ENT 450/550 – 2009 - 01:
CREATIVITY AND INNOVATION:
CONCEPTUAL FOUNDATIONS
Ozzie Mascarenhas SJ, PhD
February 24, 2009
The greatness of America and its economy lies in its unbeaten capacity for innovation and venture.
The average innovation ability of companies in America and in the developed world is rising, and in
certain industries it almost equalizing (e.g., autos, cell phones, information technology). A very successful
company targets and achieves over 40% of its annual sales revenues from new products (e.g., Microsoft,
Dell Computers, P&G, and Sony) – that is, the company renovates every 2.5 years. Moderately
successful companies target 50% of their annual sales from internally developed new products during the
last 5 years - the company renovates every 10 years. Hence, new products are the best answers to most
problems of all institutions.
December 1903, at Kitty Hawk, NC, Wilbur and Orville Wright proved that powered flight was
possible. Thus, the plane was invented. It took more than 30 years, however, before commercial aviation
(e.g., McDonnell Douglas DC-3 introduced in 1935) ushered the new era of fast travel. An idea is
“invented” when it is proven to work in a laboratory. The idea becomes an “innovation” only when some
one replicates it reliably on a meaningful scale and cost, such that it can be commercialized. The idea is a
“basic invention” if it is economically and technologically important, such as the commercial aircraft,
telegraph, telephone, computer, PC, mobile phones and the like, that results in radically new industries or
transforms an existing industry (Senge 1990: 5-6).
In engineering, when an idea moves from invention to innovation, diverse “component technologies”
are generated, often independently, but they come together to form an ensemble that is critical for the
invention to progress and transform to innovation. In the case of the DC-3, it brought together for the
first time five different component technologies: a) the variable-pitch propeller, b) retractable landing
gear, c) radial air-cooled engine, d) wing flaps, and e) a type of lightweight molded body construction
called “monocque.” To succeed, DC-3 needed all five-component technologies; four were not enough.
In 1934, the Boeing 247 was launched with all of them except wing flaps, which made the plane unstable
on take-off and landing, and the engineers had to downsize the engine (Senge 1990: 6).
Importance of Innovations as
Business Growth Opportunities
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Innovation, and especially radical innovation, is the engine of economic growth and source of better
products. Radical innovation changes the entire shape of industries and makes the difference between
life and death of many firms (Schumpeter 1942). The history of business is littered with the graveyards
of entire industries that were destroyed by radical innovations: steel, communications, telegraphy, gas
lighting, photography and typewriter industries are cases in point (Utterback 1994). In each industry,
some firms did not adopt a radical technology and failed to survive in the marketplace, whereas other
firms leaped from one generation of technology to the next and accordingly, strategized their business
operations to success (Srinivasan, Lilien, and Rangaswamy 2002). Thus, managers in general, and new
product managers in particular, need to know how to initiate and manage radical product innovation.

Understanding technological innovation is vital for marketers. Technological change is perhaps the most
powerful engine of growth. It triggers the growth of new brands (e.g., Gillette’s Mach I, II, III; Sony’s
Play-stations I and II, Play Station Plus; Intel’s Pentium I, II and III; Apple’s Mackintosh, iPod, iTune,
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and iPhone; Microsoft’s Windows 95, Windows 98, Windows NT, Windows 2000, Windows 2005, and
Windows 2008). It creates new growth markets (e.g., digital video recorders, mobile phones, and Apple’s
iPod) and transforms small companies into market leaders (e.g., Acer, Apple, Dell, Intel, Samsung,
Toyota). New product development and major investments in R&D depend upon a correct
understanding of technological change and evolution (Sood and Tellis 2005).
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Typewriters, telegraphs, and glass-plate cameras were all once dominant products manufactured by
giant companies. They are virtually extinct now, swept away by radical innovations in the form of word
processors, telephones, and celluloid-cameras brought about by relatively small new entrants into the
marketplace (Utterback 1994).
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Hard-won customers quickly desert an incumbent firm when a radical innovation provides better
performance per dollar than the incumbent’s current products (Chandy and Tellis 1998).
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Radical innovations have the capacity to destroy the fortunes of firms (Foster 1986; Tushman and
Anderson 1986).
At the same time, radical product innovation can be the source of competitive
advantage to the innovator firm (Wind and Mahajan 1997), and can reap large and long-lasting profits
(Geroski, Machin, and van Reenen 1993). Both new and established firms can benefit from radical
product innovation.
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Only a small percentage of all new products is new-to-the-world products or is market breakthroughs or
radical innovations; this percentage is as low as ten percent (see Booz Allen Hamilton Survey of 1983).
Fortune also reports similar results using a study of new products from 1989 to 1993 (Martin 1995).
Considering the relatively small number of breakthrough products and the disproportionate profitcontribution they make, the challenge is how to increase an organization’s ability to adopt radical
innovations that build market breakthrough products (Wind and Mahajan 1997).
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While radical innovation is an important driver of growth, success and wealth, of firms, industries and
economies, and while radical innovation merges some markets, creates new ones, and destroys old ones,
what drives innovation? Various current answers:
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Corporate culture (Tellis, Prabhu, and Chandy 2009),
National culture and regulation (Kao 2007; Florida 2005),
Culture of creativity and innovation (Neumeier 2009),
Organizational learning and change (Senge 1990/2006),
Avoiding stall points (Olson and Bever 2008),
Driving co-created value through global networks (Prahalad and Krishnan 2008),
Disruptive solutions (Christensen 2009), and
Executive spirituality (Covey 2004; Senge 2006).
Several factors within a country or an industry, or firm spur radical innovation. Table 1.1 summarizes
such factors at the firm-level and the national level.
Waves of Innovations
When you survey the greatest innovations of all times, you cannot help but notice that very few are
products and communications. They are breakthroughs like navigation, iron plows, locomotives,
cybernetics, mathematics, bioengineering, biomedicine, telecommunications and the Internet (Neumeier
2009: 65).
Kanter (2006) distinguishes four waves of innovation in recent decades.
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1.
1970-1985: The dawn of the global information age in the early 1970s and early 1980s. This era
opened new industries (e.g., polyester, software, electronic hardware, and telecommunications) and
toppled old ones (e.g., iron, steel, rubber, paper), generated new products (e.g., microwave ovens,
polyester products, synthetic fibers, videotapes, videogames, VCRs) and obsolesced old products
(e.g., carbon paper, electric typewriters, long-playing records). Silicon Valley became the new base
for product innovation in the USA. Total quality management (TQM) became a passion.
2.
1985-1995: The dawn of buyouts, mergers, acquisitions, corporate restructuring, and strategic
alliances. Seeking to unlock the value of underutilized assets, “shareholder value” became a rallying
cry. In Europe, restructuring was associated with the privatization of state-owned enterprises now
exposed to the pressure of capital markets. The major innovation product of this era was software
and other major IT products related to process innovation (e.g., airline reservations, travel package
reservations). Financial innovations such as derivatives, index funds, hedge funds and other forms of
financial engineering, financial supermarkets combining banks, leveraged buyouts, and some global
products (e.g., Sensor Excel of Gillette, Microsoft software) emerged.
3.
1995-2001: The digital mania of the 1990s. The proliferation of PCs and global wired networks made
Internet, extranet, intranet, and WWW ventures flourish. The promise (or threat) of the world wide
web (WWW) and the Internet forced established brick-and-mortar companies to seek Internet
marketing and other stand-alone Web ventures. Eyes were on the capital markets rather than on
customers, and companies (especially, the dotcoms) got instantly rich without patented products,
profits and revenues. AOL Warner was a venture that destroyed value for its customers rather than
create innovation. Some e-companies emerged successfully such as eBay, Amazon.com and
MSN.com.
4.
2001- : The current wave of innovation started with a more sober mood with the dotcom collapse
and belt-tightening of the global recession. Having recognized the limits of acquisitions and mergers
and become skeptical about technology hype, companies refocused on organic growth. Survivor
giants such as GE and IBM have adopted innovation as a corporate theme. Customers and
consumers have returned to center stage with the emergence of videogames (e.g., Sony’s Play
Stations One and Two, Play Station Plus), DVDs, HI-FI, cell phones, organizers, Blackberry, and
other palm-held devices. Signature innovations of this era include Apple’s iPod, iTune, and iPhone
and P&G’s Swifter.
