STRATEGIC MANAGEMENT OF

Technological
Innovation
Sixth Edition

Melissa A. Schilling

©2020 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom.  No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
 Sources of Innovation

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 Sources of Innovation
Innovation can arise from many different
sources including individuals, firms, universities,
government laboratories and incubators, and
private non-profit organizations.
Firms are well suited to innovation activities
because they are highly motivated by the need
to remain competitive and because have the
management systems needed to organize their
resources to achieve an organizations’
objectives.
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 Sources of Innovation
An even more important source of innovation is
the networks that link innovators together.
These networks leverage a broader range of
knowledge and resources than an individual
entity could.

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 Overview
Innovation can arise from many different
sources and the linkages between them.

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 Creativity
Creativity is defined as the ability to produce
work that is useful and novel (i.e. different and
surprising when compared to prior work).
The most creative works are novel at the
individual producer level, the local audience level,
and the broader societal level.

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 Creativity

1. Individual Creativity

2. Organizational Creativity

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 1. Individual Creativity
• Individual creativity is a function of:
• Intellectual abilities (for example, ability to articulate
ideas).
• Knowledge (for example, understand field, but not wed to
paradigms).
• Personality (for example, confidence in own capabilities).
• Motivation (for example, rely on intrinsic motivation).
• Environment (for example, support and rewards for
creative ideas)
Researchers have argued that the most important capability
is the ability to look at problems in unconventional ways.

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 Intellectual abilities
• Intellectual abilities include intelligence, memory, the
ability to look at problems in unconventional ways,
evaluate alternatives and articulate them to others.
• Some people are also better able to engage in
primary process thinking, and to rapidly generate
many associations or follow paths of association out
more steps.

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 Knowledge
Too much knowledge can result in an inability
to think beyond the existing logic and paradigms
of a field while too little knowledge can lead to
trivial contributions

The most creative individuals can distinguish

important problems from unimportant ones

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 Personality
Self-efficacy, tolerance for ambiguity, and a
willingness to overcome obstacles and take
reasonable risks are the personality traits most
important for creativity

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 Motivation
Intrinsic motivation has also been shown to be
very important for creativity; extrinsic
motivators (e.g., monetary rewards, awards) can
sometimes undermine creativity.

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 2. Organizational Creativity
• Organizational creativity is a function of creativity of
the individuals within the organization and a variety
of social processes and contextual factors that
shape the way those individuals interact and
behave.

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 2. Organizational Creativity
• The creativity of individuals can be amplified or
thwarted by an organization’s structure, routines,
and incentives.
• Common methods of tapping employee creativity
include 1) the suggestion box, 2) idea management
systems (Google, Honda, BankOne).

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 2. Organizational Creativity
Idea collection systems such as suggestion
boxes, or idea management systems are only a
first step. Managers can be trained to signal
(through verbal and nonverbal cues) that each
employees thinking and autonomy is respected.
Employees can also be trained to use creativity
tools such as using analogies or developing
alternative scenarios. (see the various ways that
Google inspires creativity as described in the
Theory in Action box) p. 24
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 Theory in Action 1

Inspiring Innovation at Google.

• Google uses a range of formal and informal
mechanisms to encourage its employees to innovate,
including:
• 20% Time (all engineers are encouraged to spend 20% of
their time working on their own projects).
• Recognition awards.
• Google Founders’ Awards.
• Innovation reviews.

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 2. Organizational 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 (for example, suggestion box;
Google’s idea management system).
• Creativity training programs.
• Culture that encourages (but doesn’t directly pay for)
creativity.
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 Translating Creativity into Innovation

Innovation is the implementation of creative ideas into some

new device or process.
Requires combining creativity with resources and expertise.

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 Who are the 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.

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 Theory in Action 2

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.
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 Dean Kamen
https://www.youtube.com/watch?v=9gYvDmea
5kU&list=PLc6EeKrKYKClN48ow3Irj_sO0zQEY-Vw
u&index=33

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 Innovation by Users

• Users have a deep understanding of their own

needs, and motivation to fulfill them.
• While manufacturers typically create innovations to
profit from their sale, user innovators often initially
create innovations purely for their own use.
• For example, Laser sailboat developed by Olympic
sailors; Indermil tissue adhesive based on Superglue;
early snowboards.

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 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.

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 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.

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 Firm Linkages with Customers, Suppliers,
Competitors, and Complementors
Collaboration can occur in alliances, research
consortia, licensing arrangements, contract
research and development, joint ventures, and
other arrangements.
The most frequent collaborations are
between firms and their customers, suppliers,
and local universities.

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 Firm Linkages with Customers, Suppliers,
Competitors, and Complementors
• Most frequent collaborations are between firm and their
customers, suppliers, and local universities.

North America (%) Europe (%) Japan (%)

Collaborates with:
Customers 44 38 52
Suppliers 45 45 41
Universities 34 32 34

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 Firm Linkages with Customers, Suppliers,
Competitors, and Complementors

Firms may also collaborate with competitors

and complementors and the line between
complementor and competitor can become
blurred making the relationships between firms
very complex and difficult to navigate.

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 Firm Linkages with Customers, Suppliers,
Competitors, and Complementors

In some circumstances, bitter rivals in one

product category will collaborate in that product
category or in the development of
complementary products.
• For example, Microsoft competes against Rockstar Games
in many video game categories, yet also licenses many
Rockstar games to play on the Xbox.

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 Firm Linkages with Customers, Suppliers,
Competitors, and Complementors

The line between competitor and complementor

can be tricky to manage.

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 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

• Public research institutions such as universities,

government laboratories and incubators enable
companies to develop innovations that they would
not have otherwise developed.
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 Universities

• 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.

