CHAPTER 5 DEVELOPING CREATIVITY AND UNDERSTANDING INNOVATION CHAPTER OUTLINE I. Innovation and the Entrepreneur A. Innovation is a key function in entrepreneurship B. More than just a good idea II.The Role of Creativity A. The nature of the creative process: 1. Background or knowledge accumulation provides the individual with a variety of perspectives on the situation. This helps the entrepreneur develop a basic understanding of the product or venture to be undertaken. 2. The incubation process allows the individual to subconsciously mull over the information gathered during the preparation stage. The individual "sleeps on it." 3. The idea experience is the time when the idea or solution the individual is seeking is discovered. 4. Evaluation and implementation. Successful entrepreneurs must be able to identify workable ideas which they have the skills to implement. B. Developing your creativity: 1. Recognizing relationships: Many inventions and innovations are the result of the inventor's seeing new and different relationships. Example: Adding fruit juice to soft drinks to create "Slice." 2. Developing a functional perspective: You must begin to look at people and things in the environment in terms of how they complement your attempts to satisfy needs and complete projects. 3. Eliminating muddling mind-sets: Mental habits which block or impede creative thinking. They include: a. Either/or thinking b. Security hunting c. Stereotyping d. Probability thinking C. The creative climate: he proper climate must exist for creative owners and managers. Some characteristics include: 1. A trustful management which does not over control personnel. 2. A large variety of personality types. 3. Enjoyment in experimenting with new ideas. 4. The selection and promotion of employees on basis of merit. III.The Innovation Process A. Types of innovation 1. Invention Harcourt, Inc. 51 2. Extension 3. Duplication 4. Synthesis B. Sources of innovation 1. Unexpected occurrences a. Unexpected successes or failures which prove to be a major surprise. 2. Incongruities a. Exist when there is a gap or difference between expectations and reality 3. Process needs a. Exist whenever there is demand for the entrepreneur to innovate and answer a particular need. 4. Industry and market changes a. There are continual shifts in the marketplace caused by advances in technology, industry growth, etc. The entrepreneur needs to be able to take advantage of any resulting opportunity. 5. Demographic changes a. Arise from changes in population, age, education, occupation, geographic locations, etc. 6. Changes in perception a. Occur in people's interpretation of facts and concepts. 7. Knowledge-based concepts a. The creation or development of something new. C. The major myths of innovation 1. Innovation is planned and predictable. 2. Technical specifications should be thoroughly prepared. 3. Creativity relies on dreams and blue-sky ideas. 4. Big projects will develop better innovations than small ones. 5. Technology is the driving force of innovation and success. D. Principles of innovation 1. Be action-oriented 2. Make the product, process, or service simple and understandable 3. Start small 4. Aim high 5. Learn from failures IV. Financial Support for Innovation A. Venture capital environment 1. The venture capital funds have increased dramatically during the last ten years. a. In 1987 there were 587 U.S. venture capital firms, a 148 percent increase over the previous 10 years. b. After the stock market crash of 1987 there was a slowdown in the venture capital market. c. The 1990s demonstrated a resurgence in the IPO market. 52 Harcourt, Inc. d. Funding levels of venture capital have increased 125 percent since 1991. 2. In 1998 the venture capital industry had $84.2 billion available for investment. 3. $48.2 billion was invested in 1999, of which $31.3 billion went into Internet ventures. B. Government support of innovation 1. The Small Business Innovation Development Act of 1982 provided millions of dollars for smaller companies and entrepreneurs involved in research and development. Forty-five million dollars was awarded in 1983 and by 1999 there were 11 federal agencies that provided over $4 billion. V. Summary CHAPTER OBJECTIVES 1.To examine the role of creativity and to review the major components involved in the creative process: knowledge accumulation, incubation process, idea experience, and implementation. 2.To present ways of developing personal creativity: recognize relationships, develop a functional perspective, use your "brains," and eliminate muddling mindsets. 