ENT 440/540 – 2009 – 03:
MANAGEMENT OF CREATIVITY AND INNOVATION
Ozzie Mascarenhas SJ, PhD
February 24, 2009
Most executives and management leaders now look to innovation as a principle source of differentiation and competitive advantage (Brown 2008). Innovations in general provide unique and meaningful benefits to products and services. Creativity or innovation is defined in terms of meaningful novelty of some
output (e.g., a painting, a chemical compound) relative to conventional practice in the domain to which it belongs (e.g., abstract art, adhesives). Thus, a creative product is that which differentiates, that is, evokes a meaningful difference from other competing products in the product category. A creative marketing program (e.g., advertising) represents a meaningful difference from marketing practices (e.g., media advertising) in a given product category.
Innovation does not always mean a new technology; for instance, it can imply market innovation.
Market Innovation is one’s ability to meet changing market conditions by using innovation to drive the
market intangibles (e.g., a new niche, market void, new fad, new need) become your weapon to conquer the market chaos, find your niche and succeed (Morris 2001). This is what Wal-Mart did in outrunning K-Mart, and what Michael Dell did in becoming number one in PCs, outpacing IBM, Apple, HP, Compaq and Gateway. Most of their innovations did not imply radical new technologies: they excelled in inventory management, distribution, logistics, customization and service.
Waves of Innovations
Kanter (2006) distinguishes four waves of innovation in recent decades.
1. The dawn of the global information age in the early 1970s and early 1980s. This era opened new
industries (e.g., polyester, software, electronic hardware, and telecommunications) and toppled
old ones (e.g., iron, steel, rubber, paper), generated new products (e.g., microwave ovens,
polyester products, synthetic fibers, videotapes, videogames, VCRs) and obsolesced old products
(e.g., carbon paper, electric typewriters, long-playing records). Silicon Valley became the new
base for product innovation in the USA. Total quality management (TQM) became a passion.
2. The dawn of buyouts, mergers, acquisitions, corporate restructuring, and strategic alliances.
Seeking to unlock the value of underutilized assets, “shareholder value” became a rallying cry. In
Europe, restructuring was associated with the privatization of state-owned enterprises now
exposed to the pressure of capital markets. The major innovation product of this era was software
and other major IT products related to process innovation (e.g., airline reservations, travel
package reservations). Financial innovations such as derivatives and other forms of financial
engineering, financial supermarkets combining banks, leveraged buyouts, and some global
products (e.g., Sensor Excel of Gillette, Microsoft software) emerged.
3. The digital mania of the 1990s. The proliferation of PCs and global wired networks made
Internet, extranet, intranet, and WWW ventures flourish. The promise (or threat) of the world
wide web (WWW) and the Internet forced established brick-and-mortar companies to seek
Internet marketing and other stand-alone Web ventures. Eyes were on the capital markets rather
than on customers, and companies (especially, the dotcoms) got instantly rich without patented
products, profits and revenues. AOL Warner was a venture that destroyed value for its customers
rather than create innovation. Some e-companies emerged successfully such as eBay,
Amazon.com and MSN.com.
4. The current wave of innovation started with a more sober mood with the dotcom collapse and
belt-tightening of the global recession. Having recognized the limits of acquisitions and mergers
and become skeptical about technology hype, companies refocused on organic growth. Survivor
giants such as GE and IBM have adopted innovation as a corporate theme. Customers and
consumers have returned to center stage with the emergence of videogames (e.g., Sony’s Play
stations 1 & 2), DVDs, cell phones, organizers, Blackberry, and other palm-held devices.
Signature innovations of this era include Apple’s iPod and P&G’s Swifter.
Each wave brought new concepts. For example, the rise of biotechnology, bioinformatics, and biogenetics has revolutionized healthcare and medicine. IT and Internet has made outsourcing easy and profitable. Globalization of factor markets (money, capital, money, labor, technology) has globalized innovations, joint ventures and strategic alliances. Geopolitical events (e.g., 9/11, terrorism, Afghanistan, Iraq, Taliban, and regime-changes) have spawned safety and security products.
