Solution Manual For Strategic Management of Technological Innovation, 6th Edition

Strategic Management of Technological Innovation, 6e Instructor’s Manual CHAPTER 1 The Importance of Technological Innovation SYNOPSIS OF CHAPTER The purpose of this chapter is to set the stage for the course by establishing the importance of managing technological innovation strategically. First the chapter overviews the importance of technological innovation for a firm’s competitive success and the advancement of society in general. The chapter points out that 1) many firms are relying on products developed in the previous three to five years for large portions of their sales and profits; 2) globalization has increased competition putting more pressure on firms to compete through innovation; 3) advances in information technology have enabled both process improvements and the efficient generation of product variants which facilitates the execution of a differentiation strategy at a reasonable cost; and that 3) the residual growth in the GDP can be attributed to technological change. Both the positive and negative effects of technological innovation are described. Advances in food production are an example of the first and pollution is an example of the latter. Next the innovation funnel is introduced to show students that on average 3,000 raw ideas must enter the funnel in order to arrive at 1 successful new product launch. Second, the chapter discusses the risks and cost of innovation. On average, many more innovation projects fail than succeed. Firms are much more likely to be successful if they have a well-crafted strategy for technological innovation. The book is organized to follow the chronological sequence of developing and deploying a rigorous technological innovation strategy, leading the students through each of the primary aspects that should be considered. The final section of the chapter outlines the layout of the book, reviewing the contribution each chapter makes to our understanding of the innovation process. TEACHING OBJECTIVES 1. Introduce students to the role technological innovation plays in the competitive dynamics of industries and how technological innovation affects society both positively and negatively. 2. Identify the drivers of technological innovation. 3. Discover the attributes of successful innovation strategies including an in-depth understanding of the dynamics of innovation, a well-crafted innovation strategy, and a well-developed process for implementing the innovation strategy. LECTURE OUTLINE I) Overview a) In many industries technological innovation is now the single most important driver of competitive success and because the pace of innovation has increased many firms now rely on products developed within the prior five years for a large portion of their sales and profits. This period is reduced to three years for firms in fast-paced industries such as computers, software and telecommunications. b) Innovation is also a very powerful driver of increased effectiveness and efficiency in producing goods and bringing them to market; firms that do not constantly innovate to make their development, production, and distribution processes more effective and efficient are likely to fall behind their competitors. c) The globalization of markets has played a significant role in increasing the importance of innovation as a competitive strategy by increasing competitive pressure. d) Advances in information technology have also played a role in driving up the pace of innovation. These technologies also help firms to develop and produce more product variants enabling them to out-focus their competitors. i) For example, Toyota produces 21 different passenger vehicle lines, each with several different models and Samsung introduced 52 unique smartphones in 2014. e) Adoption of these new technologies has triggered industry-wide shifts to shortened development cycles and more rapid new product introductions. f) The proportion of funds for technological innovation provided by firms relative to government funding has been increasing but governments do play a significant role in the innovation process. II) The Impact Of Technological Innovation On Society a. Technological innovation increases the range of goods and services available to a society, and the efficiency of providing them. For example, innovation has increased the development of new medical treatments and the efficiency of food production. i. The Solow residual is the GDP growth represented by technological change. Average world GDP per capita has risen steadily since 1971 and cannot be attributed solely to the growth of labor and capital inputs. Show Figure 1.2 b. The story is not all positive, however. Sometimes technological innovation results in negative externalities such as pollution and medical technologies can have unanticipated consequences. III) Innovation By Industry: The Importance Of Strategy a. Successful innovators have clearly defined innovation strategies and management processes that result in a greater percentage of successful products and shorter development cycles. b. How Long Does New Product Development Take? Cycle time varies with the “innovativeness” of the project. Incremental improvements take less time than next generation improvements while new-to-the-world products or technologies take the longest. c. The Innovation