© 2007 John Wiley & Sons Australia, Ltd

Creativity, innovation Chapter 3 Creativity, innovation and entrepreneurship

Chapter outline Creativity Innovation The role of knowledge, social networks and strategic resources

Learning objectives List the three components of creativity Use a series of creativity techniques Define and explain the sources of innovation Discuss the different innovation types

Learning objectives Explain the link between creativity, innovation and entrepreneurship Define the types and attributes of resources within a resource-based view of entrepreneurship

The need for creativity ‘You have to kiss a lot of frogs to find a prince’, said Art Fry, the inventor of Post-it notes at 3M. ‘But remember, one prince can pay for a lot of frogs.’ Source: The Economist (1999), Leaps of Faith, A Survey of Innovation in Industry, February 20th, pp. 12–16.

Creativity Creativity is often associated with the arts. In business, creativity can be defined as the production of new and useful ideas. Successful, innovative companies do systematically encourage the development of ideas.

The three components of creativity Creativity does not only consist of creative thinking, this is only one part of creativity. Knowledge and motivation are two other important elements.

Creative thinking skills Creative thinking is how people approach problems and solutions Depends strongly on the personality as well as how a person thinks or works People are more creative if they feel comfortable disagreeing with others

Knowledge Expertise or knowledge encompasses everything a person knows and can do. Knowledge can be acquired in different ways: through formal education practical experience or interaction with other people.

Knowledge Knowledge constitutes a ‘network of possible wandering’; the larger the space, the better.

Motivation Motivation determines what a person will actually do. 2 types of motivation exist: intrinsic motivation (motivation from inside, such as enjoyment of work) extrinsic motivation (motivation from outside, such as financial rewards)

Motivation People will be most creative when they feel motivated mainly by the interest, satisfaction and challenge of the task itself.

Creativity techniques Problem reversal Forced analogy Attribute listing Mind maps Brainstorming

Factors influencing creativity Encouragement of creativity Autonomy Resources Pressures Mental blocks

Innovation Innovation is the successful implementation of creative ideas within an organisation. Entrepreneurship can occur with little, if any, innovation.

Innovation Newness or uniqueness of innovation is a matter of degree both in terms of the tangible characteristics and in terms of the relevant market.

Incremental vs disruptive innovation Incremental innovation: steady improvements based on sustained technologies obedient to cultural routines and norms immediate gains develops customer loyalty

Incremental vs disruptive innovation Change value proposition Cause fundamental changes in marketplace Experimentation and play/make believe Needs to be nurtured for long periods Worse initial performance, potential big gains Creates new markets

Types of incremental innovation Extension Duplication Synthesis

Sources of innovation within companies or industries Drucker identified 4 sources of innovation within a company or an industry: Unexpected occurrences Incongruities Process needs Industry and market changes

Sources of innovation in the social environment 3 additional sources of opportunities exist outside a company in its social and intellectual environment: demographic changes perceptual changes new knowledge

A process model of creativity, innovation and entrepreneurship Figure 3.1

Knowledge development during the entrepreneurial process During the creativity stage, knowledge is present in a very raw form. It might just consist of ideas and sketches drawn on a piece of paper.

Knowledge development during the entrepreneurial process During the innovation stage, knowledge is further refined and the initial idea should pass the ‘feasibility test’. At this stage, knowledge is often codified, for instance, in the form of a formula or patent.

Knowledge development during the entrepreneurial process During the entrepreneurship stage, knowledge is embedded in the product or service sold.

Developing and disseminating knowledge through social networks Social networks are the catalyst for the development and dissemination of knowledge both for emerging and established organisations.

Developing and disseminating knowledge through social networks Nascent entrepreneurs’ personal networks — the set of persons to whom they are directly linked — affect their access to social, emotional and material support.

Developing and disseminating knowledge through social networks Network relationships and contacts are fundamental: firstly, to identify opportunities and secondly, to obtain the knowledge and resources required to exploit opportunities.

A resource-based theory of entrepreneurship The most creative ideas and cutting-edge innovations are, however, not sufficient to set up a business venture. Without resources to exploit an opportunity, even the best opportunity cannot create an entrepreneur.

Principles of resource-based theory Resources are necessary to exploit opportunities and to create entrepreneurs. The resource-based theory considers that firms have different starting points for resources (called resource heterogeneity) and that other firms cannot get them (called resource immobility).

Principles of resource-based theory In order to be successful, entrepreneurs must exploit market imperfections based upon imperfect information or variations in expectations about prices, while adhering to the following simple formula:

Principles of resource-based theory buy (or acquire) resources and skills cheaply transform the resources into a product or service (production) deploy and implement (strategy) sell dearly (value creation)

Resources types Financial resources Physical resources Human resources Technological resources Reputation Organisational resources

Attributes of strategic resources Sustainable competitive advantage is created when firms possess and use resources that are: valuable rare non-substitutable hard to copy (historical conditions, ambiguous causes and effects, complex social relationships)

The role of stories in attracting resources A well-crafted story about entrepreneurial resources encapsulates the strategic goals and management of the new venture and indicates why it merits investment.

Summary Creativity can be described as the production of new and useful ideas in any domain. Creativity stems from creative thinking skills, knowledge and motivation. Innovation is the successful implementation of creative ideas within an organisation.

Summary It can be distinguished between radical and incremental innovation. The successive stages of idea generation (creativity), ideas evaluation (innovation) and ideas implementation (entrepreneurship) can overlap.

Summary Sustainable competitive advantage is based on the strategic resources a firm can harness.