Emerging Technologies and Emerging Innovations
[See “Ten Emerging Technologies,” Technology Review, 108: 5, (May 2005), pp. 53-53].
New technologies are emerging that could transform the Internet, computing, medicine, energy and more. Some of these are:
1) Airborne Networks: An Internet in the sky could let planes fly safely without ground controls or
controllers. Air traffic control technology has not changed very much in the last 50 years. The
system is based on elaborate ground based radar systems, thousands of people watching blips on
screens and who issue verbal instructions for landings, takeoffs, and course changes. The system is
expensive, hard to scale up, and prone to delays when storms strike. Airborne networks offer an
entirely different approach. Each plane in the sky could continually transmit its identity, precise
location, speed and direction-destiny to other planes in the neighborhood sky via an airborne
network. A software would then take over, coordinating the system by issuing instructions to pilots
on how to stay separated, optimize routes, avoid bad weather, and execute precise landings despite
poor visibility. Short-term benefits for consumers: saving time, reduce consumption fuel, and hence
reduce prices. Long-term benefits: you could fit more planes in the sky, reduce landing or takeoff
delays, additional safety, security and privacy, and avoid accidents. Currently, the US Air Force,
NASA and the Pentagon are working on defining the architecture of an airborne network and hope
to launch this project between 2008 and 2012
2) Quantum Wires: Power transmission wires spun from carbon nanotubes could carry electricity
farther and more efficiently. Richard Smalley, a Rice University chemist, has embarked on a four-
year project to create a prototype of a nanotube based “quantum wire”, a clear plastic tube that can
hold thin, dark grey fibers comprising billions of carbon nanotubes. Cables made from quantum
wires should conduct much better than copper. The lighter weight and higher strength of the wires
would also allow existing towers to carry fatter cables with ten times more capacity than the existing,
heavy and inefficient steel-reinforced aluminum cables used in today’s aging power-grids. Quantum
wires would have less electrical resistance and would not dissipate electricity as heat. Smalley feels
that quantum wires could perform even better than superconductors that need expensive cooling
equipment. In fact, Jianping Lu, a physicist at the University of North Carolina at Chapel Hill has
found that electrons could travel down a wire of perfectly aligned, overlapping carbon nanotubes
with almost no loss of energy.
3) Silicon Photonics: Optoelectronics making the material of computer chips emit light could speed data
flow. The Internet lives on beams of light. One hair-thin glass fiber can carry as much data as
thousands of copper wires. However, inside the computer, copper still rules, and we have reached the physical ability of copper to carry more information. Hence, switching to fiber optics would be necessary. Getting silicon to emit light could be the solution. A light signal’s frequency is much than
that of an electrical signal, and so it can carry information thousands of times as much and faster. Light overcomes another major problem: as transistors get closed together, the electrical signals passing through them start to interfere with each other, like radio stations broadcasting at the same frequency. Nevertheless, currently turning silicon into a light emitter is very difficult: there is an energy-level mismatch between silicon’s electrons and its positively charged “holes” (electron vacancies in its crystal structure). When an electron meets a hole, it is more likely to release its excess energy as vibration than as light. However, fall 2004, a team of scientists at UCLA, became the first to make a laser out of silicon. In February, Intel scientists reported a silicon laser that emitted a continuous beam instead of a pulsed one, a necessity for data communications. Intel has also created a silicon modulator, which allows them to encode data onto a light beam by making it stronger or weaker. Silicon photonics can be soon cost-effective in doubling computer speeds, possibly within five years.
