory to test and
develop concepts for wider application, for example Citicorp has been experimenting with a
design of ATM-based on biometrics for use with the illiterate population in rural India. The
pilot involves some 50 000 people but as a spokesman for the company explained, ‘We see
this as having the potential for global application.’

ENTREPRENEURSHIP IN ACTION 3.3

Entrepreneurship for Sustainable Development

The annual FT/IFC Transformational Business Awards attracted 237 entries in 2014, from 214
companies representing 61 countries. The Awards focus on businesses which provide fundamental
development needs, such as healthcare, food, water, housing, energy and infrastructure. The focus
has broadened from a firm’s social and environmental footprint, to its external impact in such areas.
For example, Engro Foods is a Pakistan-based business which provides real-time data collection
and processing for 1800 smallholder farmers in order to reduce waste and promote faster payments.
Jain Irrigation Systems (Jains), a family-run Indian business, is another case. It pioneered micro-
irrigation systems such as drip systems,
Copyright © 2015. Wiley Textbooks. All rights reserved.

sprinklers, valves and water filters to pre- Video Clip of an interview with Suzana
serve water use and improve crop yields. Moreira giving an example of BoP
social innovation using mobile phones
Source: Murray, S. (2014) Development is available on the Innovation Portal at
groups can drive commercial innovation, www.innovation-portal.info
Financial Times, 13th June, 1–3.

Significantly, the needs of this BoP market cover the entire range of human wants and
needs, from cosmetics and consumer goods through to basic healthcare and education.
Prahalad’s original book contains a wide range of case examples where this is beginning to
happen and which indicate the huge potential of this group – but also the radical nature of
the innovation challenge. Subsequently, there has been significant expansion of innovative
activity in these emerging market areas – driven in part by a realization that the major growth
in global markets will come from regions with a high BoP profile.

Importantly, many companies are actively using BoP markets as places to search for weak
signals of potentially interesting new developments. For example, Nokia sent scouts to study
how people in rural Africa and India are using mobile phones and the potential for new ser-
vices which this could offer, while the pharmaceutical firm Novo-Nordisk has been learning
about the low-cost provision of diabetes care in Tanzania as an input to a better understand-
ing of how such models could be developed for different regions.
Meeting the needs of people at the bottom of the pyramid is not about charity but rather
about a fundamental rethink of the business model – ‘paradigm innovation’ in the 4Ps model
we looked at in Chapter 2 – to create sustainable alternative systems.

INNOVATION IN ACTION 3.9

Changing the Game at the Bottom of the Pyramid

Pretty high on anyone’s list of wants is a quality home, but financing more than basic shel-
ter is often beyond the means of most of the world’s population. But CEMEX, the Mexican
cement and building materials producer, has pioneered an innovative approach to changing
this. Triggered by a domestic financial crisis in the mid-1990s, CEMEX saw a big drop in sales
in Mexico. But closer inspection revealed that the market segment of do-it-yourself, especially
amongst the less wealthy, had sustained demand levels. In fact, the market was worth a great
deal – nearly a billion dollars per year – but it was made up of many small purchases rather than
large construction projects. Since over 60% of the Mexican population earn less than $5/day, the
challenge was to find ways to work with this market in the future.
The response was a novel financing approach, built on the fact that many communities oper-
ate a ‘savings club’ type of scheme to help finance major purchases: the tanda network. CEMEX
set up Patrimonio Hoy – a version of the tanda system which allowed poor people to save and
access credit for building projects. It relies
on social networks, replacing traditional
Copyright © 2015. Wiley Textbooks. All rights reserved.

Case Studies of innovative solutions

to the challenges posed by healthcare distributors with ‘promoters’ who work
provision in India, such as Lifespring on a commission but also help set up
Hospitals, Narayana Hrudayalaya and run the tandas; significantly 98% of
Hospitals (NHL) and Aravind Eye
these promoters are women. The scheme
Clinics, are available on the Innovation
Portal at www.innovation-portal.info allows access not just to materials but
also to architects and other support ser-
vices. It has effectively changed the way
Audio Clip of an interview with Girish
a large segment of society can manage its
Prabhu, director of Srishti Labs in own construction projects. Success with
Bangalore, which specializes in the home improvements area has led to
developing BoP solutions is available its extension to village infrastructure
on the Innovation Portal at projects linked to drainage, lighting and
www.innovation-portal.info
other community facilities.

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Chapter 3 Innovation, Globalization and Development 95

Chapter Summary
• In formulating and executing their development and innovation strategies, business firms
cannot ignore the national systems of innovation and international value chains in which
they are embedded.
• Through their strong influences on demand and competitive conditions, the provision
of human resources, and forms of corporate governance, national systems of innovation
both open opportunities and impose constraints on what firms can do.
• However, although firms’ strategies are influenced by their own national systems of
innovation, and their position in international value chains, they are not determined by
them.
• Learning (i.e. assimilating knowledge) from competitors and external sources of innova-
tion is essential for developing capabilities, but does require costly investments in R&D,
training and skills development to develop the necessary absorptive capacity.
• This depends in part on what management itself does, by way of investing in comple-
mentary assets in production, marketing, service and support, and its position in local
and international systems of innovation. It also depends on a variety of factors that
make it more or less difficult to appropriate the benefits from innovation, such as intel-
lectual property and international trading regimes, and over which management can
sometimes have very little influence.

Key Terms Defined

Corporate governance the systems for exercising and changing corporate ownership and
Copyright © 2015. Wiley Textbooks. All rights reserved.

control.
Position the current endowment of technology and intellectual property of a firm, as well
as its relations with customers and suppliers.
Spillovers a term used by economists to describe the flow of know-how and other benefits
from firm-specific investments, for example by MNCs, to the broader economy or between
firms or sectors. This is often presented as being automatic, but demands a significant
effort by domestic firms.
Value chain (or value network) the system of relationships to create and capture value, for
example between suppliers and customers. These can constrain profoundly their ability to
capture the benefits of their innovation and entrepreneurship.

Discussion Questions
1. What factors influence the location of innovation, and how could these constrain the
globalization of innovation?
2. What are the main components of a national innovation system, and how do these
interact?
3. How can firms learn from overseas sources of innovation?
4. How can firms limit the scope for competitors imitating their innovations, and therefore
better appropriate the benefits of their innovations?
5. Beyond formal R&D investment, what types of capabilities and competencies do firms
need in order to innovate?
6. Compare the development of capabilities in China and India. What are the key lessons
for developing economies?

• the challenges which sustainability raises for innovation

• the different types of innovation which can contribute to improved sustainability
• a model framework for positioning sustainability-led innovation with three levels:
0 doing what we do better
0 opening up new opportunity at enterprise level
0 system-level change
• the key issues in the process of moving towards sustainability-led innovation
Copyright © 2015. Wiley Textbooks. All rights reserved.

• some tools to help with the journey.

The Challenge of Sustainability-led Innovation

The Threat…
Sustainability is becoming a major driver of innovation. In an influential report the WWF
points out that lifestyles in the developed world at present require the resources of around
two planets and if emerging economies follow the same trajectory this will rise to 2.5 by
2050.1 Many key energy and raw material resources are close to passing their peak of avail-
ability and will become increasingly scarce.2 At the same time the dangers of global warm-
ing have moved to centre stage and climate change (and how to deal with it) is an urgent

political as well as economic issue. This translates to increasingly strong legislation forcing
organizations to change their products and processes to reduce carbon footprint, greenhouse
gas emission and energy consumption. Behind this is the growing challenge of environmental
pollution and the concern not only to stop the increasing damage being done to the natural
environment but also to reverse the impacts of earlier practices.3

…and the Opportunity

It’s not necessarily all doom and gloom. Considerable opportunities are also opening up, both
for process innovations that increase operating efficiencies and reduce costs and for product
innovations that exploit the huge potential market space represented by the ‘green economy’.
For example, the global market for ‘green products and services’ was recently estimated as a $3.2
trillion business opportunity, while UK consumer spending on ‘sustainable’ products and services
was last reported at more than £36 billion – bigger even than alcohol and tobacco sales combined.
The provision of alternative goods and services, more efficient approaches to resource
and energy management and new partnerships and ways of working could help unleash a new
era of economic development. A recent PricewaterhouseCoopers report suggests significant
market potential in the provision of green goods and services; its estimate was as high as 3%
of global GDP.4 A United Nations (2011) report illustrates how ‘greening the economy’ is
already becoming a powerful new engine of growth in the 21st century.5 The World Business
Council for Sustainable Development’s (WBCSD) Vision 2050 sets out new opportunities for
businesses in responding to sustainability challenges, promoting whole system perspectives.6
As management guru C. K. Prahalad and colleagues put it, ‘sustainability is a mother
lode of organizational and technological innovations that yield both bottom-line and top-line
returns. Becoming environment-friendly lowers costs because companies end up reducing the
inputs they use. In addition, the process generates additional revenues from better products
or enables companies to create new businesses. In fact, because [growing the top and bottom
lines] are the goals of corporate innovation, we find that smart companies now treat sustain-
ability as innovation’s new frontier.’7
Copyright © 2015. Wiley Textbooks. All rights reserved.

INNOVATION IN ACTION 4.1

Sustainability-led Innovation at Interface

One of the success stories in sustainability-led innovation (SLI) has been the growth of floor-
ings business Interface, which has made radical changes to its business and operating model
and secured significant business growth.
Video Clip of Ray Anderson talking Interface has cut greenhouse gas emissions
about the potential of sustainability- by 82%, fossil fuel consumption by 60%,
led innovation is available
waste by 66%, water use by 75% and
on the Innovation Portal at
www.innovation-portal.info increased sales by 66%, doubled earnings
and raised profit margins. To quote Ray

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Chapter 4 Sustainability-led Innovation 101

Anderson, founder and chairman: ‘As we climb Mount Sustainability with the four sustainability
principles on top, we are doing better than ever on bottom-line business. This is not at the cost of
social or ecological systems, but at the cost of our competitors who still haven’t got it.’

Activity to help you explore this topic further, Innovation

challenges in sustainability, is available on the Innovation Portal at
www.innovation-portal.info

We’ve Seen This Before

Preoccupation with sustainability and the need for innovation to deal with it is, of course,
not new. Back in the 1970s an influential report called The Limits to Growth triggered a
long-running and high-profile debate around these issues and this led to a continuing stream
of research and advocacy around the need for change and the best ways to drive the innov-
ation agenda.8 Organizations such as the WWF and Greenpeace emerged out of this and con-
tinue to play a key role in raising awareness, exploring issues and challenging policymakers
and organizations to improve sustainability.
Whatever the perspective adopted it is clear that change – innovation – will be needed.
Growing concern of the kind described above is driving a combination of increasingly strong
legislation, international environmental management standards, new sustainability metrics and
reporting standards that will force business to adopt greener approaches if they are to retain a
licence to operate. At the same time the opportunities opened up for ‘doing what we do better’
(through ‘lean, green’ investments in improving efficiencies around resources, energy, logistics,
Copyright © 2015. Wiley Textbooks. All rights reserved.

etc.) and ‘doing different’ – radical new moves towards systems change – make it an increas-
ingly significant item in strategic planning amongst progressive organizations of all sizes.

Sustainability-led Innovation
So what are organizations doing about this? Early activity centred on cosmetic activity with
which organizations sought to improve their image or strengthen their corporate social re-
sponsibility image through high-profile activities designed to show their green credentials. But
now it has moved to a second phase in which increasingly strong legislation provides a degree
of forced compliance. The frontier is now one along which leading organizations are seeking
to exploit opportunities, as they recognize the need for innovation to deal with resource in-
stability and scarcity, energy security and systemic efficiencies across their supply chains.

INNOVATION IN ACTION 4.2

Managing Innovation for Sustainability

In their review of the field, Frans Berkhout and Ken Green argue that ‘technological and
organizational innovation stands at the heart of the most popular and policy discourses about
sustainability.
Innovation is regarded as both a cause and solution … yet, very little attempt has been
made in the business and environment, environmental management and environmental policy
literatures to systematically draw on the concepts, theories and empirical evidence developed
over the past three decades of innovation studies.’ They identify a number of limitations in the
innovation literature, and suggest potential ways to link innovation and sustainability research,
policy and management:

1. A focus on managers, the firm or the supply chain is too narrow. Innovation is a distributed
process across many actors, firms and other organizations, and is influenced by regulation,
policy and social pressure.
2. A focus on a specific technology or product is inappropriate. Instead, the unit of analysis
must be on technological systems or regimes, and their evolution rather than management.
3. The assumption that innovation is the consequence of coupling technological opportunity
and market demand is too limited. It needs to include the less obvious social concerns, expec-
tations and pressures. These may appear to contradict stronger but misleading market signals.

They present empirical studies of industrial production, air transportation and energy to
illustrate their arguments, and conclude that ‘greater awareness and interaction between research
and management of innovation, environmental management, corporate social responsibility and
innovation and the environment will prove fruitful’.

Source: Berkhout, F. and K. Green (eds) (2002) Special issue on managing innovation for sustain-
Copyright © 2015. Wiley Textbooks. All rights reserved.

ability, International Journal of Innovation Management, 6(3).

A number of frameworks have been proposed to take account of this – for example,
Prahalad and Nidumolo suggest five steps moving from ‘viewing compliance as an oppor-
tunity’, through ‘making value chains sustainable’ and ‘designing sustainable products and
services’ to ‘designing new business models’. Their fifth stage focuses on ‘creating next practice
platforms’ – implying a system-level change.9 For entrepreneurs these opportunities offer
significant options for new ventures in the sustainability space around resources, energy and
environmental management.
We can use the 4Ps framework from Chapter 1 to classify the kinds of activity going on
around SLI. Table 4.1 gives some examples.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 4 Sustainability-led Innovation 103

TABLE 4.1 Examples of sustainability-led innovation

Innovation target Examples
Product/service offering Green products, design for greener manufacture and recycling,
service models replacing consumption/ownership models
Process innovation Improved and novel manufacturing processes, lean systems
inside the organization and across supply chain, green logistics
Position innovation Rebranding the organization as green, meeting needs of
underserved communities (e.g. bottom of pyramid)
Paradigm innovation – System-level change, multi-organization innovation,
changing business models servitization (moving from manufacturing to service emphasis)

A Framework Model for

Sustainability-led Innovation
We can see the journey towards full sustainability as involving three dimensions which under-
pin a change in the overall approach from treating the symptoms of a problem to eventually
working with the system in which the problem origi-
nates (Figure 4.1). Case Study of a research project
In particular, we can think of three stages in the evolu- carried out with the Network for
tion of SLI, from simple compliance and ‘doing what we Business Sustainability, which works
do better’ innovation through to more radical exploration with companies like RIM, Suncor and
Unilever and academic institutions like
of new business opportunities. The third stage is all about the Richard Ivey School of Business
system change, where significant effects can be achieved is available on the Innovation Portal at
Copyright © 2015. Wiley Textbooks. All rights reserved.

but which rely on cooperation and co-evolution of innova- www.innovation-portal.info

tive solutions across a group of stakeholders.

Innovation’s Focus TECHNOLOGY PEOPLE

SUSTAINABLE
BUSINESS

Firm’s View of SYSTEMIC

Itself in Relation INSULAR (part of the
(focused on itself)
to Society organizational ecosystem)

Extent to Which STAND-ALONE INTEGRATED

Innovation Extends (involves a single- (is in the
Across the Firm unit/department) organization’s DNA)

FIGURE 4.1 The journey towards sustainability-led innovation

Step 1 is Operational optimization, essentially doing what we do but better. Table 4.2
gives some examples.

1.
OPERATIONAL
Approach OPTIMIZATION
‘Eco-Efficiency’

Compliance, efficiency
• ‘Doing the same
Innovation
things better’
Objective

Innovation
Reduces harm
Outcome
Innovation’s
Incremental improvements
Relationship
to business as usual
to the Firm

TABLE 4.2 Examples of paradigm innovation

Deﬁnition Characteristics Examples
Compliance In the stage of operational Pollution controls
with regulations optimization, the organiza- Flexible work hours/
Copyright © 2015. Wiley Textbooks. All rights reserved.

or optimized tion actively reduces its cur- telecommuting

performance through rent environmental and social Waste diversion
increased efficiency impacts without fundamentally Shutting or consolidating
changing its business model. facilities
In other words, an optimizer Energy-efficient lighting
innovates in order to ‘do less Use of renewable energy
harm’. Innovations are typically Reduced paper consumption
incremental, addressing a single Reduced packaging
issue at a time. And they tend to Decreased use of raw materials
favour the ‘technofix’ – focusing Reduced use/elimination of
on new technologies as ways to hazardous materials
reduce impacts while maintaining
business as usual. Innovation
tends to be inward-focused in
both development and outcome;
at this stage, companies typically

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Chapter 4 Sustainability-led Innovation 105

TABLE 4.2 (Continued)

Deﬁnition Characteristics Examples
rely on internal resources to Optimization of product size/
innovate, and the resulting inno- weight for shipping
vations are company-centric: Hybrid electric fleet vehicles
their intent is primarily to reduce Delivery boxes redesigned from
costs or maximize profits. single to multi-use

Case Studies of companies like TetraPak, Volvo, Lafarge, Nokia Solutions

and Networks (NSN) and Fairmount Hotels working in China to
reduce greenhouse gas emissions are available on the Innovation
Portal at www.innovation-portal.info

Video Clip of Fabian Schlage (NSN) illustrating some of these themes is

available on the Innovation Portal at www.innovation-portal.info

Step 2 is Organizational transformation, essentially doing things differently different at

the level of the organization. Table 4.3 gives more detail.
Copyright © 2015. Wiley Textbooks. All rights reserved.

2.
ORGANIZATIONAL
TRANSFORMATION
‘New Market
Opportunities’

Novel products, services

or business models
• ‘Doing good by doing
new things’

Creates shared value

Fundamental shift in
firm purpose

TABLE 4.3 Organizational transformation

Deﬁnition Characteristics Examples
The creation of Rather than focusing on ‘doing Disruptive new products that
often disruptive less harm’, organizational trans- change consumption habits (e.g. a
new products formers believe their organization camp stove that turns any biomass
and services by can benefit financially from ‘doing into a hyper-efficient) heat source
viewing sustain- good’. They see opportunities to whose sales subsidize cheaper
ability as a mar- serve new markets with novel, models distributed in developing
ket opportunity sustainable products, or they countries
are new entrants with business Disruptive new products that benefit
models predicated on creating people (e.g. CT scanners that are
value by lifting people out of portable, durable and have minimum
poverty or producing renewable functionality – making them af-
energy. Organizational trans- fordable and useful for health care
formers may focus less on creating providers in developing countries)
products and more on delivering
Replacing products with services (e.g.
services, which often have a lower
leasing and maintaining carpets over
environmental impact. They often
a prescribed lifetime rather than sell-
produce innovations that are both
ing them)
technological and sociotechni-
cal – designed to improve quality Introducing car- and bike-sharing
of life for people inside or outside services in urban centres to reduce
the firm. Transformers are still pollution caused by individual car
primarily internally focused in ownership while increasing overall
that they see their organization mobility
as an independent figure in the Replacing physical services with
economy. However, they do work electronic services (e.g. reducing
up and down the value chain and paper consumption by delivering bills
collaborate closely with external electronically rather than by mail)
Copyright © 2015. Wiley Textbooks. All rights reserved.

stakeholders. The move from Services with social benefits (e.g.

operational optimization to organ- a smartphone app that rewards
izational transformation requires a people with coupons for local mer-
radical shift in mindset from doing chants when they make charitable
things better to doing new things donations)

INNOVATION IN ACTION 4.3

Sustainability-led Innovation within Philips

Philips is a Dutch multinational company, founded in 1891 and now operating in over 100
countries and employing 118 000 people. It has a long-standing commitment to sustainability

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 4 Sustainability-led Innovation 107

principles, for example in the early 20th century Philips’ employees benefited from schools, hous-
ing and pension schemes. It has also been a key actor in several international sustainability initia-
tives; back in the early 1970s, Philips participated in the Club of Rome’s ‘The Limits to Growth’
dialogue and in 1974 the first corporate environmental function was established. In 1992, it was
one of 29 multinational companies participating in the World Council for Sustainable Business
Development which developed ‘Vision 2050’ – a roadmap for future development towards a
more sustainable position.
Its own ‘EcoVision’ programmes were first launched in 1998, setting corporate sustainabil-
ity-related targets and the first green innovation targets were introduced in 2007, in EcoVision4.
In parallel, in 2003, the Philips Environmental Report (first published in 1999) was extended into
a Sustainability Report and in 2009 this was integrated into the Philips Annual Report, signalling
the full embedding of sustainability in Philips’ business practices.
Philips EcoVision5 programme for 2010–2015 establishes concrete targets for sustainable
innovation:

• To bring care to 500 million people.

• To improve the energy efficiency of our overall portfolio by 50%.
• To double the amount of recycled materials in our products as well as to double the collection
and recycling of Philips products.

Like many other long-lived companies, Philips has adjusted its innovation approach several
times, anticipating major changes in society. In recent decades, this has resulted in the opening of
an Experience Lab in Eindhoven and the extension of the traditional technology-driven product-
creation process towards end-user driven innovation. ‘Open innovation’ has also changed its way
of working: in the late 1990s, the former Research Laboratories were transformed into a vibrant
High Tech Campus, now hosting over 80 non-Philips business entities. During the last decade, its
focus was ‘inside-out’ based on teaming up, incubation and spin-outs and the emphasis is now
on co-creating sustainable systems solutions.
Copyright © 2015. Wiley Textbooks. All rights reserved.

With the launch of EcoVision4 Philips introduced a target on green innovation, spending a
total of €1 billion on developing green products and processes. These are defined as offering sig-
nificant environmental improvements in one or more ‘Green Key Focal Areas’: energy efficiency,
packaging, hazardous substances, packaging, weight, recycling and disposal and lifetime reliabil-
ity. In 2010, green products accounted for 37.5% of the Philips sales. The target for 2015 is 50%.
For example, the Consumer Lifestyle division recently launched the first cradle-to-cradle in-
spired products, such as the Performer EnergyCare vacuum cleaner, 50% made from post-industrial
plastics and 25% from bio-based plastics. It is extremely energy-efficient, but it earns its designa-
tions as a green product primarily because it scores so highly in the focal area of recycling.
Another example is the award-winning Canova LED TV. This high-performance LED TV
consumes 60% less power than its predecessor. Even the remote control is efficient: it’s powered
by solar energy. In addition, the TV is completely free of PVC and brominated flame retardants,
and 60% of the aluminium used in the set is recycled.
(continued)

More information to be found at: http://www.philips.com/about/sustainability/index.page

Case Study of Natura, a Brazilian cosmetics company, which takes

sustainability as a core foundation for its products, services and processes,
is available on the Innovation Portal at www.innovation-portal.info

Step 3 is systems building, essentially changing the system, coevolving solutions with different
stakeholders to create new and sustainable alternatives. Table 4.4 explores this in more detail.

3.
SYSTEMS
BUILDING
‘Societal Change’

Novel products, services or

business models that are
impossible to achieve alone
• ‘Doing good by doing new
things with others’

Creates net positive impact

Extends beyond the firm to

drive institutional change

TABLE 4.4 Systems building

Deﬁnition Characteristics Examples
The interdepend- Systems builders perceive their Industrial symbiosis: Disparate
ent collaborations economic activity as being part organizations cooperate to create
between many dis- of society, not distinct from it. a ‘circular economy’ in which
parate organizations Individually, almost every organi- one firm’s waste is another’s
that create positive zation is unsustainable. But resources (e.g. a construction
impacts on people taken as a collective, systems company uses other companies’
and the planet can sustain each other. Systems glass waste: the synergies lead

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 4 Sustainability-led Innovation 109

TABLE 4.4 (Continued)

Deﬁnition Characteristics Examples
builders extend their thinking to environmental and economic
beyond the boundaries of the benefits for all)
organization to include partners B Corporations: conceived in the
in previously unrelated areas or United States but now existing in
industries. Because the concept dozens of countries worldwide,
of systems building reflects an B Corporations are organizations
unconventional economic para- legally obliged to deliver societal
digm, very few organizations or benefits. Well-known examples
industries occupy this realm include ice-cream producer Ben
The move from organizational & Jerry’s, e-commerce platform
transformation to systems build- Etsy and cleaning product manu-
ing requires another radical shift facturers Method and Seventh
in mindset – this time from doing Generation
new things and serving new mar-
kets to thinking beyond the firm

Case Studies of Green supply chains, Desso and other organizations

which are attempting to innovate across their supply networks
and move towards a systems level approach are available on
the Innovation Portal at www.innovation-portal.info

Case Study outlining a total design approach to construction,

Green Buildings, is available on the Innovation Portal at
www.innovation-portal.info
Copyright © 2015. Wiley Textbooks. All rights reserved.

INNOVATION IN ACTION 4.4

An Environmental Innovation Network for IKEA

The catalogue of IKEA has one of the world’s highest circulations, with a print run of more
than 100 million per year, needing 50 000 tonnes of high-quality paper each year. However,
in the 1990s there were growing environmental concerns about the discharge of chlorinated
compounds from the processes used to create the relatively high-quality paper used in such
(continued)

promotional materials, as well as the more general issue of paper recycling. In response to these
concerns, in 1992 IKEA introduced two new goals for the production of its catalogue: to be printed
on paper that was totally chlorine-free (TCF) and to include a high proportion of recycled paper.
However, these goals demanded significant innovation. No such paper product existed at
the time, and the dominant industry suppliers believed that it would be impossible to combine
chlorine-free materials with high levels of recycled pulp. To achieve the necessary paper bright-
ness for catalogue printing, a minimum of 50% chlorine-dioxide-bleached pulp had been used.
Chlorine had been used for 50 years as the bleaching agent for high-quality paper. Moreover, the
high-quality paper used for such catalogues consisted of a very thin paper base, which is coated
with clay, which makes the insertion of recycled fibre very difficult. The manager of R&D at
Svenska Cellulosa Aktiebolaget (SCA), one of Europe’s largest producers of high-quality paper,
argued that ‘the high-quality demands and the large volume of filling substances is the main
reason that it is neither realistic nor necessary to use recycled fibre’. SCA reinforced this view
with the decision to build a new SKr2.4 billion (£200 million) plant to produce conventional
high-quality coated paper. At that time SCA was not a supplier to IKEA.
In Sweden, the paper manufacturer Aspa worked with the chemical firm Eka Nobel to de-
velop an environmentally acceptable bleaching process with less damaging discharges, but this
was still based on chlorine dioxide and failed to achieve the necessary brightness for use in
high-quality paper, and was marketed as ‘semi-bleached’. Following customer demand for a true
TCF product, including a request from Greenpeace for TCF paper for production of its newsletter,
Aspa was forced to develop a stable product with secure supplies. At this stage the pulp and fibre
company Södra Cell became involved, and identified the need to reach full brightness to create
a broader market for TCF paper. Södra worked with the German company Kværner to develop
an alternative but equally effective bleaching process, and Kværner established a research project
on ozone bleaching with Lenzing and Stora Billerud. The ozone bleaching process was adapted
from an established process for water purification with the help of AGA Gas. However, the use
of ozone in place of chlorine for bleaching required the quality of the pulpwood to be improved,
so the harvesting system had to be changed to ensure that wood was better sorted and available
within weeks of harvesting. To improve the brightness and strength of the paper, the impurities in
Copyright © 2015. Wiley Textbooks. All rights reserved.

the pulp from de-inked recycled paper had to be reduced, which required a new washing process.
The changes in the chemistry of the pulp subsequently reduced the strength of the paper, which
required changes in the paper production process. The printing processes had to be adapted to the
characteristics of the new paper. Initially, Södra Cell supplied the new product to SCA through its
relationship with Aspa, but also to the Italian paper producer Burgo, which provided the paper
for the IKEA catalogue.
Thus, the organization evolved be-
yond a simple industrial supply relation-
Video Clip of an interview with
Michael Pitts of the UK’s Technology ship to an innovation network including
Strategy Board on the challenges customers, printers, paper manufac-
of sustainability-led innovation is turers, pulp and fibre producers, for-
available on the Innovation Portal at estry companies, research institutes
www.innovation-portal.info
and environmental lobby groups across

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 4 Sustainability-led Innovation 111

many different countries. At the same time, the intended innovation shifted from a high-quality
TCF clay-coated paper to a TCF uncoated fresh pulp and 10% de-inked recycled pulp product.

Source: Derived from Hakansson, H. and A. Waluszewski (2003) Managing Technological

Development: IKEA, the Environment and Technology, London: Routledge.

The whole model looks like this:

SUSTAINABLE
BUSINESS
1. 2. 3.
OPERATIONAL ORGANIZATIONAL SYSTEMS
Approach OPTIMIZATION TRANSFORMATION BUILDING
‘Eco-Efficiency’ ‘New Market ‘Societal Change’
Opportunities’

Compliance, efficiency Novel products, services Novel products, services or

• ‘Doing the same or business models business models that are
Innovation
things better’ • ‘Doing good by doing impossible to achieve alone
Objective
new things’ • ‘Doing good by doing new
things with others’
Innovation
Reduces harm Creates shared value Creates net positive impact
Outcome
Innovation’s
Incremental improvements Fundamental shift in Extends beyond the firm to
Relationship
to business as usual firm purpose drive institutional change
to the Firm
Copyright © 2015. Wiley Textbooks. All rights reserved.