Each wave brought new concepts. For example, the rise of biotechnology, bioinformatics, and
biogenetics has revolutionized healthcare and medicine. IT and Internet has made outsourcing
easy and profitable. Globalization of factor markets (money, capital, money, labor, technology) has
globalized innovations, joint ventures and strategic alliances. Geopolitical events (e.g., 9/11,
terrorism, Afghanistan, Iraq War, Taliban, and regime-changes) have spawned safety and security
products.
What is Creativity?
Creativity may be defined in terms of meaningful novelty of some output (e.g., a painting, a chemical
compound) relative to conventional practice in the domain to which it belongs (e.g., abstract art,
adhesives). Thus, a creative product is that which differentiates, that is, it evokes a meaningful difference
from other competing products in the product category. A creative marketing program (e.g., advertising,
promotional campaigns) represents a meaningful difference from marketing practices (e.g., media
advertising) in a given product category.
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Creativity in its various forms has become the number-one engine of economic growth. The “creative
class” now comprises 38 million members, or more than 30% of the American workforce. Creative
professionals in financial services, health care, high tech, pharmaceuticals, media and entertainment, act
as agents of change, producers of intangible assets, and creators of new value for their companies.
Creative and innovative design are not only associated with an iPhone, a Toyota Prius, and a Nintendo
Wii, but also is rapidly moving from “posters to toasters” to include processes, systems, and organizations
(Neumeier 2009: 13).
French physiologist Claude Bernard once remarked, “It is what we think we know already that often
prevents us from learning.” Creativity looks beyond one’s old learning; it is unlearning. It looks beyond
the conventional. Creativity can be dampened when we become prisoners of our old ideas and
conventions, dogmas and orthodoxies (Hamel and Getz 2004: 81).
A creative economy or market is different from the agricultural and industrial economies in that the
former relies on a resource called creativity. In general, every human being has creativity. The question
is whether our institutions (e.g., homes, schools, universities, corporations, or governments) and their
leaders can provide processes and techniques, incentives and resources to support the individuals in
exercising their creativity productively. For instance, Toyota Corporation reports long-standing practice
of listening to workers on the shop floor in generating new ideas and solving problems. The creative and
profitable results of the corporate culture are obvious.
The truly creating person knows that all creating is achieved through working with constraints. Without
constraints, there is no creating (Robert Fritz 1989).
Most business managers want to control creativity. Instead, they want neatly sequenced discovery,
ideation, refinement, and production, such that they could manage, track, compare, and measure like
manufacturing. The creative act, however, is much wilder. Those who insist on tidy phases inevitably
produce mediocre results, because the too-orderly process rules out random inspiration. Rule-busting
creativity and innovation require a sense of play, a sense of delight, and a refusal to be corralled into a
strict method (Neumeier 2009: 48).
There could be many creative ideas, but creative ideas by themselves are inert, and for all practical
purposes, worthless; “a good idea is nothing more than a tool in the hands of an entrepreneur” Timmons
1977). Venture capitalists do not invest on creative ideas, but on teams that execute them. Executive and
entrepreneurial intelligence is rare but we find it in people. A firm could have a ton of interesting ideas,
but they do not necessarily have a good creative idea how to filter them for best business or market
impact. Apple in the 1990s had a load of creative ideas but they could not get them to the market; they
began to do so only during the last five years, thanks to their customer focused strategy. P&G had over
30,000 patents to their name, but they only use less than ten percent of them in their product lines.
Creative or interesting ideas may be bad or good, great and plenty, but nothing much if they cannot solve
a real industrial or consumer problem.
Creative ideas and patents are better termed “inventions” or “seeds of inventions” rather than innovations.
That is, creative ideas are not innovations, but seeds to innovations. Inventions are not enough, they
require effective and successful implementation to be truly innovative and market-ready.
What do Creative People do?
[See Neumeier 2009: 30-40]
Some 40 years ago, Herbert Simon (Nobel Laureate) wrote In the Sciences of the Artificial, “Everyone
designs who devises courses of action aimed at changing existing situations into preferred ones.” Design
is change. Designing is a powerful tool for change, not just a tool for styling products and
communications. Creative designers devise tools, methods and actions that aim at “changing existing
situations into preferred ones.” Creative people reduce the gap between “what is” and “what could be,”
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between reality and vision. If you just focus on the “what is,” then we focus on the status quo, and
“nothing could be ventured and nothing could be gained.” According to Herbert Simon, anyone who tries
to improve the current or past situation into a preferred future one is a designer. A designer needs to find
a situation worth improving and then work through the creative process. In this sense, all architects,
artists, composers, movie directors, engineers, medical doctors, scientists, psychologists, professors,
police detectives, military strategists, entrepreneurs, supply chain managers, and advertising managers are
creative designers as long as they change existing situations worth improving into universally preferred
ones.
Creative people are empathetic: In a customer-centric business of today, empathy means to understand
the motivations and expectations of customers, employees, partners, and suppliers, and forge stronger
emotional bonds with them in fulfilling such motivations. All stakeholders (e.g., buyers, consumers,
clients, employees, creditors, suppliers, distributors, governments, local communities, including your
competitors) are your customers. Sales people today do not sell products, they design solution to
customer problems. Managers do not just supervise subordinates, they design high-functioning teams.
Innovators and new product developers do not just produce products; they design engaging customer
experiences.
Creative people are intuitive: Intuition is opposite of being logical. A logical mind is linear and works in
A-B-C-D fashion. An intuitive mind skips around in a circular C-D-B-A fashion. Intuition is a short cut
to understanding situations. While a logical mind is good for grounding and proving ideas, intuitive
thinking is good for seeing the whole picture. Creative intuitive thinking sees how the parts of a problem
fit together. Creative copywriters design a combination of words that will explode with meaning in the
minds of readers.
Creative people are imaginative: They are creative scatterbrains. New ideas come from divergent
thinking, not convergent thinking. Creative R&D engineers use imagination to design disruptive product
platforms. Creative Web designers use imagination to design surprising and satisfying connections
between ideas, activities, and resources. Creative retailers use imagination to build store ambience and
attract customer patronage.
Creative people are idealistic: Creative personalities are described as histrionic, headstrong, and dreamy.
Idealistic people are notorious for focusing on what is wrong, what is missing, or what they believe needs
to change. Creative idealists can transform existing situations into vastly improved ones. For instance,
idealistic industrial engineers are able to design better relationships between people and machines (for
instance, making the latter user-friendly and very functional). Idealistic finance and accounting managers
are able to design more transparent reporting frameworks (e.g., net cash flow statements). Idealistic
entrepreneurs are able to design eco-driven business models and products (e.g., hybrid cars, alternative
energy sources).
According to Roger Martin (Dean of the Rotman School of Management) in his Opposable Mind
(analogous to the opposable thumb: Harvard Business School Press 2007), design reasoning is different
from current business reasoning. Business reasoning is inductive (i.e., observing that something works),
is algorithmic (known tasks with known formulae) and deductive (proving that something is). Designing
reasoning, on the contrary, is abductive (imagining that something could be) and integrative (grasping and
resolving the tensions inherent in wicked problems). Roger Martin believes that mastery without
originality is rote, and originality without mastery is flaky, if not entirely random. Design thinking is
heuristic, it creates its own rules to solve mysteries of the marketplace and the production factory.
Heuristic tasks such as motivating disgruntled employees, negotiating with unhappy bankers, forging
supplier relationships and understanding customer delight, need creative design thinking and not
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inductive or deductive algorithms. Business leaders should be masters of heuristics and not masters of
algorithms. Computers and robots can do the latter and far better than business managers.
In business reasoning, you decide the way forward; in creative reasoning, you design the way forward.
