LEARNING UNIT 4

SOURCES OF INNOVATION LEARNINGUNIT4

Contents

4.1 INTRODUCTION 51
4.2 CLASSIFYING THE SOURCES OF INNOVATION 51
4.2.1 INDIVIDUALS 52
4.2.2 CORPORATIONS 52
4.2.3 USERS 53
4.2.4 THE STATE 54
4.3 OTHER SOURCES OF INNOVATION 55
4.3.1 EMPLOYEES 55
4.3.2 OUTSIDERS 56
4.3.3 SPILLOVERS 56
4.3.4 PROCESS NEEDS 56
4.4 CONCLUSION 58
4.5 SELF-EVALUATION QUESTIONS 58

LESSON UNIT NUMBER 4

TITLE OF TOPIC What does innovation involve?
TITLE OF UNIT Sources of innovation
NOTIONAL STUDY HOURS 6
NUMBER OF PLANNED SELF- N/A
REFLECTIVE ACTIVITIES
NUMBER OF ASSESSMENT LINKED N/A
ACTIVITIES
NUMBER OF E-TUTOR ACTIVITIES N/A
(Where necessary/applicable)

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AIM OF LEARNING UNIT 4

This learning unit is concerned with where new ideas for innovation come from. It aims to
identify the various origins or sources of innovation and shows how these sources vary in
importance, between different context (i.e. different industries or sectors) and over time.
The main sources of innovation which will be discussed include individuals, corporations,
users and the state. Additional sources of innovation such as employees, outsiders,
spillovers and process needs will also be touched on briefly.

LEARNING OUTCOMES FOR UNIT 4

After studying this unit, you should be able to:
● Review the innovation process.
● Distinguish the different ways in which the innovation process can commence.
● Analyse the diverse sources of innovation.
● Evaluate the relative importance of different sources of innovation.

KEY CONCEPTS IN UNIT 4

You need to understand the following key concepts to attain the learning outcomes for
this learning unit
● innovation process
● sources of innovation

SYSTEMATIC OVERVIEW OR LEARNING UNIT 4

Figure 4.1 provides an overview of learning unit 4

Figure 4.1: A systematic overview of learning unit 4

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4.1 INTRODUCTION

Reading: To complete learning unit 4, you should study part 2, chapter 4 of

your prescribed textbook (Smith, 2015).

“Why didn’t I think of that?”. This phrase often comes to mind when you come across an
interesting new product, or a simple innovation which made millions for the investor.
However, we often think that discovering an innovation is the result of some scientist
working endless hours in a lab or some genius who is seemingly able to just think of
things in a new manner. Although this may be the case for some innovations, this is not
the only source of innovation. We can look to a variety of sources for new ideas and
creative solutions for current problems. The chapter in your book highlights a variety of
sources of innovation, we will start by exploring some of the most common sources and
then look further to other areas.

LEARNING ACTIVITY 4.1

This is an e-tutor activity

We see many interesting innovations such as electric vehicles, space travel and global,
free internet. Do additional research and find a current innovation. Discuss what you
believe to be the source of the specific innovation and provide a clear explanation to
motivate your answer. Comment on the innovation of another student and explain if you
agree with his or her identified source of innovation.

FEEDBACK

This activity is broad, and you may include any innovation that you find interesting. Consider
if you can link an individual to this innovation, such as Elon Musk and Tesla (electric vehicles).
Do you believe this innovation came from a broader industry or company, such as Apple or is
there another inspiration for the innovation? Factors such as solving climate change or
improving the social well-being of a community can also lead to some interesting
innovations being developed. Explain and explore the topic. You may even find that some
innovations are often copied, such as Pepsi trying to copy the design of the Coca Cola logo.

4.2 CLASSIFYING THE SOURCES OF INNOVATION

Study the section “Classifying the sources of innovation” on page 129

of the prescribed book.

