Innovation @ Merage - UCI Paul Merage School of Business

Organization Innovation

2012-06-07T18:17:00Z

Chien-Chiang Lin and Wen-Wei Hung conduct a survey to analyze how financial practitioners view innovation in their paper, “Prioritizing Factors of Organizational Innovation: The Application of Grey Relational Analysis.”

ABSTRACT: In the past, corporations could remain competent as long as they possess valuable resources such as land, capital, or labor forces; however, facing globalization, technological advancement, and the pressure of being environmentally friendly, corporations need to cultivate innovative capabilities to stay competitive in the fast changing business arena. It is well recognized that successful innovation could improve operational performance; however, most companies could not successfully enjoy the fruit of innovation and obtain premium returns. Investing in innovative activities is always a risky decision; therefore, it is of great importance for corporations to figure out possible factors that might jeopardize the process of being innovative. The current study reviewed previous articles concerning factors that might affect the result of innovative activities; questionnaires were then formulated and distributed to practitioners in the financial industry in Taiwan to understand their opinions about the priority of those factors. Grey relational analysis was utilized to analyze the data provided by those practitioners to uncover relative importance of different factors. A comparison of the priority of these factors among practitioners at different organizational levels was conducted to figure out similarities as well as differences of among those practitioners. The results of the current study could be a reference and a starting point for practitioners to invest precious resources for pursuing excellence.

Paper

Innovation and entrepreneurship in the virtual world

2012-06-07T18:16:00Z

Co-authors Yanto Chandra and Mark A.A.M. Leenders study the role of innovation within the virtual world and compare it to innovation in the real world in their paper, “User innovation and entrepreneurship in the virtual world: A study of Second Life residents.”

ABSTRACT: While prior studies have investigated factors, processes and pathways traversed in user innovation and user entrepreneurship within the real world, there is scant attention for user innovation and user entrepreneurship that take place within the virtual world. We report on an exploratory study of a select group of user innovators-entrepreneurs in Second Life, using virtual participant observation and in-depth interviews. Results suggest that the paths traversed by user innovators and user entrepreneurs in the virtual life broadly resemble those in the real life as reported in the literature. Interestingly, our study also suggests that Second Life as a virtual world breeds opportunities leading to entrepreneurial acts in the ‘real’ world as well as further opportunities in the Second Life. The virtual world itself, as a technological platform, also generates a range of opportunities. We formulate testable propositions and further link our insights to existing research on the drivers and pathways of user innovation and entrepreneurship in the ‘real’ world (i.e., the role of prior knowledge and networks), Austrian economics theory of entrepreneurial discovery, and creative collective theory.

Paper

Sport-based entrepreneurship

2012-06-07T18:15:00Z

Vanessa Ratten examines the role of innovation and entrepreneurship in the context of sports in her a paper entitled, “Sport-based entrepreneurship: towards a new theory of entrepreneurship and sport management.”

ABSTRACT: The entrepreneurship and sport management disciplines have grown significantly in the past decade. Sport is an entrepreneurial process as innovation and change are key elements of sport. The aim of this paper is to develop a theory of entrepreneurship in sports management by investigating the relationship between entrepreneurship and sport. The rapidly growing and developing sport marketing discipline provides a basis in which to understand how entrepreneurship occurs through innovation, proactiveness and risk taking activities. This paper discusses the connection between the entrepreneurship and sports management fields and argues that there needs to be more integration with the two fields of study and traditional entrepreneurship theory. A theory of sport-based entrepreneurship is developed and different types of entrepreneurship that occur in sports management are examined. Suggestions for future research and implications for practitioners are discussed.

Paper

New Knowledge

2012-06-07T18:12:00Z

In the article, “New Knowledge: The Driving Force of Innovation, Entrepreneurship and Economic Development,” author Bo Carlsson illustrates that innovation, and not invention, is the factor behind economic growth.

ABSTRACT: The claim of this paper is that new knowledge - specifically, the creation of economically useful knowledge is the main driver of innovation: that innovation is what generates economic development: and that the institutional arrangements (referred to as innovation systems) that support innovation and entrepreneurial activity vary across time and space. The paper traces the evolution of the U.S. national innovation system, the locus and nature of innovation, and the role of entrepreneurial activity over the last two centuries. The analysis shows that technologies and institutions co-evolve and that innovation systems are dynamic and path-dependent phenomena. It also shows that the function of innovation systems is not only to create or absorb ideas but also to turn ideas into innovations and commercialize them.

