Lecture 4

THE SOURCES OF INNOVATION

Week 4, March 3, 2019

Ngoc Q. PHAM
Structure of Lecture 4
• The Functional Source of Innovation
• The Functional Source of Innovation as an Economic
Phenomenon
• The Relationship Between the Functional Sourceof
Innovation and Expected Innovation Rents
• Implications for Innovation Management and
Innovation Policy
• Group working
THE FUNCTIONAL
SOURCE OF INNOVATION
Eric von Hippel (1988) – The Source of Innovation
The Functional Source of Innovation
• Firms and individuals in terms of the functional
relationship through which they derive benefit from a
given product, process, or service innovation.

• Example to be discussed: product innovation in aircraft

• Question to be discussed: is the functional role of an

individual or firm fixed?

•  Many functional relationships can exist between

innovator and innovation in addition to user, supplier, and
manufacturer.
The Functional Source of Innovation

Source: Hippel (1988)

NEW KNOWLEDGE AS A
SOURCE OF INNOVATION
Havard Business Essentials: Managing Creativity and
Innovation
Innovative Ideas?
• Sources of Innovative Ideas
1. A flash of inspiration?
2. An accidental idea?

• Innovative ideas are resulted from a conscious,

purposeful search for opportunities to solve problems or
please customers (Peter Drucker, HBR).

• Invention is 99% perspiration and 1% inspiration (Thomas

Edision).
Sources of Innovative Ideas
1. New Knowledge

2. Customers

3. Lead Users

4. Empathetic Design

5. Invention Factories

6. The Open Market of Ideas

New Knowledge
• Most of radical innovations are the product of new
knowledge.
1. Example to be discussed: Computer
2. Example to be discussed: IBM’s innovative silicon germanium
chip
• Development of new knowledge  commercially viable
products: lengthy time span
1. Example to be discussed: Computer (15 years)
2. Example to be discussed: SpaceX
• Rewards are often enormous
1. Example to be discussed: Corning’s fiber optics technology
(1966-1970)
Tapping the Ideas of Custommers
• Customers are evergreen source of innovative ideas.
1. Example to be discussed: smartphone
2. Example to be discussed: pizza restaurant
• How company get in tough with their customers?
• When quizzing customers, be let concerned with product or
service specifications, be more concerned with the outcomes
that customers desire (Tony Ulwick, founder of Strategyn).
• Example to be discussed: music storage media  what outcomes that
customers desire?
Prioritize the list desired outcomes according to their
importance to customers, with each outcome being quantified.
• Example to be discussed: “play without distortion” vs. “resist
damage”?
Learning from Lead Users
• Lead users are companies and individuals – customers
and noncustomers – whose needs are far ahead of
market trends.
• In all cases, their needs motivate them to produce
innovations that suit their unique requirement – often
before manufacturers think of them.
• Lead users are seldom interested in commercializing their
innovations. Their innovative for their own purposes as
exiting products fail to meet their needs.
• Their innovation can often be adapted to the needs of
larger markets, which will be reorganized many months or
years in the future.
Empathetic Design
• Problem that innovators face in determining market needs:
target customers cannot always recognize their future
needs.
• Eg.: a thinner phone, TV with higher resolution, Car with better fuel
economy.
• To generate innovations that go beyond improvements to
the familiar  identify needs and solve problems that
customer may not yet recognize.
• Empathetic design – an idea generating technique whereby
innovators observe how people use existing
products/services in their own environment.
A Case of Electron Microscopes (Hippel, 1988)
Users as Innovators –
A Case of Electron microscopes
• Part of the electron optics system of an electron microscope
is a pinhole-sized aperture through which the electron beam
passes. After a period of microscope operation, this aperture
tends to get contaminated with carbon.
• The carbon becomes electrically charged by the electron
beam impinging on it; the charge in turn distorts the beam
and degrades the microscope's optical performance.
• It was known that by heating the aperture one could boil off
carbon deposits as rapidly as they formed and thus keep the
aperture dynamically clean  installed electrically heated
apertures to perform this job, but these devices could not
easily be retrofitted to existing microscopes.
Users as Innovators –
A Case of Electron microscopes
• In 1964 a microscope user at Harvard University gave a paper
at the EMSA (Electron Microscope Society of America) in
which he described his inventive solution to the problem.
• He simply replaced the conventional aperture with one made
of gold foil. The gold foil was so thin that the impinging electron
beam made it hot enough to induce dynamic cleaning. Since
no external power sources were involved, this design could be
easily retrofitted by microscope users.
• C. W. French, owner of a business that specializes in selling
ancillary equipment and supplies to electron microscopists,
read the paper, talked to the author/inventor, and learned how
to build the gold foil apertures. French first offered them for
sale in 1964.
Who would be innovators
Hipper’s studies (Hipper 1988):
1. Users as Innovators: Pultrusion (Pultrusion is a valuable process for
manufacturing fiber-reinforced plastic products of constant cross-
section)
2. Manufacturers as Innovators: The Tractor Shovel (The tractor shovel
is a very useful machine often used in the construction industry).
3. Manufacturers as Innovators: Engineering Thermoplastics (The term
engineering plastic simply means a plastic that can be used in
demanding engineering applications).
4. Manufacturers as Innovators: Plastics Additives (Plastics additives are
used to modify the properties of a basic polymer in desired ways)
5. Supplier/Manufacturers as Innovators: Wire Termination Equipment
6. Suppliers as Innovators: Process Equipment Utilizing Industrial Gases
and Thermoplastics
A Four-Phase Process (Hippel et al. 1999)
A Four-Phase Process (cont.)
Five step Empathetic Design
Invention Factories
• Develop innovative ideas through formal R&D units.

• Support R&D at two level:

1. Corporate level: produce a stream of scientific and
technical breakthroughs.
2. Business unit level: focus on incremental innovations
that will benefit the unit directly and in the short term
(as managers with profit-and-loss responsibilities)

• Support R&D via Innovation System (linkage with other

actors)
Open Market Innovation
(Rigny and Zook, HBR)

• Open Market Innovation: to describe how companies can reach

outside for the ideas that need for new products and services.
• Open Market Innovation employs licensing, join ventures,
strategic alliances to bring the benefits of free trade to the flow
of new ideas.
• 4 advantages of Open Market Innovation:
1. Importing new ideas can help you multiplying the “building
blocks” of innovations.
2. Exporting ideas is a good way to raise cash and keep talent.
3. Exporting ideas gives firms a way to measure an innovation’s
real value.
4. Exporting and importing ideas helps firms clarify what they do
best.
GROUP WORKING
Group PPT: Where do you stand on the S-curve?

Next PPT: What are/would be the source of

innovation for your selected product?