2.2 Sources of Innovation: R&D, Entrepreneurship, and Open Innovation

Innovation drives progress, shaping markets and technology. Companies tap into various sources to stay competitive. From internal R&D to entrepreneurship and open collaboration, businesses explore diverse avenues to spark new ideas and products.

This topic dives into key innovation sources. We'll look at how firms use R&D, encourage intrapreneurship, collaborate with universities, and leverage external knowledge. Understanding these approaches is crucial for grasping how companies innovate and adapt in today's fast-paced world.

Internal Innovation Sources

Research and Development (R&D)

• Systematic and creative work undertaken to increase knowledge and devise new applications
• Includes basic research (acquire new knowledge without specific application), applied research (acquire new knowledge directed towards a specific aim), and development (systematic use of knowledge directed towards production)
• Conducted by dedicated R&D departments within firms
• Requires significant investment in personnel, equipment, and facilities
• Focuses on creating new products, processes, or services (pharmaceuticals, consumer electronics) or improving existing ones (incremental innovations in automotive industry)

Corporate Venturing and Intrapreneurship

• Corporate venturing involves firms investing in external startups or creating internal ventures to explore new opportunities
• Allows firms to access new technologies, markets, or business models (Google Ventures investing in self-driving car startups)
• Intrapreneurship encourages employees to act like entrepreneurs within the firm
• Provides resources and autonomy to employees to develop new ideas (Google's "20% time" policy)
• Aims to foster innovation culture and retain talented employees (3M's Post-It Notes invented by intrapreneurial employee)

Entrepreneurial Innovation

Entrepreneurship and Technology Transfer

• Entrepreneurship involves identifying opportunities, assembling resources, and creating new ventures to bring innovations to market
• Plays a crucial role in commercializing new technologies and driving economic growth (Apple, Amazon, Tesla)
• Technology transfer moves research results from universities and labs to industry for commercialization
• Occurs through licensing agreements, spinoffs, or collaborative research (Stanford University licensing Google's PageRank algorithm)
• Facilitates flow of knowledge and technology across organizational boundaries (NASA spinoffs like memory foam)

Industry-Academia Collaboration

• Partnerships between firms and universities to conduct joint research projects
• Leverages complementary resources and expertise (firms provide funding and market knowledge, universities provide research capabilities)
• Accelerates innovation by combining basic research with applied development (pharmaceutical firms collaborating with university biomedical researchers)
• Trains skilled workforce through student involvement in industry-relevant research
• Generates knowledge spillovers that benefit the broader economy (MIT-industry collaborations in Route 128 region)

Collaborative Innovation

Open Innovation and User Innovation

• Open innovation involves firms leveraging external knowledge sources to accelerate internal innovation
• Includes outside-in (acquiring external ideas) and inside-out (licensing internal ideas) flows of knowledge
• Utilizes diverse sources such as customers, suppliers, competitors, and universities (P&G's Connect+Develop program)
• User innovation occurs when users modify products to better suit their needs
• Provides valuable input for firms to improve products and identify new opportunities (lead user method)
• Results in more relevant and commercially successful innovations (mountain biking equipment developed by enthusiasts)

Crowdsourcing

• Practice of obtaining ideas, solutions, or services from a large group of people, typically online
• Taps into collective intelligence and diverse perspectives of the crowd
• Includes contests (Netflix Prize for improving recommendation algorithm), collaborative communities (Wikipedia), and labor markets (Amazon Mechanical Turk)
• Enables faster and more cost-effective problem-solving compared to traditional methods
• Requires careful design of incentives, platform, and intellectual property management (Threadless t-shirt design contests)