Chapter 2

SOURCES OF INNOVATION
Strategic Management of
Technological Innovation
Melissa Schilling

Sources of Innovation 2
The Camera Pill: A capsule that is swallowed by
patient that broadcasts images of the small
intestine
Invented by Gavriel Iddan & team of scientists
Iddan was a missile engineer no medical background
Project initiated by Dr. Scapa, a gastroenterologist
Iddan applied guided missile concept to problem of
viewing the small intestine
Developing the Camera Pill
Many hurdles to overcome: size, image quality, battery life
Formed partnership with Gavriel Meron (CEO of Applitec)
for capital to commercialize
Formed partnership with team of scientists lead by Dr. C.
Paul Swain to combine complementary knowledge
Resulted in highly successful, revolutionary product.
Getting an Inside Look:
Given Imagings Camera Pill
Sources of Innovation 3
Discussion Questions:
1. What factors do you think enabled Iddan, an engineer with
no medical background, to pioneer the development of
wireless endoscopy?
2. To what degree would you characterize Givens
development of the camera pill as science-push versus
demand-pull?
3. What were the advantages and disadvantages of Iddan
and Meron collaborating with Dr. Swains team?
Getting an Inside Look:
Given Imagings Camera Pill
Sources of Innovation 4
Overview
Innovation can arise from many different sources and the
linkages between them.
Sources of Innovation 5
Creativity
Creativity: The ability to produce work that is useful and
novel.
Individual creativity is a function of:
Intellectual abilities (e.g., ability to articulate ideas)
Knowledge (e.g., understand field, but not wed to
paradigms)
Style of thinking (e.g., choose to think in novel ways)
Personality (e.g., confidence in own capabilities)
Motivation (e.g., rely on intrinsic motivation)
Environment (e.g., support and rewards for creative ideas)
Risk taker (e.g., willingness to take reasonable risks)
Persistence (e.g., tolerate ambiguity and willingness to
overcome obstacles)

Sources of Innovation 6
Creativity
Organizational Creativity is a function of:
Creativity of individuals within the organization
Social processes and contextual factors that shape how those
individuals interact and behave
Methods of encouraging/tapping organizational creativity:
Idea collection systems (e.g., suggestion box)
In 1895 John Patterson, founder of National Cash Register (NCR),
created the first sanctioned suggestion box program
Originators of adopted ideas were awarded $1 a revolutionary
concept
Honda more than 75% of ideas are implemented
Bank One idea repository where employees can collaborate
Creativity training programs
Culture that encourages (but doesnt directly pay for) creativity.

Sources of Innovation 7
Transforming Creativity into Innovation
Innovation is the implementation of creative ideas into
some new device or process.
Requires combining creativity with resources and
expertise.
Inventors
One ten-year study found that inventors typically:
1. Have mastered the basic tools and operations of the field in which they
invent, but they will have not specialized solely on that field.
2. Are curious, and more interested in problems than solutions.
3. Question the assumptions made in previous work in the field.
4. Often have the sense that all knowledge is unified. They will seek
global solutions rather than local solutions, and will be generalists by
nature
Such individuals may develop many new devices or
processes but commercialize few.
Sources of Innovation 8
Theory in Action The Segway and the iBOT
Sources of Innovation 9
Theory In Action
Segway Human Transporter
The Segway HT: A self-balancing, two-wheeled scooter
invented by Dean Kamen http://www.usfirst.org/about/bio_dean.htm

