2. ©2009 Prentice Hall 4-1 M738 Management of Technology Lecture 4 Sources of Innovation

3. ©2009 Prentice Hall 4-2 Learning Objectives Define a technological opportunity How opportunities for technological innovation are generated by changes in technological, political, regulatory, social, and demographic Identify the different loci of innovation, and explain how different institutions contribute to technological innovation Describe the roles played by the public sector in the national innovation system Identify the different components of research and development Describe the different ways that organizations link research and development activities List the different forms of innovation Interpret the effects of industry on the forms of innovation

4. 2-3 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)

5. 2-4 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) Creativity training programs Culture that encourages (but doesn’t directly pay for) creativity.

6. 2-5 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.

7. ©2009 Prentice Hall 4-6 Sources of Opportunity Three major sources of opportunity for innovation  Technological change  Political and regulatory change  Social and demographic change All sources of innovation can operate separately or in combination

8. ©2009 Prentice Hall 4-7 Technological Change One of the most important triggers because technological change allows people to do things that could not be done before or only could be done in a less efficient manner Many technological changes do not make any innovations possible, while others generate a multitude of opportunities Delay can occur because complementary technologies, or technologies that are used along with the focal technology, need to be invented before an innovation can be developed

9. Moore’s Law

10. Gilder’s Law

11. Metcalfe’s Law

12. ©2009 Prentice Hall 4-11 Important Attributes of Technological Change Influence opportunities for innovation  The magnitude of the change  The generality of the change  The commercial viability of the change Predicting the relationship between technological change and the opportunity for innovation is difficult because the relationship is not always one-to-one:  Leads to the creation of additional opportunities, and it is rarely immediate

13. ©2009 Prentice Hall 4-12 Political and Regulatory Activity Sometimes makes innovation possible by providing subsidies that pass off the cost of innovation Prompts firms to create new products and processes to solve problems created by regulation Spurring competition between firms Providing access to resources that permit the development of new products and services

14. ©2009 Prentice Hall 4-13 Political And Regulatory Change

15. ©2009 Prentice Hall 4-14 Social and Demographic Change Create opportunities by altering people’s preferences, and by creating demand for products that had not existed before  Social trends  Demographic trends  Shift in perception

16. ©2009 Prentice Hall 4-15 Social and Demographic Change

17. ©2009 Prentice Hall 4-16 Combination Opportunities for innovation are often the result of many different types of changes

18. ©2009 Prentice Hall 4-17 Locus of Innovation Business undertakes most of the research and development conducted in the United States The government plays an important role in the technology innovation process by conducting research, paying for research done by others, and by serving as a lead customer Individuals conduct much less of the technological innovation than they once did Universities help firms innovate by training students, by conducting research, and by licensing technology developed by their faculty, staff and students

19. 2-18 Overview Innovation can arise from many different sources and the linkages between them.

20. 2-19 Transforming Creativity into Innovation Innovation by Users  Users have a deep understanding of their own needs, and motivation to fulfill them.  E.g., Laser sailboat developed by Olympic sailors

21. 2-20 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 Theory In Action

22. 2-21 Theory in Action Dean Kamen  The Segway HT: A self-balancing, two- wheeled scooter.  Invented by Dean Kamen Described as tireless and eclectic Kamen held 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

23. ©2009 Prentice Hall 4-22 Research and Development Companies can, and do, create innovations through deliberate investment in research and development efforts designed to create new products and services, and new processes for providing them

24. 2-23 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.

25. 2-24 Transforming Creativity into Innovation Research and Development by Firms  Most firms consider in-house R&D to be their most important source of innovation.

26. 2-25 Transforming Creativity into Innovation Research and Development by Firms  Science Push approaches suggest that innovation proceeds linearly: Scientific discovery  invention  manufacturing  marketing  Demand Pull approaches argued that innovation originates with unmet customer need: Customer suggestions  invention  manufacturing  Most current research argues that innovation is not so simple, and may originate from a variety of sources and follow a variety of paths.

27. ©2009 Prentice Hall 4-26 Model Underlying Investment In R&D

28. ©2009 Prentice Hall 4-27 Types of R&D Basic Research: the effort to understand the technical or scientific principles in a field Applied Research: the effort to understand technical or scientific principles with a specific commercial goal in mind Development: the effort to use technical knowledge to produce something of commercial use

29. ©2009 Prentice Hall 4-28 Why Firms Conduct R&D  To create new technologies that provide the basis for new products and services  To develop products to replace those threatened by substitutes  To differentiate products from those of competitors  To create strong intellectual property positions  To absorb externally generated ideas

30. ©2009 Prentice Hall 4-29 Top 20 R&D-Spending Corporations In 2003

31. ©2009 Prentice Hall 4-30 R&D Intensity of Different Industries

32. ©2009 Prentice Hall 4-31 Costs of R&D Investments in basic research are uncertain The financial returns rarely occur in the short term Almost all of the financial returns from R&D projects are generated by a handful of projects, many years after the investments are first made Lock companies into strategies that are difficult to change Investments in R&D are difficult to appropriate

