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Developing Creativity and
Understanding Innovation
CHAPTER OBJECTIVES
1. To examine the role of creativity and lo review I he major components of the
creative process: knowledge accumulation, incubation process, idea
experience, evaluation, and implementation
2. To present ways of developing personal creativity: recognize relationships,
develop a functional perspective, use your "brains," and eliminate
muddling mind-sets
3. To introduce the four major types of innovation: invention, extension,
duplication, and synthesis
4. To define and illustrate the sources of innovation for entrepreneurs
5. To review some of the major myths associated with innovation and to define
the ten principles of innovation
6. To illustrate the financial support for innovation
The era of the intelligent man/woman is almost over and a new one is emergingthe era o
the creative man/woman.
Pinchas Noy
INNOVATION AND THE ENTREPRENEUR
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Innovation is a key function in the entrepreneurial process. Most researchers and
authors in the field of entrepreneurship are, for the most part, in agreement with
Drucker about the concept of innovation:
Innovation is the specific function of entrepreneurship. . . . It is the means by which the
entrepreneur either creates new wealth-producing resources or endows existing resources with
enhanced potential for creating wealth.1
Innovation is the process by which entrepreneurs convert
opportunities into marketable ideas. It is the means by which they become
catalysts for change.2
More than Just a Good Idea
The innovation process is more than just a good idea. The origin of an idea is
important, and the role of creative thinking may be vital to that
development.3However, a major difference exists between an idea arising from
mere speculation and one that is the product of extended thinking, research,
experience, and work. More important, a prospective entrepreneur must have the
desire to bring a good idea through the development stages. Thus innovation is a
combination of the vision to create a good idea and the perseverance
and dedication to remain with the concept through implementation.
Entrepreneurs blend imaginative and creative thinking with a systematic,logical process ability. This combination is a key to success. In addition, potential
entrepreneurs are always looking for unique opportunities to fill needs or wants.
They sense economic potential in business problems by continually asking
"What if. . . ?" or "Why not . . . ?" They develop an ability to see, recognize, and
create opportunity where others find only problems. It has been said that the first
rule for developing entrepreneurial vision is to recognize that problems are to
solutions what demand is to supply. Applying this rule means an entrepreneur will
analyze a problem from every possible angle: What is the problem? Whom does itaffect? How does it affect them? What costs are involved? Can it be solved? Would
the marketplace pay for a solution? This is the type of analysis that blends
creative thinking with systematic analysis.4
In order to give a better perspective of this entrepreneurial vision, this chapter
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is devoted to examining the role of creativity and the innovation process. These two
major topics are keys to understanding opportunity and its development for
entrepreneurs.
THE ROLE OF CREATIVITY
It is important to recognize the role of creativity in the innovative process.
Creativity is the generation of ideas that result in the improved efficiency or
effectiveness of a system.5
Two important aspects of creativity exist: process and people. The process is
goal oriented; it is designed to attain a solution to a problem. The people are the
resources that determine the solution. The process remains the same, but the
approach that the people use will vary. For example, sometimes they willadapt a
solution, and at other times they will formulate a highly innovative solution.6Table
5.1 compares these two approaches.
One study examined the validity of these two approaches for distinguishing
innovative entrepreneurs from adaptive entrepreneurs and
found their application very effective.7 Thus, understanding the problem-solving
orientation of individuals helps develop their creative abilities.
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The Nature of the Creative Process
Creativity is a process that canbe developed and improved.8Everyone is
creative to some degree. However, as is the case with many abilitiesand talents(for example, athletic, artistic), some individuals have a greater
aptitude for creativity than others. Also, some people have been raised and
educated in an environment that encouraged them to develop their creativity.
They have been taught to think and act creatively. For others the process is more
difficult because they have not been positively reinforced, and, if they are to be
creative, they must learn how to implement the creative process.9
Many people incorrectly believe that only a genius can be creative. l0Most
people also assume some people are born creative and others are not, or only
the gifted or highly intelligent person is capable of generating creative ideas
and insights. Yet, the real harriers to creative thinking are sometimes the
inadvertent "killer phrases" we use in our communications. Table 5.2 lists the
15 key "idea stoppers" we use. People may not intentionally stop a creative
idea, but these simple negative phrases prohibit people from thinking
any further.
Creativity is not some mysterious and rare talent reserved for a select few. It
is a distinct way of looking at the world that is oftentimes illogical. The creative
process involves seeing relationships among things others have not seen (for
example, modemsusing telephones to transfer data among computers).''
The creative process has four commonly agreed-on phases or steps. Most
experts agree on the general nature and relationships among these phases,
although they refer to them by a variety of names. l2Experts also agree that
these phases do not always occur in the same order for every creative
activity. For creativity to occur, chaos is necessary but a structured and
focused chaos. We shall examine this four-step process using the most typical
structural development,
PHASE 1: BACKGROUND OR KNOWLEDGE
ACCUMULATIONSuccessful creations are generally preceded by investigation
and information gathering. This usually involves extensive reading,
conversations with others working in the field, attendance at professional
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meetings and workshops, and a general absorption of information relative
to the problem or issue under study. Additional investigation in both related
and unrelated fields is sometimes involved. This exploration provides the
individual with a variety of perspectives on the problem, and it is particularlyimportant to the entrepreneur, who needs a basic understanding of all aspects
of the development of a new product, service, or business venture.