Managing the Innovation Process for

Sustainability
While there is plenty of discussion about the need for innovation in the direction of sustain-
ability, it is less clear how this process can be managed. What do these changes mean for the
innovation process and how does consideration of sustainability change the routines we put
in place for innovation management? Are our current models for handling the process are
sufficient – or will the nature and pace of change be so disruptive that it requires radically
new approaches? What kinds of innovation ecosystem may emerge and how will current
players position themselves within it? What opportunities exist for entrepreneurs and how
can they best frame their activities to ride the waves of radical change? What new skills will
we need within – and between – our organizations? What tools, techniques and approaches

will help equip established players and aspiring new entrants to manage effectively? In the
face of radical change, what do we need to do more of, less of and differently in the ways we
manage innovation?
We suggest that SLI highlights once again the challenge
Case Study of how Philips Lighting of ‘dynamic capability’ in that it forces firms to learn new
reconfigured its innovation process to approaches and let go of old ones around the core search,
support its sustainability ambitions is select and implement questions. By its nature, SLI involves
available on the Innovation Portal at working with different knowledge components – new
www.innovation-portal.info
technologies, new markets, new environmental or regula-
tory conditions, etc. – and firms need to develop enhanced
‘absorptive capacity’ for handling this. In particular, they need capability (and enabling tools and
methods) to acquire, assimilate and exploit new knowledge and to work at a systems level.
Figure 4.2 gives a simple map of the challenge.
Zone 1 is essentially about exploiting existing knowledge and improving efficiencies
around the sustainability agenda. Zone 2 is where some of the ‘organizational transformation’
ideas take shape as the opportunities in SLI become apparent. The big challenge in SLI comes
in ‘reframing’ to take into account the many different elements in this space – and to rethink
the underlying knowledge architecture in the organization to work in it. In particular, as we
move to the systems level change stage, there is a need for working interactively with multiple
stakeholders, essentially a complex system in which co-evolution of solutions is the model.
For example, zone 3 is associated with the eco-efficiency concept which involves finding
new and more efficient ways of ‘doing more with less’.10 Eco-efficiency, with its famous
‘3 Rs’ – reduce, re-use, recycle – has its roots in early industrialization, but is now being widely
adopted by companies. Reducing carbon footprint through supply chain improvements or
switching to less energy or resource-intensive products and services which deliver equiva-
lent value can generate significant savings. 3M, for example, saved nearly $1.4 billion over
a 34-year period and prevented billions of pounds of pollutants entering the environment
Copyright © 2015. Wiley Textbooks. All rights reserved.

Radical
Zone 2 – organizational Zone 4 –
transformation co-evolve
Innovation

Zone 1 – operational Zone 3 –

optimization reframe

Incremental

Old frame New frame

FIGURE 4.2 Sustainability-led innovation challenges

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 4 Sustainability-led Innovation 113

through its Pollution-Prevention-Pays (3P) programmes. GE Industrial saved $12.8 million

per year by using high-efficiency lights in its plants. One of Alcoa’s facilities in France achieved
an 85% reduction in water consumption leading to a $40 000-a-year reduction in operating
costs.11
Zone 4 involves significant ‘systems level thinking’ around emergent and radically dif-
ferent solutions. Such system-level innovation has the capacity to generate positive social
and environmental impacts rather than simply minimizing negative ones, representing a shift
from eco-efficiency to ‘eco-effectiveness’. One aspect of this is the involvement of multiple
players, which have traditionally not worked together, in co-creating system-level change. For
instance, Grameen Shakti, a rural renewable energy initiative in Bangladesh, fosters collab-
oration between the microfinance sector, suppliers of solar-energy equipment and consumers,
enabling millions of poor households to leapfrog to new energy systems. It is generating new
employment opportunities, increasing rural incomes, empowering women and reducing the
use of environmentally polluting kerosene. Grameen Shakti is the world’s largest and fastest-
growing rural renewable energy company in the world.12

INNOVATION IN ACTION 4.5

Sustainability-led innovation in Novo Nordisk

Novo Nordisk, a major Danish pharmaceuticals business, makes use of a company-wide sce-
nario-based programme to explore radical futures around its core business. Its ‘Diabetes 2020’
process involved exploring radical alternative scenarios for chronic disease treatment and the
roles which a player like Novo Nordisk could play. As part of the follow-up from this initiative,
in 2003 the company helped set up the Oxford Health Alliance, a non-profit collaborative entity
which brought together key stakeholders – medical scientists, doctors, patients and government
officials – with views and perspectives which were sometimes quite widely separated. To make it
Copyright © 2015. Wiley Textbooks. All rights reserved.

happen, Novo Nordisk made clear that its goal was nothing less than the prevention or cure of
diabetes – a goal which if it were achieved would potentially kill off the company’s main line of
business. As Lars Rebien Sørensen, the CEO of Novo Nordisk, explains:

In moving from intervention to prevention – that’s challenging the business model

where the pharmaceuticals industry is deriving its revenues! … We believe that we can
focus on some major global health issue – mainly diabetes – and at the same time create
business opportunities for our company.

Unilever’s Sustainable Living Plan, which builds partnerships with multiple stakeholders –
including suppliers, NGOs and consumers – aims to create a better future in which billions
of people can increase their quality of life without increasing their environmental footprint.
The new plan is fuelling innovation, generating markets and saving money.

Innovations can arise from developing unusual partnerships across sectors. For example,
the GreenZone, in Umea, Sweden, designed by architect Anders Nyquist, is an early example
of holistic planning. It involves a block of interconnected businesses, including a car dealer-
ship, a petrol station and carwash and a fast-food restaurant. The buildings are connected,
allowing a recycling and sharing of heat.
Table 4.5 highlights some of the emerging challenges to innovation management routines
as organizations move into the sustainability space.

TABLE 4.5 Key innovation management challenges associated with

sustainability-led innovation
Innovation activity Challenges in zone 3 and 4
Search Peripheral vision – searching in unfamiliar fields (sectors, technolo-
gies, markets, etc.)
Reframing
Finding, forming, performing new networks

Selection Resource allocation under high uncertainty

Cognitive dissonance
Not invented here

Implementation Internal mobilization – new skills, structures, etc.

Crossing the chasm and the diffusion problem
New appropriate language

Innovation strategy Need for a clear framework within which to locate search, select,
implement – a ‘roadmap for the future’
Copyright © 2015. Wiley Textbooks. All rights reserved.

New corporate paradigm – criteria based on sustainability (people,

profit, planet, etc.)

Tools to help organizations work with sustainability-led innovation are available

on the Innovation Portal at www.innovation-portal.info

Video Clip of Deborah Meaden (a successful entrepreneur) and David

Nussbaum (chief executive of WWF) discussing the challenges for
businesses embracing sustainability-led innovation is available on the
Innovation Portal at www.innovation-portal.info

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 4 Sustainability-led Innovation 115

Responsible Innovation
One message from this theme of SLI is that we will need to look at some of the questions
we ask during our innovation process. In particular, at the ‘select’ stage what criteria will we
use to ensure the project is worth pursuing? We need to consider carefully whether to take
possible innovation ideas forward but current frameworks for innovation project selection
mainly deal with risks and rewards. In the public sector there is additional concern around the
‘reliability’ theme: will the changes we introduce have an impact on our ability to deliver the
public services people depend on like healthcare and education? But in this chapter we have
seen that there are now urgent additional questions which we should bring into our decision
process around the question of sustainability and wider impact.
Interestingly, much of the academic and policy-oriented innovation research tradition
evolved around such concerns, riding on the back of the ‘science and society’ movement of the
1970s. This led to key institutes (like the Science Policy Research unit at Sussex University)
being established. Their concern – and the many tools which they developed – remained one
of challenging the innovation process and particularly questioning the targets towards which
it worked.
For example, although the global pharmaceutical industry has done much to improve
healthcare through a highly efficient innovation process there are questions which can be
raised around it. Evidence suggests that 90% of its innovation efforts are devoted to the con-
cerns of the richest 10% of the world’s population. In similar fashion questions can be asked
about innovation systems, which can produce impressive consumer electronics yet leave many
people in the world short of clean water or without access to basic medical care.
The argument is that despite the good intentions of individual researchers and corpora-
tions, innovation can sometimes be irresponsible. Products like the insecticide DDT (devel-
oped as a powerful aid to controlling pests) or Thalidomide (a useful anti-nausea drug)
turned out to have unforeseen and seriously negative consequences. In other cases (like BSE)
pursuit of innovation without adequate safeguards or questions being raised led to major
Copyright © 2015. Wiley Textbooks. All rights reserved.

crises. One of the major causes of the global financial crisis – with all the misery it has
brought – lay in irresponsible and sometimes reckless financial innovation around tools and
techniques. And the current debates around genetically modified (GM) foods and reinvest-
ment in nuclear power to cope with energy shortages remind us of the need to ask questions
around innovation.
For these reasons there is growing interest in developing frameworks which can bring a
series of ‘responsibility’ questions into the innovation process and ensure that careful consid-
eration takes place around major change programmes.13

Chapter Summary
• Sustainability is becoming a key factor in innovation, representing both a significant
threat and a source of opportunity.
• Sustainability-led innovation (SLI) involves changes across the ‘innovation space’ – in
products/services, in processes, in positions and in paradigms.
• SLI can involve incremental improvements – ‘do better’ – and more radical changes. We
have explored a three-level model which maps the nature of SLI into three areas:
0 Operational optimization
0 Organizational transformation
0 Systems building.

• SLI poses challenges across the innovation process model – how we search, select and
implement. In particular, working at the higher levels of the model, towards organiza-
tional transformation and systems building, will require developing new routines.
• Part of the dynamic capability challenge in dealing with SLI is to introduce some elements
of a responsible innovation framework to our decision making around innovation
selection and implementation.

Key Terms Deﬁned

Compliance the requirement for organizations to comply with an increasingly wide range
of regulations covering emissions, carbon footprint, material recycling, etc.
Cradle-to-cradle an approach to sustainable products which looks to re-use component
materials, recycling as much as possible.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Eco-efficiency improvements to products/services or processes which improve one or more

dimensions of their ecological impact.
Operational optimization compliance with regulations or optimized performance through
increased efficiency.
Organizational transformation the creation of often-disruptive new products and services
by viewing sustainability as a market opportunity.
Responsible innovation an approach which looks at the wider consequences of innovation
decisions and tries to anticipate negative impacts.
Systems building the interdependent collaborations between many disparate organizations
that create positive impacts on people and the planet.

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Chapter 5

Entrepreneurial
Creativity

LEARNING OBJECTIVES
By the end of this chapter you will develop an understanding of:

• the nature of creativity and the creative process

• the many different ways in which creativity can be deployed for innovation
• the key influences on creativity and the ability to express it
• tools to facilitate creativity and develop skills in using them.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Introduction
Close your eyes and imagine someone being creative. What do you see? The chances are you
have begun to picture an artist, maybe a composer, perhaps a sculptor or a poet wrestling
with his or her imagination? Maybe you have a mad scientist in mind, a crazy white-haired
professor who has questionable dress sense but a brilliant mind and is working out solutions
to the problems of the universe?
These are common pictures which remind us that we tend to think of creativity as some-
thing rather special, very important in the worlds of art and science but somehow the prov-
ince of exceptional and rare individuals working on their own. The reality is a bit different:
what we know about creativity is that everyone is capable of it and it can be developed and

deployed in a wide variety of ways. It’s at the heart of being human, something we have
evolved over a long period of time.
Back in the early days it was a matter of survival: if we couldn’t think our way out of a
problem (like an approaching predator) then we wouldn’t be around for long! Dealing with
the daily struggle to survive required us to be innova-
tive and the key to that was the ability to imagine and
Activities of creativity puzzles are explore different possibilities.
available on the Innovation Portal at
These days, we’re more concerned with creating
www.innovation-portal.info
value, whether in a commercial or social sense, but the
core skill remains one of finding, exploring and solving
problems and puzzles – and that’s where creativity comes in. Whether we are a solo start-up
entrepreneur or a member of a team tasked with helping the organization to think outside
the box, the main resource we need is the one we already have: creativity.
The challenge is finding ways to mobilize and deploy this and to be able to repeat the
trick. This chapter looks at the nature of creativity and explores how we can use our growing
understanding of the creative process to enhance our ability to be innovative in a variety of
different contexts.

What Is Creativity?
The Oxford English Dictionary defines creativity as, ‘the use of imagination or original ideas
to create something’, and that’s a pretty good starting point. Bright ideas are the fuel for inno-
vation so understanding how we come up with them is worth exploring. There’s been plenty
of research in this direction and the good news is that we do have a growing understanding
of how it operates and how we can help it happen.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Associations
We know, for example, that it involves the brain making associations, often between hitherto
unconnected things. That’s why daydreaming or coming up with ideas while we sleep is often
an important part of the story; these are times when the unconscious brain is able to relax
and forge new and unexpected links.

INNOVATION IN ACTION 5.1

The Innovator’s DNA

Research at Harvard Business School looking at the behaviour of 3000 executives over a six-year
period found five important ‘discovery’ skills for innovators:1

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Chapter 5 Entrepreneurial Creativity 125

• associating
• questioning
• observing
• experimenting
• networking.

The most powerful overall driver of innovation was associating – making connections across
‘seemingly unrelated questions, problems or ideas’.

But it isn’t just wild ideas and apparently random connections. Creativity is the ability
to produce work that is both novel and useful. It’s a purposive activity, one with a target in
mind. The journey to get there may require playfulness but there is a serious goal at the end.

Incremental and Radical

It’s also worth reminding ourselves of what we mean by ‘something new’. We can imagine
degrees of novelty, running from radically new insights, flashes of inspiration which are genu-
inely new to the world, through to much more basic improvements to what we already have.
As we saw in Chapter 1, innovation maps onto this kind of spectrum and most of it happens
at the incremental end.
Creativity is about breaking through to radical new ideas, new ways of framing the
problem and new directions for solving it. But it’s also about the hard work of polishing and
refining those breakthrough ideas, debugging and problem-solving to get them to work. The
pattern of innovation is one of occasional flashes of inspiration followed by long periods of
incremental improvement around those breakthrough ideas. Creativity matters throughout
this process.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Divergent and Convergent Thinking

Many studies of creative thinking have looked at two different modes of thinking: convergent
and divergent. Convergent thinking is about focus, homing in on a single ‘best’ answer, while
divergent thinking is about making associations, often exploring round the edges of a prob-
lem. While there are some examples of problems which have a single ‘right’ answer and need
a convergent approach, most require a mixture of the two thinking skills. We need divergent
thinking to open them up, explore their dimensions, create new associations, and we need
convergent thinking to focus, refine and improve the most useful solution for a particular
context.

Left and Right Brain Thinking

Another key part of the puzzle lies in the way our brains operate. The brain is made up of
two connected hemispheres and for a long time neuroscientists have known that different

parts of brain function relate to these different areas. Work originally carried out by Nobel
Prize winner Roger Sperry and colleagues back in the 1960s (and confirmed by more recent
neuroimaging techniques) shows that the left hemisphere is particularly associated with
activities like language and calculation. While our ‘left brain’ seems linked to what we
might call ‘logical’ processing, the role of the ‘right brain’ was, for a long time, much less
well understood. Gradually it became clear that it is involved in associations, patterns
and emotional links; people with damage to the right hemisphere are often incapable of
understanding humour or of feeling moved by painting or music. Our ability to think in
metaphors and to visualize and imagine in novel ways is strongly linked to activity on this
side of the brain.
It’s not a case of ‘creativity = right brain thinking’ but rather that we need to recognize
that both hemispheres are involved and they play different roles. This has important implica-
tions for developing the skills of creative thinking, as we’ll see later, because we need to find
ways to enable this interconnection between the two.

Pattern Recognition
Creativity is particularly about patterns and our ability to see these. In its simplest form if
we see a pattern, which we recognize, we have access to solutions which worked in the past
and which we can apply again. But sometimes it is a case of recognizing a similarity between
a new problem and something like it which we have seen before. For example, Johannes
Gutenberg saw the connection between the way winepresses worked and his idea for the
printing press. Alastair Pilkington saw a link between the way fat floated on the surface of
water and the way his company could make glass, eventually leading to the revolutionary
‘float glass’ process with which most of the world’s windows are now made. And James
Dyson applied ideas about the large-scale industrial cyclones used to capture factory emis-
sions to the world of domestic vacuum cleaners.
Copyright © 2015. Wiley Textbooks. All rights reserved.

INNOVATION IN ACTION 5.2

Sticky Success
It was during a flight in 1967 that Wolfgang Dierichs, a scientist working for the German com-
pany Henkel, had a flash of creative insight. The company made a wide range of stationery
products and one area in which he worked was in adhesives. As he sat waiting for the plane to
take off he noticed the woman next to him applying lipstick. His insight was to see the potential
of the lipstick tube as a new way to deliver glue. Put some solid glue in a tube, twist the cap and
apply it to any surface.
The company launched the ‘Pritt Stick’ in 1969, and within two years it was available in
38 countries around the world. Today, around 130 million Pritt Sticks are sold each year in
120 countries and the product has sold over 2.5 billion units since its invention.

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Chapter 5 Entrepreneurial Creativity 127

Sometimes it is about finding a new pattern which makes sense. One of the challenges
in creativity is that it sometimes involves breaking rules, changing perspectives, seeing things
differently. And this can set up tensions between the person coming up with this new way of
seeing and the rest of the world, who still have the old view.
That’s not always a comfortable position since it can involve going head to head with an
established view of the world. Those who hold it are likely to defend their view strongly. Being
creative is often linked to breaking the rules and challenging the conventional view – and it
isn’t always popular. When Galileo, the astronomer, proposed a different view for the way the
sun and planets operated, he was imprisoned and threatened with death by the Inquisition.
And in a version of this which was not quite so life threatening, when Bob Dylan performed
his new electric music at the Newport festival he was booed off the stage. Not for nothing did
successful entrepreneur James Dyson title his autobiography Against the Odds!2
As the 16th-century writer Machiavelli put it:

It must be remembered that there is nothing more difficult to plan, more doubtful of success,
nor more dangerous to management than the creation of a new system. For the initiator has
the enmity of all who would profit by the preservation
of the old institution and merely lukewarm defenders in
those who gain by the new ones. Case Study of Dyson is available
on the Innovation Portal at
www.innovation-portal.info
If we are to manage creativity effectively, we need
to think about how to bridge these two worlds.

Individual and Group Creativity

So far we have been talking about individual creativity but it is also important to recognize the
power of interaction with others. We are all different in personality, experience and approach,
and these differences mean we see problems and solutions
from different perspectives. Combining our approaches,
sparking ideas off each other and building on shared
Copyright © 2015. Wiley Textbooks. All rights reserved.

Activities around shared problem-

insights are all-powerful ways of amplifying creativity.
solving are available on the Innovation
The old proverb that ‘two heads are better than one’ is Portal at www.innovation-portal.info
often true; think of the many successful creative partner-
ships in the world of music or theatre, for example.

ENTREPRENEURSHIP IN ACTION 5.1

The Power of Groups

Take any group of people and ask them to think of different uses for an everyday item – a cup, a
brick, a ball, etc. Working alone, they will usually develop an extensive list – but then ask them to
(continued)

share the ideas they have generated. The resulting list will not only be much longer but will also
contain much greater diversity of possible classes of solution to the problem. For example, uses
for a cup could include using it as a container (vase, pencil holder, drinking vessel, etc.), a mould
(for sandcastles, cakes, etc.), a musical instrument, a measure, a template around which one could
draw, a device for eavesdropping (when pressed against a wall) and even, when thrown, a weapon!
The psychologist J.P. Guilford classed these two traits as fluency – the ability to produce
ideas – and flexibility – the ability to come up with different types of idea.3 The above experi-
ment will quickly show that, when working as a group, people are usually much more flu-
ent and flexible than any single individual. When working together, people spark each other
off, jump on and develop each other’s
Tools to help you explore ideas, encourage and support each other
brainstorming and creativity through positive emotional mechanisms
enhancement techniques are like laughter and agreement – and in a
available on the Innovation Portal at
variety of ways stimulate a high level of
www.innovation-portal.info
shared creativity.

Creativity in Practice
One way of exploring the nature of creativity is to ask people about it, and Table 5.1 gives
some examples. It is based on asking new product development engineers how they come up
with creative insights and shows the importance of several behaviours rather than a single
magic ingredient. It also underlines a key point; creativity is about behavioural skills which
we can learn and develop.
Copyright © 2015. Wiley Textbooks. All rights reserved.

TABLE 5.1 Creative behaviours in NPD engineers

Behavioural skills Examples
Coming up with ideas ‘Having many and different ideas’
Thinking differently ‘Using a different way of seeing things’
Integrating differences ‘Transferring a principle from another field’
Analysing problems ‘Getting a deep understanding of the functional-
ity of the machine’
‘Redefining the question or the problem’
Collaboration with other people ‘Discussing the problem with my colleagues’
Having expertise/know-how ‘Having a lot of experience in the field’

Source: Based on private communication with Ian Goller.

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Chapter 5 Entrepreneurial Creativity 129

Creativity as a Process
It’s easy to see creativity as being that wonderful
moment where we have a flash of inspiration. The light Activity to help you explore this,
bulb goes on and suddenly everything becomes clear. recollecting creativity, is available
But research has shown it is not as simple as this; there on the Innovation Portal at
is an underlying process which starts a long way before www.innovation-portal.info
that light bulb moment.4
It begins with our recognizing we have a puzzle or a problem to solve. If it is something
we have seen before, we can often switch straight to applying a solution. But if it is something
trickier, we need to explore it further. This can be frustrating; we may wrestle with it for some
time without coming up with any insight about possible solutions. Or we may try out various
ideas and realize they don’t or won’t work. Importantly, what’s going on here is a process of
recognizing and preparing the problem.
We could give up on the struggle and switch off our attention – but the reality is that we
don’t let the problem go. Our brain continues to process and explore, trying out different con-
nections, playing with different options. When we walk away from the problem, or decide to
sleep on it, we are not leaving it behind but rather passing the work of trying to solve it over
to our unconscious minds. This ‘incubation stage’ is important; as the name suggests, we are
allowing something to develop and grow.
At some stage, there is a moment when the insight is born. It may be that we wake up
with a fresh idea in our head, or we suddenly get that flash of inspiration. The ‘aha!’ moment
is often accompanied by feelings of certainty; even if we can’t explain why, we just know
this is the right solution. There’s a flow of energy and a sense of direction to our thinking.
The idea may still need a lot of work to elaborate on and develop it but the underlying
breakthrough has been made.
Figure 5.1 shows a model of this process.
This pattern can be seen in many accounts of creativity where people talk about how
Copyright © 2015. Wiley Textbooks. All rights reserved.

they came up with apparently radical new solutions. And it’s a key resource for us in thinking

Recognition/preparation

Incubation

Insight

Validation/refinement

FIGURE 5.1 A model of the creative process

about how we can build creativity. If it’s a process then we can map the stages, understand
what’s going on and provide some resources to help.

ENTREPRENEURSHIP IN ACTION 5.2

Snakes on a Bus
The 19th-century chemist Friedrich August Kekulé is credited with having unravelled one of the
keys to the development of organic chemistry, the structure of the benzene ring. This arrange-
ment of atoms is central to understanding how to make a range of chemicals, from fertilizers
and medicines to explosives, and enabled the rapid acceleration of growth in the field. Having
wrestled for a long period with the problem, he eventually had a flash of inspiration on waking
from a dream in which he had seen the atoms dance and then, like a snake, begin eating its own
tail. This weird dream picture nudged him towards the key insight that the atoms in benzene
were arranged in a ring.
He later reported on another dream which he had had while dozing on a London bus in
which atoms were dancing in different formations, which gave him further insight into the key
components of chemical structure.

Sometimes this process takes place almost instantaneously; we recognize the problem and
can retrieve a solution almost simultaneously. But sometimes we need to work through the
process in a more systematic fashion, allowing time for each stage. We mentioned divergent
and convergent thinking a little earlier and one way of seeing the creativity process is as a
mixture of divergent and convergent cycles. Figure 5.2 gives an illustration.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Diverging
Recognition/preparation
Converging

Diverging
Incubation
Converging

Diverging
Insight
Converging

Diverging
Validation/refinement
Converging

FIGURE 5.2 Cycles of divergence and convergence in creativity

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Chapter 5 Entrepreneurial Creativity 131

We can link this to our earlier point about the two hemispheres of the brain. ‘Left brain’
thinking involves assembling facts and processing them in a logical fashion, whereas the right
hemisphere is about seeing patterns and making new associations. Both are involved in these
different stages of the creative process – the left side
early on in preparing and recognizing and the right in
the incubating and insight stages. Video Clip of IDEO describing
and enacting this process in its
In practice, this means we need to find ways to
design methodology is available
engage both hemispheres and to practise skills and use on the Innovation Portal at
tools to help us open up and close down ideas around www.innovation-portal.info
the core problem.

(Why, When and Where) Does Creativity Matter?

Of course creativity matters. Evolutionary psychologists point out the stage at which human
beings began to accelerate in their development and link it to the evolution of the brain, espe-
cially the frontal cortex and the underlying ‘theory of mind’ which accompanied it.5 Being
able to imagine, to simulate and to play with ideas and possibilities gave us a huge advantage
when dealing with a complex and dangerous environment.
Today’s environment may be physically less threat-
ening but it’s still filled with uncertainty and complex Activity to help you explore where and
problems with which we have to wrestle on a daily why creativity matters is available on
basis. We need as much creativity as we can get, whether the Innovation Portal at
in starting up a new venture or in steering an established www.innovation-portal.info
organization through an increasingly turbulent sea.
And we need different types of creativity, ranging
from the occasional breakthrough to the systematic deployment of new solutions in incre-
Copyright © 2015. Wiley Textbooks. All rights reserved.

mental fashion. For example, in healthcare we have seen breakthroughs, like the flashes of
inspiration behind the discovery of antibiotics or the structure of DNA. But these have been
followed by decades of systematic, incremental creativity, opening up the field, refining and
configuring solutions based on these breakthrough ideas.
That’s important because it highlights the need to think about managing creativity right
across the novelty spectrum and to find ways in which people can deploy their natural skills
in support of the process. Companies like Toyota wrestle with the continuing challenge of
remaining productive in the face of rising costs, com-
plex and uncertain markets, challenging new technol- Case Studies of high involvement
ogies and a host of other threats. It has achieved its innovation at Veeder-Root, Denso
position as the most productive carmaker in the world Systems, Innocent Fruit Juices,
Redgate Software, Devon and Cornwall
and sustained it for over thirty years not by relying on
Police and the UK Meteorological
occasional breakthrough ideas (although it has had its Office are available on the Innovation
fair share of them) but because it has learnt to mobilize Portal at www.innovation-portal.info
and deploy incremental creativity across its workforce.

TABLE 5.2 Where and when we may need creativity in different contexts
Stage in
development Start-up Growth Maturity Crisis
Need for How to develop How to solve the How to improve How to
creativity a creative vision problems of keeping across the ‘get out
followed by the entrepreneurial broad frontier, of the
incremental advantages of speed mobilizing box’
improvement and flexibility while everyone to
and refinement growing in size, in help with
around the core opening new markets, continuous
idea – ‘pivoting’ in increasing control development
and learning via over processes
experiment

Every day, thousands of employees engage their brains in systematic incremental creativity
problem-solving in a process called ‘kaizen’. (We will discuss this later in the chapter.)
It’s exactly the same pattern for the individual entrepreneur. The initial flash of insight,
the wonderful new idea for a business or social venture is followed by a long journey of
problem-solving, applying creative thinking to get the bugs out of the core idea, pivoting and
changing as the venture develops. The process involves recruiting all sorts of people into a net-
work, which adds its own creative energy and insight to the underlying development process.
The point is there is a huge demand for creativity… we can never have enough new think-
ing. And the good news is we have plenty of evidence that it can be harnessed and focused in
both radical and incremental ways. As we’ll see, there are many different ways in which the
process can be helped along, from simple tools to enhance incremental problem-solving to
some power tools for the ‘heavy lifting’ work of generating radical new concepts. Table 5.2
Copyright © 2015. Wiley Textbooks. All rights reserved.

gives some examples.

Who Is Creative?
The exercise we did earlier, imagining people being creative, usually leads to pictures of excep-
tional individuals, gifted (and often troubled) geniuses who possess the magic ingredient of
‘creativity’. In reality, every human being has the capacity for creativity – watch any group of
children in a playground to be reminded of this wonderful facility fitted as standard equip-
ment! The question is not whether people are creative but how to unlock what is already there
and then hone and develop the skill.
It’s also important to recognize that, while we are all capable of creativity, we differ in
how comfortable we feel about playing with new ideas or loosening up our minds to allow

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Chapter 5 Entrepreneurial Creativity 133

new thought patterns. We have a mental ‘comfort zone’ within which we can be creative and
we can occasionally push the boundaries and explore something significantly novel. But few
of us would want to spend all of our time wrestling with the pain of trying to create some-
thing radically new. (One of the characteristics associated with stereotypes of ‘creative’ people
is that they are often troubled and unhappy, struggling with the pain of constantly trying to
break through to something new. Think of van Gogh or Tchaikovsky as examples.)

ENTREPRENEURSHIP IN ACTION 5.3

The Kirton Adaptor/Innovator Scale

Everyone is creative but we all have different preferred styles of behaviour – how we like to
express it and what we feel comfortable with. The UK psychologist Michael Kirton carried out
extensive work and developed an instrument to measure these differences.6 He defined two
points on a scale running from ‘innovators’, who were open to considerable flexibility in their
creative thinking, to ‘adaptors’, who were more comfortable with incremental creativity.
We discuss the Kirton model in more detail in Chapter 9.

Another personal dimension of creativity is linked to experience and expertise. Creative

people are often highly experienced in a field and thus able to see patterns and identify varia-
tions on a core theme which others won’t see. Dorothy Leonard calls these ‘deep smarts’ and
many studies in psychology have shown the importance of such deep knowledge as a part of
creativity.7 But this raises the idea of ‘domain specificity’: people who may be highly creative
in one field may not be so in another.
As we saw earlier, a lot of creativity research has been around convergent and divergent
Copyright © 2015. Wiley Textbooks. All rights reserved.

thinking. Studies suggest that people differ in their approaches; some are more comfortable
in divergent thinking than others. Attempts have been made to map these to personality types
and characteristics like introversion and extraversion. But the emerging conclusion is that
people need both sets of skills for effective creativity, and these can be trained and developed.
What all of this means for our challenge of mobilizing creativity is that we need to find
multiple ways of doing so. It’s not simply a matter of finding an ‘on/off’ switch but rather one
of building the context in which people can deliver their particular skills. Much of what we
have learnt about managing creativity is about configuring tools and resources to enable dif-
ferent people to feel comfortable and supported in the
process. For some this may be a very loose unstructured
environment where crazy ideas fly around the room and Activity to find out about your
bounce off each other in wild flights of fancy. For others creativity, How creative are you?, based
on a self-assessment questionnaire is
it may be more structured and systematic, supporting available on the Innovation Portal at
people in a guided process in which they can find and www.innovation-portal.info
solve problems in an incremental fashion.