33. ©2009 Prentice Hall 4-32 The Costs and Benefits of R&D

34. ©2009 Prentice Hall 4-33 Linking Research and Development To capture the returns to basic research:  Not easy due to Research being undermined when it is closely tied to Development  Employment is unappealing to researchers if required to spend too much time on development  Transitioning technology from basic research to applied development is difficult and time consuming  Research scientists often have difficulty transferring information about their discoveries to development engineers

35. ©2009 Prentice Hall 4-34 Encouraging productive links between research and development Give researchers financial incentives to work on projects that are aligned with development goals Require your research laboratories to use the same equipment and materials as your product development laboratories Expose basic researchers to development, perhaps for a temporary period when they first join your company Make fit with company strategy a criterion in the evaluation of proposals for research funding

36. 2-35 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

37. External Sources Alibaba  www.alibaba.com www.alibaba.com ©2009 Prentice Hall 4-36

38. 2-37 Innovation in Collaborative Networks Technology Clusters are regional clusters of firms that have a connection to a common technology May work with the same suppliers, customers, or complements. Agglomeration Economies: –Proximity facilitates knowledge exchange. –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.)

39. BASIC CHARACTERISTICS OF CLUSTERS Strategic associations of companies Established on the bases of a value chain Dominate sectors; United against external competition Complementary industries Common local interest Formal and informal relations between firms Gives small and medium enterprises economic power of large consumers and mass producers

40. Source: Professor Michael E. Porter, Harvard University, Council on Competitiveness, Monitor Company Group LP and On the Frontier, 2001. The California Wine Cluster

41. Atlanta Information Technology Cluster Other Electronic Components Instruments Communications Services Software Peripherals Electronic Components and Assemblies Computers Source: Clusters of Innovation Initiative Report: Council on Competitiveness, Harvard Institute on Strategy & Competitiveness, Cluster Mapping Project, U. S. County Business Pattern Data; ontheFRONTIER interviews DistributionRelated Services Parts Communications Equipment Universities and Training Institutions Georgia Tech, Emory Community Colleges Cluster Organizations Technology Alliance of GA; Georgia Research Alliance Among National Leaders (1–5) Competitive (6–20) Position Established (21–40) Less Developed (41+) Research Organizations Georgia Research Alliance, Georgia Tech Institutes, GCATT Specialized Risk Capital VC firms, Angel Networks Specialized Services (Banking, Accounting, Legal,) Government Policy and Regulatory Environment GRA, Yamacraw, ICAPP

42. Omaha Telemarketing Hotel Reservations Credit Card Processing Wisconsin / Iowa / Illinois Agricultural Equipment Detroit Auto Equipment and Parts Rochester Imaging Equipment Western Massachusetts Polymers Boston Mutual Funds Medical Devices Mgmt. Consulting Biotechnology Software and Networking Venture Capital Hartford Insurance Providence Jewelry Marine Equipment New York City Financial Services Advertising Publishing Multimedia Pennsylvania / New Jersey Pharmaceuticals North Carolina Household Furniture Synthetic Fibers Hosiery Dalton, Georgia Carpets South Florida Health Technology Computers Nashville / Louisville Hospital Management Baton Rouge / New Orleans Specialty Foods Southeast Texas / Louisiana Chemicals Dallas Real Estate Development Wichita Light Aircraft Farm Equipment Los Angeles Area Defense Aerospace Entertainment Silicon Valley Microelectronics Biotechnology Venture Capital Cleveland / Louisville Paints & Coatings Pittsburgh Advanced Materials Energy West Michigan Office and Institutional Furniture Michigan Clocks San Diego Golf Equipment Biotech/Pharma Minneapolis Cardio-vascular Equipment and Services Warsaw, Indiana Orthopedic Devices Colorado Computer Integrated Systems / Programming Engineering Services Mining / Oil and Gas Exploration Las Vegas Amusement / Casinos Small Airlines Oregon Electrical Measuring Equipment Woodworking Equipment Logging / Lumber Supplies Seattle Aircraft Equipment and Design Software Coffee Retailers Boise Information Tech Farm Machinery Geographical Distribution of Clusters Source: Adapted from Professor Michael E. Porter, Harvard Business School

43. Local Cluster Strategy Milwaukee water Initative  http://www.milwaukee7-watercouncil.com/wiki http://www.milwaukee7-watercouncil.com/wiki ©2009 Prentice Hall 4-42

44. The creative center of the economy is tied to geographic location. Most innovative work occurs in face-to-face exchange within teams. Geographic clustering is a powerful mechanism for sharing personal knowledge. Innovation is tied to Place

45. The Theory of Industry Clusters Paul Romer  Increasing returns associated with knowledge, not the accumulation of capital and labor, are the key forces driving growth Michael Porter  Clusters, or critical masses of unusual competitive success in particular business areas, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations.