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. CHAPTER SUMMARY This chapter examines how important creativity is to the entrepreneur. Creativity and how it affects the entrepreneur, the role of creativity, and innovations are the major sections of the chapter. The first section, innovation and the entrepreneur, is a brief introduction to the creative process the entrepreneur must have to be successful. Innovation is described as not just creating a totally new product but it also includes the blending of ideas and the improving of others. The entrepreneur must always be thinking. He must ask the questions "what if...?" or "why not...?" The next section looks at the creative process. This process consists of four phases: (1) background or knowledge accumulation, (2) the incubation process, (3) the idea experience, and (4) evaluation and implementation. Phase 1 stresses the importance of learning as much about an area of interest as you can. Learn by gathering information through reading, conversation, meetings, etc. Phase 2, simply put, is getting away from the problem. Don't get so close that you cannot see the whole picture and consequently miss the solution. Phase 3 is the most exciting because it is when the Harcourt, Inc. 53 innovative idea comes together. Finally, Phase 4 looks at the entrepreneur's abilities to identify ideas that are workable and his skills to implement them. Developing creativity is a process of changing the way you look at things. To do this you must look for different or unorthodox relationships between people and things. Another way to be more creative is to view people and things in terms of how they can be used to satisfy needs. Finally, just use your brain. Exercise the thought process; the more you use it the more efficient it becomes. The next major section is about the innovation process. Types, sources, myths, and principles of innovation are all scanned. In addition, financial support for innovation is examined. Innovation can be broken down into four distinct types. They are: invention, extension, duplication, and synthesis. Invention is the creation of a new product, service, or process. Extension is the expansion of a product, service, or process. Duplication is replication of an already existing product, service, or process. Finally, synthesis is the combination of existing concepts and factors into new formulation. Sources of innovation, the next topic discussed, deals with the main areas new ideas come from. Unexpected occurrences, process needs, and gaps between expectations and reality are among the sources. The market is one of the main forces of innovation. In a constantly changing market new ideas are always presenting themselves. Other sources include demographic changes and changes in perception. The major myths associated with innovation are the next topic. Five myths are presented and dispelled. They are; innovation is planned and predictable, technical specification should be thoroughly prepared, creativity relies on dreams and blue-sky ideas, big projects will develop better innovations than smaller ones, and technology is the driving force of innovation and success. The chapter describes a number of principles of innovation. The innovator must realize that these principles exist and that they can be learned. One of the principles is to be action-oriented. The innovator must always be looking for new ideas. Making the product, process, or service simple and understandable is another example of a principle of innovation. A few more include: make the product, process, or service customer-based, start small, aim high, follow a milestone schedule, and the like. The last but most important principle listed is work, work, and more work. The final topic of the chapter is financial support for innovation. Two sources of capital are listed: venture capital and government support. The activity in venture capital investment, as well as government support, has been on the rise in the last few years. The chapter goes on to list some supporting statistics. In addition to statistics, the chapter closes by suggesting some government programs where the entrepreneur might go to get help. Some of those programs are the Small Business Innovation Development Act, and the Small Business Innovation Research (SBIR) programs. LECTURE NOTES DEVELOPING CREATIVITY AND UNDERSTANDING INNOVATION 54 Harcourt, Inc. I.Innovation and the Entrepreneur A. Innovation is a key function in the entrepreneurial process. B. Innovation is more than just a good idea. 1. Origin of an idea important. a. Difference between speculation and extended thinking. b. Innovation is combination of vision and perseverance. 2. Entrepreneurs are able to blend creative thinking and logical ability. II.The Role of Creativity A. Creativity is the generation of ideas that result in the improved efficiency or effectiveness of a system. 1. Two important aspects a. People: Resources that determine the solution. b. Process: Goal-oriented; designed to attain a solution. B. The nature of the creative process 1. Creativity can be developed. a. Some people have greater aptitude. b. Some have grown in proper environment. 2. Four phases in creative process a. Phase l: Background or knowledge accumulation. 1. Successful creations preceded by investigation and information gathering. a. Reading, conversation, attending meetings. 2. Additional investigation in both related and unrelated fields. 