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Are Overconfident CEOs Better Innovators?

2012-06-07T18:01:00Z

Paul Merage School of Business professors, David Hirshleifer and Siew Hong Teoh, were recently featured in Forbes for the paper they co-authored with Angie Low entitled, “Are Overconfident CEOs Better Innovators?”

ABSTRACT: Previous empirical work on adverse consequences of CEO overconfidence raises the question of why firms hire overconfident managers. Theoretical research suggests a reason, that overconfidence can benefit shareholders by increasing investment in risky projects. Using options- and press-based proxies for CEO overconfidence, we find that over the 1993 to 2003 period, firms with overconfident CEOs have greater return volatility, invest more in innovation, obtain more patents and patent citations, and achieve greater innovative success for given research and development expenditure. Overconfident managers only achieve greater innovation in innovative industries. Our findings suggest that overconfidence help CEOs exploit innovative growth opportunities.

Paper

The elixir of youth

2012-03-15T21:48:00Z

Start-ups are widely acknowledged to have a role in economic development and yet, little
research has been done on their innovative activities as compared to those of more
established companies. In “The elixir (or burden) of youth? Exploring differences in
innovation between start-ups and established firms,” authors Paola Criscuoloa, Nicos
Nicolaoub and Ammon Salter explore innovation in new firms by using a sample of
12,209 United Kingdom companies.

They organize their data by first differentiating between services and manufacturing
industries. Using what they refer to as a “matching estimator approach,” the authors
“demonstrate that start-ups differ significantly from established firms in their innovation
activities.”

Their results show that start-ups in services have an increased likelihood of product
innovations. On the other hand, however, they find that there is no significant difference
in the likelihood of product innovation between start-ups and established firms in
manufacturing. Furthermore, they examine the returns to innovation, discovering that
“start-ups in both manufacturing and services have a higher proportion of sales from
innovative products than established firms.”

This paper has several implications in regards to theory and policy. First, their analysis of
service firms “breaks new ground in understanding the ways industrial conditions can
shape the advantages and disadvantages of start-ups versus established firms in terms of
innovation… Bringing together the literature on service innovation with the discussion of
age and innovation, this paper has helped to invoke a set of factors – intangibility, co-
terminality and low capital intensity – that might help to explain the relative advantages
of start-ups versus established firms.” In terms of policies, this research indicates that it is
important to consider industry conditions under which start-ups operate. The authors
suggest that such an approach would “put in place programs to help new firms lower the
liabilities associated with newness in manufacturing and help develop policies to sup-
port established service SMEs to upgrade their skills to meet the competition posed by
new firms.”

Paper: http://www2.druid.dk/conferences/viewpaper.php?id=1325&cf=9

Small firm innovation performance

2012-03-15T21:47:00Z

Small firms typically rely on the CEO’s individual knowledge for developing
innovations, but recent work suggests that this is inefficient because it underutilizes other
employees’ knowledge. In their paper “Small firm innovation performance and employee
involvement,” Petra Andries and Dirk Czarnitzki study “to which extent using CEOs,
managers and non-managerial employees’ ideas enhances small firms’ innovation
performance.” The analysis relies on a dataset of 305 small manufacturing and service
firms, collected through a large-scale survey.

Previous work studies the impact of employee involvement on the large firms’ innovative
performance, but Andries and Czarnitzki are among the first to apply this to small firms.
They find that “also in small firms, using ideas of managers but even of non-managerial
employees significantly impacts a firm’s innovative performance. More specifically,
[they] show that for process innovation performance, small firms benefit greatly from
suggestions by non-managerial production employees.” For product innovation
performance, their results show that there is a positive effect of using non-managerial
employees’ ideas, suggesting that the “historical focus on the entrepreneur/CEO which
was broadened more recently to the study of entrepreneurial teams does not yet fully
capture small firms’ innovative potential.”

They write that, “although CEOs generally do not provide relevant input for process
innovation, their ideas are actually very relevant for product innovation.” In addition,
they show that “R&D managers’ knowledge is highly relevant knowledge for product
innovation, while production managers’ suggestions contribute heavily to process
innovation. At the same time, however, we show that ideas from R&D managers do not
contribute to process innovation, ideas from production managers do not contribute to
product innovation and using ideas from managers in marketing/distribution or
administration does not contribute to process nor product innovation. This implies that,
depending on their functional expertise and the desired type of innovation, CEOs and
managers actually do contribute their knowledge and skills directly to innovation.”
Finally their results show that “non-managerial employees’ contributions depend on their
functional area of expertise as well as on the desired type of innovation.”

