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© 2007 John Wiley & Sons Australia, Ltd

Chapter 3

Creativity, innovation and entrepreneurship

Chapter outline
‡ Creativity ‡ Innovation ‡ The role of knowledge, social networks and strategic resources

Learning objectives
‡ List the three components of creativity ‡ Use a series of creativity techniques ‡ Define and explain the sources of innovation ‡ Discuss the different innovation types

Learning objectives
‡ Explain the link between creativity, innovation and entrepreneurship ‡ Define the types and attributes of resources within a resource-based view of entrepreneurship

The need for creativity
µYou have to kiss a lot of frogs to find a prince¶, said Art Fry, the inventor of Post-it notes at 3M. µBut remember, one prince can pay for a lot of frogs.¶

Source: The Economist (1999), Leaps of Faith, A Survey of Innovation in Industry, February 20th, pp. 12±16.

Creativity

‡ Creativity is often associated with the arts. ‡ In business, creativity can be defined as the production of new and useful ideas. ‡ Successful, innovative companies do systematically encourage the development of ideas.

The three components of creativity
‡ Creativity does not only consist of creative thinking, this is only one part of creativity. ‡ Knowledge and motivation are two other important elements.

Creative thinking skills
‡ Creative thinking is how people approach problems and solutions ‡ Depends strongly on the personality as well as how a person thinks or works ‡ People are more creative if they feel comfortable disagreeing with others

Knowledge
‡ Expertise or knowledge encompasses everything a person knows and can do. ‡ Knowledge can be acquired in different ways: ± through formal education ± practical experience ± or interaction with other people.

Knowledge
‡ Knowledge constitutes a µnetwork of possible wandering¶; the larger the space, the better.

Motivation
‡ Motivation determines what a person will actually do. ‡ 2 types of motivation exist: ± intrinsic motivation (motivation from inside, such as enjoyment of work) ± extrinsic motivation (motivation from outside, such as financial rewards)

Motivation

‡ People will be most creative when they feel motivated mainly by the interest, satisfaction and challenge of the task itself.

Creativity techniques
‡ ‡ ‡ ‡ ‡ Problem reversal Forced analogy Attribute listing Mind maps Brainstorming

Factors influencing creativity
‡ ‡ ‡ ‡ ‡ Encouragement of creativity Autonomy Resources Pressures Mental blocks

Innovation
‡ Innovation is the successful implementation of creative ideas within an organisation. ‡ Entrepreneurship can occur with little, if any, innovation.

Innovation

‡ Newness or uniqueness of innovation is a matter of degree both in terms of the tangible characteristics and in terms of the relevant market.

Incremental vs disruptive innovation
Incremental innovation: ‡ steady improvements ‡ based on sustained technologies ‡ obedient to cultural routines and norms ‡ immediate gains ‡ develops customer loyalty

Incremental vs disruptive innovation
Disruptive innovation: ‡ Change value proposition ‡ Cause fundamental changes in marketplace ‡ Experimentation and play/make believe ‡ Needs to be nurtured for long periods ‡ Worse initial performance, potential big gains ‡ Creates new markets

Types of incremental innovation
‡ Extension ‡ Duplication ‡ Synthesis

Sources of innovation within companies or industries
Drucker identified 4 sources of innovation within a company or an industry: ± Unexpected occurrences ± Incongruities ± Process needs ± Industry and market changes

Sources of innovation in the social environment
3 additional sources of opportunities exist outside a company in its social and intellectual environment: ± demographic changes ± perceptual changes ± new knowledge

A process model of creativity, innovation and entrepreneurship

Figure 3.1

Knowledge development during the entrepreneurial process ‡ During the creativity stage, knowledge is present in a very raw form. It might just consist of ideas and sketches drawn on a piece of paper.

Knowledge development during the entrepreneurial process ‡ During the innovation stage, knowledge is further refined and the initial idea should pass the µfeasibility test¶. At this stage, knowledge is often codified, for instance, in the form of a formula or patent.

Knowledge development during the entrepreneurial process ‡ During the entrepreneurship stage, knowledge is embedded in the product or service sold.

Developing and disseminating knowledge through social networks

‡ Social networks are the catalyst for the development and dissemination of knowledge both for emerging and established organisations.

Developing and disseminating knowledge through social networks

‡ Nascent entrepreneurs¶ personal networks ² the set of persons to whom they are directly linked ² affect their access to social, emotional and material support.

Developing and disseminating knowledge through social networks

‡ Network relationships and contacts are fundamental: firstly, to identify opportunities and secondly, to obtain the knowledge and resources required to exploit opportunities.

A resource-based theory of entrepreneurship
‡ The most creative ideas and cutting-edge innovations are, however, not sufficient to set up a business venture. ‡ Without resources to exploit an opportunity, even the best opportunity cannot create an entrepreneur.

Principles of resource-based theory
‡ Resources are necessary to exploit opportunities and to create entrepreneurs. ‡ The resource-based theory considers that firms have different starting points for resources (called resource heterogeneity) and that other firms cannot get them (called resource immobility).

Principles of resource-based theory
‡ In order to be successful, entrepreneurs must exploit market imperfections based upon imperfect information or variations in expectations about prices, while adhering to the following simple formula:

Principles of resource-based theory
± buy (or acquire) resources and skills cheaply ± transform the resources into a product or service (production) ± deploy and implement (strategy) ± sell dearly (value creation)

Resources types
‡ ‡ ‡ ‡ ‡ ‡ Financial resources Physical resources Human resources Technological resources Reputation Organisational resources

Attributes of strategic resources
‡ Sustainable competitive advantage is created when firms possess and use resources that are: ± valuable ± rare ± non-substitutable ± hard to copy (historical conditions, ambiguous causes and effects, complex social relationships)

The role of stories in attracting resources
‡ A well-crafted story about entrepreneurial resources encapsulates the strategic goals and management of the new venture and indicates why it merits investment.

Summary
‡ Creativity can be described as the production of new and useful ideas in any domain. ‡ Creativity stems from creative thinking skills, knowledge and motivation. ‡ Innovation is the successful implementation of creative ideas within an organisation.

Summary
‡ It can be distinguished between radical and incremental innovation. ‡ The successive stages of idea generation (creativity), ideas evaluation (innovation) and ideas implementation (entrepreneurship) can overlap.

Summary
‡ Sustainable competitive advantage is based on the strategic resources a firm can harness.