The deciding mode assumes that alternatives already exist on a “solution shelf” (e.g., via case studies),
but deciding will be difficult. The designing mode assumes that new options must be imagined (using the
design process), but once imagined, deciding will be easy. The truth is that success in the 21st century
will depend upon finding the right mixture of both these modes. Off-the-rack solutions are insufficient in
an age of perpetual change (Neumeier 2009: 41-42).
Creativity in an organization can be both individual creativity and team creativity. The key is finding a
collaborative rhythm that incorporates and empowers both. A good rhythm should alternate between
expression (where individuals or small teams work separately) and impression (where all members work
together). Expression can bring deep personal experiences to bear, and impression can expose these
experiences to a wider view of discussion and dialogue. By working back and forth from expression to
impression, the result is not compromise but addition. The sum of each session is a measurable leap in
shared thinking. The primary tool for creative collaboration is the design brief. A well-conceived design
brief should have a common vision and goal, reduce the costs of orientation, allocate roles and
responsibilities, and provide a framework for metrics (Neumeier 2009: 110-111).
After extensive study of the design process of architect Frank Gehry, Richard Boland (Weatherhead
School of Management, Case Western University, OH) says, “The problems with managers today is that
do the first damn thing that pops into their heads.” “There’s a whole level of reflectiveness absent in
traditional management that we can find in design.” There is difference between decision attitude and
design attitude. Decisions are more powerful when they are designed. [See Richard Boland and Fred
Collopy (2004), Managing as Designing, Stanford Business Books). No issue is too big and no issue is
too small for the designful mind.
The traditional management model is a veritable thrift store of hand-me-down concepts, all perfectly
tailored for a previous need and a previous era. The old business model was innovated so long ago that
those who once saw business management as a cause for revolution (e.g., Frederick Taylor, Henry Ford,
Alfred Sloan, and others) are long gone. We need a new band of revolutionaries to enlarge the scope of
possibilities. The breakdown of the old management model is obvious; it is so bereft of ideas that it is
now resorting to “unlocking wealth” through ingenious financial instruments and financial market
manipulation rather than “creating” wealth through designful innovation. Boland argues that Enron’s
failure was not only a failure of ethics, but a failure of imagination. Its managers engaged in hiding debt
with convoluted transactions because they simply did not have better ideas (Boland and Collopy 2004;
Neumeier 2009).
Real designers never know what the outcome will be, nor are they interested. Instead, they prefer to
learn what they are doing while they are doing it. Systems thinker Donald Schön called this phenomenon
as “reflection in action” – a dynamic process based on a repertoire of skilled responses rather than a body
of knowledge. Reflection in action combines thinking and doing, always in the moment, often under
stress. The most innovative designers and thinkers consciously reject the standard option box of off-therack solutions and cultivate an appetite for “thinking wrong.” At Apple Computer, star designer Jonathan
Ive says, “one of the hallmarks of the team is this sense of looking to be wrong – because then you have
discovered something new.” Physicist Freeman Dyson believed that the appearance of wrongness was
proof of true creativity (Neumeier 2009: 53).
In summarizing our discussion above, we may assess the creative potential of any proposed product,
service, program or solution by asking the following questions:
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What is the compelling core vision and identity of this project that will enthuse all people
involved?
What is the compelling core idea, product or process that will energize all concerned?
Where is the shared vision – did it originate from the top, the bottom, or both? Best visions did
not always start from the top.
Where are the design, creativity and innovation?
How do they stimulate and sustain high level of collaboration from all concerned stakeholders?
What are the assumptions (explicit or hidden) grounding the project? The validity of a project
or a model is the validity of the assumptions that ground it.
What is the uniqueness of this project? Is it an off-the-rack solution? Off-the-rack solutions are
insufficient in an age of perpetual change.
What is the core strategy behind this project that really differentiates it from alternatives?
Where does this strategic differentiation come from?
What is the decided leverage of this project, and where does it occur – the customers or
producers, the supply-side or the demand-side?
If the Darwinian Theory of the survival of the fittest is applied, will this project survive, why,
and how long, and to what extent will it boost other company products, and company-image?
What Is Innovation?
Innovation is “the ability of individuals, companies, and entire nations to create continuously their desired
future” (Kao 2007: 19). Innovation is dynamic; it is always in a state of evolution, with the nature of its
practice evolving along with our ideas about the desired future. Innovation is to get the whole country
experience a groundswell of public interest in every form of culture, from architecture to music to the
theatre, and for everyone to be part of it. We require a thorough rethinking of our country’s approach to
national innovation (Kao 2007: 81).
Hence, it means different things at different periods of a nation’s history. For Benjamin Franklin and his
kite, it was the artisan model of innovation. Later, geniuses in their workshops and garages, Thomas
Edison and Henry Ford, came up with inventions (e.g., assembly lines) that created large-scale
enterprises.
Innovation is bringing new ideas and concepts to the market place in the form of useful products and
services. Innovation is where the rubber meets the roads, where you have got a market-ready solution to a
problem (need, want or dream) people experience. An innovation is when a creative idea becomes a
design concept versus an abstract one.
Fear of future, aversion to unpredictability, preoccupation with status – these are the prime assassins of
innovation. The ruthless elimination of mistakes is the dogma of the 20-th century management. Yet
mistakes could be embraced as a necessary component of the messy, iterative, and creative process of
resolving wicked problems. As Tom Kelley of design firm IDEO says, “It’s okay to stumble as long as
you fall forward.” That is, it is okay to make mistakes, as long you learn from them (Neumeier 2009:
40). A company that automatically jumps from knowing to doing (without going through the
intermediate creative and experimental step of “making”) will find that innovation is unavailable to it. To
be innovative, a company needs not only the head (knowing) and legs (doing), but the intuitive hands of
making (Neumeier 2009: 53).
Innovation is a “new way of doing things” (termed invention by others) that is commercialized. The
process of innovation cannot be separated from a firm’s strategic and competitive context (Porter, ME:
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The Competitive Advantage of Nations, 1990: 780), or from the firm’s strategic orientation (Gatignon and
Xuereb 1997).
Innovation is the use of new technological and market knowledge to offer a new product or service that
customers want (Afuah 1998: 4, 13). New knowledge here means knowledge that has not been used
before to offer the product or service in question – it may include breakthrough knowledge (radical
innovation) or better knowledge (incremental innovation) of technology and markets.
Hence, innovation is anything that creates new resources, new processes, or new values or improves a
company’s existing resources, processes or values. Obvious innovations include new or improved
processes, business models, products, and services, and new delivery mechanisms such as new product
bundles, new product guarantees or warranties, new product credit or financing services, new customer
support services, and new retailing outlets.
Hence, one can innovate methodically. Success is a game of probabilities. By focusing on the key
elements required to innovate successfully, one can hopefully increase one’s chances. One cannot force
innovation. There is a process one can follow to improve both the number and the quality of ideas one
can generate, develop these ideas and take to the market (O’Connor 2003). That is, one can
institutionalize innovation in one’s company (Mowery and Rosenberg 1998).
Rogers (1983) identifies six characteristics of innovations from the viewpoint of their diffusion or
adoption by consumers:
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Relative advantage,
Compatibility,
Trialability,
Observability,
Complexity, and
Perceived risk.
The first four characteristics are positively related, while the latter two are negatively related, to
innovation-adoption (Gatignon and Robertson 1985). However, these characteristics are not independent
of one another (Parker and Sarvary 1994). Of these six, relative advantage appears as a consistently
important product characteristic in explaining new product adoption (Parker and Sarvary 1994) and new
product success (Montoya-Weiss and Calantone 1994).
Innovations in general provide unique and meaningful benefits to products and services. Creativity or
innovation is defined in terms of meaningful novelty of some output (e.g., a painting, a chemical
compound) relative to conventional practice in the domain to which it belongs (e.g., abstract art,
adhesives). Thus, a creative product is that which evokes a meaningful difference from other competing
products in the product category. A creative marketing program (e.g., advertising) represents a
meaningful difference from marketing practices (e.g., media advertising) in a given product category.
Thus, basically, innovation is anything new in the industry, market, country, or the world in terms of
materials and supplies, their use and processes, production and inventory management, packaging and
labeling of finished products/services, their distribution and delivery, advertising and promotions,
retailing and shelving, pricing and financing of products and services, post-sales services and consumer
redress.
