ENT 450/550 – 2009 - 01: CREATIVITY AND INNOVATION:

CONCEPTUAL FOUNDATIONSOzzie 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

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).

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).

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).

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.

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 profit-contribution 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).

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:

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 21 st 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-the-rack 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: The Competitive Advantage of Nations, 1990: 780), or from the firm’s strategic orientation (Gatignon and Xuereb 1997).

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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:

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.

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

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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:

1. Declining product differentiation, quality, competitive edge, state-of-the-art, variety and assortment.

2. Declining distribution efficiency, logistics economies and inventory management optimization.3. Increasing company, product category, brand, and store under-performance.4. Increasing company, subsidiary, affiliate, branch, division, product, brand, and store distress.5. Declining consumer, customer, client and shareholder enthusiasm.6. Declining sales and consumer repeat buyer patronage.7. Declining customer long-term relationships, loyalty and commitment.8. Declining employee morale and loyalty, and increasing employee unrest and turnover. 9. Steady outward migration of better skills (managerial, technical, and professional) to

competition.10. Lack of cutting edge sustained competitive advantage in core supplies, competencies, and

products.11. Competitors’ increasing strengths and decreasing weaknesses.12. Easy market entry for new competitive entrants and decreasing efficiency of entry deterrent

strategies.13. Declining price-advantage and increasing (profit-eroding) price wars.14. Declining cost-advantage and decreasing gross, operations, and net profit margins.15. Depreciating stock price equity ratios or shareholder value.16. Declining market evaluations and Tobin’s Q.17. Declining investor and venture capitalist confidence, trust and patronage.18. Increasing illegal, unethical and unconventional accounting practices to boost sales and equity.19. Increasing insider illegal and unethical trading.20. Declining company, product, category brand and service extensions and expansions.21. Declining profits, net-worth, and market capitalization. 22. Declining retained earnings for further innovation (chain reaction), 23. Increasing signs of receivership, insolvency, and corporate decline.24. Increasing likelihood of financial buyout, hostile takeover, or merger.25. Increasing likelihood of seeking corporate Chapter 7 or Chapter 11 bankruptcy provisions.

The Socio-Technological Process of Innovation, Culture and Civilization

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"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 value -destruction, 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.

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.

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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 literary genre (Shakespeare’s Drama), new language (Java), new technology (Ethernet, Broadband, digital communications), and so on.

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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).

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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 knowledge, rendering the latter obsolete, and “destroying” existing competence (Tushman and Anderson

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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 food are the best defense against entropy, the tendency for all systems to lose energy. Since aesthetics is

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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, cone-shaped kettle with the little plastic birdie affixed to its spout (designed by the architect Michael

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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 Basic Product Line Ten-Year (1994-2003)Growth in Sales

Revenues in 2003 (Million US$s)

Alessi Home Furnishings 81% 104Artemide Lighting 59% 110B&B Italia Furniture 54% 165Cappellini Furniture 117% 29Cassina Furniture 60% 163Flos Lighting 106% 75Kartell Furniture 211% 70All Lombardi Collection

Home Furniture 76% 716

EU Furniture 11% 78,000Italy Furniture 28% 21,000USA Furniture ? ?

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 19 th 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 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).

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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.

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New Product/Service

Ideas

Industry Push:From Engineers, technicians, employees and suppliers

Market Push:From customers, clients and consumers

New Product/Service Concepts

Industry Response 1:

Market Acceptance:Co-partners

New Product/Service

Prototypes

Market Testing:Prototype and Design Testing

Industry Response 2: Design: Materials, Technology, Modeling,

New Product/Service

Packaging & Bundling

Industry Response 3:Style, Form, Size, Shape, Color, Sheen, Safety, Security,Quality, Efficiency, andConvenience

Market Co-Production:Package Testing, Quality Perception, Safety Testing, Convenience Testing, Bundle Testing

