© 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

‘You have to kiss a lot of frogs to find a prince’, said Art Fry, the inventor of Post-it notes at 3M. ‘But 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 ‘network 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 ‘feasibility 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 — the set of persons to whom they are directly linked — 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.