Chapter 14

Innovation and Entrepreneurship

Multiple Choice Questions

1. (p. 414) A recent study by Boston Consulting Group found that the executives indicated their
three biggest problems with innovation. Which of the following is NOT one of those biggest
problems according to the study?
A. Leveraging suppliers for new ideas
B. Appropriately balancing risks, timeframes and returns
C. Generating potentially viable ideas
D. Moving quickly from idea generation to initial sales

Difficulty: Hard
Learning Objective: 1

2. (p. 415) _________ is the creation of new products or processes through the development of
new knowledge or from new combinations of existing knowledge.
A. Process development
B. Invention
C. Innovation
D. Improvement

Difficulty: Easy
Learning Objective: 1

3. (p. 415) __________ is the initial commercialization of invention by producing and selling a
new product, service or process.
A. Improvement
B. Process development
C. Innovation
D. Invention

Difficulty: Easy
Learning Objective: 1
4. (p. 415) __________ is turning ideas into profits.
A. Improvement
B. Process development
C. Innovation
D. Invention

Difficulty: Easy
Learning Objective: 1

5. (p. 415) The iPod is an example of ____ innovation, while iTunes is an example of ______
innovation.
A. product, process
B. process, product
C. product, service
D. service, product

Difficulty: Easy
Learning Objective: 1

6. (p. 415) Which of the following is NOT a primary method of innovation?

A. Competitive innovation
B. Process innovation
C. Service innovation
D. Product innovation

Difficulty: Medium
Learning Objective: 1

7. (p. 415) ________ refers to simple changes or adjustments in existing products, services or
processes.
A. Continuous innovation
B. Incremental innovation
C. Process innovation
D. Continuous improvement

Difficulty: Medium
Learning Objective: 1
8. (p. 416) _________, called kaizen in Japanese, is the process of relentlessly trying to find
ways to improve and enhance a company's products and processes from design through
assembly, sales and service.
A. CCC21
B. Incremental innovation
C. Continuous improvement
D. Six Sigma

Difficulty: Medium
Learning Objective: 2

9. (p. 416) A major driver of ______ innovation in many companies the last several years has
come from programs aimed at continuous improvement, cost reduction, and quality
management.
A. Breakthrough
B. Disruptive
C. Incremental
D. Inventive

Difficulty: Easy
Learning Objective: 1

10. (p. 416) CCC21 stands for:

A. Competitive Cost Competency in the 21st century
B. Construction of Cost Competitiveness for the 21st century
C. Cost Chain Competition for the 21st century
D. Continuous Cost Competitiveness in the 21st century

Difficulty: Hard
Learning Objective: 2
11. (p. 417) ________ is a continuous improvement approach many companies have adopted to
spur incremental innovation in their businesses. It is a very rigorous and analytical approach
in quality and continuous improvement.
A. CCC21
B. Balanced scorecard
C. Strategic matrix analysis
D. Six Sigma

Difficulty: Medium
Learning Objective: 2

12. (p. 417) The DMAIC (define, measure, analyze, improve, control) process is relevant to
A. CCC21
B. Balanced scorecard
C. Strategic matrix analysis
D. Six Sigma

Difficulty: Medium
Learning Objective: 2

13. (p. 421) __________ are inherently more risky than ___________.
A. Disruptive innovations; breakthrough innovations
B. Incremental innovations; breakthrough innovations
C. Breakthrough innovations; incremental innovation
D. Functional innovations; process innovations

Difficulty: Medium
Learning Objective: 3
14. (p. 420) A(n) ___________ is an innovation in a product, process, technology or the cost
associated with it that represents a quantum leap forward in one or more of these ways.
A. Breakthrough innovation
B. Invention
C. "Home-run" innovation
D. Cost-improvement

Difficulty: Easy
Learning Objective: 3

15. (p. 420) A _____ technology is distinct from a “disruptive” technology.

A. CCC21
B. breakthrough
C. core
D. sustaining

Difficulty: Medium
Learning Objective: 2

16. (p. 421) Breakthrough innovations are also called ______ innovations.
A. CCC21
B. incremental
C. sustaining
D. disruptive

Difficulty: Medium
Learning Objective: 2

17. (p. 423) ________ is an idea factor involving actively looking for an answer to a known
problem.
A. Need spotting
B. Market research
C. Random events
D. Trend following

Difficulty: Medium
Learning Objective: 3
18. (p. 423) _________ is an idea factor involving finding a new way of using an existing
technology.
A. Trend following
B. Need spotting
C. Solution spotting
D. Random events

Difficulty: Medium
Learning Objective: 3

19. (p. 423) __________ is an idea factor involving things dreamed up in the head with little
reference to the outside world.
A. Internal following
B. Mental inventions
C. Solution spotting
D. Random events

