Innovation, Technology, and Knowledge Management

Elias G. Carayannis
Elpida T. Samara
Yannis L. Bakouros

Innovation and
Entrepreneurship
Theory, Policy and Practice
Innovation, Technology, and Knowledge
Management

Series Editor
Elias G. Carayannis
George Washington University
Washington, DC, USA

More information about this series at http://www.springer.com/series/8124

Elias G. Carayannis • Elpida T. Samara
Yannis L. Bakouros

Innovation and
Entrepreneurship
Theory, Policy and Practice
Elias G. Carayannis Elpida T. Samara
Department of Information Systems Department of Mechanical Engineering
and Technology Management University of Western Macedonia
School of Business Kozani, Greece
George Washington University
Washington, DC, USA

Yannis L. Bakouros
Department of Mechanical Engineering
University of Western Macedonia
Kozani, Greece

ISSN 2197-5698 ISSN 2197-5701 (electronic)

ISBN 978-3-319-11241-1 ISBN 978-3-319-11242-8 (eBook)
DOI 10.1007/978-3-319-11242-8
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Series Foreword

The Springer book series Innovation, Technology, and Knowledge Management

was launched in March 2008 as a forum and intellectual, scholarly “podium” for
global/local, transdisciplinary, transsectoral, public–private, and leading/“bleeding”
edge ideas, theories, and perspectives on these topics.
The book series is accompanied by the Springer Journal of the Knowledge
Economy, which was launched in 2009 with the same editorial leadership.
The series showcases provocative views that diverge from the current “conven-
tional wisdom” that are properly grounded in theory and practice, and that consider
the concepts of robust competitiveness,1 sustainable entrepreneurship,2 and demo-
cratic capitalism,3 central to its philosophy and objectives. More specifically, the
aim of this series is to highlight emerging research and practice at the dynamic
intersection of these fields, where individuals, organizations, industries, regions,
and nations are harnessing creativity and invention to achieve and sustain growth.

1
We define sustainable entrepreneurship as the creation of viable, profitable, and scalable firms.
Such firms engender the formation of self-replicating and mutually enhancing innovation networks
and knowledge clusters (innovation ecosystems), leading toward robust competitiveness
(E.G. Carayannis, International Journal of Innovation and Regional Development 1(3), 235–254,
2009).
2
We understand robust competitiveness to be a state of economic being and becoming that avails
systematic and defensible “unfair advantages” to the entities that are part of the economy. Such
competitiveness is built on mutually complementary and reinforcing low-, medium-, and high-
technology and public and private sector entities (government agencies, private firms, universities,
and nongovernmental organizations) (E.G. Carayannis, International Journal of Innovation and
Regional Development 1(3), 235–254, 2009).
3
The concepts of robust competitiveness and sustainable entrepreneurship are pillars of a regime
that we call “democratic capitalism” (as opposed to “popular or casino capitalism”), in which real
opportunities for education and economic prosperity are available to all, especially—but not
only—younger people. These are the direct derivatives of a collection of topdown policies as well
as bottom-up initiatives (including strong research and development policies and funding, but
going beyond these to include the development of innovation networks and knowledge clusters
across regions and sectors) (E.G. Carayannis and A. Kaloudis, Japan Economic Currents, p. 6–10
January 2009).

v
vi Series Foreword

Books that are part of the series explore the impact of innovation at the “macro”
(economies, markets), “meso” (industries, firms), and “micro” levels (teams, indi-
viduals), drawing from such related disciplines as finance, organizational psychol-
ogy, research and development, science policy, information systems, and strategy,
with the underlying theme that for innovation to be useful it must involve the shar-
ing and application of knowledge.
Some of the key anchoring concepts of the series are outlined in the figure below
and the definitions that follow (all definitions are from E.G. Carayannis and
D.F.J. Campbell, International Journal of Technology Management, 46, 3–4, 2009).

Global
Systemic Mode 3 Quadruple Democracy Democratic
macro level helix of capitalism
knowledge

Structural and
organizational Knowledge Innovation Entrepreneurial Academic
meso level clusters networks university firm Global/local

Sustainable
entrepreneurship

Individual Creative Entrepreneur/

micro level milieus employee
matrix
Local

Conceptual profile of the series Innovation, Technology, and Knowledge

Management
• The “Mode 3” Systems Approach for Knowledge Creation, Diffusion, and Use:
“Mode 3” is a multilateral, multinodal, multimodal, and multilevel systems
approach to the conceptualization, design, and management of real and virtual,
“knowledge-stock” and “knowledge-flow,” modalities that catalyze, accelerate,
and support the creation, diffusion, sharing, absorption, and use of cospecialized
knowledge assets. “Mode 3” is based on a system-theoretic perspective of socio-
economic, political, technological, and cultural trends and conditions that shape
the coevolution of knowledge with the “knowledge-based and knowledge-driven,
global/local economy and society.”
• Quadruple Helix: Quadruple helix, in this context, means to add to the triple
helix of government, university, and industry a “fourth helix” that we identify as
the “media-based and culture-based public.” This fourth helix associates with
“media,” “creative industries,” “culture,” “values,” “life styles,” “art,” and per-
haps also the notion of the “creative class.”
Series Foreword vii

• Innovation Networks: Innovation networks are real and virtual infrastructures

and infratechnologies that serve to nurture creativity, trigger invention, and cata-
lyze innovation in a public and/or private domain context (for instance, govern-
ment–university–industry public–private research and technology development
coopetitive partnerships).
• Knowledge Clusters: Knowledge clusters are agglomerations of cospecialized,
mutually complementary, and reinforcing knowledge assets in the form of
“knowledge stocks” and “knowledge flows” that exhibit self-organizing,
learning-driven, dynamically adaptive competences, and trends in the context of
an open systems perspective.
• Twenty-First Century Innovation Ecosystem: A twenty-first century innovation
ecosystem is a multilevel, multimodal, multinodal, and multiagent system of sys-
tems. The constituent systems consist of innovation metanetworks (networks of
innovation networks and knowledge clusters) and knowledge metaclusters (clus-
ters of innovation networks and knowledge clusters) as building blocks and orga-
nized in a self-referential or chaotic fractal knowledge and innovation
architecture,4 which in turn constitute agglomerations of human, social, intel-
lectual, and financial capital stocks and flows as well as cultural and technologi-
cal artifacts and modalities, continually coevolving, cospecializing, and
cooperating. These innovation networks and knowledge clusters also form,
reform, and dissolve within diverse institutional, political, technological, and
socioeconomic domains, including government, university, industry, and non-
governmental organizations and involving information and communication tech-
nologies, biotechnologies, advanced materials, nanotechnologies, and
next-generation energy technologies.
Who is this book series published for? The book series addresses a diversity of
audiences in different settings:
1. Academic communities: Academic communities worldwide represent a core
group of readers. This follows from the theoretical/conceptual interest of the
book series to influence academic discourses in the fields of knowledge, also
carried by the claim of a certain saturation of academia with the current concepts
and the postulate of a window of opportunity for new or at least additional con-
cepts. Thus, it represents a key challenge for the series to exercise a certain
impact on discourses in academia. In principle, all academic communities that
are interested in knowledge (knowledge and innovation) could be tackled by the
book series. The interdisciplinary (transdisciplinary) nature of the book series
underscores that the scope of the book series is not limited a priori to a specific
basket of disciplines. From a radical viewpoint, one could create the hypothesis
that there is no discipline where knowledge is of no importance.
2. Decision makers—private/academic entrepreneurs and public (governmental,
subgovernmental) actors: Two different groups of decision makers are being
addressed simultaneously: (1) private entrepreneurs (firms, commercial firms,

4
E.G. Carayannis, Strategic Management of Technological Learning, CRC Press, 2000.
viii Series Foreword

academic firms) and academic entrepreneurs (universities), interested in opti-

mizing knowledge management and in developing heterogeneously composed
knowledge-based research networks; and (2) public (governmental, subgovern-
mental) actors that are interested in optimizing and further developing their poli-
cies and policy strategies that target knowledge and innovation. One purpose of
public knowledge and innovation policy is to enhance the performance and com-
petitiveness of advanced economies.
3. Decision makers in general: Decision makers are systematically being supplied
with crucial information, for how to optimize knowledge-referring and
knowledge-enhancing decision-making. The nature of this “crucial information”
is conceptual as well as empirical (case-study-based). Empirical information
highlights practical examples and points toward practical solutions (perhaps
remedies); conceptual information offers the advantage of further driving and
further-carrying tools of understanding. Different groups of addressed decision
makers could be decision makers in private firms and multinational corporations,
responsible for the knowledge portfolio of companies; knowledge and knowl-
edge management consultants; globalization experts, focusing on the interna-
tionalization of research and development, science and technology, and
innovation; experts in university/business research networks; and political scien-
tists, economists, and business professionals.
4. Interested global readership: Finally, the Springer book series addresses a whole
global readership, composed of members who are generally interested in knowl-
edge and innovation. The global readership could partially coincide with the
communities as described above (“academic communities,” “decision makers”),
but could also refer to other constituencies and groups.

Elias G. Carayannis
Preface

As today’s global economic landscape is changing rapidly, the ability of businesses

to introduce new innovative products to the market faster than their competitors is
perhaps their most distinct competitive advantage. This becomes obvious by the
significant market share that the innovative companies gain while increasing profit-
ability. Extensive research in this field has shown that companies that are constantly
innovating normally double their profits compared to others.
The term innovation refers to a process that comprises three stages: the concep-
tion of a new idea, its evaluation, and, finally, its practical implementation. Thus,
innovation is an important element of modern entrepreneurship. Innovation man-
agement, namely, how a new idea is created, how and by what criteria it is assessed,
or how it is financed, is a very tedious and demanding process, and a component
element of effective entrepreneurship.
In this context, innovation management techniques and models of increasing
sophistication are being developed internationally; these, in turn, serve as a basis for
the development of many methodologies of measuring innovation at the individual,
national, European, and international level. It is important to mention that according
to the conclusions of the European Commission, based on the European Innovation
Scoreboard (EIS), Greece is last in the list of the EU-15 area countries and one of
the last in the EU-27.
The weakest points of the innovation system of Greece are identified in the produc-
tion of new products, risk capital, patenting, broadband penetration, lifelong training,
investment in research on the part of firms, high-tech exports, and finally employment
in medium-high-technology manufacturing. This has resulted in low innovativeness
and competitiveness of the Greek economy. Furthermore, it is noteworthy that both
the inflow of foreign capital in Greece and the Greek direct investments abroad repre-
sent a very small proportion of the total output and input of the eurozone.
The important role of innovation in firm profitability and overall sustainable eco-
nomic growth, coupled with the disappointingly low yield of the Greek Economy in this
field, have made the design of an effective innovation policy in Greece imperative. It is
obvious that such a policy can be based on young scientists and entrepreneurs who will
have a sufficiently high level of knowledge in innovation and entrepreneurship.

ix
x Preface

This book aims to meet the needs of education and training in modern techniques
of innovation and entrepreneurship, and focuses on the detailed presentation of suc-
cessful business practices. The contents of this book are presented initially in two
parts.
The first part deals with the process of innovation and its relationship to knowl-
edge, learning, and creativity. The second part is about entrepreneurship and its
interdependencies with innovation and the various innovation systems and
policies.
Chapter 1 is an Introduction to Innovation providing the basic concepts and defi-
nitions of Technology, Invention, Creativity, and Innovation with emphasis on
Technological Innovation. In addition, a historical, social, and technocratic perspec-
tive of Innovation is presented, with a brief reference to the process of Innovation
Measurement.
Chapter 2 deals with Innovation Management, mainly through Education and
Knowledge Management. Furthermore, the role of Knowledge in Innovation and
the relationship between Knowledge and Learning are analyzed, and the Knowledge
Process model is presented. Finally, the difference between Innovation and Invention
is clarified, and the types and characteristics of Simple Innovation and Technological
Innovation are listed.
In Chap. 3, through a detailed case study of a large company, the relationship
between Innovation and Competitiveness is elaborated. This chapter also presents
the concepts of Creativity, Innovation, and Competitiveness in Public and Private
Sectors, and makes an attempt to analyze the role of the Public Sector in promoting
these concepts.
The management of Technological Innovation and the consequent challenges is
the subject of Chap. 4, an issue also presented through case studies. This chapter
lists the different standard models of the Innovation Process with reference to (a)
Intellectual Property Rights management and (b) the concept and the practice of
Knowledge Management and Intellectual Capital.
Chapter 5 deals with the study of Innovation Systems. Special emphasis is placed
on the presentation of the different types of Innovation Systems and their basic
principles, on the Open and Closed Innovation Systems as strategic choices, and on
simulation systems. Of particular interest is the configuration of Innovation Systems
with the use of Systems Dynamics and the application of these standards in Sectoral,
Regional and particularly National Innovation Systems. This chapter concludes
with further analysis of Open Innovation Systems, Innovation Networks, Knowledge
Societies, International Research Cooperation, and Innovation Indices.
In Chap. 6, which opens the second part of this book, there is an introduction to
Entrepreneurship and its relationship with Innovation. Moreover, the different types
of Entrepreneurship are presented, followed by an analysis of the concepts of
Sustainable Entrepreneurship, the Learning Life Cycle model, and Strategic
Learning. A reference to Business Incubators and Technology Clusters versus
Knowledge Clusters is also made.
Preface xi

Chapter 7 seeks to shed light on the practices of Entrepreneurship and Innovation,

with a focus on procedures such as Technology Management and Transfer, mecha-
nisms and models of Technology Transfer, and barriers and facilitating factors for
successful Technology Transfer. Finally, there is a detailed presentation of
Cooperation Research and Development Agreements (CRADAs).

Washington, DC, USA Elias G. Carayannis

Kozani, Greece Elpida T. Samara
Kozani, Greece Yannis L. Bakouros
Contents

1 Introduction to Technological Innovation ............................................ 1

1.1 Basic Concepts and Definitions ....................................................... 1
1.1.1 Technology .......................................................................... 1
1.1.2 Technology Management .................................................... 2
1.1.3 Invention .............................................................................. 2
1.1.4 Creativity ............................................................................. 2
1.1.5 Innovation ............................................................................ 6
1.1.6 The Concept of Technological Innovation .......................... 7
1.2 Innovation Posture, Propensity and Performance ............................ 11
1.3 Innovation Measurement ................................................................. 13
1.4 Competitiveness ............................................................................... 15
1.5 A Historical and Socio-Technical Perspective
on Innovation ................................................................................... 16
1.6 Common Frameworks and Typologies
to Characterize Innovations ............................................................. 19
1.7 Innovation Process ........................................................................... 21
References ................................................................................................. 23
2 Introduction to Innovation Management ............................................. 27
2.1 Innovation Management Through Management
of Knowledge and Education ........................................................... 27
2.1.1 The Role of Knowledge in Innovation ................................ 28
2.1.2 Knowledge/Meta-Knowledge.............................................. 29
2.1.3 Knowledge–Learning Relation............................................ 30
2.1.4 The Model of Organizational Cognition Spiral ................... 33
2.2 Difference Between Innovation–Invention ...................................... 36
2.3 Types and Characteristics of Innovation .......................................... 38
2.3.1 Types of Technological
(and Non-technological) Innovation.................................... 38
2.3.2 Characteristics of Innovation ............................................... 40
References ................................................................................................. 42

xiii
xiv Contents

3 Innovation and Competitiveness: Case Study ...................................... 47

3.1 Introduction...................................................................................... 47
3.2 Innovation-Case Study XEROX ...................................................... 47
3.2.1 XEROX Background and History ....................................... 47
3.2.2 Innovation: Sequence of Errors ........................................... 51
3.3 Creativity, Innovation and Competitiveness (CIC)
in Public and Private Sectors ........................................................... 56
3.4 Concepts and Empirical Observations: Case Studies ...................... 62
3.4.1 Subject 1: Key Figures of Innovation and Creativity .......... 64
3.4.2 Subject 2: Drivers of Innovation-Catalysts
and Prohibitive Factors ........................................................ 64
3.4.3 Subject 3: A Quick Look at the Current State
of Play in Various Countries-Challenges
and Opportunities ................................................................ 66
3.5 The Role of the Public Sector in Promoting Creativity, Innovation
and Competitiveness (CIC) .............................................................. 68
3.5.1 Public–Private Partnerships Promoting CIC ....................... 69
3.5.2 The Role of Multilateral Development Banks (MDBs),
such as the World Bank in Promoting CIC ......................... 70
References ................................................................................................. 71
4 Innovation as a Management Process ................................................... 73
4.1 Introduction to Technological Innovation Management .................. 73
4.1.1 How Could a Company Enhance
Its Capacity for Innovation .................................................. 74
4.2 What Is the Management of Technological Innovation
and Why Is It Important? ................................................................. 75
4.2.1 A Corporate Perspective ...................................................... 79
4.2.2 A National Perspective ........................................................ 80
4.2.3 A Theoretical Perspective-Evolutionary Economy ............. 81
4.2.4 Significant Characteristics of the New Growth Theory....... 82
4.2.5 An Individual Perspective ................................................... 83
4.3 Challenges in Technological Innovation Management .................... 83
4.4 Case Study in Technological Innovation Management.................... 84
4.4.1 Biotechnology Company ..................................................... 84
4.5 Innovation Management Techniques (IMTs)................................... 86
4.5.1 Examples of IMTs ............................................................... 89
References ................................................................................................. 104
5 Innovation Systems ................................................................................. 105
5.1 What Is a System? ........................................................................... 105
5.2 The Concept of Innovation Systems ................................................ 106
5.2.1 Types of Innovation Systems............................................... 108
5.3 Basic Principles of Innovation Systems........................................... 109
5.4 Innovation Systems and Simulation Systems .................................. 110
Contents xv

5.5 System Dynamics as a Concept, Tool, and Process ......................... 110

5.5.1 Building a System Dynamics Model ................................... 110
5.6 Innovation Systems: Sectoral, Regional, National—Case Studies .. 112
5.6.1 Sectoral Innovation Systems ............................................... 112
5.6.2 Regional Innovation Systems .............................................. 114
5.6.3 National Innovation Systems............................................... 116
5.7 Application of System Dynamics in the Study
of National Innovation Systems ....................................................... 130
References ................................................................................................. 133
6 Introduction to Technological Entrepreneurship................................. 137
6.1 Introduction–Definitions .................................................................. 137
6.2 Types of Entrepreneurship ............................................................... 139
6.2.1 Mixed Entrepreneurship ...................................................... 139
6.2.2 Pure Entrepreneurship ......................................................... 140
6.2.3 Social Entrepreneurship ...................................................... 140
6.2.4 Collaborative Entrepreneurship ........................................... 140
6.2.5 Internal Entrepreneurship .................................................... 141
6.2.6 External Entrepreneurship ................................................... 141
6.3 Sustainable Entrepreneurship .......................................................... 144
6.4 The Model of the Learning Lifecycle
and the Learning Strategy ................................................................ 149
6.4.1 Environmental Context ........................................................ 150
6.4.2 Learning Strategy ................................................................ 151
6.5 Incubators ........................................................................................ 152
6.5.1 What is a Business Incubator (BI)? ..................................... 152
6.5.2 Determination of the Five Incubator Services ..................... 154
References ................................................................................................. 156
7 Entrepreneurship and Innovation Practices ........................................ 159
7.1 Technology Management and Transfer............................................ 159
7.1.1 General ................................................................................ 159
7.1.2 Technology .......................................................................... 160
7.1.3 Technology Transfer ............................................................ 161
7.1.4 Technology Transfer Mechanisms....................................... 164
7.1.5 Technology Transfer Models ............................................... 172
7.1.6 The Vicious Circle of Underdevelopment
Versus Technology Transfer ................................................ 174
7.1.7 Technology Transfer Obstacles ........................................... 176
7.1.8 Success Factors for Technology Transfer ............................ 176
7.1.9 Cooperative Research and Development Agreements
(CRADAs) ........................................................................... 178
7.1.10 Spin Offs.............................................................................. 179
7.1.11 Strategic Alliances ............................................................... 180
7.1.12 Technology Transfer and Commercialization Metrics ........ 180
xvi Contents

7.1.13 The Case Study as an Evaluation Tool ................................ 184

7.1.14 NASA Case Studies............................................................. 185
7.1.15 New Mexico Federal Laboratories Originating
Case Studies ...................................................................... 190
7.2 Conclusions and Recommendations ................................................ 196
References ................................................................................................. 199

Literature ......................................................................................................... 203

Chapter 1
Introduction to Technological Innovation

At present, the life cycle of products, i.e the time span from a product launch in the
market until it becomes mature, is constantly shrinking. In fact, in some sectors,
such as personal computers, the technological ageing of products takes place within
just a few months. Therefore, the capacity to introduce new products in the market
anticipating their competitors, earning in this way significant shares of sales, con-
stitutes a big competitive advantage for companies. Companies, hence, should be in
a position to constantly ‘innovate’ in order to preserve and improve their market
position. Many would define innovation as ‘something new, an invention, a new
idea’. In reality though, innovation does not only constitute the birth of a new prod-
uct or process-related idea; it does include all stages, from the design and the evalu-
ation of the way this idea is translated into action effectively. An innovation takes
effect with the first commercial transaction regarding a new or improved accessory,
product, process or system. On the contrary, the invention is an idea, a design or a
model of an improved or new accessory that in most of the times does not result in
any commercial transaction, although it could lead to a patent. Many researches
have shown that innovative enterprises, namely the ones that constantly innovate,
present on average double profit compared to the rest. However, innovation man-
agement is particularly difficult, hence the failure of many new ideas to result in
successful new products or services. For this reason, various innovation manage-
ment models have been developed.

1.1 Basic Concepts and Definitions

‘Imagination is more important than knowledge. To raise new questions, new possibilities,
to regard old problems from a new angle, require creative imagination and marks real
advance in science’.
[Albert Einstein]

© Springer International Publishing Switzerland 2015 1

E.G. Carayannis et al., Innovation and Entrepreneurship, Innovation,
Technology, and Knowledge Management, DOI 10.1007/978-3-319-11242-8_1
2 1 Introduction to Technological Innovation

1.1.1 Technology

Technology is defined as something ‘allowing someone to get involved in a spe-

cific activity…with a steady qualitative outcome’, or ‘the art of science and the
science of art’ (Carayannis 2001) or ‘the science of arts’ (von Braun 1997). Diwan
adds that the technological foundations are market size, standards, innovation,
high motivation, and supply of capital (Diwan and Chakraborty 1991). The impact
of innovation may be directed to multiple sectors. For example, Jonash lists prod-
uct/service, process and business innovation as key impact areas. Product/service
is the development and commercialization of hard goods, process refers to new
ways of producing and delivering cost-time-quality advantages and business inno-
vation is new models of conducting business for competitive advantage (Jonash
and Sommerlatte 1999).
Technology is a Greek word derived from the synthesis of two words: ‘techne’
(i.e. art) and ‘logos’ (logic). Defined as such, technology means the art of logic
and the logic of art. It is formally defined as ‘a design for decision/action that
reduces the uncertainty in the cause-effect relations in order to achieve a desired
outcome’. Technology usually consists of two components: (1) a hardware aspect
consisting of a tool that embodies the technology as a material or physical object,
and (2) a software aspect, consisting of the information basis for the tool
(Carayannis 1994a, b, c). Although technology is embodied materially in a prod-
uct, it should nevertheless be viewed as a process, a dynamic and not a static one,
a social rather than an intangible knowledge. It is a combination of creative and
structured tangible objects, codified knowledge and unsaid know-how embedded
in individuals, groups and organizational processes.

1.1.2 Technology Management

Technology Management is a set of practices and policies affecting technologies to

build, maintain and strengthen the company’s competitive advantage at the level of
proprietary knowledge and know-how. In 1987, the American Research Council
defined Management of Technology as linking “engineering, science, and manage-
ment disciplines to plan, develop, and implement technological capabilities to
shape and accomplish the strategic and operational objectives of an organization”
(Carayannis 1994a, b, c). While technology management techniques are them-
selves important to an enterprise, they are most effective when they complement
the overall strategic posture adopted by the enterprise. The strategic management
of technology tries to ‘create advantage at the level of technology’ or ‘to take
advantage of possible technological opportunities generated by technology’
(Carayannis 1994a, b, c).
1.1 Basic Concepts and Definitions 3

1.1.3 Invention

Understanding the term of invention should take precedence over the definition of
innovation. Florida considers invention as breakthrough and innovation as an
actualization (Florida and Kenney 1990). In addition, Hindle defines invention as
the creative origin of new process and the enabler of innovation (Hindle and
Lubar 1986), which has impact on social, economic and financial processes.
Therefore, invention is defined as creative process or progress, while innovation
is defined as the actualization and impact of all processes–progresses on societies
and markets.

1.1.4 Creativity

‘Management is, all things considered, the most creative of all arts.’ It is the art of arts.
Because it is the organizer of talent’.
[Jean-Jacques Servan-Schreiber]

Starting from the individual level, creativity may be defined as the capacity to ‘think
out of the box’, think laterally, observe, conceive and construct ideas and models
that outweigh or outstrip existing items and ways of thought and perception.
Creativity is associated with the capacity to imagine in the sense that it requires
the creator to perceive future perspectives, not being obvious under the current
circumstances. Therefore, creativity is the capacity to observe new interactions
between objects and ideas. Creative types, such as artists, scientists and business-
men usually present features of ‘obsessed maniacs’ and ‘clairvoyant oracles’
(Carayannis 1998–2002, George Washington University Lectures on
Entrepreneurship) as well as the capability and propensity for creative destruction,
just as Joseph Schumpeter characterizes innovation. Albert Scentzgeorgi, Nobel
Prize laureate, defined creativity as follows:
‘seeing what everyone sees and thinking what no one has thought before’.

1.1.4.1 When, Why and How Creativity Arises

The problem with ‘creativity’ is that it is indeterminate. While we generally know

when something is creative, we usually don’t know why. It seems particularly chal-
lenging to give a precise definition on the matter.
Aristotle for example argued that inspiration involves a form of insanity giving
birth to great ideas as a result of a person’s thoughts, evolving through forms of
cooperation (Dacey and Lennon 1998, p. 17). This view that considered the creative
individual as insane sustained throughout the nineteenth century.
4 1 Introduction to Technological Innovation

Freud believed creative ability was a personality trait that tends to become fixed
by experiences in the first five years of life (Dacey and Lennon 1998, p. 36). He
added that creative expression constitutes a means to express internal conflicts that
would otherwise lead to neuroses. Creativity was some sort of emotional purgative
that kept men sane (Kneller 1965, p. 21). During the first half of the twentieth cen-
tury, B. F. Skinner and other behaviorists considered creative production to be
strictly the result of ‘random mutation’ and of appropriate society’s reinforcing fac-
tors (Dacey and Lennon 1998).
Kneller (1965) argues that ‘an act or idea is creative not only because it is novel
but because it achieves something that is appropriate to a given situation’. We create
when we discover and express being new to us. The functional phrase ‘it’s new to
us’, even if an individual has discovered something, is still creativity if we re-
discover it by ourselves.
Amabile (1996) seems to be giving the most thorough definition available today.
She suggests a dual definition of creativity: (1) a product or response is creative to the
extent that appropriate observers independently agree it is creative. Appropriate
observers are individuals with large experience in respective fields˙ and (2) a product
or response will be judged as creative to the extent that it is both a novel and appropri-
ate task at hand, and the task is heuristic rather than algorithmic. Moreover, Amabile
(1996, p. 90) classifies personality traits figuring constantly in the summaries of
empirical papers as the traits of creative individuals:
• High degree of self-discipline in work-related matters.
• Ability to delay gratification.
• Perseverance in the face of frustration.
• Independence of judgment.
• Tolerance for ambiguity.
• High degree of autonomy.
• Freedom from gender role stereotyping.
• Inner point of control.
• Willingness for risk taking.
• A high degree of individual, targeted struggle for excellence.
Amongst the aforementioned ten basic traits, it would be particularly useful to
add three more: the incentive to freedom, the functional freedom and flexibility. The
incentive to freedom (Getzels, Taylor, Torrance, as quoted by Dacey and Lennon
1998) appears when individuals reach the limits of rules to fulfill their needs; when
the rules of a situation cause distraction from their creative ideas. Functional free-
dom refers to the ability to use objects for other creative or unique uses. Dacey and
Lennon contend that the more education a person has, the more rigid his or her
perception of function and functional freedom is likely to become. Moreover, since
education tends to encourage complexity of thoughts, this could lead to a more
complicated way of thinking moving against the production of simple ideas-
constituting many of the greatest solutions worldwide. Flexibility is the capacity to
see the whole of a situation, instead of a set of disparate details.
1.1 Basic Concepts and Definitions 5

1.1.4.2 Creativity in an Organizational Context

‘Culture is the invisible force behind the tangible and observable in an organization, a social
energy that moves people into action. Culture is to the organization what personality is to the
individual—a hidden yet unifying theme that provides meaning, direction, and mobilization’
[Killman 1985]

Many authors consider creativity in the business environment as a key element

allowing changes inside the organizations. Kao (1996, p. xvii) defines creativity as:
the overall process wherefrom ideas are born, developed and transformed into value.
Creativity involves what people usually mean as innovation and entrepreneurship.
In our discourse, creativity denotes the art of giving birth to new ideas and the
method of formulating and developing such ideas into true value. Kao views cre-
ativity as ‘the result of interplay among the person, the task and the organizational
context’ (as quoted in Gundry et al. 1994). Drazin et al. (1999) agree with this argu-
ment. They conclude that creativity constitutes an individual but also group process.
The complex, creative projects observed in large organizations require the involve-
ment of many different individuals and not just a few. In a creative effort, it is usu-
ally difficult to give credit to each individual separately (Sutton and Hargadon, as
quoted in Drazin et al. 1999). Creativity, they argue, is a repetitive process whereby
distinct individuals interact with the group, resolve issues on their own and they
return to the group to transform and further enhance their ideas.

1.1.4.3 Environmental Effects on Creativity

‘When I am, as it were, completely myself, entirely alone, and of good cheer . . . my ideas
flow best and most abundantly. Whence and how they come, I know not; nor can I force
them. Those ideas that please me I retain in memory.’
[W.A. Mozart

Woodman and Schoenfeldt (1990) highlight the importance of social environment

and stress the following: ‘it is clear that individual differences in creativity are a func-
tion of the rate in which social factors and contextual factors support the development
of creative process’. They also add that research in creativity led to the acknowledge-
ment of the fact that the kind of environment it is most likely to produce a well-
adjusted person is not the same as the kind of environment a creative person is likely
to create. Due to lack of research in the field, we shall briefly examine the factor
through a continuously broadened circle of social influences-from family to culture.
Amabile (1996) reports three significant social factors for creative behavior:
• Social facilitation (or social inhibition), arising from the presence of others:
She mentions that the presence of others may dwindle performance in projects
being complex or where there is limited knowledge but could improve perfor-
mance in projects where knowledge is available or in simple ones. Moreover,
abundant evidence shows that individuals present worse performance in ideas
production tests when they work in groups compared to individual work.
6 1 Introduction to Technological Innovation

• Modeling or imitation of observed behavior: The research underscores that a

big number of creative models of an entire generation can stimulate a creative
production for the following generation (Simonton). At individual level, the type
of influence seems more complex.
• Motivational orientation or intrinsic or extrinsic approach of a person to
work: Studies show that the intrinsic orientation leads to a preference for simple,
foreseeable projects.
Available data suggest that different cultures may boost or obstruct creativity. Arieti
(1976) investigates the culture-bound impact on creativity and stresses that the possibil-
ity for creativity is set to be more frequent than its actual manifestation. Some cultures
promote creativity more than others and named these cultures ‘creative’. He considers
that individuals become creative when the following three factors are in place:
• The culture is right. He gives the example of airplane that could not have been
invented, if gasoline had not been invented first.
• The genes are right. A person’s intellect, considered genetic, should be high.
Creativity, possibly genetic or not, should also be high.
• The interactions are right. He cites the example of Freud, Jung and Adler. If
Jung and Adler had not had Freud to compete with, it is questionable whether they
would have been able to occupy such a significant place in modern psychology.
In a study on culture by Hofstede (1980) of forty independent nations, he found four
criteria where the cultures of said nations diverged: power of distance, uncertainty
avoidance, individualism–collectivism and masculinity–femininity. Such dimensions
have a strong impact on the ‘collective mental planning of people for the environ-
ment’. They have also been enshrined in our collective historical culture. For example,
the Americans have a tendency towards high individualism, small power of distance
and low uncertainty avoidance. Such tendencies do reflect American history which
has attached a high value to quality, independence and willingness to take up risks.
Such cultural impact is very much different quality wise from the social influ-
ences mentioned in previous creativity models. To use a more suitable term, we call
it ‘cultural embeddedness’ because it denotes much more than a society’s standards,
values and mores. It denotes what constitutes our reality. Taking into account this
additional element, we put forward a new creativity model that not only does explain
the elements of creativity but the process itself. Under this new model, cognitive and
personality factors interplay individually and vice versa. The social environment
interacts with the three factors mentioned above and conversely the individual par-
ticipates in the creative process. Cultural embeddedness affects not only all creative
factors but also all steps of the creative process.

1.1.5 Innovation

‘Discovery consists of looking at the same thing as everyone else and thinking something
different.’
[Albert Szent-Gyorgyi-Nobel Prize Winner]
1.1 Basic Concepts and Definitions 7

Innovation is a word deriving from Latin and means the introduction of some-
thing new to the existing world and the order of things or the improvement of
resources productivity as mentioned by J. B. Say, quoted in Drucker (Drucker
1985). Many definitions of innovation are found in the literature. We report some
of them:
Chris Freeman and Soete (1982) reports: “The industrial innovation involves
technical design, manufacturing, administrative and commercial activities
related to the marketing of few (or improved) products or with the first commer-
cial use of a new (or improved) process or equipment”.
Paul Gardiner (1985) highlights the following: “…innovation does not only mean
commercialization of a significant advantage at the highest technical level (radi-
cal innovation), but it also includes taking advantage of small scale changes in
the know-how (improvement or incremental innovation)…”
Peter Drucker (1985) stresses that: “innovation is the special tool of businessmen
to utilize change as an opportunity for a different activity or service. It is possible
to appear as a discipline, to be learned, to be practiced”.
Paul Michael Porter (1990): “enterprises acquire a competitive advantage
through acts of innovation. They approach innovation in its broader sense,
including new technologies and the new way to do things”. The term Innovation
may refer to the process-conversion of an idea into a merchandised product or
service, a new form of business organization, a new or improved functional pro-
duction method, a new product presentation way (design, marketing) or even to
a new service rendering method. It may also refer to the design and construction
of new industrial equipment, the implementation of a project with a new man-
agement or may refer to a new way of thinking to deal with a situation or a
problem. (Green Paper of the E.U. on innovation). Technological evolution and
the parallel social and economic changes take place through the realization of
innovation. A society’s ability to innovate largely constitutes a mechanism of
renewal and development. Innovation regards every aspect of economic or pro-
ductive process. At the level of an enterprise or an organization, innovation is
mainly realized either by developing new products and services or by restructur-
ing production–operation processes.
The continuous innovative effort for new products-services or new productive
processes create a competitive advantage in three critical areas:
a. Evaluation of the resources involving research and development activities,
application of a new technology, sales productivity, production etc, new pro-
ductive investments and expansion into new markets or broadening of the cus-
tomer base.
b. Development and renewal of the entity with investments and growth, profes-
sional evolution opportunities for human resources, new recruitments and opti-
mism, high morale and spirit.
c. Business success building on the reputation and attracting new customers, image
of a dynamic business, products that distinguish from the competition, ongoing
development and making hard for the competition to gather pace.
8 1 Introduction to Technological Innovation

1.1.6 The Concept of Technological Innovation

Innovation is often associated with the creation of a sustainable market around the
launching of a new and superior product or process. In particular, in the literature of
technology management, technological innovation is characterized by the introduc-
tion of a new technological product in the market:
‘Technological innovation is defined here as a situationally new development through
which people extend their control over the environment. Essentially, technology is a tool of
some kind that allows an individual to do something new. So, technology transfer amounts
to communication of information, usually from one organization to another’.
(Tornatzky and Fleischer 1990)

In particular, technological innovation is defined as:

‘Introduction in the market of a technologically new or significantly improved product or
the application of a technologically new or significantly improved productive process,
successfully responding to market demand. It is the outcome of the interplay of market
conditions on the one hand and of the possibilities to utilize the stock of technological and
scientific knowledge’
(Schumpeter 1934)

Many authors acknowledge the importance of technological innovation for a

company’s high performance today. We report some of them:
• Technological innovation in various enterprises is one of the key reasons for
industrial competitiveness and national development (Freeman and Soete 1982;
Porter 1985).
• Innovation is the only special ability in the 1990s (Peters 1996).
• The key feature of a modern market is not the price, but innovation (Zaltman et al.
1973).
• Innovation is the ultimate border in the modern business world helping compa-
nies to attain better yield, new products and services at lower cost (Pospiril 1996).
Technological innovation is a new technology that creates new products, hence
new opportunities for the industry. This is the basic meaning of innovation and the
reason it is important for economic growth as it creates business opportunities.
Technology was and will be the key incentive to drive changes in our society.
Technological innovation has turned into the largest driving force paving the way
for society since 1980s. There is a constant flow of products and processes, from
power engines in cars, airplanes, telecommunications and pharmaceutical prepara-
tions. All enterprises owe their existence and long standing presence to the success-
ful application of technology in the creation of new products and improved
manufacturing processes.
At present, management executives acknowledge the primordial role of techno-
logical innovation in a company’s business success (Hans J. Thamhain). The enter-
prises that failed to keep up their innovative nature have been outstripped by younger
and more active organizations. This failure is due to their weakness to see through
the impact of new technology, while competitors seize the opportunity for develop-
1.1 Basic Concepts and Definitions 9

ment offered by technology. Traditionally, innovation has been linked to R&D

activities and the use of technological knowledge. This could be explained by the
fact that all examples outlined in the literature of businesses are taken from the
pharmaceutical industry, the chemical industry or electronics, where basic research
has brought about the innovation that changed the world (penicillin, nylon and
microprocessors). Any industrial application of scientific knowledge is a techno-
logical innovation. It should be stressed at this point that all sectors, of high or low
technology, can use technology for innovation. A case in point is EUROPASTRY-
FRIPAN, a company set up in Barberà del Vallès, that managed to innovate in an
existing bakery industry developing frozen bread. The possibility to have hot bread
at any time of the day carrying out a simple task not requiring specialized staff at the
sale point seemed impossible to many people. The company almost took a leading
position in the Spanish market and set out a revolution in what was seen as a particu-
larly traditional sector. A broader interpretation of the term ‘innovation’ refers to
innovation as an ‘idea, practice or material artifact’ (Rogers and Shoemaker 1971)
adopted by a person or an organization, where the artifact is ‘considered new by the
relevant unit of adoption’ (Zaltman et al. 1973). For this reason, innovation tends to
change the perceptions and the relations at organizational level but its influence is
not limited at this level. Innovation in the broader socio-technical, economic and
political framework could significantly affect, shape and modify the ways and the
means people live, businesses are structured, compete, succeed and fail and nations
prosper or decay (see Fig. 1.1). In particular, Fig. 1.1 aims to explain the nature and
dynamics of an international framework where creativity and innovation could lead
to competitiveness improvement and ongoing development. On the other hand, the
lack of creativity and innovation is a factor of failed performance and therefore a
factor of economic yield failure. In those countries where creativity and innovation
are effectively realized, globalization could serve as a drive of beneficial and con-
tinuous economic integration. Nevertheless, globalization may become a powerful
force leading to loss, inequality, marginalization and economic corruption in non-
competitive countries. A government and market success or failure is determined by
the way they make use of the four basic elements shaping creativity, innovation and
competitiveness worldwide:
1. The coordination and partnership between governments, enterprises, research
laboratories and other specialized bodies, universities and support services for
small and medium sized enterprises (SMEs),
2. The power of information and communication technology,
3. The efficiency that can be brought about by management and organizational
systems in production and trade, and
4. The international agreements, provisions and regulations. All four elements of
this framework shall impact on creativity and innovation at micro-level (company
level) as well as on innovation and competitiveness at macro-level (industry,
national, global).
From a company’s perspective, innovation is considered as the fortunate end-
ing of an invention’s commercialization journey, when such a journey is indeed
10 1 Introduction to Technological Innovation

Fig. 1.1 Creativity, innovation, competitiveness

successful and results in a constantly thriving market share or a new market. In other
words, a technical discovery or invention (or creation of something new) is not
important for a company unless this new technology can be utilized to add value to
the company through income increase, cost cutting and similar improvements in
economic results. This has two important consequences for the analysis of any inno-
vation in a business organization. Firstly, innovation should be in-built in the orga-
nization’s functions and strategy in order to clearly impact on the way said
organization creates value or on the type of value offered in the market by this
organization. Secondly, innovation is a social process, as it is only through interven-
tion and management of persons that an organization can actualize the benefits of
innovation. The discourse around innovation leads clearly to the creation of a model
for the understanding and the evolutionary nature of innovation. Innovation man-
agement deals with the activities undertaken by the enterprise in order to produce
solutions for problems related to products, processes and management. Innovation
involves uncertainty and dis-equilibrium. Nelson and Winter (1982) suggested that
any change-however insignificant-represents an innovation. They also suggest that,
1.2 Innovation Posture, Propensity and Performance 11

considering uncertainty, innovation ends up to the emergence of new technologies

and changes in relative weighting of existing technologies (ibid). This results in the
disruptive process of dis-equilibrium. Insofar as innovation is adopted and dis-
seminated, existing technologies become less useful (reduction of weight factors) or
even useless (weight equal to “0”) and are discarded. The stage of adoption is when
uncertainty appears. New technologies are not adopted automatically but rather the
markets influence the adoption rate (Carayannis and Alexander 1997; Carayannis
and Alexander 1998a, b; Carayannis and Jorge 1998c).
It is obvious that innovative technologies put forward solutions for market prob-
lems, such as reduced cost, usefulness and productivity. Nevertheless, the markets are
social structures and are subject to non-innovative criteria. For example, an invention
may be very promising offering a significant reduction in product cost something
which would reasonably influence the market to accept said innovation; however,
asymmetry in information (or lack of knowledge in the market as regards the proper-
ties of the invention) is the reason why the invention cannot be immediately embraced
by the markets. Therefore, innovation may simply remain an invention. If, though,
innovation becomes accepted by the market, the results shall lead to a change in the
relative weight of existing technology. This is the dis-equilibrium in effect. Taking
into account the existence of uncertainty and change in the innovative process, the
management should develop skills and should understand the process as a method to
manage sudden change of events. The problems of managing the resulting change are
strategic by nature. They can be classified in three categories, engineering, entre-
preneurial and administrative (Drejer 2002). Such classification relates to the
respective types of innovation, product, process and administrative innovation:
• The engineering problem involves selection of the suitable technologies for the
correct operational performance.
• The entrepreneurial problem refers to identification of a product/service and the
target markets.
• The administrative problems focus on mitigating uncertainty and risk during the
previous phases.
In much of the previous discussion on innovation, a recurrent subject is that of
uncertainty, leading to the conclusion that an effective innovation model should
include a multi-dimensional approach:
‘Uncertainty is defined as the unknown knowns, while risk is defined as the known
unknowns’.