How to Enable Creativity

So how do we make it happen? As we’ve seen, everyone is already capable of creativity – it’s
not a case of injecting them with some magic new ingredient. Instead, we need to look for
ways in which this natural capability can be drawn out, developed and extended. It’s useful to
start by thinking about what blocks this natural ability?
It doesn’t take long to see that there are all sorts
Activity to build your own map of pressures, inside and outside our minds, which can
of the ways in which we stifle
creativity, Blocks to creativity, is
act to block creativity. Figure 5.3 summarizes some of
available on the Innovation Portal these.
at www.innovation-portal.info If we are going to enable creativity, we need to pro-
vide ways of tackling these different areas and develop-
ing skills and resources to deal with them. We could
use the metaphor of a ‘mental gym’ in which there are
Video Clip of Ken Robinson talking
various pieces of equipment to help us develop the
about creativity and how we block it
is available on the Innovation Portal at muscles and techniques for creativity. There’s no single
www.innovation-portal.info solution but our overall aim is improving fitness across
the board.

Pressure to conform
Pressure from peers
‘You can’t do that kind of thing
Fear of looking foolish
around here!’
Fear of being rediculed
‘That’s not allowed!’
Fear of standing out too much
‘That’d neve work around here...’
Copyright © 2015. Wiley Textbooks. All rights reserved.

Pressure of resources
Pressure from within
‘We haven’t got time for that kind
Anxious about taking risks
of thinking!’
Concerned about impact on my
‘We’re too busy getting on with Blocks to creativity
job
the day-to-day stuff!’
I don’t feel capable, I can’t do
‘We’d like to do that but we don’t
that...
have the resources’

Pressure of hierarchy
Pressure from...
‘It’s not my job...’
????
‘I’m not allowed to...’
????
‘The boss wouldn’t like that...’
????
‘Do as you’re told!’

FIGURE 5.3 Blocks to creativity

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Chapter 5 Entrepreneurial Creativity 135

In the following section, we look at four areas in which we could do this:

• developing thinking skills

• developing personal skills
• developing group-level creativity
• developing the environment.

Developing Thinking Skills

Research into creativity has moved us a long way from the notion that there is some magic
spark in a few gifted individuals. We understand a lot more about the neuropsychological
processes which underpin the creative process, and this gives us some useful clues about how
we could develop skills to enhance our ability to think creatively.
It’s worth going back to our simple model of the creative process (Figure 5.1) and look-
ing at ways in which we could help support the thinking processes at each of these. Table 5.3
gives some examples of tools to help develop skills.
It’s important to remember that our creative process is a series of cycles of divergence and
convergence gradually closing in on a useful solution which we can apply. Let’s look at some
of the tools for each stage in a little more detail.

TABLE 5.3 Examples of tools to help develop creative thinking skills

Stage in creative Useful thinking skills to
process support this Stage in creative process
Recognition/ Redefining and exploring the Five whys
preparation problem Fishbone chart
Levels of abstraction
Copyright © 2015. Wiley Textbooks. All rights reserved.

‘How to’ statements

Reframing tools

Incubation Supporting development of new Attribute listing

insights Metaphor and analogy
Mind-mapping
Brainstorming
Lateral thinking

Insight Making insights available to others Visualization tools

Validation/ Testing and adapting, modifying Continuous improvement tools

refinement the core insight Prototyping

Tools to help you explore creativity are available in the creativity toolkit on the Innovation
Portal at www.innovation-portal.info

Activities linked to using these tools are available on the Innovation Portal at
www.innovation-portal.info

Preparation
Imagine we have a problem with a banging door. We can’t sleep at night because the door
keeps banging and rattling in the frame. We decide we need to fix the door, maybe even
replace it, and so we get the carpenter in to look at it. He spends the day, shaves and planes
the wood, adjusts the hinges, tinkers with the latch. That night the problem comes again,
waking us up just as annoyingly. Eventually, we realize that the problem is not with the door
at all but with the wind blowing through a hole in the roof, swirling around the house. The
answer lies in fixing the roof not in mending the door.
That’s a trivial example of problem recognition. Creativity starts with recognizing we
have a problem or puzzle to solve and then exploring its dimensions. Working out the real
problem, the underlying issue, is an important skill in arriving at a solution which works.
Redefining and reframing are key skills here, being able to see the wood for the trees, the
underlying pattern of the core problem.
There are several simple ways to develop skills around problem definition.
Copyright © 2015. Wiley Textbooks. All rights reserved.

INNOVATION IN ACTION 5.3

Five Whys and a How

This simple but powerful tool can help strip away the apparent problem to get through to the
root problem which is the one we need to solve. For example, a big problem in UK hospitals at
the moment is in waiting times and delays, putting pressure on already scarce resources. Here’s
how the tool could be applied to help.

Apparent problem was that a patient arrived late in the operating theatre, causing a delay.

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Chapter 5 Entrepreneurial Creativity 137

• Why? – Because they had to wait for a trolley to take them from the ward to the theatre.
• Why? – Because they had to find a replacement trolley.
• Why? – Because the original trolley had a defect – the safety rail had broken.
• Why? – Because it had not been regularly checked for wear and tear.
• Why? – Because there was no organized system of checking and maintenance.

Arriving at this root cause – the real problem is in the lack of systematic maintenance – gives
plenty of clues about the ‘how’, the potential solutions to the problem. Setting up a simple main-
tenance schedule could ensure that all trolleys were regularly checked and available for use. This
would mean future delays would be avoided, flow would improve and overall system efficiency
would be better. Importantly, if we had
just focused on the apparent problem –
Activity to help you explore ways
a single broken trolley – we would have of improving a service process is
solved that by repairing the trolley, but available on the Innovation Portal at
the underlying problem would mean it www.innovation-portal.info
would happen again.

There are plenty of tools to help develop this skill

in exploring problems and focusing in on the core issue Tools such as the fishbone
chart, Levels of abstraction and
to be solved. The five whys discussed in Innovation in other reframing tools are available
Action 5.3, cause and effect diagrams (fishbone chart), on the Innovation Portal at
levels of abstraction, etc. offer ways of looking more www.innovation-portal.info
closely at the challenge and framing the problem clearly
so we can get to grips with solving it.
Models of problem-solving suggest we are good at
pattern recognition and when confronted with a new
Copyright © 2015. Wiley Textbooks. All rights reserved.

problem the first thing we do is to look for a pattern we

have seen before. If we can find that then we have the Activities to help you practise
basis for a solution, even if we have to adapt it. (This using these tools are available
is what experienced people with ‘deep smarts’ often do: on the Innovation Portal at
www.innovation-portal.info
they bring their deep knowledge and intuition and ‘see’
a solution based on their intuitive pattern recognition.)
So another set of useful thinking tools to help creativ-
ity is all about the patterns – the ‘morphology’ – of the
problem and how to find similarities. For example, where
will we have seen a similar-shaped problem in a different
context? Can we find similar attributes, ways in which the Case Study about DOME, which
used different levels of abstraction to
two problems are like each other? These points of similar- transfer innovations between sectors,
ity can then give us clues about ways in which we could is available on the Innovation Portal at
explore solutions: what works in the one context could be www.innovation-portal.info
usefully applied in the other.

Tools to help you with pattern recognition (Levels of abstraction) and for playing with
patterns (SCAMPER and Attribute listing) are available on the Innovation Portal at
www.innovation-portal.info

Activities to help you try these pattern-recognition tools are available on the Innovation
Portal at www.innovation-portal.info

ENTREPRENEURSHIP IN ACTION 5.4

TRIZ (Theory of Inventive Problem-Solving)

TRIZ was developed by the Russian Genrich S. Altshuller who worked on reviewing patents
to derive his principles around which a wide range of apparently different problems could be
solved. His approach classified solutions into five groups:

• Level one. Routine design problems solved by methods well known within the specialty. No
invention needed. About 32% of the solutions fell into this level.
• Level two. Minor improvements to an existing system, by methods known within the industry.
Usually with some compromise. About 45% of the solutions fell into this level.
• Level three. Fundamental improvement to an existing system, by methods known outside the
industry. Contradictions resolved. About 18% of the solutions fell into this category.
• Level four. A new generation that uses a new principle to perform the primary functions of
Copyright © 2015. Wiley Textbooks. All rights reserved.

the system. Solution found more in science than in technology. About 4% of the solutions fell
into this category.
• Level five. A rare scientific discovery or pioneering invention of essentially a new system.
About 1% of the solutions fell into this category.

From this analysis he suggested that over 90% of the problems engineers faced had been
solved somewhere before. If engineers could follow a path to an ideal solution, starting with
the lowest level, their personal knowl-
edge and experience and working their
Tool giving you a full description of way to higher levels, most of the solu-
TRIZ is available on the Innovation tions could be derived from knowledge
Portal at www.innovation-portal.info already present in the company, industry
or in another industry.

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Chapter 5 Entrepreneurial Creativity 139

The risk in pattern recognition is that we are some-

times too quick to categorize a problem – ‘we’ve seen it Activities highlighting the
before; it’s one of those…’. For much of the time this is problems of mindset are available
helpful but occasionally we may miss something, some on the Innovation Portal at
www.innovation-portal.info
way in which the pattern is not the same, and we need
to search for a different solution. Sometimes we need
jolting out of pattern recognition because we are fram-
ing the problem in ways we want to see it. This chal- Tools to help you explore reframing,
lenge of ‘mindset’ is important and there are tools to from simple ‘New eyes’ lenses
help reframe, to look at the problem through new eyes. to more structured techniques
Once again, we have some tools and techniques like soft systems analysis, are
available on the Innovation Portal
available to help deal with the challenge of reframing.
at www.innovation-portal.info
Essentially, they are based on the idea of looking at
the problem with fresh eyes, for example asking what
would this look like if you were from another planet? What if you were a three-year-old
child? How would someone famous (an artist, a musician, a successful general) look at it?
For entrepreneurs this is a key set of skills. They face the challenge of finding opportunities –
and sometimes this will involve creating completely new ones, while in other cases it will be a case
of recognizing something which is already there but which no one may have seen before. As we
saw earlier, research suggests these ‘discovery’ skills are of key importance and so it makes sense
to try to apply tools to help develop these skills. For example, the start-up team behind Spotify
reframed the music question as one in which people were asked if they really needed to own all
the songs they enjoyed listening to. Airbnb reframed the idea of a spare room to being a business
opportunity for many homeowners. And Google spent a large amount buying home automation
company NEST. The challenge here for the entrepreneurs involved (and so for Google) is how
to grow a business around an idea which is not particularly exciting. NEST’s core product was a
thermostat, a heating controller which sits on the wall. How could the company reframe this to
make it interesting and exciting, to help people see it not as a passive device but as the heart of a
futuristic automated home, one that would give them control and save them money?
Copyright © 2015. Wiley Textbooks. All rights reserved.

Incubation
Sometimes redefining and exploring the problem is enough to lead to a solution – but very
often we are left with a problem and no obvious answer. Wrestling with it, pulling it into dif-
ferent shapes and trying to force fit it to something we’ve seen before simply doesn’t work.
This is where we need to let go with our conscious minds and allow the brain some time to
play around, to incubate. It needs to allow new connections to be made, and typical ways
of helping this include relaxing, doing something different, going for a walk, sleeping on the
problem, etc. What’s going on underneath is a fascinating process of association and con-
necting in ways which may appear to be illogical. Think about your dreams and the amazing
and unlikely events which take place in them; connections are established between random
elements which simply wouldn’t normally be linked. This is an important part of the uncon-
scious creative process and one of the powerful ways of supporting this stage is to give the
brain some help in making new connections.

This also links with our earlier discussion of divergent

Tools to help you explore lateral and convergent thinking; divergence is very much about
thinking methods are available on
the Innovation Portal at
finding new links and connections. To help with this we
www.innovation-portal.info need to find ways to enable the right hemisphere of the
brain to play a more active role, to shut down temporarily
the left brain with its logic and systematic approach and
allow for new patterns and associations to emerge.
Activities involving lateral thinking One approach, associated with the work of Edward
puzzles are available on the Innovation
de Bono, is called lateral thinking. He coined the term
Portal at www.innovation-portal.info
back in 1967 to explain a style of thinking aimed at
moving away from linear step-by-step thinking and tak-
ing a step sideways to re-examine a problem from a different viewpoint.8 Rather than digging
a deeper hole in one place, we need to move sideways and start excavating somewhere new;
in the process we may enable a new insight, a new perspective on the original problem.
Lateral thinking tools are systematic aids to moving sideways in our approach to prob-
lems. One example is the intermediate impossible, where we come up with an idea which is
itself impossible but may provide the stepping stone to a practical and novel answer. Just like a
stepping stone, the idea itself may be wobbly and poorly shaped but it helps us get to our goal.
For example, in trying to improve the food and service in a company canteen someone
could suggest providing fresh foods where possible. One intermediate impossible suggestion
would then be to bring cows into the workplace – not in itself very practical! But it provides
the stepping stone to ideas about how to get fresh milk as opposed to using long-life packages,
for example by making arrangements with a local dairy for daily deliveries.
Many techniques to assist incubation make use of the right brain hemisphere and its ability
to make patterns and connections. One rich area lies around the use of ‘metaphor’. Metaphor is
a figure of speech in which we make connections between things, for example we can talk about
someone being ‘the light of my life’. We don’t mean that they are literally a light bulb but rather
that they brighten everything around them in a way a light bulb does. Other examples may be
‘drowning in a sea of troubles’, ‘swimming in dangerous waters’ or ‘trying to boil the ocean’.
Copyright © 2015. Wiley Textbooks. All rights reserved.

In none of these are we meant to take the comparison literally but rather to see a connection
where the image of one thing becomes superimposed on the other. Poetry and drama are full
of powerful metaphors and that’s one reason why they work so well; metaphor creates a rich
picture gallery in our minds and engages our imagination far more than direct description could.
Metaphors work well in creativity because they map the properties of one thing onto
another, building the kind of associations which we know are important. Famous examples
of metaphors include Charles Darwin using the idea of a branching tree to help him get to the
theory of evolution and Albert Einstein imagining himself riding on a beam of light holding
a mirror in front of him.
We discussed the idea of pattern recognition and finding examples of things which were
similar to our problem earlier. Analogies and similes offer another helpful route to pattern rec-
ognition by highlighting ways in which something is like something else. They can stimulate
our thinking towards new insights; for example, if we say ‘this organization is like a cheetah’,
we begin to think about how that animal is fast and agile, how it has the ability to accelerate
and turn quickly, how it can focus on the challenge of bringing down its prey and concentrate

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Chapter 5 Entrepreneurial Creativity 141

its energies on this. From this set of mental pictures we

can draw some inspiration for new ways of looking at Activity that allows you to try this,
our organization and how we could improve it. metaphorical thinking, is available
Or if we want to explore how to make our organiza- on the Innovation Portal at
www.innovation-portal.info
tion more resilient we could look at the analogy of a rub-
ber ball and explore its characteristics: it bounces back, it
is elastic, it can hold and release compressed energy, etc.
Thinking about the way in which other organiza-
Tool to help you try these
tions could approach our business is also a useful tech- techniques, using metaphor, is
nique, for example asking questions like: available on the Innovation Portal at
www.innovation-portal.info
• How would Google manage our data?
• How would Disney engage with our consumers?
• How could Southwest Airlines cut our costs?
• How would Zara redesign our supply chain?
• How would Apple design and launch our product/service offering?
Another approach is to use the fact that we store memories as patterns, whole systems of
connected elements. When we hear a piece of music we can often reconstruct what was going on
in our lives when we heard it in rich detail. Famously, when the French writer Marcel Proust took
a bite of a madeleine cake one afternoon the taste took him back to childhood and the sensation
was so rich in detail that he used it to write a seven-volume book based on his memories!
Once again, we can make use of this patterning to evoke systems of thought and explore
opportunities in there. If we imagine an organization to be like an orchestra then we may
enrich this picture by trying to remember when we had been moved by that kind of experi-
ence. What elements made that special and powerful for us, and can we transpose some of
them to our problem of designing a new organization?

ENTREPRENEURSHIP IN ACTION 5.5

Synectics
Characteristic of these approaches is a style of thinking which aims to ‘make the familiar strange
and the strange familiar’. In the 1970s, two researchers within the Arthur D. Little consultancy,
George Prince and William Gordon, used this phrase to underpin their methodology of ‘synec-
tics’. This approach derives from the Greek
word meaning ‘the joining together of dif-
ferent and apparently irrelevant elements’. Tool to help you explore
Synectics involves various techniques – this, analogies, is available
metaphor, analogy and simulation – which on the Innovation Portal at
are designed to help people explore and www.innovation-portal.info
develop insights from new associations.9

As we mentioned earlier, one place where creativity often happens is in our dreams; we
get flashes of inspiration from the rich and odd associations which can happen when we are
sleeping or in a trance. And it’s significant that in our dreams the ‘normal’ rules don’t apply;
anything can become connected with anything else, often in bizarre and strange ways. Such
apparently strange connections often form the basis of a powerful new insight; it’s what the
writer Arthur Koestler called ‘bisociation’ and it is essentially about surprise connections.
(This is the basis of a great deal of humour. A good joke often depends on a punch line which
makes a surprising connection.)
We can use this idea of bisociation to force new connections between elements and in the
process get our minds thinking along new pathways. One powerful tool for this is ‘random
juxtaposition’ which involves taking two random elements and forcing a relationship between
them. For example, we may be trying to find a solution to a problem of traffic management
in a busy city. To help generate ideas we may take a random element – say a seagull – and try
to find a relationship between our problem and that element. There is no obvious link but
our brains often generate interesting new lines of thinking by trying to force the connection.

ENTREPRENEURSHIP IN ACTION 5.6

Unloved Fruit
Creativity tools in this area require a high level of playfulness, of suspending disbelief and allow-
ing things to happen and emerge. A food company made, amongst other items in its range, fruit
pies and was concerned about the high level of wastage by not being able to use fruit which was
fresh but damaged. During a creativity workshop, participants were asked to imagine what it
felt like to be a piece of damaged fruit – a cherry with its skin ripped off, a strawberry torn in
half by a clumsy picker. Playing the role of such fruit, a number of insights emerged: ‘I feel lonely,
Copyright © 2015. Wiley Textbooks. All rights reserved.

unconnected to the rest’, ‘I feel incomplete and the others won’t let me join their game’, ‘If only
I could wear an artificial skin, then I’d be able to play with them’.
Such images drew on a strong emotional line linked to joining in and playing with other
children. Viewed from outside, it would seem very strange to watch a group of adults bemoaning
this forced isolation while playing at being pieces of fruit! But it generated an insight around find-
ing something – artificial skin – which could render the damaged fruit whole again. Carrageenan,
a substance found naturally in seaweed, has this kind of property, forming a layer around the
damaged fruit and effectively giving it an artificial but edible skin. The result was a significant
increase in the proportion of fruit the company was able to use in the millions of pies it manu-
factured every year.

Another way in which we can explore different associations is by creating a space

in which anything can happen. Thinking about the future allows this and developing

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 5 Entrepreneurial Creativity 143

scenarios – rich stories about future worlds – allows

us to explore and play with new ideas. Since the Tools to help you think about the
future hasn’t happened yet, anything could happen future are available in the futures
– and such simulations can provide powerful ways toolkit on the Innovation Portal at
www.innovation-portal.info
of releasing constraints on our thinking. Science fic-
tion stories can provide a powerful breeding ground
for this kind of creative thinking, for example Arthur
C. Clarke wrote wonderful pieces about the future Activities to help you try some
including the short story on which the classic film of these tools, such as scenario
2001: A Space Odyssey was based. One of his ideas, generation, are available
on the Innovation Portal at
published in a scientific paper back in the 1960s, fore- www.innovation-portal.info
saw communication via satellites allowing us to talk
to anyone anywhere on the planet. This futuristic day-
dreaming has become a reality sixty years later with global satellite-based communications
an everyday reality.

Insight
The most common picture of creativity is the light bulb moment – and it’s an apt
description for what it often feels like to come up with a new insight. It’s not just the
awareness of a solution; there is often a strong emotional charge, a deeps sense of the
answer, a certainty. According to the story, Archimedes was so excited about the flash of
insight he had while sitting in his bath tub trying to understand hydrodynamics that he
jumped out and ran naked through the streets crying out ‘Eureka!’, which, roughly trans-
lated, means ‘I have it!’
Interestingly, people describing such moments are often not entirely clear about the full
extent of their solution, they just ‘know’ it is right and they then spend time (validation)
tidying up the idea and building on their initial insight.
Sometimes their idea is half formed. It’s alive but
Copyright © 2015. Wiley Textbooks. All rights reserved.

hasn’t got a full shape yet. And so making it visible and Tools for supporting this kind of
available to others is an important part of this stage and thinking are available in the design
methods toolkit on the Innovation
offers us another area where skills and tools may help. Portal at www.innovation-portal.info
Even if the idea is only a few scrambled words scribbled
down on waking from a dream, or an outline sketch, or
a key phrase, it may be enough to catch the core idea
and allow for its development. Activities to help you try some
Techniques like brainstorming make much of of these tools, such as visualizing
the invisible, are available
the act of writing down ideas, and variations on the
on the Innovation Portal at
theme use pictures and sketches to capture the insights. www.innovation-portal.info
Making ‘sculptures’ out of everyday items to represent
elements in a different way and make this available to
others is another route. Within the field of design methods, many powerful tools and tech-
niques are based on the idea of helping people articulate what they can’t fully express – allow-
ing for ‘visualizing the invisible’.

Validation

ENTREPRENEURSHIP IN ACTION 5.7

Striking a Light
Although creativity is often pictured as a flash of inspiration, the reality is that it is a lot of hard
work, building on that insight and improving and debating with yourself about the idea to make
it work. For example, Thomas Edison, when working to develop the light bulb, spent weeks in
the laboratory trying to find the right material for the filament for his incandescent bulb, experi-
menting and learning about the core idea. His painstaking work (some reports suggest he tried
over 10 000 different materials) led to the famous phrase attributed to him that ‘genius is one
per cent inspiration, ninety-nine per cent perspiration!’

This is the stage at which the idea, the core insight,

Tools to help you explore prototyping becomes refined and developed. It involves trying the
are available on the Innovation Portal idea out – prototyping – and using feedback from that
at www.innovation-portal.info to adapt and develop it. For example, the ‘lean start-
up’ methodology for new venture entrepreneurs places
strong emphasis on the idea of designing experiments
around a ‘minimum viable product’ (MVP). The idea is
Activities to help you try some of
to use the MVP as a probe, a prototype around which
these prototyping tools are available
on the Innovation Portal at we can gather information to help refine and focus the
www.innovation-portal.info initial insight. Central to the approach is the idea of the
‘pivot’ – not changing direction completely but rotating
around the core idea to find the most suitable configura-
Copyright © 2015. Wiley Textbooks. All rights reserved.

Case Studies of the NHS RED

tion which works.
and Open Door projects, which Prototyping can be done in various ways and forms
made use of prototyping, are the core of design methods aimed at bringing new ideas
available on the Innovation Portal at into widespread use. A key point here is that this repre-
www.innovation-portal.info sents the end of one cycle and the beginning of the next.
As we saw earlier, creativity is a process of alternately
opening up and closing in on the core solution. By sharing the original idea we can explore its
different dimensions from many perspectives and open up the idea for further development.

Developing Personal Skills

So far, we’ve been looking at thinking skills and some tools to help develop these. But creativ-
ity is also about motivation and communication. We need to feel comfortable about taking
the risk of trying out something new or trusting our intuition. For a few people, creativity is
their way of life. They are constantly challenging and questioning, but for most people there

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 5 Entrepreneurial Creativity 145

is an element of self-imposed limitation to it. Am I allowed to think this way? What if my

idea is wrong? Will I look/sound foolish for suggesting this? Can I trust my instincts which
are leading me to think in this way?
Building confidence in our own ideas and then developing skills in communicating them
and handling the feedback we get on them is another area where we can develop our creative
capabilities. Successful entrepreneurs are not just able to come up with creative insights; they
are also resilient in the face of feedback, using this to help shape and adapt their ideas. They
have a strong sense of vision and can communicate and engage others in sharing that insight.
And they are skilled at ‘pitching’: communicating the core idea to others in ways which get
past their critical comments and engage their interest (and hopefully their resource support).
One key point is to understand the nature of the creative process as we have described
it and to recognize that it isn’t entirely rational, that emotions, intuitions and odd insights
are a valuable part of it, and that ideas which emerge can be useful stepping stones or
valuable in their own right. ‘If it’s worth thinking, it’s worth saying’ is a useful motto. But
understanding the process also reminds us of different kinds of thinking associated with dif-
ferent stages – from divergent activities opening our minds to new connections through to
convergent thinking helping us focus in and whittle many wild ideas down to the ones with
real potential value. We need to develop the flexibility in our thinking – and as we’ll see in
the following section in the thinking we do with other people – to deal with these different
stages in creativity.
Edward de Bono offers a very practical approach
to help with this. His ‘Six thinking hats’ model uses the Tool to help you explore the
metaphor of wearing different hats when we under- six thinking hats tool is available
take different kinds of thinking.10 For example, a green on the Innovation Portal at
www.innovation-portal.info
hat is all about a freewheeling, ‘anything goes’ kind of
thinking which is essentially opening up and allowing
ideas to emerge. By contrast, a black hat is about judge-
ment, evaluating and criticizing ideas to winnow out the
Activity to help you try this approach
less valuable ones and focus on the core. He suggests we is available on the Innovation Portal at
Copyright © 2015. Wiley Textbooks. All rights reserved.

need six different modes of thinking and offers helpful www.innovation-portal.info

tools to develop the ability to recognize when they are
needed and the flexibility to move between them.
As we’ll see in the following sections, there are useful structures and tools to help build
on this positive approach to coming up with new ideas and to strengthen self-belief in our
ability to play a part in the process.

Developing Group-Level Creativity

Creativity is something we are all capable of; we can all come up with novel and useful ideas
on our own. But working together with others can amplify that process, leading to more ideas
and more different insights, which can lead to novel solutions. People differ in their experi-
ence, their personality and their perspectives on the world, and this diversity is a rich resource
for helping creativity to happen. Think about creative partnerships in the musical world like
Lennon and McCartney, Rogers and Hammerstein, Rice and Lloyd Webber, the Gershwin

brothers. Look at the world of theatre and film and see how much success is the product not
of a lone genius but of a team of co-creators front and back stage who help make it happen.
Look at business ventures and very often you’ll find a team – Eric Schmidt and Sergei Brin
(Google), Bill Gates and Paul Allen (Microsoft), Andy
Activity to help you explore aspects Grove and Gordon Moore (Intel).
of group creativity, the egg game, is (In Chapter 9, we explore the idea of ‘conjoint
available on the Innovation Portal at innovation’, where the secret behind many success-
www.innovation-portal.info
ful innovating organizations lies in a complementary
partnership.)
So there’s a lot to be said for working with others and there’s plenty of research to sup-
port the potential of doing so. But it’s not as easy as it looks. There are many downsides to
working in a group, as Table 5.4 shows. Social pressures can act as a damper on individual
sparks of ideas. Diversity can lead to conflict about the ‘right’ solutions. Groups can quickly
become political. As we demonstrate in Chapter 9, simply throwing people together does not
make them a team and the wrong mix can easily lead to the whole performing much less well
than the sum of the parts.
This suggests that we need to look for ways we can amplify the positive aspects and
minimize the negative, and there are various tools which can help in this process.

TABLE 5.4 Advantages and disadvantages of group-level creativity

Advantages Disadvantages
Diversity – more different ideas ‘Groupthink’ – social pressures to conform
Volume of ideas – ‘many hands make Lack of focus – ‘too many cooks spoil the broth’
light work’
Elaboration – multiple resources to Group dynamics and hierarchy
explore around the problem
Rich variety of prior experience Political behaviour, people following different
Copyright © 2015. Wiley Textbooks. All rights reserved.

agendas

Activities around teambuilding are available on the Innovation Portal at

www.innovation-portal.info

Tool to help you explore teambuilding is available on the Innovation Portal at

www.innovation-portal.info

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 5 Entrepreneurial Creativity 147

Brainstorming is one of the most widely used approaches and has its origins in this space.
Originally developed in the 1950s by an advertising executive, Alex Osborn, brainstorming
is basically an approach to group idea generation.11 It recognizes that we have a tendency to
judge ideas quickly and that in a group setting this can be negative; without meaning to, we
can quickly pour cold water on the sparks. This may come from a simple reaction to the idea
itself: ‘That’s stupid’, ‘That won’t work’, etc. Or it can come from hierarchy effects: ‘Junior
employees should be seen and not heard’, ‘The best ideas come from the senior people’, ‘Listen
to the experts; they have the experience to solve this’, etc. Or it can come from politics and
interpersonal rivalries. For whatever reason, the judgement of ideas when they surface can
quickly kill them off.
Given what we know about the creative process,
sometimes those ideas can be half-formed, we don’t
Tool to help you explore brainstorming
quite know what we’re suggesting, we haven’t through is available on the Innovation Portal at
it through, they are new-born insights. So they are at www.innovation-portal.info
high risk from being surfaced in this group context.
Brainstorming provides a simple set of rules to protect
them mainly based on postponing judgement. Instead of
reacting to ideas, people are encouraged to share them Activities to help you
and build on them, exploring and adding to them. Only with brainstorming are available
on the Innovation Portal at
later does the group move into a judgement phase, win-
www.innovation-portal.info
nowing out the novel and useful ideas from the many
others which have been suggested.
The power of brainstorming (which is available in many different forms) is that it coun-
ters some of the negative effects of working in a group and builds on the positives like
diversity. It enables practices like improvisation around a theme, acceptance and building
on whatever comes up; a core principle is that ‘quantity breeds quality’, so generating many
possible ideas statistically allows for the emergence of more good ones.
Copyright © 2015. Wiley Textbooks. All rights reserved.

ENTREPRENEURSHIP IN ACTION 5.8

Improving the Climate for Creativity

The consultancy ?Whatif! specializes in creative problem-solving for and with clients. It makes
use of many techniques linked to brainstorming and has a simple framework using the analogy
of nurturing the fragile early shoots of ideas.12
They need plenty of SUN:

S = support, encourage
U = understand, listen to the ideas
N = nurture, help them grow

(continued)

and avoid too much RAIN:

R = react, respond directly and judge the ideas rather than listen to them
A = assume, bringing your preconceptions and your interpretation too quickly
I = insist on your viewpoint, be closed in your mind to other ways of seeing the problem
N = negative, closing down and shutting out possible new directions, saying ‘no’ to the idea in
its early undeveloped form.