3. Ways to develop a creative mind. a. Read in a variety of fields. b. Join professional groups and associations. c. Attend professional meetings and seminars. d. Travel to new places. e. Talk to anyone and everyone about your subject. f. Scan magazines, newspapers and journals for articles related to your subject. g. Develop a subject library for future reference h. Carry a small notebook and record useful information. I. Become curious about everything. b. Phase 2: The incubation process. 1. Mulling over of gathered information. a. Done by doing something totally unrelated. b. Helpful steps include: 1. Engage in routine, "mindless" activities. 2. Exercise regularly. 3. Play (sports, board games, puzzles). 4. Think about the subject or problem before falling asleep. 5. Meditate and/or practice self-hypnosis. Harcourt, Inc. 55 6. Sit back and relax on a regular basis. c. Phase 3: The idea experience 1. Time that idea is discovered. a. Average person perceives it as only component of creativity. 2. Ways of speeding idea experience. a. Daydream. b. Practice your hobbies. c. Work in a leisurely environment. d. Put the problem on the back burner. e. Carry a notebook to record ideas f. Take breaks while working. d. Phase 4: Evaluation and implementation 1. Successful entrepreneurs identify ideas that are workable and have skill to implement. 2. Not afraid to fail. 3. Some useful suggestions: a. Increase energy level (diet, exercise, rest). b. Education in business planning and business. c. Share ideas. d. Take notice of hunches and feelings. e. Education in selling process. f. Learn about organizational policies and practices. g. Seek advice. h. View problems as challenges. C. Developing your creativity 1. Improve your creativeness through awareness. a. Recognizing relationships. 1. Look for different or unorthodox relationships. a. Perceiving in a rational mode. b. All things and people relate to other things and other people. b. Developing a functional perspective. 1. View things and people in terms of how they can be used to satisfy needs. 2. Visualize yourself in complementary relationships to the things and people of the world. c. Using your brains. 1. Two hemispheres. a. Right brain understands analogies, imagines things and synthesizes information. b. Left brain helps the person analyze, verbalize, and use rational approaches to problem solving. c. Connected by nerves called corpus callosum. 1. Each hemisphere should be viewed as complementary relationships. 2. Necessary to practice both right and left hemisphere skills. 56 Harcourt, Inc. d. Eliminating muddling mind-sets. 1. "Either/or" thinking. a. Looking for an unreasonable amount of uncertainty in life. 2. Security hunting. a. Always trying to take the right path (avoiding risks). 3. Stereotyping. a. Looking for or acting on the "average" is using a distorted picture of reality. 4. Probability thinking. a. Struggle for security causes over use of probability to reduce risks. Distortion occurs. D. The creative climate. 1. Important characteristics. a. Trustful management, does not over control. b. Open communication among members of business. c. Contact and communication with outsiders. d. Variety of personality types. III.The Innovation Process A. Types of innovation. 1. Invention: Creation of new product service, or process. 2. Extension: Expansion of a product, service, or process. 3. Duplication: Replication of an already existing product, service, or process and adding own creative touch. 4. Synthesis: The combination of existing concepts and factors into new formulation. B. Sources of innovation 1. Unexpected occurrences: Unanticipated successes or failures. 2. Incongruities: Whenever a gap between expectations and reality exists. 3. Process needs: Whenever a demand for the entrepreneur to answer a particular need exists. 4. Industry and market changes. a. Continual shifts in the marketplace caused by consumer attitudes, advancements, and growth. 5. Demographic changes. a. Trends change in population, age, education, occupations, geographic locations, etc. 6. Changes in perception a. Changes in people's interpretation of facts and concepts. 7. Knowledge-based concepts. a. Creation or development of something brand new. C. The major myths of innovation. 1. Myth 1: Innovation is planned and predictable. a. Truth: Innovation is unpredictable and may be introduced by anyone. Harcourt, Inc. 57 2. Myth 2: Technical specification should be thoroughly prepared. a. Truth: Quite often it is more important to use a try-test-revise approach. 3. Myth 3: Creativity relies on dreams and blue-sky ideas. a. Truth: Innovators create from opportunities not daydreams. 4. Myth 4: Big projects will develop better innovations than smaller ones. a. Truth: Smaller groups foster creative ideas better. 5. Myth 5: Technology is the driving force of innovation and success. a. Truth: Not only source. b. Truth: Market-driven innovations have the highest probability of success D. Principles of innovation. 