A model being helpful for comprehension is the Multidimension Model of

Innovation, MMI (Cooper 1998). This model tries to define the understanding of
innovation by establishing three-dimensional boundaries. The levels are the follow-
ing: the product–process, the additional-radical and the administrative–technologi-
cal. The product–process boundary deals with the final product and its relation to
the methods adopted by the companies to produce and distribute the product. The
additional-radical boundary determines the degree of relative strategical change
accompanying innovation dissemination. This is a measure of disruption or dis-
12 1 Introduction to Technological Innovation

equilibrium in the market. The technological–administrative boundaries refer to the

relation of the innovative change in the operational nucleus of a company. The tech-
nological boundary refers to the influences in basic steady production whereas the
administrative boundary would involve innovations that affect the relative policy
factors, the resources and the social aspects of the company.

1.2 Innovation Posture, Propensity and Performance

Penrose (1959) and Barney (1991) developed the conceptual model of organiza-
tional innovation from a perspective based on company resources. In particular, they
focused on the concept of knowledge that permeates all organizations as intangible
resource to give new daily routines, technologies or structures that impact on future
performance (Nelson and Winter 1982). In order to explain the multi-layered influ-
ence of organizational innovation, they viewed the framework of innovation rou-
tines as a procedural model. They place emphasis on intangible resources
contributing as inputs to the process of innovation; they examine the capacity of an
enterprise to participate in innovative activities and finally they consider the raft of
organizational outputs deriving from innovation that extend from short-term outputs
to long term permanent impacts.
This compilation of measures is housed within a ‘3P’ framework for the organiza-
tional innovation. Innovation results from three critical factors at business level:
Posture, Propensity, Performance, 3P (see Fig. 1.2) (Carayannis and Provance 2008).
Posture refers to an organization’s position within the largest innovation system
of its environment (i.e., region, industry, technological domain). In detail, posture
encompasses the situation in a company along three dimensions: the organizational,
technological and market life cycles depicting its capacity to participate and benefit
from innovation (Damanpour 1996). In this way it determines the conditions affect-
ing an enterprise within a specific technological regime serving a specific market.
Every company’s capacity to take part in innovative activities shall be restrained
by its posture, being extrinsic to the innovation process measured. In other words,
irrespective of whether and which type of innovation process is adopted, a company
exists always at some point in its life cycle from its establishment until failure (orga-
nizational life cycle). The company selects the technologies to adopt in the applica-
tion of its strategies and is thus subject to the life cycle of the technology regime
wherein technologies exist (technological life cycle). For example, a small number
of post carriage businesses kept on operating for a while after the launching of cars,
so their position in the technological regime of post carriage sustained and continued
being measured. Finally, the company finds itself in a competitive context within
significant strategic activities in one or more markets. These markets exist in various
points in its life cycle, restricting thus the company’s available innovative actions.
Propensity is a company’s capacity to capitalize on its posture based on the inno-
vation’s cultural acceptance. In this way, propensity is an intangible reflection of
procedures, routines and capabilities established within a company. A company
1.3 Innovation Measurement 13

Fig. 1.2 The 3P framework: a systems view of the innovation process (Carayannis and Provance,
2008)

may have sufficient resources and therefore higher externalization of innovation,

while having at the same time an underdeveloped capacity for innovation by virtue
of its culture or other restrictions (Carayannis and Provance 2008).
Performance is the enduring result of innovation. This part of the framework
involves three levels: output, outcome and impact, (Carayannis and Provance
2008). Impact appears as direct, internalized benefits of innovation. New product
introduction, patents and technology transfer licenses are some examples of output
arising. Outcomes encompass medium results, such as revenues from new products.
Finally, impact represents lasting and long-range benefits that are injected to the com-
pany by its innovative capacity and are transformed into results for the company’s
environment too. All the three factors—posture, propensity and performance—are
empirically conceived in the form of a combined indicator defined as Complex
Innovation Index, CII (Carayannis and Provance 2008). This comprehensive
measure denotes the superior evaluative results of innovation measurement (analyzed
further down) in all aspects of the process (Damanpour 1996).

1.3 Innovation Measurement

Measurement of innovative performance at enterprise level has been less the focus
point compared to project or system level. Studies at project level offer a broader
understanding of the mechanisms underlying innovation and their impact on the
organization in question. Most of these studies exclude the control held by manag-
ers to deal with uncertain and dynamic environments. Differences among the stud-
ies have led to a generally accepted innovation performance indicator or to a
common set of indicators at organizational level. In general, the following catego-
ries of indicators related to innovation can be distinguished:
• Input indicators measure the available resources in the innovation process.
Such inputs include the intellectual, human and technological capital (e.g. Baruk
14 1 Introduction to Technological Innovation

1997; Carayannis et al. 2003; Hagedoorn and Cloodt 2003; Lansiti 1997;
Leenders and Wierenga 2002; Parthsarthy and Hammond 2002).
• Process indicators depict the organizational systems and the management
systems of innovation processes. They also integrate a company’s innovation
system design as well as its innovativeness (Howells 1995; Kahn 2002; Koen and
Kohli 1998).
• Output indicators determine the results of organizational innovation. Output
indicators represent the realized short-term success of innovative activity.
Indicators in this group count the numbers and rates of patents, patents reports,
the number of new products, innovation-related sales rate etc (Baruk 1997;
Michalisin 2001). They also represent the realized, short-term success of innova-
tive activity, e.g. profit margins or the company’s medium-term and long-term
market shares, the company’s growth rate, the dominant designs or the
technological standards formulated by business innovations, the innovations of
second stage and advanced stages deriving from an initial innovation, degree of
disruptiveness (Carayannis et al. 2003). Impact measures the continuous advan-
tage enjoyed by a company as a result of innovation. Many studies utilize a sin-
gle input or output indicator to define a company’s innovative performance
(Coombs et al. 1996; Evangelista et al. 1998; Feeny and Rogers 2003).
However, it has been ascertained that there are problems in innovation measure-
ment, particularly with input indicators (Coombs et al. 1996). The critical issues
are (1) some input measurements that do not conceive the process performance,
(2) single measurements not reflecting economic or qualitative value, and (3) lack of
indication of technological complexity in the inputs. Similarly, Santarelli and
Piergiovanni (1996) have demonstrated that output indicators based on patents may
be problematic because the technological level and the economic value of patents are
particularly heterogenic; the nature of patents’ content largely varies from country to
country. In addition, not all innovations are patented; not all patents turn out being
innovation and patenting depends largely on a company’s size. Output indicators
present limitations due to primary factors at industry level, when industries or enter-
prises with variable size are compared. Other studies have criticized the isolated mea-
surement of innovative business operations or parts thereof (e.g. Damanpour 1996).
Adding to this criticism, we have identified three limitations of the existing lit-
erature. Emphasis is primarily placed on the manufacturing sector and on products’
innovations, disregarding the process variables. Therefore, existing innovations do
not take into account some significant indicators for innovative success and present
restrictions in the examination of different sizes, objectives and activities of enter-
prises. Recent studies have presented the advantage of utilizing complex indicators
to determine a company’s innovativeness (e.g. Hollenstein 1996; Hagedoorn and
Cloodt 2003). However, the concept of a complex indicator has not been studied in
depth by the literature. Only three innovation studies use complex indicators to
record the diverse determining innovation-based performance factors (Damanpour
1996; Hagedoorn and Cloodt 2003; Hollenstein 1996). Only Damanpour (1996)
and Hollenstein (1996) utilize process indicators. It is therefore required to develop
1.4 Competitiveness 15

Table 1.1 Measurable features of novelty

Quantitative measures Quality measures
Characteristic Measurement Characteristic Measurement
R&D Budget R&D Effection Productivity
Patents Development
New products Low cost
Staff R&D Flexibility
Publications Offer/Demand
Initiatives R&D Enterprise’s size
New ideas Market’s effection
Inventions Users’ benefits
New markets
Products extensions
Conventions Personal Low prices
CRADAs Social Social involvement
Cooperations Saving time

complex indicators that would integrate the distinct approaches to measurement and
would include measures of the overall innovation project (Coriat and Weinstein
2002; Hagedoorn and Cloodt 2003).
How then should innovations be measured, provided of course they are measur-
able? Research & Development (R&D) constitute the first measurement tools uti-
lized (Evangelista et al. 2001). Nevertheless, research and development itself can be
measured based on different characteristics. For example, in case of research and
development measurement/Intellectual Property Rights, the number of patents con-
stitutes a measurement indicator. Other characteristics are frequently measured
though, such as budget for research financing, the number of researchers, the num-
ber of significant inventions, the number of new products, the number of researches
published, etc. (Tidd 2001). There exist also other characteristics associated in a less
apparent way, such as increased productivity and development or reduced cost
(Nelson and Winter 1982). Another classification of measurable characteristics is
realized on the basis of the social impact of innovations. The relevant examples
include the possibility to measure the advantages, the lowest prices and time saving
offered to consumers as well as other elements facilitating the members of society
(Mansfield et al. 1977). A typology of measurable characteristics could be of help
to collect the distinct measurable characteristics (Table 1.1).
The basic classification is between ‘quantitative’ and ‘qualitative’ measurable
characteristics. Quantitative measurable characteristics are the ones directly associ-
ated with innovation process. For example, the number of patents is the direct result
of the research process and it is not generally affected by external factors. On the
contrary, improvement of productivity could be a direct result of innovation but the
relation between the two is less clear due to other characteristics affecting it.
Productivity increase could derive from a simple increase of interest in the application
of innovation for productivity. This should not make us assume that innovation was
16 1 Introduction to Technological Innovation

not a key factor that influenced the increase of productivity but most probably that the
measurement process was not accurate enough to reveal the role of different
influences.
Research and development directly affect the outcome. Studies carried out in the
manufacturing sector showed that the utilized financing granted for research and
development (R&D) was the main explanation for the differences in productivity
development among manufacturing companies compared to the entire financing for
research and development in the entire sector (Nelson 1977). This could practically
mean that the expenses for research and development are a direct way of measuring
a company’s productivity. The adoption of measures for the development and appli-
cation of innovations could be influenced by a company’s business and technological
strategy. A company aiming at high profit may choose to measure the characteristics
of innovations geared towards specific targets (Nelson 2000). This type of measure-
ment is more useful for the characteristics being directly linked between them, i.e.
for the cases of quantitative measurable characteristics.

1.4 Competitiveness

Competitiveness is people’s, organizations’ and nations’ capacity to achieve high

outputs and outcomes and in particular to add value using the same or lower input
amounts (see Fig. 1.3).

Fig. 1.3 The CPI model

1.5 A Historical and Socio-Technical Perspective on Innovation 17

In addition, the entrepreneurial addition of value and the learning from experience
and failure are not solely determined by profit and non-profit organizations. The rule
for the evaluation of such outcomes as ‘superior’ or ‘better’, or ‘more performing’
could include basic capabilities of a specific organization or nation as well as a com-
parison with other organizations or nations. Then the basic conclusion drawn for
competitiveness is that it is attained through an organizational improvement process
whereby institutions of an economy have a clout over people, knowledge and tech-
nologies, with the aim to restructure relations and achieve higher production levels.

1.5 A Historical and Socio-Technical Perspective

on Innovation

‘But in capitalist reality…, it is not price competition which counts but the competition from
the new commodity, the new technology, the new source of supply, the new type of organiza-
tion.... competition which....strikes not at the margins of the profits and the outputs of the
existing firms but at their foundations and their very lives’
[Joseph A. Schumpeter 1942]

To understand the history of innovation, one should take a look at Schumpeter’s clas-
sical papers. Schumpeter authored the ‘Theory of Economic Development’ in 1934
as a research focusing on profit, capital, credit, interest and cyclical economic fluc-
tuations. His main contributions were (a) the expansion of Adam Smith’s economic
principles from land-labor-capital to land-labor-capital-technology-entrepreneurship
and (b) the introduction of the concept of imbalance in economic discourse. It is
interesting to highlight that Schumpeter was a socialist who believed that the capital-
ist system would eventually collapse and be replaced by a socialist system. At this
point he agreed with Marx, but his interpretation on socialism was very much differ-
ent on many accounts. Marx felt that the economic model he applied could determine
the structure of society. The corner stone of his theoretical structure was the ‘Value-
Added Theory’ whereby the value of a commodity, taking into account the perfect
balance and the ideal competition, is proportional to introduction of labor. Schumpeter
disagreed with Marx on this issue reaching the conclusion that the perfect balance
and the perfect competition were problematic even in the best of cases.
Another point of discord between Schumpeter and Marx was the latter’s allega-
tion that the capitalist system shall collapse ‘(Zusammenbruchstheorie)’ as a result
of its inherent injustices. According to Schumpeter, the natural evolution of capital-
ism would destroy the foundations from within. In reality, he considered that the
economic crisis of 1930s was an indication of paradigm shift that strengthens his
convictions. Schumpeter saw capitalism in almost the same way he saw innovation
process. Both were generally considered stable processes (under perfect conditions)
from a theoretical model perspective. Schumpeter, however, introduced the concep-
tual theory of imbalance as the main powerful factor and this could be further
expanded in the concept of continuous powerful disequilibrium (Carayannis 1994b)
to grasp and articulate the concept of successive Fisher-Pry (S-curves) curves with
18 1 Introduction to Technological Innovation

discontinuous or/and disruptive innovations, inducing a change in the curve or/and

the change of the ‘rules of the game’, as we shall see below.
Michael Tushman and Charles O’Reilly suggest that discontinuous innovation
involves breaking with the past to create new technologies, processes and organiza-
tional ‘S-curves’, resulting in significant leaps in the value added to customers.
Similarly, Clayton, Christensen, Gary Hamel, C.K. Prahalad, James Utterback describe
discontinuous innovation as a mixing of ‘radical technologies’, ‘discontinuities’ or
‘radical innovations’ enabling entire industries and markets to set out, be transformed
or be vanished (Kaplan 1999). Technological innovations helping companies to estab-
lish new rules for the enterprises or to create enterprises anew are usually considered
discontinuous. With regard to the concept of ‘discontinuity’, the distinction is rare in
the literature; the same applies with the methods of recognizing said radical innova-
tions. For the masterminds of corporate strategies’ planning, a key question remains
unanswered and regards the establishment of a method for the identification of oppor-
tunities and their utilization through rational processes that lead to reliable steps (in
contrast to waiting for a random appearance of opportunities) (Kaplan 1999).
Usually capitalism is referred to as ‘laissez-faire’ but after the Second World War
capitalism is more closely related to social, political and legal models. Following
Schumpeter’s principle on evolutionary capitalism, we could say that capitalism in
modern era is a reasonable expansion of Schumpeter’s theory. The concept of inno-
vation as a ‘socio-technical’ system has been fairly consolidated. Rogers (1995) for
example defined innovation from the point of view of notions for people or groups
adopting an innovation. The efforts to classify innovations on purely technical terms
are facing the danger of depicting the outcome of a social process as something that
would be totally separated from human influence.
This paper advocates an approach for the concept of innovation classification
and sub-division in four basic dimensions (Carayannis 2002):
i. The process of innovation (the way innovation develops, disseminated and
adopted).
ii. The content of innovation (the specific technique or social nature of innovation
itself).
iii. The environment of innovation (the environment in which innovation takes
place and the environmental impact on innovation).
iv. The impact of innovation (the social and technological change arising from the
innovation process completion) (Carayannis 2002).
Using all these four dimensions of innovations, we could investigate deeply its
social repercussions.
The key factors linking creativity and innovation are the following:
• Environment: The environment where the above dimensions take place.
• Process: What is the process actualizing all the above.
• Content: What is the content of the above taking into account the interaction
with other factors.
• Impact: What is the impact of each of the above on the other factors.
• Level: The properties should be viewed at all levels including the company,
industry, national and international levels.
1.6 Common Frameworks and Typologies to Characterize Innovations 19

Fig. 1.4 Competitiveness vs competition trade-offs (Carayannis and Gonzalez 2003)

• Invention: What is being invented determines the content of innovation.

• Mechanization: It is a necessary but no satisfactory condition for innovation.
• Creativity and Competition: They may be extrinsic factors to competitiveness.
Competition facilitates or inhibits competitiveness (see Fig. 1.4).
• Stabilization: It may reproduce satisfaction.
• Radical technologies: They can renew competitiveness with significant
productivity profits.
Nevertheless, exaggerated competition may undermine competitiveness leading to
the Acceleration Trap (von Braun 1997) and to Differentiation Trap (Christensen 1997)
(see Fig. 1.4). This kind of situations lead increasingly to shorter and no continuous
cycles of products and spiral cost of R & D with shrinking profit margins and market
shares, resulting from exaggerated competition and reduced competitiveness. Under
the circumstances, change takes place so quickly that usually companies fail to fully
benefit from it and end up using resources insufficiently and declining their position in
the market participating in price wars and in trivial innovation races. Companies could
thus find themselves ‘trapped’ in a ruthless spiral of increasing competition and reduced
competitiveness resulting in even fewer sustainable positions or market niches.

1.6 Common Frameworks and Typologies

to Characterize Innovations

‘Comforted by idols, we can lose the urge to question and thus we can willingly arrest
our growth as persons: ‘one must invoke tremendous counter-forces in order to cross this
natural, all too natural progressus in simile, the continual development of man toward the
similar, average, herdlike common!’
[Nietzsche, 58]
20 1 Introduction to Technological Innovation

Innovations can be classified in three general categories, in content innovations,

process innovations and administrative innovations (Tidd 2001). Some research-
ers classify innovations based on the influences per geographical regions
(Evangelista et al. 2001) or based on decision making criteria (Rogers 1995),
while others distinguish innovation in incremental, generational, radical and
architectural (Cooper 1998). Another method to classify innovations in types is
carried out depending on the decision making systems (Rogers 1995) and is based
on the principle establishing that the adoption of some innovation be influenced
both by individuals and by social systems in their entirety. Moreover, innovations
are distinguished in subversive/non subversive and in (Christensen 1997) continu-
ing/discontinuing innovations (Tushman and Anderson 1990).
• Process innovations regard the change in the methods adopted by a company to
offer products and services. A case in point is the use of the internet to manage
the supply chain, whereby ordering, pricing and monitoring are carried out
through the internet.
• Innovations of content reflect the changes in the final products and in a com-
pany’s services. Such an example is the addition of a new characteristic, i.e.
remote control in TV sets to facilitate users.
• Administrative innovations refer to the changes in the characteristics of an
organization or an institution. Such examples are the changes in policy, structure
and distribution of sources.
• The classification of innovations based on the differences arising per geographi-
cal region is a very narrow concept being usually restricted in the comparison
between specific technological innovations. One of the disadvantages of said
method is the evaluation of an innovation’s regional/geographical nature. For
example, in cases of research and development (R & D), evaluated based on
the number of patents, it should be clarified that the areas where a patent was
discovered may be different from the area where it was registered, particularly in
the case of multinational companies. Should an invention take place in an Asian
company belonging to a USA multinational, the patent registration application is
most probably filed in USA; as a result, if measurements take place per geo-
graphical region, it shall be considered that the patent belongs to the USA.
• Bringing together various previous studies on technological innovations (partic-
ularly studies carried out by Abernathy, Anderson, Clark, Henderson, Tushman
and Utterback) a common framework emerges that distinguishes four general
types of technological innovations: incremental, generational, radical and
architectural innovations.
• Incremental innovations exploit the potential of established designs and usually
reinforce the dominance of already existing enterprises. They also enhance current
operational capabilities of a technology through small scale improvements on the
value of technology, adding attributes such as performance, safety, quality and cost.
• Generational innovations are incremental innovations resulting in the creation
of a new system that does not present radical changes.
• Radical innovations introduce new concepts that diverge significantly from the
practices of the past and contribute to the creation of products and services based
1.7 Innovation Process 21

on different engineering or scientific principles and usually pave the way for new
markets and possible applications. They also offer a ‘new operational capacity
that constitutes a discontinuity in the current technological capabilities in effect’.
• Architectural innovations serve to broaden the classification of radical and
incremental innovations introducing the concept of changes in the way the con-
stituent parts of a product or system are linked together.
Another common classification is evolutionary innovations whereby changes
seem to follow the process of ‘natural selection’ (technical improvements are the
result of the ‘survival of the fittest’) and revolutionary innovations, whereby
changes appear as disruption or non-continuing change in the course of technology.
These two approaches to innovation, however, are not mutually exclusive.
Based on the aforementioned types of innovation, we could show the way these
concepts relate to each other in a more integrated framework for the analyses of
innovations.

Process Content
Evolutionary innovation Incremental innovation or Next generation innovation
Revolutionary innovation Radical innovation or Architectural innovation

The integrated framework of our four dimensions enables us to correlate discon-

tinuous and disruptive technologies with the following concepts.

Process Content Environment Impact

Evolutionary Incremental innovation Continuous innovation Non-disruptive or
innovation Next generation innovation Continuous innovation Disruptive innovation
Revolutionary Radical Innovation Discontinuous Non-disruptive or
Innovation innovation Disruptive innovation

Not all innovations are discontinuous and not all discontinuous innovations are
they disruptive; moreover, not all disruptive innovations are discontinuous. This is
determined by Lethe innovation’s field of application, the time and its impact, while
diverse strategies exist to deal with the challenges and the opportunities emerging
from scheduled or random technological discontinuities and disruptions.

1.7 Innovation Process

‘The lowest form of thought is the stripped recognition of the object. The highest form is the
full intuition of a man who sees everything as part of a system’
[Plato]

Defining innovation process is by nature problematic. This research field is still at

its creation stage and every researcher in the field has given his own definition on
innovation process. However, there is significant information available in order to
have a common understanding of several points. The innovative process is deter-
22 1 Introduction to Technological Innovation

mined through the correlation of its research constituent parts (Nelson 1977).
Inventions can be measured, while the process of research and development can also
be determined or constitute an object of research. Science and inventions can be
linked between them; the sources of innovations can be further developed, the
organization-bound factors can be investigated, technological evolution can be stud-
ied, diffusion of innovation can be assessed and learning phenomena can be
disclosed.
‘Inventions are viewed as complementary, cumulative, and leapfrog’
[Rosenberg 1982]

Complementary invention is the invention of a new process or of a new product that

regards an already existing technology, such as the computer’s mouse that supports
the interactive relation between user and PC. Cumulative invention is the invention
added to an already existing invention. For example, the improvement of a product
by adding a pour spout on juice cartons is a case in point. Leap-frog inventions bring
about radical changes that differ from the existing technologies and cause disconti-
nuity in the markets.
To understand the process, one should conceive the concept of innovation
urgency as a basic and guiding element (Cooper 1998). In a competitive
context, managers are led to success both at individual and at organizational level.
For organizations to be successful, managers should take a step further beyond
development, application and approval of innovation. They need to be constantly
innovative in order to reach success, driving organizations to higher levels of inno-
vations’ diffusion.
Most of innovation models are based on three basic ideas (Drejer 2002):
• Firstly, the organization can act in a suitable way in order to create or choose its
environment
• Secondly, the strategic options of managers shape the structure and the processes
of organizations and
• Thirdly, the selected structures and processes highlight a strategy.
It is a very interesting way to view the models of innovations. If an organization
can choose its context and if this option is rational, it should be able to choose the best
possible context for a successful strategy. However, there are numerous examples of
strategies adopted by enterprises that did not yield the anticipated results. Is this prin-
ciple belied by the bad performance of a strategy? Most probably, the selection of a
context is affected by external factors. This question is indeed very interesting and it
is worth being investigated; however, it does not fall under the scope of this book.
There are several recurrent basic principles pertaining to innovations. These
principles are summarized as follows:
• The integrated organizational approach
• The incentives of innovations
• The systematic process to convert an invention into innovation
• Team skills
References 23

• Communications
• Learning and
• Project management.
The above principles are fundamental for the elaboration of innovation process.
It is worth to underline the interdependence relations between learning and the skills
possessed by the teams in relation to innovations. In a group context, individual
members do not have sufficient knowledge but if the ‘sum of knowledge’ a group
has collectively is larger than the knowledge available if team members were acting
as separate individuals, then the team will become a successful carrier of innova-
tion. A team’s capacity to accumulate knowledge through effective learning meth-
ods constitutes a significant criterion for the long term success of the team, given
that the usual structure of teams is subject to changes.
In general, viewing innovation as a process and not as a specific event or result is
attributed to Peter Drucker (Cooper 1998; Drejer 2002). Control over the process of
innovations is named also management of innovations. Management of innovations
is determined by five basic activities (Drejer 2002):
• Technological integration: The technological integration regards the relation
between technologies and the company’s products.
• Process of innovations: The process of innovations involves functions creating
and preserving innovations.
• Strategic planning: Strategic planning refers to planning of innovation-related
technologies.
• Organizational change: Organizational change encompasses the disruptive
nature of innovations related to requirements for knowledge and skills, new mar-
kets, new employees, etc.
• Development of an enterprise: The development of an enterprise refers to the
creation of new markets for the products of innovations.
It is worthwhile stressing that innovations can lead to development of enterprises
but also be driven by it. Said interaction is probably explained by the fact that during
the initial stages, innovations by nature cause a disruptive change to organizations,
e.g. creating new markets. As long as an enterprise evolves, the influence of
technology becomes apparent.
The stronger competitors become or the more apparent their innovations become,
an increasing and urgent requirement shall emerge for further innovations in order
for the company to preserve its place in the market. As a result, competition drives
the company to application of innovations.
Organizations are influenced by innovations in many ways. Creativity is driven
by competition, change, learning, climate, communications, processes, social inter-
action between individuals and other external factors. Despite the fact the applica-
tion of innovation constitutes an act with a predetermined purpose, uncertainty is its
main attribute (Nelson 1977). This characteristic seems to influence all the guide-
lines exercised on the organization. In this way, as long as creativity leads to innova-
tions, creativity itself is influenced. The influence could be either positive or
24 1 Introduction to Technological Innovation

negative; hence, creativity is altered and strategic plans prove to be ineffective.

Stephen Kaplan (1999) dwells on the four types of discontinuities identified in
Hewlett Packard and clarifies a context that could serve as a guide for managers of
technologies and policy makers, as follows:
Working in HP we discovered four types of discontinuities and elaborated a framework to help
management executives recognize the opportunities to apply discontinuous innovations-i.e. to
investigate the inflow of new revenue and to identify remarkable propositions for upgraded
service to customers. This is the strategic objective that clarifies the new worthy business
possibilities that could substantially contribute to growth.
The context deals with the case of an organization wishing to explore new opportunities
of discontinuous innovations and is based on three assumptions. Firstly, we believe that
discontinuous innovations involve the creation of a new value for customers within existing
or new markets. Secondly, seeking for discontinuous innovations, organizations create a
new space for competition or modify the existing methods to deliver value to consumers.
The third and last assumption regards the model’s structure itself.

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Chapter 2
Introduction to Innovation Management

2.1 Innovation Management Through Management

of Knowledge and Education

‘Until philosophers become kings or until kings and princes in this world acquire the spirit
and power of philosophy .....states shall not be relieved from their demons-I believe the
same is true for human race…’
[Plato]

Many authors have dwelled on the idea that innovation can become object of ‘man-
agement’. For example, Burns and Stalker (1961) authored the book ‘Management
of Innovation’ partly based on a previous study of a research and development labo-
ratory of a local company.
In contrast to the past when innovations in enterprises appeared in a random and
disorganized way, in the post-war period emphasis was placed on the idea that inno-
vations could be systematized, even ‘planned’. The development of organizational
studies (e.g. Cyert and March 1963) and the study on management function
(e.g. Barnard 1938; Drucker 1999) laid new foundations for the understanding of
innovation process.
Therefore, a basis was created for a new sector of specialization and knowledge
in technology and organizations. However, managers do not fully or duly compre-
hend the management of knowledge and in many cases, professionals and academ-
ics, when talking about knowledge management; they practically mean management
of information and technologies.
In reality, knowledge management has to do more with the art of thoroughly
understanding the potentials of an organizational context and with the evaluation,
influence and the disclosure of tacit know how (Carayannis 2000).
A research by McKinsey in 40 companies in Europe, Japan and the USA showed
that many executives believe that knowledge management starts and ends with the
creation of specialized technological information systems.

© Springer International Publishing Switzerland 2015 27

E.G. Carayannis et al., Innovation and Entrepreneurship, Innovation,
Technology, and Knowledge Management, DOI 10.1007/978-3-319-11242-8_2
28 2 Introduction to Innovation Management

Some companies even take a step further to connect all information available and
construct models that would enhance performance thanks to improved processes,
products and their relations to consumers. These companies realize that the actual
knowledge requires companies themselves to develop ways whereby their employ-
ees shall understand previous connections, advancing beyond infrastructure touch-
ing upon all aspects of an enterprise (Hauschild et al. 2001).

2.1.1 The Role of Knowledge in Innovation

Given that innovations do not constitute a purely technological project, the knowl-
edge required for their successful management cannot be solely covered by science
and engineering. Innovations can be divided in two sectors:
• In technical knowledge and transfer of knowledge (Bohn 1994) and
• In learning regarding administrative methods offered for technology manage-
ment (Jelinek 1979).
An organization needs access to two kinds of knowledge, i.e. technical and
administrative in order to enhance systematic development of innovations.
For the benefit of the entire organization and not only of isolated individuals,
learning and knowledge should be accessible not only by the one who discovered
them but also by all parties involved, who should be in a position to use them, apply
them, modify and adopt them. Learning needs to be generalized in an organization, if
it wants to be real and not be downgraded to a ‘simple adjustment’. It needs to make
the transition from a simple reproduction to application, change and improvement.
‘Learning rules’ should be included, changed and adjusted without repeating blindly
older successful methods. Finally, if learning is to include innovations, it should also
include an administrative system for the present and the future (Jelinek 1979).
The most demanding point in research regarding knowledge application in inno-
vations is to sort out significant and information management-related information
from the opposite. The attributes of knowledge involved in the process of innova-
tions may present significant diversifications. Part of this knowledge will be clear
and shall take the form of technical documents, drafts or other documents, it shall
be codified and easy to determine; another part of knowledge shall be tacit, embed-
ded in the established organizational projects and can only be carried over through
socialization and cooperation. Therefore, the successful management of innovations
may clearly benefit from the systematic approach to knowledge management.
Knowledge, learning and their context of development constitute classical defini-
tions having been redefined in the context of information technology progress and
knowledge management. Knowledge management may be considered as a socio-
technical system made of tacit and clear business policies and attitudes. Said atti-
tudes and policies are facilitated through integration of information technology
tools, business processes as well as of the intellectual, human and social capital. The
capacity of individuals and of an organization to think rationally, to learn, express
2.1 Innovation Management Through Management of Knowledge and Education 29

themselves/itself and have a vision on collective or individual basis can be consid-

ered as a capacity of management and cognition.
Organizational memory, intelligence and mindset are important and decisive fac-
tors for cognitive processes both at individual and organizational level. According
to our opinion, the managerial and organizational part of cognitive process and
knowledge management drive to superior levels of knowledge and meta-knowledge.
What is knowledge really and how is it acquired?

2.1.2 Knowledge/Meta-Knowledge

‘The biggest ancient-Greek breakthrough was the removal of explanations on what was
happening to the world by the field of religion and magic and the creation of a new kind of
explanations, i.e. rational ones being the object of a new kind of research.’
[Peter Checkland 1981, p. 32]

Many definitions have been advocated at times for knowledge and organizational
knowledge. Beckman (1998) grouped a raft of remarks and drew up some useful
definitions related to knowledge and organizational knowledge:
• Knowledge is organized information that can be utilized for problem solving
(Carayannis 1999).
• Knowledge is information that has been organized and analyzed in order to be
understood and utilized for problem solving or decision making (Turban 1992).
• Knowledge includes direct and indirect restrictions imposed on objects (units),
functions and relations in combination with specific and general heuristic and
reasoning processes that take part in the model under formation (Sowa 1999).
• Knowledge consists of truths and convictions, estimates and concepts, judg-
ments and expectations, methodologies and know-how (Wiig 1993).
• Knowledge groups perceptions, experiences and processes considered sound
and true, that direct thought, behavior and human communication (van der Spek
and Spijkervet 1997).
• Knowledge is a rational thought on information in order to guide the implemen-
tation of projects, problem solving and decision making aimed at performance,
learning and teaching (Beckman 1997).
• Organizational knowledge is the collective sum of human-centered assets,
intellectual property assets, infrastructure assets and market assets (Brookings
1996).
• Organizational knowledge is processed information included in programs
and processes facilitating action. Such knowledge has been acquired through
systems, processes, products, regulations and the organizational context
(Myers 1996).
Beckman (1997) suggests the method of Hierarchization of Knowledge that
involves five levels and where knowledge can climb upwards from lower levels
toward a superior level.
30 2 Introduction to Innovation Management

Nonaka and Takeuchi (1995) classified accessibility to knowledge in two

categories, in inherent and clear, while Beckman (1997) identifies the following
three stages of accessibility: tacit, implicit and explicit:
• Tacit (human mind, organization)—possibility of indirect access, always with
difficulty, through knowledge elicitation and behavior observation.
• Implicit (human mind, organization)—accessible through querying and discus-
sion, but informal knowledge must first be located and then communicated.
• Explicit (documents, computer)—directly accessible, documented into formal
knowledge sources that are often well-organized.

2.1.3 Knowledge–Learning Relation

‘Even if the first step in the course of a historic invention is the result of a conscientious
decision, in this case as in any other case, the spontaneous idea-the instinct or the intuition-
does play a significant role. In other words, the unconscious does take part, whose contri-
bution is decisive. Therefore, conscious effort is not exclusively responsible for the result.
The unconscious gets into the picture at some point with its almost invisible objectives and
its intentions. Reason on its own is not enough’
[Carl Jung 1958]

First researches on organizational learning focused more on the effort to describe

the learning process in the organizational-business environment without necessarily
recognizing the regulatory role of learning (Cyert and March 1963; Nelson and
Winter 1982; Levitt and March 1988). Learning, as an activity in an organization, in
a business corresponds to the unification of individual efforts and of the interaction
relationships in groups.
Organizational learning, therefore, is converted into a process governing the rela-
tions among individuals through mechanisms, such as disclosure of information,
communication and the cognitive environment. Some authors utilize the version of
‘cognitive learning’, highlighting thus the actions to identify the pathways that
would improve organizational learning through certain systems (Senge 1990;
Ciborra and Schneider 1992). Based on this tenet, companies with better organiza-
tional learning are expected to have a better performance in the market compared to
the rest of companies.
Other authors stress that learning is likely to mitigate an organization’s perfor-
mance. Huber (1991) reports that ‘units may learn to do something right in the
wrong way or may learn to do something wrong in the right way’.
Ineffective or unsuitable learning processes may deprive a company from its
competitive advantage, if they contribute to the erroneous connection between man-
agement activities and company performance (Levitt and March 1988). Even the
effective learning processes may be undermined by the market changes and the
environmental conditions that render them non relevant or in the worst case dwindle
the company’s performance.
2.1 Innovation Management Through Management of Knowledge and Education 31

Learning activities, therefore, may turn into basic disadvantages from basic
advantages. It is also probable that technological learning shall eliminate competi-
tion, inflict a short term blow on the organization’s competitiveness but yield a higher
performance long term, if the market adapts to new technologies (Christensen 1997).
In this way, there is no linear relation between learning and an organization’s perfor-
mance. What is more likely happening is that improvement of performance depends
on quality (and not on quantity) of cognitive learning.

2.1.3.1 Types of Learning

‘Computo, ergo sum. Particeps sum, ergo sum. Cogito, ergo sum.’
[René Descartes]

We believe there are three levels of learning, taking the previous theory into consid-
eration, regarding the impact of learning on formulating a company’s potential and
the change of its mode of operation (Carayannis 1994a, b, c; Carayannis and
Kassicieh 1996). Three degrees of technological learning match this hierarchy:
• Functional learning
• Tactical learning
• Strategic learning
In functional learning, the accumulation of experience and learning takes place
by learning new things (Carayannis 1994b). It is a short term to mid-term perception
of learning that focuses on new or improved capabilities on the basis of knowledge
offered by the organization. This type of learning contributes to managing basic
organizational capacities, (Prahalad and Hamel 1990), competition strategies
(Porter 1991) and resources allocation (Andrews et al. 1965).
In tactical learning we learn new tactics to apply the already accumulated expe-
rience and learning processes (we redefine the basic rules and the contingencies
involved in our short term functional context): we create new models for eventual
unexpected events pertaining to decision making, by modifying or improving
the rules for decision making (Carayannis 1994b). This is the means to lead to a
long term perception of learning, ending up in the company’s re-establishment and
re-planning. Tactical learning facilitates companies in exploring new opportunities
for the organization in a more performing and effective way and to reinforce or
combine the already existing basic capacities, creating innovative concepts for more
competitive advantages.
With strategic learning we develop and learn (internalization and institutional-
ization) novel views in relation to the enterprise’s–organization’s functional
environment or the view of the world (Hedberg 1981) and we therefore assimilate
new learning strategies (Cole 1989). We redefine the fundamental characteristics
(rules and contingencies) taken into account for decision making or the fundamental
characteristics of our functional context. It is a very long term concept on learning
that focuses on the reformulation of ‘tools’ (methods and processes) used for an
32 2 Introduction to Innovation Management

organization’s reestablishment and re-planning (Bartunek 1987; Bateson 1972,

1991; von Krogh and Vicari 1993; Nielsen 1993). The strategic learning degree
involves the broadening and review of concepts regarding the limits and capabilities
of a company’s strategic environment. Strategic learning contributes to rapid prog-
ress towards a new competitive environment and to ‘increasing the learning curve
gradient and rate through improved and innovative projects adopted by organiza-
tions’ (Carayannis 1994b, pp. 582–583). The result is what other authors call
‘change of the rules of the game’ (Brandenburger and Nalebuff 1996; D’Aveni
1994) or the ‘creation of new ecologies for the enterprises’ (Moore 1996). The com-
pany paves a new way towards a conceptual formulation of its operations, its market
and the entire competitive environment, acquiring a greater strategic flexibility not
only vis-à-vis the course of its works but also regarding the influence and mentoring
of its remaining operations.

2.1.3.2 Learning/Meta-Learning

Learning is the first process used by companies to modify their capacities in order to
better respond to the environment. In the case of learning, as it happens with the
majority of basic concepts, there is no absolute matching as to what is being learned,
how it happens and how it is being managed. In finance, learning refers to quantita-
tive and measurable improvements in operations adding value. For the management,
learning is the source of ‘sustainable competitive performance’ (Dodgson 1993)
while in the literature on innovations, learning is considered a source of ‘compara-
tive innovative performance’ (Dodgson 1993). According to Doz (1996), inside an
organization there is a distinction between cognitive learning and behavioral learn-
ing. The process of cognitive learning arises in case the members of a company real-
ize the need for change under certain conditions, while behavioral learning appears
when the company’s cognitive projects indeed change (application of cognitive
learning). Broadening even more the concept of learning, we could say that the orga-
nizational learning involves a new form of behavior being reproduced in the entire
company, driving towards a broad change within the organization (Teece et al. 1997).

2.1.3.3 Knowledge Management

Knowledge management is defined as the ‘systematic, clear and premeditated cre-

ation, renewal and knowledge application in order to enhance as much as possible
the knowledge-related company’s performance and the revenues derived from the
elements of knowledge’ (Wiig 1993). Sveiby (1998) defines knowledge management
as ‘the art of creating value from an organization’s intangible assets’. Sveiby (1998)
distinguishes two basic kinds of activities regarding knowledge management:
• The first one refers to knowledge management as management of information and
• The second kind as management of people.
2.1 Innovation Management Through Management of Knowledge and Education 33

2.1.3.4 Cognitive/Meta-Cognitive Process

The cognitive capacity is people’s ability to estimate, interpret and raise arguments
on environmental, conceptual or organizational stimuli and the meta-cognitive
capacity is the ability to ‘make thought on their thoughts, just like meta-learning
means learning things related to or for learning’ (Carayannis 1994a).
The processes for the creation, transfer, selection, acquisition, storage and recov-
ery of knowledge could be dealt with from an information technology (Shannon and
Weaver 1949), meta-cognitive (Simon 1969; Sternberg and Frensch 1991; Halpern
1989) and linguistic perspective (Chomsky 1993).
In this context, the person who solves human problems and the manager of tech-
nologies is considered equally technician and worker (Schon 1983), at the same
time ‘synthetic’ and ‘divisive’ (Mintzberg 1989). Persons, groups and organizations
are based on multi-level learning and reverse learning (Carayannis 1992, 1993,
1994a, b, c; Dodgson 1993) to create, preserve and increase the ability of groups,
persons and organizations to transfer and assimilate embedded and non-embedded
(von Hippel 1988) technologies in the form of artifacts, convictions and evaluation
programs (Garud and Rappa 1994) or in the form of inherent and explicit knowl-
edge (Polanyi 1958, 1966; Nonaka 1988, 1994). It is also very important to under-
stand that individual and organizational learning and knowledge are entities that
complete and reinforce each other through the organizational memory. Moreover,
the learning process should be supported by an accurate and specific organizational
memory in order to create, preserve and constantly renew the company’s stock in
skills and capabilities: In case of an organization that is about to learn something
new, memory allocation, memory accuracy and the conditions it is used constitute
the basic characteristics of the organization (Weick 1979) (see Carayannis 1994b,
2001). It is important to remember that ‘knowledge does not develop in a linear way,
by collecting data and applying a method of assumptions and conclusions but it
resembles more a spiral line with a rising course so that each time we reassess a
previous position or opinion, it is done under a new perspective’ (Carayannis
1994b). This conceptual perception lays the ground for the development of an
Organizational Cognition Spiral—OCS (Carayannis 1998a, b, c), as part of a model
to manage organizational knowledge. Intuition, defined by Weick as ‘inherent
expertise’, relates to all these concepts (Davenport and Prusak 1998, p. 11)
combined with meta-knowledge, which is knowledge (consciousness) over the
knowledge one possesses (Carayannis 1998a, b, c).