Beyond brainstorming, many of the tools which we explored in the section on develop-
ing thinking skills above can be deployed in a group setting and the diversity can amplify
the effect. Within a session the process leader may well throw in such techniques as a way
of ‘stirring the pot’ to try to trigger new direction for thinking or move the group into new
search space.
It’s important not to see the group as the solution to everything. While there are positive
effects arising from interaction with others, there is also value in individual creativity. Many
creativity workshops make use of both options, for example encouraging people to work
individually on a problem and write down their ideas before sharing those with a group and
allowing for creative exploration of them. ‘Nominal group’ approaches try to build in the
complementary advantages of individual and group creativity. Approaches like these help
balance out the tendency within groups for some people to dominate while others remain in
the background.
One powerful new resource is the online forums and communities which allow many
people to come together as a virtual group or community. This can capture some of the posi-
tive effects like diversity without some of the negative social effects in a face-to-face context.
The downside is that such groups don’t get the non-verbal or emotional charge, so it’s a case
of a complementary approach rather than a replacement.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Brainstorming has its limits. It’s not always effective and sometimes the benefits in a
group wear out over time. Think again of the examples of creative partnerships we explored
earlier. Many of these have a short creative phase but then fall apart, with the members often
acknowledging that they need to move on and find new combinations. Even in a simple brain-
storming session, there is a phase where ideas come thick and fast, but this gradually dries up
as the effects of group stimulation and interaction tail off. Under these conditions, it’s often
valuable for the session process leader to inject some new stimuli, perhaps bringing in some
of the lateral thinking or metaphor techniques described earlier.
Another important feature is the approach to conflict. The ‘rules’ of brainstorming say
that ideas shouldn’t be attacked or criticized and that judgement should be suspended. But
in many creative situations arguments and debate are a powerful feature for moving things
forward – think of a theatre or a music group, for example. It’s the differences and debate
which help create the edge and provide the spark which makes the difference. Research
suggests that a degree of creative conflict is valuable; the secret is not to attack the person

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 5 Entrepreneurial Creativity 149

but to challenge the idea and this often depends on having someone to moderate and guide
the debate.
Studies of creativity in groups suggest there is an inverted U-shape to their effectiveness.
Too little time together and they don’t deliver much because they are lacking in trust and
experience of each other; too long together and a degree of groupthink sets in and the ideas
become stale. Similarly, too little conflict and everyone agrees and the frontiers of thinking do
not get pushed; too much conflict and ideas get killed off too readily.13
All of this suggests we need a contingency approach to managing groups to ensure we get
the best out of their shared creativity. Balancing the positives in Table 5.4 with the negatives
requires a degree of process leadership and moderation.

Developing the Environment

Creativity doesn’t happen in a vacuum. Being able to come up with different new ideas is a
process which is influenced by a whole series of external pressures which can act as a barrier,
pushing our creative ideas back into the bottle.

ENTREPRENEURSHIP IN ACTION 5.9

Killer Phrases
One of the problems in creativity is that people react quickly to new things with reasons for why
they won’t work. Such ‘killer phrases’ are part of the aural landscape; we hear them wherever
we go in organizations. They have the same basic structure: ‘That’s a great idea, but…’ Here are
some typical examples and you can almost certainly add your own to the list:

• We’ve never tried that before…

• We’ve always done it this way…

• The boss won’t like it…
• We don’t have the time for that…
• It’s too expensive…
• You can’t do that here…
• We’re not that kind of organization…
• That’s a brave suggestion…
• Etc., etc.

If we want to enable creativity, we can do a lot by working with these levers to create a
physical and mental environment which is supportive. Table 5.5 summarizes some of the key
approaches and we’ll discuss a few in the following section.

TABLE 5.5 Building a creative environment

Environmental barrier Ways of dealing with this
Physical environment Make the workplace stimulating
Allow for interaction and bumping into new ideas
Make ideas visible
Get outside the work environment and experience the problem
from a different perspective
Build a virtual environment (an ICT platform)
Time and permission Allow and even require that employees take time to explore
to play and be curious, to enable incubation
Climate Create the supporting ‘rules of the game’
SUN/RAIN
LIFE (little improvements from everyone)
‘No blame’ culture – encourage experiment
Mistakes = opportunities
Chance favours the prepared mind
Reward and recognition Reinforce the behaviour
Establish a process Make creative problem-solving explicit
Training and skills Train in creativity tools and techniques
development
Leadership Coaching and supporting the process, moderating and facilitat-
ing at different stages, providing an overall direction and focus
Copyright © 2015. Wiley Textbooks. All rights reserved.

Physical Environment
The city of Munich in Germany is home to a complex glass and steel structure which houses
the BMW research centre where the designs for cars and motorbikes which populate the high-
ways of the world are first created. It was one of the reasons that Business Week magazine
named BMW one of the world’s most innovative companies in 2006.
The R&D centre is not like a conventional office building but more closely resembles a
giant glass cloverleaf with a huge central atrium around which glass-walled offices are spread,
each of which looks into the centre and where everyone can see new designs and prototypes
whatever they are doing. Walking past them to visit the canteen or use the bathroom, it is
impossible not to notice the prototypes and the walls are full of sketch boards and spaces for
commenting and suggesting ideas. The whole environment seems constructed to bring many
people in contact with emerging new ideas and to encourage their contribution.

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Chapter 5 Entrepreneurial Creativity 151

Which is exactly what was in the mind of the architect, Gunter Henn. He was strongly
influenced by the work of Thomas Allen in the 1970s (see Innovation in Action 5.4) and
believed that people interacting was at the heart of creativity and that architecture could
force these collisions.14

INNOVATION IN ACTION 5.4

Managing the Flow of Ideas

During the 1970s, Tom Allen, a professor at MIT, was interested in how ideas emerged during
large complex technical projects. He began studying organizations working for the innovation
challenge around the US space programme – finding ways to deliver on Kennedy’s original target
of putting a man on the moon and bringing him home again safely.
He studied how people shared ideas and how they moved around and across organizations
and laid the foundations for what we now call ‘social network analysis’ as a way of mapping
these interactions. He found, for example, the importance of key individuals (‘technological
gatekeepers’) through whom ideas travelled and were disseminated to relevant people. His book
contains a wealth of insights which are of continuing importance in designing today’s network-
based innovation processes.15
One project he undertook explored how the distance between engineers’ offices coincided
with the level of regular technical communication between them. The results of that research, now
known as the Allen Curve, revealed a distinct correlation between distance and frequency of com-
munication (i.e. the more distance there is between people – 50 metres or more to be exact – the
less they will communicate). This principle has been incorporated into forward-thinking commer-
cial design ever since, in, for example, the Decker Engineering Building in New York, the Steelcase
Corporate Development Centre in Michigan and BMW’s Research Centre in Germany.
Copyright © 2015. Wiley Textbooks. All rights reserved.

It’s a long way (10 000 km) from Munich to the west coast of the USA but in Emeryville,
California you’d find a similar model of architecture supporting creativity. Pixar Studios is
one of the most consistently successful companies in the film business, producing award-
winning animated films like Toy Story, Finding Nemo and The Incredibles. Its ability to
repeat its success stands in contrast to most studios; its fourteen films have all been both
commercial and critical successes and, as of December 2013, have earned over $8 billion.
This is not a matter of luck; at work is a well-understood and managed creative process
which keeps the ideas flowing and the output fresh and
exciting. One key principle, originating with Steve Jobs
(who was a key figure in the early days of Pixar before Case Study detailing Pixar’s creative
returning to Apple), was to make the physical geogra- process is available on the Innovation
phy of the place work to enable the same kind of crea- Portal at www.innovation-portal.info
tive collisions which Gunter Henn uses.

These days, organizations are increasingly recognizing that physical environments which
provide space for interaction and offer stimulation and different perspectives to their employ-
ees can act as a powerful catalyst for creativity. The Googleplex is not simply a designer’s
whim or an attempt to improve employee morale; it is aimed at encouraging creative insights
as a part of daily activity.
It’s not simply about high-tech California companies; the UK’s Meteorological (Met)
Office is one of the world’s leading scientific institutes and is housed in an open glass-framed
building with dedicated spaces to encourage creative
interchange. The Danish public sector has an inno-
vation support agency ‘owned’ by the Ministries of
Case Study on the Met Office is
available on the Innovation Portal at Taxation, Economics and Employee Affairs. ‘Mindlab’
www.innovation-portal.info is located in a traditional government building, but
inside it resembles the same kind of open playful space
which Gunter Henn and Steve Jobs were aiming for in
their designs.
Video Clip of Natalie Wilkie and One important development in this is the use of vir-
Gary Holpin explaining some of the tual space to bring people together and allow for crea-
philosophy behind their ‘Think Up!’ tive interchange. Innovation platforms are now com-
approach to stimulating creativity is
available on the Innovation Portal at
mon to many organizations and provide ways in which
www.innovation-portal.info thousands of employees can engage with each other,
and suggest, comment and focus on their innovation
efforts. While many of these operate within companies,
there is also a growing trend towards bringing in outsiders to the process – ‘crowd-sourcing’
creative ideas. (We discuss this in more detail in Chapter 6.)

Time, Space and Permission to Play

We’ve seen throughout this chapter that creativity is about long periods of incubation and
exploration punctuated by flashes of insight. That’s not a process that lends itself to being
Copyright © 2015. Wiley Textbooks. All rights reserved.

switched on and off to order, and organizations are increasingly realizing that if they want
creativity to happen they must make space for it. 3M is a business with a long tradition of
breakthrough innovation – think about Post-it notes, Scotch tape, industrial masking tape
and a host of other products we now take for granted. They came out of an organization
which has recognized that it needs its employees to be curious, to play and explore, to make
odd connections. And in order to do so they need a sense of time being allowed for this and
permission to play within that time. 3M operates what it calls the ‘15% policy’: employees
can use up to 15% of their time on personal projects which don’t have to be linked to specific
company outputs or productivity targets. This time is not accounted for on timesheets, it’s
more a signal to employees that creativity is important and that the company trusts them to
use the time well.
Much attention has been paid in recent years to Google and its ‘innovation machine’.
While the business began with a powerful search engine, the company has diversified into
many new areas: advertising, Web analytics, driverless cars, home automation and retailing.
Underpinning Google’s approach is the same recognition that people need time and space to

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 5 Entrepreneurial Creativity 153

explore, and so the company requires its engineers to

spend at least 20% of their time working on non-core Video Clips of Veeder-Root, Redgate
Software and Innocent Fruit Juices
projects. Major successes like Gmail came out of this highlighting various aspects of high
process of ‘permitted play’. involvement innovation systems are
Not all organizations can afford the luxury of available on the Innovation Portal at
giving employees the freedom to take their own time; www.innovation-portal.info
Toyota, for example, is driven by the huge commitment
of keeping its production lines running as interrupting
them is costly and disruptive. But it too has its ver- Case Studies of Kumba Resources,
sion of allowing time and space for creativity. Every Redgate Software and Innocent Fruit
team spends fifteen minutes each day before and after Juices exploring high involvement
innovation systems are available
its shift in group problem-solving, identifying issues to
on the Innovation Portal at
be worked on and coming up with new ideas to try www.innovation-portal.info
out during the day. This constant high-frequency, short
burst approach to creativity is called ‘kaizen’ and is cen-
tral to the company’s success as the world’s most productive car maker. Process innovation
keeps happening, driven by the creativity of thousands of employees; it’s estimated that the
company receives on average one useful idea per worker per week and has done so since the
1960s, when it began this approach to continuous improvement.

Creative Climate
Organizations, as we show in Chapter 9, are much more than a collection of people working
together. They have shared beliefs and values and an underlying agreement about ‘the way we
do things around here’. Whether we are talking about a small start-up or a large corporation,
the underlying culture is important since it shapes how people will behave. We can use the
metaphor of organizational climate to describe the kind of ‘weather system’ which provides
the context in which they work.
For example, a core belief underpinning the Toyota model mentioned above is ‘Little
ideas matter’. This sends out a clear message that every employee can make a contribution
Copyright © 2015. Wiley Textbooks. All rights reserved.

and, indeed, is expected to share his or her creativity. Another example could be an organiza-
tion which sends out a clear message that mistakes are OK since they provide learning oppor-
tunities. We know creativity is about trying things out and experiments often fail; their value
lies in helping us move closer towards a useful solution. So building a climate in which people
believe they won’t be punished for making mistakes (as long as they don’t repeat them!) is an
important building block supporting their creativity.
The difficulty with creating this kind of environment is that organizations need to be
consistent. Saying, ‘We’re a blame-free organization’ and then punishing people who do try
things out and make mistakes is not a consistent mes-
sage and people quickly see through it. Case Studies exploring how
Successful organizations which have a clear cul- organizations like Hosiden and NPI
ture for creativity are well aware of the behaviours try to build a creative environment are
available on the Innovation Portal at
they want people to practise and the underlying beliefs www.innovation-portal.info
they want to foster. They make these explicit and they

communicate and reinforce them so that they become

Tool to help you explore the climate
for supporting creativity, the high
‘the way we do things around here’. 3M’s 15% policy,
involvement innovation audit, is Pixar’s approach to creative debate, Toyota’s kaizen
available on the Innovation Portal at philosophy and Google’s ‘perpetual beta’ approach are
www.innovation-portal.info all company-specific examples of building a creative
climate.

Reward and Recognition

One important aspect of a climate which supports creativity is the use of reward and recogni-
tion. While everyone is potentially creative, they may not choose to deploy their skills in the
context of the organization unless they feel it is worthwhile doing so. Motivation at this level
is not so much about paying for ideas as in giving people a sense of being recognized and val-
ued for providing them. (Indeed, one problem with many suggestion schemes is that they can
sometimes be divisive; by focusing on the size of the reward people often hoard ideas rather
than share them.) Recognition is often a powerful motivator and many organizations like
3M make a feature out of celebrating their creative individuals and the maverick behaviour
which they often exhibit.
At its most basic the ability to implement an idea is a key factor in building a climate
for creativity. If people feel they have autonomy, they can choose what they do – they feel in
control. Whereas in organizations which limit the exercise of individual thinking the overall
effect can be to switch off people’s creativity and turn them into robots. In a small start-up
or in a creative context like an R&D laboratory or an advertising agency this isn’t a prob-
lem; the need for a steady flow of interesting new ideas means that people are encouraged to
contribute.
But it is a challenge for many organizations which rely on procedures and rules for
coordinating work – production lines, call centres and retail order-processing, for example.
Giving people the opportunity to make suggestions and implement improvements risks com-
promising the systems which ensure productivity and quality. Yet without those suggestions
Copyright © 2015. Wiley Textbooks. All rights reserved.

there is little opportunity to make the system better and the resulting impact on morale and
motivation is likely to make things worse.
As we’ve seen, organizations like Toyota or France
Tool to help you explore this,
policy deployment, is available
Telecom (whose ‘idClic’ online suggestion scheme
on the Innovation Portal at has around 30 000 participants every day, building
www.innovation-portal.info on new ideas) have managed to resolve this para-
dox by simultaneously putting in place frameworks
for creative idea input and specifying where those
should be directed. This idea – of policy deployment –
Case Studies exploring this, policy means there is an understanding of where improve-
deployment cases, are available ments are needed and rewards and recognizes crea-
on the Innovation Portal at tivity in these areas. (For example, it would not be a
www.innovation-portal.info
good idea for a worker in a pharmaceutical factory
to experiment with the formulation of the drug he or

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 5 Entrepreneurial Creativity 155

she is making (!), but the same person could have and implement some great ideas around
improving workflow or quality.)

Establish a Process
We’ve seen that creativity involves a process. One use-
ful way of supporting it is to make the process explicit. Tools to help you explore this, such
Organizations like IDEO make use of a formal and dis- as Deming Wheel and Six Sigma, are
ciplined approach to solving problems which their cli- available on the Innovation Portal at
ents bring, building on their own versions of techniques www.innovation-portal.info
for redefining and preparing problems, exploring and
incubating and finally closing in and refining solutions.
Having an explicit process is particularly impor- Case Studies of these tools in
tant where people may not have much experience of action, like Torbay Hospital, Gordon
a structured approach to problem finding and solving. Murray Design and Forte’s Bakery, are
available on the Innovation Portal at
Many high-involvement innovation systems, such as the www.innovation-portal.info
Toyota model, make use of simple frameworks which
everyone is trained to use. The ‘quality’ revolution which
did so much to strengthen the competiveness of Japanese industry in the 1970s emerged from
systematic application of models like the Deming Wheel, and more recent impact has come
in manufacturing and service organizations through the use of Six Sigma as a formal process.

Training and Skills Development

We’ve seen that creativity is a natural capability but also that it can be unlocked and devel-
oped through the use of tools and techniques. So it makes sense within organizations not only
to provide structures and frameworks which support people being creative but also to invest
in extending and developing those skills. Creativity training is a large field and ranges from
simple inputs designed to give people a sense of the core process and experience when apply-
ing it (Six Sigma, Deming Wheel, for example) through to more elaborate inputs designed to
Copyright © 2015. Wiley Textbooks. All rights reserved.

stretch thinking skills (lateral thinking, TRIZ, synectics, for example).

Leadership
It is easy to see creativity as a democratic open process in which everyone’s ideas are exchanged
and built upon. The reality is that without a degree of focus such sessions can quickly degen-
erate into chaos. There is a need for leadership – not
in the sense of strong authoritative direction but in the Video Clip of interview with Emma
sense of guiding and shaping the process towards a goal Taylor and a transcript of an interview
and doing so while balancing resource demands like with Hugh Chapman talking about
time and money. We explore the theme of leadership in their approach to guiding
more detail in Chapter 9, but for now it is worth noting and supporting creativity are
available on the Innovation Portal at
the need for leaders as coaches, facilitators and enablers www.innovation-portal.info
of the creative process.

Putting It All Together: Developing

Entrepreneurial Creativity
Creativity matters, whether we are starting a new entrepreneurial venture, trying to improve
performance of an established organization or help a mature one find new directions and ‘get
out of the box’. In this chapter we’ve looked at some of the factors which affect our ability
to draw out that creativity. People already have the capacity but there is good evidence that
this natural capability can be enhanced and developed through inputs targeted at individual,
group and environment. There is no single injection of magic which will make people more
creative but rather the need for an integrated approach, creating the conditions and providing
the framework within which they can sharpen and develop their skills.

INNOVATION IN ACTION 5.5

Employee-led Innovation
In a study of a wide range of UK organizations in which employees at all levels were regularly
contributing creative ideas, Julian Birkinshaw and Lisa Duke identified four key sets of enabling
factors:

Time out: to give employees the space in their working day for creative thought.
Expansive roles: to help employees move beyond the confines of their assigned job.
Competitions: to stimulate action and to get the creative juices flowing.
Open forums: to give employees a sense of direction and to foster collaboration.

Source: See www.engageforsuccess and http://uk.ukwon.eu/euwin-knowledge-bank-menu-new

for examples of the kind of organizations putting these ideas into practice.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 5 Entrepreneurial Creativity 157

Chapter Summary
• The dictionary defines creativity as ‘the use of imagination or original ideas to create
something’; in practice, we can see it as the ability to produce work that is both novel
and useful.
• It is a combination of thinking skills including associating, pattern recognition and
divergent and convergent thinking. Its application can range from incremental to radical,
from simple problem-solving to breakthrough insights.
• An important area for developing creativity is in high-involvement systems designed to
engage ‘ordinary’ employees in the process of contributing ideas.
• Although often portrayed as a flash of inspiration, creativity actually follows a process
of recognition/preparation, incubation, insight and validation/refinement.
• Everyone is naturally capable of creative thinking but there are differences in the ways
people prefer to express their creativity (creative style) and differences associated with
personality and prior experience.
• Developing creativity is less about injecting something new than in creating enabling
conditions to support a natural process. At the individual level, thinking skills can be
enhanced through the use of techniques aimed at developing new ways of dealing with
the core process.
• Group-level creativity recognizes the potential of diversity and interaction and tools to
support this include those which enable ‘creative collisions’. Brainstorming is the best
known but there are many others; developments in information technology provide new
ways of bringing groups together.
• Building an environment to support creativity includes paying attention to factors like
physical space, time and ‘permission’, reward and recognition, establishing a process and
Copyright © 2015. Wiley Textbooks. All rights reserved.

training and skills development.

Key Terms Defined

Brainstorming approach to idea generation, developed by Alex Osborn, in which judgement
of new ideas is suspended. Can be used individually or in groups.
Convergent thinking a style of thinking which emphasizes focus, homing in on a single
‘best’ answer.
Creativity the use of imagination or original ideas to create something which is novel and
useful.

Divergent thinking a style of thinking which is about making associations, often exploring
round the edges of a problem.
Flexibility a measure of creativity, the number of different classes of idea produced in a
given time.
Fluency a measure of creativity, the number of new ideas produced in a given time.
Intermediate impossible concept associated with lateral thinking where we come up with
an idea which is itself impossible but may provide the stepping stone to a practical and
novel answer.
Lateral thinking a style of thinking originally developed by Edward de Bono aimed at mov-
ing away from linear step-by-step thinking and taking a step sideways to re-examine a
problem from a different viewpoint.
Pattern recognition in its simplest form if we see a pattern that we recognize we have access
to solutions which worked in the past and we can apply again. But sometimes it is a case
of recognizing a similarity between a new problem and something like it which we have
seen before.
Policy deployment breaking down high-level strategic goals into small elements on which
employees can work with their own innovative ideas.
TRIZ Theory of Inventive Problem Solving – a technique developed by the Russian Genrich
S. Altshuller, who worked on reviewing patents to derive principles around which a wide
range of apparently different problems could be solved.

Discussion Questions
Copyright © 2015. Wiley Textbooks. All rights reserved.

1. ‘You have to be a genius like Einstein or Leonardo da Vinci to be creative’. Is this

true?
2. You’ve been appointed to help an organization develop its creative capability amongst
the workforce. How would you go about doing this?
3. Creativity is more than just a light bulb flash of inspiration. How could you
use a process view of creativity to support and enhance this capability in an
organization?
4. An entrepreneur friend has complained to you about being stuck for new ideas to help
grow her business. How could you use ideas about enhancing and developing creativity
to offer some advice?

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6

Sources of
Innovation

LEARNING OBJECTIVES
By the end of this chapter you will develop an understanding of:

• where innovations come from – the wide range of different sources which offer
opportunities to entrepreneurs
• the idea of ‘push’ and ‘pull’ forces and their interaction
• innovation as a pattern of occasional breakthrough and long periods of incremental
improvement
• the importance of different sources over time
• where and when you could search for opportunities to innovate.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Introduction
One definition of an entrepreneur is someone who sees an opportunity – and does something
about it. Whether it’s an individual looking to find a new product or service to make his or her
fortune, a social entrepreneur trying to change the world or a large established organization
looking for new market space, the challenge is one of finding opportunities for innovation.
So where do innovations come from? Do they just flash into life like the light bulb pop-
ping up above a cartoon character’s head? Or strike with sudden inspiration, like Archimedes
jumping up from his bath and running down the street, so enthused by his new idea that he
forgot to get dressed? Such ‘Eureka!’ moments are certainly a part of innovation folklore –
and from time to time they do lead somewhere. For example, Percy Shaw’s observation of the
reflection in a cat’s eye at night led to the development of one of the most widely used road

Shocks to the system – events which change

Advertising – uncovering and
the world and the way we think about it and
amplifying latent needs
force us to innovate in new directions

Inspiration – the Archimedes moment

Accidents – unexpected and
surprising things which offer new
directions for innovation Knowledge push – creating opportunity by
pushing the frontiers of science forward
Where do
Watching others – innovation arising from
innovations come Design drive innovation
imitating or extending what others do –
from?
benchmarking, reverse engineering, copying
Need pull – necessity as the
mother of invention, and innovation
Recombinant innovation – ideas
and applications in one world
transferred to a new context Users as innovators

Regulation – changing rules of the game Exploring alternative future and

push or pull innovation in new directions opening up different possibilities

FIGURE 6.1 Where do innovations come from?

safety innovations in the world. Or George de Mestral, on a walk in the Swiss Alps, noticing
the way plant burrs became attached to his dog’s fur and developing from that inspiration
the highly successful Velcro fastener.
But in reality there’s much more to innovation than
Activity to explore sources of simple inspiration or flashes of bright ideas, although
innovation, the Innovation family tree, these can be useful starting points. Most of the time it
is available on the Innovation Portal at involves a process of taking ideas forward, revising and
www.innovation-portal.info
refining them, weaving the different strands of ‘knowledge
Copyright © 2015. Wiley Textbooks. All rights reserved.

spaghetti’ together towards a useful product, process or

service. Triggering that process happens in many different
ways; and if we are to manage it effectively, we need to
Audio Clip of Stephen Johnson recognize this diversity and target our search for opportu-
talking about where innovations come
nities as widely as possible. Figure 6.1 indicates the wide
from is available on the Innovation
Portal at www.innovation-portal.info range of stimuli which can begin the innovation journey.
Let’s look at some of these in more detail.

Knowledge Push
Around the world, we spend something like $1500 billion every year on research and develop-
ment (R&D). All this activity in laboratories and science facilities in the public and private sector
isn’t for the sheer fun of discovery. It’s driven by a clear understanding of the importance of R&D

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 165

as a source of innovation. Although there have always been solo researchers, from a very early
stage the process of exploring and codifying at the frontiers of knowledge has been a systematic
activity involving a wide network of people sharing their ideas. In the 20th century the rise of the
large corporate research laboratory was a key instrument of progress: Bell Labs, ICI, Bayer, BASF,
Philips, Ford, Western Electric, DuPont (all founded in the early 1900s) are good examples of
such ‘idea powerhouses’. Their output wasn’t simply around product innovation: many of the key
technologies underpinning process innovations, especially around the growing field of automa-
tion and information/communications technology, also came from such organized R&D effort.
Now we are in a new era in which R&D is becoming more open and distributed and the
large central laboratory is giving way to networks of collaborating groups inside and between
firms. This involves some big changes, for example the giant Philips research complex at
Eindhoven in the Netherlands, established a hundred
years ago, has moved away from white-coated armies
of company researchers in a corporate laboratory to Activity to explore knowledge push
operating as a science campus on the site involving innovation further, the harvesting
knowledge crops, is available on the
many different research groups. Some work directly for
Innovation Portal at
Philips, others are independent small firms and yet oth- www.innovation-portal.info
ers are joint ventures. But the underlying idea is still the
same: generate ideas and they will provide the basis for
a steady stream of innovations. Case Studies of companies (like 3M
This model of ‘knowledge push’ has a strong track and Corning) founded over a hundred
years ago who built their strength
record. For example, the rise of the global pharmaceuti-
on extensive R&D investments are
cal industry was essentially about big R&D expenditure, available on the Innovation Portal at
(often running at 15–20% of turnover) in search of new www.innovation-portal.info
blockbuster drugs.* While there are spectacular success
stories (the top twenty drugs in the USA in 2011 had earned nearly $320 billion), the real value
from such R&D investment comes in the systematic improvement across a broad frontier of
products and the processes which created them. We can see the same pattern in many industries
(for example semiconductors) in which there is a long-term trajectory of continuous improve-
Copyright © 2015. Wiley Textbooks. All rights reserved.

ment interspersed with occasional breakthroughs. It’s a story of occasional breakthrough punc-
tuated by long periods of incremental innovation, consolidating around that idea.
A good illustration would be the camera. Originally invented in the late 19th century, the
dominant design gradually emerged with an architecture which we would recognize (shutter
and lens arrangement, focusing principles, back plate for film or plates, etc.). But this design
was then modified, for example with different lenses, motorized drives, flash technology –
and, in the case of George Eastman’s work, to creating a simple and relatively idiot-proof
model camera (the Box Brownie) which opened up photography to a mass market. This
pattern stabilized for an extended period in the 20th century, but by the 1980s there was
another surge in research around new imaging technologies and the product changed dra-
matically with the growth of digital cameras and then a host of other imaging devices like
mobile phones and tablets. Although the core players in the industry have shifted positions,

* A blockbuster drug is usually defined as one which earns in excess of $1 billion for its manufacturers
over its lifetime.

the underlying process of innovation driven by scientific

Case Study of the imaging industry is research remains the same, and there are still plenty of
available on the Innovation Portal at patents being registered around this. (The legal battles
www.innovation-portal.info between Apple and Samsung, for example, are one illus-
tration of the strategic importance of such knowledge in
playing out the innovation game.)
Knowledge push has long been a source of inno-
Case Studies of entrepreneur-driven vative start-ups where entrepreneurs have used ideas
successes, like Spirit and Dyson, are based on their own research (or that of others) to cre-
available on the Innovation Portal at
ate new ventures. This model underpins the success of
www.innovation-portal.info
many high-tech regions – for example Silicon Valley and
Route 128 in the USA, ‘medical valley’ around the city of
Nuremburg in Germany or the Cambridge area in the UK where giant technology businesses
like ARM (whose chips are at the heart of most mobile phones) were founded as spin-outs
from the university. (We discuss the creation of new ventures in more detail in Chapter 12.)

Need Pull...
Knowledge push creates a field of possibilities – but not every idea finds successful applica-
tion. The American writer Ralph Waldo Emerson is supposed to have said ‘build a better
mousetrap and the world will beat a path to your door’; unfortunately, the reality is that
there are plenty of bankrupt mousetrap salesmen around! Bright ideas are not, in themselves,
enough: they may not meet a real or perceived need and people may not feel motivated to
change. Innovation requires some form of demand if it is to take root.
In its simplest form this idea of ‘need pull’ innovation is captured in the saying ‘Necessity is
the Mother of invention’. For example, Henry Ford was able to turn the luxury plaything that
was the early automobile into something which became ‘a car for Everyman’, while Procter
Copyright © 2015. Wiley Textbooks. All rights reserved.

and Gamble began a business meeting needs for domestic lighting (via candles) and moved
across into an ever-widening range of household needs from soap to nappies to cleaners,
toothpaste and beyond. Low-cost airlines have found innovative solutions to the problem of
making flying available to a much wider market, while microfinance institutions have devel-
oped radical new approaches to help bring banking and credit within the reach of the poor.