46. 45 What’s So Good About Clusters? Increase Efficiency  Efficient access to information, specialized inputs and employees, institutions, and “public goods”  Easier to achieve complementarities across businesses Spur Innovation  Improved ability to perceive and respond to innovation opportunities  More rapid diffusion of improvements Facilitate New Business Formation  Easier to identify opportunities for new businesses  Lowers barriers to entry (including perceived risk) Source: Professor Michael E. Porter, Harvard Business School

47. Industry Clusters Can Be Used as... An analytical tool (e.g., to better understand the economy and deploy resources strategically); An organizational tool (e.g., to engage industry leaders in a regional strategy and foster communication, networking and improvement among companies); and A service delivery tool (e.g., to provide high-value specialized services)

48. Traded Clusters Local Clusters Natural Resource- Driven Industries Note: 1999 data, except relative productivity which is 1997data, Patents data which is 1998 data. Source: Harvard Institute on Strategy & Competitiveness, Cluster Mapping Project, Share of Employment Employment Growth, 1993 to 1999 Average Wage Relative Wage Wage Growth Relative Productivity Patents per 10,000 Employees Number of SIC Industries 32.1% 2.5% $41,678 134.0 5.0% 144.1 20.48 592 32.1% 2.5% $41,678 134.0 5.0% 144.1 20.48 592 67.1% 2.8% $26,049 83.8 3.8% 79.3 1.38 241 67.1% 2.8% $26,049 83.8 3.8% 79.3 1.38 241 0.8% -0.1% $31,264 100.5 2.5% 139.5 6.40 46 0.8% -0.1% $31,264 100.5 2.5% 139.5 6.40 46 Which Type of Clusters Matter Most?

49. Identifying Industry Clusters Export Oriented: Many of the companies in the cluster sell products or services to companies outside the region. Concentration: Employment in the cluster is more concentrated in the region than the national average, and the cluster is an existing or emerging area of specialization. Business Interdependence: Businesses relate to each other through the buyer-supplier “food chain,” as competitors, or as partners. Significant Size or Rapid Growth: The cluster is of a significant size or, if new, has an above average growth rate compared to that of the U.S. as a whole.

50. Continuum of collaborative activity Jointly inform newsletters, electronic links, cluster directories Jointly learn seminars, conferences, training Jointly market strategic plans for exports, cluster brochures Jointly purchase buyer-supplier linkages Jointly produce bid on projects, joint ventures, federal labs Jointly build economic foundations centers of excellence, telecom, tech transfer,

51. How Do Clusters Develop?  Initial (Natural) Resource Base Pittsburgh’s Steel  Historical Legacy (Large Local Markets) Chicago’s food processing  Luck/Serendipity Galveston’s Insurance  Supportive Business/Regulatory Environment Wilmington’s Credit Cards  Consciously Designed Initiatives Research Triangle’s Information Technology Now, usually a mix of reasons…

52. 2-51 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.

53. 2-52 Innovation in Collaborative Networks  Technological spillovers 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

54. Crowdsourcing Threadless  www.threadless.com www.threadless.com Quirky  www.quirky.com/shop www.quirky.com/shop ©2009 Prentice Hall 4-53

55. 2-54 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. Revenues from university inventions are still very small, but universities also contribute to innovation through publication of research results.

56. 2-55 Transforming Creativity into Innovation Universities and Government-Funded Research  Governments invest in research through: Their own laboratories Science parks and incubators Grants for other public or private research organizations

57. ©2009 Prentice Hall 4-56 Share of Federal Funding of Different Technical Fields

58. ©2009 Prentice Hall 4-57 The Rise of Academic Research

59. Why Universities Transfer Technology Facilitate commercialization of research for the public good Reward, retain and recruit faculty, students Induce closer ties to industry Promote economic growth

60. The Technology Transfer Process Research DisclosureIP Decision IP Protection Commercialization Strategy Licensing $42.3 billion 10,270 patent applications 17,382 disclosures 4,932 licenses 454 new companies 3,278 issued patents Source: AUTM Licensing Survey: FY 2005

61. Total Sponsored Research Expenditures - U.S. Universities Source: AUTM Licensing Survey: FY 2000

62. Intellectual Property Trends - U.S. Universities

63. Gross License Income Received by U.S. Universities 1992-2000 Source: AUTM Licensing Survey: FY 2000

64. ©2009 Prentice Hall 4-63 Relationship Between Technology and Form of Innovation

65. ©2009 Prentice Hall 4-64 Forms of Innovation and Technology Strategy Affects the value that can be generated and captured Affects ability to attract customers

66. ©2009 Prentice Hall 4-65 Industry and the Nature of Innovation The nature of innovation varies across industries Depends on the production process in an industry:  Non-assembled  Simple assembled  Assembled systems

67. 2-66  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 Imaging’s Camera Pill

68. 2-67 Transforming Creativity into Innovation Firm Linkages with Customers, Suppliers, Competitors, and Complementors  Most frequent collaborations are between firm and their customers, suppliers, and local universities.

69. 2-68 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 that enables it to better use information obtained externally.

70. 2-69 Transforming Creativity into Innovation Private Nonprofit Organizations  Many nonprofit organizations do in-house R&D, fund R&D by others, or both.

71. 2-70 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. Thomas Edison is a good example.  By serving as a bridge between two separate groups of firms, brokers can find unique combinations of knowledge possessed by the two groups. Research Brief