People practice the creative search for background knowledge in a number of ways.
Some of the most helpful follow: (1) read in a variety of fields; (2) join professional
groups and associations; (3) attend professional meetings and seminars; (4) travel to
new places; (5) talk to anyone and everyone about your subject; (6) scan magazines,
newspapers, and journals for articles related to the subject: (7) develop a subject library
for future reference; (8) carry a. small notebook and recording useful information; and(9) devote time to pursue natural curiosities.13
PHASE 2: THE INCUBATION PROCESS Creative individuals allow their
subconscious to mull over the tremendous amounts of information they gather
during the preparation phase. This incubation process often occurs while they are
engaged in activities totally unrelated to the subject or problem. It happens even
when they are sleeping. This accounts for the advice frequently given to a person
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who is frustrated by what appears to be sin unsolvable problem: "Why don't you
sleep on it?"14Getting away from a problem and letting the subconscious mind
work on it allows creativity to spring forth. Some of the most helpful steps to
induce incubation follow: (1) engage in routine, "mindless" activities (culling thegrass, painting the house); (2) exercise regularly, (3) play (sports, board games,
puzzles); (4) think about the project or problem before falling asleep; (5)
meditate or practice self-hypnosis; and (6) sit back and relax on a regular basis.15
PHASE 3: THE IDEA EXPERIENCE This phase of the creative process is
often the most exciting. It is when the idea or solution the individual is seeking is
discovered. Sometimes referred to as the "eureka factor," this phase is also the
one the average person incorrectly perceives as the only component of
creativity.16
As with the incubation process, new and innovative ideas often emerge while
the person is busy doing something unrelated to the enterprise, venture, or
investigation (for example, taking a shower, driving on an interstate highway,
leafing through a newspaper).17Sometimes the idea appears as a boll out of the
blue. In most cases, however, the answer comes to the individual incrementally.
Slowly but surely, the person begins to formulate the solution. Because it is often
difficult to determine when the incubation process ends and the idea experience
phase begins, many people are unaware of moving from Phase 2 to Phase 3.
In any event, here are ways to speed up the idea experience: (1) daydream
and fantasize about your project, (2) practice your hobbies, (3) work in a
leisurely environment (for example, at home instead of the office), (4) put the
problem on the back burner, (5) keep a notebook at bedside to record laic-night
or early-morning ideas, and (6) take breaks while working.15
PHASE 4: EVALUATION AND IMPLEMENTATION This is the most difficult
step of a creative endeavor and requires a great deal of courage, self-discipline, and
perseverance. Successful entrepreneurs can identify ideas that are workable and
that they have the skills to implement. More important, they do not give up when
they run into temporary obstacles.19Often they will fail several times before they
successfully develop their best ideas. In some cases entrepreneurs will take the idea
in an entirely different direction or will discover a new and more workable idea
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while struggling to implement the original idea. Another important part of
this phase is the reworking of ideas to put them into final form. Because frequently
an idea emerges from Phase 3 in rough form, it needs to be modified or tested to
put it in final shape. Some of the most useful suggestions for carrying out thisphase follow: (1) increase your energy level with proper exercise, diet, and rest;
(2) educate yourself in the business planning process and all facets of business; (3)
test your ideas with knowledgeable people; (4) take notice of your intuitive hunches
and feelings; (5) educate yourself in the selling process; (6) learn about organi-
zational policies and practices; (7) seek advice from others (for example, friends,
experts); and (8) view the problems you encounter while implementing your ideas
as challenges.20
Figure 5.1 illustrates the four phases of the creative thinking process. If a
person encounters a major problem while moving through the process, it is
sometimes helpful to go back to a previous phase and try again. For example, i
an individual is unable to formulate an idea or solution (Phase 3), a return to
Phase 1 often helps. By immersing him- or herself in the data, the individual
allows the unconscious mind to begin anew processing the data, establishing
cause/effect relationships, and formulating potential solutions.
Developing Your Creativity
You can do a number of things to improve your own creative talents.
Becoming aware of some of the habits and mental blocks that stifle creativity is
one of the most helpful.21 Of course, as with most processes, you]'
development will be more effective if you regularly practice exercises designed
to increase your creative abilities. The following section is designed to improve
your awareness of some of the thought habits that limit your creativity and to
assist you in developing a personalized creativity improvement program.
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RECOGNIZING RELATIONSHIPS Many inventions and innovations area result of the inventor's seeing new and different relationships among
objects, processes, materials, technologies, and people.22 Examples range
widely and include (1} adding fruit juice to soft drinks to create Slice, (2)
combining combustion engine technology with the wheel to create the
automobile, and (3) using a 330-pound defensive football player as a running
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back and pass receiver.