INNOVATION IN ACTION 6.1

Maintaining a Stream of Ideas

Two hundred years ago, Churchill Potteries began life in the UK making a range of crockery and
tableware. That it is still able to do so today, despite a turbulent and highly competitive global

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 167

market, says much for the approach which it has taken to ensure a steady stream of innovation.
Its chief executive, Andrew Roper, highlights the way in which listening to users and understand-
ing their needs has changed the business. ‘We have taken on a lot of service disciplines, so you
could think of us as less of a pure manufacturer and more as a service company with a manu-
facturing arm.’ Staff spend a significant proportion of their time talking to chefs, hoteliers and
others: ‘sales, marketing and technical people spend far more of their time than I could ever have
imagined checking out what happens to the product in use and asking the customer, professional
or otherwise, what they really want next.’

Source: ‘Ingredients for success on a plate’, Peter Marsh, Financial Times, 26th March 2008: 16.

Just as the knowledge push model involves a mixture of occasional breakthrough followed by
extensive elaboration, so the same is true of need pull. Occasionally, it involves a ‘new to the world’
idea but mostly it is extensions, variations and adapta-
tions around those core ideas. Figure 6.2 indicates a typical
Activity to explore this idea,
breakdown of product innovation along these lines and we classifying innovation, is available on
could construct a similar picture for process innovations. the Innovation Portal at
Need pull innovation is particularly important at www.innovation-portal.info
mature stages in industry or product lifecycles when
there is more than one offering to choose from –
competing depends on differentiating on the basis of needs and attributes, and/or segmenting
the offering to suit different adopter types. But it’s also a key source of opportunity for entre-
preneurial start-ups. Identifying a need which no one has worked on before or finding novel
ways to meet an existing need lies behind many new business ideas. For example, Jeff Bezos
picked up on the needs (and frustrations) around conventional retail and has built the Amazon
empire on the back of using new technologies to meet these in a different way. Airbnb (‘I need
Copyright © 2015. Wiley Textbooks. All rights reserved.

New to the world

products
New product lines

Line extensions

Repositionings

Cost reductions

Incremental product
improvements

FIGURE 6.2 Types of new product

Source: Based on Griffin, A. (1997) PDMA research on new product development practices. Journal of Product
Innovation Management, 14: 429. Reproduced by permission of John Wiley & Sons Ltd.

to find somewhere to stay’), nextbike, Zipcar (‘I need easy short-term access to transport’) and
WhatsApp (‘I need to communicate with my friends’) are other well-known examples.
A good source of opportunity for entrepreneurs is to look at the underlying need which
people have for goods and services – and then to ask if there are different ways of expressing
or meeting this need. For example, the huge industry
around selling drills and screws and other devices to
Activity to explore this approach to
finding innovation opportunities using the domestic market is not about a desire for owning
the outcome-oriented innovation tool power tools but reflects a more basic need – how can I
is available on the Innovation Portal at put a picture or photograph on the wall? Maybe there
www.innovation-portal.info are other ways of meeting this need and new business
opportunities behind that?
It’s also important to recognize that innovation is not always about commercial markets
or consumer needs; social innovation is also important. Whether it’s providing healthcare or
clean water in developing countries or more effective education or social services in estab-
lished industrial economies, the need for change is clear and provides an engine for increasing
innovation. Some examples of major social innovations
Video Clip of an interview with which grew out of meeting needs are the kindergarten
Michael Bartl of Hyve illustrating these (providing childcare when both parents are working),
approaches to uncovering ‘hidden the National Childbirth Trust (providing education and
needs’ is available on the Innovation information to new parents about all aspects of child-
Portal at www.innovation-portal.info
birth), the Open University (providing access to higher
education to students once excluded by the barriers of
wealth and work) and the Big Issue (providing employ-
Case Studies illustrating this approach ment and identity to homeless people).
(RED, Tesco and Open Door) are
available on the Innovation Portal at
As we’ll see in the next chapter, understanding user
www.innovation-portal.info needs requires getting as close as we can to those users.
Recent years have seen a growth in using tools drawn
originally from anthropology to watch and understand
how people actually behave rather than simply ask-
Tools to help you with this (Kano
Copyright © 2015. Wiley Textbooks. All rights reserved.

ing them. Tools like ‘empathic design’ and ‘ethnogra-

method and other design methods)
are available on the Innovation Portal phy’ now sit alongside more conventional methods of
at www.innovation-portal.info market research and provide ways of getting a clearer
insight into needs as a source of innovation ideas.

INNOVATION IN ACTION 6.2

Understanding User Needs in Hyundai Motor

One of the problems facing global manufacturers is how to tailor their products to suit the
needs of local markets. For Hyundai, this has meant paying considerable attention to getting
deep insights into customer needs and aspirations – an approach which it used to good effect

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 169

in developing the Santa Fe, reintroduced to the US market in 2007. The headline for its devel-
opment programme was ‘touch the market’ and it deployed a number of tools and techniques
to enable it. For example, it visited an ice rink and watched an Olympic medallist skate around
to help it gain an insight into the ideas of grace and speed which it wanted to embed in its car.
This provided a metaphor – ‘assertive grace’ – which the development teams in Korea and the
US were able to use.
Analysis of existing vehicles suggested some aspects of design were not being covered, for
example many sport/utility vehicles (SUVs) were rather ‘boxy’ so there was scope to enhance
the image of the car. Market research suggested a target segment of ‘glamour mums’ who would
find this attractive and the teams then began an intensive study of how this group lived their
lives. Ethnographic methods looked at their homes, their activities and their lifestyles, for ex-
ample team members spent a day shopping with some target women to gain an understanding
of their purchases and what motivated them. The list of key motivators which emerged from this
shopping study included durability, versatility, uniqueness, child-friendliness and good customer
service from knowledgeable staff. Another approach was to make all members of the team ex-
perience driving routes around southern California, making journeys similar to those popular
with the target segment and in the process getting first-hand experience of comfort, features and
fixtures inside the car, etc.1

Making Processes Better

Of course, needs aren’t just about products and ser- Video Clip of an interview with
vices – they also apply as drivers for process innovation. Emma Taylor of Denso Corporation
‘Squeaking wheels’ and other sources of frustration with talking about establishing this kind of
the way current processes operate can provide rich signals approach is available on the Innovation
Copyright © 2015. Wiley Textbooks. All rights reserved.

Portal at www.innovation-portal.info
for change, both in terms of incremental improvement
and in finding radically new ways of working. For exam-
ple, this approach provided the basic philosophy behind
the ‘total quality management’ movement in the 1980s, Case Studies of continuous
the ‘business process re-engineering’ ideas of the 1990s improvement are available on the
Innovation Portal at
and the current widespread application of concepts based
www.innovation-portal.info
on the idea of ‘lean thinking’. All of these are essentially
about taking the waste out of existing processes.

Tools like process mapping highlighting opportunities for process innovation (search for
‘continuous improvement toolkit’ to find others) are available on the Innovation Portal at
www.innovation-portal.info

Video Clips showing how employee engagement in innovation can make a difference
in organizations like Innocent Fruit Juices, Redgate Software, the UK Meteorological
Office and the Devon and Cornwall Police are available on the Innovation Portal at
www.innovation-portal.info

INNOVATION IN ACTION 6.3

‘Pretty in Pink’
Walking through the plant belonging to Ace Trucks (a major producer of forklift trucks) in
Japan, the first thing which strikes you is the colour scheme. In fact, you would need to be blind
not to notice it – amongst the usual rather dull greys and greens of machine tools and other
equipment there are flashes of pink. Not just a quiet pastel tone but a full-blooded, shocking pink
which would do credit to even the most image-conscious flamingo. Closer inspection shows these
flashes and splashes of pink are not random but associated with particular sections and parts of
machines – and the eye-catching effect comes in part from the sheer number of pink-painted bits,
distributed right across the factory floor and all over the different machines.
What is going on here is not a bizarre attempt to redecorate the factory or a failed piece
of interior design. The effect of catching the eye is quite deliberate: the colour is there to draw
attention to the machines and other equipment which have been modified. Every pink splash is
the result of a kaizen project to improve some aspect of the equipment, much of it in support of
the drive towards ‘total productive maintenance’, (TPM) in which every item of plant is available
and ready for use 100% of the time. This is a goal like ‘zero defects’ in total quality – certainly
ambitious, possibly an impossibility in the statistical sense, but one which focuses the minds of
everyone involved and leads to extensive and impressive problem-finding and problem-solving.
Copyright © 2015. Wiley Textbooks. All rights reserved.

TPM programmes have accounted for year-on-year cost savings of 10–15% in many Japanese
firms and these savings are being ground out of a system which is already renowned for its lean
characteristics.
Painting the improvements pink plays an important role in drawing attention to the
underlying activity in this factory, in which systematic problem-finding and problem-solving is
part of ‘the way we do things around here’. The visual cues remind everyone of the continuing
search for new ideas and improvements, and often provide stimulus for other ideas or for
places where the displayed pink idea can be transferred to. Closer inspection around the plant
shows other forms of display – less visually striking but powerful nonetheless – charts and
graphs of all shapes and sizes which focus attention on trends and problems as well as cele-
brating successful improvements, photographs and graphics which pose problems or offer sug-
gested improvements in methods or working practices and flipcharts and whiteboards covered
with symbols and shapes of fish bones and other tools being used to drive the improvement
process forward.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 171

This kind of process improvement is of particular relevance in the public sector where the
issue is not about creating wealth but rather providing value for money in service delivery. Many
applications of ‘lean’ and similar concepts can be found which apply this principle, for example
in reducing waiting times or improving patient safety in hospitals, in speeding up delivery of
services like car taxation and passport issuing and even in improving the collection of taxes!

INNOVATION IN ACTION 6.4

MindLab
MindLab is a Danish organization set up to promote and enable public sector innovation in Denmark.
‘Owned’ by the Ministries of Taxation, Employment and Economic Affairs, it has pioneered a series
of initiatives engaging civil servants and
members of the public in a wide range of
Video Clip of an interview with
social innovation which have raised prod- Helle-Vibeke Carstensen
uctivity, improved service quality and cut discussing applying this approach
costs across the public sector. Case studies in the Danish public sector is
of its activities can be found on its website available on the Innovation Portal
at www.innovation-portal.info
(www.mind-lab.dk/en).

Case Studies of various process innovations in healthcare are available on the

One important aspect of process innovation is that it relates to how organizations create
and deliver whatever they offer. Improving and sometimes radically changing these processes is
something with which all employees can potentially engage since they are all users and opera-
tors of these processes. Such high involvement innovation lies behind the success of companies
like Toyota in terms of their long-term productivity improvement; it is largely based on the
idea of regular improvement ideas – kaizen – collected from the majority of the workforce.

Whose Needs? Working at the Edge

And sometimes what has relevance for the fringe begins to be of interest to the mainstream.
US professor Clayton Christensen shows this has been the pattern across industries as diverse
as computer disk drives, earth-moving equipment, steel making and low-cost air travel.2

It poses a problem for existing players because the needs of such fringe groups are not
seen as relevant to their mainstream activities – and so they tend to ignore or dismiss them
as not being important. As we’ve seen, for much of the time there is stability around markets
where innovation of the ‘do better’ variety takes place and is well managed. Close relation-
ships with existing customers are fostered and the system is configured to deliver a steady
stream of what the market wants – and often a great deal more! (What Christensen calls
‘technology overshoot’ is often a characteristic of this, where markets are offered more and
more features which they may not ever use or place much value on but which come as part
of the package.)
But somewhere else there is another group of potential users who have very different
needs – usually for something much simpler and cheaper – which will help them get something
done. Meeting these needs not only creates a new market but also destabilizes the existing
one as customers there realize their needs can be met with a different approach. This phe-
nomenon is known as disruptive innovation and focuses
Video Clip in which Clayton our attention on the need to look for needs which are
Christensen explains his theory of not being met, or poorly met, or sometimes where there
disruptive innovation is available on is an overshoot. Each of these can provide a trigger for
the Innovation Portal at innovation – and often involves disruption because
www.innovation-portal.info
existing players don’t see the different patterns of needs.

INNOVATION IN ACTION 6.5

Gaining Competitive Edge through Meeting

Unserved Needs
The Nintendo Wii opened up radically new competitive space in the computer games industry
and for a while gave it market leadership. The Wii console is not a particularly sophisticated
Copyright © 2015. Wiley Textbooks. All rights reserved.

piece of technology – compared to the rivals Sony PS3 or the Microsoft Xbox it has less com-
puting power, storage or other features and the games’ graphics are much lower resolution than
major sellers like Call of Duty. But the key to the phenomenal success of the Wii has been its
appeal to an underserved market. Where computer games were traditionally targeted at boys
the Wii extends – by means of a simple interface wand – their interest to all members of the
family. Add-ons to the platform like the Wii board for keep-fit and other applications and the
market reach extends, for example, to include the elderly or patients suffering the after effects
of stroke.
The success of the Wii led others to introduce technologies supporting interaction, and
Microsoft’s Kinect has opened up a huge range of new applications both within and beyond the
games sector.
Nintendo performed a similar act of opening up the marketplace with its DS handheld
device – again by targeting unmet needs across a different segment of the population. Many DS
users are middle-aged or retired and the best-selling games are for brain training and puzzles.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 173

Emerging New Markets at ‘the Base of

the Pyramid’
One powerful source of ideas at the edge comes from what are often termed ‘emerging mar-
kets’ – countries like India, China and those in the Latin American and African regions. As we
saw in Chapter 3, these are huge markets in terms of population and often very young in age
profile, and while there may be limited disposable income they represent significant oppor-
tunities. The writer C. K. Prahalad first drew attention to this idea in his book The Fortune
at the Bottom of the Pyramid, in which he argues that
nearly 80% of the world’s population lived on less than Audio Clip of an interview with Girish
$2/day but could represent a huge market of unserved Prabhu of Sristi Labs, an organization
needs for goods and services. Since its publication in specializing in this kind of innovation,
2005, there has been an explosion of interest in explor- is available on the Innovation Portal at
ing the innovation opportunities in meeting the needs of www.innovation-portal.info
this significant population involving billions of people.
This is not simply a matter of opening up new markets; finding different solutions to
the needs of those markets may have big implications for mainstream markets. For example,
think what a producer in China could do to an industry like pump manufacturing if it began
to offer a simple, low-cost ‘good enough’ household pump for $10 instead of the high-tech,
high-performance variants available from today’s industry at prices ten to fifty times higher.

INNOVATION IN ACTION 6.6

approach to innovation which is rooted in emerging economies like India, China and Latin
America – but which draws on some long-established principles. Through a variety of case
studies they suggest that crisis conditions often trigger new approaches to innovation, and that
the pressure to be frugal and flexible often leads to novel and sometimes breakthrough solutions.
The phrase ‘scarcity is the mother of invention’ could be applied to examples such as the low-
technology design for a fridge which keeps food and liquid cool yet is based on a simple ceramic
pot – the ‘mitticool’. While this may seem a low-tech solution, the problem in India is that
around 500 million people have to live with an unreliable electricity supply which means that
conventional refrigerators are unusable. The simple device has been so successful it is now mass
produced and sold worldwide providing employment for the village in which the idea originated.
Jugaad is a Hindi word which roughly translates as ‘an innovative fix, an improvised solu-
tion born from ingenuity and cleverness’. Such an approach characterizes entrepreneurship –
and examples of such innovation can be found throughout history. But the authors argue that
(continued)

the very different conditions across much of the emerging world are creating opportunities for
jugaad innovators finding solutions to meet the needs of a large population for an increasingly
wide range of good and services. In the process they are marrying very different needs with an
increasingly wide range of networked technological options, for example evolving new forms of
banking based on mobile phones or deploying telemedicine to help deal with the problems of
distance and skills shortage in healthcare.
Of particular significance is the potential for such solutions to then find their way back to
the industrialized world as simpler, ingenious solutions which challenge existing high-technology
approaches. The potential for such reverse innovation to act as a disruptive force is significant.

Source: Radjou, N., J. Prabhu and S. Ahuja (2012) Jugaad Innovation: Think Frugal, Be
Flexible, Generate Breakthrough Innovation, San Francisco: Jossey-Bass.

The idea of ‘reverse innovation’ where innovations migrate back from these emerging
markets is of growing interest, for example General Electric developed a simple low-cost ver-
sion of its ultrasound scanner for use in the emerging market context of rural India. Designed
to be easy to use and rugged enough for travelling mid-
wives to carry round on their bicycles from village to
Audio Clip of a talk by Jane Chen village, the unit was not only very successful in those
about developing a low-cost markets but also attracted considerable attention else-
baby incubator is available on the where in the world. While maternity care in major
Innovation Portal at
www.innovation-portal.info
economies is currently delivered in highly specialized
hospitals and clinics using sophisticated machinery,
there is a clear demand for something simpler and GE
has found this to be a surprising growth market.
Case Study of the GE simple scanner In 2009, it announced its intention to spend at least
is available on the Innovation Portal at $3 billion to develop 100 low-cost healthcare innova-
www.innovation-portal.info
Copyright © 2015. Wiley Textbooks. All rights reserved.

tions, targeted at emerging economies but with poten-

tial for such reverse innovation.

INNOVATION IN ACTION 6.7

Low-cost Innovation: The Akash Computer

India represents an interesting laboratory for the development of radically different products
and services configured for a large but not particularly wealthy population. Examples include
the Tata Nano car, developed and now on sale for around $3000, and a mobile phone which
retails at $20. In 2010, the country’s Human Resources Development minister unveiled a $35
computer, targeted first at the school market (which is huge, around 110 million children in

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 175

the first instance) and to be followed by higher education students. The minister commented:
‘The solutions for tomorrow will emerge from India. We have reached a stage that today, the
motherboard, its chip, the processing, connectivity, all of them cumulatively cost around $35
[£23], including memory, display, everything.’
The Akash 1 was launched in 2011 and an updated version, the Akash 2, in 2012. A tablet-
style device, it competes with Apple’s iPad currently retailing in the USA for $450. It runs on an
open source Linux operating system, using Open Office software and can be powered by solar
panel or batteries as well as mains electricity. It has no hard drive but additional functionality
can be provided via a USB port.

Innovation in these emerging market conditions is

Case Studies illustrating the potential
not confined to product ideas; there is also considerable
of new approaches to process
scope for finding alternative solutions to process inno- innovation in public services (Aravind
vation problems in delivering key services like health- Eye Clinics, NHL, Lifespring Hospitals)
care and education. are available on the Innovation Portal
Importantly, it isn’t just the case that fringe markets at www.innovation-portal.info
trigger simpler and cheaper innovations. Sometimes the
novel conditions spawn completely new trajectories. For
example, the emergence of ‘mobile money’ in Africa Video Clip of an interview with
came about because of the security risks of carrying Dr Venkataswamy, founder of the
cash, which meant that people began to use the mobile Aravind Eye Clinics, is available on the
phone system to provide an alternative way of moving Innovation Portal at
www.innovation-portal.info
money around. Systems like M-PESA have now grown
in sophistication and enjoy widespread application in
emerging markets like Africa and Latin America – but they also offer a template for existing
markets back in the industrialized world.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Audio Clip of an interview with Suzana Moreira, whose company, Mowoza, uses a
version of this mobile money platform, is available on the Innovation Portal at
www.innovation-portal.info

Case Study of M-PESA, the mobile money platform, is available on the

Innovation Portal at www.innovation-portal.info

INNOVATION IN ACTION 6.8

Living Labs
One approach being used by an increasing number of companies involves setting up ‘Living Labs’
which allow experimentation with and learning from users to generate ideas and perspectives
on innovation. These could be amongst particular groups, for example in Denmark a network
of such laboratories (http://www.openlivinglabs.eu/ourlabs/Denmark) is particularly concerned
with the experience of ageing and the likely products and services which an increasingly elderly
population will need. A description of the Lab and its operation can be found at http://www.
edengene.co.uk/article/living-labs/.
In Brazil the Nokia Institute of
Case Study of Living Labs is Technology (INdT) develops user-
available on the Innovation Portal at driven innovation platforms to support
www.innovation-portal.info
mobile products and services and as part
of that process aims to enable large-
scale involvement of motivated com-
munities (www.indt.org/). Its Mobile
Video Clip of an interview with Ana Work Spaces Living Lab is working in
Sena, Innovation Manager at INdT, is several technological fields and with
available on the Innovation Portal at
www.innovation-portal.info
communities across rural and urban
environments.

Sometimes the urgency of a need can have a forcing effect on innovation – the example of
wartime and other crises supports this view. For example, the demand for iron and iron
products increased hugely in the Industrial Revolution and exposed the limitations of the
old methods of smelting with charcoal – it created the pull which led to developments
like the Bessemer converter. In similar fashion the energy crisis has created a significant
pull for innovation around alternative energy sources – and an investment boom for
such work.
A powerful example of the impact crisis can have
on driving innovation can be seen in the context of
major humanitarian crises, for example after devastat-
Case Studies of crisis-driven
innovations are available on the ing earthquakes or hurricanes. The need to improvise
Innovation Portal at solutions around logistics, shelter, healthcare, water
www.innovation-portal.info and sanitation and energy forces a rapid pace of inno-
vation.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 177

INNOVATION IN ACTION 6.9

Humanitarian Innovation
ALNAP is a learning network of humanitarian agencies including organizations like the Red Cross,
Save the Children and Christian Aid. It aims to share and build on experience gained through coping
with humanitarian crises – whether natural or man-made – and has spent time reflecting on how
many of the innovations developed as a response to urgent needs can be spread to others. Examples
include high-energy biscuits which can be quickly distributed or building materials which can be
deployed and assembled quickly into makeshift shelters. ALNAP’s website gives a wide range of
examples of such crisis-driven innovations (http://www.alnap.org/resources/innovations.aspx).

Towards Mass Customization

Another important source of innovation results from our desire for ‘customization’.
Markets are not made up of people wanting the same thing – we all want variety and
some degree of personalization. And as we move from conditions where products are in
short supply to one of mass production so the demand for differentiation increases. We
can see this in the case of the motor car as one simple example. Arguably, Henry Ford’s
plant, based on principles of mass production, represented the most efficient response
to the market environment of its time. But that environment changed rapidly during the
1920s, so that what had begun as a winning formula for manufacturing began gradually
to represent a major obstacle to change. Production of the Model T began in 1909 and for
fifteen years or so it was the market leader. Despite fall-
ing margins, the company managed to exploit its blue-
Copyright © 2015. Wiley Textbooks. All rights reserved.

print for factory technology and organization to ensure Case Study of the Model T Ford is
continuing profits. But growing competition (particu- available on the Innovation Portal at
larly from General Motors with its strategy of product www.innovation-portal.info
differentiation) was shifting away from trying to offer
the customer low-cost personal transportation and
towards other design features – such as the closed body
– and Ford was increasingly forced to add features to Video Clip about the Model T Ford is
available on the Innovation Portal at
the Model T. Eventually, it was clear that a new model
www.innovation-portal.info
was needed and production of the Model T stopped in
1927.
There has always been a market for personalized custom-made goods (like tailored
clothes) and services (for example personal shoppers, personal travel agents, personal physi-
cians). But until recently there was an acceptance that this customization carried a high price
tag and that mass markets could only be served with relatively standard product and service
offerings.

However, a combination of enabling technologies and rising expectations has begun

to shift this balance and resolve the trade-off between price and customization. Mass
customization (MC) is a widely used term which captures some elements of this. MC
is the ability to offer highly configured bundles of non-price factors to suit different mar-
ket segments (with the ideal target of total customization – i.e. a market size of 1) – but
to do this without incurring cost penalties and the setting-up of a trade-off of agility vs.
prices.
Of course, there are different levels of customizing – from simply putting a label ‘specially
made for . . . (insert your name here)’ on a standard product right through to sitting down
with a designer and co-creating something truly unique. Table 6.1 gives some examples of
this range of options.

TABLE 6.1 Options in customization

Type of
customization Characteristics Examples
Distribution Customers may cus- Sending a book to a friend from Amazon.
customization tomize product/service com. They will receive an individually
packaging, delivery wrapped gift with a personalized message
schedule and delivery from you – but it’s actually all been done
location but the actual online and in distribution warehouses.
product/service is iTunes appears to offer personalization of a
standardized music experience but in fact it does so right
at the end of the production and distribu-
tion chain
Assembly Customers are Buying a computer from Dell or another
customization offered a number of online retailer. Customers choose and
Copyright © 2015. Wiley Textbooks. All rights reserved.

pre-defined options. configure to suit their exact requirements

Products/services from a rich menu of options – but Dell only
are made to order starts to assemble this (from standard
using standardized modules and components) when the order
components is finalized. Banks offering tailor-made
insurance and financial products are actually
configuring these from a relatively standard
set of options
Fabrication Customers are Buying a luxury car like a BMW, where the
customization offered a number of customer is involved in choosing (‘designing’)
pre-defined designs. the configuration which best meets their
Products/services are needs and wishes (for engine size, trim lev-
manufactured to order els, colour, fixtures and extras, etc.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 179

TABLE 6.1 (Continued)

Type of
customization Characteristics Examples
Only when they are satisfied with the virtual
model they have chosen does the manufac-
turing process begin – and they can even
visit the factory to watch their car being built.
Services allow a much higher level of such
customization since there is less of an
asset base needed to set up for ‘manufac-
turing’ the service – examples here would
include made to measure tailoring, personal
planning for holidays, pensions, etc.
Design Customer input Co-creation, where end users may not even
customization stretches to the start of be sure what it is they want but where,
the production process. sitting down with a designer, they co-create
Products do not exist the concept and elaborate it. It’s a little like
until initiated by a cus- having some clothes made but rather than
tomer order choosing from a pattern book they actually
have a designer with them and create the
concept together. Only when it exists as a
firm design idea is it then made. Co-creation
of services can be found in fields like
entertainment (where user-led models like
YouTube are posing significant challenges
to mainstream providers) and in healthcare
(where experiments towards radical alter-
natives for healthcare delivery are being
explored)
Copyright © 2015. Wiley Textbooks. All rights reserved.

Source: Derived from Lampel, J. and H. Mintzberg (1996) Customizing, customization, Sloan
Management Review, 38(1): 21–30.

Video Clip of an interview with Frank Piller, who runs a fascinating blog
around mass customization, is available on the Innovation Portal at
www.innovation-portal.info

Case Studies of companies using this approach (Adidas, Lego, Threadless.com)

are available on the Innovation Portal at www.innovation-portal.info

Mass customization has taken on particular rel-

Video Clip of Chris Anderson of evance as the enabling technologies of design and
Wired magazine discussing the
manufacture have matured. With technologies like 3D
new industrial revolution around the
possibilities offered by technologies printing becoming widely available, it becomes pos-
like 3D printing is available on the sible to customize and configure pretty much anything
Innovation Portal at – from personalizing your choice of cola from a vend-
www.innovation-portal.info ing machine through to creating spare parts for village
pumps in rural Africa and even printing a gun using
designs from the Internet!
Understanding what it is that customers value and need is critical in pursuing a custom-
ization strategy, and it leads, inevitably, to the next source of innovation in which the users
themselves become the source of ideas.

Users as Innovators
It is easy to fall into the trap of thinking about need pull innovation as involving a process
in which user needs are identified and then something is created to meet those needs. This
assumes that users are passive recipients, but this is often not the case. In many cases users
are ahead of the game. Their ideas plus their frustrations with existing solutions lead them to
experiment and create something new. And sometimes these prototypes eventually become
mainstream innovations.
Eric von Hippel of Massachusetts Institute of Technology has made a lifelong study
of this phenomenon and gives the example of the pickup truck – a long-time staple of the
world automobile industry.3 This major category did not begin life on the drawing boards of
Detroit but rather on the farms and homesteads of a wide range of users who wanted more
than a family saloon. They adapted their cars by removing seats, welding new pieces on and
Copyright © 2015. Wiley Textbooks. All rights reserved.

cutting off the roof – in the process prototyping and developing the early model of the pickup.
Only later did Detroit pick up on the idea and then begin the incremental innovation pro-
cess to refine and mass produce the vehicle. A host of other examples support the view that
user-led innovation matters, for example petroleum refining, medical devices, semiconductor
equipment, scientific instruments and a wide range of sports goods and the Polaroid camera.
Importantly, active and interested users (lead users) are often well ahead of the market in
terms of innovation needs.
Central to their role in the innovation process is that they are very early on the adop-
tion curve for new ideas. They are concerned with getting solutions to particular needs and
prepared to experiment and tolerate failure in their search for a better solution. One strategy
(which we explore in more detail in the next chapter) is thus to identify and engage with such
lead users to co-create innovative solutions.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 181

ENTREPRENEURSHIP IN ACTION 6.1

User-led Innovation
Although we have known about user innovation for a long time, it has recently become a
powerful source of innovation in both social and commercial contexts. Below are links to some
examples on the Portal (www.innovation-portal.info) of entrepreneurs who have begun to
exploit this approach:

• Eric von Hippel describes lead user methods and their application in the 3M company.
• Tim Craft describes how he developed a range of connectors and other equipment follow-
ing concerns about safety in operating theatres.
• Yellowberry is a case example of an underwear company founded to cater for the ‘tween’
market.
• Tad Golesworthy was diagnosed with a terminal heart condition and that spurred him to
design a new heart valve, saving his and many other lives.
• Opening up healthcare innovation describes the role played by patients and carers in
generating ideas for innovation.
• Charles Leadbeater talks about the opening up of innovation opportunities through
engaging with users.

‘User-led innovation’ is becoming increasingly significant, for example the Linux soft-
ware which lies at the heart of mobile phones did not originate with a traditional Linux
Corporation. Instead it is the product of a community of frustrated users who began to share
(and continue to do so) their expertise and ideas to co-create solutions which major compa-
nies like IBM then take forward. Studies of ‘hidden innovation’ suggest that a significant and
Copyright © 2015. Wiley Textbooks. All rights reserved.

growing number of people are involved in such innovation and it accounts for a surprising
number of new ideas. And the idea doesn’t stop with products. It is very relevant to services
and the public sector. For example, the Danish government has had considerable success with
engaging users in innovations around the tax system!