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Neumeier (2009: 6-7) believes that, thanks to unprecedented market clutter, differentiation is becoming
the most powerful strategy in business and the primary beneficiary of innovation. So, if innovation drives
differentiation, what drives innovation? The answer is: design. Design contains the skills to identify
possible futures, invent exciting products, build bridges to customers, crack wicked problems, and more.
The fact is, if you want to innovate, you have to design. The management innovation that is destined to
kick Six Sigma off its throne is design thinking. Design thinking must take over your marketing
department, your R&D labs, transform your manufacturing processes, and ignite your corporate culture.
It should bring finance into alignment with creativity, and reach deep into Wall Street to change the rules
of investing. Design drives innovation; innovation powers brand; brand builds loyalty; and loyalty
sustains profits. If you want long-term profits, do not start with technology, start with design (Neumeier
2009: 14). That is what Google does: uses design to create differential products and services that delight
customers.
Negative Chain Effects of Lack of Innovation
Lack of innovation and new products in a company creates several chained or connected problems:
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Declining product differentiation, quality, competitive edge, state-of-the-art, variety and
assortment.
Declining distribution efficiency, logistics economies and inventory management optimization.
Increasing company, product category, brand, and store under-performance.
Increasing company, subsidiary, affiliate, branch, division, product, brand, and store distress.
Declining consumer, customer, client and shareholder enthusiasm.
Declining sales and consumer repeat buyer patronage.
Declining customer long-term relationships, loyalty and commitment.
Declining employee morale and loyalty, and increasing employee unrest and turnover.
Steady outward migration of better skills (managerial, technical, and professional) to
competition.
Lack of cutting edge sustained competitive advantage in core supplies, competencies, and
products.
Competitors’ increasing strengths and decreasing weaknesses.
Easy market entry for new competitive entrants and decreasing efficiency of entry deterrent
strategies.
Declining price-advantage and increasing (profit-eroding) price wars.
Declining cost-advantage and decreasing gross, operations, and net profit margins.
Depreciating stock price equity ratios or shareholder value.
Declining market evaluations and Tobin’s Q.
Declining investor and venture capitalist confidence, trust and patronage.
Increasing illegal, unethical and unconventional accounting practices to boost sales and equity.
Increasing insider illegal and unethical trading.
Declining company, product, category brand and service extensions and expansions.
Declining profits, net-worth, and market capitalization.
Declining retained earnings for further innovation (chain reaction),
Increasing signs of receivership, insolvency, and corporate decline.
Increasing likelihood of financial buyout, hostile takeover, or merger.
Increasing likelihood of seeking corporate Chapter 7 or Chapter 11 bankruptcy provisions.
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The Socio-Technological Process of
Innovation, Culture and Civilization
"Culture is an historically transmitted pattern of meanings embodied in symbols, a system of inherited
conceptions expressed in symbolic forms by means of which men communicate, perpetuate and develop their
knowledge about and attitudes toward life" (Geertz, 1973: 80).
Culture is "the set of meanings, values and patterns which underlie the perceptible phenomena of a concrete
society, whether they are recognizable on the level of social practice (e.g., acts, customs, tools, techniques,
habits, forms, traditions) or whether they are the carriers of signs, symbols, meanings and representations,
conceptions and feelings that consciously or unconsciously pass from generation to generation and are kept
as they are or transformed by people as expression of their human reality" (Azevedo 1982: 10).
Good innovations, as long as they embody genuine pattern of meanings, can generate wholesome
humanizing cultures.
Civilization reflects cultures that are transmitted, diffused, lived and institutionalized from generation to
generation. Good innovations are needed to transmit, diffuse, live and institutionalize new patterns of human
values and meanings.
There is a dual aspect to consumption -: it fulfills a consumer material need and a socio-cultural need.
Consumption is embedded within the social, cultural and symbolic structures (e.g., Belk 1985, 1988; Fox
and Lears 1983; Sherry 1983). Commodities have symbolic meaning or "signification" that extends far
beyond what the producer intended (Barthes 1972).
Consumer tastes are determined not privately but socially, that is, within social groups; consumption takes
place within social structures, or the social structure is the site of consumption (Bourdieu 1984).
Thus, consumption is best understood within a socio-cultural context. Consumption is an active
appropriation of signs and symbols and not the simple destruction of the product or object. At every
moment of consumption, something is created and produced: consumption is not a private act of valuedestruction, but a social act wherein symbolic meanings, social codes, political ideologies, and
relationships are produced and reproduced (Breen 1993). Figure 1.1 characterizes the role of the
consumer in the innovation-production process.
Figure 1.2 characterizes the interconnected factor, technology, communication and operations flows
between creation, discovery, inventions, innovation and venture. They all start with an idea or form, and
end with culture and civilization.
The Six-Component Wheel of Innovating
Consumer Products/Services
In general, all innovations generate value by saving on cost and time and by improving quality.
Naumann (1995) posits customer value as a function of three components: price-value, goods-value, and
service-value, placed along the three vertices of a triangle. Goods-value and service-value are placed along
the base of the triangle, indicating they support price-value. Customer value is created when customer
expectations in each of the three areas are met or exceeded.
10
Since the expectations-paradigm of consumer satisfaction has serious problems, and that the recent
customer-satisfaction paradigms need to be much more comprehensive, we propose a six-component
wheel of customer value sketched in Figure 1.3.
The Following Hypotheses can be tested for their main effects:
H1:
The higher the perceived high-tech or state-of-the-art value of the product/service the higher is its
perceived quality.
H2: The higher the perceived information value of the product/service the higher is its perceived quality.
H3: The higher the perceived attribute value of the product/service the higher is its perceived quality.
H4: The higher the perceived customer, whether personal or social, experience-value of the product/service,
the higher is its perceived quality.
H5: The higher the perceived future benefits value of the product/service the higher is its perceived quality.
H6: The higher the perceived (per customer dollar) cost value of the product/service the lower is its perceived
quality.
H7: The higher the perceived quality of the product/service the higher is its customer satisfaction.
The Following Hypotheses could be tested for their moderating or interactive effects:
H12:
The higher the perceived high-tech and state-of-the-art value of the product/service the higher is its
information value satisfaction.
H13:
The higher the perceived high-tech and state-of-the-art value of the product/service the higher is its
attribute value satisfaction.
H25: The higher the perceived information value of the product/service the higher is its future benefits value.
H34: The higher the perceived attribute value of the product/service the higher is its social experience value.
H64: The higher the perceived (per customer dollar) cost value of the product/service the lower is its social
experience value.
H65: The higher the perceived (per customer dollar) cost value of the product/service the lower is its future
benefits value satisfaction.
Creation, Invention, Discovery,
Innovation and Venture
We may distinguish between creation, invention, discovery, innovation and venture based on several
dimensions: a) Starting point or inputs; b) input skills needed; c) input processes involved, and d)
terminal-point or outputs. Appendix 4.1 provides one method of making such distinctions conceptually.
In general:
Creation: has minimal inputs; starts from nothing; e.g., a brilliant new idea (e.g., relativity), new opera or
concerts (Beethoven, Mozart or Rachmaninoff), new music form (Country, Beatles), new book (?), new
11
literary genre (Shakespeare’s Drama), new language (Java), new technology (Ethernet, Broadband, digital
communications), and so on.
Discovery: usually associated with already existing but unknown lands (along the North and South Arctic
poles), mines (new gold mines in Russia), elements and metals (the last added to the Mendeleyev Table with
Atomic Weight exceeding 200, that of Mercury), fossils (older human skulls in Africa), archives (old MSS of
Marx, Freud, Hopkins), scrolls (Dead Sea Scrolls of Qumran Valley), new planets (new moons of Jupiter),
…
Inventions: much dependence upon creative ideas and theories of others as well as more recent
discoveries; mostly related to new alloys, chemical formulae, new production processes, new cost-reductive
models, new mathematical theorems, algorithms, new theories in physics and chemistry, new paradigms,
new methods of learning and teaching, new modes of music, and new forms of literature.