One important managerial implication of this paper is that “small firms’ CEOs should
refrain from relying solely on their own actions and ideas in the innovation process.” A
second is that “both functional differences as well as differences between product and
process innovation need to be taken into account when a firm intends to use ideas from
employees in its innovation process. If a firm wants to excel in product innovation, it
should focus mainly on using ideas from its CEO and R&D managers. If it wants to excel
in process innovation, attention should go to ideas from employees in the production
department, including both production managers and non-managerial production
employees.” At the end of the day, Andries and Czarnitzki’s research “clearly indicates
that separate – and perhaps simultaneous – initiatives to engage a select group of
employees in either process or product innovation are far more efficient.”

Paper: https://lirias.kuleuven.be/bitstream/123456789/338133/1/MSI_1203.pdf

Abundance: The Future is Better Than You Think

2012-03-15T21:47:00Z

Keeping in mind with constant innovation and new ideas, we decided to dedicate this post to a
book, rather than academic articles. The following is the summary for Peter Diamandis and
Steven Kotler’s Abundance: The Future Is Better Than You Think.

“Since the dawn of humanity, a privileged few have lived in stark contrast to the hardscrabble
majority. Conventional wisdom says this gap cannot be closed. But it is closing—fast. In
Abundance, space entrepreneur turned innovation pioneer Peter H. Diamandis and award-
winning science writer Steven Kotler document how progress in artificial intelligence, robotics,
infinite computing, ubiquitous broadband networks, digital manufacturing, nanomaterials,
synthetic biology, and many other exponentially growing technologies will enable us to make
greater gains in the next two decades than we have in the previous two hundred years. We will
soon have the ability to meet and exceed the basic needs of every man, woman, and child on the
planet. Abundance for all is within our grasp.

Breaking down human needs by category – water, food, energy, healthcare, education, freedom –
Diamandis and Kotler introduce us to dozens (and dozens) of innovators and industry captains
making tremendous strides in each area: Dean Kamen’s “Slingshot,” a technology which can
transform polluted water, salt water or even raw sewage into incredibly high-quality drinking
water for less than one cent a liter; the Qualcomm Tricorder X PRIZE which promises a low-
cost, handheld medical device that allows anyone to diagnose themselves better than a board
certified doctor; Dickson Despommier’s “vertical farms,” which replaces traditional agriculture
with a system that uses 80 percent less land, 90 percent less water, 100 percent fewer pesticides
and zero transportation costs.

As a bonus, the authors provide a detailed reference section filled with ninety graphs, charts and
graphics offering much of the source data underpinning their conclusions. In this thrilling
antidote to today’s dark pessimism, the authors rely on exhaustive research and extensive
interviews with top scientists, innovators, and captains of industry to explore how four emerging
forces – exponential technologies, the DIY innovator, the Technophilanthropist, and the Rising
Billion – are conspiring to solve our biggest problems. Diamandis and Kotler examine the
stunning impact these forces are having on categories of critical importance while establishing
hard targets for change, laying out a strategic road map for governments, industry, and
entrepreneurs, and giving us plenty of reason for optimism.

Providing abundance is humanity’s grandest challenge – this is a book about how we rise to
meet it.”

For more information, see: http://www.abundancethebook.com/about-the-book/
For an interesting interview with the authors, see:
http://www.innovationexcellence.com/blog/2012/02/17/abundance-the-future-is-better-than-you-
think/
For a review by the Chicago Tribune, see: http://www.chicagotribune.com/news/columnists/sns-
201202221900--tms--ahuffcoltq--m-a20120222feb22,0,5836832.column

Creating Value Through Business Model Innovation

2012-03-15T21:41:00Z

Raphael Amit and Christoph Zott highlight “business model innovation as a way for
general managers and entrepreneurs to create and appropriate value” in their paper
“Creating Value Through Business Model Innovation.” According to the authors,
business model innovation focuses on “how to do business,” as opposed to questions such
as “what product to bring to the market”, “when and where to enter the market” or “what
differentiates the firm and its product in the market?” We offer managers and
entrepreneurs a conceptual primer on business model innovation emphasizing the
importance of activity system thinking.