The four basic categories for sources of innovation are: individuals, corporations, users
and the state. The innovations that are the easiest for us to recall are the ones where one
person or a small number of people came up with an idea and built it to a successful
company. This is not the only scenario in which new products and services are developed.
However, today’s corporations are large and have extensive resources and clever

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individuals who can develop new ideas from this starting point. Similarly, in our age of
social media, the users of the actual product can be actively involved in creating new
ideas or functionalities of the product or service being used. Finally, government or the
state are often tasked to research new ways of service delivery or to solve a societal issue,
such as pollution or poverty. These institutions can serve as a source of innovation for the
broader society. The sub-sections to follow will explore each of these sources in more
detail.

4.2.1 INDIVIDUALS

Study the section “individuals” on pages 130 to 132 of the prescribed book.

Thomas Edison (1847–1931) filed over 1000 patents. He developed and innovated a wide
range of products from the electric light bulb to the phonograph and motion picture
camera. The Wright Brothers successfully designed, built and flew the first powered
aircraft, showing that man could fly. One of the most important inventions of the 20th
Century. James Watt (1736–1819) was the inventor of the steam engine, which was critical
in the industrial revolution. His invention of a separate condensing chamber greatly
improved the efficiency of steam. The ice cream maker was invented by Nancy Johnson
and computer algorithms by Ada Lovelace. The list is endless. Often, an interesting
innovation which either becomes standard use over many years or is the foundation of
building a large business, has a person directly tied to the innovation.
When an individual is the source of the innovation, the model of innovation is often
referred to as the heroic model or garage model of innovation. In fact, Apple was started
out of a garage, and so was Amazon. It is however important to note that as a starting
point, the individual is key as a source of innovation and often has methods, such as
bootstrapping and bricolage, at his or her disposal to make the most of limited resources.
But, as the innovation becomes more commercial, the resources and reach of larger
corporations or funding institutions are often needed to further exploit the innovation.
Just think of the current scale of Apple and Amazon.

4.2.2 CORPORATIONS

Study the section “Corporations” on pages 132 to 134 of the prescribed book.

Individuals rarely possess the resources needed to comprehensively research and develop
highly technical and technology-based innovations into commercially viable products/
services. In fact, this approach to innovation is so popular and effective that we have
several innovation clusters around the world. Innovation clusters are places with dense
webs of interconnected technology companies, customers and suppliers. Improving a
cluster’s chance of flourishing are factors, such as liberal immigration laws and venture
capital financing. The eight largest innovation clusters in the world are: Silicon Valley,
Boston, Tech City London, Paris-Saclay, Israel, Skolkovo Innovation City, Bangalore, and

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Beijing. These eight innovation clusters account for roughly 86% of all global innovation
activity.

LEARNING ACTIVITY 4.2

This is a self-reflective activity

Research in your prescribed textbook (pg. 133) shows no correlation between the size of
the corporation and the level of innovation. Can you think of an example of a large and
small corporation known for their innovativeness? Do you think the size of a corporation
matters when it comes to innovation? Explain your point of view.

FEEDBACK

The following link explains why in some instances, smaller firms tend to be more innovative
than larger companies: https://articles.bplans.com/ways-small-companies-innovate
In terms of examples, the common innovative corporations such as Google, Facebook,
Amazon and Tesla can be used as examples or larger firms. Smaller companies may be less
well-known, see this link for some examples: https://www.fastcompany.com/90600295/small-
mighty-most-innovative-companies-2021. Make sure that you can identify the source of
innovation; it would also be useful to explore the types of innovation the companies are
known for.

4.2.3 USERS

Study the section “Users” on pages 134 to136 of the prescribed book.

Innovations in the construction, medical and science industries often come from the users
themselves. These users need to find of quick and efficient solutions to solve problems in
their jobs They have insight into the problem and know what sort of solution will work.
These innovations are then handed over to larger or specialised organisations to
distribute as commercially viable products, processes or services.
Clearly, when a user, such as a doctor or engineer, has the training and experience to
understand the product or service, he or she is equipped to understand new ways of
solving the problem.

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LEARNING ACTIVITY 4.3

This is a self-reflective activity

Other than the medical or construction industries, can you think of more industries where
users drive the innovation process? Write down a specific example and link it to the user.

FEEDBACK

There are a variety of industries where users drive innovation, some examples include sports,
such as snowboards and skateboards, video game modifications made by players, fashion is
also often inspired by smaller fashion designers and/or those individuals that set the trends in
the market.