Funnel depicts the new product development process as beginning with many new product ideas going in the wide end and ending with very few projects making it through the development process (the bottom of the funnel). Show Figure 1.3 IV) The Strategic Management of Technological Innovation a. A firm’s innovation projects should align with its resources and objectives, leverage its core competencies and should help the firm achieve its strategic intent. b. A firm’s organizational structure and control systems should encourage the generation and efficient implementation of innovative ideas and a firm’s new product development processes should maximize the technical and commercial success of each project. c. To achieve these goals, a firm needs i. An in-depth understanding of the dynamics of innovation, ii. A well-crafted innovation strategy, iii. A well-designed processes for implementing the innovation strategy. V) Course Overview Show Figure 1.4 a. Part I focuses on how and why innovation occurs in an industry and why some innovations rise to dominate others. i. Chapter 2 focuses on the sources of innovation. The questions addressed include: Where do great ideas come from? How can firms harness the power of individual creativity? What role do customers, government organizations, universities, and alliance networks play in creating innovation? ii. Chapter 3 considers the types and patterns of innovation. The questions addressed include: Why are some innovations much harder to create and implement than others? Why do innovations often diffuse slowly even when they appear to offer a great advantage? What factors influence the rate at which a technology tends to improve over time? iii. Chapter 4 focuses on industries characterized by increasing returns. The questions addressed include: Why do some industries choose a single dominant standard rather than enabling multiple standards to coexist? What makes one technological innovation rise to dominate all others, even when other seemingly superior technologies are on offer? How can a firm avoid being locked out? Is there anything a firm can do to influence the likelihood of having its technology chosen as the dominant design? iv. Chapter 5 highlights the importance of entry timing. The questions addressed include: What are the advantages and disadvantages of being first to market, early-but-not-first, and late? What determines the optimal timing of entry for a new innovation? b. Part II focuses on the formulation of technological innovation strategy. i. Chapter 6 reviews the basics of how a firm can assess its current position and define its strategic direction. The questions addressed include: What are the firm’s sources of sustainable competitive advantage? Where in the firm’s value chain do its strengths and weaknesses lie? What are the firm’s core competencies, and how should it leverage and build upon them? What is the firm’s strategic intent — that is, where do we want to be ten years from now? ii. Chapter 7 examines a variety of methods for choosing among innovation projects including both quantitative and qualitative methods. iii. Chapter 8 focuses on the important role collaboration can play in the development of new products and processes. The questions addressed include: Should the firm partner on a particular project or go solo? How does the firm decide which activities to do in house and which to access through collaborative arrangements? If the firm chooses to work with a partner, how should the partnership be structured? How does the firm choose and monitor partners? iv. Chapter 9 provides an overview of the options a firm has for appropriating the returns to its innovation efforts. The questions addressed include: Are there ever times when it would benefit the firm to not protect its technological innovation so vigorously? How does a firm decide between a wholly proprietary, wholly open, or partially open strategy for protecting its innovation? When will “open” strategies have advantages over wholly proprietary strategies? c. Part III focuses on implementation. i. Chapter 10 examines how an organization’s size and structure influences its overall rate of innovativeness. The questions addressed include: Do bigger firms outperform smaller firms at innovation? How do formalization, standardization, and centralization impact the likelihood of generating innovative ideas, and the organization’s ability to implement those ideas quickly and efficiently? Is it possible to achieve creativity and flexibility at the same time as efficiency and reliability? How do multinational firms decide where to perform their development activities? How do multinational firms coordinate their development activities towards a common goal when they take place in multiple countries? ii. Chapter 11 highlights a series of “best practices” that have been identified in managing the new product development process. The questions addressed include: Should new product development processes be performed sequentially or in parallel? What are the advantages and disadvantages of using project champions? What are the benefits and risks of involving customers and/or suppliers in the development process? What tools can the firm use to improve the effectiveness and efficiency of its new product development processes? How does the firm assess whether its new product development process is