2.1.4 The Model of Organizational Cognition Spiral

The model being suggested contributes to the comprehension of basic issues

involved in organizational knowledge management. The model identifies different
knowledge situations constituting the two-dimensional function: of knowledge (K)
and of meta-knowledge (MK), as defined above, and includes successive ‘cycles of
34 2 Introduction to Innovation Management

Fig. 2.1 Knowledge cycles (Carayannis, GWU lectures, 2000–2009)

knowledge’ a person or organization can go through and pass from four stages of
knowledge or ignorance. As we shift from one cycle to the next and to the following
one, the overall level of knowledge and meta-knowledge increases (see Fig. 2.1)
(Carayannis 1998a, b, c).
Usually, but not always, according to Tables 2.1 and 2.2 (end of paragraph), tran-
sition takes place from ignorance of ignorance (you do not know what you ignore)
to knowledge of ignorance (you know what you do not know), to knowledge of
Table 2.1 Process and technology-available knowledge conversions
Conversion Procedures available Available technologies
A (III->I) From Problem solving Decision-making tools
knowledge of Internally motivated knowledge discovery Interactive modeling
Ignorance to
Active learning
knowledge from
knowledge Focus on efficiency
B (IV->III) Cooperation procedures Groupware
From ignorance Internally motivated discovery of after-knowledge GDSS
of ignorance to
Value elicitation Videoconfereding
knowledge of
ignorance Target recognition Brainstorming
Facilitation
Active learning
Focus on efficiency
C (IV->II) Osmosis knowledge Information infrastructure
From ignorance Externally motivated knowledge discovery Access mechanisms—networks
of ignorance to
Knowledge creation LANs
ignorance of
knowledge Passive learning WANs
Focus on efficiency Internet and Intranet
Circumvention the paradox of knowledge Data sources
and productivity of information technology
Data storage
Distributed databases
D (II->I) From Protection of intellectual property Intelligent Agent Technologies
ignorance of Outdoor motivated discovery of after-knowledge Collaborative filters
knowledge to
Management of intellectual capital Data mining
knowledge of
knowledge Passive learning Neural networks
Focus on efficiency
E (III->II) Implicit learning from top to bottom Tools for decision making for
From technological infrastructure
knowledge of Internalization of knowledge/vertical planning Access mechanisms: networks
ignorance to
Externally and internally motivated emergence LANs
ignorance of
and crystallization of a theoretical example
knowledge
Transfer of focus from efficiency to effectiveness WANs
Circumvention the paradox of knowledge and Internet and Intranet
productivity, technology, information
Data sources
Data storage
Distributed databases
Groupware
GDSS
Videoconfereding
Brainstorming
F (II->III) Explicit learning from the bottom up Groupware
From ignorance Obsolescence of knowledge/substitution GDSS
of knowledge to
Externally and internally motivated theoretical Videoconfereding
knowledge of
examples shifts change sign reference standards
ignorance
(“gestalt switches”)
Cleavage of the paradox of knowledge and Brainstorming
productivity of information technology
Transfer of focus from efficiency to effectiveness Learning capable Intelligent
agents or Interfaces
36 2 Introduction to Innovation Management

Table 2.2 Content and technology-enabled knowledge states

State Enabling content Enabling technologies
State I: K, MK • Internally-driven knowledge • Decision support tools
Awareness of discovery • Interactive modeling
awareness • Active learning
• Focus on effectiveness
State II: K, MK • Collaborative processes • Groupware
Ignorance of • Internally-driven meta- • GDSS
awareness knowledge discovery • Videoconferencing
• Value elicitation • Brainstorming
• Objectives identification
• Facilitation
• Active learning
• Focus on effectiveness
Stage III: K, MK • Knowledge osmosis • Information infrastructure
Awareness of • Externally-driven knowledge • Access mechanisms: networks
ignorance discovery – LANs
• Knowledge creation – WANs
• Passive learning – Internet and intranet
• Focus on efficiency • Data sources
• Bypassing of knowledge & IT – Data warehouses
productivity paradox – Distributed databases
Stage IV: K, MK • Individual privacy protection • Intelligent Agent Technologies
Awareness of • Externally-driven meta- • Collaborative filters
ignorance knowledge discovery • Data mining
• Intellectual capital management • Neural networks
• Passive learning
• Focus on efficiency
E (III→II) • Top down tacit learning • Tools form making technology
From • Knowledge internalization/ infrastructure decisions
Awareness of routinization • Access mechanisms: networks
ignorance • Externally & internally-driven – LANs
to conceptual paradigm emergence – WANs
Ignorance of and crystallization – Internet and intranet
awareness • Transition of focus from • Data sources
effectiveness to efficiency – Data warehouses
• Bypassing of knowledge & IT – Distributed databases
productivity paradox • Groupware
• GDSS
• Videoconferencing
• Brainstorming
F (II→III) • Bottom up explicit learning • Groupware
From • Knowledge obsolescence/ • GDSS
Ignorance of substitution • Videoconferencing
awareness • Internally & externally-driven • Brainstorming
to conceptual ‘gestalt switches’/ • Learning-capable intelligent
Awareness of paradigm shifts agents or interfaces
ignorance • Transition of focus from
efficiency to effectiveness
• Resolution of knowledge & IT
productivity paradox
2.2 Difference Between Innovation–Invention 37

knowledge (you know what you know: result of research, discovery and learning)
and finally to ignorance of knowledge (you do not know what you know: as a result
of continuing practice, knowledge become inherent (Carayannis 1998a, b, c).
For the sake of simplicity, we assume that the dimensions are at two levels and
represent presence and absence of knowledge and meta-knowledge. Therefore,
the levels of the two dimensions are represented as K/˜K and ΜK/˜ΜK. These
two levels over the two dimensions end up in totally four states of knowledge:
1. ˜ΜK, ˜K (ignorance of ignorance)—[You do not know what you do not know]
2. ΜK, ˜K (knowledge of ignorance)—[You know what you do not know]
3. ΜK, K (knowledge of knowledge)—[You know what you know]
4. ˜ΜK, K (ignorance of knowledge)—[You do not know what you know]
Organizations may sustain any of the above situations including possibly cur-
rent, desirable or intermediate levels. The situations can be represented as follows
(Fig. 2.1).
Knowledge management can be considered as the process of managing transi-
tions between the aforementioned four situations (Carayannis 1998a, b, c).
The revolutionary transformation of knowledge is by nature differential and
thorough (Carayannis 1992, 1993, 1994a, 1994b, 1996, 1997, 1998a, b, c, 1999,
2001, 2002), because it consists of reverse knowledge, knowledge and meta-
learning, differentiates older from new experiences, selects and preserves the use-
ful measures for knowledge and unifies the lessons taught (Carayannis 1998a, b, c).
This process reflects the dynamics of a complex progress, at individual and orga-
nizational level, from the information, knowledge, wisdom and intuition data. In
this way, constantly broadening and increasingly deeper levels of organizational
knowledge (Choo 1998) are attained and quantitative and qualitative modifications
are in place in the stock and flow of knowledge of an organization and individuals.

2.2 Difference Between Innovation–Invention

There is a clear difference between the concepts of invention and innovation. The
famous economist Joseph Schumpeter (1942) was the first to have observed and
defined this difference: the ‘invention’ is the outflow of an applied research, while
‘innovation’ is the successful introduction of an invention in the market as a func-
tional solution (product or service). Scientific discovery is also assessed on the basis
of whether it has contributed to understanding natural phenomena. Due to the fact
that innovation includes specialized knowledge and the latter’s main attribute is its
being a public good, the state enshrines legally the intellectual rights of an inven-
tor–innovator by awarding him/her a patent, safeguarding thus for the benefit of the
inventor–innovator the economic exploitation of the new product in a specific geo-
graphical region and for a specific period of time.
It would be easier to understand innovation as an entrepreneurial process evolving
into a connection with scientific research, learning, market conditions and economy,
38 2 Introduction to Innovation Management

if we take into account the historic examples of inventors who took a step further and
proceeded to the commercial promotion of their inventions, become i.e. innovative
entrepreneurs. Such examples shed light on the true nature of innovation. Until the
end of the nineteenth century, scientists were not generally interested in the practical
application of their discoveries. One of the first scientists who proceeded to the tech-
nological application of his scientific discoveries was Justus Liebig, who, by the
middle of nineteenth century developed the first artificial fertilizer as well as a sig-
nificant meat extract which constituted the only means to preserve animal proteins
until the discovery of the refrigerator in 1880s. Moreover, in 1856 the English scien-
tist Sir William Perkin discovered the first synthetic dye and established later a
chemical industry to economically capitalize on his discovery.
One of the most successful, innovative inventors was the American Thomas Alva
Edison, who managed to be granted exclusive rights over more than 1,000 patents
throughout his life. Three of them were the light bulb, the cinema tape-film of
35 mm and the electric chair. His capacity to innovate, and not simply invent, i.e. his
capacity not only to have ideas but convert them into products being sold successively
in the market, helped to create a large enterprise (General Electric), with its worth
standing at circa 21.6 bn $ in 1920. In other words, Edison understood correctly the
two-way character of innovation requiring mobilization and coordination of two
forces, the technology promise and the market demand.
According to his biographer, Mathew Josephson, Edison had no intention to
dwell on organized research. He was driven to this option because he failed to man-
ufacture electric light that could be practically used. This failure made him more
determined and he decided to work on scientific research systematically. He was
aware of the scientific work conducted previously by other scientists and decided to
work hard to achieve what he wanted. Edison’s contribution to electricity is a very
good example of the ability to convert a commercial opportunity included in an idea
into a practical application. In case of inventing an electric bulb, Edison understood
that without an electrification point, the light bulb would be simply an idea with no
practical value. Therefore, he and his research team began the creation of an elec-
tricity generation and distribution infrastructure, including even the design of
switches, cables and floor lamps. Edison’s contribution proved that innovation is
something more than having new ideas. It is the process whereby new ideas acquire
practical application. Notwithstanding the diverging definitions of innovation as
regards the wording, all of them agree nevertheless that innovation is the elaboration
and exploitation of new ideas and not simply their fabrication and invention. The
interested reader may skim through the specialists of innovation, such as Freeman,
Rothwell & Gardiner, Drucker and M. Porter, Clayton Christensen, and others.
As regards invention in contrast to innovation, some of the most important inven-
tions of the nineteenth century were invented by persons whose name was forgotten.
The names we still remember are the names of entrepreneurs who transformed
inventions into a commercial value. For example, the vacuum cleaner was invented
by J. Murrey Spengler. However, it was W.H. Hoover, leatherwear manufacturer,
who launched it in the market. Similarly, the sewing machine was invented by Elias
Howe in Boston in 1846, who failed to promote it commercially, though he traveled
2.3 Types and Characteristics of Innovation 39

to England for that purpose. Returning to the USA, he found Isaac Singer to have
stolen his patent and having set up a thriving business of sewing machines.
Innovation is therefore the product of the nineteenth century, not of the twentieth
century, while invention has existed since primitive times. The driving force was to
envisage the opportunity to create new industries, such as the electric railway by
Edison. In the twentieth century innovation became the heart of technological effort
through systematic organization and institutionalization of applied research in labo-
ratories of Research and Technological Development.

2.3 Types and Characteristics of Innovation

2.3.1 Types of Technological (and Non-technological)

Innovation

The types of innovation vary depending on the object, the sector it refers to, the
scope or its intensity. These types are not independent one from the other. There
exist though some recognizable attributes, without having dividing lines. The types
of innovation are classified in three groups.

Innovation
Types

According to object According to sector According to intensity

a) Product innovation a) Organizational innovation a) Incremental innovation

b) Process innovation b) Technological innovation b) Radical innovation

In the first group the classification is based on the object innovation refers to:
• Product or Service Innovation and Process Innovation.
The Product or Service Innovation refers to the case when an enterprise intro-
duces a new product in the market or provides a new service. Process Innovation is
in place when an enterprise introduces new elements in its production process or its
operation, being used for the production of a product or the provision of a process.
In some cases the dividing line between these two types is not clear. Separation
depends on the organization involved. The emphasis placed by companies on
every type of innovation differs depending on the company’s stage of development.
In the first stages, when the company is small, it adopts product innovations mainly.
As the company grows and becomes more complex, it adopts process innovations
too. The development of new products is a risky venture as it may inject big
profits in an enterprise, if the venture succeeds, but it could also lead to failure.
40 2 Introduction to Innovation Management

On the contrary, process innovations, whereby higher production volume, low

production cost and higher sales are sought after, are less radical, hence entailing
lower risk for the enterprises adopting them.
In the second group the classification is based on the sector innovation refers to:
• Administrative or Organizational Innovation and Technological Innovation.
The Administrative or Organizational Innovation appears in the administra-
tion sector and affects the organizational system of an enterprise, consisting of
business executives and the relations between them. In other words, the
Administrative Innovation is the introduction of a new administrative system or a
new administrative process; it does not introduce a new product or service but influ-
ences indirectly their introduction or the production process thereof.
The Technological Innovation pertains to the technological sectors of an enter-
prise, comprising the equipment and the procedures for raw materials and informa-
tion transformation into products or services. Technological Innovation refers to the
creation, improvement and expansion of the procedures sustained by the products.
Technological innovation may refer to the adoption of a new idea relating to a new
product or service, or the introduction of new elements in production processes or
service provision of an enterprise.
Administrative Innovations are primarily adopted by large enterprises with more
complex structures. These enterprises face bigger problems in auditing and coordi-
nating various departments and try to solve such problems through administrative
innovations. However, it seems that an increasing number of small enterprises
implement Technological Innovations, striving in this way to gain a competitive
advantage.
In the third group the classification is based on the intensity and scope of
innovation:
• Incremental Innovation and Radical Innovation.
Incremental Innovation is the one leading to a relatively small deviation from
current practices. It is introduced to improve old products or procedures, without
intervening to the existing structure and strategy of the enterprise. Radical
Innovation brings about fundamental changes in the activities of an enterprise and
expresses a significant deviation from current practices. It gives momentum to new
business activities, strategies and structures and introduces totally new products.
On average, Radical Innovations are adopted less frequently compared to gradual
innovations. They constitute a bigger challenge for the existing structure, as regards
determination of executives’ duties and cause strong reactions upon the application
thereof. They seem more complicated to the members of an enterprise because they
are more original and they provoke a higher degree of uncertainty for their condi-
tions of development and application. Usually large enterprises with higher success
rates than smaller ones introduce Radical Innovations because the type of these inno-
vations requires technical knowledge and stock of resources. Moreover, large enter-
prises possess the financial resources capable to absorb the largest part of the cost, in
the event of failure and for this reason large enterprises act in a more decisive way.
2.3 Types and Characteristics of Innovation 41

2.3.2 Characteristics of Innovation

The characteristics of innovation are classified in three axes.

1. Product Axis: Product innovation is in place when a new or improved product is
launched in the market.
The parameters examined under this axis are the following:
• Market demand: Demand and acceptance of the product in the market is one of
the key criteria for product innovation. It is directly linked to the company’s
market share and to profit margin.
• Level of resonance: It is the level of target-customers locally, nationally or inter-
nationally; it is the product acceptance and market penetration yardstick.
• Optimal use of existing condition: It is examined whether the existing technol-
ogy is used in an optimal way relevant to the product and its production. It relates
to updating procedures and technology forecast.
• Price/Value: The price and value of a product is compared with the prices of
corresponding competitive products in the market.
• Compliance with the regulations: Compliance with the safety, health, environ-
mental regulations, etc. It is a characteristic of innovation because compliance with
the regulations could often lead to qualitative innovative changes on the product.
• Originality: It is examined whether the product is a new solution or encom-
passes changes compared to competitive products. These changes may concern
the product, its package, the way it is distributed or its use. It is also a way to
evaluate an enterprise’s approach to innovation.
• Offer of improvements: The product as an evolution of an existing technology,
in the sense of using new materials, the existence of new functions, the use of the
product in new applications. It defines whether the product brings about changes
on the basic design or its architecture.
• Coverage of operational needs: Coverage rate of specific operational needs,
customer needs, including over-coverage offering additional functions not fully
determined by customer demands. It relates to customer requirements analysis.
• Aesthetic: The product’s outward appeal is a criterion of innovation often under-
estimated; it constitutes though a key success factor.
• Adherence to intellectual property rules.
2. Process Axis: Process innovation is the introduction of new processes in product
development or the improvement thereof.
The parameters examined under this axis are the following:
• Market research: Market research may disclose alternative solutions regarding
design, price, distribution and product promotion and offers an estimate of prod-
uct acceptance and image in the market.
• Connection to target-customers: Frequency of contact between the company
and target-customers at local, national or international level. The main objective
is to establish a long lasting relation mainly with large customers.
42 2 Introduction to Innovation Management

• Access to new technology: Frequency of the company’s contact with the current
technological evolutions regarding production of product. It relates directly with
departments of R&D, design, cooperation with technological bodies, participation
in exhibitions, etc.
• Costing Methodology: Costing methodology in all stages of the product devel-
opment process. Analysis and accurate costing methodology is required to cut
the total product production cost.
• Compliance with the regulations: Compliance of the product development
process with the safety, health and environmental regulations, in parallel with the
procedures to verify all the above. Compliance of the development process with
the regulations often contributes to qualitative upgrading of the product.
• Technique of ideas development: The existence of specific techniques and
approaches for the elaboration of new ideas is examined; such ideas affect sig-
nificantly the development of a successful innovative product.
• Improvement techniques: The effort and the techniques to integrate new tech-
nologies and uses in the product are assessed.
• Emphasis on fulfilling operational needs: Focus of product development pro-
cess on the specific operational need the product addresses. It involves conver-
sion of requirements to product specifications and relates to the way the trade
mark participates in product development process.
• Focus on aesthetics in the design: The success of products using a fixed technol-
ogy and with fixed target-customers depends directly on their attractiveness and
their visual diversification vis-à-vis competitive products. The aesthetic aspect of
a product in combination with the analysis of its ergonomy is one of the main
targets of industrial design. The use of systems and design engineers is assessed.
• Formal procedures to protect copyright: It is examined whether the required
actions are taken to protect copyright. It is assessed whether an enterprise is
geared towards protecting patents and designs and whether the above methodol-
ogy constitutes its policy.
3. Management (organization) Axis: The introduction of changes in administration and
organization constitutes the administrative innovation that completes the first axis.
The parameters examined under this axis are the following:
• Feasibility study: It is the base (technical, economic, commercial) to decide
upon an investment.
• Formal procedures to ensure communication with target-customers: Such
procedures may include participation in exhibitions, sample distribution, meet-
ings with groups of customers, etc.
• Formal procedures to apply the best technology: One of the key indications of
innovation is systematic follow up of current technological evolution, the assess-
ment of the technological level of competitors, the identification of new tech-
nologies and the correct selection of the best technology.
• Cost control: Control is a systematic review process applied during the design
phase, in order to cut production cost, preserving at the same time the value and
References 43

the required operation specifications (value/price) and ensuring the product’s

sustainability and competitive price.
• Quality control: Formal control procedures during the design phase that include
use of methods to analyze and improve innovation process quality and processes
to safeguard rules applying to date.
• Organizational culture: Emphasis of organizational culture on innovation. It
has been evidenced that organizational culture relates directly to a company’s
innovativeness. Some elements of organizational culture placing emphasis on
innovation is the encouragement to create new ideas, the clarification of the
enterprise’s innovation policy to all employees, the determination of perfor-
mance measurement systems, personnel training etc.
• Quantitative controls with criteria to assess improvement of technology,
new materials, functions and uses: Introduction of controls with quantitative
data and minimum acceptance values to assess improvement of technology, new
materials, functions and uses. Processes for the integration and evaluation of new
technologies and methods by the company.
• Quantitative controls with criteria on the satisfaction rate of functional
needs: Introduction of controls with quantitative data and minimum acceptance
values to fulfill specific functional needs.
• Marketing and quality control processes for the aesthetic aspect of the prod-
uct: Introduction of marketing and quality control processes to assess and ensure
good product aesthetic appeal. It relates directly to production and testing of
originalities.
• Formal control to protect copyright: Formal control procedures to protect
copyright are examined.

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Chapter 3
Innovation and Competitiveness: Case Study

3.1 Introduction

The foregoing analysis in the previous chapters of the book demonstrated that inno-
vation constitutes the foundation and driver of competitiveness worldwide. Starting
from its definition and based on a broad raft of experiences and results, innovation
allows the addition of higher added value in a way that materially prevails constitut-
ing probably exclusivity (disruptive and discontinuous innovations).
For a better comprehension of all the above, it would be wise to quote a case
study, for the XEROX company, where promotion and use of innovation as a recipe
of corporate success and profitability has gone through a historic path. At the same
time it is also interesting and enlightening to see the failure by XEROX in many
occasions to commercially capitalize on the technological invention and innovation
for various reasons ranging from lack of imagination or/and courage on behalf of
corporate leadership up to dysfunctional corporate traditions and mindsets.
A critical issue is the presence or absence of ability and readiness for
technological learning particularly at higher levels (learning new ways of learning),
(Carayannis 1994a, b, c).

3.2 Innovation-Case Study ΧEROX

3.2.1 XEROX Background and History

In the last years many changes have been observed in what we call old and what we
call new economy. The old, industry-based economy has been traditionally charac-
terized by economies of scale whereas the new knowledge-based economy is con-
sidered as the economy of networks (Shapiro and Varian 1999). The shift from the
old to the new economy could be described as a change of technological paradigm.

© Springer International Publishing Switzerland 2015 47

E.G. Carayannis et al., Innovation and Entrepreneurship, Innovation,
Technology, and Knowledge Management, DOI 10.1007/978-3-319-11242-8_3
48 3 Innovation and Competitiveness: Case Study

According to Kuhn, a paradigm is defined as ‘an object for further articulation and
specification under new and more stringent conditions’ 1 (Kuhn 1962). According
to Moore, the traditional old economy is defined as the economy being developed
against the competition, following a victory–defeat scenario (Moore 1996). The
new economy paradigm is defined as the creation of a market or the co-evolution,
according to a victory–victory scenario.
XEROX numbers many successes and failures in its history with regard to inno-
vation. The successes are obvious at present in the office environment. Photocopy
machineries, laser printers and network services are all around us, due to XEROX
successful innovation. It is not only office equipment that made XEROX a success.
Service provision (maintenance of photocopy machines) and consumables (ink car-
tridges, paper etc.) is very successful-similarly to support services and document
processing services (solutions). XEROX innovations multiply; according to data,
more than 7,000 active patents belong to its intellectual property. However, in the
course of time, there were some unsuccessful innovations too.
The invention of a personal computer with a graphic imaging environment, a
desktop, a mouse, Ethernet and the first document processor WYSIWYG has never
been a XEROX innovation. The same is true for the first laser printer. In both cases,
XEROX invented but did not innovate. It took the control of other companies and
acquired their inventions to reach the stage of innovation. There are, however, three
basic questions raised:
• What criteria drove to success?
• What criteria drove to failure?
• What are the lessons to be drawn?
These are very important questions. The answers could help us define the criteria
of success, allowing for the elaboration of methodologies which would enable the
creation and preservation of better innovation practices. When studying innovation,
it is better to start analyzing successes and failures. This way of analysis is followed
below for the example of innovation in Xerox.
On October 22, 1938, in Astoria, a suburb of New York City, Chester Carlson
invented what was later called a photocopy. He considered the photocopy a revolu-
tion in the evolution of office but later he would realize that people did not view this
invention in the same mood as he did. Carlson, born in 1906 and during the first
steps of his career, worked as a pressman assistant; he even published a small news-
paper in his hometown.
This early experience impressed him and particularly his difficulty to place
words on paper and share the knowledge. He later obtained a physics diploma from
the Institute of Technology of California and began to work as a researcher engineer
at Bell laboratories. In an era of work slowdown, he obtained a Law diploma that led
him to a second career as private practicing lawyer. As a lawyer he often faced the
problem of not having enough carbon papers.
The only alternatives were to use an accurate photographic processing or to try
broad patent applications. In his free time, he explored alternative technologies finding
finally the study by the Hungarian physicist Paul Selenyi on photoconductivity.
He made experiments in his kitchen, copying finally the image “10-22-38 ASTORIA”
3.2 Innovation-Case Study ΧEROX 49

on a tin plate coated with sulfur. He finally concluded that innovation was not an easy
process. He looked for a company that would be interested in further financing a
research on his invention. For 10 years he was not successful at all.
The market was not ready for alternative solutions—the common view that pre-
vailed was that current technology, the photocopy carbons, were sufficient and there
was no need for a new technology. In 1944, the Battelle Memorial Institute, a non-
profit research institute, was interested in helping Carlson to further develop his
invention. In Battelle times, selenium was introduced as an improved photoconduc-
tor and a shade of dry ink was developed. Finally, in 1947, the company Haloid, a
photographic paper manufacturer, obtained a license to manufacture a photocopies
machine. In a year’s time, the first Xerox photocopy machines began operating,
heralding the era of photocopy.
The first photocopy machine had a complex operation but found a place in the
production of satisfactory mechanisms with the method of printing negative film.
We should remember that the printing technology at that time was with ‘a printing
press’, printing separately images of cast metal. This was a very costly procedure.
Finally, the method of negative film was utilized in printing, in cheap printing
environments.
Up until 1959, Haloid improved the equipment and circulated the copy machine
#914—the first real photocopy office machine. #914 was a revolutionary innova-
tion. The competitors, the 3 M Thermo-Fax polygraph by the company AB Dick and
the Kodak Verifax were outstripped in a relatively short period of time.
The machine #914 was so successful that spearheaded technology and dominated
the market up until 1972.
The photocopy was discovered in 1938, but it was only in 1959 that the initial
discovery was applied and became an innovation. The 19-year journey from discov-
ery to innovation was wasted in finding a financial partner to further develop the
idea (1938–1947) and later in trying to determine a market (1948–1959). From
the ‘30s to the ‘50s, the office technology was characterized by the carbon paper and
the upcoming offset printing method.
The carbon paper allowed for the copying of a document in real time in probably
more than 8 copies but the cost for 8–500 copies was prohibitive. What Chester
Carlson and Haloid initially found in the market research was that there was no need
for innovation. The challenge for Haloid was to develop a market.
The first reproduction machine of copies through the photocopy was presented in
1949. The market gained was in between the developing offset printing technology.
In particular, the first photocopy machine by Xerox fixed as direct target to manu-
facture document reproduction mechanisms with the offset method (conversion).
The mechanisms would be used successively in the reproduction process of identi-
cal documents, making therefore photocopies. The copies’ creation mechanism by
Xerox for the reproduction with the offset method was expensive and complex to
operate and soon would be replaced by another one, based on photography and
being less costly. As long as Haloid Company was being focused again on
substituting the carbon paper technology, it fared well with the introduction in 1959
of the photocopy machine #914. This combination of market pull and technology
push would generate revenue and profit in the ‘70s. Since the early days of Haloid
50 3 Innovation and Competitiveness: Case Study

unregulated innovation, Xerox has elaborated a culture for innovation organization.

At the same time, in the organizational chart of Xerox, the Innovation Group refers
directly to the chief executive officer. This stresses the primordial role of innovation
for an organization.
Xerox kept on innovating throughout its history although it was not always suc-
cessful. In 1973 the first desktop computer was presented driving the revolution of
PCs. Xerox, due to its marketing strategies, to be discussed further down, did not
profit from this development. For a second time in 1977, it developed the laser
printer but did not move quickly to dominate the early laser printer market, as did
the competitive company Hewlett-Packard.
Xerox corrected its innovation strategy when it introduced in 1990 the black-
and-white high intensity printer system, DocuTech, creating thus a digital revolu-
tion in placing words on a piece of paper. Later in 2002, it introduced iGen3, a
colored version of DocuTech technology, hoping that this would mark the launch of
another revolution, that of digital color, and would bring Xerox the economic reward
of innovation.
To fully understand Xerox, we should have a picture of the entire raft of products
and services and the market share it holds. Therefore, the two main categories
-products and services could be classified further (see Table 3.1):
– The products encompass office maintenance, production, equipment and
– The required support services and
– The services consist in resources, reverse engineering process, solutions
– (embedded services) and software applications.
It is interesting to underline that searching for products and services on a
diachronic basis revealed some interesting things, some of them being the heart of
Xerox innovation portfolio—electronic typewriters, working mechanisms and
computers. These do not figure in the current portfolio anymore.

Table 3.1 Innovation measures—hard vs soft

3.2 Innovation-Case Study ΧEROX 51

Table 3.2 XEROX innovation timeline (Carayannis et al 2003)

Xerox sells its products through various channels-in various ways including
direct selling, telemarketing, after sales services, agencies, donations and through
the web. These modes of selling are managed by various organizations—see the
table below. The sales organization is global and is divided in regional departments.
The largest sales organization is the one in USA and is covered by North American
Solutions Group (NASG).
Almost 50 % of Xerox employees are working for Xerox Services, with most of
them being placed in the customer-sales store. Xerox sales and the distribution
channels are displayed in Table 3.2. Business solutions are an area of understanding
that many Xerox researchers found hard to grasp. Xerox defines ‘Solutions’ as an
‘integrated proposal that includes materials, software and human-based services
that solves a problem, improves a project, and creates a market or a competitive
advantage’. Xerox has divided the provision of Solutions to 4 main business func-
tions and focuses on market production (graphic arts companies), office market and
services. The four groups are Documents Systems and Solutions Group (DSSG),
Office Systems Group (OSG), Office Printing Business Group (OPBG) and Xerox
Global Services (XGS).

3.2.2 Innovation: Sequence of Errors

In 1970, Xerox developed the Palo Alto Research Center (PARC), being famous as
the center of computer revolution. PARC researchers were given the ease to conduct
basic research from the beginning. This led, among other discoveries, to the first
personal computer in 1973 and the first laser printer in 1977.
The personal computer was sophisticated for its era consisting of a software
system, a text editor WISYWYG, a graphic environment for the user interconnected
to a desktop surface, a mouse and an Ethernet connection. With this state-of-the-art
discovery in its portfolio, Xerox would drive the computer revolution-but as history
52 3 Innovation and Competitiveness: Case Study

shows us, Xerox did not profit from this unprecedented discovery letting others lead
the genesis of a new market. The question addressed to researchers of innovation
is why Xerox let this happen and what could be done to avoid this type of costly
mistake in the future! In other words, what is the lesson to be taught from this?
In order to understand Xerox strategies, researchers are trying to find the solution
exploring the history of innovation of Xerox and taking interviews from basic play-
ers of the era. In such an interview with Mr. RΤ, a Xerox veteran for 30 years and
business executive connected with the control center of the business in West Coast
for the largest part of his career, the following information was taken.
In ‘70s, besides PARC, Xerox held an important control center of the business in
the West Coast. You should remember that the Xerox base is in Rochester of NY,
where the largest labor force worldwide is placed (16,000). The man who envisaged
the ‘office of the future’ was Joe Wilson II, later President of Xerox. At that time,
except for PARC, Xerox—West consisted of Versatec (regionally), XSoft (develop-
ment of software applications), Xerox Network Services (Ethernet, networks),
Sughart (construction of discs), Total Recall (scanning and retrieve applications)
plus a construction capacity of photocopy machines and materials. This was a very
advanced portfolio of technical capacity and technical power of those times.
PARC since the beginning of ‘70s was a central institution for arranging com-
puter information. It developed a professional forum as a tool to give incentives to
researchers. Every week it used to host a public event (“FORUM”) to allow its
researchers to present the results of their researches. “FORUM” was addressed to
professionals from universities outside Xerox, engineers from the developing com-
puter industry and others interested in research. This early contribution of knowl-
edge helped to the birth of computer industry in the area of Silicon Valley.
When the personal computer was initially developed, Xerox strategy was to pro-
mote PC as a private tool of an enterprise. It was mostly a ‘portable’ computer than
a ‘personal’ computer. The computer would comprise a 32” broad portable unit and
a hard disc that could be transported and be moved from place to place, as required.
The computer was placed in an interconnection terminal. The initial software,
MESA, was unique. We should stress that MESA finally became the base of artifi-
cial intelligence systems of our time.
The PC was named with the code STAR and was soon introduced in the market
as the mechanism 6085. Finally, a by-product was formed called Global View and
the computer later became known as Global View System. Approximately 50 appli-
cations were developed, such as text editor, spreadsheets programs, graphics pro-
grams, specialized graphics (chemical and mathematical applications), messenger
programs, hyperlinks, browsers, etc. It contained many particular characteristics,
such as the application “CLEARINGHOUSE” (clearance application), giving users
a knowledge distribution area. An application enabled users to create applications
upon demand (a JAVA precursor). All applications were privately owned and could
be used only in the Global View system.
In the same time, Xerox started staffing the West Coast administration
with former IBM management executives, most of them with powerful activity.
3.2 Innovation-Case Study ΧEROX 53

It should become known that the upcoming PC market was influenced by three large
players of the era, i.e. Xerox, IBM and WANG. As we may know from various IBM
studies, the management’s ability and experience (former IBM executives) could
not be harmonized with the PC market developments. Introducing the power
of experienced IBM management executives, Xerox probably made its biggest
mistake. Former IBM executives did not fit in well in the existing Xerox culture and
had a hard time to disseminate their ideas in Xerox management infrastructure.
Xerox management executives had the right vision and lagged behind in the
appropriate execution.
While Xerox nurtured the vision of ‘the office of the future’, it was not sure how
to promote it in the market. Xerox was known for the selling of photocopy machines
and it fared very well. The PC market was established–overwhelming–standardized
and Xerox management had a hard time foreseeing the progress of the industry.
It focused its strategy on the commercial axis ‘business-to-business’ (B2B) disre-
garding the ‘personal’ or amateur market (B2C), as was known. As the market target
was business to business, the selection of privately-owned systems showed it was
the best strategy. It was later when it became known that the PC industry develop-
ment was driven by amateurism that was the bridge between the offer of in depth
knowledge and the computer usefulness for personal and business use.
The market was better delimited with the rise of Apple computer. It is interesting
to highlight that the main attraction of Apple computer was the common graphic
surface/desktop/mouse, an idea borrowed during a visit to PARC. Another point of
discussion in Xerox, narrowing down the market strategy, was the alignment of
sales power. Xerox possessed a well-trained and equipped sales team aligning the
photocopy machines with the provision of material (H/W) and services of added
value. For Xerox to capitalize on this novel innovation, the computer, a sales labor
force was required which was aligned with a different fundamental product—the
software (S/W) in the sense that it had the capacity and experience to sell services
(software). Xerox strategy did not take into consideration the re-alignment of its
sales labor force and in particular its remuneration objectives. Xerox had a success-
ful sales team particularly because its remuneration objectives were very liberal.
In order for the existing trade-off plans to benefit each salesperson separately, the
only solution for computers’ sale, being attractive from an off-setting point of view,
was to sell a multi-million dollar computer.
During ‘70s the only customers who were able to invest millions in computers
were the current powerful computer customers of IBM, WANG, Digital and others.
Therefore, the computer market based on B2B axis was not sustainable. Large com-
panies were not ready to shift from high-power computers to personal computers
even if they were networked. The results were obvious. Another barrier to success
was the different corporate mindset or culture: Xerox was domiciled in Rochester of
NY and the computer revolution rose in the West Coast of the USA; the mentality
gap between East and West Coast is significant. The subsequent clash of cultures led
to a Not-Invented-Here Syndrome that worked as a hindrance to the successful
transfer of technology and XEROX innovation promotion.
54 3 Innovation and Competitiveness: Case Study

The new inventions originating from the West Coast were not immediately
understood because the sources of knowledge and the management for innovation
support were based in Rochester. A case in point is the development of network
technologies by Xerox. The technology was developed in West Coast control cen-
ters and was then transferred to Rochester for further development—a clear case of
cultural conflict, as Rochester owned a small infrastructure to support the upcoming
internet technology. Funding and marketing decisions, being based in Rochester,
lacked the strategy to be aligned with the perceptions of the upcoming market.
Focus was placed on the marketing strategy of photocopy machines and the PC
marketing was not aligned with the marketing strategies for photocopy machines.
The object of marketing strategies for recently emerging markets was erroneously
explained. Cultural differences had not been promptly identified and XEROX exec-
utives did not handle them appropriately.
Finally, XEROX traded Global View in non-privately owned environments, such
as IBM 6000 and with compatible concepts in IBM / Microsoft (MS) ideas adopting
the strategy of “competitive cooperation” (co-opetition) but the decision taken was
delayed so it failed to ensure a share in the market of said technology. Commercial
isolation was encumbered with technological inconsistencies. For example, the per-
sonal IBM computer, when it followed the MS platform, did not have sufficient
memory to run the Global View of XEROX and because the sufficient memory cost
was too high for the era, the overall installation cost was prohibitive.
There was an effort to utilize the products of technologically advanced organiza-
tions but organizationally cultural influences and oppositions got in the way. In the
beginning of ‘90s, Xerox strategy showed that technological research centers in
West Coast are about to shut down and to merge with the Rochester-based organiza-
tions in NY State. At present, PARC in Palo Alto of California and the research
centers of Xerox in Ontario, Canada and in Grenoble, France are guided, directed
and managed by Rochester technological administration, ΝΥ.
Another influence on Xerox innovation strategy was the anti-trust arrangement
of 1975. According to this arrangement, Xerox agreed to open the dossier of its
intellectual rights property and issue a license to use some of them previously con-
sidered technology of Xerox exclusive ownership. While the arrangement did not
impact directly on Xerox culture, it finally influenced its innovation strategy, as
proven, by the current Innovation Group organization.
Intellectual property became a source of revenue for Xerox. It took a generation
to change this culture and become fully applicable.
As typically described in the Xerox example, the other side of success is a list of
innovation’s failures.
The failures of innovation are summarized as follows:
1. Management of intellectual property rights—Patenting and taking advantage of
strategically corporate secrets
2. Influences of diverging mindsets and management strategies of technological
and business risk
3. Strategic development of markets
3.2 Innovation-Case Study ΧEROX 55

One cannot accept the reasons of failure without making a valuation and
assessment that would enable translating failures into successes in the future.
In the first failure, management of intellectual property rights—Patenting and
taking advantage of strategically corporate secrets, the strategy used by PARC to
recognize the production of researchers led to the disastrous result of exposing cor-
porate secrets to competitors without managing exchange within certain legal
boundaries—such as Credos (Cooperative Research and Development Agreement),
i.e. licensing agreement or other arrangement to control the share of knowledge.
Dissemination of technology needs to be safeguarded by suitable policies and prac-
tices for its protection. The creation of inventions and their commercialization via
innovations is hard and should not be obstructed by uncontrolled flow of informa-
tion undermining profit margins.
The second failure refers to the influences of diverging mindsets and manage-
ment strategies of technological and business risk. This is a complex subject of
discussion as the culture of an organization may not be directly obvious. In the case
of Xerox, it can be considered that there are two distinct cultural influences.
Initially, the company was largely influenced by the aspect of creating a ‘home
office’. Rochester in NY was the operational center of Xerox with an employee
concentration of more than 20 % of the total labor force. Rochester is also home to
the historical influence of innovation up until the middle of ‘40s. In 1970, when the
innovation center (PARC) was developed in West Coast, there was a natural reaction
by Rochester group of employees against the fact that Rochester was not the innova-
tion center’s base. Moreover, the management of West Coast divisions mainly con-
sisted of persons recently recruited by IBM. Xerox culture and IBM culture were
not compatible resulting thus in an additional separation from Rochester.
The third failure, the market development strategy, is practically linked to the
existing cultural influences. Since Rochester, home to the marketing department,
was not culturally linked to the West Coast divisions, the marketing department
failed to comprehend the essence of discoveries being made in PARC and in the
West Coast divisions. This lack of understanding was deleterious for any marketing
plans developed. Rochester was not grasping the real meaning of the discoveries,
tending to challenge the place. The lack of understanding led to mistaken marketing
plans and to underestimating market capabilities.
At the end of the day, what is the lesson drawn from XEROX case analysis study?
Innovation can be considered as a coin with two different sides. On the one hand lies
success—a history teeming with discoveries that can evolve into innovation. On the
other hand, there is failure—either due to lack of discoveries or due to non-convert-
ing the discovery into innovation. Remember the definition of innovation given
above, i.e. as a kind of implementation or application of a discovery for rendering
new solutions or improving existing solutions, desires or needs of the market.
The case of Xerox provides us with examples of aspects of innovation, the rich
history of successes and the disenchantment of failure. It also supports the definition
given on innovation and the important criteria for the distinction between innova-
tion and invention.
56 3 Innovation and Competitiveness: Case Study

3.3 Creativity, Innovation and Competitiveness (CIC)

in Public and Private Sectors

This section, combining sources of literature (including authors), interview fields

with thorough knowledge by academics and professionals, attempts to go deeper
into the practices and consequences of creativity and innovation on competition.
We believe that competitiveness is a product and a function of creativity and
innovation reserves and supply, being determined and modified through various
types, ways and kinds of knowledge (up to bottom and bottom up, acting propor-
tionately, succeeding or failing through the exchange of capabilities, cooperatives,
technological activity, supranational knowledge, domestic knowledge as well as
through special knowledge and inventiveness (the ‘when’, ‘how’ and ‘why’ of
creativity and innovation) (see Figs. 3.1, 3.2, 3.3, 3.4, 3.5, and 3.6) (Carayannis
et al. 2003a, b).
In Fig. 3.1, we see the co-operative interaction between the public, private sector
and the main institutions of cooperation, such as universities, research institutes and
non-governmental organizations (NGOs) in order to establish strategic alliances
aiming at higher levels of competitiveness in developed and developing countries.
In this context:
• Governments are in charge of creating a stable and foreseeable political and mac-
roeconomic environment using transparent policies, reinforcing their legitimate
rights and property rights, facilitating the specialized development, creating a
business environment with low transaction costs and offering sufficient incen-
tives for creativity and innovation.
• Enterprises should use competition strategies developing specialized networks to
achieve performance (social profit), increase of technological effort intensity
(more sources for R&D), building of new capacities and skills (human and intel-
lectual profit) and development of a modern infrastructure. Suppliers and import-
ers of services, materials and infrastructure should be harmonized with the
international standards of quality, distribution and cost.
• Universities and research institutes should be aligned with the development poli-
cies and innovation priorities of the public sector as well as the strategies of the
private sector to offer crucial and critical new capabilities and skills to public and
private bodies through appropriately targeted research. Non-governmental orga-
nizations (NGO) should serve as empowering agents, catalysts and accelerators
of activities of public and private cooperatives.