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 Government-Funded Research.
Government Funded Research is actively
supported in many countries but the ratio of
R&D funding provided by industry and
government varies significantly by country.

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 Total R&D Expenditures and Percent of R&D
Funds by Performing Sector, by Country 2015

Access the text alternative for these images

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 Government-Funded Research.
Government research takes place in
government laboratories and through the
funding of science parks (fostering collaboration
between national and local government
institutions, universities, and private firms) and
incubators (focusing on new business
development) and grants for other public or
private research entities.

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 A science and technological park
https://www.youtube.com/watch?v=M8Px9HqsPPI&lis
t=PLc6EeKrKYKClN48ow3Irj_sO0zQEY-Vwu&index=34

https://www.youtube.com/watch?v=u7tgCLfWM-c&lis
t=PLc6EeKrKYKClN48ow3Irj_sO0zQEY-Vwu&index=35
https://www.youtube.com/watch?v=KGxK-IJSXUk&list
=PLc6EeKrKYKClN48ow3Irj_sO0zQEY-Vwu&index=36

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 Private Nonprofit Organizations

• Many nonprofit organizations do in-house R&D, fund

R&D by others, or both.
• The top nonprofit organizations that conduct a
significant amount of R&D include organizations
such as the Howard Hughes Medical Institute, the
Mayo Foundation, the Memorial Sloan Kettering
Cancer Center, and SEMATECH.

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 Innovation in Collaborative Networks 1

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 research is especially important in high-
technology sectors where individual firms rarely
possess all necessary resources and capabilities.
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 Innovation in Collaborative Networks 1

There is a growing recognition of the

importance of collaborative research and
development networks for successful innovation
The structure of such networks influences the
flow of information and other resources through
the network. The size and density of the
network can thus influence the innovation of
organizations that are embedded in the
network.
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 Innovation in Collaborative Networks 2

As firms forge collaborative relationships, they weave a larger

network that influences the diffusion of information and other
resources.
The size and structure of this network changes over time due to
changes in alliance activity.

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 Innovation in Collaborative Networks 2

Firms in close geographic proximity are more

likely to collaborate and exchange knowledge
(e.g. Silicon Valley’s semiconductor firms, lower
Manhattan's multimedia cluster, or Modena
Italy's knitwear district).

Technology Clusters are regional clusters of

firms that have a connection to a common
technology.
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 Technology Clusters :
• There are often economies of having buyers,
suppliers, and complementors located in close
proximity.
• Proximity facilitates knowledge transfer. The
exchange of complex or tacit knowledge typically
requires frequent and close interaction. Proximity
influences a firms’ willingness to exchange
knowledge and firms’ ability to develop common
ways of understanding and articulating knowledge.

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 Technology Clusters :
• Knowledge is held, to a large extent, in people, and
people tend to be reluctantly mobile. As a result
knowledge tends to be regionally localized. For
example, Annalee Saxenian found that engineers in
Silicon Valley were more loyal to their craft than to
any particular company, but they were also very
likely to stay in the region even if they changed
jobs.
• Successful firms create a valuable labor pool that is
attractive to new firms that desire similar labor
skills.
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 Technology Clusters : agglomeration
economies
• The increase in employment and tax revenues
in the region can lead to improvements in
infrastructure (such as roads and utilities)
schools, and other markets that service the
population.
• The benefits firms reap by clustering together
in close proximity are known as
“agglomeration economies.”

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 Technology Clusters: negative effects
• The downsides to geographical clustering are
that competition between the firms may
reduce their pricing power, increase the
possibility of competitors gaining access to
each others’ proprietary knowledge.
• Clustering can also lead to traffic congestion,
high housing costs, and higher concentrations
of pollution.

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 Technology Clusters : some factors
• Studies have shown that the degree to which
innovative activities are geographically
clustered depends on things such as: the
nature of the technology, industry
characteristics, and the cultural context of
the technology (e.g. population density of
labor or customers), infrastructure
development, or national differences in the
way technology development is funded or
protected.
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 Technological spillovers
• Technological spillovers occur when the benefits
from the research activities of one firm (or nation, or
other entity) spill over to other firms (or nations, or
other entities).
• The rate at which technology spillovers will occur is a
function of the strength of protection mechanism
and the nature of the underlying knowledge.

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 Knowledge Brokers
Knowledge Brokers are firms or individuals that play
a particularly important role in an innovation
network because they transfer information between
different domains and exploit synergies created by
combining existing technologies.
Hargadon and Sutton identify Robert Fulton and
Thomas Edison as knowledge brokers

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 • Fulton recognized that steam engines could be used
to propel steamboats.
• Edison was known for borrowing from different
industries to create products such as the telegraph,
telephones, generators and vacuum pumps.

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 Knowledge Brokers
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.

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 Innovation in Collaborative Networks
Likelihood of innovation activities being geographically
clustered depends on:
• The nature of the technology.
• For example, 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.
• For example, 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.
• For example, population density of labor or customers, infrastructure
development, national differences in how technology development is
funded or protected.
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 The Rise of “Clean Meat”
In late 2017, Bill Gates, Jeff Bezos, Jack Ma and others began
funding efforts to grow “clean meat”.
• Growth in demand for meat expected to outpace supply.
• Animal production has large negative impacts environment: greenhouse
gasses, heavy water and energy use.
• Animal production is inefficient: 1 calorie of beef requires 23 calories of
inputs versus 3 required for one calorie of “clean meat”.
Developing clean meat.
• Jason Matheny founded New Harvest to promote research; collaborated
with Dutch scientist and government.
• Early efforts were very expensive ($1200 for first meatball).
• By 2016 there were several startups and Tyson and Cargill were investing
in it.
• https://www.youtube.com/watch?v=29GFYxI4tek

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 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?
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