If you wish to improve your creativity, it helps to look for different or
unorthodox relationships among the elements and people around you. This
activityinvolves perceiving in a relational mode. You can develop this talent by
viewing things and people as existing in a complementary or appositional
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relationship with other things and people. Simply stated, things and people
exist in the world in relation to other things and people. Creative people seem
to he intuitively aware of this phenomenon and have developed & talent fur
recognizing new and different relationships. These relationships often lead to
visions that result in new ideas, products, and services.23 In order to develop
the ability to recognize new relationships, you must practice perceiving in a
relational mode. The following exercise helps with this development.
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A Creative Exercise Analyze and elaborate on how the following pairs
relate to each other in a complementary way: nut and bolt, husband and wife,
chocolate cake, and vanilla ice cream, grass clippings and tomato plants, peanut
butter and jelly, athlete and coach, humanity and water, winning and losing,
television and overhead projectors, and managers and production workers.
DEVELOPING A FUNCTIONAL PERSPECTIVEIf expanded, the principle
of perceiving in a relational mode helps develop a functional perspective
toward things and people. A creative person lends to view things and people in
terms of how they can satisfy his or her needs and help complete a project. For
example, the homemaker who cannot find a screwdriver often will use a butter
knife to tighten a loose screw. Or the cereal manufacturer will add fruit to
its product to create a new product line that appeals to a health-conscious
market.
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If you wish to become more innovative and creative, you need to visualize
yourself in complementary relationships to the things and people of the world.You must learn to look at them in terms of how they complement you in your
attempts to satisfy your own needs and to complete your projects. You must
begin to look at things and people in nonconventional ways and from a
different perspective.24 The following exercise is designed to help you develop
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a functional perspective.
A Creative Exercise Think of and write down all the functions you can
imagine for the following items (spend five minutes on each item):
An egotistical staff member
A large pebble
A fallen tree branch
A chair
A computer "whiz kid"
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An obsessively organized employee
The office "gossip"
An old hubcap
A new secretary
An empty roll of masking tape
A yardstick
An old coat hanger
The office tightwad
This exercise
USING YOUR brains Ever since split-brain studies were conducted in the
1950s and 1960s, experts on creativity, innovation, and self-development have
emphasized the importance of developing the skills associated with both
hemispheres of the brain.25
The right brain hemisphere helps an individual understand analogies,
imagine things, and synthesize information. The left brain hemisphere helps the
person analyze, verbalize, and use rational approaches to problem solving.
Although the two brain hemispheres (right and left) process information
differently and are responsible for different brain activities and skills (see Table
5.3), they are integrated through a group of connecting nerve fibers called the
corpus callosum. Because of this connection and the nature of the relationship
between the activities of each hemisphere, each hemisphere should be viewed
as existing and functioning in a complementary relationship with the otherhemisphere.26
The creative process involves logical and analytical thinking in the
knowledge accumulation, evaluation, and implementation stages. In addition, it
calls for imagination, intuition, analogy conceptualization, and synthesizing in
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the incubation and idea creation stages. So to become more creative, it is
necessary lo practice and develop both right- and left-hemisphere skills. The
following problem-solving exercise is designed to demonstrate the
effectiveness of combining the skills of both hemispheres when solving
problems.
A Creative Exercise Assume you have an idea that will save your
organization time and money on processing customer complaints. Your
supervisor has been extremely busy and has been unwilling to stop and listen to
your idea.
1. Write down all the left-hemisphere-type solutions to this problem you can
think of in five minutes
TABLE 5.3 PROCESSES ASSOCIATED WITH THE TWO BRAIN HEMISPHERES
Left Right
Hemisphere Hemisphere
Verbal Nonverbal
Analytical Synthesizing
Abstract Seeing analogies
Rational Nonrational
Logical Spatial
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Linear Intuitive
Imaginative
2. Write down all the rig hi-hemisphere-type solutions to this problem you
can think of in live minutes.
3. Compare these lists and combine two or more solutions from each list that
will result in a unique and innovative way to solve this problem.
4. Repeat numbers 1, 2, and 3 using a current problem you are facing at work
or at home.
Our society and its educational institutions reward individuals who have
been successful at developing their logical, analytical, and rational left-brain
skills. Little emphasis, however, has been placed on practicing and using right-
brain skills. Table 5.4 represents some ways yon can practice developing both
left- and right-hemisphere skills.27
ELIMINATING MUDDLING MIND-SETS A number of mental habits
block or impede creative thinking. It has been estimated that adults use only 2
to 10 percent of their creative potential.28 For example, many individuals tend
10 make quick judgments about new things, people, and ideas. Another
inclination is to point out the negative components of a new or different idea
because of the psychological discomfort associated with change. Some
common mental habits that inhibit creativity and innovation are "either/or"
thinking, security hunting, stereotyping, and probability thinking. These habits
tend to muddle creative thought processes, and different thought processes
must be used to enhance creative thinking.29
Either/or Thinking Because of the speed of change in the modern world,
personal lives arc filled with a great deal of uncertainty and ambiguity. People
often get bogged
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down with striving for an unreasonable amount of certainty in their lives. But
the creative person learns to accept a reasonable amount of ambiguity in his or
her work and life. In fact, many exceptionally creative people thrive in an
uncertain environment and find it exhilarating.30
Security Hunting Many people try to make the right decision or Take the
correct action every time, in doing so, they rely on averages, stereotypes, and
probability theory to minimize their risks. Although this strategy often is
appropriate, at times a creator or innovator must take some calculated risks.31
Sometimes these risks result in the innovator's being wrong and making
mistakes. Yet by recognizing this as part of the innovative game, the creative
person learns from his or her mistakes and moves on to create bigger and better
things. We all know Thomas Edison failed numerous times when searching for
the correct materials to use inside the incandescent lightbulb.