Innovations: based on older creations, discoveries, and inventions that have some market or economic
value, either in the form of new products, new services, new distribution methods, new packaging, new
pricing methods, new financing models, new retailing procedures, new lifestyles, new political campaigns,
new religious services, new managerial techniques, and new markets.
Ventures: new business and organization creations of entrepreneurs, intrapreneurs, scientists, executives,
and other risk-prone adventurers, primarily leading to new products and services, new expansions and
alliances, new subsidiaries and joint ventures, new markets and trade regions, and new communication
efficiencies.
Types of Creativity and Innovations
Innovations in general provide unique and meaningful benefits to products and services. Innovation does
not always mean a new technology; for instance, it can imply market innovation. Market Innovation is
one’s ability to meet changing market conditions by using innovation to drive the market intangibles (e.g.,
a new niche, market void, new fad, new need) become your weapon to conquer the market chaos, find
your niche and succeed (Morris 2001). This is what Wal-Mart did in outrunning K-Mart, and what
Michael Dell did in becoming number one in PCs, outpacing IBM, Apple, HP, Compaq and Gateway.
Most of their innovations did not imply radical new technologies: they excelled in inventory management,
distribution, logistics, customization and service.
Incremental Versus Radical Innovation
A useful classification of innovations has been that of radical versus incremental innovations (Anderson
and Tushman 1990; Henderson and Clark 1990).
Incremental innovations provide marginally improved performance along an established
performance trajectory (e.g., a new toothpaste flavor, a new ice cream flavor, a new cereal mix, a
new salad mix or dressing, a new paint color, a new shade for car color, and the like).
Radical Innovations provide dramatically improved performance along an established performance
trajectory (e.g., microwave ovens from convection ovens, MRI from ultrasounds and X-ray,
arthroscopic surgery from old invasive surgeries, plastic cosmetic surgery from older forms of
facelift, cable radio from ordinary transistor radios, computers from ordinary calculators, personal
computers from macro and micro processors, CD ROMs from old LP records, mobile phones from
landline phones, Internet from EDI, HDTVs from ordinary color TVs, CDs from tape decks,
videophones from ordinary phones, broadband data transmissions from telegraphs, blue tooth
wireless technology from wired communications, and space walk from moon walk).
12
Radical innovations are technological discontinuities that “advance by an order of magnitude the
technological state-of-the-art that characterizes an industry” (Anderson and Tushman 1990: 27). This
concept is related to that of relative advantage proposed by Rogers (1983), because an innovation that is
similar to existing products cannot be highly differentiated, and therefore, cannot yield a major advantage
over existing products or competitors (Gatignon and Xuereb 1997).
For instance, the much lauded Swifter of P&G; for years, we had disposable diapers, disposable razors,
disposable pens, and even disposable cameras. Swifter was a disposable mop. But it is hardly a radical
innovation; it is hardly innovative but rather formulaic or extension of the disposable industry. The big
innovation may be in the fabric’s unique ability to attract dist and particles. Taking a common item and
making it disposable does not strike as being innovative. Swifter arose from a technology patented by
P&G that involved picking up dust particles by static electricity. Developing that into a product that a
consumer can use resulted in Swifter. It may be a novel means to clean the floor, the disposable cloth
may be novel, and most importantly, it has the fascinated the end-user. Perhaps the innovation lies in
Swifter’s market success – it was a market breakthrough. There is a vital connection between an
innovation and the problem it solves for the end-user. The Swifter solved the problem of the consumer
who wanted a tidier floor and when the ordinary broom did not do a good job and the mop was too much
trouble. The problem of a tidier floor gets exacerbated by the increasing popularity of hardwood, bamboo
and polished concrete floors.
Old and new products can also be distinguished depending upon, on the one hand, whether they respond
to an old, improved or radically new technology, or on the other, whether they serve an old, augmented or
new market. The resulting 3x3 technology-market newness grid helps to better understand and position
products and their strategies.
From an organizational view innovations can also be classified as incremental versus radical innovations;
that is, corporate “knowledge” underpins the firm’s ability to generate innovations.
Most innovations are incremental: They build on existing knowledge of technology or markets to
innovate new processes (process innovations), new products (product innovation), or new marketing
strategies (marketing innovations or commercialization’s). They enhance existing corporate competence
(Tushman and Anderson 1986). For example, a “shrink” of Intel’s Pentium chip to make it run at 200
MHz is an incremental innovation since the knowledge required doing so was built on Intel’s previous
knowledge of microprocessor development.
From a marketing viewpoint, incremental innovations are me-too-products, line extensions, brand
extensions, and category building. Almost 90% of the new products belong to this class.
Radical innovation as new knowledge: radical technology contains a high degree of new knowledge
compared with current technology and represents a clear departure from existing practices (Dewar and
Dutton 1986). Some use technology and innovation interchangeably (e.g., Srinivasan, Lilien, and
Rangaswamy 2002).
From a marketing viewpoint, radical innovations are new-to-the-world products, market breakthroughs,
technological breakthroughs, brand new creations, inventions and discoveries. Only 10% of all new
products belong to this category (Booze, Allen and Hamilton 1982; Martin 1995).
A radical product innovation is a new product that incorporates a substantially different core technology
and provides substantially higher customer benefits relative to previous products in the industry (Chandy
and Tellis 1998). Technological knowledge implied in these innovations is very different from existing
13
knowledge, rendering the latter obsolete, and “destroying” existing competence (Tushman and Anderson
1988). For example, refrigerators at one time were radical innovations based on the new knowledge
integrating thermodynamics, coolants, and electric motors, which was radically different from knowledge
of harvesting and hauling ice.
From an economic or competitiveness viewpoint, innovations can also be viewed as incremental or
radical. Since innovations result in superior products (lower costs, better features), they may render older
products totally obsolete and noncompetitive (radical innovations) or less useful and partially competitive
(incremental innovations). From this view point, electronic point-of-sale (EPOS) checking systems were
radically different from mechanical cash registers, while diet and caffeine-free sodas were incremental
innovations over regular sodas, since the latter still remain competitive.
Tables 1.2 and 1.3 illustrate innovations in the Technology-Market Newness Grid.
Innovation, Creativity and Beauty
Great ideas are not enough. An idea is only a concept or an intention until it has been perfected,
polished, and produced. An idea needs to be beautiful. According to Thomas Aquinas, beauty implies
three things: integrity (it stands out clearly from the background), harmony (how the parts relate
seamlessly to the whole) and radiance (the ecstasy and joy the beholder experiences when viewing the
beautiful art). Aristotle called all thus under one name, aesthetics. Ideation, creation and innovation
should generate the beautiful (aesthetic, artistic, harmonious, pleasing, and soothing piece of art, music,
dance, theater, show, entertainment, or any product or service). Aesthetics gives a powerful toolbox for
beautiful business execution. When you increase differentiation, you are working on the principle of
integrity; when you optimize synergy, you are working on the principle of harmony; and when you
enhance and engage customer experience, you are working on the principle of radiance. A well run
business is beautiful in this sense. Beauty is essential to the art of management. The more our culture
becomes technology and information driven, the more do we need the emotional and metaphorical power
of beauty (Neumeier 2009: 69-70).
Buckminster Fuller once said, “When I am working on a problem, I never think about beauty. But
when I have finished, if the solution is not beautiful, I know it is wrong” (cited in Neumeier 2009: 73). In
mathematics, Poincaré could judge the quality of a solution solely based on its aesthetic significance.
Software developers can spot a great algorithm by the shape and efficiency of its coding lines. There is
ample evidence of mathematical beauty in nature, including the breathtaking complexity of fractals, the
ancient sacred ratios of geometry, and the surprising concordance and harmony of theories across
disciplines. Take the Fibonacci sequence wherein each number in the sequence is the sum of the previous
two. A Fibonacci sequence looks like 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, and so on. In nature, this progression
is best seen in the patterns of pine cones and palm trees, in artichoke leaves and broccoli florets, in the
shapes of nautilus shells (whose walls spiral outward according to the same laws). In business, the Pax
Group, a home-and-office appliance design company, borrowed Fibonacci geometry to reshape its fan
blades, and produced products that are 15-35% more energy efficient and 50-75% quieter.