1. Be action-oriented; search for new ideas. 2. Make the product, process, or service simple and understandable. 3. Make the product, process, or service customer-based. 4. Start small; begin small, plan for proper expansion. 5. Aim high; seek a niche in the marketplace. 6. Try-test-revise; help work out flaws. 7. Learn from failures. 8. Follow a milestone schedule; have schedule in order to plan and evaluate the project. 9. Reward heroic activity; give proper respect to aid process. 10. Work, work, work! E. Financial support for innovation. 1. Venture capital environment. a. During the last ten years the volume of venture capital investment surged. b. 1987; 148 percent increase in the amount of venture capital firms over previous ten years. c. After the stock market crash of October 1987, there was a slowdown in venture capital during 1988 and 1989. However, the 1990s demonstrated a resurgence in the IPO market. d. By 1995, the funding levels of venture capital had increased 125 percent over 1991. e. In 1998 the venture capital industry had $84.2 billion available for investment. f. $48.2 billion was invested in 1999 of which $31.3 billion went into Internet ventures. 2. Government support of innovation. a. Small Business Innovation Development Act of 1982. 1. Means small high-technology firms will receive more federal R&D awards. b. Small high-tech firms submit proposals through a standard solicitation procedure. 1. Each agency then makes awards to the firms on a competitive basis. 2. Three phases of an R&D award in SBIR program. 58 Harcourt, Inc. a. Phase I awards are made for research projects intended to evaluate the scientific and technical merit and feasibility of an idea. Awards generally are $100,000 or less. b. Phase II awards of $750,000 or less made for further development of innovation. c. Phase III is private-sector investment and support that will bring the innovation to market. SUGGESTED ANSWERS FOR DISCUSSION QUESTIONS (END OF CHAPTER) 1.In your own words, state what is meant by the term "innovation." Innovation means something new or something that has not been done before. It could be thought of as a new idea for a certain type of product or service. Innovation could also be described as an improvement of an existing idea which makes the idea profitable. 2.What is the difference between an adaptor and an innovator? An adaptor is one who takes the ideas of another and tries to make them profitable. There is no creativity involved because the person is not trying to profit from his own idea, but from that of another. An innovator is one who looks for an opportunity on which to capitalize. The innovator researches the need for the idea by finding out the thoughts of the potential customers. An innovator also thinks very carefully about what exactly the innovation has to be in order to appeal to the public. 3.What are four major components in the creative process? The four major components are: (1) Background or knowledge accumulation: The individual explores the different aspects of a given situation. The individual needs to develop different perspectives to better deal with situations which may arise. By reading, scanning magazines and newspapers, traveling, etc., the individual can accumulate some background knowledge. (2) The incubation process: The individual subconsciously "mulls over" the information which has been gathered. The individual can do this by engaging in "mindless" activities such as cutting the grass, exercising on a regular basis, and sitting back and relaxing on a regular basis. (3) The idea experience: Often the most exciting part of the process, this is when the idea or the solution the individual is seeking is found. (4) Evaluation and implementation: Successful entrepreneurs identify the ideas that are workable and that they have the skills to implement. Further, they do not give up when they run into obstacles. 4.What are the four steps involved in developing personal creativity? (1) Recognizing relationships--Many inventions and innovations are the result of the innovator's seeing new and different relationships among objects, processes, materials, Harcourt, Inc. 59 technologies, and people. It helps to look for unorthodox relationships among the things and people around you. (2) Developing a functional perspective--Viewing things and people in terms of how they can be used to satisfy needs and to help complete a project. (3) Using your brains--The right brain helps the person understand analogies, imagine things, and synthesize information. The left brain helps the person analyze, verbalize, and use rational approaches to problem solving. The functions of both brain hemispheres are important to the entrepreneur. (4) Eliminating muddling mind-sets--There are a number of mental habits that block or impede creative thinking. Some common mental blocks include: "either/or" thinking, security hunting, stereotyping, and probability thinking. 