Stereotyping It is ironic that although averages and stereotypes are
abstractions that people fabricate, people act and make decisions based on them
as if these were data entities existing in the real world. For example, one could
hypothesize that the average homemaker is female. 38 years old, and 5'4"tall;weighs 120 pounds; and has 2 children, a part-time job, and 14.5 years o
formal education. If one tried to find a person who fits this description, how-
ever, the chances of success would be small. In short, the more descriptive the
abstraction or stereotype, the less real it becomes. Predicating actions from
stereotypes and averages can cause an individual to act on the basis of a
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distorted picture of reality. More important, relying on these abstractions can
limit a person's perception of the real entities and possibilities in the world.
Edward deBono argues that people must alter their thinking to enhance their
creativity. Only new patterns of thinking will lead to new ideas and
innovations.32
Probability Thinking In their struggle to achieve security, many people also
tend to rely on probability theory to make decisions. An overreliance on this
decision-making method, however, can distort reality and prohibit one from
taking calculated risks that may lead to creative endeavors.
Probability experts report that the predictive power of probability theory
increases in proportion to the number of times an event is repeated. If a personwishes to predict the probability of tossing the number 3 when rolling dice a
certain number of times, probability theory is extremely useful. However, if the
person wishes to know the likelihood of rolling a 4 with one roll of the dice, the
predictive ability of probability theory is much less valuable.
In the creative game, often an individual is looking at an opportunity or
situation that may occur only once in a lifetime. In a single-
event situation, intuition and educated guesses are just as useful, if not more
useful, than logic and probability.33 One way of increasing your creativecapacities is to practice looking at some of the situations in your life as a 50/50
game, and then begin to lake some risks. Additionally, the following problem-
solving exercises are designed to help eliminate muddling mind-sets:
Practice taking small risks in your personal life and at work, relying on
your intuition and hunches. Keep a log of these risks and chart their accuracy
and consequences. For example, try to draw to an inside straight in your next
family poker game.
Go out of your way to talk to people who you think conform to a
commonly accepted stereotype.
Take on a number of complex projects at work and at home that do not lend
themselves to guaranteed and predictable results. Allow yourself to live with a
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manageable amount of ambiguity. Notice how you react to this ambiguity.
When an idea is presented toyou, first think of all the positive aspects o
the idea, then of all the negative aspects, and finally of all the interesting
aspects of the idea.
When listening to people, suspend initial judgment of them, their ideas, and
their information, and simply listen.
Try making some decisions in the present. That is, do not let your personal
history or your estimates about the future dominate your decision-making
process.34
The Creative Climate
Creativity is most likely to occur when the business climate is right. No
enterprise will have creative owners and managers for long if the right climate
is not established and nurtured. Some of the important characteristics of this
climate follow:
A trustful management that does not overcontrol the personnel
Open channels of communication among all business members
Considerable contact and communication with outsiders
A large variety of personality types
A willingness to accept change
An enjoyment in experimenting with new ideas
Little fear of negative consequences for making a mistake
The selection and promotion of employees on the basis of merit
Theuse of techniques that encourage ideas, in cl uding suggestion
systems and brain storming
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Sufficient financial, managerial, human, and time resources for accomplishing
goals35
THE INNOVATION PROCESS
Most innovations result from a conscious, purposeful search for new
opportunities. This process begins with the analysis of the sources of new
opportunities. Drucker has noted that because innovation is both conceptual
and perceptual, would-be innovators must go out and look, ask, and listen.
Successful innovators use both the right and left sides of their brains. They
look at figures. They look at people. They analytically work out what the
innovation has to be to satisfy the opportunity. Then they go out and look at
potential product users to study their expectations, values, and needs.
37
Most successful innovations are simple and focused. They are directed
toward a specific, clear, and carefully designed application. In the process the
create new customers and new markets. The Spectra camera from Polaroid is a
example. Although the camera is highly sophisticated, it is easy to use an
appeals to a specific market niche; people who want instant photography.
Above all, innovation often involves more work than genius. As Thomas
Edison once said, "Genius is 1 percent inspiration and 99 percent perspiration."
Moreover, innovators rarely work in more than one area. For all his
systematic innovative accomplishments, Edison worked only in the electricit
field.