4.2.4 THE STATE

Study the section “The State” on pages 136 to 139 of the prescribed book.

The state is not an obvious source of innovation; however, the technologies that lie at the
heart of many modern consumer products, including many that have gone a long way to
change our lives, rely on technologies developed either by state agencies or organisations,
the research of which was largely funded by the state. Governments facilitate innovation
by collaborating on advanced R&D and product development, usually at the
precompetitive stage but increasingly also at the competitive stage. Often a government
agency coordinates R&D efforts or innovative technology applications.

REPORT

Embracing Innovation in Government. Global Trends. February 2017. Scan

through the following report by OECD: https://www. oecd. org/gov/
innovative-government/embracing-innovation-in-government.pdf

The reports on some of the most creative innovations by Government (The state) will
provide you with a good context on the overall scope and nature of innovation from
these sources.

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4.3 OTHER SOURCES OF INNOVATION

Study the section “Other sources” on page 139 of the prescribed book.

Alongside the four main sources of innovation are a number of other subcategories that
overlap with the ones shown here. For example, individuals who come up with
innovations can also be classified as outsiders in the sense that they are not closely
associated with the mainstream field in which the innovation occurs. Similarly, some of
these other sources are not individuals, organisations or institutions in the way that the
four main sources are. Rather they involve specific contexts that can act as a source of
innovation.

4.3.1 EMPLOYEES

Study the section “Employees” on pages 139 to 140 of the prescribed book.

Employees are encouraged and rewarded when they come up with ideas for new
products and services or devise improvements in production processes. Some companies
allow their employees to devote a modest proportion of their time at work to developing
new ideas. 3M operates a similar scheme, referring to this type of activity as “bootlegging”.
Companies increasingly recognise the importance of innovation which gives them
competitive advantage. Therefore, we may well see more companies devising ways to
encourage employee innovation.
Toyota is probably the most well-known example of tapping into employees as a source
of innovation. In 1951 Toyota launched their Creative Idea Suggestion System. It was
largely a copy of suggestion systems that were in place in U. S. companies at the time,
namely the Ford Motor Company. Toyota made some notable innovations to it over the
years, but most importantly, they stuck with it. The suggestion system is one aspect of a
lean management system many companies struggle with, stumble around or never get to
when implementing the Toyota Production System.

You can read more on the Toyota Creative Idea Suggestion System here:
https://hbr.org/2011/06/how-toyota-pulls-improvement-f

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4.3.2 OUTSIDERS

Study the section “Outsiders” on pages 140 to 142 of the prescribed book.

Scientists and researchers often work within the constraints of rules and conventional
wisdom, both of which are generally accepted and seldom questioned. Outsiders, perhaps
through ignorance, are more likely to challenge these ideas and practices. This may lead
to products being used for the development of new products in ways that were not
foreseen by the original designers. Outsiders come with an open mind, are willing to
challenge existing ideas and often have outside networks that can help create new
product ideas.

4.3.3 SPILLOVERS

Study the section “Spillovers” on pages 142 to 143 of the prescribed book.

Spillover innovation occurs when one firm invests in research and development and then
another firm, is able to bring an innovative new product to the market. This is very
common in today’s electronic market, where companies bring out a new product, only to
find that their competitors copy and improve on their initial idea very quickly. Although
there are ways in which they can protect new ideas such as copyright, patents and
intellectual property rights, there are loopholes and timing issues that other organisations
can sometimes exploit. Spillover innovation is likely to happen under the following
conditions:
● where it is difficult to prevent others from appropriating the benefits from an
invention.
● where staff move around a lot.
Latter learning units will consider how to protect innovations to prevent competitors from
benefiting from the innovation within any significant investment in the research and
development phase.

4.3.4 PROCESS NEEDS

Study the section “Process needs” on page 143 of the prescribed book.

One of the most famous and ground-breaking examples of process innovation is Henry
Ford’s invention of the world’s first moving assembly line. This process has not only
changed simplified vehicle assembly, but has also shortened the time necessary for
producing a single vehicle from 12 hours to 90 minutes.