Biomimcry is another avenue for design beauty and efficiency. The tiny hairs on gecko footpads led
to the design of reusable super adhesives. Klipsch Audio Technologies designs horn-loaded loudspeakers
designed in the shape of the human ear – an approach that has led to speakers that accurately produce
both soft and loud sounds, produce a highly directional sound pattern, deliver unaccented bass, mid-range
and treble ranges, and are highly efficient. Founder Paul Klipsch often said, “Quality is directly
proportional to efficiency.” Simplicity and efficiency are twin threads that run through the discipline of
aesthetics. All living things have an instinct to economize. The efficient use of energy, materials, and
14
food are the best defense against entropy, the tendency for all systems to lose energy. Since aesthetics is
reinforced by simplicity and efficiency, it offers a powerful tool for thriving in an era of diminishing
natural resources (Neumeier 2009: 77).
In nature, beauty is the by-product of function (observes Moshe Safdie, a renowned architect). The
gorgeous blue sky is beautiful because it promises sunshine and clean air. The color and shape of a
flower is because it wants to attract insects. The color and structure of insects and some animals is from
their need to camouflage against the background to protect from the enemy. The color, masculinity and
shape of the male species are that it may attract females. Leonardo da Vinci wrote in his notebook, “We
will never discover an invention more beautiful, easier, or more economical that that of nature. In her
inventions nothing is wanting and nothing is superfluous.” In nature, quality is directly proportional to
efficiency. According to the biomimicry expert, Janine Benyus, nature designs its products using very
few materials. Instead, it uses shape to create function. Any natural material that looks like plastic is one
of five simple polymers. Organisms are hungry for these polymers, so they go back into the ground cycle
easily. [In the manufacturing world, by contrast, we produce and use 350 complex polymers that are not
biodegradable!]
In the world of art and artifacts, beauty is the by-product of form. The timbre, sound and smoothness
of a tone of music are from the form of the music instrument and the form of the artist that plays it. The
grandeur, majesty and splendor of the Taj Mahal, the Eiffel Tower, St. Peter’s Basilica and the Taipei
101, are the form and of these great structures. The glory and attraction of a David, the Pieta, the Mono
Lisa, and the Sistine Chapel are their form, balance and proportions over function. The ecstatic joy we
derive from Beethoven, Mozart, Everest Priestly, The Beatles, and the country Jazz is the form of the
music and the form of the artists that render it. The beauty of an Aston Martin, the Bentley, the Cadillac
or the Porsche is from the aerodynamic form and vibrancy of the model.
While science is an inquiry into generalizable similarities amidst dissimilarities, art is the opposite: it
is a quest for dissimilarity or differentiation among similarities. Design as art is differentiation, and
strategy is differentiation; hence, design is strategy. An effective strategy is a masterful design. Beauty is
differentiation; aesthetics is differentiation; simplicity is differentiation. Hence, a good design is beautiful
if it is simple, aesthetic, and differentiating.
As the old adage says, beauty is in the eye of the beholder. However, this is too subjective. We need
to define a beautiful design by some objective features such as simplicity, differentiation, harmony,
radiance and integrity. According to Neumeier (2009: 78), a good design exhibits aesthetics and virtues.
Besides being beautiful, a good design should suggest clarity, diligence, honesty, courage, generosity,
curiosity, thriftiness, and wit. By contrast, bad designs exhibit confusion, laziness, deceit, fear,
selfishness, apathy, wastefulness and stupidity. We should want the same virtues from humans as well as
from design. When we combine aesthetic values with ethical virtues, we have a good design. The
ancient Greeks framed this ideal in the context of knowing, making and doing: To know truth, to make
beauty, and to do good.
Function versus Design Driven Innovations
Some innovations are need and want driven, and hence, function and functionality driven. Most basic
needs, wants and conveniences are satisfied by function-driven innovations. Figure 1.4A characterizes
the function-driven innovation process.
Fancy, luxury, exotic, extravagant and indulgent products are form or design driven innovations. Figure
1.4B characterizes the form or design-driven innovation process. For instance, the whimsical, knockoff,
15
cone-shaped kettle with the little plastic birdie affixed to its spout (designed by the architect Michael
Graves) is a modern typical form-driven innovative product. Since its introduction in 1985 by Alessi, the
northern Italian home-furnishings manufacturer, more than 1.5 million units have been sold, even though
exorbitantly priced (for details see Verganti, Roberto (2006), “Innovation through Design,” HBR,
December, 114-122).
Design-driven innovations are not tech-push (functionality-driven) or market-pull (need-want driven)
innovations. Nor are they open innovations (techniques started by e.g., IBM, Microsoft, P&G, Eli Lilly).
These innovations come from an amorphous free-floating and free-lancing group of architects, suppliers,
photographers, curators, art-critics, publishers and craftsmen, immersed in innovation discourse and noted
for originality. Their innovations are dramatic breaks from their predecessors. The Lombardy Design
Cluster of northern Italy is one such group. About a quarter of all Italian furniture firms are based in
Lombardy. It is Europe’s largest furniture manufacturer, with 45% of its output exported. The factors
that make Lombardy enviable are imagination and motivation.
Italy’s Lombardi Design Cluster represents some of the finest and most successful examples of design
driven innovations. The following list is illustrative (Verganti 2006: 119):
Designer
Alessi
Artemide
B&B Italia
Cappellini
Cassina
Flos
Kartell
All Lombardi
Collection
EU
Italy
USA
Basic Product Line
Home Furnishings
Lighting
Furniture
Furniture
Furniture
Lighting
Furniture
Home Furniture
Furniture
Furniture
Furniture
Ten-Year (1994-2003)
Growth in Sales
81%
59%
54%
117%
60%
106%
211%
76%
Revenues in 2003
(Million US$s)
104
110
165
29
163
75
70
716
11%
28%
?
78,000
21,000
?
Concluding Remarks:
Institutionalization of Innovation
The distinctive feature of the 20th century was that the inventive process became powerfully
institutionalized and far more systematic than it had been in the 19th century. That is, inventions, and
innovations collaborated with organized research in universities, research centers, and corporations, and
eventually generated a slew of products and services that enhanced (or occasionally, destroyed)
civilizations. When in 1903 the Wright brothers crafted the first airplane, the clumsy contraption was held
together with struts, baling wire, and glue, and the total distance traveled was a just a couple hundred
yards. It required thousands of improvements and adaptation over a third of a century to manufacture the
DC-3 in 1936 that could fly thousands of miles between cities with hundreds of passengers. Similarly,
when in 1945 the first digital electronic computer, the ENIAC, was put together, it was over 100 feet long
and required the simultaneous functioning of over 18,000 vacuum tubes. Today, through 60 years of
steady innovations, improvements and miniaturizations, handheld PCs are million times more effective
16
than ENIAC in storing, computing and transmitting billions of bits of data. This is the power of
institutionalized and organized innovation and commercialization (Mowery and Rosenberg 1998).
The institutionalization of innovation implies many complementary technologies and inventions in the
industry where the innovation is primarily located, many ancillary technologies and inventions or
improvements from other industries, many new products redesigned for greater safety and convenience,
many cost-reducing scale economies so that products could be more affordable, many adaptations as
consumers and producers discover new uses for these products, many capital investments and venture
capitalists, and many regulatory interventions on the part of the government. According to Kuznets (1959:
33), a sustained high rate of economic growth depends upon a continuous emergence of new inventions
and innovations, providing the bases for new industries and the decline of older industries. Often, the
intersectoral flow of new technologies would revamp and resurrect older industries (e.g., synthetic-fiber
radial tires, synthetic plastics for cosmetic surgery) that further contributed to the economic growth of
nations. This intersectoral and international flow of goods (exports and imports) and technologies is a
fundamental characteristic of 20th century innovation in the U. S. economy (Mowery and Rosenberg 1998:
5-6). For instance, innovations in the chemicals and electronic industries have spawned an enormous array
of consumer and capital goods; the rise of the automotive and commercial aircraft industries have
significantly increased the demand for advanced products in other industries (e.g., jet fuel, composite
materials, synthetic products, and gasoline).
