Sources, Patterns and Types of Innovation

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Sources, Patterns and Types of Innovation

• Rajshree Agarwal

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Invention and innovation

• Invention
• Creating new products and processes by developing
  new knowledge or combining existing knowledge in
  new ways
• Innovation
• Initial commercialization of invention by
  producing and marketing a new good or service or
  by using a new method of production

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Innovation sources
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People innovate, though they may organize in
different ways

• At the root of any innovation is creative action
  by individuals
• What is creativity a function of?
• Knowledge sources of innovation
• Users
• Employees
• Academic Scientists
• However, linkages within and across institutions
  enable innovations
• Communities for innovation

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How are these innovators similar?

• In 1893, Josephine Cochrane unveiled the first
  truly functional dishwasher at the Chicago World
  Fair
• A prominent socialite, she had grown tired of her
  servants repeatedly breaking her 17th century
  fine china "If nobody else is going to invent a
  dishwashing machine, I'll do it myself"
• Cochran's Crescent Washing Machine Company ?
  KitchenAid
• In 1994, E.E. Ph.D. candidates David Philo and
  Jerry Yang, started a guide as a way to keep
  track of their personal interests on the Internet
• Jerry and David's Guide to the World Wide Web ?
  Yahoo!
• Individuals experienced a need in their
  day-to-day lives, created a solution to that
  need, and had a desire to share their solution
  with others

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Employees as innovators

• the Fairchildren
• Employee innovation and entrepreneurship spawned
  Silicon valley and the entire semiconductor
  industry
• Include Intel and AMD, the leading microprocessor
  manufacturers
• Apprenticeship at the best firms
• Common in knowledge and human-capital intensive
  industries
• Consulting, legal services
• Hair salons and restaurants too!
• Potentially, competitors OR collaborators
• Depends on space occupied in the value-chain

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Academic Scientists Innovation
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Linear or non-linear rules?

• Science push
• Scientific discovery ? invention?manufacturing ?
  marketing
• Linear model emphasizes supply side
• Demand pull
• Customer suggestions ? invention ? manufacturing
• Linear model emphasizes demand side
• The innovation process is more likely to be
  non-linear, with multiple linkages across key
  innovators occupying different roles
• 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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Getting an Inside Look Given Imagings Camera
Pill

• 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.

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Questions

• What roles (sources of innovation) can you
  identify for the main people identified in this
  article?
• What factors do you think enabled Iddan, an
  engineer with no medical background, to pioneer
  the development of wireless endoscopy?
• To what degree would you characterize Givens
  development of the camera pill as science-push
  versus demand-pull?
• What were the advantages and disadvantages of
  Iddan and Meron collaborating with Dr. Swains
  team?

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Transforming Individual Creativity into
Organizational Innovation

• Organizational creativity is a function of
• Creativity of individuals within the organization
• Hiring the right people
• Social processes and contextual factors that
  shape how those individuals interact and behave
• Creating a culture that encourages (but doesnt
  directly pay for) creativity
• What are some examples of good (or bad)
  institutional processes that you have encountered
  in the workplace?

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Methods of encouraging/tapping organizational
creativity

• Better Examples
• Idea collection systems (e.g., suggestion box)
• Creativity training programs
• Open channels for communication
• Incentive alignment and resource provision
• Not so good methods
• Creating horse-races
• Top-down approaches

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In-house research considered most important
source of innovation
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However, collaborations are important as well

• Firm Linkages with Customers, Suppliers,
  Competitors, and Complementors

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Benefiting from linkages requires internal
expertise, nonetheless

• External versus internal sourcing of innovation
  may be setting up a false dichotomy
• External and internal sources are often
  complements
• Firms with in-house RD also heaviest users of
  external collaboration networks
• In-house RD may help firm build absorptive
  capacity that enables it to better use
  information obtained externally.