Difficulty: Medium
Learning Objective: 3

20. (p.423) _________ are serendipitous moments when innovators stumbled on something they
were not looking for but immediately recognized its significance.
A. Solution spottings
B. Trend followings
C. Market researches
D. Random events

Difficulty: Medium
Learning Objective: 3

21. (p.423) _______ is an idea factor involving traditional research techniques to find ideas.
A. Need spotting
B. Mental invention
C. Solution spotting
D. Market research

Difficulty: Medium
Learning Objective: 3
22. (p. 423) ___________ is an idea factor involving following demographic and other broad
trends and trying to develop ideas that may be relevant and useful.
A. Mental invention
B. Trend following
C. Market research
D. Solution spotting

Difficulty: Medium
Learning Objective: 3

23. (p. 425) Managers ask if they can retain existing customers and improve targeted coverage of
existing and similar new customers, without innovation. Which of the following points about
managing risk relates to this question?
A. Get the most out of minimum innovation
B. The point of innovation is growth
C. Incremental product innovations can be particularly good at locking in existing customers
D. Incremental innovations can generate more revenue gain or cost savings with less risk than
radical ones

Difficulty: Hard
Learning Objective: 3

24. (p. 425) Tweaking a business process does not incur much:
A. Technology risk
B. Sales risk
C. Cost
D. Uncertainty

Difficulty: Medium
Learning Objective: 3
25. (p.425) Incremental business process innovations can:
A. Generate less revenue gain, but higher cost savings than radical ones
B. Generate more revenue gain or cost savings with less risk than radical ones
C. Generate more risk but higher revenue gains than radical ones
D. Generate more revenue gain and higher cost savings but with more risk than radical ones

Difficulty: Medium
Learning Objective: 3

26. (p. 425) While ________ may underperform established products in mainstream markets,
they often offer features or capabilities appreciated by some fringe customer group.
A. Throughput technologies
B. Acquired innovations
C. Disruptive innovations
D. Lagging innovations

Difficulty: Medium
Learning Objective: 3

27. (p. 425) __________ with other firms that have an interest in a possible innovation share the
costs and risks associated with the effort.
A. Acquisitions
B. Joint strategy
C. Joint ventures
D. Mergers

Difficulty: Medium
Learning Objective: 3
28. (p. 427) ____________ are also referred to as “crowdsourcing” or “open innovation.”
A. Ideagoras
B. Disruptors
C. Sustainers
D. Golddiggers

Difficulty: Medium
Learning Objective: 3

29. (p. 430) ____________ is the process of bringing together creative and innovative ideas and
actions with the management and organizational skills necessary to mobilize the appropriate
people, money and operating resources to meet an identifiable need and create wealth in the
process.
A. Entrepreneurship
B. Market speculation
C. Venture capitalism
D. Franchising

Difficulty: Medium
Learning Objective: 4

30. (p. 430) __________ are exceptional for their technical talents, insights and creativity, but
their creations are often unsuccessful in becoming commercial realities.
A. Marketers
B. Innovators
C. Intrapreneurs
D. Inventors

Difficulty: Easy
Learning Objective: 4
31. (p. 430) __________ are clever at devising schemes or programs to push a product or
service, but aimed more at a quick payoff than a profitable, business building endeavor for the
longer term.
A. Administrators
B. Promoters
C. Inventors
D. Entrepreneurs

Difficulty: Easy
Learning Objective: 4

32. (p. 430) Good _______ develop strong management skills, specific business know-how and
the ability to organize people.
A. Promoters
B. Inventors
C. Innovators
D. Administrators

Difficulty: Easy
Learning Objective: 4

33. (p. 430) _______ usually take pride in overseeing the smooth, efficient functioning of
operations largely as they are.
A. Promoters
B. Inventors
C. Innovators
D. Administrators

Difficulty: Easy
Learning Objective: 4

34. (p. 431) The ideal ________ has strength in both creativity and management.
A. Administrator
B. Inventor
C. Promoter
D. Entrepreneur

Difficulty: Medium
Learning Objective: 4
35. (p. 431) Because certain ideal strengths rarely coexist in one individual, __________ is
increasingly found to involve teams of people that combine their strengths.
A. Administration
B. Entrepreneurship
C. Invention
D. Promotion

Difficulty: Easy
Learning Objective: 4

36. (p. 432) When entrepreneurs can sell their product or service at gross margins in the
________ range, there is an attractive cushion built in that covers the mistakes they are likely
to make while developing a new enterprise.
A. 10-15 percent
B. 15-30 percent
C. 50+ percent
D. 80-100 percent