successful? iii. Chapter 12 builds on the previous chapter by illuminating how team composition and structure will influence project outcomes. The questions addressed include: How big should teams be? What are the advantages and disadvantages of choosing highly diverse team members? Do teams need to be collocated? When should teams be full-time and/or permanent? What type of team leader and management practices should be used for the team? iv. Chapter 13 reviews innovation deployment options. The questions addressed include: How do we accelerate the adoption of the technological innovation? How do we decide whether to use licensing or OEM agreements? Does it make more sense to use penetration pricing or a market-skimming price? What strategies can the firm use to encourage distributors and complementary goods providers to support the innovation? ANSWERS TO DISCUSSION QUESTIONS 1. Why is innovation so important for firms to compete in many industries? Innovation enables firms to: -introduce more product and service variations, enabling better market segmentation and penetration; -improve existing products and services so that they provide better utility to customers; -improve production processes so that products and services can be delivered faster and at better prices. Increasing globalization has both expanded the potential markets for many firms while simultaneously exposing them to greater competition; this has resulted in firms putting more emphasis on innovation as a lever of competitive differentiation. Furthermore, information technology has enabled such process innovations as CAD/CAM, rapid prototyping, and flexible manufacturing, enabling firms to produce more product variants faster and cheaper. This is a double edged sword: it has enabled product lifecycles to shorten (making rapid innovation more imperative) while simultaneously improving a firm’s options for innovation. 2. What are some of the advantages of technological innovation? Disadvantages? Technological innovation increases knowledge, and makes more options available. On the whole, evidence suggests that technological innovation has increased GDP and standards of living worldwide. Technological innovation also, however, poses some risk of negative externalities, e.g., -pollution; -agricultural and fishing technologies can result in the erosion, elimination of natural habitats, and the depletion of ocean stocks; -medical technologies can result in unanticipated consequences such as antibiotic-resistant strains of bacteria and viruses, or moral dilemmas regarding the use of genetic modification such as externalities. Students may also suggest that technological innovation may (or has) lead to the loss of diversity in culture and traditions. The instructor may wish to encourage them to debate such risks of innovation versus the ways that innovation has enhanced our lives. 3. Why do you think so many innovation projects fail to generate an economic return? Innovation is an inherently risky undertaking. Most innovation projects are characterized by both technical uncertainty (will the project result in a technically feasible product or service?) and market uncertainty (what features will customer prefer and what will they be willing to pay for them?) In their eagerness to innovate, firms are at risk of undertaking too many projects, overestimating their potential returns and underestimating their uncertainty. This is compounded by the fact that many people mistakenly believe that creativity can only be tapped through an unstructured process, when in fact innovation is most powerful and has a greater likelihood of success when it is planned and implemented strategically. CHAPTER 2 Sources of Innovation SYNOPSIS OF CHAPTER In this chapter we discuss the role of creativity as the underlying process for the generation of novel and useful ideas. Individual creativity is considered to a function of intellectual abilities, knowledge, thinking styles, personality traits, intrinsic motivation and environment. Firm creativity is more than the sum of member creativity. Firm creativity is also a function of the organizational structure and the strategic management approach employed. The chapter moves on to explore how creativity is transformed into innovative outcomes by the separate components of the innovation system (e.g., individuals, firms, etc) and the linkages between the different components. The last part of the chapter focuses on the role of innovation networks in new product/process development. Firms are most likely to collaborate with customers, suppliers, and universities, though they also may collaborate with competitors, producers of complements, government laboratories, nonprofit organizations, and other research institutions. Emphasis is placed on developing an understanding of technological clusters including how they are formed and the benefits associated with them. The role of knowledge transfer in the creation of clusters is demonstrated in the context of Silicon Valley. TEACHING OBJECTIVES 1. To help students understand the relationship between creativity and innovation. 2. To explore, quantitatively and qualitatively, the role played by individuals, firms, universities, governments, and non-profits in innovation. 