INNOVATION IN ACTION 6.10

User Involvement in Innovation

One of the key lessons about successful innovation is the need to get close to the customer.
At the limit the user can become a key part of the innovation process, feeding in ideas and
improvements to help define and shape the innovation. The Danish medical devices company
(continued)

Coloplast was founded in 1954 on these principles when nurse Elise Sorensen developed the first
self-adhering ostomy bag as a way of helping her sister, a stomach cancer patient. She took her
idea to various plastics manufacturers, but none showed interest at first. Eventually one, Aage
Louis-Hansen, discussed the concept with his wife, also a nurse, who saw the potential of such
a device and persuaded her husband to give the product a chance. Hansen’s company, Dansk
Plastic Emballage, produced the world’s first disposable ostomy bag in 1955. Sales exceeded
expectations and in 1957, after having taken out a patent for the bag in several countries, the
Coloplast company was established. Today the company has subsidiaries in 20 factories in five
countries around the world, with specialist divisions dealing with incontinence care, wound care,
skin care, mastectomy care, consumer products (specialist clothing etc.) as well as the original
ostomy care division.
Keeping close to users in a field like this is crucial, and Coloplast has developed novel ways
of building in such insights by making use of panels of users, specialist nurses and other health-
care professionals located in different countries. This has the advantage of getting an informed
perspective from those involved in post-operative care and treatment who can articulate needs
which may for the individual patient be difficult or embarrassing to express. By setting up panels
in different countries, the varying cultural attitudes and concerns could also be built into product
design and development.
An example is the Coloplast Ostomy Forum (COF) board approach. The core objective
within COF boards is to try to create a sense of partnership with key players, either as key
customers or key influencers. Selection is based on an assessment of their technical experi-
ence and competence but also on the degree to which they will act as opinion leaders and
gatekeepers, for example by influencing colleagues, authorities, hospitals and patients. They
are also a key link in the clinical trials process. Over the years, Coloplast has become quite
skilled in identifying relevant people who would be good COF board members, for example
by tracking people who author clinical articles or who have a wide range of experience
across different operation types. Their specific role is particularly to help with two elements
in innovation:
Copyright © 2015. Wiley Textbooks. All rights reserved.

• identify, discuss and prioritize user needs

• evaluate product development projects from idea generation right through to international
marketing.

Importantly, COF boards are seen as integrated with the company’s product development
system and they provide valuable market and technical information into the decision process.
This input is mainly associated with early stages around concept formulation (where the input
is helpful in testing and refining perceptions about real user needs and fit with new concepts).
There is also significant involvement around project development, where involvement is con-
cerned with evaluating and responding to prototypes, suggesting detailed design improvements,
design for usability, etc.

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Chapter 6 Sources of Innovation 183

Sometimes, user-led innovation involves a com-

munity which creates and uses innovative solutions Case Study of Coloplast is available
on a continuing basis. Good examples of this include on the Innovation Portal at
the Apache server community around Web server www.innovation-portal.info
development applications, Mozilla (browser software),
Propellerhead and other music software communities
and the emergent group around Apple’s i-platform Video Clips of interviews with Michael
devices like the iPhone. Bartl discussing crowdsourcing and
Within some communities, users will freely share innovation contests and Catherina van
innovations with peers, termed free revealing. For Delden of Innosabi, which mobilizes
communities of innovators across
example, online communities for open source software,
a Facebook platform to co-create a
music hobbyists, sports equipment and professional range of products, are available on the
networks. Participation is driven mostly by intrinsic Innovation Portal at
motivations, such as the pleasure of being able to help www.innovation-portal.info
others or to improve or develop better products, but
also by peer-recognition and community-status. The ele-
ments valued are social ties and opportunities to learn Audio Clips of David Overton
new things rather than concrete awards or esteem. Such (Ordnance Survey) talking about
knowledge-sharing and innovation tends to be more opening up a geographic information
resource to co-create development
collective and collaborative than idea-competitions. ideas and David Simoes-Brown talking
Public sector applications of this idea are growing about 100% Open’s work bridging
as citizens act as user innovators for the services which different communities across this
they consume. Citizen sourcing is increasingly being ‘open innovation’ space are available
used; an example is the UK website fixmystreet.com in on the Innovation Portal at
www.innovation-portal.info
which citizens are able to report problems and suggest
solutions linked to the road network. The approach also
opens up significant options in the area of social innovation, for example, the crisis response
tool ‘Ushahidi’ emerged out of the Kenyan post-election unrest and involves using crowd-
sourcing to create and update rich maps which can help direct resources and avoid problem
Copyright © 2015. Wiley Textbooks. All rights reserved.

areas. It has subsequently been used in the Brisbane floods of 2011, several snow emergencies
in Washington and the aftermath of the 2011 tsunami in Japan.

INNOVATION IN ACTION 6.11

Collective User Innovation

An increasingly important element in the innovation equation is co-creation – using the ideas,
experience and insights of many people across a community to generate innovation. For example,
Encyclopaedia Britannica was founded in 1768 and currently has around 65 000 articles. Until
1999, it was available only in print version but, in response to a growing number of CD and online-
(continued)

based competitors (such as Microsoft’s Encarta), it now has an online version. Encarta was launched
in 1993 and offered many new additions to the Britannica model, through multimedia illustrations
carried on a CD/DVD; like Britannica it was available in a limited number of different languages.
By contrast, Wikipedia is a relative newcomer, launched in 2004 and available free on the
Internet. It has become the dominant player in terms of online searches for information and is cur-
rently the sixth-most-visited site in the world. Its business model is fundamentally different – it is
available free and is constructed through the shared contributions and updates offered by members
of the public.
A criticism of Wikipedia is that this model means that inaccuracies are likely to appear but
although the risk remains there are self-correcting systems in play, which mean that if it is wrong
it will be updated and corrected quickly. A study by the journal Nature in 2005 (15th December)
found it to be as accurate as Encyclopaedia Britannica, yet the latter employs around 4000 expert
reviewers and a rewrite (including corrections) takes around five years to complete.
Encarta closed at the end of 2009 but Encyclopaedia Britannica continues to compete in this
knowledge market. After three hundred years of an expert-driven model it moved, in January 2009,
to extend its model and invite users to edit content using a variant on the Wikipedia approach.
Shortly after that (February 2010), it dis-
Case Study of open collective covered an error in its coverage of a key
innovation is available on the event in Irish history which had gone un-
Innovation Portal at corrected in all its previous editions and
www.innovation-portal.info only emerged when users pointed it out!

Extreme Users
An important variant which picks up on both the lead user and the fringe needs concepts lies
in the idea of extreme environments as a source of innovation. The argument here is that the
users in the toughest environments may have needs which by definition are at the edge – so
Copyright © 2015. Wiley Textbooks. All rights reserved.

any innovative solution which meets those needs has possible applications back into the main-
stream. An example would be antilock braking systems (ABS) which are now a commonplace
feature of cars but began life as a special add-on for premium high-performance cars. The
origins of this innovation came from a more extreme case, though: the need to stop aircraft
safely under difficult conditions where traditional braking could lead to skidding or other loss
of control. ABS was developed for this extreme environment and then migrated across to the
(comparatively) easier world of automobiles.
Looking for extreme environments or users can be a powerful source of stretch in terms
of innovation, meeting challenges which can then provide new opportunity space. As Roy
Rothwell puts it in the title of a famous paper, ‘tough customers mean good designs’. For
example, stealth technology arose out of a very specific and extreme need for creating an
invisible aeroplane, essentially something which did not have a radar signature. It provided a
powerful pull for some radical innovation which challenged fundamental assumptions about
aircraft design, materials, power sources etc. and opened up a wide frontier for changes in
aerospace and related fields. The ‘bottom of the pyramid’ concept mentioned earlier also

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 185

offers some powerful extreme environments in which very different patterns of innovation
are emerging. And the crisis innovations emerging from sites of disasters via humanitarian
agencies offer another powerful set of examples.

Using the Crowd

Not everyone is an active user but the idea of the crowd as a source of different perspectives
is an important one. Sometimes people with very different ideas, perspectives or expertise
can contribute new directions to our sources of ideas, essentially amplifying. Using the wider
population has always been an idea but until recently it was difficult to organize their con-
tribution simply because of the logistics of information processing and communication. By
using the Internet, new horizons open up to extend the reach of involvement as well as the
richness of the contribution people can make.
In 2006, journalist Jeff Howe coined the term crowdsourcing in his book Crowdsourcing:
How the Power of the Crowd is Driving the Future of Business. Crowdsourcing is where an
organization makes an open call to a large network to provide some voluntary input or perform
some function. The core requirements are that the call is open, and that the network is suffi-
ciently large, the ‘crowd’. Crowdsourcing of this kind can be enabled via a number of routes – for
example innovation contests, innovation markets, innovation communities – which we discuss in
detail in Chapter 10. But it is worth commenting here that opening up to the crowd can amplify
not only the volume of ideas but also their diversity, and evidence is emerging that it is particu-
larly this feature which makes the crowd a useful additional source of innovation.

INNOVATION IN ACTION 6.12

Online Innovation Markets

Business School) studied the ways in which businesses are making use of the innovation market
platform Innocentive.com. The core model at Innocentive is to host ‘challenges’ put up by ‘seekers’
for ideas which ‘solvers’ offer. They examined 166 challenges and carried out a Web-based survey
of solvers and found that the model offered around a 30% solution rate – of particular value
to seekers looking to diversify the perspectives and approaches to solving their problems. The
approach was particularly relevant for problems that large and well-known R&D-intensive firms
had been unsuccessful in solving internally. Innocentive currently has around 200 000 solvers
and as a result considerable diversity; its study suggested that as the number of unique scientific
interests in the overall submitter population increased the higher the probability that a challenge
was successfully solved. In other words, diversity of potential scientific approaches to a problem
was a significant predictor of problem-solving success. Interestingly, the survey also found that
solvers were often bridging knowledge fields – taking solutions and approaches from one area
(their own specialty) and applying them to other different areas. This study offers systematic
evidence for the premise that innovation occurs at the boundary of disciplines.

Prototyping
We’ve emphasized the importance of understanding user needs as a key source of innovation.
But one challenge is that the new idea – whether knowledge push or need pull – may not be
perfectly formed. Innovations are made rather than born, and this means we need to think
about modifying, adapting and configuring the original idea. Feedback and learning early on
can help shape it to make sure it meets the needs of the widest group and has features which
people understand and value. For this reason, a core principle in sourcing innovation is to
work with potential users as early as possible. One way of doing this is to create a simple
prototype. It serves as a ‘boundary object’, something everyone can get around and give their
ideas, and in the process innovation becomes a shared project.

INNOVATION IN ACTION 6.13

Learning from Users at IDEO

IDEO is one of the most successful design consultancies in the world, based in Palo Alto,
California and London, UK, it helps large consumer and industrial companies worldwide design
and develop innovative new products and services. Behind its rather typical Californian wacki-
ness lies a tried-and-tested process for successful design and development:

1. Understand the market, client and technology.

2. Observe users and potential users in real-life situations.
3. Visualize new concepts and the customers who could use them, using prototyping, models
and simulations.
4. Evaluate and refine the prototypes in a series of quick iterations.
5. Implement the new concept for commercialization.
Copyright © 2015. Wiley Textbooks. All rights reserved.

The first critical step is achieved through close observation of potential users in context. As
Tom Kelly of IDEO argues, ‘We’re not big fans of focus groups. We don’t much care for traditional
market research either. We go to the source. Not the “experts” inside a (client) company, but the
actual people who use the product or something similar to what we’re hoping to create . . . we
believe you have to go beyond putting yourself in your customers’ shoes. Indeed, we believe it’s
not even enough to ask people what they think about a product or idea . . . customers may lack
the vocabulary or the palate to explain what’s wrong, and especially what’s missing.’
The next step is to develop prototypes to help evaluate and refine the ideas captured from
users. ‘An iterative approach to problems is one of the foundations of our culture of prototyping
. . . you can prototype just about anything – a new product or service, or a special promotion.
What counts is moving the ball forward, achieving some part of your goal.’

Source: Kelly, T. (2002) The Art of Innovation: Lessons in Creativity from IDEO, New York:
HarperCollinsBusiness.

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Chapter 6 Sources of Innovation 187

This approach is widely used by entrepreneurs trying to start new ventures. The ‘lean
start-up’ method, for example, argues that the process needs to be one of fast learning and
modifying of the original idea. By putting a ‘minimum viable product’ out into the market-
place it becomes possible to test and adapt the idea, and it may well be that there is a need
to ‘pivot’ around that idea to a new way of delivering it. This prototype doesn’t have to be
perfect but it provides a live experiment to help learn
about what things in the new venture need to change.
Tools to help you explore prototyping
Prototyping is widely used, for example beta testing
innovation are available on the
of software or pilot projects which are deliberately set Innovation Portal at
up to explore and learn rather than provide the finished www.innovation-portal.info
product or service.

Watching Others – and Learning from Them

Another important source of innovation comes from watching others: imitation is not only
the sincerest form of flattery but also a viable and successful strategy for sourcing innova-
tion. For example, reverse engineering of products and
processes and development of imitations – even around Tools which provide structured
impregnable patents – is a well-known route to find ways for learning of this kind, such
as competitiveness profiling and
ideas. Much of the rapid progress of Asian economies
benchmarking, are available on the
in the post-war years was based on a strategy of ‘copy Innovation Portal at
and develop’, taking Western ideas and improving on www.innovation-portal.info
them.
A powerful variation on this theme is the concept of benchmarking. In this process
enterprises make structured comparisons with others to try to identify new ways of carrying
out particular processes or to explore new product or service concepts. The learning trig-
Copyright © 2015. Wiley Textbooks. All rights reserved.

gered by benchmarking may arise from comparing between similar organizations (same firm,
same sector, etc.), or it may come from looking outside the sector but at similar products or
processes.
For example, Southwest Airlines became the most successful carrier in the USA by dra-
matically reducing the turnaround times at airports – an innovation which it learnt from
studying pit-stop techniques at Formula 1 Grand Prix events. Similarly, Karolinska Hospital
in Stockholm made significant improvements to its cost and time performance through study-
ing inventory management techniques in advanced fac-
tories.
Benchmarking of this kind is increasingly being Case Studies of organizations (like
used to drive change across the public sector, both via Karolinska Hospital) and sectors (like
the global automotive industry) which
league tables linked to performance metrics, which aim
have made use of benchmarking are
to encourage the fast transfer of good practice between available on the Innovation Portal at
schools or hospitals, and also via secondment, visits and www.innovation-portal.info
other mechanisms designed to facilitate learning from

other sectors managing similar process issues such as logistics and distribution. One of the
most successful applications of benchmarking has been in the development of the concept
of ‘lean thinking’, now widely applied to many public- and private-sector organizations. The
origins were in a detailed benchmarking study of car manufacturing plants during the 1980s
which identified significant performance differences and triggered a search for the underlying
process innovations driving the differences.

Recombinant Innovation
An assumption which we often make about innovation is that it always has to involve
something new to the world. The reality is that there is plenty of scope for crossover;
ideas and applications which are commonplace in one world may be perceived as new
and exciting in another. This is an important principle in sourcing innovation where
transferring or combining old ideas in new contexts – a process called ‘recombinant inno-
vation’ by US researcher Andrew Hargadon – can be a powerful resource.4 The Reebok
pump running shoe, for example, was a significant product innovation in the highly com-
petitive world of sports equipment – yet although this represented a breakthrough in that
field it drew on core ideas which were widely used in a different world. Design Works, the
agency which came up with the design, brought together a team which included people
with prior experience in fields like paramedic equipment (from which it took the idea
of an inflatable splint providing support and minimizing shock to bones) and operating
theatre equipment (from which it took the micro-bladder valve at the heart of the pump
mechanisms.
Many businesses – as Hargadon points out – are able to offer rich innovation pos-
sibilities primarily because they have deliberately recruited teams with diverse industrial
and professional backgrounds and thus bring very different perspectives to the problem in
Copyright © 2015. Wiley Textbooks. All rights reserved.

hand. His studies of the design company IDEO show the potential for such recombinant
innovation work.
Nor is this a new idea. Thomas Edison’s famous ‘Invention Factory’ in New Jersey
was founded in 1876 with the grand promise of ‘a minor invention every ten days and a
big thing every six months or so’. It was able to deliver on that promise not because of
the lone genius of Edison but rather from taking on board the recombinant lesson: Edison
hired scientists and engineers from all the emerging new industries of early-20th-century
America. In doing so, he brought experience in technologies and applications like mass
production and precision machining (gun industry), telegraphy and telecommunications,
food processing and canning, automobile manufac-
ture, etc. Some of the early innovations which built
Case Study of recombinant innovation
in the area of patient safety, DOME, is
the reputation of the business, for example the tele-
available on the Innovation Portal at printer for the New York Stock Exchange, were really
www.innovation-portal.info simple crossover applications of well-known innova-
tions in other sectors.

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Chapter 6 Sources of Innovation 189

Regulation
Photographs of many industrial towns of the UK taken in the early part of the 20th century
would not be much use in tracing landmarks or spotting key geographical features. The
images would reveal very little at all – not because the technology was limited but simply
because the subject was rendered largely invisible by the thick smog which regularly envel-
oped the area. Yet sixty years later the same images would show up crystal clear because of
the continuing effects of the Clean Air Act and other legislation. They provide a reminder
of another important source of innovation: the stimulus given by changes in the rules and
regulations which define the various ‘games’ for business and society. The Clean Air Act didn’t
specify how but only what had to change. Achieving the reduction in pollutants emitted to the
atmosphere involved extensive innovation in materials, processes and even in product design
made by the factories.
Regulation in this way provides a double-edged sword. It closes off avenues along which
innovation had been taking place but also opens up new ones along which change needs to
happen. One of the powerful drivers for moving into environmentally sustainable ‘clean’
technologies is the increasingly tough legislation in areas like carbon emissions and pollution.
And it works the other way – deregulation, the slackening-off of controls – may open up
new innovation space. The liberalization and then privatization of telecommunications in many
countries led to the rapid growth in competition and high rates of innovation, for example.
Given the pervasiveness of legal frameworks in
our lives we shouldn’t be surprised to see this source
Case Studies highlighting the role
of innovation. From the moment we get up and played by regulation in shaping
turn the radio on (regulation of broadcasting shap- the innovation agenda of companies
ing the range and availability of the programmes we like Volvo, Nokia Solutions and
listen to) to eating our breakfast (food and drink is Networks (NSN) and Lafarge are
available on the Innovation Portal at
highly regulated in terms of what can and can’t be
www.innovation-portal.info
included in ingredients, how foods are tested before being
Copyright © 2015. Wiley Textbooks. All rights reserved.

allowed for sale, etc.) to climbing into our cars and buck-
ling on our safety belt while switching on our hands-free
Video Clip of Fabian Schlage (NSN)
phones (both the result of safety legislation), the role of illustrating some of these themes is
regulation in shaping innovation can be seen. Chapter 4 available on the Innovation Portal at
showed how powerful a force regulation has become in www.innovation-portal.info
driving innovation around the sustainability agenda.
Regulation can also trigger counter innovation – solutions designed to get round exist-
ing rules or at least bend them to advantage. The rapid growth in speed cameras as a means
of enforcing safety legislation on roads throughout Europe has led to the healthy growth of
an industry providing products or services for detecting and avoiding cameras. And at the
limit, changes in the regulatory environment can create radical new space and opportunity.
Although Enron ended its days as a corporation in disgrace owing to financial impropriety, it
is worth asking how a small gas pipeline services company rose to become such a powerful
beast in the first place. The answer was its rapid and entrepreneurial take-up of the opportuni-
ties opened up by deregulation of markets for utilities like gas and electricity.

Futures and Forecasting

Another way we can identify innovation possibili-
Audio Clip of an interview with Helen
King, describing how the Irish Food ties is to imagine and explore into the future. What
Board uses futures to alert the industry might be the key trends, where might the threats and
to new challenges is available on the opportunities lie? For example, Shell has a long history
Innovation Portal at of exploring future options and driving innovations,
www.innovation-portal.info
most recently through its ‘GameChanger’ programme.
Various tools and techniques for forecasting and
imagining alternative futures have been developed to
Video Clip of of Shell’s GameChanger
help work with these rich sources of innovation and we
programme is available on the
Innovation Portal at look at them in detail in Chapter 7.
www.innovation-portal.info

Case Study of Philips Lighting showing how a large company makes use of futures is
available on the Innovation Portal at www.innovation-portal.info

Design-driven Innovation
One increasingly significant source of innovation is what researcher Roberto Verganti calls
‘design driven innovation’.5 Examples include many of the successful Apple products where
the user experience is one of surprise and pleasure at the look and feel, the intuitive beauty, of
the product. This emerges not as a result of analysis of user needs but rather through a design
process which seeks to give meaning to the shape and form of products – features and charac-
teristics which they didn’t know they wanted. But it is also not another version of knowledge
or technology push in which powerful new functions are installed – in many ways design-led
products are deceptively simple in their usability. Apple’s iPod was a comparative latecomer
to the mp3 player market yet it created the standard for the others to follow because of the
uniqueness of the look and feel – the design attributes. Its subsequent success with its iPad
and iPhone devices owes a great deal to the design ideas of Jonathan Ive, which brought a

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 191

philosophy to the whole product range and provided one of the key competitiveness factors
for the company.
As Verganti points out, people do not buy things only to meet their needs: there are
important psychological and cultural factors at work as well. In essence, we need to ask about
the meaning of products in people’s lives – and then develop ways of bringing this into the inno-
vation process. This is the role of design – to use tools
and skills to articulate and create meaning in products –
Audio Clip of Lynne Maher
and it has increasing implications in the world of services discussing patient-centred
as well. He suggests a map in which both knowledge/ healthcare is available on the
technology push and market pull can be positioned and Innovation Portal at
where design-driven innovation represents a third space www.innovation-portal.info
around creating radical new concepts which have mean-
ing in people’s lives (Figure 6.3).
Design features increasingly in the area of services Case Studies cardiac care (NHS RED)
and design methods and tools are being used to identify and hospital design (Open Door) are
available on the Innovation Portal at
and work with user needs in a variety of contexts. One www.innovation-portal.info
example is in the field of healthcare where inputs from
patients and carers are beginning to be seen as valuable
sources of innovation.
Related to the design idea is that of experience innovation, a concept first explored by
Joseph Pine.6 In an increasingly competitive world differentiation comes increasingly from
creating experience innovation, especially in services where fulfilling needs takes second place
to the meaning and psychological importance of the experience. For example, the restaurant
business moves from emphasis on food as an essential human need towards increasingly

Radical
change

Technology Design-driven

Market pull
(user centred)

Incremental
change
Incremental Radical
change change
Meaning

FIGURE 6.3 The role of design-driven innovation

Source: Verganti, R. (2009) Design-driven Innovation, Boston: Harvard Business School Press.

significant experience innovation around restaurants as

Case Study of a report on intelligent systems of consumption involving the product, its deliv-
design describing how design and
innovation are linked is available on
ery, the physical and cultural context, etc. Increasingly,
the Innovation Portal at service providers such as airlines, hotels or entertain-
www.innovation-portal.info ment businesses are differentiating themselves along
such experience innovation lines.

Video Clips of several examples of intelligent design are available on the Innovation
Portal at www.innovation-portal.info

Accidents
Accidents and unexpected events happen – and in the course of a carefully planned R&D
project they could be seen as annoying disruptions. But on occasions accidents can also trigger
innovation, opening up surprisingly new lines of attack. The famous example of Fleming’s
discovery of penicillin is but one of many stories in which mistakes and accidents turned out
to trigger important innovation directions. 3M’s Post-it notes began when a polymer chemist
mixed an experimental batch of what should have been a good adhesive but which turned
out to have rather weak properties – sticky but not very sticky. This failure in terms of the
original project provided the impetus for what has become a billion-dollar product platform
for the company.
In another example from the late 1980s, scientists working for Pfizer began testing
Copyright © 2015. Wiley Textbooks. All rights reserved.

what was then known as compound UK-92,480 for the treatment of angina. Although
promising in the lab and in animal tests, the compound showed little benefit in clinical tri-
als in humans. Despite these initial negative results, the team pursued what was an interest-
ing side effect which eventually led to UK-92,480 becoming the blockbuster drug Viagra.
The secret is not so much recognizing that such stimuli are available but rather in
creating the conditions under which they can be noticed and acted upon. As Pasteur is
reputed to have said, ‘Chance favours the prepared mind!’ Using mistakes as a source of
ideas only happens if the conditions exist to help it emerge. A study of Xerox highlighted
the fact that it developed many technologies in its laboratories in Palo Alto which did not
easily fit its image of itself as ‘the document company’. These included Ethernet (later suc-
cessfully commercialized by 3Com and others) and PostScript language (taken forward
by Adobe Systems). In fact, eleven of 35 rejected projects from Xerox’s labs were later
commercialized with the resulting businesses having a market capitalization of twice that
of Xerox itself.

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Chapter 6 Sources of Innovation 193

INNOVATION IN ACTION 6.14

Cleaning up by Accident
Audley Williamson is not a household name of the Thomas Edison variety but he was a suc-
cessful innovator whose UK business sold for £135 million in 2004. The core product which
he invented was called Swarfega and offered a widely used and dermatologically safe cleaner
for skin. It is a greenish gel which has achieved widespread use in households as a simple and
robust aid with the advertising slogan ‘Clean hands in a flash!’ But the original product was
not designed for this market at all – it was developed in 1941 as a mild detergent to wash silk
stockings. Unfortunately, the invention of Nylon and its rapid application in stockings meant
that the market quickly disappeared and he was forced to find an alternative. Watching workers
in a factory trying to clean their hands with an abrasive mixture of petrol, paraffin and sand
which left their hands cracked and sore led him to rethink the use of his gel as a safer alternative.

Source: The Independent, 28th February 2006, 7.

Chapter Summary
• Innovations don’t just appear perfectly formed – and the process is not simply a spark of
imagination giving rise to changing the world. Instead, innovations come from a number
of sources and these interact over time.
• Sources of innovation can be resolved into two broad classes – knowledge push and need
pull – although they almost always act in tandem. Innovation arises from their interplay.
• There are many variations on this theme, for example ‘need pull’ can include social
needs, market needs, latent needs, ‘squeaking wheels’, crisis needs, etc.
• While the basic forces pushing and pulling have been a feature of the innovation land-
scape for a long time, it involves a moving frontier in which new sources of push and
pull come into play. Examples include the emerging demand pull from the ‘bottom of the
pyramid’ and the opportunities opened up by an acceleration in knowledge production
in R&D systems around the world.
• User-led innovation has always been important but developments in communications
technology have enabled much higher levels of engagement – via crowdsourcing, user
communities, co-creation platforms, etc.
• Regulation is also an important element in shaping and directing innovative activity. By
restricting what can and can’t be done for legal reasons, new trajectories for change are
established which entrepreneurs can take advantage of.
• Design-driven approaches and the related toolkit around prototyping are of growing
importance.
• Accidents have always been a potential source of innovation – but converting them to
opportunities requires an open mind. As Pasteur is reputed to have said, ‘Chance favours
the prepared mind!’
Copyright © 2015. Wiley Textbooks. All rights reserved.

Key Terms Defined

Benchmarking systematic comparison of products, processes or services to identify areas
for innovation.
Citizen sourcing as crowdsourcing but particularly related to acquiring ideas for improving
public services.
Crowdsourcing acquiring ideas from a wide range of people as inputs to the innovation
process, usually across an internet-based platform.
Disruptive innovation innovation which occurs at the periphery of a mainstream market
and which has the potential to change the ‘rules of the game’ in terms of price, perform-
ance and other characteristics.

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Chapter 6 Sources of Innovation 195

Experience innovation innovation based on engaging customers through creating experi-

ences (rather than just products or services) which they value.
Free revealing in open innovation communities the practice of sharing ideas with others
without trying to protect intellectual property rights.
Lead users group of very early adopters of new ideas who are enthusiastic for changes and
who can be used as a test-bed for prototypes and early-stage concept development.
Mass customization providing a high degree of personalization to products or services with-
out incurring the traditional costs of tailoring to specific needs.

Discussion Questions
1. Where do innovations come from? Generate a list of as many categories of trigger as you
can think of, with examples for each one.
2. Push and pull – which is more important? This question has worried managers and policy-
makers for decades, and having an idea of the answer would help focus support for the
innovation process more effectively. Using examples try to show how each is important
under certain conditions but that it is their interplay which really shapes innovation.
3. Taking each of the ‘4Ps’ of innovation which we introduced in Chapter 1, try to identify
examples of ‘product’, ‘process’, ‘position’ and ‘paradigm’ innovation – and in each case
list the sources which gave rise to those innovations.
4. Julia Wilson is keen to use her skills in creating social enterprises. Where could she look
for sources of inspiration on which to focus her entrepreneurial enthusiasm?
Copyright © 2015. Wiley Textbooks. All rights reserved.

Management Association, 16–19.

2. Christensen, C. (1997) The Innovator’s Dilemma, Cambridge, MA: Harvard
Business School Press.
3. Von Hippel, E. (2005) The Democratization of Innovation, Cambridge, MA: MIT
Press.
4. Hargadon, A. (2003) How Breakthroughs Happen, Boston: Harvard Business
School Press.
5. Verganti, R. (2009) Design-driven Innovation, Boston: Harvard Business School
Press.
6. Pine, J. and J. Gilmore (1999) The Experience Economy, Boston: Harvard Business
School Press.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 6 Sources of Innovation 197

Deeper Dive explanations of innovation concepts

and ideas are available on the Innovation Portal
at www.innovation-portal.info

Quizzes to test yourself further are available online via the

Innovation Portal at www.innovation-portal.info

Summary of online resources for Chapter 6 –

all material is available via the Innovation Portal at
www.innovation-portal.info

Cases Media Tools Activities Deeper Dives

• 3M • Stephen • Kano method • Innovation family • Discontinuous

• Corning Johnson • Design methods tree innovation
• Imaging industry • Michael Bartl • Process • Harvesting know- • Disruptive
• Spirit • Emma Taylor mapping ledge crops innovation
• Dyson • Innocent Fruit • Prototyping • Classifying • Frugal
• Philips Lighting Juices innovation innovation innovation
• NHS RED • Redgate • Competitiveness • Outcome-oriented • Mass
Copyright © 2015. Wiley Textbooks. All rights reserved.