5.What are the four major types of innovation? The four major types of innovation are: (1) Invention--The creation of a new product, service, or process that is often new and untried. Such concepts are "revolutionary." (2) Extension--The expansion of a product, service, or process that is already in existence. This involves a different application of a current idea. (3) Duplication--The replication of an already existing idea. The entrepreneur adds his own creative touches to enhance the idea and better the competition. (4) Synthesis--The combination of existing concepts and factors into a new formulation. This involves taking already existing ideas and putting them together to form a new application. 6.What are the major sources of innovation? Explain and give an example of each. (1) Unexpected occurrences--Unexpected successes or failures which prove to be a major surprise to the firm. (2) Incongruities--These exist whenever there is a gap or difference between expectations and reality. (3) Process needs--These exist whenever there is a demand for the entrepreneur to innovate and answer a particular need. (4) Industry and market changes--Continual shifts in the market caused by technology, industry growth, etc. (5) Demographic changes--Trend changes in population, age, education, occupations, geographic locations, etc. (6) Changes in perception--These changes occur in people's interpretation of facts and concepts. (7) Knowledge-based concepts--Inventions are knowledge-based; they are the product of new thinking, new methods, and/or new knowledge. 7.Briefly describe each of the five major myths commonly associated with innovation. (1) Innovation is planned and predictable. Innovation should not be left to the research and development department only. Innovation is, in fact, unpredictable and may be introduced by anyone. 60 Harcourt, Inc. (2) Technical specifications should be thoroughly prepared. Thorough preparation often takes too long. Quite often it is more important to use a try-test-revise approach. (3) Creativity relies on dreams and blue-sky ideas. Accomplished innovators are very practical people and create from the opportunities left by reality, not day dreams. (4) Big projects will develop better innovations than smaller ones. Larger firms are now encouraging their people to work in smaller groups, where it often is easier to generate creative ideas. (5) Technology is the driving force of innovation and success. Technology is certainly one source for innovation, but it is not the only one. Market-driven or customer-based innovations have the highest probability of success. 8. Identify and describe five of the principles of innovation. (1) Be action-oriented. Innovators must be active and searching for new ideas, opportunities, or sources of innovation. (2) Make the product, process, or service simple and understandable. People must readily understand how the innovation works. (3) Start small. Innovators should start small and then build and develop, allowing for planned growth and proper expansion in the right manner and at the right time. (4) Aim high. Innovators should aim high for success by seeking a niche in the marketplace. (5) Work, work, work. It takes work, not genius or mystery, to innovate successfully. Extra: Briefly describe two specific sources of financial support for innovation today. The venture capital environment has been taking on a more significant role over the last few years. Venture capitalists are private individuals who are in the business of investing their money in firms which engage in innovative activities. Government programs to support innovation have also been on the rise over the last few years. For example, the Small Business Innovation Development Act of 1982 provided millions of dollars for smaller companies and entrepreneurs involved in research and development. The government awarded $45 million for R&D contracts in 1983, and that figure climbed to $4 billion by 1999. Briefly describe an SBIR program. SBIR programs are designed to help small firms obtain more federal research and development money. The program consists of three phases. In Phase I awards are made to determine the technical feasibility of an idea. Generally, awards of $100,000 or less are made in this phase. In Phase II awards of $750,000 or less are made for further development of the innovation. Phase III is characterized by private-sector investment and support that will bring the innovation to market. Harcourt, Inc. 61 TEACHING NOTES FOR END-OF-CHAPTER CASES VIDEO CASE: PARADIGM SIMULATION: REALITY BYTES IN THE VIRTUAL WORLD (Answers to Questions) 1. Explain how the phases of the creative process apply to the Founding of Paradigm Simulation. Paradigm founders were able to use their knowledge accumulation as software engineers to begin an incubation about computer graphics. The realized (idea) that 3-D simulation wasn’t accessible because of the cost. Therefore, they created “Vega,” a software tool that enables people to build interactive 3-D visuals. 