3. The chapter highlights the role of collaborative networks in innovation, including technological spillovers, and technology clusters. LECTURE OUTLINE VI) Overview a. Innovation can arise from many different sources including individuals, firms, universities, government laboratories and incubators, and private non-profit organizations. b. Firms are well suited to innovation activities because they are highly motivated by the need to remain competitive and because have the management systems needed to organize their resources to achieve an organizations’ objectives. c. An even more important source of innovation is the networks that link innovators together. These networks leverage a broader range of knowledge and resources than an individual entity could. VII) Creativity a. Creativity is defined as the ability to produce work that is useful and novel (i.e. different and surprising when compared to prior work). The most creative works are novel at the individual producer level, the local audience level, and the broader societal level. When a product is novel to its creator but know to everyone else it is referred to as a reinvention. b. Individual creativity is a function of intellectual abilities, knowledge, personality, motivation, and environment. Researchers have argued that the most important capability is the ability to look at problems in unconventional ways. i. Intellectual abilities include intelligence, memory, the ability to look at problems in unconventional ways, evaluate alternatives and articulate them to others. Some people are also better able to engage in primary process thinking, and to rapidly generate many associations or follow paths of association out more steps. ii. Too much knowledge can result in an inability to think beyond the existing logic and paradigms of a field while too little knowledge can lead to trivial contributions iii. The most creative individuals can distinguish important problems from unimportant ones. iv. Self-efficacy, tolerance for ambiguity, and a willingness to overcome obstacles and take reasonable risks are the personality traits most important for creativity. v. Intrinsic motivation has also been shown to be very important for creativity; extrinsic motivators (e.g., monetary rewards, awards) can sometimes undermine creativity. c. Organizational creativity is a function of creativity of the individuals within the organization and a variety of social processes and contextual factors that shape the way those individuals interact and behave. i. The creativity of individuals can be amplified or thwarted by an organization’s structure, routines, and incentives. Common methods of tapping employee creativity include 1) the suggestion box, 2) idea management systems (Google, Honda, BankOne). d. Idea collection systems such as suggestion boxes, or idea management systems are only a first step. Managers can be trained to signal (through verbal and nonverbal cues) that each employees thinking and autonomy is respected. Employees can also be trained to use creativity tools such as using analogies or developing alternative scenarios. You may want to discuss the various ways that Google inspires creativity as described in the Theory in Action box. III. Translating Creativity Into Innovation a. Innovation occurs when new ideas are implemented into some useful form (e.g. new product or process). b. The Inventor has been the focus of much study and there is significant disagreement over whether inventors are born or made. It is also important to note that the qualities that make an individual inventive do not necessarily make that individual entrepreneurial. i. Inventors are often portrayed as eccentric and doggedly persistent scientists. One ten-year study of inventors showed that the most successful inventors: 1. Have mastered the basic tools and operations of the field in which they invent, but have not specialized solely on that field. 2. Are curious, and more interested in problems than solutions. 3. Question the assumptions made in previous work in the field. 4. Often have the sense that all knowledge is unified. They will seek global solutions rather than local solutions, and will be generalists by nature. You may want to raise the example of Dean Kamen (from the Theory in Action) here and ask students how he illustrates these characteristics. It can also be useful to compare him to other wellknown innovators such as Elon Musk or Steve Jobs. c. Users are another important source of innovation. Users are keenly aware of their unmet needs and have the greatest motivation to find ways to meet those needs. You may want to bring up how doctors started using Superglue to repair skin in emergency situations as discussed in text. Innovation by users can blossom into wholly new industries, as demonstrated by the snowboarding example provided in the Theory in Action box. d. Firms are a very important engine of innovation. Firms consider their own research and development spending to be their most important resource for innovation. i. “Research” can refer to both basic research and applied research. 1. Basic research does not focus on a specific immediate commercial application. 