• Tesco Software profiling innovation tool customization

• Open Door • UK • Benchmarking • Open user
• Continuous Meteorological • Futures innovation
improvement Office • Search
• Process • Devon and strategies for
innovations in Cornwall Police peripheral vision
healthcare • Helle-Vibeke
• GE simple Carstensen
scanner • Clayton
• Aravind Eye Christensen
Clinics • Girish Prabhu
• NHL • Jane Chen
• Lifespring • Dr
Hospitals Venkataswamy

(continued)

Summary of online resources for Chapter 6 –

all material is available via the Innovation Portal at
www.innovation-portal.info

Cases Media Tools Activities Deeper Dives

• M-PESA • Suzana Moreira

• Living Labs • Ana Sena
• Crisis-driven • Model T Ford
innovation • Frank Piller
• Model T Ford • Chris Anderson
• Adidas • Eric von Hippel
• Lego • Tim Craft
• Threadless.com • Tad Golesworthy
• Yellowberry • Charles
• Opening up Leadbeater
healthcare • Michael Bartl
innovation • Catherina van
• Coloplast Delden
• Open Collective • David Overton
Innovation • David
• Karolinska Simoes-Brown
Hospital • Fabian Schlage
• DOME • Helen King
• Volvo • Shell’s
• NSN GameChanger
Copyright © 2015. Wiley Textbooks. All rights reserved.

• Lafarge programme
• Intelligent • Lynne Maher
design • Intelligent
design

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Chapter 7

Search Strategies
for Innovation

LEARNING OBJECTIVES
By the end of this chapter you will develop an understanding of:

• the need for a strategy to guide search for opportunities

• dimensions of search space – incremental/radical and old/new frame
• strategies for covering the space – exploit and explore
• tools and structures to support these strategies
• opening up and amplifying search capabilities through networks
• the role of entrepreneurship as a mindset underpinning search, whether in start-ups
or established organizations
Copyright © 2015. Wiley Textbooks. All rights reserved.

• the concept of absorptive capacity and building search capability.

Making Sense of the Sources

It’s clear from the last chapter that opportunities for innovation are not in short supply.
The key challenge for innovation management is how to spot the potential in a sea of
possibilities. It’s a difficult choice because it involves limited resources. No organization can
hope to cover all the bases, so there needs to be some underlying strategy to how the search
process is undertaken. And for a solo start-up entrepreneur there simply isn’t the ‘bandwidth’
to explore in so many directions at the same time. So how can we make sense of all the
sources out there?

What? Where? How?

Searching for
innovation
opportunities

Who? When?

FIGURE 7.1 The five-question framework

In this chapter we try to develop a simple framework based around five key questions:

• What? – the different kinds of opportunity being sought in terms of incremental or radical
change.
• When? – the different search needs at different stages of the innovation/enterprise.
• Where? – from local search aiming to exploit existing knowledge through to radical and
beyond into new frames.
• Who? – the different players involved in the search process, and in particular the growing
engagement of more people inside and outside the organization.
• How? – mechanisms for enabling search.

Figure 7.1 illustrates this framework.

Push or Pull Innovation?

Chapter 6 showed us that there are plenty of sources of innovation and we can begin to clas-
sify them within some simple dimensions. For example, we can see that they can all be looked
at as either a ‘push’ or a ‘pull’ stimulus for innovation. In fact, most sources of innovation
involve both push and pull components, for example ‘applied R&D’ involves directing the
push search in areas of particular need. Regulation both pushes in key directions and pulls
innovations through in response to changed conditions. User-led innovation may be triggered
by user needs but it often involves their creating new solutions to old problems, essentially
pushing the frontier of possibility in new directions.
These two forces don’t work in isolation but in conjunction; as Chris Freeman says,
‘necessity may be the mother of invention but procreation needs a partner’!1 For example, the
role of needs in innovation is often to translate or select from the range of knowledge push
possibilities the variant which becomes the dominant strain. The iPod wasn’t the first mp3

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Chapter 7 Search Strategies for Innovation 201

player but it represented the intersection between technological possibility and user needs.
Henry Ford’s Model T wasn’t the first motor car but once again it represented the balance
between knowledge push and market needs.
There is a risk in focusing on either of the ‘pure’ forms of push or pull sources. If we put
all our eggs in one basket we risk being excellent at invention but without turning our ideas
into successful innovations – a fate shared by too many would-be entrepreneurs. But equally
too close an ear to the market may limit us in our search. As Henry Ford is reputed to have
said, ‘If I had asked the market they would have said they wanted faster horses!’ The limits of
even the best market research lie in the fact that they represent sophisticated ways of asking
people’s reactions to something which is already there, rather than allowing for something
completely outside their experience so far.

Incremental/Radical?
As we saw in Chapter 1, innovation can happen along a spectrum of incremental to radical –
from ‘do what we do but better’ to ‘do different’. Table 7.1 gives some examples to remind
us of this distinction.

TABLE 7.1 ‘Do better’ and ‘do different’ innovation

Incremental (do what
Innovation type we do but better) Radical (do something different)
‘Product’ – what Windows Vista replacing XP – New to the world software (e.g. the
we offer the essentially improving on existing first speech-recognition program)
world software idea
VW EOS replacing the Golf – Toyota Prius (bringing a new
essentially improving on concept: hybrid engines)
established car design LED-based lighting, using
Copyright © 2015. Wiley Textbooks. All rights reserved.

Improved performance completely different and more

incandescent light bulbs energy-efficient principles
Process – how Improved fixed-line telephone Skype and other VOIP systems
we create and services Online share trading
deliver that Extended range of stockbroking eBay
offering services
Toyota Production System and
Improved auction house other ‘lean’ approaches
operations
Mobile banking in Kenya and the
Improved factory operations Philippines (using phones as an
efficiency through upgraded alternative to banking systems)
equipment
Improved range of banking ser-
vices delivered at branch banks
(continued)

TABLE 7.1 (Continued)

Incremental (do what
Innovation type we do but better) Radical (do something different)
Position – where Häagen Dazs changing the target Addressing underserved markets
we target that market for ice cream from children (e.g. Tata Nano targets huge but
offering and the to consenting adults relatively poor Indian market using
story we tell Low-cost airlines the low-cost airline model)
about it ‘Bottom of the pyramid’
University of Phoenix and others,
building large education busi- approaches using a similar principle
nesses via online approaches to (e.g. Aravind Eye Clinics, Cemex
reach different markets construction products)
Dell and others segment- One laptop per child project – the
ing and customizing computer $100 universal computer
configuration for individual users Microfinance (Grameen Bank
Banking services targeted at key opening up credit for the very poor)
segments (e.g. students, retired
people)
Paradigm – how Bausch & Lomb moving from ‘eye iTunes platform – a complete
we frame what wear’ to ‘eye care’ as its business system of personalized
we do model, effectively letting go of the entertainment
old business of spectacles, sun- Rolls-Royce – from high-quality
glasses and contact lenses and aero engines to becoming a
moving to newer high-tech fields service company offering ‘power
like laser surgery, specialist optical by the hour’
devices and research into artificial
Cirque du Soleil – redefining the
eyesight
circus experience
IBM moving from being a machine
maker to a service and solution
Copyright © 2015. Wiley Textbooks. All rights reserved.

company, selling off its computer

making and building up its consul-
tancy and service side
VT moving from being a
shipbuilder with roots in Victorian
England to a service and facilities
management business

For all but the smallest start-up, we will be looking to balance a portfolio of ideas – most
of them ‘do better’ incremental improvements on what has gone before but with a few which
are more radical and may even be ‘new to the world’. The big advantage of innovation of this
kind is that there is a degree of familiarity, that is the risk is lower because we are moving

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Chapter 7 Search Strategies for Innovation 203

along a well-trodden path. The benefits from doing so may be small in themselves but their
effect is cumulative. And the ways in which we can search for such opportunities – tools and
directions – are essentially well established and systematic.
By contrast, taking a leap forward could bring big gains – but also carries higher risk.
Since we are moving into unknown territory there will be a need to experiment – and a
good chance that much of that experimentation will
fail. We won’t be clear about the directions in which Activity to help you use the 4Ps
we want to go and so there is a real risk of going approach to explore opportunities in
incremental and radical innovation is
up blind alleys or being trapped in one-way systems. available on the Innovation Portal at
Essentially, the kind of searching we do, and the tools www.innovation-portal.info
we use, will be different.

Exploit or Explore?
One way we can innovate is by moving forward from what we already know. Individuals
and organizations can deploy knowledge resources and other assets to secure returns, and
a ‘safe’ way of doing so is to harvest a steady flow of benefits derived from ‘doing what we
do better’. This has been termed ‘exploitation’ by innovation researchers, and it essentially
involves using what we already know as the foundation for further incremental innovation.
It builds strongly on what is already well established, but in the process leads to a high degree
of what is called ‘path dependency’. Essentially, what we did in the past will play a strong role
in shaping what we do next.
The trouble is that in an uncertain environment the potential to secure and defend a
competitive position depends on ‘doing something different’, i.e. radical product or process
innovation rather than imitations and variants of what others are also offering. This kind of
search had been termed ‘exploration’ and is the kind which involves big leaps into new know-
ledge territory – risky but they enable the organization to do new and very different things.
Figure 7.2 illustrates this
Copyright © 2015. Wiley Textbooks. All rights reserved.

Unknown

Explore

Market

Exploit
Familiar

Familiar Unknown
Technology

FIGURE 7.2 Exploit and explore options in search

When?
A key issue is around timing. At different stages in the product or industry lifecycle the emphasis
may be more or less on push or pull. For example, mature industries will tend to focus on pull,
responding to different market needs and differentiating by incremental innovation in key direc-
tions of user need. By contrast a new industry, for example the emergent industries based on genet-
ics or nano materials technology, is often about solutions looking for a problem. So we would
expect a different balance of resources committed to push or pull within these different stages.
This kind of thinking is reflected in models of the ‘innovation lifecycle’ which see inno-
vation as moving through different stages. Back in the 1970s two US researchers (William
Abernathy and James Utterback) developed a model which has three different phases with
important lessons for how we think about managing innovation.2 In the early stage – the
‘fluid’ phase – there is a lot of uncertainty, and emphasis is placed on product innovation.
Typically, entrepreneurs have lots of ideas (most of which fail) about the ways to use new
market and technological opportunities. (Think about the rise of the Internet and the continu-
ing proliferation of entrepreneurial ideas as an example of a fluid phase.)
But after a while there is a stabilization around a particular configuration – the ‘dominant
design’ (which may not always be the best in technical terms but is the one that matches the
market’s needs and aspirations) – and then emphasis shifts away from more product variety
to process innovation. How can we make this in volume, to a low price, consistent quality,
etc.? (Think of Henry Ford; he was a latecomer to the business of car design but his Model
T became the dominant design and succeeded principally because of the extensive process
innovations around mass production.)
Finally, there is a third, ‘mature’ phase in which innovation is incremental in both product
and process, there is extensive competition and the scene is set for another breakthrough and
return to the fluid stage. What this model means is that
Case Study of these patterns of we could particularly look for radical product innova-
innovation associated with the tion ideas in the fluid phase but in the mature stage we
evolution of the bicycle is available
Copyright © 2015. Wiley Textbooks. All rights reserved.

would be better placed concentrating on incremental

on the Innovation Portal at
www.innovation-portal.info
improvement innovations.
Figure 7.3 illustrates the basic model.

Adoption and Diffusion

A related issue is around diffusion: the adoption and elaboration of innovation over time.
Innovation adoption takes place gradually over time, following some version of an S-curve. In
the early stages innovative users with high tolerance for failure will explore to be followed by
early adopters. This gives way to the majority following
Activity to help you explore sources their lead until finally the remnant of a potential adopting
of innovation and the role of these population – the laggards – adopt or remain stubbornly
models of adoption and diffusion is
resistant. Understanding diffusion processes and the influ-
available on the Innovation Portal at
www.innovation-portal.info ential factors is important because it helps us understand
where and when different kinds of triggers are picked up.

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Chapter 7 Search Strategies for Innovation 205

Product innovation

Emphasis of innovation
Process innovation

Stage 1 – Fluid Stage 2 – Transitional Stage 3 – Specific

• Exploration • Dominant design • Standardization
• Uncertainty • Integration
• Flexibility

FIGURE 7.3 The innovation lifecycle

Source: Abernathy, W. and J. Utterback (1975) A dynamic model of product and process innovation, Omega,
3(6): 639–56.

Lead users and early adopters are likely to be important sources of ideas and variations which
can help shape an innovation in its early life, whereas the early and late majority will be more a
source of incremental improvement ideas.3 (We explore this in detail in Chapter 11.)

Where? The Innovation Treasure Hunt

tion’ and ‘paradigm’– and comes in incremental or radical flavours. So it would help to have
a map of the innovation search space before we start out on our journey. We’ll build it with
two axes:

• incremental/radical innovation
• existing frame/new frame

and then look at how we can prepare to explore this space effectively. We discussed incre-
mental/radical innovation earlier; the other axis is linked to how we frame the space in which
we look.

Established Frame/New Frame

Just as human beings need to develop mental models to simplify the confusion which the
rich stimuli in their environment offer them, so individual entrepreneurs and established

organizations make use of simplifying frames. They ‘look’ at the environment and take note
of elements which they consider relevant – threats to watch out for, opportunities to take
advantage of, competitors and collaborators, etc. Constructing such frames helps give the
organization some stability but it also defines the space within which it will search for inno-
vation possibility.
In practice, these models often converge around a core theme, and although organizations
may differ, they often share common models about how their world behaves. So most firms
in a particular sector will adopt similar ways of framing: assuming certain ‘rules of the game’,
following certain trajectories in common. And this shapes where and how they tend to search
for opportunities. It emerges over time but once established becomes the ‘box’ within which
further innovation takes place.
It’s difficult to think and work outside this box because it is reinforced by the structures,
processes and tools which the organization uses in its day-to-day work. The problem is also
that such ways of working are linked to a complex web of other players in the organization’s
‘value network’ – its key competitors, customers and suppliers – who reinforce the dominant
way of seeing the world.

INNOVATION IN ACTION 7.1

Technological Excellence May Not Be Enough…

In the 1970s, Xerox was the dominant player in photocopiers, having built the industry from
its early days when it was founded on the radical technology pioneered by Chester Carlsen and
the Battelle Institute. But despite its prowess in the core technologies and continuing investment
in maintaining an edge, it found itself seriously threatened by a new generation of small copiers
developed by new-entrant Japanese players. Despite the fact that Xerox had enormous experi-
ence in the industry and a deep understanding of the core technology, it took the company almost
eight years of mishaps and false starts to introduce a competitive product. In that time Xerox lost
Copyright © 2015. Wiley Textbooks. All rights reserved.

around half its market share and suffered severe financial problems.
In similar fashion in the 1950s the electronics giant RCA developed a prototype portable
transistor-based radio using technologies which it had come to understand well. However, it
saw little reason to promote such an apparently inferior technology and continued to develop
and build its high range devices. By contrast, Sony used it to gain access to the consumer market
and to build a generation of portable consumer devices – and in the process acquired consider-
able technological experience, which enabled the company to enter and compete successfully in
higher-value and more complex markets.

Powerful though they are, such frames are only models of how individuals and organi-
zations think the world works. It is possible to see things differently, take into account new
elements, pay attention to different things and come up with alternative solutions. This is, of
course, exactly what entrepreneurs do when they try to find opportunities: they look at the
world differently and see opportunity in a different way of framing things. And sometimes

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Chapter 7 Search Strategies for Innovation 207

their new way of looking at things becomes a widely accepted one – and their innovation
changes the game.
Rather like the drunk who has lost his keys on the way home and is desperately searching
for them under the nearest lamp post ‘because there is more light there’, firms have a natural
tendency to search in spaces which they already know and understand. But we know that
the weak early-warning signals of the emergence of totally new possibilities – radically dif-
ferent technologies, new markets with radically different needs, changing public opinion or
political context – won’t happen under our particular lamp post. Instead, they are out there in
the darkness, and so we have to find new ways of searching in space we aren’t familiar with.
How can this be done? By luck, sometimes – except that simply being in the right place
at the right time doesn’t always help. History suggests that even when the new possibility
is presented to the firm on a plate its internal capacity to see and act on the possibilities is
often lacking. For example, the famous ‘not invented here’ effect has been observed on many
occasions where an otherwise well-established and successful innovative firm rejects a new
opportunity which turns out to be of major significance.

A Map of Innovation Search Space

Putting these together gives us the map in Figure 7.4.
Zone 1 corresponds to the exploit area we looked at earlier where we are working in
familiar territory and looking to exploit the knowledge base which we already have. Zone 2
is about exploring but within the context of our existing frame, pushing the frontiers but in
directions we are familiar with. Zone 3 brings in new elements and combinations and requires
a different and more open approach to search. And zone 4 is where the different elements
interact with each other to make a complex system which is extremely difficult to explore in
systematic fashion. We look at the particular challenges of searching these zones in the next
section.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Radical
Zone 2 – organizational Zone 4 –
transformation co-evolve
Innovation

Zone 1 – operational Zone 3 –

optimization reframe

Incremental

Old frame New frame

FIGURE 7.4 A map of innovation search space

How?
So how do we start covering this enormous space look-
Case Studies of Tesco and Cerulean
ing for innovation opportunities? More importantly,
giving us clues about the actual
approaches organizations take, and what patterns of behaviour – routines – work to help
the combinations of tools they employ, us do it and repeat the trick? We may get lucky once but
are available on the Innovation Portal being able to find a steady stream of opportunities is the
at www.innovation-portal.info name of the game.

INNOVATION IN ACTION 7.2

How We Search for Innovation

We look in the usual places for our industry. We look at our customers. We look at our suppli-
ers. We go to trade bodies. We go to trade fairs. We present technical papers. We have an input
coming from our customers. What we also try to do is develop inputs from other areas. We’ve
done that in a number of ways. Where we’re recruiting, we try to bring in people who can
bring a different perspective. We don’t necessarily want people who’ve worked in the type of
instruments we have in the same industry … certainly in the past we’ve brought in people who
bring a completely different perspective, almost like introducing greensand into the oyster. We
deliberately look outside. We will look in other areas. We will look in areas that are perhaps
different technology. We will look in areas
that are adjacent to what we do, where
we haven’t normally looked. And we also
Video Clip of an interview with do encourage the employees themselves
Patrick McLaughlin is available
to come forward with ideas.
on the Innovation Portal at
Copyright © 2015. Wiley Textbooks. All rights reserved.

www.innovation-portal.info Source: Patrick McLaughlin, Managing

Director, Cerulean.

Let’s look again at the search space illustrated in Figure 7.4 and think about how we
could we go about covering it. Of course, in reality the lines between these ‘zones’ are not
clear-cut, but the idea behind the map is that we are likely to experience very different chal-
lenges in each area.

Search Strategies for Zone 1: ‘Exploit’

Zone 1 is all about exploit search, assuming a stable and shared frame within which adaptive
and incremental development takes place. Search ‘routines’ here are associated with refin-
ing tools and methods for technological and market research, deepening relationships with
established key players. Examples would be working with key suppliers, getting closer to

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Chapter 7 Search Strategies for Innovation 209

customers and building key strategic alliances to help

deliver established innovations more efficiently. Process Video Clip looking at how Veeder-
Root approaches the challenge of
innovation is enabled by inviting suggestions for incre- continuous process innovation is
mental improvement across the organization, a high- available on the Innovation Portal at
involvement kaizen model. www.innovation-portal.info
Understanding buyer/adopter behaviour has
become a key theme in marketing studies, since it pro-
vides us with frameworks and tools for identifying Case Studies illustrating how
and understanding user needs. Advertising and brand- different organizations (Kumba
Resources, NPI and Tesco) manage
ing play a key role in this process – essentially using this ‘exploit’ search task are
psychology to tune into, or even stimulate and create, available on the Innovation Portal at
basic human needs. Another strand has focused on www.innovation-portal.info
detailed studies of what people actually do and how
they actually use products and services, using the same
approaches which anthropologists use to study strange Tools in the market research toolkit
new tribes to uncover hidden and latent needs. and continuous improvement
toolkit highlighting ways of carrying
out this kind of search are available
Search Strategies for Zone 2: ‘Explore’ on the Innovation Portal at
www.innovation-portal.info
Zone 2 involves search into new territory, pushing the
frontiers of what is known and deploying different
search techniques for doing so, but still doing so within an established framework. R&D
search investments here tend to include big projects with high strategic potential, patenting
and intellectual property (IP) strategies aimed at marking out and defending territory, and rid-
ing key technological trajectories (such as Moore’s Law in semiconductors). Market research
similarly aims to get close to customers but to push the frontiers via empathic design, latent
needs analysis, etc. Although the activity is risky and exploratory, it is still governed strongly
by the frame for the sector.
Explore search strategies are much more about specialist groups and networks inside and
Copyright © 2015. Wiley Textbooks. All rights reserved.

outside the organization, for example with university, public and commercial laboratories
and other firms. The highly specialized nature of the work makes it difficult for others in
the organization to participate – and indeed this gap between worlds can often lead to ten-
sions between the ‘operating’ and the ‘exploring’ units,
and the boardroom battles between these two camps Case Studies of describing formal
for resources are often tense. In similar fashion, market R&D and major market research
research is highly specialized and may include external approaches, Philips Lighting and
professional agencies in its network with the task of Tesco, are available on the Innovation
Portal at www.innovation-portal.info
providing sophisticated business intelligence around a
focused frontier.
From the standpoint of the entrepreneur, this zone
Tool to help you explore this area,
is interesting since there may be significant opportuni-
the ADL matrix, is available
ties. Individuals and start-up businesses with highly spe- on the Innovation Portal at
cialized knowledge assets, for example hi-tech spin-outs www.innovation-portal.info
from universities, may feature strongly on the radar

screens of large established organizations looking to explore. This pattern of ‘symbiosis’ –

mutual dependency and advantage for new and established players – is a common one in fields
like pharmaceuticals, electronics, software and biotechnology. (The case study of Chiroscience
which we explore in Chapter 12 is a good example of this.)

Search Strategies for Zone 3: ‘Reframing’

Zone 3 is essentially associated with reframing. It involves searching a space where alternative
architectures are generated, exploring different permutations and combinations of elements
in the environment. Importantly this often happens by working with elements in the environ-
ment not embraced by established business models, for example working with fringe markets,
looking at the ‘bottom of the pyramid’ or collaborating with ‘extreme users’.

INNOVATION IN ACTION 7.3

Changing Directions
Sometimes an organization needs to change its perspective in radical fashion – to reframe what
it does in order to survive and compete under very different conditions. (This corresponds to
radical ‘paradigm’ innovation of the kind which we saw in Chapter 1.) Fujifilm is a Japanese
company which has been a key player in the world of photography and imaging (printers,
scanners, cameras, etc.). But in recent years it has been extending its sphere of activity through
some radical reframing – using the fact that it has a deep knowledge base underpinning its
established business based on particles coated on surfaces. As Stefan Kohn explains in the case
on the Innovation Portal, they have begun to play a major role in the world of skin care and in
the process of reframing have opened up
considerable new innovation space.
Copyright © 2015. Wiley Textbooks. All rights reserved.

Case Studies of Fujifilm

In similar fashion Kodak is now
and Kodak are available on trying to resurrect a business through
the Innovation Portal at deploying its knowledge base around
www.innovation-portal.info coating surfaces to enter the printing
industry with radically new technologies.

This zone often favours entrepreneurs on the outside of established organizations because
they can see ways of putting the pieces together differently. Importantly, this may not involve
pushing the technological frontiers with radical innovation in the core offering or process – it
is often about change in the ways the architecture works.
Table 7.2 describes some of the additional approaches which organizations use to try to
extend their peripheral vision and find new innovation opportunities.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 7 Search Strategies for Innovation 211

TABLE 7.2 Developing new ways of searching

Search strategy Mode of operation
Sending out scouts Dispatch idea hunters to track down new innovation triggers
Exploring multiple Use futures techniques to explore alternative possible futures, and
futures develop innovation options from that
Using the Web Through online communities, and virtual worlds, for example to
detect new trends
Working with active Team up with product and service users to see the ways in which
users they change and develop existing offerings
Deep diving Study what people actually do, rather than what they say they do.
‘Ethnographic’ tools are a key resource in the designer’s toolbox to
uncover hidden needs
Probe and learn Use prototyping as a mechanism to explore emergent phenomena
and act as boundary object to bring key stakeholders into the
innovation process
Mobilize the Bring mainstream actors into the product and service development
mainstream process
Corporate venturing Create and deploy venture units
Corporate Stimulate and nurture the entrepreneurial talent inside the
entrepreneurship and organization
intrapreneuring
Use brokers and Cast the ideas net far and wide and connect with other industries
bridges
Deliberate diversity Create diverse teams and a diverse workforce
Copyright © 2015. Wiley Textbooks. All rights reserved.

Idea generators Use creativity tools

Case Study of the full report, Twelve search strategies that may
help to save your organisation, is available on the Innovation Portal at
www.innovation-portal.info

Tool to uncover hidden user needs, the Kano method, is available on the
Innovation Portal at www.innovation-portal.info

INNOVATION IN ACTION 7.4

Scouting for Ideas

The mobile phone company O2 has a trend-scouting group of about 10 scouts who interpret
externally identified trends into their specific business context, while BT has a scouting unit
in Silicon Valley which assesses some 3000 technology opportunities a year in California. The
four-man operation was established in 1999 to make venture investments in promising telecom
start-ups, but after the dotcom bubble burst it shifted its mission towards identifying partners
and technologies that BT was interested
in. The small team looks at more than
Tool to help you find opportunities 1000 companies per year and then, based
for breakthrough innovation, on their deep knowledge of the issues fac-
lead user methods, is available on
ing the R&D operations back in England,
the Innovation Portal at
www.innovation-portal.info team members target the small number
of cases where there is a direct match
between BT’s needs and the Silicon Valley
company’s technology. While the number
Video Clips of Eric von Hippel of successful partnerships that result from
(of 3M)’s experience with
this activity is small – typically four or
these tools are available on
the Innovation Portal at five per year – the unit serves an invalua-
www.innovation-portal.info ble role in keeping BT abreast of the latest
developments in its technology domain.

INNOVATION IN ACTION 7.5

Using Innovation Markets

Karim Lakhani (Harvard Business School) and Lars Bo Jepessen (Copenhagen Business School)
studied the ways in which businesses are making use of the innovation market platform
Innocentive.com. The core model at Innocentive is to host ‘challenges’ put up by ‘seekers’ for
ideas which ‘solvers’ offer. They examined 166 challenges and carried out a Web-based survey
of solvers and found that the model offered around a 30% solution rate – of particular value
to seekers looking to diversify the perspectives and approaches to solving their problems. The
approach was particularly relevant for problems that large and well-known R&D-intensive firms
had been unsuccessful in solving internally. Innocentive currently has around 200 000 solvers and
as a result considerable diversity. Lakhani and Jepessen’s study suggested that as the number of
unique scientific interests in the overall submitter population increased so too would the prob-
ability that a challenge was successfully solved. In other words, diversity of potential scientific

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 7 Search Strategies for Innovation 213

approaches to a problem was a significant predictor of problem-solving success. Interestingly, the sur-
vey also found that solvers were often bridging knowledge fields – taking solutions and approaches
from one area (their own specialty) and applying them to other different areas. This study offers
systematic evidence for the premise that innovation occurs at the boundary of disciplines.

Search Strategies for Zone 4: ‘Co-evolution’

Zone 4 represents the kind of complex environment where innovation emerges as a product
of a process of co-evolution. In this space many different elements are involved and each
affects the other so that it becomes impossible to predict the outcome. Think about the emerg-
ing future for healthcare. It’s unlikely that the current models (whether publicly or privately
funded) will survive long into the future because of the pressures of greater demand, ageing
population, spending cuts etc. But any new model is going to be hard to predict because so
many factors are involved: technology, markets, global distribution, public/private sector split,
increasing lobbying by different interest groups, etc. Instead, we should see it as a complex
system in which there is extensive interaction and where what happens in one part of the
system will affect the others.
Under conditions like these it would be easy to assume there was nothing we could do
and, more importantly for our entrepreneurs, nowhere they could find opportunities except
by accident or by waiting until the new game had fully emerged. But we do know something
about these situations: there is a body of knowledge around ‘complexity theory’ which special-
izes in them. And there are some simple principles which can help us work in innovation space
of this kind. In particular, there is a pattern of what is called co-evolution in which different
interacting elements begin to converge on a particular solution. (An example in nature is the
way ice crystals can form into the particular and organized pattern of a snowflake.)
As this pattern begins to emerge, it can be amplified through feedback, making the signal
about the pattern clearer than all the other competing background signals. And gradually
Copyright © 2015. Wiley Textbooks. All rights reserved.

the system acquires momentum to move in a particular direction – and a dominant pattern
emerges. We see this a lot in what is sometimes called the ‘fluid phase’ in the innovation life-
cycle, when new combinations of technologies and markets swirl around and entrepreneurs
try out many different ideas. Eventually, out of the turbulent and unpredictable set of possi-
bilities, a dominant design emerges which sets the pattern for future innovation – think about
the motor car or the bicycle as simple examples.
So for entrepreneurs to work in this complex space there are some simple rules:

• Be in the game early: the signals about the emergence of the dominant design will be weak
at first and hard to spot from the outside.
• Be in there actively and prepared to experiment: there is no right answer but a lot of play-
ing with possibilities.
• Be prepared for failure: essentially working in zone 4 is about probing and learning, mostly
about what won’t work.
• Be aware of others in the system, picking up weak signals and amplifying what seems to work.

An Overview of Search Strategies

To summarize, Table 7.3 shows the different approaches – search strategies – which can be
used to explore innovation space.

TABLE 7.3 Challenges in navigating innovation search space

Zone Search challenges
1. ‘Business as usual’: Exploit: extend in incremental fashion boundaries of technol-
innovation but under ogy and market. Refine and improve. Build close links/strong
‘steady state’ condi- ties with key players.
tions, little disturbance Favours established organizations with resources: start-
around core business up entrepreneurs are looking to spot niches within the
model mainstream
2. ‘Business model as Exploration: pushing frontiers of technology and market
usual’: bounded explo- via advanced techniques. Build close links with key strate-
ration within this frame gic knowledge sources, inside and especially outside the
organization.
Entrepreneurs with key knowledge assets (e.g. spin-off
ventures from a university research lab) can benefit from this
search process and link their ideas with the resources which
a major organization can bring
3. Alternative frame: taking Reframing: explore alternative options, introduce new ele-
in new/different elements. Experimentation and open-ended search
ments in environment Breadth and periphery important. Entrepreneurs have a
Variety matching, alter- significant advantage here since they can bring fresh thinking
Copyright © 2015. Wiley Textbooks. All rights reserved.

native architectures and perspectives to an established game.