Fig. 3.1 Interactions of knowledge and institutional interactions of CIC (Carayannis and Gonzalez 2003)
 Non Govermental
Universities & Research Institutes
organisations
Biography alignment to the business needs Functioning as intermediaries,
Creating private and public cooperation for catalysts and accelerators of
the development of new capacity and private and public cooperation
capability

Institutes for cooperation

inter-organizational learning
Fig. 3.2 Interactions of CIC: an approach with system dynamics

Fig. 3.3 The CIC spiral and the value chain (Carayannis and Gonzalez 2003)
3.3 Creativity, Innovation and Competitiveness (CIC) in Public and Private Sectors 59

Fig. 3.4 Factors influencing innovative performance (Carayannis and Gonzalez 2003)

Fig. 3.5 The value chain of CIC (Carayannis et al. 2003a, b)

60 3 Innovation and Competitiveness: Case Study

Fig. 3.6 The value chain of CIC-Global and local perspectives (Carayannis et al. 2003a, b)
3.3 Creativity, Innovation and Competitiveness (CIC) in Public and Private Sectors 61

The institutional high level knowledge completing the business knowledge

as it evolves serves as a catalyst and accelerator of economic growth. It contributes
to the convergence of developed and developing countries as well as to technology
transfer from the developed to the developing countries and between public sectors,
private sectors, universities, research institutes and non-governmental organizations
(see Figs. 3.2 and 3.6) (Carayannis et al. 2003a, b).
Research found that innovation and creativity become all the more important in
the public sector and in the survival and flourishing of the private sector, determin-
ing modern requirements and capabilities in public and private sectors worldwide
(Carayannis et al. 2003a, b).
Some of the requirements and capabilities of the public sector impacting heavily
on the private sector are described below:
(a) Shrinking of budget and demographic movements with advanced-aged
population groups
(b) Higher required production of knowledge by employees achieving
enhanced mobility
(c) Increased pressures for responsibility and transparency guided by privati-
zation, globalization and by an increasingly informed and experienced vot-
ers’ base
(d) Increased pressure to and by the private sector to become more competi-
tive requiring the comeback of a more competitive public sector
(e) and last, but not least, the Multilateral Development Banks and particu-
larly the International Monetary Fund that encourage and require increase
in productivity and transparency in public and private sector policies,
practices and structures.
Competitiveness is also a means to go back to the past as it reflects past creative
breakthroughs of clever and innovative activities as well as the shaping of the future,
ensuring the foundation and the frame of upcoming efforts of the public and private
sector. Moreover, at present, the implementation of a creative and innovative effort
heralds the upcoming horizons of a knowledge-based economy and society. These
interact with individual knowledge and creativity in an ongoing emerging cyclical
procedure (see Figs. 3.3, 3.4 and 3.5) (Carayannis et al. 2003a, b).
We also found that creativity and innovation do not always lead to boosting of
competitiveness (at least on a short term to midterm basis) (Carayannis 2001, 2002).
In other words, too high competition levels and a lack of competition in the form of
trusts or monopoly conditions contribute to decrease of competitiveness at least
long term (Carayannis et al. 2003a, b).
Summarizing our indulgence in the field of creativity and innovation, as these are
related and affect competitiveness, we can identify many areas of interest that justify
an additional focus on research aimed at better understanding. The key determining
factors and the dimensions (content, process, context, impact) of creativity and
innovation and the role of knowledge in this process come into sight (Carayannis
2002). We deem useful to map empirically the natural characteristics and the dynam-
ics of knowledge and meta-knowledge, in accordance with CIC2Helix (Fig. 3.3) as
regards public and private sectors and Fig. 3.4 (Carayannis et al. 2003a, b).
62 3 Innovation and Competitiveness: Case Study

A better understanding of these procedures could yield results, enriching and

promoting the effectiveness of the knowledge produced and the efficacy of transmit-
ting and assimilating knowledge. In this way, the cognitive economies of scale and
the attitudes may be attained at increasingly higher levels allowing for more, faster,
cheaper and better things (Carayannis 1998a, b, c, 1999, 2001, 2002).
These benefits can be manifested in various ways at micro-medium and macro
levels (see Fig. 3.3), namely higher living standards, more competitive companies,
more robust economies, fast and sustainable growth rates (see Figs. 3.3, 3.4 and 3.5).
Indeed someone can identify a challenge and an opportunity, for policy makers and
administrators in the private and particularly public sector, taking into account the
risks and possibilities available in the three figures mentioned. In particular,
Figs. 3.3, 3.4 and 3.5 conceive and display a combination of dynamics, complex and
powerful forces in the game: human knowledge, individual creativity, organizational
productivity and national competitiveness, along with institutional inertia, politically
weak foresight and market and governmental failures (Carayannis et al. 2003a, b).
By understanding how to better manage these forces, we could end up in impres-
sive results (to some extent, successful examples of social and economic growth,
such as Singapore, South Korea), while trying to work against these forces and trying
to stop them we could be driven towards hazardous and non-tolerated poverty and
totalitarian regimes. Ensuring rewards and stimuli to cultivate creativity and innova-
tion, it could serve as a catalyst and accelerator for creativity and competitiveness.

3.4 Concepts and Empirical Observations: Case Studies

‘Leaders in knowledge organizations have the capacity to perceive strategic deep knowl-
edge so that they can evolve into public knowledge open to dialogue and improvement’
[Peter Senge 1990]

Creativity is the result of inspiration and knowledge, the release of talent in

a demanding environment; it is primarily a strongly private and individualistic
process—it operates at the small (individual) level (Fig. 3.3). Innovation is a team
effort and takes place at the medium (group/organization) level, as it requires a
combination of the gift of creativity with the fruit of discovery and favorable market
conditions. Synchronization, option and impact are important along with ‘divine
providence’, passion and inspiration. Competitiveness is the foundation of creativ-
ity, discovery, innovation and is realized at macro (industry, market, state, local)
level (Carayannis et al. 2003a, b).
We are inspired by the double helix discovery that won the Nobel Prize and was
a fundamental and evolutionary discovery in order to clarify and articulate the
nature and dynamics of the interconnection between creativity, innovation and com-
petitiveness but also the evolution paths thereof. We attempt to do this through
Creativity, Innovation and Competitiveness Double Helix (CIC2Helix)
(Fig. 3.3) whereby an element represents the flow and the recording of creativity
and competitiveness (Carayannis et al. 2003a, b).
3.4 Concepts and Empirical Observations: Case Studies 63

In every point of their evolution, such elements are linked in a chain adding the
values of creativity, discovery, early innovation, late innovation, productivity and
competitiveness (CI3PC chain of added value, Fig. 3.5) (Carayannis et al. 2003a, b).
This element serves as catalyst and accelerator of social, economic, organizational
and individual knowledge and meta-knowledge allowing the helix CI2C to keep on
evolving, enriching and promoting the effectiveness of produced knowledge and the
knowledge transfer and dissemination capacity.
In this way, the cognitive economies of scale and diversity may be attained at
increasingly higher levels allowing for more, faster, cheaper and better things
(Carayannis 1998a, b, c, 1999, 2001, 2002). These benefits can be manifested in
various ways at micro-medium and macro levels, namely higher living standards,
more competitive companies, more robust economies, fast and sustainable growth
rates (see Figs. 3.3, 3.4 and 3.5) (Carayannis et al. 2003a, b).
We also try to formulate and confirm our perspectives with a research on ques-
tionnaires being answered by public and private sector managers from a number of
countries all over the world, facing issues related to leaders, critical success, factors
of failure and criteria for creativity, innovation and competitiveness. Our general
findings arising from discussions with specialized executives in the public and pri-
vate sector lead to the following conclusions:
• Lack of imagination (when creators and managers of technology and innova-
tion fail to envision the future and only face the present).
• Lack of courage (when decision makers are too afraid to deal with the real
requirements and avoid critical reality checks).
• Fear of success (when decision makers hesitate or are unable to embrace the
pledge to success-either consciously or unconsciously-and therefore debilitate or
undermine their efforts).
• Fear of failure (when decision makers and those who manage decisions are
overwhelmed by the fear of failure and fail to realize that someone cannot avoid
the risk but can only manage it in the best possible way. They thus mismanage
technological or business risk and create processes and tendencies that drive to
failure even when it is not necessary).
• Short term focus on profit (the narrow-sighted way of dealing with profit usually
speeds up decisions being problematic from a mid-long term point of view and serves
only short term interests). In the case of public sector, the equivalent case is that of
politicians who only care or are forced to focus on how to win the next elections.
• Strategy versus tactical options and actions (as a result of all above ailments
in relation to decision making, the options of tactic provoke actions that usually
anticipate or impede the strategic options and actions).
In addition, the findings of the research can be organized and presented in three
basic issues:
Subject 1: Key figures of Innovation and Creativity
Subject 2: Drivers of Innovation-Catalysts and Prohibitive Factors
Subject 3: A brief review of the current state of play in various countries-Challenges
and Opportunities
64 3 Innovation and Competitiveness: Case Study

3.4.1 Subject 1: Key Figures of Innovation and Creativity

In public and private sectors, innovation can be understood as a way to re-examine

and reorganize the government, updating—replacing public services/public organi-
zations, managing/guiding the change of the process, modifying the structure of
programs and the distribution service, re-designing and improving the distribution
service for the citizens, re-planning the responsibility of the working framework
and measures performance, strengthening the suppliers of public services and pri-
vate companies.
Extrapolating the answers we took by those who ply the trade in the public and
private sector in various countries, innovation is recognized describing the follow-
ing characteristics with the most important being the following by priority:
• Discovering something new
• Seeing something from a different view
• Introducing changes
• Improving something that already exists
• Transmitting new ideas
• Implementing an existing work in a new way
• Producing only new ideas
• Following the market leader
• Adopting something that has already been tested elsewhere
• Attracting innovative people.

3.4.2 Subject 2: Drivers of Innovation-Catalysts

and Prohibitive Factors

Based on our empirical findings, there exist factors acting in a catalytic or prohibitive
manner to creativity, innovation and competitiveness in the public and private sector.
Catalysts:
1. Political guidance, far-sightedness, strategic plan (with the right objec-
tives). Relative organizational autonomy and firm willingness on behalf of
leadership for innovation.
2. Innovation/creativity rewards the system in the right position.
3. Protection of intellectual property rights.
4. Favorable organizational environment for the conversion of tacit ideas and
knowledge into clear proposals for improvement: Open and frequent com-
munication and dialogue, strategic interchange among various functions
and technologies and access to information (Nonaka and Takeuchi 1995).
5. Correct mix of people and team spirit are manifested in well functioning
groups.
3.4 Concepts and Empirical Observations: Case Studies 65

6. Feeling of pressure (if you feel that you are against it, as it usually happens
in the private sector, you become more innovative and competitive).
7. Someone innovates when being in a state of need, ‘necessity is the mother
of discovery’: a recap in the experiences of innovation in governments over
the last 25 years shows that innovation arises in almost all cases amid an
environment of economic crisis.
8. Willingness of governments to innovate-this is why it is required to mobilize
central government and first line officials and as well as administration
officials.
9. In the private sector, the supportive management is willing to take up risks
and encourage new opinions. Public sector executives and private sector
managers with sufficient time to formulate and implement innovation
initiatives.
10. Governmental support for Research and Development (R&D) and incen-
tives to invest in R&D.
11. Availability for capital risk including investment and capital for
innovation.
12. Commitment by political and economic forces and existence of public control.
13. Networks and innovation units such as: existence of educational institutes
of advanced knowledge, ‘think tanks’, training programs and technical
groups, institutions acting as a framework of internet activities, such as the
cooperation of various countries in international programs of Research
and Technological Development.
14. Variety of people and free flow of ideas (genesis of a variety of ideas, requir-
ing assumptions, testing assumptions, rehabilitation for cultural and spiri-
tual short-sightedness).
Barriers:
1. Reactions coming from elected or appointed experts who are predisposed to
‘thoroughly examine’-in order to delay-innovations.
2. Innovation fails due to resistance to change: the failure of courage and
imagination may prove to be significant barriers to innovation.
3. Feeling of ‘comfort’: Why should I press myself and disrupt my comfortable
habits? Conservatism in multiple forms, e.g. ‘do not change the status quo’
syndrome, ‘no risk policy’, ‘lack of no certified alternative solutions’, ‘do
not omit the pre-determined course’.
4. Lack of courage by government executives to deal with the challenges and
the problems, fear of losing the support of voters accompanied by a lack of
long term vision (focus only on short term benefits), instability and wide-
spread re-shuffling of executives in their positions.
5. Lack of courage by general managers and the team of heads of directorates
in the private sector to accept change and make a long term estimate-
pressure by those having interests to increase their benefits per share on a
short term basis-fear of losing support by individuals harboring high inter-
ests if they do not respond positively to their pressure for short term results-
66 3 Innovation and Competitiveness: Case Study

frequent restructuring for a short time to make up and execute initiatives

for long term development (Perel 2002).
6. The way innovation is introduced is a decisive factor and a message heralding
its success rate: innovations of gradual change have lower impact on hierar-
chy relations and as a result, are treated with a more moderate reaction and
inertia compared to the more radical ones. The ‘hazardous innovations’
resisting the most are the ones with a dividing nature and have the tendency to
change structure, in order to affect only positively the system’s functionality.
7. Rigid hierarchy structures and lack of results management. Instability in
the roles of the game (bias), corruption and lack of transparency. Poverty
and political struggle. Central red tape, prosperity-decay policies and
governmental control for the sake of control.

3.4.3 Subject 3: A Quick Look at the Current State of Play

in Various Countries-Challenges and Opportunities

Our findings show that there are various basic requirements and possible opportuni-
ties associated with innovation and creativity underpinned on initiatives and tactics.
This is practically the role of the Multilateral Development Banks (MDBs). There
are also opportunities and requirements being faced with the private sector, result-
ing from the high and increasing rates of technological change, globalization and
competition intensity.
1. There is a large potential for creativity, innovation, competitiveness at
individual level but there is a shortage of public tactics to cultivate and
capitalize on the advantages of this potential.
2. In some countries, the government’s tactics, while ensuring indirect
economic assistance, are unable to guarantee a market for product devel-
opment and hence sales opportunities.
3. Often in developing countries, disintegration plans see the light of day
lacking consensus, dialogue or agreement with local communities.
The main emphasis is control. There are no channels for participation and
for structuring a prosperity plan.
4. In some European countries, there is an urgent need for research and
education to forge strong ties with the real economy; there is also need for
the European Research Area and the innovation system to be unified.
5. In many countries the private sector is considered more capable as regards
creativity, innovation and competitiveness compared to the public sector.
The public sector seems inert due to formalities and regulations inhibiting
growth. Political indecisiveness and opportunism influence all economic
activities and render economy a slow developing one.
6. In some countries, universities—in contrast to the majority of them—are
wonderful, illustrative examples of the public and private sector being
sources of creativity and innovation.
3.4 Concepts and Empirical Observations: Case Studies 67

7. Many countries have not been fully equipped somehow with tactics and
practices merging in one simple, unified outcome. Most of the aforemen-
tioned results, in relation to this type of cooperation, are found under
the authority of the public sector with the initiative having been taken by
persons and not through an organized project.
8. A higher requirement involves less developed countries due to lack of
sufficient potential and necessary infrastructure to convert the vision
into action and of continuing and stable potential to cultivate creativity,
innovation and competitiveness.
9. Most of developing countries still believe in concentrated type agreements.
The public sector is predisposed to arbitrariness for political or even
personal reasons. Private sectors are disorganized. Companies are mis-
managed and lack strategic planning abilities. Public and private sectors
do not cooperate enough and fear responsibilities.
10. In general, it seems that non-specific, unclear and non-systematic mea-
surements of creativity, innovation and competitiveness are being
attempted in developing and developed countries. Usually, economic and
social performance indicators are considered as proxies to measure perfor-
mance in the field.
11. The Multilateral Development Banks (MDBs), though traditionally teem-
ing with examples and ideologies that resist dialogue and change, and,
therefore, creativity and innovation, have been involved, either indepen-
dently or via cooperation, in a large number of initiatives to promote
competitiveness and higher growth levels in borrowing member-states
through pilot programs and projects.
Recently, the technological progress on the Internet and the high connection
speeds have allowed member states to exchange substantial information with the
participants in various programs and works, promoting knowledge from a distance
in a modern, cost-effective way . However, MDBs are required to work harder in
order to measure their effectiveness in periods when creativity, innovation and
competitiveness are brewing at national and local level.

3.5 The Role of the Public Sector in Promoting Creativity,

Innovation and Competitiveness (CIC)

‘To learn one must be humble’

[James Joyce, Ulysses]

Further down we analyze and classify thematically the reactions by public and pri-
vate sector executives that we collected through the field research in order to consoli-
date proposals to executives and create a map of the progress of future research.
Innovation plays a decisive role in the public sector serving as a catalyst and
accelerator of social and economic growth. Promoting CIC in the public sector
68 3 Innovation and Competitiveness: Case Study

could lead to better, more performing management at a lower operational cost for
public sector enterprises and social prosperity functions.
The occasional cost for the public sector when not promoting the creation of a
competitive environment is enormous, since the economic and social cost linked to
obsolete and outdated ways of guidance and business administration is significant
particularly in less developed countries.
The role of the government in a developing country is much more critical since
usually the private sector does lack the means and the ways to increase the capital
for innovation. Therefore, if the government does not intervene, there is a slight
possibility of innovations seeing the light of day.
Usually, the less developed countries have a shortage of sufficient labor force and
necessary infrastructure in order to convert vision into action, while in industrial
countries, these conditions are largely met. The public sector may act as a catalyst
for CIC in developing countries and this is the reason why it can promote and take
up works in areas where the private sector does not find sufficient profit incentives
to carry out works.
The procedural method can be a function of the market development rate and of
the requirement for public/private sector services. A well-developed public infra-
structure could ideally allow for promotion of CIC in the public and private sector.
The active support of innovations by the government is required in developing
countries due to the insufficiency of the political and economic system that can
disrupt initiatives of technological innovation in the public or private sector.
Science, being developed in the public sector, should be reasonably turned into a
guaranteed commercialization without the public sector becoming dramatically
competitive to the private sector. The public sector should not operate as a competi-
tor to the private sector collecting business initiatives.
The public sector requires more aggressive policies to cultivate creativity within its
own administration, to promote innovation inside the government and gradually
increase its own competitiveness. The public sector may promote CIC in various ways:
1. Creating an environment that supports CIC. It involves successive policies,
regulations and provisions that strengthen CIC. Rewarding and granting incen-
tives, such as tax rebates, security and other favorable requirements benefiting
from the international experience. Ensuring performing incentives for research
and scientific growth, investing in adequate resources.
2. Utilizing the government’s purchasing power (approximately 30 % of the
national gross product in the Latin America countries) to boost competitiveness
(along with effectiveness and transparency).
3. Building social security safeguards for those who fail when seeking for discov-
ery and support mechanisms for those who need additional support to discover/
innovate.
4. Acting beyond market failures, when the private sector cannot act on its own
due to lack/asymmetry of information or due to scale problems. Taking all this
into account, the promotion of non-traditional exports or grants for technological
innovation in small or medium-sized enterprises are some examples.
3.5 The Role of the Public Sector in Promoting Creativity, Innovation… 69

5. Trying to merchandise research that was produced by the public sector, e.g.
federal laboratories, Ministry of Defense, Administration of the National
Aeronautics Center.
6. Building an adequate innovation system. The main focus areas relate to
research and innovation networks, technology transfer and innovation programs
(scientific and technological parks).
7. Offering the available resources for basic research. These resources could
create an environment that would be less prone to applied research and more
inclined to ‘theoretical’ research.

3.5.1 Public–Private Partnerships Promoting CIC

In developed countries, when markets operate more effectively with the private sec-
tor participation for CIC development they are more sustainable. The public–private
sector partnerships (PPPs) are realized to allow a higher level of private sector par-
ticipation in predetermined enterprises/areas despite the relatively higher level of
competition and the lower profit margin. In these countries, private companies have
the incentive to get involved in partnerships with the government for other reasons,
such as to obtain a larger market share or simply for reasons of marketing, advertis-
ing and promotion. Moreover, developing countries with a less stable social struc-
ture and economy and political structures inextricably linked with the government’s
reliability often present a hindrance in the private sector’s participation.
Some areas of the private sector need support by the public sector to improve
innovation, competitiveness and creativity. In addition, the support of new ideas and
initiatives is required (research of applied sciences or construction of technological
breakthroughs). In this last case, there is a possibility of public and private sector
partnership but only in those areas where the private sector is deprived of the inno-
vation and creation ability and particularly for those areas where discontinuous
innovations are the main pursuit.
Summarizing the description of recognition criteria of possible initiatives/ideas
to conclude cooperatives between public/private sector, criteria and processes for
the selection of private sector objectives and conditions, the following could be put
forward:
1. Priority of governmental areas
2. Possible practical application and gain for society or economy too
3. Low cost or profitable venture
4. Long term venture
5. Candidates with integrity and sufficient economic resources
6. Willingness for change
7. Competitive spirit
8. Vision for the future
9. Additional experience and resources
70 3 Innovation and Competitiveness: Case Study

10. A good record of achievements

11. Contribution to innovation
12. Experience and access to the market.
(Carayannis et al. 2003a, b)
It is a significant but nevertheless paradox procedure. There is a risk factor when
choosing a winner; the public sector, however, is responsible vis-à-vis society not to
risk using public funds.
The process requires connecting society with the business sector in order to
ensure transparency. The rules and procedures should be crystal clear as well as the
involvement of any public sector official. This is very significant when taking the
product a step further to the chapter of innovation.
An ‘Experts committee’ should be set up for selection, supervision and assess-
ment. A ‘quality guarantee’ committee needs to complete the functions of the
‘Experts committee’ in order to supervise quality/evolution to a following stage
every time the relevant works begin. Economic arrangements are always available
particularly to ailing enterprises.

3.5.2 The Role of Multilateral Development Banks (MDBs),

such as the World Bank in Promoting CIC

The role of Multilateral Development Banks (MDBs) that support innovation in the
public and private sectors is decisive. MDBs may:
• Promote the consolidation of national policies and action plans for CIC, with
long term and short term objectives, but calling for existing pursuits. Train and
mobilize the personnel being in charge of works and activities execution in pub-
lic and private organizations. Allocate the necessary resources and tools for the
execution of the appropriate actions and make available ongoing technical
assistance and supervision.
• Create favorable conditions where innovations in developing countries can bear fruit.
• Assist developing countries in properly following the fundamental regulatory
and economic policies so that the conditions that encourage new ventures and
innovation be able to function within the private sector.
• Disseminate worldwide the best practices in developing nations, reinforcing the
private sector institutions so that an enterprise can largely contribute to political
decision making.
• Contribute to eliminating commercial barriers that affect developing countries
and destroy the possibility of innovative growth.
• Spread information, knowledge and successful CIC experiences among member
states.
• Promote CIC through agreements, contracts and integrate it in growth policies.
References 71

For Multilateral Development Banks (MDBs) to be capable to contribute more

effectively to CIC promotion, they should:
• Merge CIC in their administration. The Multilateral Development Banks (MDBs)
should assume joint responsibility (with the countries) for the merger results.
This joint responsibility should be defined at the level of national growth and
good living standards of citizens in the target countries.
• Be more creative, innovative organizations, less rigid and less bureaucratic.
• Support governmental projects whose leadership and ownership are held by
the government. In other words, no economic assistance shall be ensured to the
government not enjoying independent ownership of ideas development or
certified leadership.
• Give more flexibility to countries in their effort to find the best way to growth
(not pre-fixed ‘magic formulas’)
• Be more accountable for their breakthroughs as regards national productivity and
competitiveness (Carayannis et al. 2003a, b).

References

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strategic management of technological learning: keys for social and corporate survival and suc-
cess. In: 39th International council for small business annual world conference, Strasbourg,
France, June 27–29
Carayannis E (1994b) The strategic management of technological learning from a dynamically
adaptive high tech marketing perspective: sustainable competitive advantage through effective
supplier-customer interfacing, University of Illinois, Chicago/American Management
Association Research Symposium on Marketing and Entrepreneurship, Paris, France, June
29–30
Carayannis E (1994c) Gestion Strategique de l’Acquisition des Savoir-Faire, Le Progrès Technique,
no. 1, Paris, France
Carayannis E (1998a) The strategic management of technological learning in project/program
management: the role of extranets, intranets and intelligent agents in knowledge generation,
diffusion, and leveraging. Technovation 18(11):697–703
Carayannis E (1998b) Higher order technological learning as determinant of market success in the
multimedia arena; a success story, a failure, and a question mark: Agfa/Bayer AG, enable soft-
ware, and sun microsystems. Technovation 18(10):639–653
Carayannis E (1998c–2002) George Washington University Lectures on Entrepreneurship.
Carayannis, E. The Globalization of Knowledge and Information Creation and Diffusion
Processes and Standards in an Emergent Trading Groups Context: EU, NAFTA, Mercosur, and
APEC, Seminar on Globalization of Knowledge and Information Creation and Diffusion
Processes and Standards in an Emergent Trading Groups Context: Laying the Foundations for
Latin American Competitiveness in the 21st Century, University of Puerto Rico Rio Piedras,
San Juan, Puerto Rico, March 14, 1997
Carayannis E (1999) Fostering synergies between information technology and managerial and
organizational cognition: the role of knowledge management. Technovation 19(4):219–231
Carayannis E (2001) Learning More, Better, and Faster: A Multi-Industry, Longitudinal, Empirical
Validation of Technological Learning as the Key Source of Sustainable Competitive Advantage
in High-Technology Firms, International Journal of Technovation, May
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Carayannis E (2002) Is higher order technological learning a firm core competence, how, why, and
when: a longitudinal, multi-industry study of firm technological learning and market perfor-
mance. Int J Technovation 22:625–643
Carayannis E, Gonzalez E (2003) Creativity and innovation = competitiveness? When, how, and
why. In: Shavinina LV (ed) The international handbook on innovation, Part VIII, Chapter 3.
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line of key concepts and lessons learned from a comparative study of entrepreneurship students
in France and the US. Technovation 23(9):757–771, September 2003. NOTE: Recipient of
Emerald Management Reviews Citation of Excellence for Research Implications
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innovations from a learning and knowledge management perspective. In: Shavinina LV (ed)
The international handbook on innovation, Part II, Chapter 7. Elsevier Press, Oxford
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Chapter 4
Innovation as a Management Process

4.1 Introduction to Technological Innovation Management

The management of innovation is a highly interactive process. It is the result of an

ongoing transfer of knowledge among various points-entities where the participa-
tion of every team member could influence the final outcome (Cooke et al. 1998).
Many a time, innovation seems successful short term but appears not so success-
ful on a long-term basis. The main reasons for this are frequently the non-realistic
expectations in the future evolution of technologies and the lack of insight in unex-
pected influences. A second observation is that in only a few cases the basic barriers
are the scientific or technological problems. Usually, organizational, administrative
and institutional problems get in the way.
Innovation management is complex and risky. A failure analysis of companies
does reveal inter alia a significant number of innovative companies that failed to
translate their technological creativity into profitable business operations. The chal-
lenge therefore is not only the creation of innovation but of its appropriate manage-
ment to generate profit in the company. As the role of innovation management in
the performance of an enterprise is clear, the process of its management should be
standardized and used to attain a sound business operation.
According to Roberts (1987), the management of technological innovation
(as defined in Chap. 1) refers to the organization and orientation of human and
financial resources in a performing way, geared towards:
• Advanced knowledge acquisition
• Emergence of technical ideas aimed at new or improved products
• Procedures and services
• The development of applicable standards
• The transmission of these ideas in production, distribution and use.

© Springer International Publishing Switzerland 2015 73

E.G. Carayannis et al., Innovation and Entrepreneurship, Innovation,
Technology, and Knowledge Management, DOI 10.1007/978-3-319-11242-8_4
74 4 Innovation as a Management Process

4.1.1 How Could a Company Enhance Its Capacity

for Innovation

A company needs sufficient resources, capable and suitable personnel for correct
management of innovation in order to enhance its capacity for innovation. In reality,
innovation relates to various sectors of knowledge such as the creation of new ideas
and concepts, the design and development of models, the industrial development,
Research & Development, the re-design of a business’s process, marketing etc. All
the above shall adhere to the most recent theories of business organization whereby
the operational structure of a business should not necessarily comply with the tradi-
tional, operational plan (production, marketing, financing etc.); instead, it should be
divided in a series of business processes. A procedure could be defined as a reason-
able sequence that covers all the activities adding value for customers and carried
out aiming at the success of a specific outcome. In general, all these activities cover
a big variety of functional areas.
Any organization, of any size, could be divided in a series of procedures. The
first group of procedures refers to a business’s strategic activities (strategic proce-
dures), while the second group underlines all these activities involving customers
directly (basic procedures). The third group of procedures, supporting the other two,
takes into account the suppliers (support procedures).
The innovation process includes activities related to the creation of new products
(designing and developing new products) with the capacity to make things differ-
ently in order to enhance the value of products (re-designing the procedures of a
business).
Moreover, the innovation process should be guided by a well-defined market
based not only on market launching, consisting of identifying opportunities and not
satisfied needs but also on the creation of market and customer satisfaction with the
new product or service.
The innovation process should be guided by the clearly delimited market focus
and involves 4 basic activities:
1. Creation of new Ideas:
• Determination of new ideas of products and services.
• Customer needs forecast with the analysis of market trends and competitors’
successes.
• Encouragement of new ideas and creativity among the personnel.
• Determination of the mechanisms and the criteria used for the selection of
ideas being developed.
• Programming the creation of new products.
2. Re-design of production processes:
• Re-design of production processes in order to achieve higher flexibility or
productivity, along with higher quality and reduced production costs.
• Changes in production processes to allow changes in the products.
4.2 What Is the Management of Technological Innovation and Why Is It Important? 75

• Evaluation of the introduction of new technologies and management of

organizational tools in production processes in order to increase the value of
products.
3. Knowledge Management:
• Innovation as a result of technology and know-how.
• The way and the procedures whereby enterprises decide what technologies to
develop internally (current training, set up of an R & D department, etc.).
• The extent to which enterprises are supplied with technology or make avail-
able technology in external centers, as it happens with the subcontracting of
Research & Development programs to other businesses, research centers and
universities.
4. Products development:
• How enterprises are driven from an idea to the launching of a new product or
service in the market? This process requires a detailed description of opera-
tions and product specifications, such as the description of the parts and the
systems it contains and it should be taken into consideration in the production
and distribution process as well as in the product’s after-sale services.
• How do enterprises develop a new product as soon as possible?
• How do enterprises coordinate the internal personnel and the external teams?
• What kind of management methods shall be applied by enterprises?
5. Re-design of market processes:
• The changes in the marketing processes contribute to the increase of products’
value or to the creation of new products and services.
• Use of the modern information technology to redefine the market’s product.

4.2 What Is the Management of Technological Innovation

and Why Is It Important?

Among the challenges faced today by management executives, the management of

technological innovation is one of the most demanding ones. If done correctly, the
companies create value and profit, develop a sustainable competitiveness, become
lively, entertaining work places, attracting and preserving the most productive and
creative personnel. If the technological innovation management is done in the wrong
way, the companies may face serious and probably determining problems by losing
money, employees and reputation. In the vast majority of business segments, if com-
panies do not innovate, their competitors will catch up and in any case, the former
will find them outside the labor market.
The primordial objectives of the management are to improve performance and
enhance viable competitiveness in their organizations. Successful management of
technological innovation is achieved when the broad range of innovative elements
76 4 Innovation as a Management Process

and activities within an organization is being managed properly and is effectively

combined with an innovation strategy. This allows companies to fulfill their general
purpose-generation of profit, development, delivery of better quality and larger
variety, larger market share, or increasing remuneration of employees, safety,
satisfaction.
The management of technological innovation involves all the aspects of companies
where the development and the use of technological innovation enable companies to
attain their targets. It also encompasses elements such as the management of strategic
innovation, the teams and networks of innovation, the research and development,
the design and elaboration of new products and services. However, notwithstanding
the numerous incentives to innovation, there are special barriers to its success.
The management of technological innovation is usually required under circum-
stances with increased vagueness, uncertainty and risk. Given that technological
innovation is for many companies a primary way of competition in the twenty-first
century, its management is an activity of vital importance.
As already mentioned in the first chapter, technology constitutes a product that can
be copied with practical application and knowledge allowing it to develop and to be
used. Technology is presented in the new products, in the processes and the systems
and includes knowledge and skills required for its operation, being reproductive.
Innovation is something much more than invention–creation of a new idea and its
application; it encompasses all activities required for the commercialization of new
technologies (Freeman and Soete 1997). Practically, innovation is the successful
commercial exploitation of new ideas. It includes the scientific, technological, orga-
nizational, economic and business activities that lead to the commercial launching
of a new (or improved) product or service.
Companies compete successfully when they offer new, better or/and more cost-
effective products and services that can be used by customers for their benefit and
that they cannot be offered by competitors. Therefore, their competitive advantage
derives from the capacity to do better and cheaper things, or to do new things. We
should highlight at this point that there is a relative dimension because the advantage
lies in the activities of companies versus their competitors. There is also an absolute
dimension because a market is required for what the company is producing.
Technological innovation plays a primary role in providing comparative and
absolute advantages. Although it may seem crystal clear what technological innova-
tion is—a new computer, an automated transactions machine (ATM), or pharmaceu-
tical products—the scope of the definition of technology and innovation is in reality
broad. This illustrates that technological innovation may arise in many, often unex-
pected sectors, as shown in our case studies; take, for example, innovation in food-
stuffs, cruise ships and car insurance. Innovation is involved in many more company
departments compared to ‘technology’.
Decisions pertaining to the strategy, organization, marketing and the position
of an enterprise are made in parallel with the ones being relevant to research,
design and processes. The challenge for an enterprise is effective decision making
for each one of such sectors and this usually should take place simultaneously.
These features display the complexity of technological innovation and therefore the
challenge for the management thereof.
4.2 What Is the Management of Technological Innovation and Why Is It Important? 77

Technological innovation is something much more than the successful applica-

tion of new ideas in products and services. It often requires changes in the organiza-
tion and the strategies supporting it. Technological innovation involves dealing with
a raft of issues and activities that constitute a challenge as to its management; they
add to the risk and uncertainty and render cumbersome the elaboration of general
recipes for its success.
It is though the difficulty itself in the management of technological innovation
that renders it a valuable source of competitive advantage. If every company were
able to do this successfully, it would not offer a source of relative competitive
advantage. As stated in 1912 by Frederick Gardner Cottrell, from the University of
California and one of the founders of the American Society of Research, ‘many
praiseworthy patents offered by their inventors to the public totally free, have not
been launched to the labor market, primarily because ‘what is everyone’s business
is no one’s business’ (Cottrell 1912; he refers to Mowery 2005).
Technological innovation appears rarely through activities of individual
companies-organizations. It is more often the result of input by various organiza-
tions and enterprises, of cooperation between customers and suppliers, of various
groups and networks and official technological forms of cooperation. The
Management of Technological Innovation involves therefore alliances, technologi-
cal cooperation and networks.
The management of Research and Development (R&D) is significant as it pro-
vides an organized source for the production of an idea and improves the capacity
of companies to absorb useful information from outside. The Management of
Technological Innovation encompasses issues ranging from technology forecast
and evaluation techniques up to organizational issues, such as the extent of concen-
tration or decentralization of research and development, the degree in which research
and development are internationalized and the ways whereby internal capabilities
are linked to external sources of research–development–universities, research cen-
ters and other enterprises. It includes balancing the short term applied research and
development and the more long term, theoretical basic research. It includes manage-
ment of creative and productive researchers and research teams.
The Management of Technological Innovation entails the management of prod-
ucts and services innovation. This includes performance factors, encouraged through
various systems of administration and programs. The management of design is a
significant constituent for the development of new products and services. Design
entails selection of elegant and performing options in order to find solutions. It cov-
ers the options made in relation to aesthetic appeal, impact, operation and
reliability.
The management of innovation operations and processes includes the way opera-
tions and production complete existing activities and offers options for new innovation
activities. It is interested in a broad range of entrepreneurial and organizational issues.
The final objective of the Technological Innovation Management is the process of
commercialization—meaning revenue from investments in innovation.
The appropriation of value from the investments of companies in technological
innovation involves intellectual property rights, granting of licenses, creation
of technical standards, speed, secrecy and ownership of additional advantages.
78 4 Innovation as a Management Process

The so-called ‘regime of intellectual property expropriation’ (the possibility, the

tendency of a private good being converted into a public one) determines the extent
in which companies can ensure receiving sufficient revenue from their investment.
Commercialization may not be direct; companies may extend their options for the
future, through the process of innovation and this should be examined upon evalua-
tion of their commercial profits.
Innovation in the processing industry and services is particularly interesting
because the boundary between services and processing industry becomes
increasingly vague (Quinn 1992). A company designing car engines is it a pro-
cessing company or a service rendering one? Could IBM be considered a pro-
cessing company when its strategy is to supply customers with solutions rather
than with products? Do Software plants using particularly automated writing
tools manufacture products? Many significant activities carried out by pro-
cessing companies, marketing, distribution, applied engineering, design, main-
tenance, accounting would be described as services if they were offered
externally. Many services such as bank telling are offered now electromechani-
cally and the value of processing products is now found in intangible proper-
ties, such as fast delivery, easy use, brand and reliability that would have been
considered as services had they not been embedded in the products. Many ser-
vice rendering companies describe their offers as products. In addition, many
products are packaged with intangible services.
Such an example is the service package by Ericsson and Nokia for their products.
Given that service companies create capacities based on Research and Development—
in order to increase diversification of their products, cut development cost and ser-
vice rendering and protect their owned technology—dwell on many issues relevant
to the ones of processing companies. The majority of issues therefore being dis-
cussed for the Management of Technological Innovation are equally valid for the
services and processing issues. Examples will be given both from processing and
service rendering companies.
The ways in which technological innovations are developed and used keep on
changing and the Management of Technological Innovation is a dynamic and evolv-
ing sector of practice. New challenges arise as regards technology-based competi-
tion, the role of the government, the contribution of basic research, the evolving
innovation process and the environmental concerns.
The management of information technologies (IT) and information systems is
embedded therein and is not considered as a distinct area in the Management of
Technological Innovation. Many strategic and organizational issues, such as the
development of new information technology and software products and the use of
information technology and information systems in Research and Development and
its operations are included in the definition of the Management of Technological
Innovation.
The importance of the Management of Technological Innovation is being
investigated under a corporate, national, theoretical and individual perspective.
4.2 What Is the Management of Technological Innovation and Why Is It Important? 79

4.2.1 A Corporate Perspective

The Management of Technological Innovation is important for the growth, effec-

tiveness and survival of companies. History is teeming with examples of enterprises
that were not able to survive because they failed to abide by innovation’s require-
ments. Each of the sectors of Technological Innovation Management is significant
but some are critical for specific companies. For example, the capacity for competi-
tion of pharmaceutical and electronics companies depends on their ability to man-
age Research and Development. It is Research and Development that offers the
opportunities to create separately new products and markets. Pharmaceutical com-
panies, such as GSK, Pfizer, and Merck, are based on research to create particularly
profitable drugs to treat ulcer or to manufacture AIDS inhibitors.
Companies, such as Sony in consumer electronics, Samsung in DRAM semi-
conductors, BMW in cars, HSBC with online economic services and Google in
search engines depend on new products and services to offer the means to compete
with and such innovations largely determine their enterprises.
Boldness as regards the processes enables companies, such as Toyota to produce
better and cheaper cars compared to their competitors and allows companies of
electronics, such as Acer in Taiwan to effectively produce for important customers
in the USA, Europe and Japan. The success of supermarkets, such as Wal-Mart and
Tesco, largely depends on their particularly innovative procedures.
When NEC decided it wanted to acquire experience in semi-conductors, some-
thing it perceived as a key strategy for its competition with various industries, it
used more than one hundred technological alliances to do so. The strong technologi-
cal enterprises, such as Boeing, very much depend on their teams and networks.
Boeing operates at present in the production of aircraft in cooperation with associ-
ates in charge of design and the manufacturing of important spare parts, such as
engines, shaft and steering-paddles. Boeing can no longer design and construct air-
crafts itself.
Enterprises usually fail to acquire value from their technological innovations.
Ampex failed to see the real market as regards its evolution in video recording. RCA
did not make the business transition from vacuum tubes into transistors. The effec-
tiveness and the quality of commercialization process determine the outcome of
technological innovation. The Betamax video system by Sony was technically bet-
ter that the competitor VHS system by Matsushita, but failed to win the competition
in the consumer market. The personal computer PC by IBM was in many respects
inferior to other competitive products but met huge success. The ability of Matsushita
and IBM to commercialize their innovations more effectively compared to their
rivals offered them their competitive advantage.
Out of all aspects of Technological Innovation Management, the innovation strat-
egy was the most demanding. Very few enterprises are steadily in a position to
develop and apply innovation strategies. The adoption of dominant positions in tech-
nology could offer a significant competitive advantage. SAP, the German software
80 4 Innovation as a Management Process

applications company, benefited significantly from the forecast of the significance of

using Unix systems and later on Microsoft NT systems. Similarly, when market
evaluations are accurate making forecasts—as when Matsushita saw the market in
relation to recording videos—leaders can largely benefit as regards innovation.
At the same time, leaders may fail to capitalize on new ideas, allowing product
innovation fans, such as Dell to succeed. Companies in the same industry follow
different strategies, based on their resources, abilities and ambitions. When these
strategies are correct, the significant benefits increase. For example, the Italian
clothing company Benetton and the Spanish company Zara have been particularly
effective in integrating innovation in their products, processes, marketing and sales,
being thus able to achieve their competitive targets, i.e. fast delivery of fashion
products being constantly changing to the market. They can deliver ‘quick fashion’,
making sure that what Madonna was wearing at the Saturday concert will be avail-
able at the stores by next Wednesday.

4.2.2 A National Perspective

he possibility to manage innovation impacts at national, regional and local level

because it affects the levels of employment, the kinds of work and the ways whereby
countries, areas and cities prosper or decline. The globalization of production and
markets, along with the increased use of digital communications and services have
driven to a significant restructuring of entire economies and of the ways innovation
processes are regulated at local and international scale. Nevertheless, a strong spa-
tial dimension prevails in the management of innovation processes. Nations are still
interested in innovation.
Some empirical research conclusions are mentioned below illustrating the sig-
nificance of technological innovation:
• High-technology industries grew two and a half times faster compared to con-
struction industries from 1980 up to 2003.
• The commerce of cutting-edge technology goods (requiring high levels of
Research and Development) doubled from 1994 up to 2003.
• High technology industries in the USA grew from 11 % in 1980 to 13.5 % in
1990 and 34 % in 2003.
• Innovative countries and regions present higher productivity and revenue
compared to less innovative ones (Fagerberg 2004).
• The benefits from investments in Research and Development from a ‘social’
aspect (in society in general) and from a ‘private’ aspect are steadily estimated at
high levels. In a study regarding 17 innovations, Mansfield et al. (1977), found
that the social ‘revenue’ from investments in Research and Development were
56 % and private revenue stood at 25 %.
• Technological innovation has played a key role in the economic reform of Eastern
Asian economies.
4.2 What Is the Management of Technological Innovation and Why Is It Important? 81

• Entire industries, such as the Swiss watch industry and geographical regions
such as Silicon Valley in California can be strengthened or weakened by techno-
logical change (Saxenian 1994; Utterback and Suarez 1994).
• At corporate level, the new products, of less than 5 years old, are set to yield
30 % of profit in American companies and almost half of sales and profits in high
performance companies (Cooper and Edgett 2004).
• Credit and easy access to financing is more likely to be granted to innovative
companies compared to not innovative ones (Czarnitzki and Kraft 2004).
• In the United Kingdom, innovators in construction and services industries pres-
ent higher productivity and increase of productivity compared to non-innovators
(Criscuolo et al. 2005).
• Payments for the granting of licenses and the right to technology increased at
constant prices from $7bn in 1976 to over $120 bn in 2004.