Types of Innovation
Four basic types of innovation exist. These extend from the totally new to
modifications of existing products or services. In order of originality, these are
the four types:
Invention: the creation of a new product, service, or process, often one that
is novel or untried. Such concepts tend to be "revolutionary" (see Table
5.5).
Extension: the expansion of a product, service, or process already in
existence. Such concepts make a different application of a current idea.
Duplication: the replication of an already existing product, service, or
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process. The duplication effort, however, is not simply copying but
adding the entrepreneur's own creative touch to enhance or improve the
concept to heat the competition.
Synthesis: the combination of existing concepts and factors into a new
formulation. This involves taking a number of ideas or items already
invented and finding a way so together they form a new application.38
Financial Sources of Innovation
Innovation is a tool by which entrepreneurs typically exploit change rather
than create change.39 Although some inventions have created change, these are
rare. It is more common to find innovations that take advantage of change.
The internal and external areas that serve as innovation sources are presented
next.
UNEXPECTED OCCURRENCES These are successes or failures that, because
they were unanticipated or unplanned, often end up proving to be a major
innovative surprise to the firm.
INCONGRUITIES These occur whenever a gap or difference exists between
expectations and reality. For example, when Fred Smith proposed overnight
mail delivery, he was told. ''If it were that profitable, the U.S. Post Office would
be doing it." It turned out Smith was right. An incongruity existed between what
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Smith felt was needed and the way business was currently conducted.
PROCESS NEEDS These exist whenever a demand arises for the entrepreneur to
innovate and answer a particular need. The creation of health foods and time-
saving devices are examples.
INDUSTRY AND MARKET CHANGES Continual shifts in the marketplace
occur, caused by developments such as consumer attitudes, advancements in
technology, industry growth, and the like. Industries and markets are always
undergoing changes in structure, design, or definition. An example is found in
thehealth care industry, where hospital care has undergone radical change and
where home health care and preventive medicine have replaced hospitalization
and surgery as primary focus areas. The entrepreneur needs to be aware of and
seize these emerging opportunities.
DEMOGRAPHIC CHANGES These arise from (rend changes in population, age,
education, occupations, geographic locations, and similar factors. Demographic
shifts are important and often provide new entrepreneurial opportunities. For
example, as the average population age in Florida has increased (due largely to
the influx of retirees), land development, recreational, and health care industries
all have profited.
PERCEPTUAL CHANGES These changes occur in people's interpretation of factsand concepts. They arc intangible yet meaningful. Perception can causemajor
shifts in ideas to take Place. The current fitness craze, caused by the perceived
need to be healthy and physically fit, has created a demand for both health foods
and health facilities throughout the country.
KNOWLEDGE-BASED CONCEPTS These are the basis for the creation or
development of something brand new, tying into our earlier discussion o
invention as a type of innovation. Inventions are knowledge-based; they are
the product of new thinking, new methods, and new knowledge. Suchinnovations often require the longest time period between initiation and market
implementation because of the need for testing and modification. For example,
the Spectra camera from Polaroid, which helped revolutionize
instant photography, took almost five years to create, perfect, and bring to
market. Some examples of these innovation sources are presented in Table 5.6.
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Major Innovation Myths
Presented next is a list of the commonly accepted innovation myths, along
with reasons why these are myths and not facts.40
MYTH 1 : INNOVATION IS PLANNED AND PREDICTABLE This myth
is based on the old concept that innovation should be left to the research and
development (R&D) department under a planned format. In truth, innovation
is unpredictable and may be introduced by anyone.
MYTH 2: TECHNICAL SPECIFICATIONS SHOULD BE
THOROUGHLY PREPARED
Thorough preparation often takes too long. Quite often it is more important
to use a try/test/re vise approach.
MYTH 3: CREATIVITY RELIES ON DREAMS AND BLUE-SKY
IDEAS Accomplished innovators are very practical people and create from the
opportunities left by reali tynot daydreams.
MYTH 4: BIG PROJECTS WILL DEVELOP BETTER INNOVATIONS
THAN SMALLER ONES This myth has been proved false time and time
again. Larger firms are now encouraging their people to work in smaller
groups, where it often is easier to generate creative ideas.
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MYTH 5: TECHNOLOGY IS THE DRIVING FORCE OF INNOVATION
AND SUCCESS Technology is certainly one source for innovation, but it is
not the only one. Moreover, the customer or market is the driving forcebehind any innovation. Market-driven or customer-based innovations have
the highest probability of success. A good example is found in Polaroid's
Polarvision, a television camera that allowed for instant playback of the film.
Polaroid hit the market with this technological advance at the same time video-
cassette recorders arrived. The result: Polaroid's product was rejected, and the
companylost millions of dollars.
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Principles of Innovation
Potential entrepreneurs need to realize innovation principles exist. These
principles can be learned and, when combined with opportunity, can enable
individuals to innovate. The major motivation principles follow:
Be action oriented. Innovators always must be active and searching for
new ideas, opportunities, or sources of innovation.