2. What type of innovation would Paradigm be considered? Why? Extension. Since computer graphics software had been so expensive but already developed, Paradigm’s founders expanded the potential market for 3-D simulation by making the software more affordable. 3. Identify the source of innovation that best describes the start of Paradigm Simulation. “Process need” would be an applicable source because Paradigm Simulation answered an arising need for 3-D simulation. “Industry shift” could also be considered due to the increased use of 3-D computer graphics. 4. How would the principles of innovation be applied to Paradigm’s new growth? The Founders of Paradigm Simulation started small, aimed high, made the product simple and affordable, and most importantly they worked, worked and worked to make their company a success. CASE: POST-IT NOTES 1. In developing this product, how did the creative thinking process work? Describe what took place in each of the four steps. The four steps or phases that occur in most creative developments are illustrated in the Post-It Notes case. Each step can be described as follows: (1) Background or knowledge accumulation--This phase was exemplified by the 3M manager who had gathered a background of information on adhesives since working for 3M. (2) The incubation process--The 3M manager (Art Fry is his name) illustrated this in the choir of his church. He needed a bookmark in his hymnal that would adhere to the page but not tear it. Returning to work he pursued the possibility with members of the research and development department. (3) The idea experience--As Art Fry used his new bookmark concept, he realized it might have uses in other areas. For example, secretaries might find it useful in attaching 62 Harcourt, Inc. messages or sending notes on files. Thus, he came up with the idea of "attachable notes." (4) Evaluation and implementation--The idea was introduced in the 3M Company and when everyone began requesting more of these "Post-it" notes, the birth of a new product was witnessed. Thus, it was through evaluation in-house that the idea developed into production. 2. Why did the manager have Post-its sent to secretaries throughout the company? What was his objective in doing this? The manager (developer of Post-its) had the secretaries try out the product first. If they found it useful and requested more than 3M had, at least an internal market test had demonstrated the usefulness and desirability of the notes. 3. What type of innovation was this: invention, extension, duplication, or synthesis? Defend your answer. Which of the eight sources of innovation discussed in the chapter help explain the success of this product? Be complete in your answer. The Post-it note concept may be viewed as an invention by source since it appeared to be revolutionary. However, it is more appropriately a synthesis because Art Fry merely combined the concepts of notes and light adhesive. Both of these concepts already existed, yet it was Fry's innovative combination that produced Post-its. 4. Which of the innovation sources discussed in the chapter help account for this product’s success? Explain in detail. Of the eight sources of innovation, two actually stand out in explaining the sources of Post-it notes. The "unexpected occurrence" would depict the failure of any bookmark to solve Art Fry's problem when singing in the choir. It was this unexpected and unplanned event which led him to seek out an adhesive that could work. Secondly, the "process need" describes the internal use of Post-it notes and the need it created once the secretaries realized how useful the notes were. ADDITIONAL EXPERIENTIAL EXERCISES "Stereotyping" Think of the following people and see if you can come up with any stereotypical ideas about them. A 60-year-old factory worker An oriental college student A man with a shaved head wearing a robe and carrying flowers Harcourt, Inc. 63 A white middle-aged businessman A black middle-aged businessman A house husband A male hair stylist Such stereotypes can get in the way of creative thinking. (OR) "The Imaginary Animal" Develop a metaphor that describes the university or college (or even an organization where students work). Purpose - This exercise evokes a description of an organization from a dynamic living system perspective. Directions - With one other person, reach agreement in your answers for the following questions or statements. Write your answers on flip chart paper and draw the animal. What real or imaginary animal best describes your organization? Describe what it looks like in detail. Is it male, female, neither, both? Describe its temperament: gentle, domestic, wild, unpredictable, etc. What are its feeding habits, living habits, and routines? Describe its environment, how it succeeds in competition for food, etc. What are its strengths, weaknesses, vulnerabilities? How does it relate to the internal systems which comprise it? Does it use its organs or functions to its advantage or cause harm to them? How would you adapt or change this animal if you had the power to do so and why? 64 Harcourt, Inc.