4.2.3 A Theoretical Perspective-Evolutionary Economy

The empirical conclusions on the effect of technological innovation are enhanced

by new theoretical approaches that unveil the significance of innovation, evolution-
ary economic and new or inherent growth theory.
The importance of technology for economic growth has been understood by
political economists, (Adam Smith, Karl Marx, Alfred Marshall), but it was Joseph
Schumpeter the first who placed innovation at the center of his economic analysis.
For Schumpeter, innovation refers to new products, production methods, supply
sources, markets and modes of organization. He explained how economies grow:
‘Nothing can be more plain or even more trite common sense than the fact that innovation
lies at the heart of almost all phenomena, difficulties, and problems of economic life in
capitalist society’
[Schumpeter]

Evolutionary economics view capitalism as a system that constantly creates variety

of ideas, companies and technologies created by entrepreneurs and innovative activ-
ities of large research groups (Nelson and Winter 1982; Dosi 1988; Nelson 1995).
Decisions lead to choices out of this variety regarding companies, consumers and
governments.
Some of these market choices are successfully disseminated and are fully devel-
oped in the new activities of companies and in technologies that provide the
foundation for future investment in creating variety. A big part of the variety and the
options made is disorganized or fails to be disseminated; therefore, the significant
uncertainty, the disruption and the failure constitute features of the evolutionary
economic growth. From the perspective of evolutionary economics, success in inno-
vation explains the different performance of nations, regions and enterprises.
Modern economic evolutionary theory (Frenken 2000) keeps on advocating that
economic growth and development are first and foremost a result of innovation,
82 4 Innovation as a Management Process

bringing in more insight through the theory of complexity. Economic development

is a very complex process involving many constituents, in open systems, with
unpredictable outcomes. Innovation yields profit, but also brings about a structural
change (Schumpeter’ creative destruction), uncertainty and ‘useless’ investments.
The importance of evolutionary economics in the Management of Technological
Innovation lies in the way it helps to explain the primary importance of innovation;
however, they do illustrate that innovation is complex and uncertain and sometimes
unsuccessful. Emphasis is placed on the central paradox of innovation: it is substan-
tial, however continuously problematic.

4.2.4 Significant Characteristics of the New Growth Theory

Technology is ‘endogenous’-a central part of the economic system, a key factor of

production along with capital and work.
• Although any important technological discovery may arise randomly, technol-
ogy is rising as a whole, depending on the resources dedicated thereto.
• Technology generates ‘positive revenue’. The traditional theory forecasts shrink-
ing revenue in investments; however, a big increase can be attained by techno-
logical investment.
• The investment may render technology precious and technology may make
investment even more precious-a circle that can permanently increase an econo-
my’s growth rate.
• Monopolistic power is useful in granting incentives for technological research.
• The emerging global economy is mostly based on ideas rather than objects. This
requires different institutional arrangements and pricing systems, taking into
account for example that the prices depend on the time of development, cost and
risk and not on plants’ production costs.
• The capabilities for discovery and ongoing improvements are immense.
Traditional neoclassical economic theories view technology as an ‘exogenous’
factor in explaining economic growth. This form of analysis considers that produc-
tivity and growth represent a function resulting from the combination of the three
factors of production: land, work and capital with a big unexplained balance in the
calculations. Based on this theory, technological innovation may be a part of the
explanation for this balance but unfortunately so far there is little interest in
investigating and establishing its importance. The sources of technology and the
characteristic and idiosyncratic ways whereby innovation is being used in individ-
ual companies to generate growth are disregarded. Moreover, technological invest-
ments, like all capital investments, were supposedly generating reduced revenue
with the lapse of time (Verspagen 1993).
On the contrary, the new growth theory supports that technology is a significant
‘endogenous’ factor that explains the growth and the understanding of the necessity
of the way technology flows among companies and industries (Romer 1990).
4.3 Challenges in Technological Innovation Management 83

Moreover, contrary to conventional investments in installations and equipment

bringing in reduced revenue as times goes by, technological investments are set to
‘produce’ positive revenue through the creation of new knowledge, options and
opportunities (Arthur 1991).

4.2.5 An Individual Perspective

The contribution to society by advanced and recent innovators, such as Edison,

Marconi, Steve Jobs in Apple and Bill Gates in Microsoft, is well known. Innovations,
however, do not simply arise through the heroic efforts of some persons. They usu-
ally arise from combined activities of human groups and organizations that build on
the other’s knowledge and experience. The work undertaken may mostly result in
‘99 % of Edison’s toil from 1 % of his inspiration’ and indeed, occasionally it may
be, as Nathan Rosenberg (1976) put it, ‘polluting and uninspiring’. Innovation is
though the result of the application of innate human inventiveness and wit. Creativity
is something that we are all capable of and the application of innovation capacity
constitutes a source of enthusiasm, challenge, satisfaction and happiness.

4.3 Challenges in Technological Innovation Management

The more innovation activity focus shifts from the simple incremental improve-
ments towards more demanding changes and the higher the number of bodies par-
ticipating in its creation, the more Technological Innovation Management involves
the effort to manage something complex and hazardous. Besides the inherent com-
plexity of many products and services, a key view on complexity rests in the sys-
temic nature of a modern enterprise. In this respect, complexity is a characteristic of
systems having multiple contributors and unexpected outcomes. Moreover,
technology-based innovations, such as airplanes, cars, buildings, banking opera-
tions or mobile phones, comprise various systems. Computers for example include
central processing units, software systems, applications programs, disc units, mem-
ory chips, power supply and communication devices, keyboards and screens. The
integration of all above complex systems is a key objective of the Technological
Innovation Management.
Some of these complex systems have been described as a particular form of
industrial production requiring different administrative approaches (Hobday 1998).
Therefore, for complex products and systems (including products of high value,
basic goods, control systems, networks and constructions of applied engineering,
electronic aircraft systems, coastal oil equipment and smart buildings), there are
special demands in the design, program management, applied engineering and inte-
gration of systems (Brusoni et al. 2001).
84 4 Innovation as a Management Process

Risk levels are determined by various factors, including the degree in which
innovation results are unpredictable, costly and non-assignable. The innovative
activities of companies clash with the overall business uncertainty of future deci-
sions relevant to the investment, the technical uncertainty for future technological
developments and the parameters of technological performance and cost, with the
market uncertainty for the commercial sustainability of specific new products or
processes (Freeman and Soete 1997). With the high degree of risk and uncertainty of
investments in technological innovation and the very high investment levels therein
(some companies spend billions of dollars annually and some industrial sectors,
such as electronics and pharmaceutics spend more than 10 % of their annual revenue
in Research and Development), huge pressure is placed on companies worldwide to
cut the expenses of technological innovation or obtain higher revenue therefrom.
There are challenges linked to all the methods used to ensure desired revenue from
investments in innovation, such as whether for example intellectual property protec-
tion is subsidized and can be preserved, or whether secrets can be kept. They explain
why innovators fail so often to have the suitable return on their efforts. An additional
estimate is the issue of speed: how fast can innovation be protected and returns be
incurred? New markets can develop very quickly, based on the new technology.
Within a decade since its development, it is estimated that electronic commerce has
turned into a business of trillions of dollars. In such swiftly evolving environments
many challenges arise for many companies and opportunities for others.
Whether it has to do with the development or with the improvement of new
products, processes and services, the Management of Technological Innovation
requires the organizational capacity to learn fast and move quickly when issues of
competition arise. As we shall see in the following chapters, companies may develop
organizational rigidness opposing innovation and the external sources of ideas.

4.4 Case Study in Technological Innovation Management

Some of the issues and the common problems faced in the Management of
Technological Innovation are briefly presented in the following short case studies,
being complex descriptions of actual businesses and placing emphasis on the oppor-
tunities and the issues such are facing.

4.4.1 Biotechnology Company

The Biotechnology Company arose towards the end of ‘70s in the USA. These
companies started as vehicles of transmission of new scientific discoveries in genetic
applied engineering and immunization, in the industry, by research laboratories and
universities.
Some companies were initially expected to follow the model of information
technology industry and reproduce the remarkable growth of companies such as
4.4 Case Study in Technological Innovation Management 85

Apple, Intel and Microsoft. Few biotechnology companies, though, have reached a
similar for the sector size. Many of them have been acquired by large pharmaceuti-
cal companies and those that remained independent have primarily focused on prod-
uct development rather than on becoming producers and distributors.
Sidmuth Genes Technology (SGT) is an example of an American biotechnology
company that seeks the optimal way to obtain value from its intellectual property.
The business is located in Cambridge, Massachusetts and employs 45 people includ-
ing 20 scientists holding a PhD, in the elaboration of gene technology that inhibits
liver cancer development.
SGT started from two scientists, Elaine Weissman and Peter Georgiou a capital
investor, Jenny Kuper, on the basis of a scientific discovery with two possible mar-
ket applications. Laboratory tests proved very successful and Weissman and
Georgiou consider that their discovery would contribute to overcoming liver cancer,
a disease of a multi-million dollar market in USA.
The challenges faced by SGT are significant. They include the management of
the regulatory process required to first protect and then develop its discovery. The
company patented its discovery (being the basis of Jenny Kuper initial investment)
but there were various technical aspects associated with the important discovery
that were not fully patented. This was due to carelessness on behalf of managers of
the new enterprise and to a concern to deal with the patents cost.
Subsequently, SGT discovered that the true commercial added value of its dis-
covery lies not in the substance itself (a complex protein), but in the product growth
and manufacturing process per scale. This is a delicate process as it includes product
development in quantities of some grams utilizing a specific animal gene. Significant
intellectual capital was invested in the manufacturing process but was not patented
and competitive companies obtained the technology because Weismann and
Georgiou kept on their academic tradition to publish and discuss their research
results. Although the company knew it was a matter of knowledge sale, it failed to
acknowledge which aspect of knowledge had the highest value.
A second problem faced by SGT was the time span and the money required to
gain the approval for a new drug development. Under the American regulatory sys-
tem, it could take between 4 and 14 years involving more than 750 million dollars
to ensure approval for a new drug by virtue of the rigorously controlled testing and
approval process.
The company discovered however that although the new product functioned, it
did not yield evidently better results than the existing products in the market. As a
result, it shifted its attention towards the second application and this meant delay
and cost increase.
SGT could not afford to proceed through the drug approval regulatory process,
nor attempt to develop the marketing and distribution effort required to launch its
products in the market. Initially, it considered that its eventual product would be so
effective that it would be sold with prescription in the drug stores but then decided
that higher supervision of use was required. It investigated the possibility of targeting
specialized treatments at hospitals. Weissman and Georgiou thought that while in the
first case SGT would have to sell the product’s rights to a large company that would
86 4 Innovation as a Management Process

be able to assume the cost for marketing and distribution; in the second case it would
be in a position to preserve some rights to the product. However, in this case, the
product’s commercialization cost proved equally prohibitively costly. To improve its
economics, it had started offering research and services to other enterprises using the
experience of its personnel and its scientific equipment in order to analyze and place
consecutively the various genetic materials.
Following a long discussion and with some reluctance, it forged a strategic alli-
ance with an important American pharmaceutical industry, receiving in exchange a
high investment capital for all the rights of the developed product.
In the case of SGT, the administrative challenges faced by the three biotechnol-
ogy company managers are important. The two scientists, instead of conducting a
research, spend their time in communication with regulation-related organizations;
they work on patent rights infringement and with the drug approval process of the
American Food and Drug Administration (FDA); they execute stereotypical proce-
dures to improve the company’s financials and manage the cumbersome and
demanding relations with associated large pharmaceuticals. Weissman and Georgiou
wish to maintain the momentum and eagerness for discovery and encourage the
creativity needed to continue developing new products and to build on the compa-
ny’s base of knowledge. Jenny Kuper had registered a success in computer industry
but had limited experience in pharmaceutical companies. Her expectations for quick
profit have not been fulfilled and she is undecided as to the strategy to be followed.
She could keep on financing the company into a joint venture until other products
are developed or almost developed and then sell the business making possibly
significant profit. Or she could keep on encouraging SGT to sell its intellectual
property at much lower price to a large pharmaceutical company, exposing thus
herself to a lower risk.
The enterprise has important decisions to make for its future. Could it become an
enterprise for rendering research services but where would be the pleasant part for
creative scientists like themselves? The enterprise needs to decide whether it shall
continue financing its own expensive research to develop a series of new products, or
whether it shall become ambitious and try to develop and commercialize its products,
probably in cooperation with other companies. It should be examined whether it shall
sell out to a pharmaceutical company, and if yes, at what point should it be attempted.

4.5 Innovation Management Techniques (IMTs)

Today, product life cycles become gradually smaller. Actually in some sectors such
as the computer sector, technological devaluation of the products occurs within a
few months. Therefore it is a great competitive advantage for the companies to be
able to introduce new products to the market before their competitors, gaining in
this way significant sale shares. Today companies must be able to be constantly
innovative in order to maintain or improve their position in the market.
Many people would reply to that question by saying that ‘innovation is some-
thing new, an invention, a new idea’. However, in reality innovation is not just the
4.5 Innovation Management Techniques (IMTs) 87

generation of a fresh idea for a new product or process, but also includes all the
stages from design and efficiency evaluation to the idea’s implementation.
The implementation of an innovation is basically carried out with the first trans-
action regarding a new or improved part, product, process or system. On the con-
trary, an invention is a concept, a plan or a model of a new and improved part,
product, process or system, which although it can lead to a patent certificate, in the
majority of the cases does not result in a transaction and therefore in the end the
innovation is not implemented.
Many surveys have shown that innovative companies—ones that constantly
innovate—are, on the average, twice as profitable than other companies. However,
managing innovation is extremely difficult and, as a result, the majority of new
ideas do not turn into new successful products or services.
If innovation is to be successfully managed the firm needs a number of things
which can be quite easily specified, and which it may well make sense to acquire
from external sources. These may include:
• Information on what can be done;
• Information on how to do it;
• Help in ensuring the firm makes the right decision on what to do and how to
implement it;
• Assistance with planning and implementation;
• Money, to finance the necessary developments, together with advice on appropri-
ate sources including grants and loans;
• Some way of ensuring the firm does not get unduly side—tracked by short term
pressures and emergencies;
• Specific expertise on technological, marketing, management or organizational
matters;
• Training and skills development at various levels.
Successful innovation management is difficult for smaller firms, but with some
simple, structured techniques and a good facilitator the chances of success can be
greatly increased. The difficulty arises for several reasons, among them access to
information, short timescales, a necessary aversion to risk, reluctance to engage
outside help, and financial constraints.
While there is a wealth of research on innovation in large firms and high tech
small firms, the processes of innovation in most SMEs are not well understood.
What is clear is that creating an innovative enterprise is not primary about technol-
ogy: it is about people, culture and communication. These “softer” factors, together
with the technology itself and the business processes within the firm, must be taken
into account in an integrated approach to innovation management. The aim is a dual
perspective: a technologically informed view of business strategy combined with a
strategic view of technological development.
Many methodologies and techniques have been employed in managing innova-
tion, which are implemented at every stage of the innovation process in order to make
it smoother and more efficient; they are called Innovation Management Tools/
Techniques (IMTs) and each has its own characteristics, its own way of implementa-
tion and, depending on its special features, is applied at different stages of the inno-
vation process.
88 4 Innovation as a Management Process

Structured IMTs facilitate a rapid, wide ranging appraisal and encourage strate-
gic thinking. They allow the consultant to highlight and probe areas of weakness
and those where there is a difference in perception among staff. They help to alert
the company to strengths, weaknesses and opportunities, and emphasize important
human issues. Above all, they stimulate the firm to action. They can start a process
in which early tangible benefits will build confidence for achieving long term
change.
The key to success lies in achieving a “best fit” between the consultant, the tech-
nique used, and the firm. Some principles of good practice are listed in Fig. 4.1. The
consultant adds value by ensuring that management and staff take the assignment
seriously; forcing issues into the open; promoting wide staff involvement; interpret-
ing findings; and moving the firm on to action planning and implementation. A good
analogy is that of a “business doctor”. Some principles of good practice for the
consultant can also be identified.
In recent years decades, a multitude of Innovation Management Tools has been
developed. Evaluations show that many of them work well and often lead to suc-
cessful results. The same evaluations, not surprisingly, also reveal that factors out-
side the IMTs themselves are crucial in determining how successful the results will
be. Based on observations, it seems sensible to argue that a competent consultant
working together with a strongly committed top management can make good use of
most modern IMTs, and that no IMT can compensate for the absence of manage-
ment commitment and the lack of general consultancy competence. In order to
select the most suitable IMT for a specific task, it is necessary to know the areas it

Simplicity and clarity in presentation & data collection

Founded on an open, objective model
Seeks best fit to company situation, with clear objectives
Compares with best practice in & beyond industry sector
Flexible – complements and does not stifle creativity
Collects basic information / expectations beforehand
Includes time perspective
Balances comprehensiveness + time (e.g. via suitable software)
Consults cross –section on firm
Uses discrepancy information (differences in perception among staff)
Includes action planning step
Linkages to other tools / steps
Sets success criteria
Facilitates learning by firm
Provides for mandatory follow - up

Fig. 4.1 Principles for IMT design

4.5 Innovation Management Techniques (IMTs) 89

focuses on. It is equally important, of course, to know the needs of the enterprise in
question in order to make a proper match.
In order to select the most suitable IMT for a specific task, it is necessary to know
the areas it focuses on. It is equally important, of course, to know the needs of the
enterprise in question in order to make a proper match.

4.5.1 Examples of IMTs

4.5.1.1 Technology Audit

The Technology Audit is a method for identifying through a short interview-visit to

a company, the major company requirements, needs, weaknesses and strengths on
both human resources and infrastructure. The Technology Audit is a technique that
enables the auditor to determine and identify in a very short meeting session, the
management’s view of how the company performs as well as strong indications of
what the company really needs. The Technology Audit technique examines concur-
rently the external and internal environment of the company and identifies the
human resources relation to company’s performance.
The objective of Technology Audit is to provide the auditor with a clear identifi-
cation of company’s first priority needs as well as strengths and opportunities that
should be taken under consideration. It also assists the auditor to identify the more
significant actions that the company should adopt.
The technology audit is equally applicable to manufacturing and service firms.
The firms should be wishing to create new products, incorporate new processes,
diversify their activities and be with growth potential. They should have capacity to
survive and innovate and an aptitude for international cooperation.
The main steps of a technology audit process are shown in figure and are
described below.

1. Company decision for TA 6. First diagnosis

2. Selection of service provider 7. Presentation of first diagnosis

3. Preparation of audit plan 8. Additional visits

4. Preparatory work from expert 9. Final report

5. General short diagnosis 10. Presentation of final report

90 4 Innovation as a Management Process

1. Step 1: Company decision for Technology Audit

The starting point of the technology audit process, is the desire or wish of a firm
to carry out a technology audit.
2. Step 2: Selection of service provider
The firm selects the intermediary organization or expert to carry out the technol-
ogy audit.
3. Step 3: Preparation of audit plan
The expert visits the firm and discusses the audit details with the manager. The
expert should have a brochure/flow diagram of the steps to follow, a list of ben-
efits, a list of other companies that carried out technology audits etc. The audit
plan is devised together with top management. It establishes issues to investigate,
how to collect data and from whom, in what time span and at what cost etc.
The psychology of the interviewed person is the main obstacle of technology
audit. The psychological factor that is of major importance in the outcome of any
interview.
The objective is to elaborate a reasonable diagnosis of what might be in need of
improvement within the company under consideration within a short period of time.
It is thus important to extract all necessary information under a friendly discussion
that would flow smoothly and would thus allow the persons interviewed to open up
and mention what they really believe or understand about how things are running
within their company.
For this reason all subjects should be tackled randomly and repeated through
questions that are raising a different point of view of the same subject, so that the
auditor is helped to understand and feel where there might be a problem. The audi-
tor in such cases should not insist to find out the truth immediately but will have to
bring the issue up for discussion several times within the interview but each time
from a different point of view.
The auditors should always understand when the person interviewed is not feel-
ing right, either because he does not know the answer or because he is not able to
provide his own opinion or answer due to the presence of other company colleagues.
In all such cases the discussion should immediately change and through a reminder
by either of the auditors, the subject should be tackled at some later stage.

4.5.1.2 SWOT Analysis

SWOT analysis is another tool for auditing an organisation and its environment. It
is the first stage of planning and helps markets to focus on key issues.
A scan of the internal and external environment is an important part of the stra-
tegic planning process. Environmental factors internal to the firm can usually be
classified as strengths (S) or weaknesses (W) and those external to the firm can be
classified as opportunities (O) and threats (T). Such an analysis of the strategic
environment is referred to as a SWOT analysis.
SWOT analysis provides information that is helpful in matching the firm’s
resources and capabilities to the competitive environment in which it operates.
4.5 Innovation Management Techniques (IMTs) 91

SWOT analysis is a business tool by which, a firm wishing to implement a

strategic analysis, analyses and recognises its corporate Strengths and Weaknesses
as well as the existed or forthcoming Opportunities and Threats from its external
environment. Only when these four critical information elements are well elabo-
rated and known, the enterprise is able to formulate and implement the strategy
leading to its business aims.
The role of SWOT analysis is to take the information from the environmental
analysis and separate it into internal issues (strengths and weaknesses) and external
issues (opportunities and threats). Once this is completed, SWOT analysis deter-
mines if the information indicates something that will assist the firm in accomplish-
ing its objectives (a strength or opportunity), or if it indicates an obstacle that must
be overcome or minimised to achieve desired results (weakness or threat).
When doing SWOT analysis, remember that the S and W are INTERNAL and
the O and T are External.
SWOT analysis is an extremely useful tool for understanding and decision-
making for all sorts of situations in business and organisations.
SWOT Analysis is a very effective way of identifying your Strengths and
Weaknesses, and of examining the Opportunities and Threats you face. Carrying out
an analysis using the SWOT framework helps you to focus your activities on areas
where you are strong and where the greatest opportunities lie.
By creating a SWOT analysis, you can see all the important factors affecting
your business together in one place. It’s easy to create, easy to read, and easy to
communicate.
A company can use the SWOT analysis:
• While developing a strategic plan or planning a solution to a problem.
• In order to develop a plan that takes into consideration many different internal
and external factors, and maximises the potential of the strengths and opportuni-
ties while minimising the impact of the weaknesses and threats.

SWOT Analysis Framework

Environmental Scan

Internal Analysis External Analysis

Strengths Weaknesses Opportunities Threats

SWOT Matrix
92 4 Innovation as a Management Process

Action Checklist

1. Establish 2. Allocate 3. Create a 4. SWOT 5. Evaluate

objectives research workshop Matrix ideas
environment

1. Establish the objectives

The first key step in any project is to be clear about what you are doing and why.
The purpose of conducting SWOT analysis may be wide or narrow, general or
specific.
2. Allocate research and information-gathering tasks
Background preparation is a vital stage for the subsequent analysis to be effec-
tive, and should be divided among the SWOT participants. This preparation can
be carried out in two stages:
• Exploratory, followed by data collection.
• Detailed, followed by a focused analysis.
Gathering information on Strengths and Weaknesses should focus on the internal
factors of skills, resources and assets, or lack of them. Gathering information on
Opportunities and Threats should focus on the external factors.
3. Create a workshop environment
If compiling and recording the SWOT lists takes place in meetings, then do
exploit the benefits of workshop sessions. Encourage an atmosphere conducive
to the free flow of information and to participants saying what they feel to be
appropriate, free from blame. The leader/facilitator has a key role and should
allow time for free flow of thought, but not too much. Half an hour is often
enough to spend on Strengths, for example, before moving on. It is important to
be specific, evaluative and analytical at the stage of compiling and recording the
SWOT lists.
4. List Strengths, Weaknesses, Opportunities, Threats in the SWOT Matrix
5. Evaluate listed ideas against objectives
With the lists compiled, sort and group facts and ideas in relation to the objec-
tives. It may be necessary for the SWOT participants to select their five most impor-
tant items from the list in order to gain a wider view. Clarity of objectives is key to
this process, as evaluation and elimination will be necessary to separate the wheat
from the chaff.
The SWOT analysis template is normally presented as a grid, comprising four
sections, one for each of the SWOT headings: Strengths, Weaknesses, Opportunities,
and Threats. The SWOT template below includes sample questions, whose answers
are inserted into the relevant section of the SWOT grid. The questions are examples,
or discussion points, and obviously can be altered depending on the subject of the
SWOT analysis.
4.5 Innovation Management Techniques (IMTs) 93

Strengths Weaknesses
Advantages of proposition? Disadvantages of proposition?
Capabilities? Gaps in capabilities?
Competitive advantages? Lack of competitive strength?
USP’s (unique selling points)? Reputation, presence and reach?
Resources, Assets, People? Financials?
Experience, knowledge, data? Own known vulnerabilities?
Financial reserves, likely returns? Timescales deadlines and pressures?
Marketing—reach, distribution, awareness? Cash flow, start-up cash-drain?
Innovative aspects? Continuity, supply chain robustness?
Location and geographical? Effects on core activities, distraction?
Price, value, quality? Reliability of data, plan predictability?
Accréditations, qualifications, certifications? Morale, commitment, leadership?
Processes, systems, IT, communications? Accreditations, etc.?
Cultural, attitudinal, behavioural? Processes and systems, etc.?
Management cover, succession? Management cover, succession?
Opportunities Threats
Market developments? Political effects?
Competitors’ vulnerabilities? Legislative effects?
Industry or lifestyle trends? Environmental effects?
Technology development and innovation? IT developments?
Global influences? Competitor intentions—various?
New markets, vertical, horizontal? Market demand?
Niche target markets? New technologies, services, ideas?
Geographical, export, import? Vital contracts and partners?
New USP’s? Sustaining internal capabilities?
Tactics—surprise, major contracts, etc.? Obstacles faced?
Business and product development? Insurmountable weaknesses?
Information and research? Loss of key staff?
Partnerships, agencies, distribution? Sustainable financial backing?
Volumes, production, economies? Economy—home, abroad?
Seasonal, weather, fashion influences? Seasonality, weather effects?

• Tips for successful SWOT analysis

Top tips But remember …

1 Never copy an existing SWOT analysis; it You could use a standard template to help the
will influence your thinking. Start with a ideas flow
fresh piece of paper every time
2 Set aside enough time to complete it You may need to come back to it several times
before you are happy
3 The SWOT analysis itself is NOT the Before you begin any analysis, you should
result. It’s only a tool to help you analyse know what you intend to do with the results
your business
4 A SWOT analysis is not a business school You need to be comfortable working with it in
fad. It is a proven technique used your business
throughout the business community
5 Keep your SWOT analysis simple, It needs to make sense to outsiders (e.g. bank
readable, short and sharp managers or investors) so don’t use phrases
or acronyms that only you understand
94 4 Innovation as a Management Process

6 Make sure you create an action plan based You need to communicate this clearly to
on your SWOT analysis everyone involved
7 A SWOT analysis only gives you insight at You need to review it—probably quarterly—to
a single point in time see how the situation has changed
8 Don’t over-analyse. Try not to worry if it If you are going to act on the results, it needs
isn’t perfect, just get the analysis done to be accurate in all the important areas

• SWOT analysis example

Subject of SWOT analysis example: the achievement of a health centre’s mission.
The scenario is based on the SWOT analysis, which has been performed by a
health centre in order to determine the forces that promoted or hindered the achieve-
ment of its mission.
Starting position of the health centre:
– The staff’s lack of motivation
– The building was really small
– The facilities was old
– There was a lot of paper work and bureaucracy
Those characteristics resulted in this health center facing up to a lot of problems
with the accommodation of the patients. Moreover, the establishment of a new
advanced hospital in the city made the situation even worse. Therefore, they decided
to perform a SWOT analysis in order to perform the best decision-making for all the
problems that they faced.
Step 1: Purpose of conducting SWOT analysis—the achievement of a health cen-
ter’s mission.
Step 2: The gathering of information on Strengths and Weaknesses focused on the
internal factors of skills, resources and assets, or lack of them. The gathering
information on Opportunities and Threats should focus on the external factors.
Step 3: The manager of the health center encouraged all the members of staff to
freely express their opinions about what they felt to be appropriate.
Step 4: SWOT matrix

Strengths: Weaknesses:
• Willingness of staff to change • Staff lack of motivation
• Good location of the health centre • Building was really small
• Perception of quality services • Paper work and bureaucracy
• Cultural differences with users
Opportunities: Threats:
• Support of local government • Low income of users
• Highly felt need of users • Bad roads
• Internationally funded projects • Low salaries
• Lack of budget
• Paradigms of providers
• High competition

Step 5: After completing the SWOT matrix, the SWOT participants had a wider
view of the situation at the centre, so they were able to propose the alternatives
that helped considerably in the operation of the health centre.
4.5 Innovation Management Techniques (IMTs) 95

The alternatives where:

– Training of the staff in interactive techniques of quality improvement
– Coordination with other providers to cover all user needs
– Remodelling of the facility with local government funds and international help
– Cost recovery of drugs and lab supplies with user fees
– Payment of incentives to staff based on performance
– Review of procedures for decreasing costs and waiting times and increasing per-
ceived quality.
This strategic analysis and planning of the health centre had the below results:
– 27 % increase of patients
– Reduction of waiting times to 15 min
– 20 % increase of staff performance
– Remodelling of the facility

4.5.1.3 The Black Box Method

Two of the most important tools, which can be used to define the innovation needs
of a business problem, are the Black Box Method and the System and Process anal-
ysis. Black Box is a method of a process in which we have no knowledge of the
inner workings of the process being tested. We might know what the input is and
what the expected outcome is, but not how the results are achieved. The method
aims at:
• Either a formal description of the transformation rules linking inputs and
outputs
• Or the construction of a model exhibiting a behavior that approximates what is
observable from the outside of the “black box”
See below the definition of the Black Box method according to Principia
Cybernetica:
http://pespmc1.vub.ac.be/ASC/Black_metho.html
The Black Box Approach to Problem Solving is a simple but powerful and sig-
nificant method of dealing with complex problems. Its main advantage arises from
the fact that it makes us differentiate clearly between:
– The preconditions for solutions or success
– The inputs (or resources we need—and/or dispose)
– The desired goals (for instance Design Goals) and
– The processes needed to build a bridge between the inputs and outputs
Having mastered this very simple technique we can:
– Start to define new possibilities, potentials and systems, whereas we may have
relatively little information of what is or could be in the box
96 4 Innovation as a Management Process

Using only plain logical thinking we can often:

– See a logical bridge between the input and the output (or present state and goals)
and thus realise new possibilities whereas a completely overall consideration of
the box would confuse us and make us focus too hard on not-as yet developed
processes, which could easily result (if overdone) in feelings of impossibility.
Using the black box method we will realise logical possibilities that may or may
not be realisable by existing processes—but we will become far more sensitive to
new opportunities and potentials by doing this.
SO: The BB method is in a sense a very effective eye-opener as regards
innovation!
Even in fields where we do not understand the transformative processes com-
pletely, the only thing we have to understand is that there can be a logical connec-
tion between the input and the output.
The Black Box method is typically used by:
– Researchers/statistics
– Project management
– Manufacturing
– Change management
– Engineering
In order to perform the black box method black box testing is used. The test cases
in a black box test case design are deviated from the requirements or the specifica-
tions respectively. The object to be assessed is considered as a black box, i.e. the
assessor is not interested in the internal structure and the behavior of the object to
be assessed.

Black-Box Testing

The functionality of each module is tested with regards to its specifications (require-
ments) and its context (events). Only the correct input/output relationship is scrutinised.
4.5 Innovation Management Techniques (IMTs) 97

Other names for black box testing include: specifications testing, behavioral
testing, data-driven testing, functional testing, and input/output-driven testing.
In general, every combination of input and output would require an infinite number
of test cases. Consequently, exhaustive black-box testing is usually either impossi-
ble or unreasonable. The art of testing is to design a small, manageable set of test
cases so as to maximise the chances of detecting a fault whilst minimising the
redundancy amongst the other cases.

Equivalence Testing and Boundary Value Analysis

Equivalence testing, combined with boundary value analysis, is a black-box tech-

nique of selecting test cases in such a way that new cases are chosen to detect previ-
ously undetected faults. An equivalence class is a set of test cases such that any one
member of the class is representative of any other member of the class.
The principle of the generation of equivalence classes is to group all input data
of a program into a finite number of equivalence classes so it can be assumed that
with any representative of a class it is possible to detect the same errors as with any
other representative of this class.
The definition of test cases via equivalence classes is realised by means of the
following steps:
– Analysis of the input data requirements, the output data requirements, and the
conditions according to the specifications
– Definition of the equivalence classes by setting up the ranges for input and output
data
– Definition of the test cases by means of selecting values for each class
Example Suppose the specifications for a database product state that the product
must be able to handle any number of records from 1 through to 16,383. If the prod-
uct can handle 34 records and 14,870 records, then the chances are good that it will
work fine for, say, 8534 records. If the product works correctly for any one test case
in the range from 1 to 16,383, then it will probably work for any other test case in
the range. The range from 1 to 16,383 constitutes an equivalence class. For this
product, there are three equivalence classes:
Equivalence class 1: less then one record.
Equivalence class 2: from 1 to 16,383 records.
Equivalence class 3: more than 16,383 records.
Testing the database product then requires that one test class from each equiva-
lence class be selected.
A successful test case is one that detects a previously undetected fault. In order
to maximise the chances of finding a new fault, a high-payoff technique is boundary-
value analysis. Experience has shown that when a test case on or just to one side of
98 4 Innovation as a Management Process

a boundary of an equivalence class is selected, the probability of detecting a fault

increases. Thus, when testing the database product, the following cases should be
selected:

Test case 1: 0 records Member of equivalence class 1 and adjacent to boundary value
Test case 2 1 record Boundary value
Test case 3 2 records Adjacent to boundary value
Test case 4 723 records Member of equivalence class 2
Test case 5 16,382 records Adjacent to boundary value
Test case 6 16,383 records Boundary value
Test case 7 16,384 records Member of equivalence class 3 and adjacent to boundary value

This example applies to the input specifications; the same technique should be
applied to the output specifications. The use of equivalence classes, together with
boundary value analysis, is a valuable technique for generating a relatively small set
of test data with a high probability of uncovering most faults.

Functional Testing

1. Objective and Purpose

An alternative form of black-box testing is to base the test data on the functional-
ity of the module. It is the purpose of the functional testing to identify test cases
that can be used to prove that the corresponding function is available and can be
executed as well. In this connection the test case concentrates on the normal
behavior and the exceptional behavior of the object to be assessed.
2. Operational Sequence
Based on the defined requirements, the functions to be tested must be identified.
Then the test cases for the identified functions can be defined.
3. Recommendation
With the help of a test case matrix it is possible to check if functions are covered
by several test cases. In order to improve the efficiency of the tests, redundant
test cases ought to be deleted.

4.5.1.4 System and Process Analysis

System and process analysis are the other tools available to define the innovation
needs of a business problem. System analysis is a method that helps the businesses
pinpoint where changes need to be made in the system, so that limited resources can
be focused on those areas. Process analysis, determines what steps within a task are
required to create a measurable output. Process analysis provides an opportunity to
identify problem points in a workflow, understand the factors that affect perfor-
mance, and question why certain actions are taken.
The process analysis helps to trace the source of variation and is, therefore, a
useful method to identify root causes of a problem. Process analysis is typically
4.5 Innovation Management Techniques (IMTs) 99

performed using an activity—level process flowchart and by asking a series of

questions to explore or justify excessive cycle time, approvals, improper sequence,
delays, and other process deficiencies. System analysis is an explicit formal inquiry
carried out to help the decision—makers identify a better course of action and make
a better decision than they might otherwise have made.
The typical use of systems analysis is to guide decisions on issues such as
national or corporate plans and programs, resource use and protection policies,
research and development in technology, regional and urban development, educa-
tional systems, and other social services. System analysis is performed using a sys-
tem analysis diagram which is a tool that systematically illustrates the process flow
from the supply side (or input of resources), to the transformation of throughput of
product or services, to the output side for final quality verification and release to the
customer. This diagram helps to identify interrelationships of major tasks, work
phases, and opportunities for improvements through the use of feedback loops at the
organization and the customer levels.
• Typical application of the process analysis technique
– To review, analyze, and improve an existing process
– To identify process improvement opportunities
– To fine-tune processes in an organizational change project
• Typical application of the system analysis diagram
– To overview the sequential production or service processes, lines of commu-
nication, and quality feedback loops
– To reach a common understanding using the systems approach
– To clarify roles, task responsibilities, and system requirements
• The system and process analysis are typically used by:
– Research/statistics
– Creativity/innovation
– Engineering
– Project management
– Manufacturing
– Marketing/sales
– Administration/documentation
– Servicing/support
– Customer quality metrics
– Change management

Problem Solving Phase

• The problem solving phase encompasses the below steps:

1. Select and define problem or opportunity
2. Identify and analyze causes or potential change
100 4 Innovation as a Management Process

3. Develop and plan possible solutions or change

4. Implement and evaluate solution or change
5. Measure and resort solution or change results
6. Recognize and reward team efforts
• Notes and key point for process analysis
– To construct a process flow, several tools are available:
– Process flowchart
– Symbolic flowchart
– Process mapping
– Cycle time flowchart
– Activity analysis
Using any one of these will allow a process improvement team to achieve estab-
lished team goals.
– The given list of ten process analysis questions (see in the example) is optional.
The number and content of questions may change in accordance with the com-
plexity of any given process.
• Notes and key point for system analysis
Below, in the boxes, we are presenting the major steps of the diagram and outside
them we give some other headings or designations that can be submitted for the
generic system analysis diagram headings:

Transfor-
Supplier Inputs mation Outputs Customer

Sources Requirements Process Outcome Users

plan Project result
Program
Function
Person

• Step-by-step procedure of the process analysis by using the tool of symbolic

flowchart
1. As a prerequisite activity, a facilitated team develops a process flowchart at
the activity-level for the process selected. In order to create a process flow-
chart the below steps need to be followed:
• The team facilitator assembles a team whose participants thoroughly
understand all aspects of the process.
• The overall scope of the process flowchart is determined. A starting and
stopping point is identified.
4.5 Innovation Management Techniques (IMTs) 101

• Next, participants identify all major process steps and the sequence of
completion. Symbols and connecting flow lines are used to show process
activity and sequence.
• The facilitator uses a whiteboard to start drawing the flowchart. The par-
ticipants assist the facilitator in drawing and connecting all process steps in
the correct sequence.
• Finally, the symbolic flowchart is verified for accuracy and dated.

2. The facilitator displays a set of standard process analysis questions. The team
reviews the questions, adds, deletes, or revises questions to fully cover the
process to be analyzed.

3. Using the finalized list of questions, the team discusses all activities in the
process and provides responses to the questions.

4. Finally, the facilitator asks participants to recheck all responses, makes final
revisions, and dates the list.

5. The information serves as an input to a variance process, a logical next step for
the team.
• Step-by-step procedure of the system analysis
1. The team develops a system analysis diagram consisting of five blocks, inter-
connected, and with internal and external feedback loops added.

2. The blocks are designated to contain processing or requirements information.

3. Using the completed System Analysis Diagram as a guide, the team explores
potential problem areas and process improvement opportunities.
• Example of process analysis application
In the example below we will present the method of process analysis in the facili-
tation of the process of a student’s workshop that takes place in a university.
The first step was the assembly of a team that knew everything about the process
of the workshop. The second step was the construction of the symbolic flowchart
that would portray the process (see the flowchart below). After the flowchart the
102 4 Innovation as a Management Process

facilitators displayed a set of questions that fully covered the process of the
workshop. In the table below you can see the questions and the responses to them.

Typical Process Analysis Questions

Are the connected tasks performed in a logical sequence?
No, materials check should have been done earlier
Does the defined process show more than two loopbacks?
Yes
Do individual tasks have relatively long cycle times?
No
Does every task add value to the process?
No, audio-visual check does not add value to this process
Are there redundant tasks?
No
Does the process reflect excessive delays?
No
Does the process contain sources of key variance?
No
Are there more than two approval requirements?
No
Can the process flow be changed to reduce tasks?
Yes, remove A/V checks
Does this process have a high level of consistency?
Yes

From the above responses the facilitators decided that the materials check should
be done earlier in order to avoid delays. They noticed that the rosters of the students
were most of the times sent very late, so there wasn’t enough time to prepare the
materials needed to be given to the students who attended the workshop. Moreover,
they observed that they could change the process flow, by removing A/V checks in
order to reduce the tasks.
Standard symbols:

Start or stop Activity Meeting

Document Decision point Connector

Process flow Rework

4.5 Innovation Management Techniques (IMTs) 103

A flowchart is drawn from top to bottom and reflects left to right directionality.
Avoid crossing flow lines within the chart; use connectors within and from page
to page.