Make the product, process, or service simple and
understandable. People must readily understand how the innovation
works.
Make the product, process, or service customer-bused. Innovators always
must keep the customer in mind. The more an innovator has the end user in
mind, the greater the chance the concept will be accepted and used.Start small. Innovators should not attempt a project or development on a
grandiose scale. They shou ld begin small and then build and develop,
allowing for planned growth and proper expansion in the right manner and at
the right time.
Aim high. Innovators should aim high for success by seeking a niche in the
marketplace.
Try/test/revise. Innovators always should follow the rule of try, test, and
revise. This helps work out any flaws in the product, process, or service.
Learn from failures. Innovation does not guarantee success. More important,
failures often give rise to innovations.41
Follow a milestone schedule. Every innovator should follow a schedule that
indicates
Milestone accomplishments. Although the project may run ahead or behind
schedule, it still is important to have the schedule in order to plan and evaluate
the project.
Reward heroic activity. This principle applies more to those involved in
seeking and motivating others to innovate. Innovative activity should berewarded and given the proper amount of respect. This also means tolerating
a/id, to a limited degree, accepting failures as a means of accomplishing
innovation. Innovative work must be seen as heroic activity that will reveal
new horizons for the enterprise.
Work, work, work. This is a simple hut accurate exhortation with which to
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conclude the innovation principles. It lakes worknot genius or mystery
to innovate successfully.42
F I N A N C I A L S U P P O R T F O R I N N O V A T I O N
A financial environment that supports innovation is crucial to the continued
nurturing of creative activity. Two major sources of financial backing are
venture capital and government support.
Venture Capital Environment
The activity in venture capital funds has changed dramatically in the past 25 years.
Consider the following facts. In 1987, 587 U.S. venture capital firms existed (a 148
percent increase since 1977), which represented independent private funds,
corporate funds, and venture -capital -related small-business investment companies.
Between 1978 and 1987, the industry gained nearly 800 percent in total capital unde
management, growing from $3. 5 billion to $31.1 billion. In addition, a 700 percent
increase in annual capital commitments, from $600 million to $4.9 billion, occurred.
Also, nearly a 600 percent increase in annual disbursements, from $550 million to $3-
8 billion, transpired.43
In 1989 a slowdown in the venture capital markets occurred. After the stock market
crash of October 1987, the number of individual investorsthe backbone of initial
public offerings (IPOs)dropped. Venture capitalists depend on a strong 1PO marke
for their investments.
However, 1 990 demonstrated a resurgence in the IPO market with a 29 percent
increase over 1989. Dollar volume increased 33 percent, and the number of offerings
increased from 69 (1989) to 98 (1990), with the dollar amount increasing from $3.6
billion in 1989 to $5.4 billion in 1990.44Although in the 1990s the amount dropped
somewhat to approximately $3.8 billion, a record $7.4 billion in venture capital
was invested in 1995.45 This unprecedented total represents nearly 50 percent
growth over the funding level for 1994 and a 125 percent increase since 1991.
Venture capitalists deployed this unparalleled amount of capital in a record 1,100
deals. The total number of financings completed in 1995 increased just 15 percent
over the total for 1994 and has grown 39 percent since 1991.46
According to the National Venture Capital Association, 1998 was a record
year for the venture capital industry, with $25.3 bi llion being raised for
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investment. Venture investments rose 24 percent from 1997, bringing the
total amount available for investment to $84.2 billion. In 1998, $19.3
billion in venture capital investments were made (up from $14 bill ion in
1997). More than one-third went to software companies. (See Table 5.7 for a
complete breakdown of venture capital investments.) In 1999, a record $48.2
billion was invested by the venture capital industry.47
As indicated in Chapter 1, the Internet has been an explosive catalyst for
new ventures and the venture capital market has responded with the same
intensity. In 1996, $1 billion of venture capital was invested in 312 Net-
based ventures. By 1998, Ibis amount had grown Lo $3.5 billion invested
in 641 ventures; In 1999, a record $31.3 billion was invested in Internet
ventures.48
This phenomenal growth has netted the following changes in the structure
and investment philosophy of the industry:
Increasing size and number of venture capital funds
Increasing competition among venture capitalists and declining rates of return
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Fewer experienced investment personnel
Increasing size of average investment
Increasing amount of coinvestment
Increasing specialization49
The late 1990s found a continual willingness on the part of investors, yet a trend
toward specialization by venture capitalists. The venture capital firms are becoming
more restrictive about the industries in which they are willing to invest, including
the companies' development stage. Nevertheless, if the quality of innovation is there,
then the money will be found.
Government Support of Innovation
Government support for Innovation has been on the rise over the past 20 years. For
example, the U.S. government spent $65 billion (nearly 1 percent of the gross
domestic product) to support American efforts in innovation research. That money
was divided among laboratories, universities, and businesses.