Kamen holds more than 150 U.S. and foreign patents
Has received numerous awards and honorary degrees
Never graduated from college
To Kamen, the solution was not to come up with a new answer
to a known problem, but to instead reformulate the problem
Developing the Segway
DEKA http://www.dekaresearch.com/index.html has a balance
of ideation and execution people
Philosophy of kissing frogs: produce and evaluate a wide range
of potential solutions.
Segway required numerous external partnerships
By 2003, had been adopted primarily for commercial and
industrial applications.
Sources of Innovation 10
iBOT Mobility System
iBOT mobility system http://www.ibotnow.com/functions/mobility-system.html
Advanced wheelchair that enables users to climb stairs,
negotiate sand, rocks and curbs
Incorporates a sophisticated balancing system
Predecessor to Segway
Collaboration with external partners
Venture capitalists
Silicon Sensing Systems developed the gyroscopic sensor
system
Michelin developed unique Balance tires
Pacific Science helped create the Segways electronic motor
Saft developed a smart charging battery
Had to satisfy government regulations to be allowed on
sidewalks
Sources of Innovation 11
Transforming Creativity into Innovation
Innovation by Users
Users have a deep understanding of their own needs, and
motivation to fulfill them.
Laser sailboat developed by Olympic sailors without any formal
market research or concept testing based on their own preferences
Highly successful in the 70s and 80s
Indermil a tissue adhesive based on Superglue. Managers tried to
exploit Superglues tendency to bond to skin to develop an
alternative to sutures for surgical applications.
Experiments in the 70s and 80s failed.
A presentation by a reconstructive surgeon who had operated on burn
victims in response to the Bradford football stadium fire of 1985
brought the project back to life.
The doctors had used Superglue to repair skin and stick skin grafts
in place.
Years later, the patients had almost perfect skin repair
The CEO gave his full support and serious funding. By 2003 the
product was selling in 40 countries
Sources of Innovation 12
The Birth of the Snowboarding Industry
First snowboards not developed by sports equipment
manufacturers; rather they were developed by
individuals seeking new ways of gliding over snow
Tom Sims made his first ski board in wood shop
class.
Sherman Poppen made a snurfer as a toy for his
daughter later held snurfing contests
Jake Burton added rubber straps to snurfer to act as
bindings
By 2001 there were approximately 5.3 million
snowboarders in the United States and the US market
for snowboarding equipment had surpassed $235
million
Theory In Action
Sources of Innovation 13
Transforming Creativity into Innovation
Research and Development by Firms
Research refers to both basic and applied research.
Basic research aims at increasing understanding of a
topic or field without an immediate commercial
application in mind.
Applied research aims at increasing understanding of
a topic or field to meet a specific need.
Development refers to activities that apply
knowledge to produce useful devices, materials, or
processes.
R&D thus refers to a range of activities that extend
from early exploration of a domain to specific
commercial implementations

Sources of Innovation 14
Transforming Creativity into Innovation
Research and Development by Firms
Most firms consider in-house R&D to be their most important
source of innovation.
A firms R&D expenditures as a percentage of its revenues has a
strong correlation with its sales growth rate, sales from new
products and profitability.
Sources of Innovation 15
Transforming Creativity into Innovation
Research and Development by Firms
Science Push (50s and 60s) approach suggests that innovation
proceeds linearly:
Scientific discovery inventionmanufacturing marketing
Discoveries in basic science were the primary source of innovation which
were then translated into commercial applications
Demand Pull (mid 60s) approach argued that innovation
originates with unmet customer need:
Customer suggestions invention manufacturing
Research staff would develop new products in efforts to respond to
customer problems or suggestions
Most current research argues that innovation is not so simple,
and may originate from a variety of sources and follow a variety
of paths.
In-house R&D
Linkages to customers or other potential users of innovations
Linkages to external sources of scientific and technical info
Linkages to competitors, suppliers and complementors