In the below addresses you can find examples of some other process flowcharts.
• Example of system analysis application

Supplier Inputs Throughput Outputs Customer

Materials Resources Production Demand Users

Internal feedbacks

External feedbacks

The above diagram represents the production system of a factory. By construct-

ing this system with its major five blocks and by finding the feedbacks that affect its
function the team of the factory can explore potential problem areas, such as:
• Bad quality of resources have a negative impact on the demand
• A market analysis is very important to decide what resources should be used to
answer the good quality of the products that the customers want
• Not taking into consideration the internal feedback of demand to production will
result either in the production of more products than are demanded, by increas-
ing the storage cost, or in the production of less products, by increasing the
deficiency cost.
• …
104 4 Innovation as a Management Process

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Chapter 5
Innovation Systems

5.1 What Is a System?

Systems engineers define the term system as a set of interrelated components

working towards a common goal. Systems consist of elements, relationships and
attributes.
Components are the operating parts of a system. They can be of various types:
(1) natural persons or organizations such as individuals, companies, banks, uni-
versities, research centers, and policy making and implementation agencies (2)
natural objects or technological artifacts such as turbine generators, transformers
and transmission lines in electric power systems, and biomedical devices, diagnos-
tic techniques and medications within the biomedical/biotechnology system, and
(3) institutions in the form of legislative structures such as regulatory laws, and
social rules and traditions.
Relationships are the connections between components: The properties and
behavior of each component influences the properties and behavior of the set as a
whole. At the same time, each component depends on the properties and behavior
of at least one other component in the set. Therefore, because of this interdepen-
dence, components cannot be divided into independent subsets. The system is more
than the sum of its parts (Blanchard and Fabrycky 1990). Moreover, if one compo-
nent is removed from a system, or its characteristics are changed, the other objects
in the system will change their characteristics accordingly (Hughes 1987), and the
relationships among them may also be changed, provided that the system is robust.
A non-robust system would simply collapse if just one essential component were
removed. Consequently, a function, (for example venture capital financing) con-
ducted by a particular set of actors, in specific forms may be performed by a differ-
ent set of actors, using different framework agreements in a similar system, at a
different time or in a different location.

© Springer International Publishing Switzerland 2015 105

E.G. Carayannis et al., Innovation and Entrepreneurship, Innovation,
Technology, and Knowledge Management, DOI 10.1007/978-3-319-11242-8_5
106 5 Innovation Systems

Relationships also include market links as well as non-market connections.

Feedback (interaction) is what makes systems dynamic; without such feedback, the
system is static. To state this in a different manner, the greater the interaction among
the components of a system, the more dynamic this system is.
One of the major types of relationships in innovation systems includes technol-
ogy transfer or acquisition, either through markets or through non-commercial
interactions. As a matter of fact, it could be argued that technology transfer is the
key activity in an innovation system. In cases where certain technologies are trans-
ferred unintentionally or accidentally, the term ‘technology spillovers’ may be
appropriate. In other cases, technology transfer is clearly intentional for both tech-
nology supplier and technology recipient. In any case, however, the transfer cannot
be successful if the receiver does not make considerable investment in time and
effort, in order to achieve the capacity needed for the successful integration of the
new technology. An outcome of the interaction (feedback) among actors is that the
capabilities of the system components evolve over time, exhibiting change and
growth, and thus changing the structure of the system.
Attributes are the properties of the components and the relationships
between them: They characterize the system. “Because the components of a tech-
nological system interact, their characteristics derive from the system”, (Hughes
1987). Strictly speaking, the characteristic features which are critical for the under-
standing of the system are associated with the function or purpose served by the
system, as well as with the dimensions in which it is analyzed. The function of an
innovation system is to generate, diffuse, and utilize technology. Consequently, the
main features of the system are the capabilities (which together represent the eco-
nomic capacity) of the actors to generate, disseminate, and use technologies (natural
artifacts as well as technical know-how) that have economic value.

5.2 The Concept of Innovation Systems

There may be various definitions of innovation systems, but they all have common
features.
According to Edquist (1997, p. 14) an innovation system is defined as: “all
important economic, social, political, organizational, and other factors that influ-
ence the development, diffusion, and use of innovations”.
Gregersen and Johnson (1998, p. 105) agree that it is likely to “regard a system
of innovation as a system of actor (firms, organizations and government agencies)
who interact which each other in ways which influence the innovation performance
of the economy as a whole”.
Edquist (2001) presents a similar approach to innovation systems. He considers
that the components of an innovation system are organizations (i.e., formal
structures that have an explicit purpose and have been consciously created) and
institutions (sets of common habits, routines, established practices, rules or laws
that regulate the interactions among individuals, groups, and organizations).
5.2 The Concept of Innovation Systems 107

Generally, there is a complicated bidirectional relationship between organizations

and institutions that influences both innovation processes and performance, and
changes innovation systems (Edquist and Johnson 1997).
According to the above definitions we can conclude that Innovation Systems are
regarded as being open, dynamic, and social (Lundvall 1992a, b), implying that
innovations are produced as the result of social interaction among economic actors
(Olazarán and Gómez Uranga 2000). This means that they are systems that interact
with their surrounding environment.
The theory of innovation systems has emerged from studies of technological
systems at the micro level, from studies on innovation systems and innovation
through interactive learning at the meso-and macro-level (Freeman 1987; Lundvall
1992a, b; Nelson 1993; Edquist 1997) and through many EU and OECD publica-
tions (OECD 1999), thus promoting the NIS concept. An important and comprehen-
sive review of this literature is available in a recent publication by Miettinen (2002).
Despite the fact that for the last 10 years everybody has been talking about ‘innova-
tion systems’, the term ‘system’ is often used in a heuristic tone the literature. For
Lundvall (1992a, b), the term ‘system’ simply explains interactivity as opposed to
the linear knowledge transfer. Schienstock and Hämäläinen (2001) identify ‘innova-
tion systems’ referring to the process of knowledge management, namely the cre-
ation, dissemination, and utilization of new knowledge. In other words, reference is
made to the path followed by knowledge (see also Carayannis and Campbell 2006).
Bauwhof has argued that Hughes and Latour, by taking into account the process
of invention–innovation, identified a method of communication (i.e. interactive
learning) where different forms of knowledge were integrated through transforma-
tion processes, promoting new combinations of knowledge. At this early stage of
inventions, the product (innovation) was an abstract concept, which was then rede-
fined and transformed by actors who were looking for a way into the market. The
‘invention system’ was ‘open’ as different options were being tested. In contrast to
the phase of the invention, the mature product appears in a technological model with
a fixed set of different forms of knowledge, in a particular structure. In this case, the
innovation system’s internal complexity may be greater than the complexity during
the invention stages, but the ‘weak-tie’ prospects are not the same as before. In the
learning economy this occurs during the formation of a new species. In nature, a
part of the population that has carved a different path sooner or later will probably
realize that they can no longer mate with members of the population from which
they have originated. This very weakness marks the birth of a new kind.
According to Carayannis and Campbell (2009), in order to perceive the impor-
tance of systems (and systems theory) one should clearly demonstrate that a system
model can coexist with various other concepts, such as innovation networks and
knowledge clusters. Networks focus on interaction, connectivity, and mutual com-
plementarity and reinforcement. Networks, for instance, can be seen as the internal
formation that unifies and determines a cluster.
Innovation systems approaches are built on institutional approaches, which are
based on the observation that markets do not exist or do not work outside the rules
and institutions that establish them. Countries, being characterized by different
108 5 Innovation Systems

institutional arrangements, could be distinguished according to how they contribute

to the development of technologies and the role they play in the entire system. The
different institutional arrangements, which characterize countries, could be distin-
guished according to how they contribute to the development of technologies and
the role they play in the entire system (Cimoli 1998). The institutional structure of
economy creates a distinct pattern of constraints and incentives determining the
interest of the actors, while shaping and channeling their behaviors at the same time.
The innovation systems approach is certainly not an official theory. However, its
development has been influenced by different theories of innovation, such as the
theories of dialogic learning and the evolutionary theories (Edquist 1997).
Concerning innovation systems Carlsson and Stankiewicz (1995) and Galli and
Teubal (1997) have stated:
The goal of an innovation system may be said to be the creation, diffusion
and exploitation of innovation.

5.2.1 Types of Innovation Systems

To understand the nature of innovation systems, it is important to take into consid-

eration the various types of innovation systems appearing in the relevant literature.
The most thoroughly studied form of innovation systems is the national innovation
system (Freeman, Lundvall, and Nelson). In this approach, the state is treated as the
primary unit of analysis and national differences, in institutional structures as well
as in the structure of production and consumption, are factors explaining why some
countries succeed in creating economic growth through innovation while others do
not (Freeman 1987; Lundvall 1992a, b; Nelson 1993). This approach is now being
widely adopted by bodies of transnational governance (OECD, EU, UN etc.) aiming
to analyze and build political initiatives.
Others scholars focus on parts of the National Innovation System such as the
regional innovation systems (Saxenian 1994, Cooke et al. Braczyk et al. De la
Mothe and Paquet) and the sectoral innovation systems (Malerba 2002). Local cul-
tures and sectoral characteristics contribute to differences in the structure, dynam-
ics, and performance of innovation systems. Finally, some authors concentrate on
the so called technological systems, which are innovation systems focusing on tech-
nology (Carlsson et al. 1992; Carlsson and Stankiewicz 1995; Jacobsson and
Johnson 2000; Carlsson 2002). The aforementioned supports the notion that there
are many innovation systems in a country that are focused on technology and that
any technological system is unique, in its ability to develop and diffuse the new
technology (Jacobsson and Johnson 2000). Thus, competition between emerging
and established technologies embedded in innovation systems is understood better
by using this concept. A technological system is defined by (Carlsson and
Stankiewicz 1995) as:
‘…a network of agents interacting in a specific economic/industrial area under a particular
institutional infrastructure or set of infrastructures and involved in the generation, diffu-
5.3 Basic Principles of Innovation Systems 109

sion, and utilization of technology. Technological systems are defined in terms of knowledge
and competence flows rather than flows of ordinary goods and services. They consist of
knowledge and competence networks. (See also, Carayannis 2003, 2005, 2007)’

5.3 Basic Principles of Innovation Systems

Innovation is not just an isolated act of learning by a company or another entity; it

is rather integrated into a larger system that both triggers innovation and allows
innovation processes to run smoothly. Therefore, an innovation system includes all
major actors and institutions that contribute to the creation, development, diffusion,
and use of innovations, as well as interconnections and interactions among all these
actors and institutions (Fig. 5.1).
An innovation system can be analyzed at national, regional, sectoral as well as
at international level. The analysis of actors and institutions of each level is com-
plementary to the analysis of innovation actors at the other levels.
Lundvall notes that innovative systems are both social and dynamic (Lundvall
2000). They are social in the sense that they are “based on an institutional context…
constituted by laws, social rules, cultural norms, routines, habits, technical stan-
dards, etc.” (Lundvall 2000). They are dynamic because of “financial flows between
government and private organizations…human flows between universities, firms,
and government laboratories, regulation flows emanating from government agen-
cies towards innovation organizations, and knowledge flows (spillovers) among
these institutions.” (Niosi 2002), (see also, Carayannis 2003)

Fig. 5.1 Actors and activities in a system of science, technology and innovation (Claire
Nauwelaers)
110 5 Innovation Systems

5.4 Innovation Systems and Simulation Systems

System dynamics is based on the theory of non-linear dynamics and feedback con-
trol developed in mathematics, physics, and applied mechanics. Applying these
tools to human behavior as well as natural and artificial systems, system dynamics
draws attention to cognitive and social psychology, economics and other social sys-
tems (Forrester 1961).

5.5 System Dynamics as a Concept, Tool, and Process

Although there are considerable differences between the above definitions, they all
converge in that:
‘System Dynamics addresses the creation of models used to describe, to a satisfactory
approximation, the function of real systems providing the ability to study dynamic
behavior.’

5.5.1 Building a System Dynamics Model

5.5.1.1 System Dynamics Models

The System Dynamics methodological approach presupposes the formation of

dynamic models. Models are simplified representations of the real system and, in
general, can be classified in various ways. In the relevant literature, models are clas-
sified in three categories: natural, analogical, and mathematical. In system dynam-
ics we use the mathematical models, as physical models often have high
manufacturing costs and analogical models do not provide a satisfactory representa-
tion of the system. In mathematical model, we use mathematical symbols and equa-
tions to represent the relations between the elements of the system we wish to
simulate. When using mathematical models, repetitive calculations are performed
in the context of various equations, in fixed time steps. The completion of these
calculations is impossible without using a computer and, therefore, special simula-
tion programming languages have been created to facilitate the process.
According to Georgiadis, in order to comprehend the structure of mathematical
models, it is considered appropriate to present concisely all the views on the clas-
sification of mathematical models, encountered in the relevant literature. Therefore,
there are:
• Dynamic or Static mathematical models, depending on whether model
characteristics change or not, as a function of time. A model is classified as
dynamic, when at least one of its variables is a function of time
• Stochastic or Deterministic, depending on whether we describe model char-
acteristics using distribution functions or not. A model is characterized as
stochastic when at least one variable is stochastic
5.5 System Dynamics as a Concept, Tool, and Process 111

• Continuous or Discrete, depending on the way a time variable changes its value
• Analytical Solution or Simulation, depending on the way the model is
solved, and
• Linear or nonlinear, depending on the type of mathematical relationships
they include. A model is classified as nonlinear when at least the mathemati-
cal relationship of one variable is nonlinear.
The models we create with system dynamics are dynamic, stochastic or deter-
ministic, continuous, simulation and, finally, linear or nonlinear (Georgiadis 2006)
(see Fig. 5.2).

Fig. 5.2 The structure of the approach with system dynamics (Towill 1995)
112 5 Innovation Systems

5.6 Innovation Systems: Sectoral, Regional,

National—Case Studies

5.6.1 Sectoral Innovation Systems

In the analysis of sectoral innovation systems, knowledge interactions between

companies and organizations are mainly due to technological interrelationships.
These systems emphasize the economic dynamics of technological development
and the importance of technology flow within industry. Carlsson and Stankiewicz
(1991a, b) define sectoral systems as a “… network of agents interacting in a spe-
cific technology area under a particular institutional infrastructure and involved in
the generation, diffusion and utilization of technology” (Carayannis 1998a, b;
Carayannis et al. 2003; Carayannis and Sipp 2006; Carayannis and Alexander 2006;
Carayannis and Campbell 2005, 2009). They state that the basic elements of a sec-
toral system are:
• Economic competence: the total ability of a company for the creation and
exploitation of business opportunities
• Business clusters and innovation networks: a successful innovation seems to
require the interaction of agents with different specialties. Furthermore, the
nature of innovation is uncertain and complex; consequently networks provide
other alternative solutions for managing innovation
• Institutional infrastructure: a set of institutional arrangements that directly or
indirectly support, stimulate, and regulate the processes of innovation and tech-
nology diffusion, and
• Development blocks: the development block is dynamic in nature, incorporat-
ing characteristics of disproportion. It definitely creates tension within the tech-
nological system varying in strength and composition over time and generates
development potential for the system.
Breschi and Malerba (1997) define the sectoral innovation systems (SIS) as
“the specific clusters of the firms, technologies, and industries involved in the gen-
eration and diffusion of new technologies and in the knowledge flows that take place
amongst them”. The cross-industry relationship is important in the analysis of
SIS. It consists of one or more discrete elements of industry that are closely associ-
ated with each other. The interdependence of industries mainly comes from
increasing returns provided by the continuous accumulation of knowledge over time
and the interdependence between technologies and industries. An SIS is, thus, a
system composed mainly of the actors in a particular area and the interactions
between them. Moreover, the majority of the functions of innovation systems are
fulfilled by actors in the field.
The SIS approach examines issues at the company level, intercompany issues as
well as issues raised in the context of institutional relationships and focuses on the
differences between the types of sectoral innovation systems. The main features of
this approach are the differences and the importance of the knowledge base and the
5.6 Innovation Systems: Sectoral, Regional, National—Case Studies 113

learning process, the role of non-corporate bodies and institutions, and the co-
evolutionary process of change in the sector (Malerba 2004). The agents in SIS are
individuals and organizations. These organizations can be businesses and non-
corporate organizations, such as universities, government agencies, etc., and other
individuals or organizations, such as consumers, research and development depart-
ments or industry associations. These innovation agents are characterized by a
specific learning process, competence, structures, and behavior (Breschi and
Malerba 1997; Carayannis et al. 2008; Carayannis and Formica 2008). The SIS
approach, according to Breschi and Malerba (1997), distinguishes five major types:
SIS in traditional sectors, mechanical industries, automotive industries, server and
software industry. The SIS in traditional or ‘mature’ sectors often supports process
innovations more than product innovations. More specifically, opportunities for
importing innovations that lower production costs are being followed.
As far as the interrelation among industries is concerned, Pavitt (1984) concludes
that there is a strong interdependent relationship among certain industry taxonomies
that he studied. This signifies that innovation in one industry can provide the inputs
into production processes in other industries. Pavitt (1984) further notes that there
is a strong relationship both between ‘specialized equipment suppliers’ and ‘science-
based companies’ and between ‘scale-intensive firms’ and ‘specialized equipment
suppliers’. Well-planned infrastructure and well-organized networks are not enough
to build development blocks. Furthermore, competent users and suppliers as well as
entrepreneurs, who develop the ability to identify, expand, and exploit business
opportunities, are critical in order to transform an industrial network into a develop-
ment matrix/block.
The sectoral innovation systems approach provides an analytical framework in
order for us to recognize the performance of the system, with regard to how well it
supports innovation in a particular sector (Malerba 2004).

5.6.1.1 Sectoral Specificity

The SIS approach contributes the critical idea that it is dangerous to regard all tech-
nological or sectoral systems as homogeneous. Moreover, this approach considers
that the SIS approach must be based on a clear understanding of the nature of tech-
nology (for instance, tacit or codified) and the relationship between science and
technology. Archibugi and Michie (1997) argue that sectors and technologies play a
role and do have their own dynamics. In addition, differences of technical change
among industrial sectors vary in relation to sources of technology, involvement of
user needs, and means of appropriate benefit.
Pavitt (1984) presents an industrial taxonomy in the industrial sector. He identifies
four main industries, namely: (a) supplier-dominated firms, such as agriculture and
housing, (b) scale-intensive firms, such as bulk material and assembly, (c) specialized
suppliers firms, such as machinery and instruments, and (d) science-based firms,
such as electronic companies and chemical companies. Breschi and Malerba (1997)
also explore the concept of ‘technological regime’: technological opportunities,
114 5 Innovation Systems

suitability of scientific basis and knowledge accumulation for the analysis of the
specificity of the sector. Studies on SIS have shown that some industries are charac-
terized by various companies located in specific geographical areas, in which they
cooperate in innovation processes but compete with other regions within countries.
In other industries, some large companies compete internationally but collaborate
extensively at the local level with some specialized producers. The SIS approach
suggests that different industries may have different competitive, interactive, and
organizational boundaries extending beyond national borders. SIS consider not
only country-specific factors but also incorporate the impact of the globalization of
technology. In other words, the SIS approach examines the cross-industry, interde-
pendent relationship not only at a local and national level but also in the broader
global systems.

5.6.2 Regional Innovation Systems

Towards the end of the nineties, studies on regional innovation systems (RIS)
appeared simultaneously with research in fields such as industrial economics,
regional economics, and economic geography. The terms used, explicitly or implic-
itly, to explain RIS vary among these fields but the concept of RIS can be traced
back to Marshall’s (1932) industrial district, the economics spaces by Perroux
(1950), Dahmen’s (1988) development blocks, Camagni’s (1991) innovative milieu,
and regional innovation systems (Cooke et al. 1997; De la Mothe et al. 1996). The
emergence of RIS is a response to the perceived importance of the local supply of
managerial and technical skills, accumulated tacit knowledge and knowledge spill-
over benefits. Although Saxenian (1991) does not specifically use the notion of RIS,
she implicitly uses the term RIS expressing the existing concept of regional systems
of innovation. The aim is to show how the dynamics of production networks or
intercompany partnerships have helped prosperous regional economies, such as the
case of Silicon Valley (Silicon Valley), California. Her study shows how to allocate
the costs and risks of developing new technologies and how to encourage reciprocal
innovation, among the companies involved. Through inter-company collaboration,
technology transfer is remarkable in forms of informal information exchange,
human resource development and mobility, and networking within the region. A
new institutional innovation, represented by the intercompany network, has
produced a successful and dynamic relationship with technological innovation.
Camagni (1991) defines an innovative environment as the whole set or the com-
plex network of mainly informal social relationships, on a bounded geographical
area. These relationships often determine a particular external image as well as a
specific internal representation and sense of belonging, which enhance the local
innovative capability through a synergetic and collective learning process. There are
two important elements in the definition: (a) the importance of informal relation-
ships in a connected innovative network and (b) the collective learning process
boosting local capacity for innovation.
5.6 Innovation Systems: Sectoral, Regional, National—Case Studies 115

Cooke et al. (1997) instead of a clear definition of RIS, use three basic institutional
forms:
(a) Financial capacity
(b) Institutional learning, and
(c) Productive culture.
The above institutional forms facilitate systemic innovation at the regional level.
RIS are closely related to the exchange of tacit knowledge and their boundaries
depend on the range of interdependence. Consequently, the size and boundaries of
RIS are unclear. The RIS approach emphasizes that a successful regional innovation
system needs to develop a collective identity. The regional identity acts as a critical
vehicle for social capital and regional innovation capacity. This would be difficult to
achieve at a distance, thus making regional clusters or agglomeration such a valu-
able feature of competitive advantage based on innovation.
The approaches of regional innovation systems are based on a territorial dimension
and examine the innovation process at regional level. Similar to the SIS approach,
even though without an explicit focus on the level of the company, most of the contri-
butions to the nature of innovation in the RIS context refer to an innovative policy,
which is based on technological change, organizational learning, and path depen-
dence. It is expressly recognized that learning and technological change are character-
ized by regional peculiarities. They are entrenched in the economic structure and the
cultural heritage including strong elements of path dependency (Carlson and Jacobson
1997). RIS are therefore mainly characterized by entities located in a specific region,
rather than a specific sector, and by the interactions between them. Moreover, the
majority of the innovation system functions are fulfilled by regional actors.

5.6.2.1 The Importance of Proximity

Regional innovation systems also emphasize the fact that geographical and cultural
proximity to advanced users, and a network of institutionalized relations are impor-
tant sources of innovation. Regions evolve along different paths through the combi-
nation of political, cultural, and economic forces. Network systems reflect their
distinctive national and regional institutions, local histories, and social and produc-
tive interactions among the various regional development projects. Saxenian (1991)
compares two distinct industrial systems, one in Silicon Valley, California and another
along Route 128 in Boston, trying to explain why the former surpassed the latter in
the 90s. In Silicon Valley, the industrial structure was dominated by many small com-
panies. In contrast, some large companies dominated Route 128. Her research found
that the innovative capacity of regions can be affected by industrial structure, inter-
company communication, and the organizational behavior of companies.
Cooke (1997) and his colleagues provide some cultural features critical for suc-
cessful RIS. These are:
(a) A culture of collaboration
(b) An associative culture
116 5 Innovation Systems

(c) The ability and experience to achieve institutional change

(d) Coordination and public/private consensus
(e) A productive culture with sub-elements of labor relations, cooperation at
work, corporate social responsibility, productive specialization and
(f) Existing interface mechanisms found in scientific, technological, produc-
tive and economic sectors.

5.6.3 National Innovation Systems

The origin of the NIS concept is often associated with the work of Friedrich List
(1841), a German economist and economic politician. There are two questions that
need further study. The first question is: why do some economists now interpret the
economic thought of List as a forerunner of the systemic nature of economic pro-
cesses? And the second: is it justified to connect List’s work with the NIS concept?
Starting from the second question, Freeman (1995) explains the reasons why we
can associate List’s work with the NIS concept: “not only did List analyze many
features of the national innovation system which are at the heart of contemporary
studies …he also puts great emphasis on the role of the state in coordinating and
carrying through long-term policies for industry and the economy”.1 Moreover,
Elam (1997, p. 158) equally considers List as an “inspirational figure for the research
of national innovation systems”.2
Indeed, List examines the concept of national system in order to include the rela-
tions between government and industry for the promotion of economic develop-
ment. More specifically, he focuses on the important role of government in order to
create the institutional framework for innovation and hence economic growth. For
him, framework conditions include the existence of a basic education system and
the provision of basic public goods, such as the development of physical infrastruc-
ture (see for example, Cantner 2000, pp. 78–79). In particular, this perception of the
importance of the linkages between the educational system (mainly the existence of
conditions for human resource development of the national labor force), the eco-
nomic policy and success in business activity3 is a key piece of List’s work.
Taking the above into consideration, regarding the first question it is obvious that
we can connect List’s systemic thinking with the systemic approach to innovative
activity. Nevertheless, it would be misleading to focus on more similarities between

1
Other scholars, e.g. Cantner (2000) or Niosi et al. (1993), also make references to List in order to
clarify the NIS concept.
2
An analytical and critical examination of List’s work and its relation to NIS research can be found
in Elam (1997).
3
See the original quote in Hankel (1996).
5.6 Innovation Systems: Sectoral, Regional, National—Case Studies 117

the two approaches because we take into account that List did not aim to study
different models of innovation among nations. On the contrary, the aim was to high-
light the need of basic and extended public liabilities in an economy characterized
by a low tech base and a weak financial system.
Starting from the idea of the national production system we proceed with the
introduction of the concept of national innovation system, which made its appear-
ance in the late ‘80s with the studies of Nelson, Freeman, Lundvall and others.
Although it is quite difficult to give an accurate answer about the exact time the
concept appeared, it is safe to say that the term ‘national innovation system’ was
marked by the research activity of Chris Freeman (1987). In this study concerning
the organization of national innovation processes in Japan, it seems that the interac-
tions between political objectives and measures, industrial transformations and
social changes describe a national innovation system par excellence. Obviously, one
of the main objectives behind Freeman’s in-depth study of the Japanese NIS was to
explain the technological leadership of Japan at that time. To do this he identified
the basic elements of Japanese NIS and refers to the most important, partly political,
institutional and organizational changes in the country until the late nineteenth cen-
tury (Balzat 2006).
A theoretical approach to the NIS concept was made by Andersen and Lundvall
(1988). In essence, special emphasis was given on the types and the importance of
interactions, mainly between users and producers, which lead the learning and inno-
vative processes to success in a national innovation system. Given that these interac-
tions are essential for the innovativeness and the outcome of a production system,
the system can be studied as a learning and research system as well. Moreover,
Andersen and Lundvall (1988) report that the national level pushes these relations
through various mechanisms4 and may thus be a logical analytical framework for
user–producer interaction. In the heart of Gregersen’s study (1988) there is a detailed
discussion of the policies open to a national government in order to stimulate knowl-
edge, research and innovation.
In 1988, the idea of the systemic approach to NIS was also considered by Dosi
et al. (1988).5 While Bengt-Ake Lundvall (1988) focuses on a theoretical report on
the feedback between users and producers in innovative procedures, Freeman
(1988) summarizes the initial findings from the Japanese NIS and emphasizes the
important role of the Ministry of International Trade and Industry in steering and
empowering national research activities and technical progress. In Nelson (1988),
several related issues are listed focusing on specific organizational and institutional
structures that occur in an NIS in capitalist countries, mainly the US. Finally,

4
More specifically, Andersen and Lundvall claim that “At national level we can find the most
efficient mechanism in the regulation, a closed market and a possibly closed capital market.
Moreover, the producer–user relations are facilitated by language, culture, national standardization
and a large set of formal and informal institutions”.
5
The title of Part V in Dosi et al. (1988) is ‘National Innovation Systems’. Contributions to this
study were made by Nelson, Lundvall, Freeman and Pelikan.
118 5 Innovation Systems

Pelikan (1988) brings up the issue of whether a capitalist market economy or a

socialist machine can give a more advantageous structure for a successful NIS.
Considering the wide collection of contributions to the NIS concept contained in
Dosi et al. (1988), it is no exaggeration to say that this study is the keystone for the
introduction and development of the NIS approach but also of the alternative sys-
temic approaches to innovation.

5.6.3.1 Determination of the NIS Actors

Once the concept of National Innovation System is determined the components of

which it consists should be studied. Generally speaking, these systems consist of
various components, of the linkages between them and of their environment. This
basic systemic structure can be applied to national innovation systems too.
According to the systemic theory it is implied that the concept of national innova-
tion systems can theoretically be distinguished into the national organizations, the
different types of interactions between the components6 and the national institu-
tional conditions that surround them. Making the above classification we can
achieve a very good illustration of national innovation systems. This structure gives
us the general guidelines for the study of national innovation systems, because,
basically, the NIS concept is a descriptive conceptual model that still leaves plenty
of room for different interpretations. The literature review, however, shows that the
conceptual classification of a NIS in institutions, organizations and interactions is
generally considered broad (Balzat 2006). For this reason, it may be required, in
empirical applications of the NIS concept, to define and implement a different struc-
ture of the NIS concept, which will depend on the specific research questions as
well as technical issues, such as the availability of relevant data.
• The NIS framework: institutions
Considering everything stated in Sect. 2.3, generally in line with Knight (1992),
institutions can be defined as “systems of established social rules that structure
social interaction” (Hodgson 2006). The institutions ensure, determine and guide
the operation of the activities not only of the market. At national level, innovative
activity being a determining factor of structural change and economic development
is built by national characteristics of institutional conditions. At the same time, tech-
nological and innovative activities define the institutional conditions of the environ-
ment. Because of these independent and dynamic relations, it has been accepted that
institutions evolve simultaneously with technologies.7

6
The NIS are in fact associated with other subsystems of the economy. For this reason, and consid-
ering that there are many subsystems in the economy different from the PES, which also influence
innovative behavior, Nelson (1993b, p. 518) has put great emphasis on the fact that innovation
systems cannot be analyzed exclusively. In addition to the subsystems there are also international
relations in an NIS.
7
Perez (1983), McKelvey (1997), Nelson (1994, 1998, 2002) or Nelson and Sampat (2001).
5.6 Innovation Systems: Sectoral, Regional, National—Case Studies 119

Examples of institutions are laws, regulations, contracts, rules of market

exchange, shared values and codes of conduct. A particularly useful classification
for different types of institutions was developed by Edquist and Johnson (1997,
pp. 49–51), distinguishing them between formal and informal, basic and supporting
and between hard and soft institutions.
Two of the main elements of institutions, as perceived in the NIS concept are
institutional change and path dependence. The first of the elements indicates that
institutions evolve and do not remain static. The second means that the established
formal and political rules, laws and models, together with informal institutions that
exist today, are very closely connected with those that existed previously.
The nature of institutions to depend on the chosen route, in conjunction with the
national environment, leads to the conclusion that there is not an optimal institu-
tional setting for an innovation system. The above are closely linked to issues of
technology policy and have important implications for the design and selection of
national policy measures which aim at improving the institutional conditions of the
environment or the success of innovative action.
• The actors in an NIS: organizations
Organizations, which represent another important component of national innova-
tion systems, can be defined as structural and institutionalized systems that were
created in order to accomplish specific missions. To do this, members of an organi-
zation operate independently as well as in collaboration (Balzat 2006). Given that
institutions are social rule systems, organizations are a particular form or subset of
institutions.8 As Hodgson (2006) points out, a key difference between organizations
and institutions is that organizations have more features, “criteria to establish their
boundaries and to distinguish their members from non-members …principles of
sovereignty concerning who is in charge and … chains of command delineating
responsibilities within the organization” The issue that membership is a separate
element of organizations has also been stressed by Reimann (1991, p. 169).
An additional central difference between the institutions and organizations con-
cerns their appearance. These organizations have as a key feature the fact “that they
are being created all the time. They are players or actors. In contrast, institutions
may develop spontaneously and are not always characterized by a specific purpose”
(Edquist and Johnson 1997, p. 47).
The most important types of organizations are businesses, private and public
research centers and universities.

8
Noteboom (2000, p. 92) argues that organizations “are not institutions but players confronted
with institutions”.
120 5 Innovation Systems

5.6.3.2 Types of Interactions in an NIS

Interactions between components are an important element of any system and,

hence, of national innovation systems. Regarding innovation systems, the relation-
ships between their components contribute to the emergence and diffusion of inno-
vations. Considering that the creation and diffusion of technological knowledge and
innovation are important processes in an NIS, interactions contribute to the func-
tioning of the system as a whole. Moreover, creating relationships with others, the
actors related to the processes of learning and innovative activities are trying to
develop their skills.
There are many channels through which knowledge can flow between the actors,
as well as a variety of approaches to measure these flows. Below we explain four
types of knowledge or information flows between the agencies of an NIS developed
in this dissertation.

1. Interactions Between Firms

The business sector is the main R&D performer and the source of innovation in
many countries worldwide. So, one of the most important knowledge flow in an NIS
is obtained from: (a) formal partnerships between businesses, such as technical
cooperation and cooperation in R&D and (b) from informal interactions and inter-
connections, which are as important as the formal. These interfaces include the
user–technology producer relationships and the role of competitors as sources for
innovation. (c) Also, very important, in addition to the collaborations and interac-
tions between firms, are intra-business interactions, i.e. information and knowledge
sharing within the range of different business departments.
With these joint business activities, a two-way flow of knowledge and technol-
ogy is carried out in organization, administration, production and marketing.
Companies work together in order to participate jointly in technical resources,
achieve consecutively growing economies and gain human and technical resources
they do not have, through cooperation. So, subsequently, the innovative perfor-
mance of firms is higher, since there are significant indirect effects regarding ‘com-
plementarity of behavior’, which means an increase in skills that positively affect
the company’s ability to innovate, to engage in networking and to recognize and
adopt useful technology (Samara et al. 2012).

2. Interaction Between the Private and Public Research Sector

Another important knowledge flow in the NIS is the linkages between public and
private sector. These interactions succeed in linking science with technology that is
essential for an NIS, in order to create long-term technological opportunities and to
coordinate the research field with economic and social requirements, contributing
this way to the technical progress and economic performance of countries.
5.6 Innovation Systems: Sectoral, Regional, National—Case Studies 121

Public infrastructure consists mainly of higher education institutions (universi-

ties) and research and technology organizations (public research institutes). On the
other hand there is the private sector (private companies and research laboratories),
which mainly funds and implements R&D. The interactions between these actors
can take mainly the form of:
• Industry–university–research center collaboration for R&D,
• Patents from the industry and universities/research institutes cooperation,
• Publishing and publications after the industry–university–research institute
cooperation,
• The use the patent industry makes of universities/research institutes,
• The distribution of information between industry and universities/research
institutes.
What is important for this type of knowledge flow is the effectiveness and quality
of private and public sector linkages for the distribution power in an NIS. Furthermore,
in these partnerships the role of location should be emphasized as well, since knowl-
edge flows from the public sector to industry may be more important in a particular
location or region. High-tech, territorial and foreign capital companies as well as
research institutes tend to be found in areas where major universities, active in spe-
cific technologies such telecommunications, computer software etc., are located, in
order to gain access to direct and indirect networks. To effectively link the public
institutional structures of R&D, many countries (e.g. Germany, the Netherlands)
have implemented measures like the creation of bridging institutions.

3. Technology Diffusion

Technology diffusion is another important success factor for some countries.9

Indeed, studies have made it obvious that knowledge flow through technology dif-
fusion is as important as R&D investment aiming at higher innovative performance
in many cases.10 Also, the diffusion of technology is especially important for tradi-
tional manufacturing sectors and service industries that are non-R&D performers
themselves or for countries which are mostly technology and innovations users
rather than producers.

9
Does Technology Policy Matters, Ergas (1986).
10
For example, technology diffusion was found to have greater influence on productivity in Japan
than direct investment in research and development in the period 1970–93 (OECD 1996a).
122 5 Innovation Systems

The format in which this knowledge flow can be realized is generally through the
use of technologies coming from industry and the diffusion of embedded technol-
ogy. More specifically, technology diffusion may be carried out primarily in the
following ways:
• Through intermediate and capital goods (equipment, materials and products such
as high tech), etc.,
• Through embedded technology and tacit knowledge in human resources (scien-
tific and technological staff or students) meaning that technology is transferred
through staff training, informal and formal networks, people etc.,
• Using encoded technology (documents, publications, scientific publications,
electronic databases) and technology embedded in patents and licenses,
• In addition, knowledge of technologies may come from customers and suppliers,
as well as from competitors and public agencies.
The most well established formula from the above is the buying and selling and,
in general, the dissemination of technology as new equipment and new machinery,
i.e., as capital goods. The capital goods sector is central to technological acquisi-
tion, competition and the relationship between user and supplier, as it is the area that
requires a more intensive user–producer interactive learning.
Typically, the diffusion of innovations is a slow process that takes place over the
years. The rate of technology uptake varies significantly from sector to sector and
according to the national environment and the diversification of the company char-
acteristics. However, the innovative performance of companies depends increas-
ingly on the application of technology by adopting and using innovations and
products developed elsewhere (OECD 1996).
Countries differ significantly with each other regarding the importance of differ-
ent channels of indirect knowledge flow. In large economies, such as Japan and the
US, the percentage of imported technology is small, however, it is an increasing
fraction of total R&D, while in smaller countries imported technology is about
40–50 % of the total volume. It is a remarkable fact that technology is supplied
mainly by few high-tech industries, while the use of embedded technology is global
and increases the technological content of low and medium tech industries.
Among the most important factors identified as responsible for the failure of
technology assimilation by companies are lack of information, lack of funding and
lack of technical expertise, as well as the general organizational and managerial
deficiencies. Companies need a wide range of appropriate skills and their combina-
tion for technology assimilation to be successful. The most innovative companies
are those who manage to have access to knowledge from external sources and to
relate to knowledge networks, encompassing informal collaborations, supplier–user
relationships and technical cooperation. Additionally, it is necessary to adopt tech-
nology and knowledge according to their own needs, since the innovation process,
through which technologies are developed and used, is an increasingly selective
endeavor, shaped by institutional systems and knowledge distribution systems.
5.6 Innovation Systems: Sectoral, Regional, National—Case Studies 123

Essential elements for enhancing technology diffusion in a country are the

improvement of the mechanisms via which it takes place and the orientation of
the government towards a wide range of companies, from high growth companies to
the ones with limited capability, as well as from companies belonging to traditional
sectors to those belonging to the emerging fields. Also, the government should sup-
port companies at different stages of their life cycle, as well as the service sector
which is constantly developing. Finally, governments should encourage linkages
between either people or bodies in an NIS, as this is the key to tacit knowledge
transfer.

4. Staff Mobility

This flow concerns researchers, technicians, engineers and skilled workers, as well
as people with administrative and organizational skills. The movement of technical
personnel between industry, universities and research centers, their personal inter-
actions, whether on a formal or informal basis, and generally the movement of peo-
ple and the knowledge they carry with them (often referred to as ‘tacit knowledge’)
is the most basic knowledge transfer mechanism in an NIS. As it is shown in most
studies, skills and networking capabilities of the staff is the key to implementing
successful transfer and diffusion of technology. Investments in advanced technol-
ogy must be accompanied by ‘adaptability’ which is mainly determined by qualifi-
cations, tacit knowledge in general and staff mobility.
Knowledge flows through personnel may take place mainly in the following
ways:
• Movement of scientists and skilled personnel to other firms in the market,
• Movement of graduates from universities to industry and research institutes, as
well as movement of university researchers and staff from research institutes to
industry,
• Through researchers following the business sector, who do not continue with
their research but engage in other activities within their company,
• Movement of technical and qualified personnel from research centers to
universities,
• Informal networks among researchers (business relations, conferences, meet-
ings, etc.), difficult to measure though.
In a country, flow levels through human mobility can be increased, if the follow-
ing steps are taken:
1. The education policy emphasizes the multidimensional and lifelong learning and
new skills such as teamwork, maintaining personal relationships, effective com-
munication and adaptability to change,
2. There are flexible labor markets,
3. There is a focus on incentives for further education of the workforce.
124 5 Innovation Systems

5.6.3.3 Empirical Basis for Focusing on National Level

The first group of critics brings up a number of questions that are empirical and
relate to the degree to which national systems differ in what they do and the way in
which they achieve it. The other group deals with the extent to which innovation is
a domestic or an international process.
Recently a number of empirical studies analyzed these issues using data from
trade and patent databases (see for example articles Archibugi & Michie; Patel &
Cantwell at No. 19, 1995 in Cambridge Journal of Economics). These studies do not
stop the debate but the following conclusions are very logically arranged:
1. There is no doubt that national innovation systems are specialized and there is
evidence of convergence in this perception.
2. International businesses tend to set some of their development goals abroad, but
the trend is not particularly strong.
3. The diffusion of innovations and new technology has become very
international.
4. Domestic markets play a significant role in promoting innovation.
Showing the differences in institutional characteristics is more difficult, because
here it is not easy to find international statistics to illustrate the relative sizes. To
clarify this issue we rely on the comparison of two economies made by Edquist and
Lundvall (1997). These are the economies of Denmark and Sweden, which are very
close in terms of culture, history, geography, etc. Nevertheless, it was proved that
even in these countries institutional differences significantly affect how innovation
is achieved. Studies in America and France (Dertoutzos et al. 1989; Coriat and
Taddei 1993) also show the same thing. Recently, a broader analysis on how global-
ization affects institutional convergence came to the fore, the conclusions of which
are quite controversial (Berger and Dore 1996; Boyer 1996). Considering all the
above, it seems reasonable to conclude that national differences are substantial and
have a specific systemic nature.11
– The juxtaposition of policies for the analysis of innovation at national level
According to Lundvall (1997) the analysis of national systems is important, even
though the trend towards globalization of innovative activities was more pro-
nounced, for the following reasons:
• The systems in which innovation can be analyzed (international, regional or
local), whether limited within the borders of a state or not, are heavily influenced
and shaped by national characteristics and contexts.
• Many of the obstacles to development concern (and are justified by) national
borders and strong correlations which have been observed between poverty and
geographic location.12

11
Ernst and Lundvall (1997), stress the importance of how different systems use explicit and tacit
knowledge in knowledge creation as the basis for systemic differences in other issues.
12
Sachs et al. (2001).
5.6 Innovation Systems: Sectoral, Regional, National—Case Studies 125

• The idea of innovation systems is primarily associated with knowledge flow (and
especially tacit) and its impact on economic growth. Subsequently, their analysis
will focus on the national level, which appears to be more centrally involved in
managing and controlling these flows.
• The least mobile actors of production and the most crucial for innovation (human
capital, government regulations, public and semi-public institutions and natural
resources) are related to a particular national environment.
• The predominant route concerning policies, including also the monetary and
liquidity policy as well as the business market and social policy, is to examine the
issue at national level.
• Without studying an innovation system at national level it is, it is difficult to
understand what type of international institutional structures are required for the
replacement of the old systems of innovation, when they are weakened by cur-
rent strengths and challenges such as globalization, for example.
It is a fact that globalization and European integration are historically known to
have an important influence on the creation of national states and the existing
national systems of innovation. But it is quite difficult to see how these effects can
be understood if we do not take the national level as a starting point for study. It is
also difficult without such an analysis to identify the international institutions that
are needed as substitutes for the old national systems, when these are undermined.
The more powerful the forces that seek to undermine national systems are, the
stronger is the need for understanding the historical role of a nation.
The above mentioned are not arguments against the analysis of innovation sys-
tems at regional level or at technological, sectoral or company levels. On the con-
trary, according to the literature as well, if we break down the national systems into
their constituent subsystems (Chung 2001) we can understand how they develop.
So, according to the opinion of the writer it is important and well-aimed to deepen
the analysis of national innovation systems.

