Developing Creativity and Undersatnding Innovation

8/21/2019 Developing Creativity and Undersatnding Innovation

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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

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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.

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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.

Developing Creativity and Undersatnding Innovation

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