2. Applied research is directed at meeting a specific need or commercial objective. ii. “Development” refers to activities that apply knowledge to produce useful devices, materials, or processes. e. A science-push approach to research and development views the process as linear, moving from scientific discovery, to invention, to engineering, then manufacturing activities, and finally marketing. This approach has been shown to have little real-world applicability. The demand-pull model of research and development argues that innovation is driven by the demand of potential users. Scholars have concluded that different phases of innovation are likely to be characterized by varying levels of science push and demand pull. IV. Firm Linkages with Customers, Suppliers, Competitors and Complementors a. Collaboration can occur in alliances, research consortia, licensing arrangements, contract research and development, joint ventures, and other arrangements. b. The most frequent collaborations are between firms and their customers, suppliers, and local universities. c. Firms may also collaborate with competitors and complementors and the line between complementor and competitor can become blurred making the relationships between firms very complex and difficult to navigate. d. In some circumstances, bitter rivals in one product category will collaborate in that product category or in the development of complementary products. i. For example, Microsoft competes against Rockstar Games in many video game categories, yet also licenses many Rockstar games to play on the Xbox. ii. The line between competitor and complementor can be tricky to manage. For example, Google bought Motorola Mobility in 2011, many speculated that it would give Motorola handsets preferential access to its Android operating system, prompting other handset makers such as Samsung and HTC to question their support of Google. e. External and Internal Sources of Innovation are likely to be complements rather than substitutes. Research by the Federation of British Industries shows that firms conducting internal R&D were also the heaviest users of external collaboration networks. Presumably doing in-house research and development helps to build the firm’s absorptive capacity (i.e. the firm’s ability to understand and make use of new information). f. Public research institutions such as universities, government laboratories and incubators enable companies to develop innovations that they would not have otherwise developed. i. Universities encourage their faculty to engage in research that may lead to useful innovations but maintain sole discretion over the rights to commercialize the innovation. A rapid growth in technology transfer offices occurred after congress passed the Bayh-Dole Act in 1980. ii. Government Funded Research is actively supported in many countries but the ratio of R&D funding provided by industry and government varies significantly by country. Government research takes place in government laboratories and through the funding of science parks (fostering collaboration between national and local government institutions, universities, and private firms) and incubators (focusing on new business development) and grants for other public or private research entities. Show Graphs of R&D funding iii. Private non-profit organizations including private research institutes, non-profit hospitals, private foundations, professional or technical societies, academic and industrial consortia, and trade associations, also conducte their own R&D activities. V. Innovation in Collaborative Networks a. There is a growing recognition of the importance of collaborative research and development networks for successful innovation including joint ventures, licensing and second-sourcing agreements, research associations, government -sponsored joint research programs, value-added networks for technical and scientific interchange, and informal networks. b. The structure of such networks influences the flow of information and other resources through the network. The size and density of the network can thus influence the innovation of organizations that are embedded in the network. ( Show figures of global technology collaboration network c. Firms in close geographic proximity are more likely to collaborate and exchange knowledge (e.g. Silicon Valley’s semiconductor firms, lower Manhattan’s multimedia cluster, or Modena Italy’s knitwear district). d. Technology clusters often emerge because: i. There are often economies of having buyers, suppliers, and complementors located in close proximity. ii. Proximity facilitates knowledge transfer. The exchange of complex or tacit knowledge typically requires frequent and close interaction. Proximity influences a firms’ willingness to exchange knowledge and firms’ ability to develop common ways of understanding and articulating knowledge. iii. Knowledge is held, to a large extent, in people, and people tend to be reluctantly mobile. As a result knowledge tends to be regionally localized. For example, Annalee Saxenian found that engineers in Silicon Valley were more loyal to their craft than to any particular company, but they were also very likely to stay in the region even if they changed jobs. iv. Successful firms create a valuable labor pool that is attractive to new firms that desire similar labor skills. e. The increase in employment and tax revenues in the region can lead to improvements in infrastructure (such as roads and utilities) schools, and other markets that service the population. f. The benefits firms reap by clustering together in close proximity are known as “agglomeration economies.” g. The downsides to geographical clustering are that