Another example of this support is the Small Business Innovation Development
Act of 1982, which was reaffirmed with the Small Business Research andDevelopment Enhancement Act of 1992. These acts created and affirmed the SBIR
(Small Business Innovation Research) program. In fiscal 1983, $45 million was
awarded under this program, and that amount was increased to S483 million by
fiscal 1993. By 1999, 11 federal agencies participating in the program had provided
more than $4 billion to small high-tech companies throughout the United States.
Under the act each participating agency in the- program publishes solicitations that
describe that agency's research and development needs, funds for which are to be
awarded by competitive contract, grant, or cooperative agreement through
the SBIR programs. The SBA then publishes a master schedule
of all SBIR solicitations from the participating agencies.
Small high-technology firms can submit proposals for research projects directly
to the appropriate agency through a simplified standard solicitation procedure. Each
agency then awards the firms on a competitive basis. Selection criteria
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are included in each solicitation, and projects with potential for
commercialization are encouraged. Thus small high-technology firms have
opportunities to (1} compete with other small firms for more federal R&D awards,
(2) find out easily about federal R&D projects available through the
SBIR programs in participating agencies, and (3) be included in a source file of
small firms capable of doing R&D for the federal government.
R&D awards in the SBIR programs have three phases, in Phase 1 awards are
made for research projects intended to evaluate the scientific and technical merit
and feasibility of an idea. These awards generally are $100,000 or less, and the
phase lasts about six months. Funding for projects with the most potential are
continued. In Phase 2 awards of $750,000 or less are made for further development
of the innovation. This phase usually lasts about two years. Phase 3 is characterized
by private-sector investment and support that will bring the innovation to the
marketplace. When appropriate, this phase also may include follow-up production
contracts with a federal agency for the federal government's future use.50
SUMMARY
This chapter examined the importance of creativity and innovation to the
entrepreneur. The creativity process was described, and ways of developing
creativity were presented. Exercises and suggestions were included to help the
reader increase the development of his or her creativity. The nature of the
creative climate also was described.
The four basic types of innovationinvention, extension, duplication, and
synthesiswere explained, and the sources of innovation were outlined and
examined. The last part of the chapter reviewed the myths commonly
associated with innovation, presented the major innovation principles, and
discussed financial support for innovation.
KEY TERMS AND CONCEPTS
Appositional relationship functional perspective muddling mind-sets
creative process Incongruities probability thinking
creativity innovation right brain
duplication invention stereotyping
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extension left brain synthesis
REVIEW AND DISCUSSION QUESTIONS
1. In your own words, state what is meant by the term innovation.2. What is the difference between an adaptor and an innovator?
3. What arc four major components in the creative process?
4. What arc the four steps involved in developing personal creativity?
5. What are four major types of innovation?
6. What are the major sources of innovation? Explain and give an example
of each.
7. Briefly describe each of the five major myths commonly associated with
innovation.
8. Identify and describe five of the innovation principles.
EXPERIENTIAL EXERCISE
Developing Your Personal Creativity
This exercise is designed to help you develop your personal creativity. To
enhance your creativity, you should make improvements in the following
areas:
1. Personal development (self-discipline, self-awareness, self-confidence,
improvement in energy level, and so on)
2. Problem-solving skills (problem recognition, and so on)
3. Mental fluency (quantity of thoughts/ideas, and so on)
4. Menial flexibility (switching gears/approaches, and so on)
5. Originality (unusual thoughts and ideas, and so on)
It is best to start small and work on a few things at a lime. Follow the step-
hy-slep approach listed next. Use the accompanying worksheet to help you
design a personal creativity program.1. Choose one of the five areas for improvement Listed (for example, mental
fluency).
2. Establish a specific objective for this area (for example, to increase your
ability to generate logical and intuitive solutions to problems at work).
3. Decide how much time you will give to this program (for example, three
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hours per week).
4. Decide how long you will work in this area (for example, one month, two
months).
5. Decide what actions you will take and what exercises you will perform to
improve in this area (for example, sentence-creation exercises, usage
ideas, meditation, suspension of initial judgments).
6. Set up an outline of your program (that is, day of week, time of day, place,
and what you will do during this time).
7. Review your program after completion, and write a similar program for
another one of the five areas for improvement.
VIDEO CASE 5,1
PARADIGM SIMULATION:REALITY
bytes in the virtual world
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In 1990, three young, unemployed software engineersMike Engledinger,
Wes Hoffman, and Ron Toupalfollowed their vision and formed Paradigm
Simulation. "Originally, we all worked at the same company," Engledinger,
Paradigm cofounder and vice president of engineering, says. "That
company didsimulation and training applications, but they didn't see die computer
graphics side as being all that important. They didn't think there was much of a
future in it. As it turns out, there is, and we knew there was."
Since it was founded, Paradigm has been blazing a trail in the simulation and
virtual-reality industries. Originally, (he company began doing high-end,
multimillion-dollar simulation for the defense industry. But the company has
found an innovative way to make state-of-the-art technology more affordable and
user-friendly to a broader consumer base. "Before Paradigm came along, 3-D
simulation wasn't accessible to anybody." Hoffman, cofounder and creative
director, explains. "It was too expensive. Software products were selling for
$70.000 lo $80.000 and the hardware was $300,000. We came in and
said,'Well, 1 think if we drop the price down lo S5,000 we can sell thousands
more,' "
At the core of their success has been a product called Vega, a software tool that
enables programmers and nonprogrammers alike to build interactive 3-D visual
simulation and virtual-reality applications.