New Product/Service

PromotingPricingPlacing

Industry Forecast:Given pricing, placing, Warranty, Rebates, Promoting andFinancing strategies

Pre-Test Marketing:Of product Mix and Marketing Mix

National Launch:Sales, Market share & profita-bility

Market Assessment:ROS, ROM, ROQ,ROA, ROI, ROE,

Market Experience:Satisfaction,Delight,Fairness,Consumer feedback

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Figure 1.1: The Market Process of Creativity and Innovation

Figure 1.2: The Socio-Technological Process of Innovation, Culture and Civilization

Figure 1.3: The Six-Component Innovation Wheel of Perceived Quality and Customer Satisfaction

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I DEAS FORM CREATIONARTSAESTHETICSLITERATURE

TECH-NOLOGY

DIS-COVERY

INVEN-TION VENTUR

EINNOVATION

CONSUMERPRODUCTS &SERVICES

NEED

SCIENCEKNOWLEDGE

INDUSTRIALPRODUCTS &SERVICES

CULTUREDEVELOPMENTCIVILIZATION

22

1. High-Tech perceived as saving

time, energy, emotions and

anxiety.

3. Goods/Service

AttributeQuality value

2. Goods/Service

InformationQuality value

6. Price/Cost Value

4. Social/ family experience as networking, caring and

excitement.

5. Future

Benefits-value; reduction of

anticipated regret

PERCEIVED

QUALITY

QUALITY

CUSTOMER SATIS-

FACTION

Price-value and product/service-experience trade offs.

Price-value versus future benefits value trade-offs.

User-friendly high-tech reinforces product/service attribute value

User-friendly high-tech reinforces product/service information value

H34 H25

H6

HH5

H1

H2H3

H12H13

H64 H65

H

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

Function:Scale economiesChoice economiesUse economiesTime economiesSafety, securityPrivacy, user-friendlyConvenient/ easy to useTime/energy/talent savingCost-effective

Use and Usage:Ideal shape, size, Economic packageRobust, durableReliable, manageableFast color, sheenRight texture, fabric, feelLow-maintenanceHigh efficiencyEasily availableEasily serviceableEasily disposable

Primacy Collaborators:Engineers, manufacturers, designers, market researchers, economists, cost accountants, lawyers, investors, banks, venture capitalists, suppliers, ecologists, distributors and customers.

Determinant Ideology:Simplicity,Convenience,Rationality, frugality,Utilitarianism,Pragmatism,Conservation, legacy,Accountability

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Figure 1.4B: Form (Design) Driven Innovation: Function Follows Form

Fancy-Driven:Imagination,Dream, desireRole, identity,Value, meaning

Form/Design:Creative, InventiveCommunicative, complex, Sophisticated, elegantFashionable, trendy, Rich, luxurious, eliteExclusive, aristocraticSensational, sensory, sexyAesthetic, modern, exotic, Decorative, ornamental,Personal, comfortable,Intriguing, surprising, subtle,Interesting juxta-positioning.

Usage/Showcase:A delightful experience, Dynamic, energizing,Compelling, attractive, stylishEntertaining, playful,Provocative, evocativeModern, post-modern,Countercultural, revolutionizing,Current events, socializing,Groundbreaking, monumentalNon-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.

Enabling Ideology:LibertarianismFree enterpriseComplexity, flexibility,Extravagance, indulgenceAvant-garde, frontiers,Creativity, pioneering,Freelancing, freewheeling,Form over functionality Aesthetics over costs.