Difficulty: Hard
Learning Objective: 4

37. (p. 433) The entrepreneur or team must possess the knowledge and skill necessary to create
the products or services the new venture will provide. This refers most directly to the
entrepreneur's:
A. Social skills
B. Marketing competence
C. Technical competence
D. Vision and capacity to inspire

Difficulty: Easy
Learning Objective: 4
38. (p. 434) _________ accrues to good entrepreneurs, but their focus is on opportunities,
customers, markets and competition. They do not often seek ________ for its/their own sake.
A. Money; status
B. Financial stability; profits
C. Equity financing; equity
D. Power; status

Difficulty: Medium
Learning Objective: 4

39. (p. 434) _________ is money provided to a business venture that entitles the provider to
rights or ownership in the venture and which is not expected to be repaid.
A. Restricted stock
B. Debt financing
C. External financing
D. Equity financing

Difficulty: Medium
Learning Objective: 4

40. (p. 435) Most new ventures find _________ hard to get, so gradually nurturing a relationship
with a commercial lender is a wise approach for the new entrepreneur.
A. Patient money
B. Friendly sources
C. Equity financing
D. Debt capital

Difficulty: Medium
Learning Objective: 4

41. (p. 435) Entrepreneurs benefit when using __________ because they retain ownership and
increase the return on their investment if things go as planned.
A. Equity capital
B. Debt capital
C. Stock financing
D. Loans against accounts payable

Difficulty: Medium
Learning Objective: 4
42. (p.434) ________ is generally obtained from a commercial bank to pay for property,
equipment and maybe provide working capital.
A. Equity financing
B. Debt financing
C. Bond financing
D. Stock financing

Difficulty: Easy
Learning Objective: 4

43. (p.435) _________ is money provided to the venture that must be repaid at some point in
time.
A. Bond financing
B. Debt financing
C. Equity financing
D. Distributive financing

Difficulty: Medium
Learning Objective: 4

44. (p. 435) _________ are available for a very select few new ventures that have usually gone
through the other three sources of equity capital first.
A. Stock options
B. Public stock offerings
C. Venture capitalists
D. Friendly sources

Difficulty: Medium
Learning Objective: 4
45. (p. 435) __________ seek investment in the truly high-growth potential ventures. They have
particularly stringent criteria.
A. Public stock offerings
B. Friendly sources
C. Informal venture investors
D. Professional venture capitalists

Difficulty: Easy
Learning Objective: 4

46. (p. 435) __________ are usually wealthy individuals, also called "angel" investors and they
are increasingly active and accessible as possible equity investors.
A. Informal venture investors
B. Formal venture investors
C. Professional venture capitalists
D. Friendly sources

Difficulty: Hard
Learning Objective: 4

47. (p. 435) __________ are prevalent early in many new ventures.
A. Friendly sources
B. Professional venture capitalists
C. Informal venture investors
D. Angel investors

Difficulty: Hard
Learning Objective: 4
48. (p. 435) __________ is usually obtained from one or more of three sources: friendly sources,
informal venture investors or professional venture capitalists.
A. Debt financing
B. Resource financing
C. Equity financing
D. Loan financing

Difficulty: Easy
Learning Objective: 4

49. (p. 436) _________ is the process of attempting to identify, encourage, enable and assist
entrepreneurship within a large, well established company so as to create new products,
processes or services that become major new revenue streams and sources of cost savings for
the company.
A. Entrepreneurship
B. Corporate "slack"
C. Market innovation
D. Intrapreneurship

Difficulty: Easy
Learning Objective: 5

50. (p. 436) ________ are ten characteristics identified by Dr. Gordon Pinchot and elaborated on
by others that need to be present in large companies seeking to encourage and increase
innovation.
A. Intrapreneurship freedom factors
B. Cash-based freedom factors
C. "Slack" factors
D. The entrepreneurship factors

Difficulty: Easy
Learning Objective: 5
51. (p. 436) ____________ is a key characteristic of entrepreneurs. Likewise, time is the most
critical resource, used in tandem to virtually "will" a new venture's success at numerous
junctures early in its development.
A. Conservativeness
B. Freedom
C. Diligence
D. Determination

Difficulty: Hard
Learning Objective: 5

52. (p. 436) Companies should:

A. Designate the responsibility for innovation to a few individuals or groups
B. Not tolerate risk, failure and mistakes in intrapreneurship
C. Give innovators the chance to bring for their ideas
D. Encourage turf-building within the organization, to facilitate innovation

Difficulty: Medium
Learning Objective: 5

53. (p. 436) To encourage intrapreneurship, the company should eliminate _________ after ideas
are generated.
A. Corporate "slack"
B. "Home runs"
C. "Hand-offs"
D. "Patient money"

Difficulty: Medium
Learning Objective: 5
54. (p. 436) Giving the originator of an idea some freedom to make decisions about its further
development and implementation:
A. Rather than relying on multiple levels of approval, enhances intrapreneurship
B. Can increase the downside risk to executives
C. Can actually discourage intrapreneurship
D. Can help limit the downside risk

Difficulty: Medium
Learning Objective: 5

55. (p. 436) Firms that ___________ facilitate innovation.

