© 2007 John Wiley & Sons Australia, Ltd

Chapter 3

Creativity, innovation
and entrepreneurship
 Chapter outline

• Creativity
• Innovation
• The role of knowledge, social networks
and strategic resources
 Learning objectives

• List the three components of creativity

• Use a series of creativity techniques
• Define and explain the sources of
innovation
• Discuss the different innovation types
 Learning objectives

• Explain the link between creativity,

innovation and entrepreneurship
• Define the types and attributes of
resources within a resource-based view
of entrepreneurship
 The need for creativity

‘You have to kiss a lot of frogs to find a

prince’, said Art Fry, the inventor of Post-it
notes at 3M. ‘But remember, one prince
can pay for a lot of frogs.’

Source: The Economist (1999), Leaps of Faith,

A Survey of Innovation in Industry,
February 20th,
pp. 12–16.
 Creativity

• Creativity is often associated with the

arts.
• In business, creativity can be defined as
the production of new and useful ideas.
• Successful, innovative companies do
systematically encourage the
development of ideas.
The three components of creativity

• Creativity does not only consist of

creative thinking, this is only one part of
creativity.
• Knowledge and motivation are
two other important elements.
 Creative thinking skills

• Creative thinking is how people approach

problems and solutions
• Depends strongly on the personality as
well as how a person thinks or works
• People are more creative if they feel
comfortable disagreeing with others
 Knowledge

• Expertise or knowledge encompasses

everything a person knows and can do.
• Knowledge can be acquired in different
ways:
– through formal education
– practical experience
– or interaction with other people.
 Knowledge

• Knowledge constitutes a ‘network of

possible wandering’; the larger the space,
the better.
 Motivation

• Motivation determines what a person will

actually do.
• 2 types of motivation exist:
– intrinsic motivation (motivation from
inside, such as enjoyment of work)
– extrinsic motivation (motivation from
outside, such as financial rewards)
 Motivation

• People will be most creative when they

feel motivated mainly by the interest,
satisfaction and challenge of the task
itself.
 Creativity techniques

• Problem reversal
• Forced analogy
• Attribute listing
• Mind maps
• Brainstorming
 Factors influencing creativity

• Encouragement of creativity
• Autonomy
• Resources
• Pressures
• Mental blocks
 Innovation

• Innovation is the successful

implementation of creative ideas within
an organisation.
• Entrepreneurship can occur with little, if
any, innovation.
 Innovation

• Newness or uniqueness of innovation is a

matter of degree both in terms of the
tangible characteristics and in terms of
the relevant market.
 Incremental vs
disruptive innovation

Incremental innovation:
• steady improvements
• based on sustained technologies
• obedient to cultural routines and norms
• immediate gains
• develops customer loyalty
 Incremental vs
disruptive innovation

Disruptive innovation:
• Change value proposition
• Cause fundamental changes in marketplace
• Experimentation and play/make believe
• Needs to be nurtured for long periods
• Worse initial performance, potential big
gains
• Creates new markets
 Types of incremental
innovation

• Extension
• Duplication
• Synthesis
 Sources of innovation within
companies or industries

Drucker identified 4 sources of innovation

within a company or an industry:
– Unexpected occurrences
– Incongruities
– Process needs
– Industry and market changes
Sources of innovation in the social
environment

3 additional sources of opportunities exist

outside a company in its social and
intellectual environment:
– demographic changes
– perceptual changes
– new knowledge
 A process model of creativity, innovation
and entrepreneurship

Figure 3.1
 Knowledge development during the
entrepreneurial process

• During the creativity stage, knowledge is

present in a very raw form. It might just
consist of ideas and sketches drawn on a
piece of paper.
 Knowledge development during the
entrepreneurial process

• During the innovation stage, knowledge is

further refined and the initial idea should
pass the ‘feasibility test’. At this stage,
knowledge is often codified, for instance,
in the form of a formula or patent.
 Knowledge development during the
entrepreneurial process

• During the entrepreneurship stage,

knowledge is embedded in the product or
service sold.
Developing and disseminating knowledge
through social networks

• Social networks are the catalyst for the

development and dissemination of
knowledge both for emerging and
established organisations.
Developing and disseminating knowledge
through social networks

• Nascent entrepreneurs’ personal

networks — the set of persons to whom
they are directly linked — affect their
access to social, emotional and material
support.
Developing and disseminating knowledge
through social networks

• Network relationships and contacts are

fundamental: firstly, to identify
opportunities and secondly, to obtain the
knowledge and resources required to
exploit opportunities.
 A resource-based theory of
entrepreneurship

• The most creative ideas and cutting-edge

innovations are, however, not sufficient to
set up a business venture.
• Without resources to exploit an
opportunity, even the best opportunity
cannot create an entrepreneur.
Principles of resource-based theory

• Resources are necessary to exploit

opportunities and to create entrepreneurs.
• The resource-based theory considers that
firms have different starting points for
resources (called resource heterogeneity)
and that other firms cannot get them
(called resource immobility).
Principles of resource-based theory

• In order to be successful, entrepreneurs

must exploit market imperfections based
upon imperfect information or variations in
expectations about prices, while adhering
to the following simple formula:
Principles of resource-based theory

– buy (or acquire) resources and skills

cheaply
– transform the resources into a product
or service (production)
– deploy and implement (strategy)
– sell dearly (value creation)
 Resources types

• Financial resources
• Physical resources
• Human resources
• Technological resources
• Reputation
• Organisational resources
 Attributes of strategic resources

• Sustainable competitive advantage is

created when firms possess and use
resources that are:
– valuable
– rare
– non-substitutable
– hard to copy (historical conditions,
ambiguous causes and effects, complex
social relationships)
 The role of stories in attracting
resources

• A well-crafted story about entrepreneurial

resources encapsulates the strategic
goals and management of the new
venture and indicates why it merits
investment.
 Summary

• Creativity can be described as the

production of new and useful ideas in any
domain.
• Creativity stems from creative thinking
skills, knowledge and motivation.
• Innovation is the successful
implementation of creative ideas within an
organisation.
 Summary

• It can be distinguished between radical

and incremental innovation.
• The successive stages of idea generation
(creativity), ideas evaluation (innovation)
and ideas implementation
(entrepreneurship) can overlap.
 Summary

• Sustainable competitive advantage is

based on the strategic resources a firm
can harness.