"Our Vega product was revolutionary because it provided not only an application
interface to engineers, but it also provided a graphical user interfacea point-and-
click environmentthat users could leverage off of," David Gatchel, executive
vice president of entertainment, explains. "People in the past haven't been able
to use this technology because they weren't software engineers or
engineers of any sort. With our implementation, they
can visualize data, visualizescenarios without ever having to write any
software code."
Paradigm's innovative software tools have attracted an impressive client
list that includes DaimlerChrysler, the National Aeronautics and Space
Administration, Silicon Graphics. BMW, and, most recently, the gaming
giantNintendo. "Nintendo was looking for a company that could help them
bring 3-D games lo the home market," Gatchel says. Nintendo chose
Paradigm to create one of its most challenging games: Pilot Wings 64.
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Unveiled to glowing reviews, Pilot Wings 64 has proven to be one of
Nintendo's best-selling games, giving Paradigm an impressive entree into a
lucrative new market. "We've actually developed a capability in-house which
says, 'Hey, we can develop good games! There's a business mere. Maybe we
should consider building more games,' " Toupal, co-founder and president o
Paradigm, says. Soon, another Paradigm creation, a spike-haired, animated
ski demon named Egghead, will be an interactive star at Disney's Epcot
Center.
Deals with Disney and Nintendo have sent Paradigm soaring. "Every year,
the company has doubled in size. And every year my biggest challenge is
how I'm going to double it again. The business has to change dramatically,"
Toupal reveals. While Paradigm's leaders look forward to the rewards of
change and growth, they have concerns about the impact the future will have
on the relaxed corporate culture that has nurtured me company's creativity. "I
think that's really been a challenge to maintain the small-company at-
mosphere as the company grows," Hoffman admits. "A lot of the reason that
we decided to start a company in the first place was because we all worked at
large companies and were sick of the bureaucratic nonsense. But maintaining
that kind of creative thinking in a large company where people start
becoming kind of political and then develop some bureaucracy tends to start
inhibiting really creative thinking." "That's the number one challenge thatwe've had going from 10 to 70 people to 150 people: communicating the
vision. Communicating and maintaining the culture. Attracting and retaining
the great individuals that we've got," chief financial officer Ron Paige adds.
Despite its rapid-paced growth, Paradigm's leaders are determined to
preserve the relaxed, casual atmosphere they believe nurtures professional
camaraderie, sparks creativity, and values the contributions of people above
technology. "Technology is fleeting," Toupal says. "In the software business,
the success of the business is directly attributed to the people. And we don'tever want to lose sight of that."
Questions
1. Explain how the phases of the creative process apply to the founding of
Paradigm Simulation.
2. What type of innovation would Paradigm be considered? Why?
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3. Identify the source of innovation that best describes the start
of Paradigm Simulation.
4. How would the principles of innovation he applied to Paradigm's
new growth
CASE 5.2
POST-IT NOTES
One way new products are developed is to take a current product and modify
it in some way. Another way is to determine how a previously developed
product can be marketed or used by a particular group of customers.
The 3M Company is famous fur many products, among them adhesives and
abrasives. A few years ago one of the 3M managers, a member of a church
choir, wanted to mark the pages of his hymnal so he could quickly find them.
A bookmark would not do because the piece of paper could easily fall out.
The manager needed something that would adhere to the page but not tear it.
Back at work, the manager asked one of the members of the research and
development department if an adhesive existed that would do this. One did.
but it never had been marketed because the company found that theadhesive was not strong enough for industrial use. At the manager's request,
a batch of the glue was prepared and applied to small pieces of paper that
could be used as bookmarks.
As the manager who had requested the product began to think about the new
product, he concluded it had uses other than as a bookmark. Secretaries
could use it to attach roes-sages to files, and managers could use it to send
notes along with letters and memos. In an effort to spur interest in the
product, the manager had a large batch of these "attachable" notes, nowcalled Post-it Notes, made and began distributing them to secretaries
throughout the company. Before long more people began to ask for them.
The manager then ordered the supply cut off and told everyone who wanted
them that they would have to contact the marketing department. When that
department became inundated with calls for Post-it Notes, it concluded that a
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strong demand existed throughout industry for these notes, and full
production began. Today Post-it Notes is one of the largest and most suc-
cessful product lines at the 3M Company.
Questions1. In the development of this product, how did the creative thinking process
work? Describe what took place in each of the four steps.
2. Why did the manager have the Post-its sent to secretaries throughout the
company? What was his objective in doing this?
3. What type of innovation was thisinvention, extension, duplication, or
synthesis? Defend your answer.
4. Which of the innovation sources discussed in the chapter help account
for thisproduct's success? Explain in detail.