A. Use the "home run" philosophy
B. Vastly limit corporate "slack"
C. Eliminate corporate "slack"
D. Set aside corporate "slack"

Difficulty: Medium
Learning Objective: 5

56. (p. 436) Some company cultures foster an interest in innovation only when the ideas
represent major breakthroughs. In this type of culture:
A. Intrapreneurship is very efficient
B. Intrapreneurship is predicated on the tolerance of failure
C. Intrapreneurship is very restricted
D. Intrapreneurship cannot happen

Difficulty: Medium
Learning Objective: 5
57. (p. 436) Innovation inherently involves _______, so some failures should be tolerated and
chalked up to experience.
A. "Home runs"
B. Risk
C. "Turfness"
D. Multiple options

Difficulty: Medium
Learning Objective: 5

58. (p. 436) In any organization, there are boundaries—territoriality--that stifle intrapreneurship.
____________ is often central to innovation and successful entrepreneurial teams.
A. Turf-building
B. "Cross-fertilization"
C. Corporate slack
D. Self-selection

Difficulty: Medium
Learning Objective: 5

59. (p. 436) Organizations inhibit __________ by insisting that communication flow upward.
A. Corporate slack
B. Cross-functional interaction
C. Freedom from turfness
D. Cross-fertilization

Difficulty: Medium
Learning Objective: 5
60. (p. 436) The pressure for quarterly profits in many U.S. companies stifles innovative
behavior. However, investment in intrapreneurial activity requires:
A. No hand-offs
B. Self-selection
C. Patient money
D. Corporate slack

Difficulty: Medium
Learning Objective: 5

61. (p. 436) When an individual with an idea has only one person to consult or one channel to
inquire into for developing the idea, innovation can be stifled. Intrapreneurship is:
A. Better than entrepreneurship, especially when there are many options for pursuing ideas
B. Inhibited when people have too many options for discussing or pursuing innovative ideas
C. Encouraged when people have many options for discussing or pursuing innovative ideas
D. Easily achieved with only one or two options

Difficulty: Medium
Learning Objective: 5

Essay Questions

62. How is innovation different from invention?

Please refer to the discussion in the section titled “What is Innovation” on page 415.

Learning Objective: 1

63. Describe incremental innovation and give an example of continuous improvement.

Please refer to the discussion titled "Incremental Innovation" on pages 415-416.

Learning Objective: 1
64. What is CCC21? How does it help Toyota?

Please refer to the discussion on pages 416-417.

Learning Objective: 1

65. What is the Six Sigma approach to fostering innovation?

Please refer to the discussion on pages 417-420.

Learning Objective: 1

66. What is breakthrough innovation? How is it different from incremental innovation?

Please refer to the discussion titled "Breakthrough Innovation," on pages 420--422.

Learning Objective: 1

67. What are the characteristics of successful innovations?

Please refer to the discussion titled "Risks Associated with Innovation," on pages 422-425.
Success factors are covered along with risks.

Learning Objective: 3

68. Define and briefly describe an example of a disruptive innovation. Is this the same as a
breakthrough innovation?

Please refer to the discussion on pages 425-427 that explain disruptive innovation.

Learning Objective: 3
69. What is the role of ideogoras in fostering innovation?

Please refer to the discussion of ideogoras on pages 427-428.

Learning Objective: 3

70. Define entrepreneurship and differentiate entrepreneurs from inventors.

Please refer to the discussion titled "What is Entrepreneurship?" on pages 430-433.

Learning Objective: 4

71. How does a would-be entrepreneur assess whether an opportunity is a good business idea?

Please refer to the discussion on “opportunity” on pages 432-433.

Learning Objective: 4

72. What skills, other than technical competence and business management ability are
important in entrepreneurial teams?

Please refer to the discussion on “Entrepreneurial Teams” on pages 433-434.

Learning Objective: 4

73. With respect to entrepreneurship, what are resources and why are they important?

Please refer to the discussion on “Resources” on pages 434-436.

Learning Objective: 4

74. What is intrapreneurship? Describe Gordon Pinchot’s freedom factors that encourage
intrapreneurship.

Please refer to the discussions in the text titled "Intrapreneurship," on pages 436-437.

Learning Objective: 4
75. How are companies encouraging intrapreneurs and intrapreneurship?.

Please refer to the discussions in the text on pages 437-439.

Learning Objective: 4