competition between the firms may reduce their pricing power, increase the possibility of competitors gaining access to each others’ proprietary knowledge. Clustering can also lead to traffic congestion, high housing costs, and higher concentrations of pollution. h. Studies have shown that the degree to which innovative activities are geographically clustered depends on things such as: the nature of the technology, industry characteristics, and the cultural context of the technology (e.g. population density of labor or customers), infrastructure development, or national differences in the way technology development is funded or protected. i. Technological spillovers occur when the benefits from the research activities of one firm (or nation, or other entity) spill over to other firms (or nations, or other entities). The rate at which technology spillovers will occur is a function of the strength of protection mechanism and the nature of the underlying knowledge. i. Adam Jaffe and his coauthors found that the R&D spending of other firms and universities in its geographical region influenced a firm’s patenting activities and p profit’s. j. Knowledge Brokers are firms or individuals that play a particularly important role in an innovation network because they transfer information between different domains and exploit synergies created by combining existing technologies. Hargadon and Sutton identify Robert Fulton and Thomas Edison as knowledge brokers i. Fulton recognized that steam engines could be used to propel steamboats. ii. Edison was known for borrowing from different industries to create products such as the telegraph, telephones, generators and vacuum pumps. ANSWERS TO OPENING CASE QUESTIONS 1. What were the potential advantages of developing clean meat? What were the challenges of developing it and bringing it to market? Clean meat did not produce greenhouse gasses (globally cows generate as much greenhouse gas as cars), utilized far less water and land, and was more efficient on a calorie-in calorie-out basis. It also does not entail animal suffering. Challenges include the high development costs, getting the clean meat to have the same taste and texture as traditional meat, and overcoming aversion people might have to trying meat grown in a lab. Students can also be encouraged to think about who might raise opposition to clean meat (e.g., farmers, slaughter houses, etc.) 2. What kinds of organizations were involved in developing clean meat? What were the different resources that each kind of organization brought to the innovation? Matheny’s organization is a private non-profit. He provided the motivation and an initial organization to promote the idea. He collaborated with a university scientist and government who provided technical expertise and some funding, and then in the end large corporations (e.g., Tyson, Cargill) and individual investors got involved to provide additional funding and public attention to the project. 3. Do you think people will be willing to eat clean meat? Can you think of other products or services that faced similar adoption challenges? It is fun to let the students debate this one – they may have strong opinions and they are likely to be diverse. If they struggle to come up with other products and services, the instructor can suggest other kinds of processed or cultured foods (e.g., hot dogs, cheese, yoghurt, kimchee) or services like colonics, breast milk exchanges, etc. ANSWERS TO DISCUSSION QUESTIONS 1. What are some of the advantages and disadvantages of a) individuals as innovators, b) firms as innovators, c) universities as innovators, d) government institutions as innovators, e) nonprofit organizations as innovators? This is an ideal time to create a table on the board and encourage students to contribute advantages and disadvantages of each source individually, such as the one below: Individuals Advantages Many creative ideas originate individuals; Users may best understand their own unmet needs; Users may have great incentive to solve their own problems; Etc. Firms Significant capital to invest; Complementary assets to produce, distribute, etc.; Management systems to organize innovative efforts, Etc. Universities Typically have extensive knowledge and other resources; Can often invest in long-term or risky projects for purposes of advancing science (rather than being pressured for immediate commercial return); Often have ties to multiple other external entities (e.g., government, non-profits, etc.) Government Like universities, may have extensive knowledge and other resources; and Can often invest in long-term or risky projects for purposes of advancing science (rather than being pressured for immediate commercial return); Typically has great influence over other stakeholders or contributors to innovation (e.g., universities, firms, non-profits); Etc. Nonprofits Often have ties to multiple other external entities (e.g., universities, non-profits, etc.); May have mission-based focus that enables them to pursue long-term or risky projects; May have credibility advantages for eliciting the cooperation of other stakeholders; Etc. Disadvantages Individuals often have very limited capital resources to invest in an innovation project; Many innovations require a broader range of knowledge and skills than any individual possesses; Etc. May reject projects that don’t appear