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In many manufacturing contexts, the pressure to reduce cost and ensure an adequate
return to shareholders can spark creative new ways of doing something, which will often
give one player in a saturated market the advantage over the rest of the competing firms.
The logistics industry is one such market where process innovations, alongside
technological innovations are critical to ensure the success of third-party logistics service
providers (3PLs). With the rapidly increasing number of temperature-sensitive products,
the need for a fully monitored supply chain is more important than ever. Currently, those
involved must rely on container operators to communicate temperature deviations to the
customer quickly and correctly. By using a blockchain for temperature-controlled services,
the reliability of the information can be validated, and active risk management can be
supported. Furthermore, this technology assists small, medium and large companies in
developing new services.

LEARNING ACTIVITY 4.4

This is an individual written activity

Read the case study: The Mountain Bike on page 143 of your prescribed textbook. Answer
questions 1 to 5 that follow the case study. Note: You will have to work through learning
unit 5 first before you can answer question 3.

FEEDBACK

1. Who were the innovators in this instance?

Joe Breeze, Gary Fisher and Charlie Kelly
2. From which of the sources identified in this chapter did the innovation of mountain
bikes come?
User innovation: “Dramatic though the change was, its origins lie not with the big bicycle
manufacturers but with riders themselves”.
3. Which model of the innovation process best describes the way in which mountain
bikes were developed?
You will have to work through learning unit 5 first to answer this question, the best model
here is the demand push, as the vast demand for these bikes were driving the innovation
of the designs and frames
4. Draw a diagram to describe the innovation process and the various parties
involved in this instance.

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5. What do you understand by the term “cottage “industry, and why were the early
producers of ‘clunkers’ described?
The use of old-fashioned models, like the Schwinn, bought second-hand bikes from
backyards for no more than a few dollars, which led to the bikes being nicknamed
‘clunkers’.
A cottage industry (Lüthje et al., 2005: 954) was developed in Marin County as clunker
riders built bikes not only for themselves, but also for friends and even fellow riders.

4.4 CONCLUSION
Innovation, by its very nature, can come from anywhere and at any time. Innovations also
come in different forms. We need to know what the forms and sources of innovation are
so that we can keep a look out for new ideas ourselves.

4.5 SELF-EVALUATION QUESTIONS

1. What factors have led to a resurgence of innovation by individuals?

2. Which of the four theories of innovation gives prominence to outsiders as a source of
innovation?
3. Why are industry “insiders” sometimes prevented from engaging in innovation?
4. If the sources of innovation are diverse, what are the implications of this for companies
that are keen to innovate?
5. Innovation can be sourced not only from individuals and corporations but also from a
range of other sources. Describe a full range of innovation sources.

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FEEDBACK ON SELF-EVALUATION QUESTIONS

1. Adaptation, association, analogy and serendipity are all forms of insight and each one
has its place in innovation. Serendipity requires prior knowledge and experience before it
can be recognised and applied. This is a rare combination and only happens occasionally.
Association also requires some insight into the existing idea and its field, and it is rare
that a person has expertise in the area of the original idea and the area of application.
Analogy is where a principle used in one situation is used for a different purpose in
another situation. This is probably the simplest form of innovation, although it requires
an open mind to see the possibilities. Analogy makes it possible to use a principle that
applies to one situation in another situation. This tends to occur when an innovator is
challenged with a certain problem and actively seeks solutions in other areas.
2. Absorptive capacity.
3. Insiders are often so entrenched in the norm that they do not see better ways of doing
things. Also, the insider often does not have the necessary network for obtaining
knowledge that is relevant to the innovation process.
4. Companies keen to innovate must make sure they are not isolated from the outside world
and make a point of being open to outside ideas. It may even be necessary to buy in ideas
from the other sources; given that R&D alone is no guarantee of innovation. Innovation
can come from anywhere, which is why individuals/users/ outsiders could pose a threat to
the organisation. This same threat could, however, be an opportunity for the organisation,
because many innovative sources cannot put their ideas on the market owing to their lack
of financial, management and manufacturing expertise.
5. When an innovator keeps an open mind he or she may stumble onto new ideas.
Serendipity is a rare occurrence and requires knowledge and expertise before it can be
recognised.
6. Smith (2015) describes eight innovation sources on pages 129 to 143.

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