The role of science, universities, governments, culture, religion, economy, buying power, and consumer
lifestyles in institutionalizing innovations must be recognized. While old and new technologies, old and
new industries interact to generate new ideas and innovations, the process of commercialization is much
conditioned upon market demand, which, in turn, is a combined result of culture and religion, economics
and consumer buying power, consumer habits and behaviors, consumer education and occupations,
consumer communities and societies, cities and villages.
17
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19
Figure 1.1: The Market Process of Creativity and Innovation
Industry Push:
From Engineers,
technicians, employees
and suppliers
Industry
Response 1:
Industry Response 2:
Design: Materials,
Technology, Modeling,
Industry Response 3:
Style, Form, Size, Shape,
Color, Sheen, Safety, Security,
Quality, Efficiency, and
Convenience
Industry Forecast:
Given pricing, placing,
Warranty, Rebates,
Promoting and
Financing strategies
Market
Assessment:
ROS, ROM, ROQ,
ROA, ROI, ROE,
New Product
/Service
Ideas
New
Product
/Service
Concepts
New Product
/Service
Prototypes
New Product
/Service
Packaging &
Bundling
New Product
/Service
Promoting
Pricing
Placing
National
Launch:
Sales, Market
share & profitability
20
Market Push:
From customers,
clients and
consumers
Market
Acceptance:
Co-partners
Market
Testing:
Prototype and
Design Testing
Market CoProduction:
Package Testing, Quality
Perception, Safety
Testing, Convenience
Testing, Bundle Testing
Pre-Test
Marketing:
Of product Mix and
Marketing Mix
Market
Experience:
Satisfaction,
Delight,
Fairness,
Consumer feedback
Figure 1.2: The Socio-Technological Process of Innovation, Culture
and Civilization
FORM
I DEAS
CREATION
ARTS
AESTHETICS
LITERATURE
NEED
TECHNOLOGY
INVENTION
SCIENCE
KNOWLEDGE
DISCOVERY
INNOVATION
VENTURE
INDUSTRIAL
PRODUCTS &
SERVICES
21
CONSUMER
PRODUCTS
&
SERVICES
CULTURE
DEVELOPMENT
CIVILIZATION
Figure 1.3: The Six-Component Innovation Wheel of Perceived
Quality and Customer Satisfaction
Price-value and
product/serviceexperience trade offs.
Price-value versus future
benefits value trade-offs.
6.
Price/Co
st Value
H64
H65
5. Future
4. Social/ family
experience as
networking,
caring and
H6
Benefits-value;
reduction of
anticipated regret
excitement.
H
4
H5
PERCEIVED
H
H34
H25
7
CUSTOMER
SATISFACTION
3. Goods/
Service
Attribute
Quality value
QUALITY
H3
H2
Quality value
H1
H13
User-friendly hightech reinforces
product/service
attribute value
2. Goods/
Service
Information
H12
QUALITY
1. High-Tech
perceived as saving
time, energy,
emotions and
anxiety.
22
User-friendly high-tech
reinforces product/service
information value
Figure 1.4: Design versus Function Driven Innovation Processes
Figure 1.4A: Function Driven Innovation: Form Follows Function
Purpose-driven:
Need, want, problem,
Economy, ecology,
Legality, functionality,
Affordability
Determinant
Ideology:
Simplicity,
Convenience,
Rationality, frugality,
Utilitarianism,
Pragmatism,
Conservation, legacy,
Accountability
Use and Usage:
Function:
Scale economies
Choice economies
Use economies
Time economies
Safety, security
Privacy, user-friendly
Convenient/ easy to use
Time/energy/talent saving
Cost-effective
Ideal shape, size, Economic
package
Robust, durable
Reliable, manageable
Fast color, sheen
Right texture, fabric, feel
Low-maintenance
High efficiency
Easily available
Easily serviceable
Easily disposable
Primacy Collaborators:
Engineers, manufacturers, designers, market researchers, economists, cost
accountants, lawyers, investors, banks, venture capitalists, suppliers,
ecologists, distributors and customers.
Figure 1.4B: Form (Design) Driven Innovation: Function Follows Form
Form/Design:
Fancy-Driven:
Imagination,
Dream, desire
Role, identity,
Value, meaning
Enabling Ideology:
Libertarianism
Free enterprise
Complexity, flexibility,
Extravagance, indulgence
Avant-garde, frontiers,
Creativity, pioneering,
Freelancing, freewheeling,
Form over functionality
Aesthetics over costs.
Creative, Inventive
Communicative, complex,
Sophisticated, elegant
Fashionable, trendy,
Rich, luxurious, elite
Exclusive, aristocratic
Sensational, sensory, sexy
Aesthetic, modern, exotic,
Decorative, ornamental,
Personal, comfortable,
Intriguing, surprising, subtle,
Interesting juxta-positioning.
Usage/Showcase:
A delightful experience,
Dynamic, energizing,
Compelling, attractive, stylish
Entertaining, playful,
Provocative, evocative
Modern, post-modern,
Countercultural, revolutionizing,
Current events, socializing,
Groundbreaking, monumental
Non-imitable, non-replicable,
Immortal, eternal, heavenly.
Primary Collaborators:
Artists, architects, sculptors, painters, craftsmen, designers, builders, interior decorators,
professors of design, design-studio artists, poets, musicians, psychologists, art-historians,
ethnographers, paleontologists, post-modernists, philosophers, art gallery curators,
librarians, art collectors and art appraisers.
23
Table 1.1: Factors that Spur Radical Innovation within a Nation or a Firm
[See also Tellis, Prabhu and Chandy 2009: 10]
Factor of
Innovation
Level
National
Skills
Firm
National
Measures
Availability of scientists and engineers;
Quality of scientific research institutions;
Total public expenditure on education as a
percentage of GDP;
R&D personnel nationwide per capita
R&D employees as a percentage of total
employees
Government
National
National
Culture
Firm
National
Country
Firm
World Economic Forum
World Competitiveness Report
IMD World Competitiveness Report
OECD Science and Technology
Indicators
Global Innovation Survey
Financial market sophistication;
Soundness of banks;
Ease of access to loans;
Venture capital availability;
R&D expenditure per capita
World Economic Forum
World Competitiveness Report
Sales revenues;
R&D spending as a percentage of sales;
Firm’s market-to-book ratio
Global Innovation Survey
Intellectual property protection;
University/Industry research
collaboration;
Government subsidies and tax credits for
firm R&D;
Government procurement of advance
technology products
World Economic Forum
World Competitiveness Report
Geographic location: latitude (degrees) of
country’s capital city;
Basic cultural values: (Hofstede’s
measures of power distance, uncertainty
avoidance, individualism, masculinity, and
long-term orientation)
Religion: Percentage of population
belonging to a major world religion (e.g.,
Catholic, Protestant, Buddhist, Muslim,
Hindu-Sikh, non-affiliated, and other)
Worldatlas.com
Willingness to cannibalize;
Future market orientation;
Risk tolerance;
Product champions;
Incentives;
Internal markets
Global Innovation Survey
GDP
Population
Inflation
National credit rating
Citation-weighted patents;
Primary industry
World Economic Forum
World Competitiveness Report
Capital
Firm
Data Source
24
OECD Science and Technology
Indicators
Worldscope, OSIRIS
Hofstede Web site
CIA World Fact Book
Delphion
OSIRIS, Worldscope
Table 1.2: The Technology-Market Newness Grid For Classifying New
Products
PRODUCT-MARKET TECHNOLOGY
PRODUCT
OBJECTIVES
NO CHANGE:
OLD
MARKETS
AUGMENTED
MARKETS
NEW
MARKETS
NO CHANGE
IMPROVED
TECHNOLOGY
NEW
TECHNOLOGY
Penetration
Merger strategy
Reformulation
Re-packaging
Replacement
Innovation
Corner Store
Type writer;
Carbon copy;
Old Phone
Supermarkets;
Electronic typewriter;
Xeroxing;
Digital dialing
Electronic markets;
Word processors;
Laser Printing;
Video phones
Re-Merchandizing;
Re-launching;
Product expansion;
Differentiation;
Diffusion;
Mass merchandizing;
Factory outlets;
Full service gas stations
Rural phones.