Sources of Innovation 16
Transforming Creativity into Innovation
Firm Linkages with Customers, Suppliers, Competitors, and
Complementors
Include alliances, participation in research consortia, licensing arrangements,
joint ventures
Most frequent collaborations are between firm and their customers,
suppliers, and local universities.
Firms considers users their most valuable source of new ideas
Complementors are organizations that produce complementary goods such
as DVD moves for DVD players
Sources of Innovation 17
Transforming Creativity into Innovation
Firm Linkages with Customers, Suppliers,
Competitors, and Complementors
External versus Internal Sourcing of Innovation
External and internal sources are complements
Firms with in-house R&D also heaviest users of external
collaboration networks
In-house R&D may help firm build absorptive capacity (the
ability of an organization to assimilate and utilize new
knowledge) that enables it to better use information
obtained externally.
Sources of Innovation 18
Transforming Creativity into Innovation
Universities and Government-Funded Research
Universities
Many universities encourage research that leads to useful
innovations
Bayh-Dole Act of 1980 allows universities to collect royalties on
inventions funded with taxpayer dollars
Led to rapid increase in establishment of technology-transfer offices.
Offices that facilitate the transfer of technology developed in a
research environment to commercial applications (see article from
WSJ)
Revenues from university inventions are still very small, but
universities also contribute to innovation through publication of
research results.
Sources of Innovation 19
Transforming Creativity into Innovation
Universities and Government-Funded Research
In 1950s and 1960s US govt funded over 65% of R&D money, 26% by 2000 but
slack picked up by industry
Dollar amount of government funding has increased despite percentage drop
Governments invest in research through:
Their own laboratories
Science parks (foster collaboration between govt, universities and private forms) and
incubators (provide funding and advice to nurture the development of new technology
that has potential for important societal benefits but highly uncertain direct returns)
Grants for other public or private research organizations
Sources of Innovation 20
Transforming Creativity into Innovation
Private Nonprofit Organizations
Many nonprofit organizations do in-house R&D, fund R&D by
others, or both.
Top 20 US Nonprofit R&D performers, 1997
Sources of Innovation 21
Innovation in Collaborative Networks
Collaborations include (but are not limited to):
Joint ventures
Licensing and second-sourcing agreements
Research associations
Government-sponsored joint research programs
Value-added networks for technical and scientific
exchange
Informal networks
Collaborative networks are especially important in
high-technology sectors where individual firms rarely
possess all necessary resources and capabilities
Sources of Innovation 22
Innovation in Collaborative Networks
Technology Clusters are regional clusters of
firms that have a connection to a common
technology e.g., Silicon Valleys semiconductor
firms, lower Manhattans multimedia cluster
Though todays information technology enables fast,
cheap and easy communication across the globe,
knowledge does not always transfer so easily
Encompass an array of industries that are linked
through relationships between suppliers, buyers and
producers of complements.
Sources of Innovation 23
Innovation in Collaborative Networks
Agglomeration Economies (benefits firms reap by
locating in close geographical proximity to each
other):
Proximity facilitates knowledge exchange.
A willingness to exchange through building trust via interaction
Develop common ways to understand and articulate the
knowledge
Cluster of firms can attract other firms to area.
Supplier and distributor markets grow to service the
cluster.
Cluster of firms may make local labor pool more
valuable by giving them experience.
Cluster can lead to infrastructure improvements (e.g.,
better roads, utilities, schools, etc.)
Sources of Innovation 24
Innovation in Collaborative Networks
Downside of Agglomeration Economies
Proximity of many competitors serving a local market
can lead to competition that reduces their pricing
power via a vis buyers and sellers
Increase in the likelihood of a firms competitors
gaining access to the firms proprietary knowledge
Can lead to traffic congestion, excessively high housing
costs and increased pollution
Sources of Innovation 25
Innovation in Collaborative Networks
Likelihood of innovation activities being geographically
clustered depends on:
The nature of the technology
e.g., its underlying knowledge base or the degree to which it can be protected by
patents or copyright, the degree to which its communication requires close and
frequent interaction;
Industry characteristics
e.g., degree of market concentration or stage of the industry lifecycle,
transportation costs, availability of supplier and distributor markets; and,
The cultural context of the technology
e.g., population density of labor or customers, infrastructure development, national
differences in how technology development is funded or protected.
Pharmaceutical industry is clustered in the UK and France, not in
Germany or Italy
May be a result of the national systems of research funding and the
need to share complex technological expertise
Clothing manufacturing is clustered in Italy but not in the other three
may be due to cultural factors that influenced the historical rise of
industrial districts

Sources of Innovation 26
Innovation in Collaborative Networks
Technological spillovers (spread of knowledge
across organizational or regional boundaries) occur
when the benefits from the research activities of
one entity spill over to other entities.
Likelihood of spillovers is a function of:
Strength of protection mechanisms (e.g., patents, copyright,
trade secrets)
Nature of underlying knowledge base (e.g., tacit, complex)
Mobility of the labor pool
e.g.,a firms patenting activities and profits were influenced by
the R&D spending of other firms and universities in its
geographical region (Adam Jaffe)
Significant influence on innovative activity

Sources of Innovation 27
Knowledge Brokers
Hargadon and Sutton point out that some firms (or individuals)
play a pivotal role in the innovation network that of knowledge
brokers.
Knowledge brokers are individuals or firms that transfer
information from one domain to another in which it can be usefully
applied.
They possess the ability to recognize and capture potential solutions that
may be matched to problems in an unexpected way
Seek to exploit potential synergies of combining existing technologies
Robert Fulton saw steam engines used in mines and applied them to boats
By serving as a bridge between two separate groups of firms,
brokers can find unique combinations of knowledge possessed by
the two groups.
Thomas Edisons lab borrowed ideas from different industries to create
innovations in telegraphs, telephones, phonographs, light bulbs and many
others
Sources of Innovation 28
Discussion Questions
1. What are some of the advantages and disadvantages of a) individuals as
innovators, b) firms as innovators, c) universities as innovators, d)
government institutions as innovators, e) nonprofit organizations as
innovators?

2. What traits appear to make individuals most creative? Are these the same
traits that lead to successful inventions?

3. Could firms identify people with greater capacity for creativity or
inventiveness in their hiring procedures?

4. To what degree do you think the creativity of the firm is a function of the
creativity of individuals, versus the structure, routines, incentives, and culture
of the firm? Can you give an example of a firm that does a particularly good
job at nurturing and leveraging the creativity of its individuals?