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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

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Technology Clusters as innovation hotbeds

• Regional clustering of firms that have a
  connection to a common technology
• Network of suppliers, customers, or complements.
• Advantages of clustering
• Facilitates knowledge exchange.
• Attracts other firms to area.
• Supplier and distributor markets grow to service
  the cluster.
• Local labor pool more valuable by giving them
  experience.
• Leads to infrastructure improvements (e.g.,
  better roads, utilities, schools, etc.)
• Many advantages may also be disadvantages
• Facilitates knowledge exchange, attracts other
  firms, competition for local labor pool

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Patterns and Types of Innovation

• Rajshree Agarwal

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Patterns of Innovation

• Key Industry trend variables
• Industry Sales
• Take-off, Growth, Maturity, Withdrawal
• Number of Firms
• Take-off, Growth, Shake-out, Maturity
• Price
• Declining trend
• Technological Change
• Technology S curves

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The Languages of New Product Development
Successful Product
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The Product Life Cycle (in marketing)
Sales
time
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The Product Life Cycle (in economics)
Number of Firms
Peak
Shakeout
Growth
Maturity
Introduction
Invention
time
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The Popular Press
Business Week, 4/10/00
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Examples of the Sales Takeoff
Sales
Sales
There is considerable variation in sales takeoff
times across innovations
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Firm Takeoff Always Precedes Sales Takeoff
Firms
Sales
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Descriptive Statistics (mean and 95 confidence
interval)
time
Invention
Commercialization
Firm Takeoff
Sales Takeoff
Sales Peak
Firm Peak
2611 years
104 years
83 years
389 years
1410 years
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Whats happening to Prices over time?
Personal Computer
Price
Sales
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Why are prices declining over time?

• Increasing competition
• As firms enter, supply increases, causing
  downward pressure on price
• But
• Can mere capacity increases explain the magnitude
  of declines?
• Rapid pace of technology development is key!

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Technology S-curves
Technology Development
Smooth trajectory
Multiple Generations
Invention
time
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Example Disk drive Industry
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Typical Pattern of Innovation

• Emergence of an innovative product
• Fluid Phase or period of ferment
• Many alternative designs are attempted, many
  firms enter and exit the industry
• Transitional Phase
• A dominant design emerges around a set of
  features that all products must offer
• Specific Phase or period of incremental change
• Industry characterized by a fairly stable set of
  firms designing products following the dominant
  design, concentrating on efficient production

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Industry Life-Cycle Rates of Innovation
Product Innovation
Process Innovation
Rate of Major Innovation
Fluid Phase
Transitional Phase
Specific Phase
Abernathy Utterback 1978
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Product versus Process Innovation

• Product innovations are embodied in the outputs
  of an organization its goods or services.
• Process innovations are innovations in the way an
  organization conducts its business, such as in
  techniques of producing or marketing goods or
  services.
• Product innovations can enable process
  innovations and vice versa.

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Product or process?

• What is a product innovation for one organization
  might be a process innovation for another
• E.g., UPS creates a new distribution service
  (product innovation) that enables its customers
  to distribute their goods more widely or more
  easily (process innovation)

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Dominant Design

• A generally adopted configuration of components
  that defines the look, functionality, and
  production criteria for a product.
• Qwerty typewriter
• 35 mm camera
• IBM PC mini computer

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Effect of Innovation

• When both product and process innovations are
  considered, industries show constant innovation
• Innovations can be characterized by their effect
  on
• technology
• system design
• target markets
• capabilities

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Types of Innovation
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In-class Activity

• What type would you characterize the following
  innovations to be
• Hybrid Electric vehicles
• Introduction of the 1 inch diameter in the disk
  drive industry
• Increase in the resolution of a computer monitor
• Digital Cameras
• Combining PDA, Camera, phone features in one
  product
• Other?

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Summary Take-aways

• Sources of innovation include users, employees
  and academic scientists
• Innovation is fostered by creativity
• Important for firms to institute a culture that
  encourages creativity and collaboration, both
  internally and externally
• Impressive body of evidence that industries
  follow a systematic pattern of innovative cycle
  that manifests itself in trends of
• Number of firms
• Sales
• Price
• Innovation can be classified into different types
  based on their effect on key dimensions