5.6.3.4 Distinction of the National Innovation System

National Innovation Systems can be divided into the following two broad categories
based on the range of institutions, including:
(1) The ‘Narrow’ National Innovation System (narrow NIS), which is a system
that focuses on institutional agents “directly promoting the creation and use of
innovation in a national economy” (Adeoti 2002). The ‘narrow’ NIS approach
generally examines the following actors engaging in innovation (OECD 1999):
• Governments (local, regional, national)
• Bridging institutions (supporting and intermediary)
• Private companies and research institutes financed by the former
• Universities and other knowledge creators such as research institutes,
research centers etc., and
• Other private and non-private organizations playing a role in a NIS.
126 5 Innovation Systems

(2) The ‘Broad’ National Innovation System (Broad NIS), which includes, addi-
tionally to the components discussed in the ‘narrow’ NIS, the overall economic,
cultural, institutional, social and political environment of the country con-
cerned. This environment affects innovation and comprises the national finan-
cial system, the economic policy, the internal organization of private companies,
the educational system, labor markets, regulatory policies and institutions, etc.
In conclusion, a ‘wide’ NIS and in general an innovation system (regional,
global, sectoral) is a dynamic and complex system. This means that an NIS
essentially depends on:
(a) The interaction network (micro-economic environment) and the actors
themselves associated with innovation (companies, research organiza-
tions, bridging actors, universities, etc.) and
(b) The general environment of a country, which comprises factors such
as the macroeconomic and regulatory environment, the education sys-
tem, market conditions, factors of production, communication infra-
structures etc.

Fig. 5.3 Actors and linkages in the innovation system

5.6 Innovation Systems: Sectoral, Regional, National—Case Studies 127

Furthermore, an NIS is always in dynamic relationship with other innovation

systems: it both exerts influence and is affected by them at the same time. Figure 5.3
shows the main factors and links that formulate an NIS.

5.6.3.5 Examples of National Innovation Systems

As mentioned in Sect. 5.6.3.4, the broad NIS includes, additionally to the compo-
nents discussed in the ‘narrow’ NIS, the overall economic, cultural, institutional,
social and political environment of the country concerned. This environment affects
innovation and comprises the national financial system, the economic policy, the
internal organization of private companies, the educational system, labor markets,
regulatory policies and institutions, etc.
While individual institutions that constitute the broad and narrow innovation sys-
tems are important, “the intensity and variability of knowledge flows among the com-
ponents of a national system are critical determinants of power distribution. According
to these lines, it has been suggested that policy makers should shift their interest from
fixed structures and absolute measures of innovative activities … to different types of
interactions between actors, within and beyond the boundaries of a national system”
(Caloghirou et al. 2001, p. 14). One specific example of efforts to reflect the national
innovation systems are found in Norwegian system below (Fig. 5.4).
In recent years Greece has shown an increasing growth rate, belonging to the cat-
egory of countries that want to become more innovative (Moderate Innovators)13
(Fig. 5.5). The Greek innovation system is gradually being shaped and strengthened,
mainly through interventions of the state which, following the EU guidelines, deals
with the creation of a favourable environment for innovation in a more systematic way.
The Greek innovation system is shaped and it is progressively strengthened,
mainly with the intervention of the government which constitutes an active cataly-
ser of decisions favouring innovation. In order to do so the government followed the
lines of the EU, facing with a more systematic way the creation of an environment
favourable for innovation.
In this effort to strengthen the system, it is very important to involve all key
actors and to develop an appropriate culture in the Greek society in order to promote
general knowledge and thus innovation (Bakouros and Samara 2010).
Greece has one of the higher growth rates between the 15 fundamental EU mem-
bers (EIS 2010). Precisely, from the decade of ‘90 the annual growth rate of GDP was
continuously higher than the medium rate of the 15 of the EU (3 % on 1991–2004
compared with the 2 % of EU-15). In 2010, according to the Hellenic National
Statistical Service, the GDP was increased at 5,9 % despite the high prices of the oil.
However, its classification to the competitiveness indicators between 80 countries
according to the WEF (World Economic Forum) in 2009–2010 shows clearly that its
innovative activity is low and that it is an imitative economy, which constitutes importer
of innovations, while the technologies are only adopted by its institutions, when they

13
Greece is showing high growth rates in GDP and GDP per capita (European Innovation
Scoreboard 2010).
128 5 Innovation Systems

Fig. 5.4 The Norwegian system of innovation–organizational structure

5.6 Innovation Systems: Sectoral, Regional, National—Case Studies 129

Fig. 5.5 Innovation Performance, Source: European Innovation Scoreboard (2010), Comparative
Analysis of Innovation Performance

are checked and applied in advanced countries or simply are incorporated in equip-
ment and products (Komninos and Tsamis 2008). Arundel and Hollanders (2005)
agree that Greece’s economic strategy does not appear to be related to innovation.
The fact that Greece is only an innovation importer and makes use of innovative
technologies rather than being their creator is due, inter alia, to the following
elements:
• The national infrastructure which is not developed far enough to support innova-
tion activities,
• The dominance of R&D as a public sector activity over the private sector,
• The concentration trends of Greek industries in traditional low and medium tech-
nology sectors and
• An imbalance between knowledge creation and application in order to extract
innovative results.
Also, the Greek innovation system consists of a few key ‘players’ who actually
create its main features (Fig. 5.6). From these players, the government and public
agencies play a key role, as they are the bodies that shape policy and are the key
contributor to strengthening the system.
The majority of Greek firms are SME’s, on the other hand, belonging mainly
to the SME category, are unable to play a leading role for the national innovation
system. The relations and the interactions between the actors can be considered as
satisfactory. However the dependency of the firms to a great degree from the gov-
ernment owned financing constitutes a barrier for increased innovative efforts.
130 5 Innovation Systems

Fig. 5.6 The Greek Innovation System, Source: General Secretariat of Research and Technology

A general observation that has been made—see the 2010 Scoreboard Report
(EC, 2007)—was that in Greece there is a general tendency to show best perfor-
mance in indicators measuring the input to the innovation process and worst perfor-
mance in indicators measuring the outcome of the innovation, an image showing
that there is a possible lack of suitable interfaces and beneficial interactions between
the system elements that create knowledge and those that apply it. Despite the nega-
tives of the innovation system, Greece has a quite strong scientific and research
potential for R&D (Tsipouri and Papadakou 2005).
Finally, the Greek policy is guided by the general principles of EU for innovation.
The Greek Government is slowly ‘building’ an economy based on knowledge, focusing
on correcting the shortcomings of the Greek system, which are the reduced participa-
tion of Greek enterprises in R&D and the development of the appropriate infrastructure
and the favourable environment for the promotion of innovative activities.

5.7 Application of System Dynamics in the Study

of National Innovation Systems

There are several studies in the literature on National Innovation Systems. One such
category of studies relating to the creation of mathematical models for the NIS of a
country trying not to compare the innovation performance with that of any other
5.7 Application of System Dynamics in the Study of National Innovation Systems 131

country, but with the development of policy options for further improvement, for
this country. To do so, the methodology of dynamic simulation is being using. Here
are two key studies in this direction. The first is the study of Janszen and Degenaars
(1997) which held a dynamic analysis of the relationships between the structure and
the process of NIS using the computational simulation. In this study special empha-
sis is given on the dynamic nature of the NIS. NIS consists of various actors that
interact. Through these interactions, the technologies, products and markets evolve
(Levinthal and Myatt, 1994; Nelson, 1995). This development is due to the exis-
tence of positive feedbacks linking the development of technology, products and
markets with the development of industries and organizations. However, these orga-
nizations can also delay the development of new technology based products and
markets by the existence of negative feedbacks. When the relationship between the
different actors of the innovation system are affected by a number of positive and
negative feedbacks, the dynamics of the process is evident. This study therefore
describes a computer model of NIS with the approach of system dynamics. The aim
is to study the dynamic relationships between components of an NIS and innovative
performance. The model generated is very simplified and consists of nine functions:
(a) the presence of scientific subsystem (b) the presence of technology suppliers (c)
the presence of venture capital market (d) the presence of the internal market (e) the
presence of rapid acceptance by consumers of innovative products (f) the creation
of consumer aversion to innovation (h) grants from the government (g) the govern-
mental requirements and (i) the laws on patents.
Another study in this direction is that of Lee and Tunzelmann (2005). In this
study a mathematical model of the NIS of Taiwan has been constructed with the
help of system dynamics. This study identified two subsystems, the technologi-
cal system, which is responsible for the production of technological develop-
ments and the industrial system, which is responsible for converting these
technologies into products. According to the strict meaning of the NIS this is
associated only with the first subsystem. For the construction of the model, the
NIS is analyzed in five actors: (a) in the financial sector (b) in the field of human
resources (c) in the field of technology transfer (d) in the field of innovation and
commercialization (e) in the market. This system does not take into account
the macroeconomic policies of the government and the financial system. All
these actors interact to form positive and negative feedbacks. The application of
the model is to simulate the integrated circuit industry. Three sensitivity analyses
take place, in the time response of the model, in political science and in technol-
ogy policies and R&D.
A third study is the doctoral thesis of E. Samara, where macroeconomic condi-
tions and the financial system are key elements of the NIS model developed. In this
thesis, in order to study the NIS concept we need to separate it into the different
parts-subsystems it is composed of. This is because there are various activities
taking place within an NIS and all these activities are performed by different actors.
These actors are the government, companies, research institutes and universities.
The properties and behavior of each actor, in turn, influence all the others. In this
132 5 Innovation Systems

thesis, the national innovation system is broken down into seven parts-subsystems.
These parts-subsystems aim to describe the central points of NIS. The parts-
subsystems that constitute our model provide a complex network of interactions.
The system under study includes the following subsystems:
a. Human Capital and Knowledge
b. Innovative Activities
c. Innovation Process
d. Market Conditions
e. Institutional Environment
f. Financial System, and
g. Technological Performance.
This model is applied to the Greek NIS and several government policy scenarios
are being developed to assess their impact on the innovation performance of the
country (see Fig. 5.7).

Fig. 5.7 The generic structure of NIS (Samara et al. 2012)

References 133

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Chapter 6
Introduction to Technological
Entrepreneurship

6.1 Introduction–Definitions

Adam Smith (1776) defined Land, Labor and Capital as the key input factors of the
eighteenth century economy. Joseph Schumpeter (1934) added Technology and
Entrepreneurship as two more key input factors in the early twentieth century. The
role and dynamic nature of technological change and innovation, as well as their
interdependencies, were thus acknowledged as main factors shaping the world
economy’s future. The static approach of the Neoclassical Economic Theory was
eventually abandoned.
In the late twentieth and the beginning of the twenty-first century, a large number
of scholars and practitioners such as Peter Drucker (1998) identified Knowledge as
the sixth and perhaps most important key input–output (I/O) factor of economic
activity. We would also like to emphasize the role and importance of Technological
Learning as a potentially seventh factor and driver of productivity gains, as well as
an accelerator of economic growth and prosperity (Carayannis 1993, 1994a, b, c,
1998a, b, 1999, 2000, 2008, 2009).
On this basis, we believe that there is a clear role, opportunity and challenge for
entrepreneurs around the world to accelerate and affect economic growth, and
leverage the Digital Divide through business initiatives in the private sector. As said
by, innovation is related to shifting resources to areas of higher yield. Therefore,
knowledge-based and knowledge-supported entrepreneurship will be the pre-emi-
nent driver of innovation in the twenty-first century, via real/virtual and global/local
infrastructures such as the incubator networks listed below. This vision is particu-
larly promising and appealing in the context of e-Development towards the
Knowledge Economy.

© Springer International Publishing Switzerland 2015 137

E.G. Carayannis et al., Innovation and Entrepreneurship, Innovation,
Technology, and Knowledge Management, DOI 10.1007/978-3-319-11242-8_6
138 6 Introduction to Technological Entrepreneurship

The lack of formal definitions for the terms e-Development or Knowledge

Economy has often been a cause of confusion:
• Knowledge-based economies are defined as “economies which are directly
based on the production, distribution and use of knowledge and information”
(OECD 1996).
• A knowledge driven economy is “one in which the generation and the exploita-
tion of knowledge has come to play the predominant part in the creation of
wealth”.
• “For countries in the vanguard of the world economy, the balance between
knowledge and resources has shifted so far towards the former that knowledge
has become perhaps the most important factor determining the standard of
living—more than land, than tools, than labor. Today’s most technologically
advanced economies are truly knowledge-based”.
In this book the working definition for Knowledge Economy is as follows:
‘The Knowledge Economy is a state of economic being and a process of economic becom-
ing that leverages intensively and extensively knowledge assets and competencies as well as
economic learning to catalyze and accelerate sustainable and robust economic growth
(Carayannis 2001, 2002, 2008, 2009).’

There has been a lot of talk in Greece lately, albeit with some delay, about the
need to strengthen the spirit of entrepreneurship and stimulate self-employment in
increasingly younger age groups of the working population.
Before proceeding to our analysis, the key concepts of Entrepreneurship should
be clarified so that the general content of the analysis does not lead to misunder-
standing and wrong estimations.
In Economic Theory, Entrepreneurship is regarded as the fourth factor of pro-
duction after capital, labor and land. The term entrepreneurship comes from the
French verb “entreprendre” which means to do something new, to create and inno-
vate, without being absolutely sure about the result of the final effort. The existence
of uncertainty over the final outcome eventually leads to the inclusion of the risk of
failure in our analysis. The “entrepreneur” plays a central role in the understanding
of entrepreneurship: an entrepreneur is considered to be someone who finds an
opportunity and exploits it productively, in order to create and develop a new busi-
ness. This is not necessarily equivalent to being an owner-manager of a small firm
that does not have development as a target. Other views on the role and activity of
the entrepreneur are:
Hunt and Murray (1800) explain the origin of the word:
‘The word entrepreneur was used by the French in the fifteenth century to describe a mili-
tary governor, who leads his troops into battle. Gradually, this concept was expanded to the
marketplace and businesses. However, the interpretation of the original military meaning
of the term is accurate for the market environment as well. It refers to entrepreneurs of all
ages who seek to govern forces they have not created themselves, under conditions they
have not chosen themselves and with outcomes that cannot be predicted.’
6.2 Types of Entrepreneurship 139

The Entrepreneur therefore, with the help of a decision-making grid, takes the
following actions:
• Makes decisions and takes risks
• Organizes factors of production in the most efficient way aiming to achieve
the best possible result
• Uses innovations and monitors pioneering entrepreneurial initiatives in
order to draw ideas
• Seeks profit opportunities and adopts clever strategies.

6.2 Types of Entrepreneurship

A first attempt to classify types of entrepreneurship distinguishes between mixed

and pure entrepreneurship. However, in the case of mixed entrepreneurship a
further distinction is made between employee entrepreneurship and capitalist
entrepreneurship. The distinction between mixed and pure entrepreneurship is
made mainly for reasons of theoretical analysis and research.

6.2.1 Mixed Entrepreneurship

6.2.1.1 Employee Entrepreneurship

The term employee entrepreneurship implies that the entrepreneur undertakes activ-
ities, which could be conducted by leased employees or workers without reducing
the overall labor productivity. So we understand that entrepreneurship is not an
exclusive responsibility of the entrepreneur, but can be conducted by an employee
as well. Entrepreneurship can be performed by an executive director of the com-
pany, who uses pioneering methods to approach his subordinates attempting to
increase their interest in the enterprise. Entrepreneurship can also be accomplished
by an executive, who proposes to the administration several innovations in order to
improve products or services.
This type of entrepreneurship is also called “internal entrepreneurship” or
“intra-preneurship). In mixed entrepreneurship, the entrepreneur starting a busi-
ness is often compelled to play roles that could be performed by other people. A few
years ago most entrepreneurs, due to lack of specially trained workforce, were
obliged to perform common tasks and direct supervision, administration and control
in all the operating phases of the enterprise. As a result, the entrepreneur was bur-
dened with more workload and his real entrepreneurial activity was hindered. But
that kind of entrepreneurship tends to disappear today, since the specialized knowl-
edge needed to operate a business is increasing and it is not necessary for the entre-
preneur himself to possess that knowledge. In most of the cases, however, it would
be more fruitful for the entrepreneur to dedicate time to the discovery of a new profit
opportunity, rather than perform tasks that can be assigned to others.
140 6 Introduction to Technological Entrepreneurship

6.2.1.2 Capitalist Entrepreneurship

Capitalist Entrepreneurship is conducted by an individual who is an owner of capi-

tal with an active and established business presence. When the entrepreneur cap-
tures an idea for the creation and exploitation of a new profit opportunity, he should
either already possess some form of capital or have the opportunity to borrow
money to put the idea into practice. With its startup capital raised, the newly formed
company proceeds to the exploitation of this idea, acting as a capitalist–investor and
believing that the best course of action would be the placement of its money on the
company itself. This role of the capitalist entrepreneur tends to be limited, because
of the increasing possibilities to raise funds from the financial system and various
forms of business cooperation.

6.2.2 Pure Entrepreneurship

Pure entrepreneurship comprises activities that cannot be performed by salaried

employees, or exclusively by other agents, as effectively as they are accomplished
by the entrepreneur. Pure entrepreneurship includes all the activities identified by
the entrepreneur as high efficiency actions, which would not have the same profit-
able results, if performed by other entities or individuals. The pure entrepreneurial
function does not necessarily demand the ownership of factors of production on the
part of the prospective entrepreneur. He is only required to take advantage of the key
traits of his entrepreneurial personality that are important in the conception and
implementation of a fruitful idea.
Entrepreneurship, however, has also been categorized into two other types, social
and collaborative, that are discussed below.

6.2.3 Social Entrepreneurship

Social entrepreneurship is called the entrepreneurial activity that aims to meet social
and humanitarian needs. Its goals are usually actions for humanitarian purposes that
can be achieved through effective operation of its components.

6.2.4 Collaborative Entrepreneurship

The development of collaborative entrepreneurship aims mainly to the benefits of

cooperative entities, with key implementation areas in specific economic sectors
and production branches of agricultural products.
Another categorization of entrepreneurship distinguishes two types of
entrepreneurship: internal and external.
6.2 Types of Entrepreneurship 141

6.2.5 Internal Entrepreneurship

The term Internal Entrepreneurship is used to describe the existence of inherent

entrepreneurial tendencies of big company employees. Internal Entrepreneurship can
be cultivated by rendering the senior staff personally responsible either for the prepa-
ration of a budget corresponding to their tasks, or for managing their departments as
independent self-managed companies, regarding budget preparation and control.
Internal Entrepreneurship focuses on initiative and spirit of enterprise: an execu-
tive possessing internal entrepreneurship behaves as if he owns the company.
Consequently, internal entrepreneurship is a cognitive state which exhibits the fol-
lowing distinct characteristics:
• Persistence and determination manifesting themselves in the desire for very
hard work
• Willingness to take risks but only after careful research about the chances of
success
• Understanding, mainly based on how the market functions, particularly in
relation to identifying new opportunities
• Reluctance to be trapped in conventionality and the gears of bureaucracy,
with an aversion to restrictive regulations
• Enthusiasm for exercising entrepreneurial activities, emotional commit-
ment to an organization, ability to inspire confidence in subordinates, and
self-confidence to external suppliers, customers and other third parties.

6.2.6 External Entrepreneurship

External entrepreneurship includes elements of external business environment

affecting a company, either directly or indirectly. External entrepreneurship is
divided into general and specific.
General entrepreneurship deals with sizes and forces which somehow affect
the life and work of the agencies mentioned above. These elements, however, can-
not be specifically identified, nor can the degree of their influence on the company
be assessed with certainty and precision. One main characteristic of general entre-
preneurship is that the situations prevailing and the driving forces developing in its
context affect each and every business.
The main factors of general external entrepreneurship are:
• The general economic situation—The economic situation of the geographical
area where the company is activated is reflected by the levels of wealth and overall
prosperity of the area. The economic fundamentals that determine the quality of
the prevailing economic situation and affect businesses are inflation rate, capital
remuneration, unemployment rate, and demand. High interest rates create busi-
ness financing problems, thus increasing their function costs. Similarly, high
interest rates lead to demand reduction because they make consumers reluctant to
take out loans for the purchase of equipment goods or of various other goods.
142 6 Introduction to Technological Entrepreneurship

Increased unemployment appears to favor companies that have the opportunity to

find cheap labor. On the other hand, however, it reduces the purchasing power of
consumers.
• Technology—Technology is a wide body of knowledge, methods and techniques
used in the production and distribution of goods. The rapid progress of technol-
ogy is an object of attention and vigilance on the part of the executives of the
company. The new methods and techniques have resulted in quality and cost
improvements, and the creation of new goods flooding the market. Technological
progress also implies corresponding changes in consumer preferences and ulti-
mately contributes to the continuous rearrangement of competitive correlations
in business relationships.
• Moral conventions and social values—Social culture, as it is expressed by the
set of unwritten rules that govern the behavior of individuals, constitutes an
important factor of the general business environment. Manners, customs and
social values determine to a significant degree the sensitivity of ordinary people,
and influence them in the selection of goods and services, as well as of behavior
patterns. Social values and beliefs also influence employee attitudes towards the
company.
• Political climate—The degree of political stability prevailing in a place has a
significant effect on business activity. The frequent changes in government, espe-
cially when they occur under abnormal political conditions, result in social and
economic unrest. Political instability and uncertainty interposes serious obsta-
cles to the process of entrepreneurial programming. Programming is based on
predicting the future, but under conditions of uncertainty any prediction becomes
extremely difficult, if not impossible.
• Laws and Constitution—The Constitution, as the supreme law of any country,
sets the general operating rules for the three branches of government (legislative,
executive, judicial) and enshrines the fundamental civil rights. The rule of law is
a system that governs social coexistence and determines the behavior and rela-
tionships of members of society. It also largely determines what may or may not
affect businesses, as well as the course of action to be imposed. The formation of
the upper administrative organs of the company, its tax liabilities, its relationship
with the staff and, in many cases, the quality of goods or services offered as well
as their prices constitute an object of legislative regulation.
• Population—The population of the area where the company has facilities and
operations directly affects its survival and development. The company size is
decisively influenced by the population size. Apart from the overall population
size, another element, which should be investigated and taken into account by the
company, is the population structure based on socio-demographic variables such
as age, sex and social class.
• Natural wealth—The abundance of natural wealth in a country also determines
economic growth and prosperity to a significant degree. Natural wealth mainly
includes iron ore stocks, petroleum, forest wealth, fertile soil, rich fishing, etc; it
constitutes the basis for the development of primary production. The primary
production boom in one particular region creates optimal conditions for the
6.2 Types of Entrepreneurship 143

development of businesses belonging to the two other types of production,

namely, the secondary and tertiary production.
The effects of general entrepreneurship in the long term cannot be doubted,
while on a short-term basis the degree of their influence is not easy to determine.
That is why the attention of executives should, in principle, be focused on the iden-
tification and evaluation of factors constituting general entrepreneurship.
The basic factors that constitute general entrepreneurship are the following:
• Competitors—For every business all other companies- or not- whose interests
conflict with its own are competitors. There are also cases where competitors
have converging interests: this phenomenon has been called cooperative com-
petition (co-opetition) (Brandenburger et al. 1996; Carayannis and Alexander
1999a, b). The executives involved in competition matters should carefully eval-
uate all relevant information gathered. The most obvious field favoring the
development of competition is the effort to attract consumers. Information on
methods used and measures taken by the competitors to attract clients is fairly
easy to assemble: a high percentage is by rule included in advertising spots.
Competition also occurs in other sectors of activity such as sourcing raw materi-
als that are insufficient, used technology, and conducting scientific research.
Information gathering about these areas is far more difficult.
• Customers—The sound of the word “customer” brings to mind the person using
the company’s products to meet their needs. However, in reality, a chain of inter-
mediaries intervene between a particular firm and the end consumer of its prod-
ucts. The gathering of information, aiming at obtaining and maintaining clientele,
is sought in various ways. The most common are: market research, using various
lists of organizations or individuals (who use specific goods because of occupa-
tion or profession) and periodic reports submitted to the company by specialized
partners. Client handling is considered as one of the most serious problems of
modern business. Some businesses are forced to establish special promotional
programs addressed to customer categories. Nevertheless, consumer demand for
greater convenience and better service makes the problem even harder.
• Suppliers—The term supplier in its broadest sense includes any other firm, orga-
nization or individual from which the company obtains everything it needs for its
business: banks and credit institutions supplying capital, providers of mainte-
nance and repairs services for buildings and mechanical installations, employ-
ment offices for personnel search services, magazine publishers, professional
information providers, etc. The structuring and proper functioning of a system,
ensuring the uninterrupted flow of the constituent elements mentioned above,
has significant direct effects on its success. It is Important to avoid reliance on
sole or single source suppliers of materials or services. The initially “good” sup-
plier may stop being cooperative at any time, making the existence of an alterna-
tive plan necessary.
• Professional associations—This type of associations exercises control or regu-
latory influence on the company’s activity. Examples of such associations are
trade associations as well as associations of doctors, pharmacists, insurance
144 6 Introduction to Technological Entrepreneurship

companies, landlords, etc. These associations are legislated to protect consumers

from infractions and exaggerations of businesses, but also to ensure harmonious
coexistence between companies.
• Pressure groups—These groups are composed of people with shared sensibili-
ties and common interests and seek to impose restraints on illegal or unethical
business activity. The anti-smoking movement, associations for the protection of
the environment, for the equality of the sexes and for the protection against arbi-
trariness of public bodies could be examples of such pressure groups.
• Unions of employees—These unions are associations of employees, established
as a body that operates legally and has negotiating rights with the leadership of a
company, on issues concerning their members. But even their informal setup and
presence is powerful and influential.
• Partner Enterprises—Businesses often work together to pursue targets that
cannot be achieved by individual companies. In these cases additional problems
are created, related to organization and coordination of the joint effort, use of
equipment, individual costs, preservation of industrial secrets, etc.

6.3 Sustainable Entrepreneurship

Sustainable Entrepreneurship is defined as:

‘The creation of viable, profitable and scalable firms that engender the formation of
Innovation Networks and self-replicating and mutually enhancing Knowledge Clusters
leading towards the so-called Robust Competitiveness (Carayannis 2005, 2006, 2007,
2008, 2009, 2010).’

Robust Competitiveness is understood as “a state of economic being and

becoming that avails systematic and defensible unfair advantage to the entities that
are part of the economy. Such competitiveness is built on mutually complementary
and reinforcing low, medium and high technology, public and private sector entities
(government agencies, private firms, universities and non-governmental organiza-
tions)” (Carayannis and Campbell 2009) in the contexts of the Quadruple Helix,
Innovation and Entrepreneurship.
In other words, robust competitiveness results from an emerging twenty-first-
century Fractal Innovation Ecosystem (it is also called “Mode 3” Innovation
Ecosystem, in juxtaposition with Knowledge Production Systems “Mode1” and
“Mode2”) (Carayannis and von Zedtwitz 2005; Carayannis and Campbell 2006;
Carayannis and Ziemnowicz 2007; Carayannis 2008; Carayannis and Campbell
2009), which is defined as follows:
‘A twenty-first-century innovation ecosystem is a multilevel, multimodal, multimodal and
multiagent system of systems. The constituent systems consist of innovation meta-networks
(networks of innovation networks and knowledge clusters) and knowledge meta-clusters
(clusters of innovation networks and knowledge clusters) as building blocks and are orga-
nized in a self-referential or chaotic/fractal knowledge and innovation architecture, which
in turn constitutes agglomerations of human, social, intellectual, and financial capital
6.3 Sustainable Entrepreneurship 145

stocks and flows, as well as cultural and technological artifacts and modalities, continually
coevolving, cospecializing and cooperating. These innovation networks and knowledge
clusters also form, reform, and dissolve within diverse institutional, political, technologi-
cal, and socioeconomic domains including government, university, industry, nongovern-
mental organizations and involve information and communication technologies,
biotechnologies, advanced materials, nanotechnologies, and next generation energy tech-
nologies (Carayannis and Campbell 2006, 2009; Carayannis 2008).’

In Fig. 6.1 we present the major success factors for sustainable entrepreneurship,
which is one of the key pillars of robust competitiveness, as discussed earlier. In
particular, in Fig. 6.1 we see the strategic integration of entrepreneurial attributes
(culture, character and charisma), entrepreneurial skills (coordination, persuasive-
ness, communication) as well as essential components of continuous and sustain-
able innovation (awareness, availability, accessibility, affordability). Lack of the
above parameters should be considered as a failure factor.
Figure 6.2 depicts Schumpeter’s so-called process of Creative Destruction and
its complements (creative creation, destructive creation, destructive destruction)
reciprocally substituting each other onto the technology life-cycle curve (S-curve).
At the same time, there is mention of Horizon and Memory as elements of a sys-
tem’s lifecycle to be discussed later.
Mode3 Fractal Innovation Ecosystem includes real and virtual, as well as
implicit and explicit elements or knowledge nuggets (Carayannis and Gonzalez
2003). As these elements are strategically integrating and developing, they promote
sustainable entrepreneurship resulting in local innovation networks and knowledge
clusters with traits of robust competitiveness (Carayannis 2008, 2009). The ele-
ments of this system exist as substantial entities in three levels, namely, micro-,
meso- and macro- levels corresponding to company, sector and economy levels.

Fig. 6.1 Factors of success and failure for the business process (Carayannis and Kaloudis, 2008)
146 6 Introduction to Technological Entrepreneurship

Fig. 6.2 The four types of dynamics for the evolution of business (Carayannis et al. 2008)

The structure of “MODE 3” Ecosystems for knowledge creation, diffusion and

exploitation is multilateral, multimodal, multilevel and multinodal. It constitutes the
basis of the conceptual determination, design and management of the real and intan-
gible knowledge processes, namely, knowledge-stock and knowledge-flow. These
concepts control, accelerate and support the creation, diffusion, sharing, absorption
and use of co-specialized knowledge assets. Mode 3 is based on a theoretical sys-
tems methodology. In this methodological context, the socioeconomic, political,
technological, and cultural trends and conditions lead to the creation of knowledge
evolution, in parallel with the evolution of the so called “gloCal”-both global and
local-knowledge economy and knowledge society.
The abovementioned is also made clear by all four types of dynamical evolution
of companies, as determined by Schumpeter and mentioned in Fig. 6.2. In other
words, not only creative destruction, referring to the birth, death and renewal cycle
of businesses according to Schumpeter, but also the three other types, namely,
destructive creation, creative creation and destructive destruction, all play an equally
important role (Carayannis et al. 2008). Destructive creation represents the unsus-
tainable business replacement. Creative creation reflects the intense and, therefore,
short-lived and less sustainable form of business creation. Destructive destruction
indicates the end of a specific technological paradigm, also causing the end of the
company representing the technology in question. This company finds itself in a
hostage situation, due to, for example, switching costs, exit barriers, or the influence
exerted by powerful standards or technological legacies.
6.3 Sustainable Entrepreneurship 147

As formulated above, the entrepreneurship career path pursued by an indi-

vidual entrepreneur can be decomposed into five unique stages:
• Foundation—The creation and reinforcement of “entrepreneurial values”
for the individual and for society as a whole.
• Awakening—The individual is confronted with the entrepreneurial spirit as
a viable alternative among other forms of career paths.
• Specialization—The initial skills required for business creation are acquired
and the individual is identified as being entrepreneurial.
• Creation—The individual moves from knowledge and learning to action.
The creation of an enterprise or other valorization of entrepreneurial skills
(e.g. internal entrepreneurship) is achieved.
• Maturation—The individual builds on his experience and advances his
career through knowledge-based development and networking, as well as
through external validation and valorization of his chosen career.
An additional characteristic feature of the diagram is its self-reinforcing feed-
back mechanism, which underlines the fact that there is constant interaction between
the entrepreneur and his environment. This interaction is temporal, as it is the case,
for example, between “mature” and young potential entrepreneurs.
This framework corresponds to what has recently been suggested by Albert and
Marion (1997) in the diagram below, with the stages of foundation and maturation
having been added. It reflects our conviction that entrepreneurial education is
involved not only with the individual but with society as a whole. The analysis
offered by Albert and Marion is adapted to a society in which entrepreneurial values
are well entrenched. For instance, the awareness phase is being described taking
into account questions of the type “why should I be an entrepreneur?” However, in
some cultures, this question is not examined at all. Moreover, the maturation phase
introduces the concept of lifelong learning, as well as of the fact that the process of
education should reinforce the value of entrepreneurial spirit (see Table 6.1).

Table 6.1 Training in entrepreneurship (Albert and Marion 1997)

Action Level Goals Teaching methods
Awareness Primary Developing autonomy Microprograms, case studies,
Secondary and initiative interviews with entrepreneurs,
University Answer to the question: industrial simulations,
why should I become business-plan-competitions
an entrepreneur?
Specialization Secondary Understanding of Specialized courses, real case
University entrepreneurial diversity examples, business programs
Answer to the question:
what should I do to become
a successful entrepreneur?
Experimentation Secondary Give students permission to Realization of a program
University work on their own programs
or inactive enterprise projects
148 6 Introduction to Technological Entrepreneurship

Some additional issues of interest for the entrepreneur are discussed below.
• Risk taking—In general, an individual is discouraged or prevented from risk
taking. Hofstede’s well-known and widely cited articles, on aspects of culture
influencing business behavior, suggest that the French culture for instance, is a
culture of uncertainty avoidance with high levels of risk aversion. The reaction of
the French government to this attitude is not to encourage a slow paced engage-
ment in risk taking, but to reduce the risk associated with entrepreneurial cre-
ation. This is achieved by giving the entrepreneur additional benefits and
guarantees that substantially reduce entrepreneurial risk. As stated by Marc
Giget, “… risk taking by an entrepreneur, who is certainly naively optimistic, is
discouraged by family and social environment.”
• Failure—As most entrepreneurs know, failure is a prerequisite to success. If you
want to succeed, you need to fail. However, acceptance of failure is not always
the “norm” in the French, or even more widely, in the Mediterranean culture: a
start-up failure can have severely negative effects on an individual’s future.
This lack of acceptance of failure in these cultures prevents people from becom-
ing entrepreneurs. In order to change the attitude of the entrepreneur towards fail-
ure, the social opportunity cost (SOC) of job creation should be taken into account
while evaluating the wide range of business and job creation strategies. This would
be of utmost importance as the SOC of job creation is highly dependent on the eco-
nomic values in a given labor market. These values are, in turn, influenced by labor
market distortions, which are caused by unavoidable fluctuations in the tax systems,
unemployment insurance benefits, etc. Consequently, if aspiring entrepreneurs
assume that there is really no economic form, and, hence, no labor market com-
pletely free of distortions, then they are far more open minded and disposed to
handle failure in general, or expect a reduction in future income flows caused by
existing distortions.
• Motivation—In North America, most entrepreneurs are very goal oriented,
meaning that they are internally motivated rather than externally motivated. This
is a prevailing incentive in the United States and Canada, where individual inte-
gration is encouraged. However, this is not true in France or in other European
countries, where more emphasis is given to the community and the group.
Therefore, there is a strong need for individuals in these areas to feel that they
belong to a group with a good outer image. It is hard to imagine that there are
many French people who would like to have a single goal achievement in busi-
ness. Especially when one considers that money is not the most important thing.
According to François Hurel, the general representative of APCE, “The higher
the ranks of a person, the less are the possibilities for them to start a business.
This situation has been proven throughout history. For a long time, business cre-
ation had the purpose of creating general public benefit. From the nineties
onwards, we have discovered the economic advantages.”
Therefore, if business activity is to grow in France, it is important to emphasize
the collective benefits of this activity: the growth of a business should go hand
6.4 The Model of the Learning Lifecycle and the Learning Strategy 149

Table 6.2 Trust in the workplace (Schindler and Thomas)

Dimensions of trust Description
Integrity Honesty and truthfulness
Competence Technical expertise, knowledge and interpersonal skills
Consistency Credibility, good judgment in handling situations and operating with
a degree of predictability
Loyalty Willingness to protect and save face for others
Openness Willingness to share ideas and information freely and openly

in hand with the growth of general welfare. The development of associations and
networks that can work together is equally important for an entrepreneur, in order to
be part of a group and meet the cultural need to belong to a team. But who will have
the responsibility to ensure that this marketing and business networking actually
takes place in a collective society, the answer may seem obvious, but is it?
• Trust and relationships—The differences between entrepreneurship in France
and businesses in America reflect the great difference between these two cul-
tures, concerning the conceptualization of the element of trust as a social con-
struct. Schindler and Thomas identified five dimensions of trust in their work
“The Structure of Interpersonal Trust in the Workplace”, Psychological Reports,
October 1993. These five major components based on the North American value
system are listed in Table 6.2 in order of importance. In other words, Integrity is
considered the most important dimension of the element of trust, considering
that the other four dimensions were worthless without this first component.
Openness is important, however not to the same degree as the other four.

6.4 The Model of the Learning Lifecycle

and the Learning Strategy

‘Qu’est-ce qu’apprendre? En francais, le mot ap-prendre signifie à la fois ‘s’instruire’

(learning, lernen) et ‘instruire’ (teaching, lehren)… L’ ambiguite est par elle-meme signifi-
cative: en effet, il n’y a peut-être pas d’opposition absolue entre celui qui instruit et celui
qui s’instruit; parfois, c’est le meme homme’
‘What is learning? In French, the word “learning” means both “teach” and “learn”.
This ambiguity is important in itself: in fact, maybe the difference between teacher and
student is very little, if any’.
[Olivier Reboul 1999]

The learning strategy suggested for entrepreneurship is designed to positively influ-

ence the effectiveness of knowledge transfer and maximize the cognitive absorptive
capacity and peer-to-peer knowledge and experience transfer. It will also highlight
the many aspects of active and experiential learning as well as its dimensions (pro-
cess, context, content, impact) (Carayannis et al. 1998, 2000, 2001). Moreover, the
nature, dynamics, and impact of relationships such as master-apprentice and
150 6 Introduction to Technological Entrepreneurship

mentor-protégé as well as of peer learning will be empirically explored and inserted

in the suggested Model of the Learning Life Cycle (LLM) (Carayannis et al.
2001). This model consists of the cognitive, behavioral and physical development
stages of the human lifecycle, namely, Fetal, Growth, Maturation, and Stagnation/
Fall. A precondition for the design of our Learning Strategy is that the different
approaches to learning are not best suited to each and every stage of the
LLM. Therefore, learning among peers may be more appropriate for the initial and
advanced stages: people at these stages appear to be more receptive to their peers,
maybe because they have either too little or too much experience and cognitive,
behavioral, and physical maturity. In the middle stages, the master- apprentice
approach may be best suited for the growth stage. In this stage, maturity occurs but
is not yet sufficient or enough to allow for a more laissez-faire policy, like the men-
tor-protégé approach, which matches better with the maturation stage. In short, LLM
depicts estimations of learning requirements and the constraints imposed by peda-
gogical principles and human upbringing.

6.4.1 Environmental Context

If you talk to French people about entrepreneurship in their country, you quickly
realize that positive entrepreneurial values are missing in France. Where does this
negative view come from? How likely is it for this perception of entrepreneurship to
change in France, as well as in other European countries?
The lack of interest in entrepreneurship in the Schools of Economics in France is
evident. In the Entrepreneurship Center of ESCEM (Ecole Supérieure de Commerce
Et Management—School of Business and Management) in Paris, just a handful of
the two thousand students are really specializing in entrepreneurship. A situation
like this is fairly typical in Schools of Economics in France.
We interviewed students there and discussed the reason for this lack of interest
with them. One of the most common answers was the attitude of society towards the
entrepreneur. The entrepreneur is seen as greedy and selfish with the ultimate goal
to make money at the expense of others. Instead of seeing business startup activities
as beneficial for society, a French student may suggest that when entrepreneurs start
new businesses, they take customers and sales of existing firms for granted. Another
reason given is that entrepreneurship is too risky. In France, individuals who fail as
entrepreneurs are stigmatized as mega-losers for the rest of their lives. Moreover,
entrepreneurship offers a ‘real ‘job to those who have failed elsewhere. The young
business students also consider that entrepreneurship is for those who already have
a great experience in business and not for someone who is just starting a company.
Furthermore, students find it very difficult to raise seed capitals for a new business:
would a bank or an investor lend money to a young business graduate with little
work experience? In addition, bureaucracy is a serious hindrance to starting new
businesses and, last but not least, high taxes and bankruptcy risks are also respon-
sible for the lack of interest in entrepreneurship.
6.4 The Model of the Learning Lifecycle and the Learning Strategy 151

6.4.2 Learning Strategy

While analyzing the LLM above, we discussed environmental, guiding and inhibiting
factors influencing entrepreneurship. In this context, it is suggested that the ‘special-
ization stage’ would be more beneficial for tertiary education students and would
definitely reinforce their entrepreneurial values, if positive values were taught at a
younger age, that is, in the elementary or secondary school (see Fig. 6.3 and Table 6.3).

Fig. 6.3 Effect of entrepreneurial learning environment of America in France (Carayannis 2002,
Cross-culture)

Table 6.3 Factors influencing entrepreneurship (Carayannis 2002)

152 6 Introduction to Technological Entrepreneurship

As a result, young students would develop and consolidate a more positive

attitude towards the value of entrepreneurship for society and the individual.
In general, the learning strategy should move beyond traditional educational models
allowing students to be active participants in their learning and lead the way or, in
other words, become teachers, when necessity calls.