They believe that innovation should not be simply about new product lines or improved
processes, but also relate to “the firm’s activity system, specifically, its content, structure
and governance.” Their findings show that in a highly interconnected world, particularly
one where financial resources are scarce, “entrepreneurs and managers must look beyond
the product and process and focus on ways to innovate their business model.” This type
of “fresh” business model can “create and exploit opportunities for new revenue and
profit streams,” which can work to counteract an aging model that has historically tied
the firm down with declining revenues and pressures on profit margins.

In this regard, the authors suggest that managers ask themselves the following six key
questions about their business models: (1) What perceived needs can be satisfied through
the new model design? (2) What novel activities are needed to satisfy these perceived
needs (business model content innovation)? (3) How could the required activities be
linked to each other in novel ways (business model structure innovation)? (4) Who
should perform each of the activities that are part of the business model (e.g., the focal
firm or a partner), and what novel governance arrangements could enable this structure
(business model governance innovation)? (5) How is value created through the novel
business model for each of the participants? and (6) What revenue model fits with the
firm's business model to appropriate part of the total value it helps create?

The authors believe that addressing the aforementioned six questions can help “managers
see their firms’ identities more clearly, in the context of the networks and ecosystems in
which their firms operate.” Adopting such a clear business model perspective will assist
managers in purposefully structuring the “activity systems of their firm in the context of
other firms and economic agents in their ecosystems.” They conclude that “this
purposeful design and structuring of business models, which encompasses internal as
well as boundary-spanning activities, are key tasks for general managers and
entrepreneurs and can be an important source of innovation, helping the company look
beyond its traditional sets of partners, competitors, and customers. Most importantly,
perhaps, this approach encourages systemic and holistic thinking when considering
innovation instead of concentrating on isolated, individual choices. The message to
managers is clear: when you innovate, look at the forest, not the trees – and get the
overall design of your activity system right before optimizing the details.”

Paper:
http://www.management.wharton.upenn.edu/amitresearch/docs/2012/Amit_Creating_Val
ue_Business_Model_Innovation.pdf

Incentives to innovate and social harm: Laissez-faire, authorization or penalties?

2012-01-17T19:39:00Z

When private actions generate harmful externalities, previous research has shown that public intervention can improve welfare if it appropriately trades off social harm reduction with enforcement costs. On the flip side of this, however, public intervention may thwart the firm’s incentives to undertake research by reducing its expected profitability, depending on the approach used.

Giovanni Immordino, Marco Pagano and Michele Polo consider public policies and approaches that may affect a firm’s effort to discover new technologies and the actual use of that technology once discovered in their paper, “Incentives to innovate and social harm: Laissez-faire, authorization or penalties?” They compare four different regulatory responses: 1) laissez-faire; 2) a lenient authorization regime, where inventions can be used commercially once they are ascertained to be safe during tests; 3) a strict authorization regime, where they can be used commercially only if they are ascertained to be beneficial; and 4) a regime based on penalties, where the commercial use of innovations is sanctioned ex-post if found to be harmful.

There results indicate that the regulatory regime should become more stringent and cogent as the danger of social harm increases. In other words, “if fines are unbounded, laissez-faire is optimal if the social harm from innovation is sufficiently unlikely; otherwise, regulation should impose increasing penalties as innovation becomes more dangerous.” Furthermore, if fines are bounded by limited liability, “it is optimal to adopt (indifferently) penalties or lenient authorization, while strict authorization becomes optimal if social harm is sufficiently likely.”

Paper

Motivating Innovation

2012-01-17T19:38:00Z

Motivating innovation is a critical part of designing incentives. Some previous research has shown that shareholders often must motivate managers to pursue more innovative business strategies. Gustavo Manso examines aspects of an incentive structure in his paper, “Motivating Innovation.”

Manso finds that the optimal incentive scheme motivates innovation by exhibiting substantial tolerance for early failure and reward for long-term success. Additional critical components to encourage innovation and new ideas include commitment to a long-term compensation plan, job security and timely feedback on performance. Furthermore, in regards to managerial compensation, Manso writes that this incentive program can be implemented into an organization via a combination of stock options with long vesting periods, option re-pricing, golden parachutes and managerial entrenchment.

Paper

Non-compete Covenants: Incentives to Innovate or Impediments to Growth

2012-01-17T19:33:00Z

Non-compete covenants are clauses written into contracts that expressly prohibit individuals from competing with former employers. Particularly for technical workers and upper-level management, they have developed to become a common feature of employment contracts. Sampsa Samila and Olav Sorenson research this issue and determine whether they encourage innovation or impede growth in their paper, “Non-compete Covenants: Incentives to Innovate or Impediments to Growth.”