4) Metabolomics: A new medical diagnostic could spot diseases earlier and more easily. In their quest for developing more accurate and less invasive diagnostic tests, medical researchers are turning to metabolomics, the analysis of the thousands of small molecules such as of sugar or fat that are the products of metabolism. If metabolomic information can be translated into diagnostic tests, it could provide more accurate, faster and earlier diagnoses of most diseases, such as autism, ALS (amyotrophic lateral sclerosis or Lou Gehrig’s disease), Alzheimer’s disease, bipolar disorder, Huntington’s disease and cancer. Metabolomics is an off-shoot of recent advances in genomics and
proteomics, which have allowed researchers to begin to identify many of the genes and proteins involved in diseases. Computers and software can enable doctors and researchers to study metabolites in the same systematic fashion as genomic research so as to get a complete picture of the body’s processes. Metabolites are best disease-markers, as well as give a comprehensive picture of
complex changes underway in hundreds of molecules as a disease begins to develop.
5) Universal Memory: Nanotubes make possible ultradense data storage. A circular wafer of silicon, about the size of a compact disc, sealed in an acrylic container, can store 10 billion bits of digital information. Each bit is encoded not by an electric charge on a circuit element, as in conventional electronic memory, nor by the direction of a magnetic field, as in hard drives, but by the physical orientation of nanoscale structures. This technology could eventually allow vastly greater amounts of data to be stored on computers and mobile devices. No existing memory technologies can prove adequate in the long run. Static and dynamic random-access memory (RAM), used in laptops and PCs, are fast but require too much space and power. Flash memory is dense but nonvolatile – it does
not need power to hold data, but is too slow for computers. Universal memory seeks to combine the advantages of both technologies. For this, we need a memory holding device whose cells are made of carbon nanotubes, each less than one-ten-thousandth the width of a human hair and suspended a few nanometers above an electrode. This default position, with no electric current flow between the nanotubes and the electrode, represents a digital 0. When a small voltage is applied to the cell, the nanotubes sag in the middle, touch the electrode, and complete a circuit – storing a digital 1. The
technology can be refined where each nanotube encodes one bit, thus storing trillions of bits per square centimeter, thousands of times denser than flash memory. A typical DVD holds less than 50 billion bits total, and flash memory about 15-25 gigabits. If developed, the universal memory could outdate both DVDs and flash memory as storage devices. Nantero (partnering with Milpitas, CA-based LSI Logic) is experimenting on the universal memory by integrating its nanotube memory with silicon circuitry. Currently, its prototypes store only about 100 million bits per square centimeter. Suspending nanotubes is not the only way to build a universal memory. Other strategies include magnetic random access that Motorola and IBM are pursing, molecular memory where HP is the leader.
The Business Model: Innovation and Profitability
Another factor that characterizes the competitive position of a product innovation is its cost: the lower the cost, the greater the potential for profits, either by setting higher margins or by penetrating the market with a lower price (Porter 1980).
Hence, a product is new in that:
； Its cost is lower (production efficiency opt better economies of scale),
； Its attributes are improved (product efficiency or differentiation), or
； It has now new attributes it never had before (product reengineering),
； The entire product/service is new (product invention/innovation efficiency), or
； It never existed in that market before (marketing efficiency; e.g., exports, imports).
Lower costs for a given price mean more profits. Improved or new attributes command a price premium for a given cost and hence, also mean higher profits, all else being equal. That is,
Profits = Revenues – Cost = P(z, q).q(z) – C(z, q) (1).
Revenues are the function of the price the firm can charge for a product or service, and the quantity (q) it can sell at that price. Both price (P) and cost (C) of a product are a function of product attributes (z) and the quantity (q) being sold. Thus, firms would like to offer products with superior attributes for which they can charge higher prices while keeping costs low and competitors out. How does this happen? The answer is innovation.
Figure 3.1 is a model of profit-innovation chain. The firms reaps profits from products and services that are produced at lower costs than the competitors, or by differentiating them from the competing brands such that they can be sold at premium prices that more than compensate for the cost of differentiation.
Low cost production and cost-efficient differentiation come about because of competences and