Shopping malls;
Self-service gas stations;
Phone booths.
Internet markets;
Pay at the pump
technology gas stations
Cordless car phones.
First entry;
New country;
Extensive
Differentiation;
Diversification;
Diffusion
Developing markets
PC for home;
Plastic toys;
Overseas phones;
Express delivery.
Electronic Kiosks
PC for entertainment;
Plastic surgery;
Phones and modems;
Federal Express.
Global electronic malls
PCs for businesses;
Cosmetic surgery;
Video conferencing;
WWW networks.
25
Table 1.3: The Technology-Market Newness Grid for Classifying Some
Integrated Circuit Electronic Products
PRODUCT-MARKET TECHNOLOGY
PRODUCT
OBJECTIVES NO CHANGE
NO CHANGE:
OLD
MARKETS
IMPROVED
TECHNOLOGY
NEW
TECHNOLOGY
Electronic cash Registers
using medium scale
integrated (MSI) circuits
in 1970
5.25 & 3.5-inch disks.
Computers with
Transistors in 1963
Electronic cash Registers
using LSI, printers, and
inventory mgmt in big
banks.
3.5 inch Zip disk
Computers with SSI
Circuits in 1967.
Intel 8086 in 1980
Intel 80-286 and 80-386 in
1985 for businesses
Electronic cash Registers
using large scale
integrated (LSI) circuits
in 1973
Electronic LCD display
watches in 1973
Electronic cash Registers
using VLSI, printers, and
inventory mgmt in big
Department Stores in 1975.
Electronic watches with
SSI in 1973
Intel 80-286 and 80386 in 1985 for PCs at
work places
Intel 80-486 and 80-586 in
1985 for PCs at work
places;
Memory Jump Drives
Computers with VLSI
as minicomputers in 1974
Intel 80-686, Pentium V,
and Micro 2000 in 1998-99
Internet Call Centers
Electromechanical
Cash registers in the
world
Electronic cash Registers
using very large scale
integrated (VLSI) circuits
in 1975 for regular retail
outlets
Intel 80-486 or 80-586 for
Laptops Notebooks
Electronic organizers
Mobile phones with text
messaging
Electronic cash Registers
using VLSI, printers, and
inventory mgmt in regular
retail outlets.
Personal Computers with
VLSI for businesses,
homes.
Palm pilots & PDA
iPods and Blackberry
Mobiles phones with
security markets
Electromechanical
Cash registers in
Banks
Electronic cash
Registers using small
scale integrated (SSI)
circuits in 1969
8.5 inch disks
Computers with
Vacuum Tubes (e.g.,
ENIAC 1946)
Intel 4004, 8080 in
1975
Electromechanical
Cash registers in
Retail Outlets
AUGMENTED
MARKETS
NEW
MARKETS
Electromechanical
watches
Intel 80-286 and 80386 in 1985 for PCs at
home
Mobile phones
26
27
Table 1.2: A Typology of Management Innovations as a Function of
Producer-Consumer Value Chains
Value
Chain
Table 1.2A: A Typology of Management Innovations as a Function of
Producer Value Chain
Innovation
Characteristics
Management Innovation (MI)
in:
Strategies
Mission management
Vision management
Setting goals & objectives
Core business, core products,
Core competencies and standards mgmt
Resource allocation mgmt
Mergers and acquisitions mgmt
Market environment mgmt
Category planning
Product line planning
Brand management
Prototype designing
Attributes designing
Benefits designing
Value designing
Talent identity management
Recruiting management
Employee development mgmt
Retention management
Performance appraisal mgmt
Promotions management
Bonus/commissions mgmt
Centralized purchasing
Decentralized purchasing
Bargaining power mgmt
Supply chain mgmt
Transportation management
Logistics management
Quality management
Specifications management
JIT management
Warehousing management
Wastage management
Theft management
Efficiency management
Effectiveness management
EPA management
Mission effectiveness
Vision communication and diffusion
Targeting/assessing goals & objectives
Monitoring core business & products
Developing core competencies & standards
Resource allocation by MI success
Mergers and acquisitions for MI success
MI for capitalizing market environment
MI for Category planning
MI for product line extensions
MI for brand and community management
MI for prototype designing
MI for product attributes designing
MI for customer benefits designing
MI for customer value enhancing
MI for talent identity management
MI for recruiting skills and talent
MI for personnel development
MI for skills retention management
MI for performance appraisal mgmt
MI for employee promotions management
MI for bonus/commissions mgmt
MI for centralized purchasing
MI for decentralized procurement
MI for enhancing bargaining power
MI for supply chain mgmt
MI for optimizing transportation mgmt
MI for logistics management
MI for total quality management
MI for OEM/ISO specifications mgmt
MI for JIT inventory management
MI for optimizing warehousing mgmt
MI for wastage reduction
MI for theft elimination
MI for material and parts efficiency mgmt
MI for production process management
MI for zero defects and emissions mgmt
Cash flow
management
Payables management
Receivable management
Credit management
MI for optimal payables management
MI for optimal receivables management
MI for supplier/customer credit mgmt
Production
management
Production life-cycle mgmt
Economies of scale mgmt
Six sigma quality mgmt
MI for production life cycle mgmt
MI for optimal scale economies mgmt
MI for six sigma product quality mgmt
Corporate
Planning
Product
Planning
Product
Designing
Producer
ValueChain
HR management
Procurement
Materials
Management
Unfinished goods
inventory
management
Process
management
28
Appendix 1.1: MAJOR UNDERLYING PROCESSES RENOVATING THE
WORLD OF HUMANITY AND HISTORY, CULTURES AND CIVILIZATIONS
NEW
EVENTS
STARTING
PROCESSES
POINT/INPUT INVOLVED
SKILLS
REQUIRED
TERMINAL
POINT/OUTPUT
INDUSTR
CULTUR
EXAMPL
CREATION
Nothing;
Fancy/fantasy;
Idea/ideology;
Dream/vision
Creativity drive;
Imagination/aesthetics
Ideation/praxis
Realization/communication
Inspiration/genius;
Idiosyncrasy/craft;
Genius/charism;
Prophecy/charism/daring
Art (unique & inimitable);
Fabrications/design
New paradigms/new culture
Revolution/new wave
Fine arts/Class
Collectors’ item
Industrial revo
ML King, Ken
INVENTION
Ideas/concepts
Basic components;
Hypotheses;
Basic data
Intuition/induction;
Experimentation;
Testing/verification;
Data analysis/testing
Conceptualization;
Specialization;
Research skills;
Model building
New concepts/constructs;
New formulae/science;
New theories/knowledge;
New models/new theses
Unified energy
E = mc2; new c
Freud; Einstei
OR, MR, JIT,
DISCOVERY
Problems;
Assumptions;
Presuppositions;
Hunch & luck.
Problem formulation;
Deduction/computation;
Adventure/reasoning;
Serendipity/search.
Lateral thinking;
Logical thinking;
Risk absorption;
Search skills;
New solutions/ new cues;
New math/philosophy;
New land/mines;
New extensions; new uses.
Congestion / o
Topology; logi
Off shore oil; A
Getty; Newton
INNOVATION
Inventions;
Art pieces;
Technologies;
Basic ingredients
Commercialization;
Mass duplication;
Transfers/ applications;
New combinations.
Engineering, R&D;
Cost efficiency;
Conversion skills;
Mass production.
Products/processes/services;
Reproductions;
Applied technologies;
New formulations.
Radio, TV, X-r
Art markets; a
Plastics/Optics
New drugs, dr
VENTURE
Investments;
New projects;
Old products;
Old services.
Deposits/shares/stocks;
Implementation/control;
Reformulations;
Differentiation.
Speculation/risk;
Management skills;
Re-merchandizing;
Franchising skills.
Capital gains; market value;
Enterprise mgmt.;
Product re-launch;
New service chains.
Stock/capital M
Mergers, allian
Amtrak, Hats
McDonald’s; W
29