to have an immediate commercial return; May base project choices on commercial return rather than importance to customers or society; Etc. May pursue esoteric projects rather than those with immediate applications; May lack skills or resources to implement innovations in the marketplace, Etc. Lack of financial discipline may lead to less efficient development processes. May lack complementary resources to implement innovation in the marketplace; Lack of financial discipline may lead to less efficient development processes, Etc. May be reliant on external sources of funding such as charitable donations or grants, which can constrain capital resource; May lack complementary resources to implement innovation in the marketplace; Etc. 2. What traits appear to make individuals most creative? Are these the same traits that lead to successful inventions? An individual’s creative ability is a function of their intellectual abilities, knowledge, style of thinking, personality, motivation, and environment. In addition, an individual with only a moderate degree of knowledge of a field might be able to produce more creative solutions than an individual with extensive knowledge of field. The most creative individuals prefer to think in novel ways of their own choosing, and can discriminate between important problem and unimportant ones. The personality traits deemed most important for creativity include self-efficacy, tolerance for ambiguity, and a willingness to overcome obstacles and take reasonable risks. Intrinsic motivation has also been shown to be very important for creativity. Innovation is, however, more than the generation of ideas. It is the implementation of those ideas into some new device or process. Evidence suggests that not all inventors are innovators. In fact many ideas have been left on the drawing board, so to speak, or in the inventors garage. The entrepreneurial skills necessary to convert an idea into a new product or process are very different from the skills and thinking orientation that generated the original idea. An inventor usually will have a tendency toward introversion that may make it difficult for them to convey their ideas to others. As we saw in the Segway case the company addresses the need to incorporate both sets of skills to achieve innovation by forming teams with a mix of “ideation” and “execution” people in acknowledgement of finding all these skills in one individual. 3. Could firms identify people with greater capacity for creativity or inventiveness in their hiring procedures? Individuals can be tested for factors indicative of creativity such as intrinsic motivation, intellectual abilities, knowledge, style of thinking, and personality traits. Of course these types of tests are no guarantee of performance in the job. Firms hiring for creative jobs are likely to find their best information comes from an individuals work history especially if that history includes activity that can be characterized as entrepreneurial. 4. To what degree do you think the creativity of the firm is a function of the creativity of individuals, versus the structure, routines, incentives, and culture of the firm? Can you give an example of a firm that does a particularly good job at nurturing and leveraging the creativity of its individuals? Students should be encouraged to debate the role of innate individual creativity versus the firm structure, routines, incentives and culture that can nurture or thwart such creativity. Many students will volunteer companies such as 3M (reknown for its practice of permitting “bootlegging”), Apple (which encouraged a rebellious and free-thinking culture) or companies from their own experience as examples of companies that do a good job of nurturing and leveraging creativity. 5. Several studies indicate that the use of collaborative research agreements is increasing around the world. What might be some of the reasons that collaborative research is becoming more prevalent? The increasing prevalence of collaborative research agreements can be attributed to several factors. First, there is an increased awareness of the benefits of knowledge sharing. When individuals or firms participate in innovation networks, formal or informal, they are exposed to new information and ideas. Greater knowledge leads to the identification of more recombination opportunities. The network can also bring to bear knowledge regarding which of these recombinations is most likely to become a new product or process. Second, rapid advances in information technology have greatly facilitated collaboration by reducing the cost (and increasing the pace) that information can be transmitted. Email, videoconferencing, groupware programs, etc. all enable organizations to collaborate much more effectively and efficiently than in the past. Information technology has also reduced the search costs of locating a suitable collaboration partner, as well as the monitoring costs of ensuring that partner behaves as agreed. Third, as the pace of innovation has quickened (as discussed in chapter 1), firms have needed to obtain capabilities and resources for innovation more quickly than before; collaboration provides a way to rapidly gain access to other organizations knowledge and resources, enabling the organizations to collectively bring innovations to market faster than any individual organization could alone.