They find that the enforcement of non-compete clauses significantly impedes entrepreneurship, employment growth and innovation. The authors believe that this may be due to the fact that the “value of the recombination of knowledge facilitated by the elevated mobility of individuals across firms might outweigh the greater incentives to innovate afforded by the enforcement of these non-compete covenants.” Furthermore, their results show “relative to states that enforce non-compete covenants, an increase in the local supply of venture capital in states that restrict the scope of these agreements has significantly stronger positive effects on (i) the number of patents, (ii) the number of firm starts, and (iii) employment.” Finally, their findings point to a strong interaction between financial intermediation and the legal regime in promoting entrepreneurship and economic growth.

Paper

The Innovation Dilemma: How to Innovate When the Market Is Mature

2012-01-17T19:24:00Z

Robert G. Cooper recently addressed a common issue in the present market in his article, “Perspective: The Innovation Dilemma: How to Innovate When the Market Is Mature.” If you are trying to grow your business wishes in the midst of mature, commoditized markets, this is a good article to read that discusses examples of bold innovation, which are breakthrough products, services and solutions that create growth engines for the future.

Cooper outlines five different vectors that can act as drivers of innovation. First, have a product innovation strategy that focuses your development efforts on opportunity-rich strategic arenas, much like Corning and Apple do. Second, foster the right climate and culture for innovation, driven by senior executives, as found at Grundfos and 3M. Third, set up a system to generate, capture and handle proactive ideas, similar to what Swarovski has done. Fourth, design a robust idea-to-launch stage-gate process to manage large and complex and development initiatives, which companies like P&G, Emerson Electric and Kennametal have done. And finally, do the necessary up-front due diligence and make the right fact-based investment decisions in riskier projects, such as portfolio management, much like Corning, Green Mountain Coffee Roasters and Grundfos do.

Click here for the paper to read more about these examples

Management Innovation and Leadership: The Moderating Role of Organizational Size

2012-01-17T19:20:00Z

Recent research on new managerial processes, practices and structures that can change the nature of managerial work show that this form of management innovation can be an important source of competitive advantage. Ignacio Vaccaro, Justin Jansen, Frans Van Den Bosch and Henk Volberda hone in on this research at the organization level in their paper, “Management Innovation and Leadership: The Moderating Role of Organizational Size.” Because top management has the ability to influence such management innovation within organizations, the authors investigate the role of leadership behavior.

They define two forms of leadership: transformational and transactional. They see transformational leadership as being “aimed at the followers’ identification with its purpose and common goals. It stimulates employees to attain to organizational goals by appealing to high-level needs for self-actualization.” Through its four dimensions of idealized influence, inspirational motivation, intellectual stimulation and individual consideration, transformational leadership can affect all facets of management innovation. Transactional leadership, on the other hand, involves leaders who are “primarily concerned with gaining compliance from subordinates – which they will do by targeting their self interest – by agreeing upon the conditions and rewards that will follow the fulfillment of certain requirements. With two dimensions of contingent reward and active management by exception, transactional leadership is also positively related to management innovation within an organization.

The authors further find that organizational size moderates the effectiveness of both transformational and transactional leadership on management innovation. Their results indicate that the effectiveness of transformational leadership increases with organizational size. In contrast, smaller, less complex benefit from transactional leadership when realizing management innovation.

Paper

International Business Travel: An Engine of Innovation?

2012-01-17T19:14:00Z

Business surveys and research have often reported that managers prefer face-to-face communication when negotiating deals and selling products. However, Nune Hovhannisyan and Wolfgang Keller go further in their paper "International Business Travel: An Engine of Innovation?" to show that face-to-face meetings are also important for the transfer of technology, reasoning that technology is tacit and usually best described and demonstrated in person. They examine the role of inward business travelers in raising a country’s rate of innovation by looking at business travel from the United States to thirty-six other countries during the years 1993-2003, using patents to measure innovation.

Their results indicate that international business travel has a significant effect on technology transfer through international trade and foreign direct investments. On average, a 10% increase in international business traveler arrivals leads to an increase in patenting by about 0.6%, which is substantial in this scope. Hovhannisyan and Keller also find evidence showing that the quality of the impact on innovation and patents is related to the quality of the technological knowledge carried by each business traveler. Furthermore, they suggest that cross-country income differences can be reduced through international air travel, issues that create the foundation for further research within labor market policies on how strongly short-term cross-border movements affect innovation.

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