Mainstream organizations often seek to explore here through
setting up internal entrepreneurial groups (e.g. corporate
venturing, ‘intrapreneurs’)
4. Radical ‘new to the Emergence: need to co-evolve with stakeholders
world’ possibilities • Be in there.
New architecture • Be in there early.
around as yet unknown • Be in there actively.
and established Entrepreneurs have advantages here since this resembles the
elements ‘fluid’ state in the innovation lifecycle and requires flexibility
in thinking, tolerance for failure, willingness to take risks, etc.
Big problem is the high rate of failure here which established
organizations have some capacity to absorb but which is an
issue for start-up entrepreneurs

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Chapter 7 Search Strategies for Innovation 215

Who?
A key question still to answer is who will do all of this search activity. And it’s not simply a
matter of sending out people to scout for new possibilities: we also have to think about bring-
ing those ideas back into the organization and doing something with them. In this section, we
look briefly at the key people involved and some of the ways in which they can be organized
to support effective search.
In particular, it makes sense to understand how new knowledge is found or created
and moved around our organization and in its wider environment. This idea of ‘knowledge
management’ has been studied for many years and there are some useful pointers emerging
around helpful strategies. (We look in more detail at this question in Chapter 15.)
Table 7.4 gives some examples of knowledge management.

TABLE 7.4 Examples of knowledge management

Who and how Examples
Use specialists A number of organizations have specialists working in the area of
in R&D, market futures and forecasting. On the Portal Helen King describes how the
research, futures, Irish Food Board uses futures to alert the industry to new challenges,
etc. and there is also a video of Shell’s GameChanger programme
Use scouts and See Innovation in Action 7.4’s discussion of scouts
venturers
Mobilize the Mobilizing employee ideas and knowledge around incremental
mainstream product and especially process innovation. This has always been a
powerful source of innovation but has been given additional impetus
through communication and networking technologies which allow for
innovation contests, ‘innovation jams’ and other approaches bringing
Copyright © 2015. Wiley Textbooks. All rights reserved.

more people into the game4

Video Clips of interviews with organizations which have been working

to mobilize workplace innovation are available on the Innovation
Portal at www.innovation-portal.info

Case Studies of organizations (Kumba Resources, Veeder-Root,

NPI, Forte’s Bakery, Hosiden) which mobilize workplace innovation
are available on the Innovation Portal at www.innovation-portal.info

(continued)

TABLE 7.4 (Continued)

Who and how Examples
Voice of the Bringing the ‘voice of the customer’ into all areas of the organization
customer and using that to focus and draw out relevant ideas and knowledge.
Amongst recipes for achieving this are to rotate staff so they spend
some time out working with and listening to customers, and the intro-
duction of the concept that ‘everybody is someone’s customer’

Tool for enabling this approach, quality function deployment (QFD), is available
on the Innovation Portal at www.innovation-portal.info

Activity to help you explore QFD at Lexus is available on the Innovation Portal at
www.innovation-portal.info

Social networking Using our understanding of social networks and how ideas flow within
and across organizations. Of particular significance in this context is
the role played by various forms of gatekeeper in the organization.
This concept, which goes back to the pioneering work of Thomas
Allen in his studies within the aerospace industry of the 1970s, relates
to a model of communication in which ideas flow via key individuals
to those who can make use of them in developing innovation5
Copyright © 2015. Wiley Textbooks. All rights reserved.

Case Study of Pixar, which uses some of these approaches, is available on the
Innovation Portal at www.innovation-portal.info

Communities of Using communities of practice e.g. Procter and Gamble’s successes

practice with ‘connect and develop’ owe much to their mobilizing rich linkages
between people who know things within their giant global operations
and increasingly outside it. They use ‘communities of practice’ where
people with different knowledge sets can converge around core
themes. Intranet technology links around 10 000 people in an internal
‘ideas market’ – and some of their significant successes have come
from making better internal connections. 3M put much of its success
down to making and managing connections, and Larry Wendling, Vice
President for Corporate Research, called the rich formal and informal

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Chapter 7 Search Strategies for Innovation 217

TABLE 7.4 (Continued)

Who and how Examples
networking which links the thousands of R&D and market-facing peo-
ple across the organization the company’s ‘secret weapon’!

Case Studies of 3M and Procter and Gamble, who use these ideas,
are available on the Innovation Portal at www.innovation-portal.info

Intrapreneurship Intrapreneurship: mobilizing internal entrepreneurship. A rich source

lies in the entrepreneurial ideas of employees: projects which are not
formally sanctioned by the business but which build on the energy,
enthusiasm and inspiration of people passionate enough to want to
try out new ideas. Encouraging this kind of activity is increasingly
popular and organizations like 3M and Google make attempts to
manage it in a semi-formal fashion, allocating a certain amount of
time/space to employees to explore their own ideas. Managing this is
a delicate balancing act: on the one hand there is a need to give both
permission and resources to enable employee-led ideas to flourish,
but on the other there is the risk of these resources being dissipated
with nothing to show for them. In many cases there is an attempt to
create a culture of what can be termed bootlegging in which there is
tacit support for projects which go against the grain6

Case Study of how 3M uses intrapreneurship to help identify breakthrough

Open Innovation
Building rich and extensive linkages with potential sources of innovation has always been
important, for example studies in the UK in the 1950s identified one key differentiator between
successful and less-successful innovating firms as the degree to which they were ‘cosmopoli-
tan’ as opposed to ‘parochial’ in their approach towards sources of innovation. Entrepreneurs
starting up new ventures know the importance of building networks; the essence of what they
do in spotting opportunities is to make connections which others may have missed.

This is especially true when we move into our ‘explore’ spaces on the map. We are going
to need different knowledge sets and perspectives – and this requires learning new search
strategies. Innovation has always been a multiplayer game, one which involves weaving
together many different strands of what could be termed ‘knowledge spaghetti’ to create
something new. What’s different about today’s context is the sheer volume and distribution
of that knowledge; for example it’s estimated that nearly $1500 billion of new knowledge is
being created every year in public- and private-sector R&D around the world. Keeping track
of growth on this scale, especially when this R&D is increasingly globalized and coming from
an ever-wider range of players, becomes a major headache even for major technology-based
firms.
US professor Henry Chesbrough coined the term open innovation to describe the chal-
lenge facing even large organizations in keeping track of and accessing external knowledge
rather than relying on internally generated ideas. Put simply, open innovation involves the
recognition that ‘not all the smart guys work for us’.
Of course, it is not simply new R&D knowledge about science and technology which is
exploding; there are similar seismic shifts on the market demand side, and on the interests
of users in greater customization and even participation in the innovation game. Table 7.5
indicates some of the big shifts in the context for innovation.

TABLE 7.5 Changing context for innovation

Context change Indicative examples
Acceleration of OECD estimates that close to $1500 bn is spent each year
knowledge production (public and private sector) in creating new knowledge, and hence
extending the frontier along which ‘breakthrough’ technological
developments can happen
Copyright © 2015. Wiley Textbooks. All rights reserved.

Global distribution of Knowledge production is increasingly involving new players,

knowledge production especially in emerging market fields like the BRIC (Brazil, Russia,
India, China) nations, so the need to search for innovation oppor-
tunities across a much wider space arises. One consequence
of this is that ‘knowledge workers’ are now much more widely
distributed and concentrated in new locations (e.g. Microsoft’s
third-largest R&D centre employing thousands of scientists and
engineers is now in Shanghai)
Market fragmentation Globalization has massively increased the range of markets and
segments so that these are now widely dispersed and locally
varied, putting pressure on innovation search activity to cover
much more territory, often far from ‘traditional’ experiences, such
as the ‘bottom of the pyramid’ conditions in many emerging
markets

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Chapter 7 Search Strategies for Innovation 219

TABLE 7.5 (Continued)

Context change Indicative examples
Market virtualization Increasing use of the Internet as a marketing channel means
different approaches need to be developed. At the same time
emergence of large-scale social networks in cyberspace pose
challenges in market research approaches (e.g. Facebook
currently has over one billion subscribers). Further challenges
arise in the emergence of parallel world communities as a
research opportunity (e.g. Second Life now has over six million
‘residents’)
Rise of active users Although users have long been recognized as a source of inno-
vation there has been an acceleration in the ways in which this
is now taking place (e.g. the growth of Linux has been a user-led
open community development). In sectors like media the line
between consumers and creators is increasingly blurred (e.g.
YouTube has around six billion videos viewed each month but
also has over 200 000 new videos uploaded every day from its
user base)
Development of tech- Increasing linkages enabled by information and communica-
nological and social tions technologies around the Internet and broadband have
infrastructure enabled and reinforced alternative social networking possibili-
ties. At the same time the increasing availability of simulation
and prototyping tools has reduced separation between users
and producers
Source: Bessant, J. and T. Venables (2008) Creating Wealth from Knowledge: Meeting the Innovation
Challenge, Cheltenham: Edward Elgar.
Copyright © 2015. Wiley Textbooks. All rights reserved.

What we’ve been seeing in the first part of the 21st

century is a big shift towards what can be termed ‘open, Audio Clip of an interview with
Richard Philpott discussing
collective innovation’ (OCI).7 This involves spreading open innovation is available on
the search net much more widely and engaging a variety the Innovation Portal at
of different external players in the innovation process. www.innovation-portal.info
The ‘open innovation’ model essentially involves
opening up the enterprise to flows of knowledge
into and out from the organization, as indicated in
Figure 7.5. Video Clip of an interview with
David Simoes-Brown discussing
It offers significant opportunities for entrepreneurs
open innovation is available on
since it implies new ways of connecting – small enter- the Innovation Portal at
prises with key knowledge assets may become attractive www.innovation-portal.info
to large players who need that knowledge, while small

Radical

Boundary
of the firm

Current Development
market

FIGURE 7.5 The open innovation model

Source: Based on Chesbrough, H. (2003) Open Innovation: The New Imperative for Creating and Proﬁting from
Technology, Boston: Harvard Business School Press.

enterprises can now access a wide range of knowledge resources providing they are well
networked. Inevitably, this raises big questions, though, around how those connections can
be made, who and what broker mechanisms come into play – and how intellectual property
rights can be managed in such a knowledge-trading world.
Moving to this new model is not without its difficulties. On the one hand, it makes sense
to recognize that in a knowledge-rich world ‘not all the smart guys work for us’. Even large
Copyright © 2015. Wiley Textbooks. All rights reserved.

R&D spenders like Procter and Gamble (annual R&D budget around $3 billion and about
7000 scientists and engineers working globally in R&D) are fundamentally rethinking their
models – in their case switching from ‘Research and Develop’ to ‘Connect and Develop’ as the
dominant slogan, with the strategic aim of moving from closed innovation to sourcing 50%
of their innovations from outside the business.
But, on the other, we should recognize the tensions that poses around intellectual prop-
erty (how do we protect and hold onto knowledge when it is now much more mobile – and
how do we access other people’s knowledge?), around appropriability (how do we ensure a
return on our investment in creating knowledge?) and around the mechanisms to make sure
we can find and use relevant knowledge (are we now effectively sourcing it from across the
globe and exploring all sorts of unlikely locations?). In this context innovation management
emphasis shifts from knowledge creation to knowledge trading and managing knowledge
flows.
We return to this theme in more detail in Chapter 10, where we look at the key role being
played by networks as a source of ideas and resources.

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Chapter 7 Search Strategies for Innovation 221

INNOVATION IN ACTION 7.6

Connect and Develop at P&G

Creating and combining different knowledge sets has always been the name of the game both
inside and outside the firm. But there has been a dramatic acceleration in recent years led by
major firms like Procter and Gamble, GSK, 3M, Siemens and GE exploring ways of making
open innovation happen. For example, P&G in the late 1990s was concerned that its traditional
inward-focused model for R&D was declining in effectiveness while representing a major cost.
As CEO Alan Lafley explained: ‘Our R&D productivity had levelled off, and our innovation
success rate—the percentage of new products that met financial objectives—had stagnated at
about 35 percent. Squeezed by nimble competitors, flattening sales, lacklustre new launches, and
a quarterly earnings miss, we lost more than half our market cap when our stock slid from $118
to $52 a share. Talk about a wake-up call’ (Harvard Business Review, March 2006).
The company recognized that much important innovation was being carried out in small
entrepreneurial firms, or by individuals or in university labs and that other major players like
IBM, Cisco, Eli Lilly and Microsoft were
beginning to open up their innovation Audio Clip of Roy Sandbach, of
systems. P&G, discussing how networking
in a large corporation enables
As a result P&G moved to what it
innovation is available on
calls ‘Connect And Develop’ – its version the Innovation Portal at
of an innovation process based on the www.innovation-portal.info
principles of ‘open innovation’.

Enabling Open Innovation

The idea behind open innovation is deceptively simple: recognize that not all the smart guys
work for you and find ways to connect with others. But making it happen requires a stra-
tegic approach, and organizations have spent the past ten years since the publication of
Chesbrough’s book working out their own particular ways of using the rich opportunities
offered by open innovation.8
Having a totally open strategy for innovation is rarely the best option, rather different
degrees and ways of openness can be pursued successfully, including adopting a totally closed
approach.9 For example, some firms will passively respond to external opportunities when
these occur, whereas others will proactively seek out
such opportunities, a so-called prospector strategy.10
Some have made use of external scouts, sending Video Clip of an interview with
Michael Bartl of Hyve discussing
out ambassadors to look across sectors to find suitable
working in this space is available
opportunities. Others have made use of third-party on the Innovation Portal at
organizations offering various kinds of brokering and www.innovation-portal.info
bridging activity. Examples include mainstream design

houses like IDEO and ?Whatif! which help to link clients with new ideas and connections on
the technology and market side, technology brokers aiming at match-making between differ-
ent needs and means (both Web-enabled and on a face-to-face basis) and intellectual property
transfer agents like the Innovation Exchange which seek to identify, value and exploit internal
IP which may be underutilized.
Others have gone further down the road towards
creating open-source communities in which co-creation
Case Study of Joseph’s, a shop amongst different stakeholders takes place. Google’s
in Germany that enables people to
contribute ideas for new products and
support for the Android platform is a good example:
services, is available on the Innovation the expectation is that the collective innovation across
Portal at www.innovation-portal.info such a space allows for rapid acceleration and diffusion
of innovation.

INNOVATION IN ACTION 7.7

Models for Open Innovation

A number of models are emerging around enabling open innovation – for example, Nambisan
and Sawhney identify four.11 The ‘orchestra’ model is typified by a firm like Boeing, which has
created an active global network around the 787 Dreamliner with suppliers as both partners and
investors and moving from ‘build to print’ to ‘design and build to performance’. In this mode
they retain considerable autonomy around their specialist tasks, while Boeing retains the final
integrating and decision making, analogous to professional musicians in an orchestra working
under a conductor.
By contrast, the ‘creative bazaar’ model involves more of a ‘crowdsourcing’ approach in
which a major firm goes shopping for innovation inputs – and then integrates and develops
them further. Examples here would include aspects of the Innocentive.com approach being used
by P&G, Eli Lilly and others, or the Dial Corporation in the US which launched a ‘Partners
Copyright © 2015. Wiley Textbooks. All rights reserved.

in innovation’ website where inventors could submit ideas. BMW’s Virtual Innovation Agency
operates a similar model.
A third model is what it terms ‘Jam central’ which involves creating a central vision and then
mobilizing a wide variety of players to contribute towards reaching it. It is the kind of approach
found in many pre-competitive alliances and consortia where difficult technological or market
challenges are used – such as the 5th Generation Computer project in Japan – to focus efforts of
many different organizations. Once the challenges are met, the process shifts to an exploitation
mode, for example in the 5th Generation programme the pre-competitive efforts by researchers
from all the major electronics and IT firms led to generation of over 1000 patents which were
then shared out amongst the players and exploited in ‘traditional’ competitive fashion. Philips
deploys a similar model via its InnoHub, which selects a team from internal and external busi-
nesses and staff and covering technology, marketing and other elements. It deliberately encour-
ages fusion of people with varied expertise in the hope that this will enhance the chances of
‘breakthrough’ thinking.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Chapter 7 Search Strategies for Innovation 223

Its fourth model is called ‘Mod Station’, drawing on a term from the personal computer
industry which allows users to make modifications to games and other soft and hardware. This
is typified by many open-source projects – such as Sun Microsystems’s OpenSPARC, Google’s
Android developer platform and before that Nokia’s release of the Symbian operating system
– which open up to the developer community in an attempt to establish an open platform for
creating mobile applications. It reflects models used by the BBC, by Lego and many other organi-
zations trying to mobilize external communities and amplify their own research efforts while
retaining an ability to exploit the new and growing space.
Other models which could be added include NASA’s ‘infusion’ approach in which a major
public agency uses its Innovative Partnerships Programme (IPP) to co-develop key technologies
such as robotics. The model is essentially one of drawing in partners who work alongside NASA
scientists, a process of ‘infusion’ in which ideas developed by NASA or by one or more of the
partners are worked on. There is particular emphasis on spreading the net widely and seeking
partnerships with ‘unusual suspects’: companies, university departments and others that may not
immediately recognize that they have something of value to offer.12

Learning to Search
As we saw in Chapter 1, managing innovation is something which individuals and organi-
zations learn to do through a mixture of trial and error, imitation and borrowing of good
practices, improvisation, etc. Over time, they accumulate experience about what works best
for them, and this becomes a highly specific approach, almost like a personality. The idea of
‘routines’ – repeated, learnt and embedded patterns of behaviour – very much applies here in
the area of search tools. Individuals and organizations develop and refine the tools they use
to trawl the innovation space, building on tried-and-tested techniques but also experimenting
Copyright © 2015. Wiley Textbooks. All rights reserved.

and adding new ones to deal with new challenges in their search space.
For example, much experience has been gained in how R&D units can be structured to
enable a balance between applied research (supporting the ‘exploit’ type of search) and more
wide-ranging, ‘blue sky’ activities (which facilitate the ‘explore’ side of the equation). These
approaches have been refined further along ‘open innovation’ lines where the R&D work of
others is brought into play, and by ways of dealing with the increasingly global production of
knowledge, for example the pharmaceutical giant GSK deliberately pursues a policy of R&D
competition across several major facilities distributed around the world.
In similar fashion market research has evolved to produce a rich portfolio of tools for
building a deep understanding of user needs – and continues to develop new and further
refined techniques, for example empathic design, lead user methods and increasing use of
ethnography.
The choice of techniques and structures depends on a variety of strategic factors like
those explored above, balancing their costs and risks against the quality and quantity of
knowledge they bring in. Throughout the book, we stress the idea that managing innovation

is a dynamic capability, something which needs to be updated and extended on a continu-

ing basis to deal with the ‘moving frontier’ problem. As markets, technologies, competitors,
regulations and all sorts of other elements in a complex environment shift so we need to learn
new tricks and sometimes let go of older ones which are no longer appropriate.
The label absorptive capacity has been widely used to describe this learning capability
and it can be expressed as ‘the ability of a firm to recognize the value of new, external infor-
mation, assimilate it, and apply it’.13 It’s an important concept because it is easy to make the
assumption that because there is a rich environment full of potential sources of innovation
every organization will find and make use of these. The reality is, of course, that they differ
widely in their ability to make use of such trigger signals; for various reasons organizations
may find difficulties in growing through acquiring and using new knowledge.
Some may simply be unaware of the need to change, never mind having the capability to
manage such change. Such firms – a classic problem of small business growth, for example –
differ from those which recognize in some strategic way the need to change, to acquire and
use new knowledge but lack the capability to target their search or to assimilate and make
effective use of new knowledge once identified. Others may be clear about what they need but
lack the capability to find and acquire it. And others may have well-developed routines for
dealing with all of these issues and represent resources on which less-experienced firms may
draw – as is the case with some major supply chains focused around a core central player.
The key message from research on absorptive capacity is that acquiring and using new
knowledge involves multiple and different activities around search, acquisition, assimila-
tion and implementation.14 It’s essentially about learning to learn, building capabilities
which allow organizations to repeat the innovation trick. Developing absorptive capac-
ity involves two complementary kinds of learning.
Type 1 – adaptive learning – is about reinforcing and
Tool to help an organization reflect on
establishing relevant routines for dealing with a par-
and develop this, absorptive capacity
audit, is available on the Innovation ticular level of environmental complexity and type 2
Portal at www.innovation-portal.info – generative learning – for taking on new levels of
complexity.15
Copyright © 2015. Wiley Textbooks. All rights reserved.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
www.innovation-portal.info
Created from unive3-ebooks on 2019-10-15 08:57:32.
Chapter 7 Search Strategies for Innovation 225

Chapter Summary
• Faced with a rich environment full of potential sources of innovation, individuals and
organizations need a strategic approach to searching for opportunities.
• We can imagine a search space for innovation within which we look for opportunities.
There are two dimensions: ‘incremental/do better vs. radical/do different innovation’ and
‘existing frame/new frame’.
• Looking for opportunities can take us into the realms of ‘exploit’ – innovations built on
moving forward form what we already know in a mainly incremental fashion. Or it can
involve ‘explore’ innovation, making risky but sometimes valuable leaps into new fields
and opening up innovation space.
• Exploit innovation favours established organizations, and start-up entrepreneurs mostly
find opportunities within niches in an established framework.
• Bounded exploration involves radical search but within an established frame. This
requires extensive resources, for example in R&D, but although this again favours estab-
lished organizations there is also scope for knowledge-rich entrepreneurs, for example
in high-tech start-up businesses.
• Reframing innovation requires a different mindset, a new way of seeing opportunities – and
often favours start-up entrepreneurs. Established organizations find this area difficult to
search in because it requires them to let go of the ways they have traditionally worked. In
response, many set up internal entrepreneurial groups to bring the fresh thinking they need.
• Exploring at the edge of chaos requires skills in trying to ‘manage’ processes of co-
evolution. Again, this favours start-up entrepreneurs with the flexibility, risk taking and
tolerance for failure to create new combinations and the agility to pick up on emerging
new trends and ride them.
• Search strategies require a combination of exploit and explore approaches, but these
Copyright © 2015. Wiley Textbooks. All rights reserved.

often need different organizational arrangements.

• There are many tools and techniques available to support search in exploit and explore
directions; increasingly, the game is being opened up and networks (and networking
approaches and technologies) are becoming increasingly important.
• Absorptive capacity – the ability to absorb new knowledge – is a key factor in the devel-
opment of innovation management capability. It is essentially about learning to learn.

Key Terms Deﬁned

Absorptive capacity the ability of an organization to take on and use new knowledge from
outside.

Bootlegging innovation projects which take place without the formal backing of the host
organization.
Bridging refers to mechanisms for connecting players in an increasingly open innovation
landscape, for example by using innovation markets or contests running across an internet
platform.
Brokering ways of connecting different players in a network, for example linking start-up
entrepreneurs with sources of resources.
Co-evolution situation where multiple elements interact with each other making it impos-
sible to predict their future development. Instead, it emerges as a result of interaction:
co-evolution.
Communities of practice groups of individuals with common interest who cooperate to
share knowledge within and across organizations.
Corporate entrepreneurship attempt on the part of established organizations to recreate
entrepreneurial. characteristics like agility, new perspectives and risk taking by licensing a
specific group to operate in a different fashion.
Deep diving deep immersion in the context within which innovations could be used.
Ethnography approaches to understanding user needs through observation, using approaches
similar to those employed by anthropologists.
Exploit innovation based on doing what we do but better, moving forward along estab-
lished trajectories.
Explore innovation involving jumps and leaps into new fields and opening up new space
for innovation.
Framing/reframing the ways in which organizations and individuals make sense of a com-
plex environment by simplifying it, using mental lenses to decide on what they pay atten-
Copyright © 2015. Wiley Textbooks. All rights reserved.

tion to and what solutions they look at.

Gatekeeper person within an organization or network who helps facilitate connections to
others.
Intrapreneurship internal entrepreneurship, as corporate entrepreneurship.
Lead users early and active users within a population who can contribute ideas which shape
the final version of an innovation.
Open innovation model of innovation which allows for much more emphasis on knowledge
flows rather than on knowledge production.
Scouts individuals or groups who search out new technologies and/or markets.
Workplace innovation innovation which involves a high proportion of the workforce or
other population in contributing their ideas for change.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Created from unive3-ebooks on 2019-10-15 08:57:32.
Chapter 7 Search Strategies for Innovation 227

Discussion Questions
1. Where and how would you organize search for innovation opportunities for the follow-
ing businesses:
a. A fast food restaurant chain?
b. An electronic test equipment maker?
c. A hospital?
d. An insurance company?
e. A new-entrant biotechnology firm?
2. Using the list of innovation sources in Chapter 6, how would you organize search to
pick up trigger signals from these?
3. If innovation is increasingly a matter of knowledge management, what sorts of chal-
lenges does this approach pose for managing the process?
4. How would you search for innovation opportunities in the public sector? Using exam-
ples, indicate how and where it can be an important strategic issue.
5. You are a newly appointed director for a small charity which supports homeless people.
How could innovation improve the ways in which your charity operates in terms of
finding new opportunities for raising support?
6. What are the challenges which managers face in trying to organize to find a long-term
steady stream of incremental innovation ideas?

Searching at the frontier is one of the questions addressed by the Discontinuous

Innovation Laboratory, a network of around 30 academic institutions and 150 companies,
see Augsdorfer et al.’s Discontinuous Innovation (Imperial College Press, 2014).
Looking at the edge of familiar markets to find unexploited space is discussed in Ulnwick,
A., What Customers Want: Using Outcome-Driven Innovation to Create Breakthrough
Products and Services (McGraw-Hill, 2005) and Kim, W. and R. Mauborgne, Blue Ocean
Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant
(Harvard Business School Press, 2005).
Open innovation was originated by Henry Chesbrough but has been elaborated in a
number of other studies – see, for example, Reichwald, R., A. Huff and K. Moeslein, Leading
Open Innovation (MIT Press, 2013). Case examples include the Procter and Gamble story,
and Alan Lafley’s book provides a readable account from the perspective of the CEO (Lafley,
A. and R. Charan, The Game Changer, Profile, 2008).
The concept of absorptive capacity was originated by Cohen and Levinthal and devel-
oped by Zahra and George (Zahra, S.A. and G. George, ‘Absorptive capacity: A review, recon-
ceptualization and extension’, Academy of Management Review, 2002, 27, 185–94).

References
1. Freeman, C. and L. Soete (1997) The Economics of Industrial Innovation, 3rd edn,
Cambridge, MA: MIT Press.
2. Abernathy, W. and J. Utterback (1975) A dynamic model of product and process
innovation, Omega, 3(6): 639–56.
3. Rogers, E. (2003) Diffusion of Innovations, 5th edn, New York: Free Press.
4. Bessant, J. (2003) High Involvement Innovation, Chichester: John Wiley & Sons
Copyright © 2015. Wiley Textbooks. All rights reserved.

Ltd.
5. Allen, T. and G. Henn (2007) The Organization and Architecture of Innovation,
Oxford: Elsevier.
6. Augsdorfer, P. (1996) Forbidden Fruit, Aldershot: Avebury.
7. Bessant, J. and K. Moeslein (2011) Open Collective Innovation, London: Advanced
Institute of Management Research.
8. Chesbrough, H. (2003) Open Innovation: The New Imperative for Creating and
Profiting from Technology, Boston: Harvard Business School Press.
9. Enkel, E. and K. Bader (2014) How to balance open and closed innovation:
Strategy and culture as influencing factors, in: J. Tidd (ed.), Open Innovation
Research, Management and Practice, London: Imperial College Press.

Tidd, Joe. Innovation and Entrepreneurship, Wiley Textbooks, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/unive3-ebooks/detail.action?docID=4946361.
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Created from unive3-ebooks on 2019-10-15 08:57:32.
Chapter 7 Search Strategies for Innovation 229

10. Nambisan, S. and M. Sawhney (2007) The Global Brain: Your Roadmap for
Innovating Smarter and Faster in a Networked World, Philadelphia: Wharton
School Publishing.
11. Nambisan, S. and M. Sawhney (2007) The Global Brain: Your Roadmap for
Innovating Smarter and Faster in a Networked World, Philadelphia: Wharton
School Publishing.
12. Cheeks, N. (2007) How NASA Uses ‘Infusion Partnerships’, Mount Laurel, NJ:
Product Development Management Association, 9–12.
13. Cohen, W. and D. Levinthal (1990) Absorptive capacity: A new perspective on
learning and innovation, Administrative Science Quarterly, 35(1): 128–52.
14. Zahra, S.A. and G. George (2002) Absorptive capacity: A review, reconceptualiza-
tion and extension, Academy of Management Review, 27: 185–94.
15. Senge, P. (1990) The Fifth Discipline, New York: Doubleday.

Deeper Dive explanations of innovation concepts and ideas are

available on the Innovation Portal at www.innovation-portal.info

Quizzes to test yourself further are available online via the

Summary of online resources for Chapter 7 –

all material is available via the Innovation Portal at
www.innovation-portal.info

Cases Media Tools Activities Deeper Dives

• Evolution of the • Patrick • Market research • 4Ps • Searching for

bicycle McLaughlin toolkit • Adoption and innovation
• Tesco • Veeder-Root • Continuous diffusion • Open collective
• Cerulean • Mobilizing work- improvement • Quality function innovation
• Kumba place innovation toolkit deployment • Absorptive
Resources • Eric von • ADL matrix capacity
• NPI • Hippel • Kano method
• Philips Lighting • Helen King • Lead user
• Fujifilm • Shell’s methods
• Kodak GameChanger • Quality function
• Twelve search programme deployment
strategies • Richard Philpott • Absorptive
• Kumba • David capacity audit
Resources Simoes-Brown
• Veeder-Root • Roy Sandbach
• Forte’s Bakery • Michael Bartl
• Hosiden
• Pixar
• 3M
• Procter and
Copyright © 2015. Wiley Textbooks. All rights reserved.

Gamble
• Joseph’s

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