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 Measures Data Source

SkillsNational

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

World Economic Forum

World Competitiveness Report

IMD World Competitiveness ReportOECD Science and Technology Indicators

Firm R&D employees as a percentage of total employees

Global Innovation Survey

Capital

National

Financial market sophistication;Soundness of banks;Ease of access to loans;Venture capital availability;R&D expenditure per capita

World Economic ForumWorld Competitiveness Report

OECD Science and Technology Indicators

FirmSales revenues;R&D spending as a percentage of sales;Firm’s market-to-book ratio

Global Innovation Survey

Worldscope, OSIRIS

GovernmentNational

Intellectual property protection;University/Industry research collaboration;Government subsidies and tax credits for firm R&D;Government procurement of advance technology products

World Economic ForumWorld Competitiveness Report

Culture

National

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

Hofstede Web site

CIA World Fact Book

Firm

Willingness to cannibalize;Future market orientation;Risk tolerance; Product champions;Incentives;Internal markets

Global Innovation Survey

CountryNational

GDPPopulationInflationNational credit rating

World Economic ForumWorld Competitiveness Report

Firm Citation-weighted patents;Primary industry

DelphionOSIRIS, Worldscope

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Table 1.2: The Technology-Market Newness Grid For Classifying New Products

PRODUCT OBJECTIVES

PRODUCT-MARKET TECHNOLOGY

NO CHANGE IMPROVED TECHNOLOGY

NEW TECHNOLOGY

NO CHANGE:OLD MARKETS

Penetration Merger strategy

Corner StoreType writer;Carbon copy;Old Phone

ReformulationRe-packaging

Supermarkets;Electronic typewriter;Xeroxing;Digital dialing

ReplacementInnovation

Electronic markets;Word processors;Laser Printing;Video phones

AUGMENTED MARKETS

Re-Merchandizing; Re-launching;

Factory outlets;Full service gas stationsRural phones.

Product expansion;Differentiation;

Shopping malls;Self-service gas stations;

Phone booths.

Diffusion;Mass merchandizing;

Internet markets;Pay at the pump technology gas stationsCordless car phones.

NEW MARKETS

First entry;New country;

Developing marketsPC for home;Plastic toys;Overseas phones;Express delivery.

Extensive Differentiation;

Electronic KiosksPC for entertainment;Plastic surgery;Phones and modems;Federal Express.

Diversification;Diffusion

Global electronic mallsPCs for businesses;Cosmetic surgery;Video conferencing;WWW networks.

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Table 1.3: The Technology-Market Newness Grid for Classifying Some Integrated Circuit Electronic Products

PRODUCT OBJECTIVES

PRODUCT-MARKET TECHNOLOGY

NO CHANGE IMPROVED TECHNOLOGY

NEW TECHNOLOGY

NO CHANGE:OLD MARKETS

Electromechanical Cash registers in Banks Electronic cash Registers using small scale integrated (SSI) circuits in 19698.5 inch disksComputers with Vacuum Tubes (e.g., ENIAC 1946)Intel 4004, 8080 in 1975

Electronic cash Registers using medium scale integrated (MSI) circuits in 19705.25 & 3.5-inch disks.Computers with Transistors in 1963

Intel 8086 in 1980

Electronic cash Registers using LSI, printers, and inventory mgmt in big banks.3.5 inch Zip diskComputers with SSI Circuits in 1967.

Intel 80-286 and 80-386 in 1985 for businesses

AUGMENTED MARKETS

Electromechanical Cash registers in Retail Outlets

Electromechanical watches

Intel 80-286 and 80-386 in 1985 for PCs at work places

Electronic cash Registers using large scale integrated (LSI) circuits in 1973Electronic LCD display watches in 1973

Intel 80-486 and 80-586 in 1985 for PCs at work places; Memory Jump Drives

Electronic cash Registers using VLSI, printers, and inventory mgmt in big Department Stores in 1975.Electronic watches with SSI in 1973

Computers with VLSIas minicomputers in 1974Intel 80-686, Pentium V, and Micro 2000 in 1998-99Internet Call Centers

NEW MARKETS

Electromechanical Cash registers in the world

Intel 80-286 and 80-386 in 1985 for PCs at homeMobile phones

Electronic cash Registers using very large scale integrated (VLSI) circuits in 1975 for regular retail outletsIntel 80-486 or 80-586 for Laptops NotebooksElectronic organizersMobile 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 BlackberryMobiles phones with security markets

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Table 1.2: A Typology of Management Innovations as a Function ofProducer-Consumer Value Chains

Table 1.2A: A Typology of Management Innovations as a Function ofProducer Value Chain

Value Chain

Innovation in:

Characteristics Management Innovation (MI) Strategies

Producer Value-Chain

Corporate Planning

Mission managementVision managementSetting goals & objectivesCore business, core products, Core competencies and standards mgmtResource allocation mgmtMergers and acquisitions mgmtMarket environment mgmt

Mission effectivenessVision communication and diffusionTargeting/assessing goals & objectivesMonitoring core business & productsDeveloping core competencies & standardsResource allocation by MI successMergers and acquisitions for MI successMI for capitalizing market environment

Product Planning

Category planningProduct line planningBrand management

MI for Category planning MI for product line extensionsMI for brand and community management

Product Designing

Prototype designingAttributes designingBenefits designingValue designing

MI for prototype designingMI for product attributes designingMI for customer benefits designingMI for customer value enhancing

HR management

Talent identity managementRecruiting managementEmployee development mgmtRetention managementPerformance appraisal mgmtPromotions managementBonus/commissions mgmt

MI for talent identity managementMI for recruiting skills and talentMI for personnel development MI for skills retention managementMI for performance appraisal mgmtMI for employee promotions managementMI for bonus/commissions mgmt

Procurement

Centralized purchasingDecentralized purchasingBargaining power mgmtSupply chain mgmtTransportation managementLogistics management

MI for centralized purchasingMI for decentralized procurementMI for enhancing bargaining powerMI for supply chain mgmtMI for optimizing transportation mgmtMI for logistics management

Materials Management

Quality managementSpecifications management

MI for total quality managementMI for OEM/ISO specifications mgmt

Unfinished goods inventory management

JIT managementWarehousing managementWastage management Theft management

MI for JIT inventory managementMI for optimizing warehousing mgmt MI for wastage reductionMI for theft elimination

Process management

Efficiency managementEffectiveness managementEPA management

MI for material and parts efficiency mgmtMI for production process managementMI for zero defects and emissions mgmt

Cash flow management

Payables managementReceivable managementCredit management

MI for optimal payables managementMI for optimal receivables managementMI for supplier/customer credit mgmt

Production management

Production life-cycle mgmtEconomies of scale mgmtSix sigma quality mgmt

MI for production life cycle mgmtMI for optimal scale economies mgmtMI for six sigma product quality mgmt

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Appendix 1.1: MAJOR UNDERLYING PROCESSES RENOVATING THE WORLD OF HUMANITY AND HISTORY, CULTURES AND CIVILIZATIONS

NEW EVENTS

STARTING POINT/INPUT

PROCESSES INVOLVED

SKILLS REQUIRED

TERMINAL POINT/OUTPUT

INDUSTRY/CULTURE EXAMPLES

CREATION Nothing;Fancy/fantasy;Idea/ideology;Dream/vision

Creativity drive;Imagination/aestheticsIdeation/praxisRealization/communication

Inspiration/genius;Idiosyncrasy/craft;Genius/charism;Prophecy/charism/daring

Art (unique & inimitable);Fabrications/designNew paradigms/new cultureRevolution/new wave

Fine arts/Classic Literature;Collectors’ items;Industrial revolution;ML King, Kennedy, Gandhi

INVENTION Ideas/conceptsBasic 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/gravity;E = mc2; new cures;Freud; Einstein;OR, MR, JIT, ... models.

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 / overpopulation;Topology; logical positivism;Off shore oil; Alaska;Getty; Newton.

INNOVA-TION

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-ray, PCs;Art markets; art galleries;Plastics/Optics/Laser;New drugs, drinks,…

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 Markets;Mergers, alliances;Amtrak, Hats, Casinos;McDonald’s; Walt Disney.

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