6.5 Incubators

6.5.1 What is a Business Incubator (BI)?

Business Incubators are organizations that provide protective environments and

support for business start-ups. There is competition both among incubators and
against consulting firms or real estate consultants. All of them strive for the highest
ranking of the toplist, based on the value of the companies they host: the higher the
equity valuation of an incubatee that exits an incubator’s programs, the hotter the
emerging startup and the higher the rank for the incubator in question.
Incubators vary and may be differentiated based on the different fields of their
activity, which lead to different competitive scope, and different strategic objectives
and services offered. According to Porter (1986), we distinguish four different fields
of incubator activity or elements of competitive scope:
Vertical scope—Along with venture capitalists, business angels, consulting
firms and institutional investors, incubators provide financial and administrative
support for startups. Incubators try to differentiate themselves from business angels
concerning guidance services offered. Although they target early startup stages,
they are unlikely to focus on day-old entrepreneurs. Venture Capitalists are often
external partners or customers of successfully built start-ups that participate in incu-
bation programs. Taking the above into consideration, incubators serve as startup
handling agencies for venture capitalists and institutional investors.
Segment scope—The actual source of start-ups may constitute another direction
and scope for incubators. University Incubators, for instance, typically prefer fac-
ulty students and staff entrepreneurs from their host university to outsiders.
Company-internal incubators would prefer company employees to outside entrepre-
neurs, like the Brightstar (BT) Incubator that offers its services to employees of BT
only. Some independent commercial incubators rely on incubator people, a team of
idea generators for startups, but this model depends highly on the creativity of the
minds behind the incubator. Other incubators tend to keep their doors open to a
variety of sources.
Geographical scope—Geographic focus is a natural competitive factor for
regional business incubators, since their mission is to support new businesses locally.
Network access is a critical element of successful budding and, given the fact that
networks are usually limited to a certain region, many incubators are trying to estab-
lish a strong local presence. The exceptions here are some home company-internal
incubators, where networking among tenant companies is more important than the
6.5 Incubators 153

regional network and many virtual incubators, which structure their business models
based on the variety of start-ups, rather than on a particular geographical focus
(Carayannis and von Zedwitz 2005).
Industry focus—Information technology, internet software and biotechnology
services are typical examples of industries for hot startups in incubators. Incubator
programs are focused on industries that are big enough to make the effort and
expense worthwhile. In most of the cases, the selection of a particular industry niche
or sector focus area depends on the professional abilities and preferences of incuba-
tor managers and aims to create partnerships between budding entrepreneurs. The
chosen focus area may be another differentiating factor resulting to competitiveness
of incubators. University incubators also focus on specific technologies, but their
choices are determined by the size of the infrastructure investment or the reputation
of academic departments. The Boston University international incubator program
for instance, which focuses on the photon and optoelectronics, has invested approxi-
mately one hundred million dollars to install cutting-edge infrastructure for research
and experimentation.
The four dimensions of competitive scope elaborated above help us explain not
only how incubators differ from other startup “supporters”, but also how to differen-
tiate among them. Therefore, an important distinction can be made based on strate-
gic objectives of incubators, regarding their attitude towards sponsoring startups: is
it for-profit or non-profit? This differentiation is more accurate than any superficial
academic distinction, as it has full repercussions on the definition of the incubator’s
operational model and the implementation of the entrepreneurial plan. The wide
range of competitive foci and strategic objective has led to many types of incubators
that offer clients specific benefits. Most common incubator archetypes are:
1. Regional Business Incubators
2. University Incubators
3. Independent Commercial Incubators
4. Company-Internal Incubators
5. Virtual Incubators
A report of these archetypes and a more complete analysis in Carayannis and von
Zedwitz (2005). The first two types are generally non-profit oriented, while the last
three have strong profit motives. All types have differences in competitive focus,
options or opportunities. Figure 6.4 illustrates the correlations of competitive scope
and strategic objective on the basis of incubator archetypes. The competitive focus
axis includes the three competitive scopes: industry, geography and segment. The
strategic objective axis differentiates between the specialisms of incubators as
reflected in their profit orientation: for- profit incubators give priority to efficiency,
setting it as their initial strategic objective; non-profit incubators usually set the ful-
fillment of a public mission as an initial goal. Regional incubators engage in setting
and planning goals only indirectly connected to operating profits, such as employee
retention, innovation capacity building, or stock assessments. Although the strategic
goals of a non-profit incubator are also profit-seeking on the long run, profits are
often concentrated outside the incubator by a parent company or a sponsor, and the
154 6 Introduction to Technological Entrepreneurship

Fig. 6.4 Different strategic objectives and competitive arenas defined five incubator archetypes
(Carayannis and von Zedwitz 2005)

contributions of the incubator are difficult, if not impossible to calculate. Internal

sustainability goals are relatively recent trends for most non-profit incubators.
Most incubators can be connected to one of the five archetypes, although some
incorporate the elements of two or even three incubator archetypes. University incu-
bators usually have no economic pressure for financial returns, but focus on being
of service to the scientific community in the university. Regional business incuba-
tors serve a local community and their goal is to create jobs and support local entre-
preneurship and wealth. Independent commercial incubators are profit-oriented,
and often focus on a particular technology or industry in order to succeed. Virtual
incubators are also for-profit but they are oriented towards the special needs of the
business community rather than a particular industry. Company-internal incubators
are harder to classify, partly because their mother companies have strong corporate
goals: the internal incubator serves (internally and externally) political interests as
well as corporate growth objectives. Obviously, these different goals and sources of
competitive advantage have specific consequences on incubator business models.
(Carayannis and von Zedwitz 2005; Carayannis et al. 2006).

6.5.2 Determination of the Five Incubator Services

Entrepreneurs need business facilitation services such as financing, office space,

Information Technology (IT) infrastructure, leadership, etc., provided by consulting
firms, real estate companies and other service provider agencies. The following are
identified as five core incubator services:
1. Access to physical resources—Incubators offer office space, furniture, sports
facilities, a computer network, twenty-four hour security, and other amenities
6.5 Incubators 155

relative to physical infrastructure and real estate. Low performance Incubators

focus too much on their role as owners, neglecting other services described fur-
ther. In this area, incubators compete with science and technology parks and
sometimes real estate companies.
2. Office Support—In addition to infrastructure, incubators also offer office sup-
port such as secretarial and reception services, computer network support and
accounting support. These services surely do not qualify as complex or techno-
logically advanced, but they ensure the existence of basic organizational
resources and save time and effort for entrepreneurs, who are willing to move too
far too fast. While these services can be taken for granted when functioning well,
the lack of Technological Information may constitute an obstacle.
3. Access to financial resources—Incubators also provides access to venture capi-
tal that is usually a combination of private equity and external capital invested by
business angels, venture capitalists or local institutions and companies. Generally,
incubators target early stage and start-up. Natural competitors are angel investors
as well as early stage venture capitalists and investment companies.
4. Entrepreneurial startup support—Entrepreneurs may be strong in technology
and business vision but they usually have poor organizational, administrative and
legal skills. Incubator mentors provide mentees with all the business basics in
order to guide them through the steps a startup needs to take. New tenants are
given all the necessary support in the business plan process through professional
services such as accounting, and legal advice on integration and taxation issues.
Incubatees are also assisted while formulating the structure of employee owner-
ship and selection plans. Highly valued administrative support is also provided
to help entrepreneurs develop management and leadership skills, and learn how
to use them. Many incubator managers, however, are not in a position to offer
real added value to the initial guidance, resulting thus in competition with
accounting and consulting firms during this launching or initial phase.
5. Network access—Successful incubators exert positive influence on new entre-
preneurs trying to build and grow a successful startup. As a matter of fact, entre-
preneurs are unlikely to have in their possession an incubator’s networking
system that takes years of effort to be created. Incubators can bring significant
people in the startup: a prospective customer, a brilliant programmer of cutting
edge software, a new General Company Director, a venture capitalist interested
in investing. Access to these networks is also sometimes granted to companies by
human resource, consulting firms, business angels or networking organizations.
“What” or the actual service mix depends on the focus of the BI as well as the
needs and preferences of the incubatees”. An agreement developed between the
entrepreneur and the incubator would definitely describe this actual mix of services.
Some incubators offering all five services described above are called incubators in
the strong sense of the word; some others offering only four of them are called incu-
bators in the weak sense of the word. The organizations offering even fewer than four
of these services would consequently miss too many hatching elements to be called
incubators. It is at this point that startup accelerators, technology transfer offices,
entrepreneur mentoring programs or accounting firms are employed.
156 6 Introduction to Technological Entrepreneurship

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Chapter 7
Entrepreneurship and Innovation Practices

7.1 Technology Management and Transfer

7.1.1 General

Technology and Technology Transfer are concepts that have a high degree of com-
plexity surrounding them, so it would be quite difficult to establish a precise defini-
tion for these terms. Technology Generation and Diffusion are processes deeply
dependent on the socio-economic structure. In fact, technology may take various
forms, ranging from non-embodied technology (patents, licenses, ideas, know-how,
etc.) to technologies embedded into mechanical systems, machines, or even into the
human body. Technology Transfer Mechanisms vary even more, since different
forms of technology can be transferred through different channels. Consequently,
the variety of technology types along with the complexity of their transfer processes
creates serious problems concerning the quantification and study of the results and
effects of technology, on society in general or on the industry sector, in particular.
Nowadays, Technology Generation and Diffusion are processes deeply depen-
dent on the socio-economic structure. In fact, technology may take various forms,
ranging from non-embodied technology (patents, licenses, ideas, know-how, etc.) to
technologies embedded into mechanical systems, machines, or even into the human
body. Technology Transfer Mechanisms vary even more, since different forms of
technology can be transferred through different channels. Consequently, the variety
of technology types along with the complexity of their transfer processes creates
serious problems concerning the quantification and study of the results and effects
of technology, on society in general or on the industry sector, in particular.

© Springer International Publishing Switzerland 2015 159

E.G. Carayannis et al., Innovation and Entrepreneurship, Innovation,
Technology, and Knowledge Management, DOI 10.1007/978-3-319-11242-8_7
160 7 Entrepreneurship and Innovation Practices

7.1.2 Technology

In a context where conceptual confusion prevails, as to what technology really is, it

would be interesting to refer to some previously established definitions of the term,
later in this subsection. The attempted definitions of technology, however, will simply
highlight how inconsistent and largely unsuccessful the results of these efforts were.
It should be made clear that technology is the accumulated specific knowledge
that gives a manufacturer the ability to produce a product, in other words it is the
know-how: technology is a body of knowledge. The process of manufacturing a
product is considered to be the proven technique. As pointed out by Emmanuel
(1980), techniques substitute each other, while technologies are constantly growing
and expanding.
By definition, technology presents certain peculiarities, either of its perception or
of its synthetic components. Therefore, technology can be:
1. Specific and distinct for each firm: as each company has its own way of acquisi-
tion and accumulation of technological knowledge, firm characteristics have sig-
nificant effects on the technology that is developed.
2. Often involved in problem solving: the knowledge gained by addressing issues and
problems that occur often leads to an improvement of the existing technology.
3. Possessing a systemic dimension: technology depends on all the individual ele-
ments it is composed of and their change affects the overall performance of the
technological system.
4. Affecting procedures deeply entrenched in the social process: technological
change is an ideal agent of social change.
5. Exhibiting cumulativeness: the technological knowledge gained at any time is
added to the existing and this process is repeated again and again.
6. Allowing interchange of continuity and discontinuity: a technology (e.g. product
manufacturing) builds on previous, improved technologies (continuity), but the
emergence of another different technology may completely eliminate the former
(discontinuity).
7. Possessing Corporate Μemory and exhibiting Historicity: related to the above-
mentioned continuity/discontinuity. The growth path that has been followed by a
company largely determines the company’s future.
8. Creating new business opportunities and venues, but also inverting familiar
norms: the development of a technology can create new sectors of economic
exploitation that did not exist before, but also make others shrink or disappear.
9. Involving risk and uncertainty: both have to do with risks occurring during the
development of a technology. For example, the product of a technology may not
be successful, thus causing regrets over wasted resources, missed opportunities,
or undesirable results.
Multiple definitions have emerged describing “technology”, overtime:
The National Curriculum Council of United Kingdom (1993) defines tech-
nology as the creative application of knowledge, understanding, and skill in design-
ing and making quality products.
7.1 Technology Management and Transfer 161

In a report of EIRMA (European Industrial Research Management

Association) technology is defined as the means by which knowledge, science, and
discoveries are applied to produce goods and services.
Pitono believes that technology is a combination of the four key elements below
that interact with each other:
• Techno-ware: machinery, apparatuses, tools, means of production, etc.
• Human-ware: abilities, skills, industriousness, resourcefulness, etc.
• Info-ware: facts, data, observations, theories, plans, etc.
• Infra-ware: administration, organization and production systems, structures etc.
As mentioned above, technology is the knowledge, experience, skill, and dexter-
ity required to produce beneficial products or services. Technological advances can
be considered a necessary precondition for economic development, improvement of
living and working conditions and satisfying human needs.
Rogers (1983) defined the technology concisely as follows:
‘… technology is a design for instrumental action that reduces the uncertainty in the cause-
effect relationships involved in achieving a desired outcome’.

We adopt the following working definition for Technology:

‘Technology is a word with Greek roots that in free translation means the logic or method of
an art. Technology is the art of science and the science of art in its etymological origins,
namely the words “art” and “reason”, and recommends a systematic, structured and creative
solution with predictable and controllable behavior [Carayannis 1994–2009, RPI/UNM/
GWU Lectures; Carayannis et al. 1998; Carayannis 2001; Carayannis and Gonzales 2003]’

Solow and Hogan (1957) estimated that 90 % of the increase of the Gross
National Product (GNP) per man-hour can be attributed to imported technology.
In the history of global industrialization, the development of technology has been
the main factor of economic growth for developing countries, while technology trans-
fer has been of great importance both for developed and developing countries.
Technology transfer has always played an important part in establishing new industries
all over the world, by creating new economic activity in both local and international
markets. As a result, trade relations as well as transport and communication between
countries have grown stronger, and technology transfer can be seen as a ‘bridge’ trying
to narrow the big wealth gap between developed and developing countries.

7.1.3 Technology Transfer

The term Technology Transfer (TT) also called Transfer of Technology (TOT) is
defined in the following ways:
According to the United Nations Conference on Trade and Development
(UNCTAD), 1976:
‘Transfer of technology means introducing certain technological factors from developed to
developing countries allowing the latter to set up and run new production facilities and
expand the existing.’
162 7 Entrepreneurship and Innovation Practices

Brooks (1981), states that:

Technology transfer may be described as the process by which science and technology are
diffused throughout human activity. In cases when systematic, rational knowledge devel-
oped by one group or institution is embodied in a way of doing things by other institutions
or groups, technology transfer may be said to have taken place. Gruber and Marquis (1969)
have defined technology transfer as:
…the utilization of our existing technique in an instance where it has not previously
been used.

According to Cooper and Sercovitch (1971):

‘Technology transfer covers the transfer, from developed to developing countries, of know-
how data that are usually necessary for the organization and operation of new production
facilities and are rarely used (if ever) in developed economies.’

In Rubenstein (1976):
‘Technology transfer generally involves the transfer of a capability to not only use, but also
to adapt and modify and, in many cases, to innovate with respect to a product, process,
piece of equipment, or field of technology (broad and narrow).’

According to Islam and Kaya (1985):

‘Technology transfer is a process through which technical information and development
that emerge from an institutional environment are adapted to operate in another. It implies
the adaptation of a new technology to a different environment through creative transforma-
tion and practical application.’

Hoffmann (1985) defines it as:

‘…the country’s technological capacity as the object of the transfer process, given that the
transfer of knowledge improves a country’s technological capacity.’

In Kaynak (1985) are:

‘…the transmission of know-how to suit local conditions, with effective absorption and dif-
fusion both within and from one country to another.’

Finally Appleton (1991) defines it as:

‘The exchange of an ability, along with the thinking behind this ability, in order to enrich
existing capacity and to support organizations in developing countries using their own
projects and development efforts.’

The overall conclusion is that technology transfer occurs when an established

technology moves from one operational environment to another, where it comes
into effect. This transfer involves the movement of technology from one area to
another and vice versa.
Prominent among the various dimensions of transfer is the functional definition
given by Enos (1988). In the case study of Enos and Park (1988), the technology
transfer process is conducted in six stages, according to the function of the activities
carried out by the recipient firms at each stage: determining the needs; surveying the
alternative technologies and the alternative supplies; choosing a particular combina-
tion of technology and supplier; absorbing the techniques in their first application in
the importing country; disseminating the techniques throughout the economy;
improving upon them; and developing new and superior techniques through research
and development in the importing country itself.
7.1 Technology Management and Transfer 163

Numerous definitions have been reported related to the transfer of technology.

This book elaborates on the bilateral trade between two countries for technology
purchasing. Reference is made to technology embodied in capital goods such as
machinery or facilities, and to new labor-saving technology embodied in industrial
sectors transferring tasks from humans to machines, including skilled workers,
engineers, managers or even administration bodies. In this piece of work we are not
interested in the technology used for military purposes. However, if this technology
is adjusted for political purposes and for research in strategic implementations, it
may generate peaceful uses of technology, drawing our attention to the growing
importance of Dual-Use Technologies (Carayannis 2001).
Thus the term technology transfer may generally be defined as know-how trans-
fer suited to local needs, with simultaneous absorption and diffusion within the
limits of a country or company. However, the definition of a concept such as tech-
nology transfer presents no interest whatsoever, since any potential definition will
always be far from reality. Technology transfer should be approached based on sub-
stantive criteria, rather than on any definition given. The benefits of successful tech-
nology transfer are so many that its definition takes second place. Below, we will try
to explain what the actual essence of technology transfer is, its relationship with
technology (as a general concept) and the forms of technology transfer today.
Initially, before proceeding further, it is necessary to make a distinction.
Technology transfer is not an automatic process in which the positive results come
by themselves. The technology recipient, whether it is a country or company, should
make an endogenously determined effort, so that the transferred technology can
achieve the desired results. That is, the transfer of any technology is rendered use-
less, if the recipient is not able to use it properly and efficiently. A detailed analysis
of the capabilities of the technology recipient is beyond the scope of this essay. But
it is important to say that technology transfer should be treated as an integrated
process that requires the attention and contribution from all the transacting parties
(the owner/supplier of the technology, the recipient, the state, society, etc.)
The firm specific and cumulative nature of the concept technology, analyzes in
7.1.2 is perhaps the most important source of problems during technology transfer.
This very nature of technology mentioned above makes it necessary for the sake of
analysis to discuss some components of technology transfer further below.
In this book the working definition for Technology Transfer is as follows:
‘Technology transfer is the transfer of applied knowledge from one application area – the-
matic, geographic, technological, functional, and corporate or institutional – to another, in
order to achieve better performance and results. Examples are spin-offs, strategic alliances and
Public-Private Partnerships (PPPs) in Research and Technology (Carayannis 1994a, b, c;
Carayannis et al. 1998; Carayannis 2001; Carayannis and Gonzales 2003).’

7.1.3.1 Technology Transfer as an Investment

The firm specific nature of technology causes significant difficulties in understand-

ing technology transfer. This difficulty is manifested due to implicit (tacit) knowl-
edge that is embedded in technology, whether technology is mature or not. Therefore,
a high maturity level of a manufacturing process will not facilitate technology
164 7 Entrepreneurship and Innovation Practices

transfer. This is mainly due to the tacit knowledge embedded in all the standard
operating procedures (SOPs) of any company. Successful technology transfer
requires additional investment in learning in order to acquire the necessary tacit
knowledge. The local (corporate) character of technology and technological change
turns any new application into a new investment, regardless of its innovation.
Technology transfer is not only the process of transferring appropriate informa-
tion and usage rights from one company to another, or simply the transfer of machin-
ery from one place to another. Experience has shown that additional services
(technical, administrative, R & D, etc.) are required for successful technology trans-
fer. All the above mentioned presuppose significant costs, unavoidable though for
the transfer and absorption of the necessary embedded knowledge.

7.1.3.2 Technology Transfer as Skills Transfer

An important part of technology is tacit and embedded in people’s minds and in

organizational routines. Consequently, successful technology transfer should
include, in addition to technological information, the skills necessary for “in-depth”
monitoring and understanding of technology. In other words, a simple technology-
based business transaction would transfer only elements of a technology and not the
skills necessary to develop these elements.

7.1.3.3 Technology Transfer and ‘Technology Gap’

The local character of technology is connected to what we call ‘Technological

Distance’ or ‘Technology Gap’, partly because technology exhibits ‘sensitivity’ to
differences in economic, physical and social conditions. Therefore, understanding
the concept of technological distance helps to explain the difficulty encountered in
technology transfer to developing countries. Companies in developing countries
need a broader range of technologies, especially of production know-how. The tech-
nological distance between suppliers and buyers not only determines the amount of
cost and payment, but also makes technology acquisition a local process, deeply
dependent on the learning path even when the technology in question is widely
known and mature.

7.1.4 Technology Transfer Mechanisms

Most definitions of technology transfer do not include technology transfer mecha-

nisms. International technology transfer is defined as a process in which knowledge
associated with the conversion of revenue to expenses is accrued by an organization in
a country (e.g. firms, research centers, etc.) from overseas sources. (Radosevic 1999).
7.1 Technology Management and Transfer 165

There are many criteria that can be used to categorize technology transfer, but
none encompasses all dimensions of technology transfer. Also, the distinction of
technology transfer can be based on conventional and unconventional transfer
mechanisms:

Α. Conventional mechanisms B. Unconventional mechanisms

• Foreign direct investments • Reverse engineering
• Technology licensing • Brain-drain
• Joint ventures
• Franchising
• Marketing agreements
• Technical assistance agreements
• Turnkey contracts, and
• International outsourcing
• Personal contacts
• International literature

The above distinction reveals some dimensions of technology transfer, having to

do with the sources and direction of technology transfer. It would be appropriate to
mention here that the distinction between the terms ‘channels’ and ‘mechanisms’ of
technology transfer, as defined by Laamanen and Autio (1995) ceases to exist with the
constant interaction between the two companies. See also (Carayannis et al. 1998;
Rogers et al. 1998; Carayannis et al. 1997; Carayannis and Alexander 1998, 1999a, b).
Undoubtedly there are diverse classifications of technology transfer, each high-
lighting the different aspects of technology transfer. Our attention is focused on the
official technology transfer mechanisms, such as foreign direct investment,
licensing and joint ventures.

7.1.4.1 Foreign Direct Investment

Foreign Direct Investment (FDI) is an investment conducted outside the borders of

the investor’s home country but within the borders of the company making the
investment. In the National Income Accounts, foreign direct investments include all
cash flows, whether direct or from subsidiaries, as well as reinvested profits, fixed
debt funding and mainstream equity funds. The foreign investor has full control
over the technology transfer resources, and the subsidiary usually follows the firm-
specific strategy of the parent company. The investment includes a ‘package’ of
assets and intermediary goods such as capital, technology, managerial skills, market
access, and business skills.
A long time ago, Multinational Companies or Corporations (MNCs) conducted
their business exclusively through direct investment. In the seventies, small proprie-
tary companies and new forms of investment made their first appearance, thereby
leading to the creation of complicated types of technology transfer. Today, MNCs
make different types of relationships and contracts, often referred to as agreements, of
which foreign direct investment is only one part. A range of cooperation agreements
166 7 Entrepreneurship and Innovation Practices

including joint ventures, outsourcing, franchising, and marketing are complementary

to foreign direct investment. The multinationals should act as transaction cost mini-
mizers, by conducting separate added-value management processes, and as a driving
force behind technology: whoever organizes technology is not necessarily an innova-
tor. It should be noted at this point that the connecting link between foreign direct
investment and technology transfer has become loose, due to various new types of
investments that have occurred. Nevertheless, it has not ceased to exist because of the
widening technology gap and the existence of extensive FDI from previous periods,
in the newly industrialized economies.
The investment trend analysis of MNCs in the late twentieth century, according
to (1) UNCTAD in ‘Transnational Corporations in World Development: Trends and
Prospects’ New York, United Nations, 1988 and (2) the United Nations Economic
and Social Council (UN ECOSOC1989) in ‘Role of Transnational Corporations in
Services, including Trans-border Data Flows’ showed that:
1. There was a concentration (higher than before) of international investments in
the three industry poles, United States of America (USA), European Union
(EU)—European Free Trade Association (EFTA) and less in Japan, whereas in
less developed countries investments were limited.
2. The well-known types of International Direct Investment (IDI), in both industri-
alized and non-industrialized countries, had given way to new types of invest-
ment. Those new types (subcontracting, joint ventures, etc.) did not necessarily
involve funds transfer to the country of establishment but they, additionally, fur-
ther reduced both investment risks and the extent of the investment commitment
of international bodies.
3. In terms of sector specific guidance there was a notable shift from raw materials
(as well as other sectors such as manufacturing) to services and especially in
banking, insurance, advertising, consultancy, tourism businesses, etc.
4. Since the late mid-eighties a strong tendency for mergers and acquisitions was
observed, either between firms in the same country or between companies of
different nationalities, devising a strategy for business expansion without a need
for fixed capital formation to be used for investment purposes.
Since 2007 though, there can be no doubt that the fallouts of the global financial
crisis have irked investors, foreign or domestic, thus suppressing their appetite for
new ventures. The dramatic changes in the global economic structure have made
earlier expectations seem like impossible missions.
It has also been noted that technology transfer activities are often reduced con-
cerning know-how, in particular, the selling of individual pieces of technical knowl-
edge and skills to lesser developed countries. This can be explained by the fact that
technology has become more sophisticated and seems to constitute an element of a
general knowledge grid. This knowledge is firm-specific and cannot be successfully
transferred if separated into pieces. In other words, the technology which is trans-
ferred has limited utility for the buyer, if it is separated from the dense set of the
other nodal points of the knowledge grid that make it usable. Consequently, success-
ful technology transfer would not constitute an integrated process (Rogers 1995) by
7.1 Technology Management and Transfer 167

simply moving a technology to a new environment; it also requires the transfer of

the necessary knowledge, which enables recipients not only to understand the ‘func-
tion’ of the new technology, but also to use it, in order to build their company’s
capabilities and eventually create a tangible benefit.
As mentioned previously, foreign direct investments are made primarily in the
parent-subsidiary context, the parent/holding companies usually being multination-
als. In developed and developing countries, multinational corporations are the main
channels of technology transfer and diffusion (Rugman 1983). While multinationals
seek profitable returns on their efforts, they also try to improve the functional profit-
ability of their investments or to produce certain technical products. At the same
time, parent companies have a leading role in the investment decision making pro-
cess, primarily examining the probabilities of repatriation of capital (Kazis and
Perrakis 1984). In any case, multinational corporations transfer technology through
their global production networks.
The positive impacts of MNCs in technology transfer are enumerated by Raj
Aggarwal (1982):
1. MNCs have the ability to replenish the local capital required in economically
weak countries.
2. Technology transfer from MNCs to a hosting country may result in the develop-
ment of secondary industries and the creation of new jobs, thus creating addi-
tional national income.
3. The MNC activity will most possibly create additional income, thus raising addi-
tional state revenue.
4. Technology transfer from a MNC can improve the country’s export capacity: the
adoption of high technology will expand the country’s export market.
5. The external transaction shortfall may be reduced or foreign exchange reserves
may be increased.
6. MNCs sell technology with a marginal cost that does not include most of the
fixed cost that would be spent in case of endogenous development of
technology.
However, MNCs may equally create negative impacts (Aggarwal 1982):
1. The outflow of dividends and profits, salaries of foreign managers, royalties,
loan interests and other remittances could cost a country dearly.
2. Technology transfer on a massive scale will possibly destroy the domestic
“embryonic” industry.
3. MNCs will probably use the scarce economic resources of the country; as a
result local industries will have difficulty in raising capital.
4. Similarly, other insufficient resources such as qualified personnel, raw materials,
etc., that may be committed by MNCs at the expense of domestic industries.
5. Technology transfer by MNCs poses the risk of restricting or even crowding out
domestic firms.
6. Domestic industries will often see MNCs as models and may adopt inappropri-
ate technologies, in their attempt to catch up with the multinational giants.
168 7 Entrepreneurship and Innovation Practices

In addition to all the above negative effects of technology transfer by MNCs,

there is one more depressing effect to discuss: the state of mono-oligopoly, which
has to do with the way in which multinationals operate. MNC activities create the
ideal breeding grounds for two of the least competitive market structures, namely,
oligopoly and monopoly. We chose to elaborate on this specific negative impact
among all others, in the light of the Greek economy. As P. Roumeliotis and Kalogirou
(1976) have observed, it can be safely deduced that the existence of oligopoly and
monopoly, as market structures or economic systems in today’s society in Greece,
is directly due to MNCs. In major cities all over Greece, multinational titans have
spread their tentacles through their subsidiaries, penetrating current target markets.
Similar conclusions about the structure of the Greek economy are drawn by Benas
(1978), Kapetanakis (1985) and Georgopoulos (1994).
Concerning MNCs and subsidiaries, both favorable and unfavorable views would
lead us to the conclusion that the gigantic parents and their dispersed foreign daugh-
ters should above all operate in a well-defined and controlled environment. Wrong
moves on the part of the technology-recipient country may exacerbate the gap
between the upper economic level (capital-intensive technology or industries and
the lower economic level (local, labor-intensive industries Aggarwal (1982).
Moreover, in the case of MNC activity in an economically weak country, some sec-
tors are likely to grow only at the expense of others that are equally important.

7.1.4.2 License Agreements

Non-embodied technology flows, reflected in licensing fees and franchise royalty

payments, occur mostly as intra-company transfer between parent companies and
their subsidiaries. In 1995, about four fifths of franchise royalty payments (royal-
ties) and license issue fees for license agreements (licensing), in the US and
Germany, took place between parent companies and their subsidiaries. US compa-
nies transferred 75 % of the value of the licenses they granted via FDI, the British
companies about 50 % and the German approximately 90 %. Over 80 % of the
official fees from technology sales in the US came from the subsidiaries of American
companies. In Japan, more than 60 % of the payments came from Japanese subsid-
iaries in foreign countries. In recent years, payments for non-integrated technology
have increased significantly worldwide. This is indirectly justified by the simultane-
ous increase in technology alliances where the exchange of non-integrated technol-
ogy is an important element.

7.1.4.3 Technology Alliance/Business Alliances

The alliances between companies can take many different forms which do not
include arm’s length relationships or mergers and acquisitions. The creation of these
alliances peaked in the 80s, originally comprising affiliated companies, that is, firms
that had entered into secret agreements between them to promote their interests.
7.1 Technology Management and Transfer 169

While the definition of FDI is relatively easy to create, the concept and content of
alliances between companies are generally difficult to identify. The difficulty lies in
the controversy that exists about the specific content of these legal agreements.
Numerous researchers have noted that an alliance between two firms allows the
occurrence of bidirectional technology transfer. Other scientists believe that these
alliances also include production and marketing cooperations, in addition to tech-
nology flow and Research and Development (R&D). However, irrespective of the
content of technology alliances between companies, these collaborative relation-
ships or partnerships linking independent business entities are an inevitable reality
in the business environment. It should also be noted that as domestic firms start to
go global, FDI is usually complemented by technological alliances during the tech-
nological catch-up process, in order to facilitate technology transfer.

7.1.4.4 Technical Assistance and Cooperation

This type of technology transfer presents many similarities with technology transfer
through people. However, this mechanism of technology transfer has specific char-
acteristics (e.g. financial, organizational), which differentiate it from others.
Although this mechanism does not bring the expected results and often leads to
waste of financial resources, in terms of the value of the transaction currency it is
still important.

7.1.4.5 Outsourcing–Offshoring

Outsourcing is a mechanism for technology transfer which was developed simulta-

neously with the global search for yield. Outsourcing takes place when a domestic
company or organization (Outsourcer or client) enters into a contractual agreement
with another domestic company (Outsourcee or supplier) for the production of
intermediate goods and services. These goods or services are used in turn by the
client as inputs or components in the production of the final goods or services,
which will be offered for sale in the market as finished products. When a company
or organization (client) enters into a contractual agreement to have goods produced
or services performed, but hires a company or trains employees (suppliers) from
another country to accomplish these tasks, the mechanism is called Offshoring, the
client Offshorer and the supplier Offshoree.
Outsourcing as a technology transfer mechanism is unevenly diffused across
countries: it usually takes place in Eastern Asia, to a lesser extent in Latin America
and, in the last few years, a higher percentage of outsourcing is undertaken by
Former Eastern Bloc countries.
The term outsourcing includes many different types of relationships between
different types of companies. However, it should be separated from the concept
of the Original Equipment Manufacturer (OEM). In an outsourcing agreement
the client has to buy the goods he has assigned for production to the supplier.
170 7 Entrepreneurship and Innovation Practices

In OEM agreements on the other hand, the producer manufactures products—in

close technological collaboration with the client’s company-eventually retailed
under another company’s brand name. Although outsourcing is very important for
technology transfer, the analysts had initially underestimated it because of the
implicit nature of the technology transferred through this mechanism.
Notwithstanding the issues arising both for clients and suppliers, global out-
sourcing contracts appear to be an effective way for accelerating industrial develop-
ment. Complying with strict technical specifications, outsourcing suppliers develop
specific complementary sets of capabilities on the production line, thus creating a
specialization offering comparative advantage. Furthermore, outsourcing contrac-
tual agreements facilitate the transfer and allow better use of a country’s human
resource. Moreover, apart from workforce mobilization, the evolution of global out-
sourcing contributes to the dissemination of technological knowledge in less indus-
trialized countries, as it is the case in outsourcing companies. The latter was strongly
observed in outsourcing companies of East Asia.
International outsourcing could also induce foreign capital inflows and act as a
catalyst in attracting other investments. The two abovementioned would result to an
increase of local value-added and a promotion of diversification of production.
Outsourcing agreements could be the first step in creating joint ventures. This is
justified by the view that the supplier customizes the production processes as per
clients’ requirements and affordability, eventually gains his confidence and prepares
the ground for future cooperation. In this case, technology transfer is accelerated
and outsourcing becomes a viable and affordable option.

7.1.4.6 Exporting

Foreign markets are a source of demand and knowledge, if the buyer works closely
with the vendor. However, the recognition of purchasers as a knowledge source does
not constitute a widely accepted mechanism of technology transfer: their role, in
internal or external markets, is underrated in aiding product improvement. The East
Asian experience shows that the transfer of information, knowledge and require-
ments from the product purchaser to the product supplier, through the commercial
activity of the latter, is an important source of knowledge for the product seller. The
information that comes from buyers is a kind of ‘free advice’ for improving produc-
tion capacity. The close long-term cooperation between seller and buyer provides
the former with information on the international market, product specifications and
the appropriate production techniques.
This ‘circular’ relationship between the seller and the buyer is beneficial for both
parties: the information from the buyer is embodied in the products making them
more competitive (benefit of the seller) and improved products are put in the market
(benefit of the buyer). Thus, the knowledge provided by buyers returns to them in
the form of an improved product.
The quantity and quality of knowledge transferred is closely connected to the
form of communication between the buyer and the seller. Close and effective
7.1 Technology Management and Transfer 171

communication would mean better flows of knowledge from the market.

Measurement of the technological knowledge transferred in this manner may be
impossible, but is possible to measure the impacts of this knowledge transfer as the
results are evident in the products. Another indicator of knowledge transfer, in the
above manner, is the organizational context and scope of buyer-seller relationship.
The extent, to which the seller will convert the information received from the mar-
ket into real technological knowledge and embed it in his products and production
processes, depends on his ability to assimilate knowledge.

7.1.4.7 Capital Goods

Technology could be considered as an unknown percentage of the total value of an

imported product. Among other products, capital goods are with high technological
content. In the early eighties, the value of capital goods imported in developing
countries was four times the average annual flow of foreign direct investment and 14
times greater than the total technical cooperation expenditure.
The importance of capital goods in the economic development of a country is
great, because they are a basis for the development and assistance of other disci-
plines that are either new in the industrial sector of the country or restricted by capi-
tal inflows. The existence of even a limited industrial base for capital goods
production is a major advantage when operating in new areas (e.g. in the field of
electronics). Although domestic production of capital goods can be seen as an
important advantage for overall development, the importance of correct use and
proper management of imported capital equipment should not be ignored. In Greece,
where this industry sector has not achieved a broad-based growth, its restructuring
and further development becomes second priority. In Greece, where capital equip-
ment is almost exclusively imported, the proper fitting, use, management, and
improvement of the foreign origin equipment may be a better strategy than the
attempt for its domestic production.
Over the years, the technological content of capital goods has become largely
intangible and abstruse. As a result, countries with a generally limited technological
background and possibilities are not in a position to take advantage of the technol-
ogy embedded in capital goods. Thus, the import of capital goods as an autonomous
mechanism for technology transfer is of little significance or value. However, in
cases when it complements other mechanisms suitable for the transfer of intangible
assets, such as outsourcing, personnel transfer etc., it acts as an effective mechanism
for technology transfer.

7.1.4.8 Through People, Print Media and Reports

The importance of transferring people as a mechanism for technology transfer has

been recognized ever since the industrialization of the US and Europe. However,
there is limited potential for a systematic analysis of the role of this technology
172 7 Entrepreneurship and Innovation Practices

transfer mechanism in modern-day developing countries. Over the last decades, the
blossoming of the highly dynamic Asian economies has made the advantages of
large scale emigration of educated individuals or talented professionals (Brain Drain)
obvious. On the other hand, though, brain-drain had until recently been accused of
having only negative impacts on the economies experiencing this massive outflow of
human capital. Nevertheless, considering the reverse phenomenon of brain drain,
that is, the return migration of scientific manpower called Brain Gain, we realize that
the aforementioned negative trend is actually reversing. Brain gain may partly or
totally counterbalance the unfavorable effects of brain drain: in most of the cases
skilled professionals return home with more knowledge, skills and experience.
Consequently, turning brain drain to brain gain as well as developing and improving
communication with returning migrants (also called agents of development) under-
line the importance of technology transfer through people. This phenomenon has
taken such an extent in the electronics industry in East Asia (e.g. in India), that it is
difficult to classify it as an ordinary technology transfer mechanism. The above
industry sector has developed to such an extent mainly due to the return migration of
technological potential and to ‘reverse engineering’, that is, the viable method to
create 3D manufacturing models from existing parts and system components.
The options offered through the technology transfer mechanism of print-media
are countless. Τhe plethora of publishing options available, from technical maga-
zines to scientific essays, provide valuable insight into areas of interest that other-
wise would be difficult to detect. Today’s engineer has the ability to monitor new
developments in a particular subject area, by reading technical journals or books, or
by visiting exhibitions and attending lectures.
Tacit innovations related to the production process (and other processes) are
transferred through the mechanism of reports. Many organizational changes (e.g.
the Japanese management techniques) are now available to the general public
through the international literature. However, their transfer is more efficient when
combined with industrial visits.

7.1.5 Technology Transfer Models

The term ‘model’ for technology transfer is largely arbitrary, since this process cannot
take place in a vacuum. There are many different factors influencing technology trans-
fer, therefore the definition of a general model comprising all possible cases would be
a difficult task. Thus, models that have been occasionally designed focus on some
individual elements and do not cover the full range of technology transfer activities.
Certain models from the existing technology transfer literature and their basic compo-
nents are briefly presented below.
The term ‘general model’ (Samli 1985) is unfair, since in reality there is no such
model. The general model describes a process of technology transfer that is, how-
ever, not applicable in all cases. This model has five main components: the sender
of technology, the technology, the receiver of technology, the aftermath, and the
assessment (Fig. 7.1). Each one of the components of this model affects technology
7.1 Technology Management and Transfer 173

Fig. 7.1 General standard technology transfer (Doinakis 2005)

transfer and will determine the success or failure of goal setting, in its own way. The
components mentioned above consist in turn of individual factors that also influence
technology transfer.
The culture-based technology transfer model is unique due to the absence of
the usual components present in other models, such as buyer–seller of technology,
sender–receiver, etc.; it focuses on the values and culture of a country instead.
This model is based on the theory of social systems of Parsons and Shils (1962).
This theory uses the structure of personality to explain the functional dynamics of
the social system. According to Parsons (IBID) the social system is determined by
‘social preferences’, which characterize the people who make up the social struc-
ture. This theory will be no further analyzed here; we will rather concentrate on the
relevant model. This model supports that the transferred technology will eventually
lead to the production of a product. As this transferred technology did not previ-
ously exist in the country, this will be an innovative product and eventually, it will
be made available in the market. This market should be evaluated in terms of its
ability to absorb the new product. In such cases, market size does not play an essen-
tial role, our interest lies in the synthesis of “social preferences” in the market. In
other words, what are the product selection criteria in a market? For example, a
social group prefers cheap products and another selects products with attractive
appearance. Moreover, another group may choose a product following a lead user,
that is, a leading buyer serving as a role model, who is an early adopter of new prod-
ucts, methods, and technologies. Parsons (IBID) distinguished four different types
of social preferences regarding the criteria for the selection of a product, for the
satisfaction of the needs of a social group:
1. Affectivity Orientation—Preferences are based on criteria of comfort, social status
and prestige that the social group expects to gain from the product.
2. Particularistic Orientation—Preferences are purely subjective based on external
product characteristics (e.g. color, style, shape).
174 7 Entrepreneurship and Innovation Practices

3. Universalistic Orientation—Preferences are based on external stimuli, for exam-

ple a magazine review praising the quality of the product.
4. Collectivity Orientation—Preferences are considered to promote the group’s
common interest.
At this point, one could justifiably wonder how the aforementioned are con-
nected with successful technology transfer. The answer is simple: successful tech-
nology transfer is intrinsically linked with the concept of innovation. Any transferred
technology leading to products that do not satisfy the buyers’ social preferences is
doomed to failure. Consequently, a product will succeed in the market, if the used
technology meets the expectations and needs of a certain society. Therefore, con-
ducting a market survey to gather information about the social preferences of a
certain society will give us insight into the composition of the consumers’ prefer-
ences. Subsequently, technology and, hence, the products should be suitably adapted
to meet society’s needs.

7.1.6 The Vicious Circle of Underdevelopment Versus

Technology Transfer

In this section we examine the so called ‘vicious circle of underdevelopment’ and its
relation to technology transfer. According to Ragnar Nurkse (1953), the essence of
the vicious circle is that economically underdeveloped or developing countries can-
not overcome the unfortunate situation of their country. In his attempt to offer an
economic explanation for underdevelopment, he observes that the inadequacy of
saving out of regular incomes dooms poor developing countries to a vicious circle
of poverty. The latter make serious efforts for development, using different develop-
ment methods, only to end at the same point from where they had started. This idea
is illustrated in Fig. 7.2.
The initial stage, that is, economic underdevelopment is the reason why these
countries have low incomes. Therefore, they have low per capita income and low
Gross Domestic Product (GDP). By definition, low income leads to a higher pro-
pensity for consumption and lower propensity for saving, thus causing low levels of
bank savings accounts. The latter, in turn, leads to low investment, which is, by defi-
nition, the cause of lack or insufficiency of funds. Eventually, lack of funds can
easily be associated with low productivity. Although in many underdeveloped coun-
tries, there is abundant labor force, a minimum capital/labor ratio is required in
order to achieve a satisfactory level of productivity. So, as we can see, these coun-
tries move around a circular path only to reach the point where they had started.
Therefore, in order for a country to achieve a certain degree of economic growth,
it is necessary to break out of this vicious circle. Among the many strategies to
achieve this objective are the alternatives by Cassen et al. (1982):
i. Increase in National Savings
ii. International trade
iii. External financial assistance, and
iv. Technology transfer.
7.1 Technology Management and Transfer 175

Fig. 7.2 Vicious circle of underdevelopment

The presentation and analysis of the above alternative strategies is beyond the
context of this book so, even though each of these strategies is of grave importance,
emphasis will be given on technology transfer. It should also be mentioned that they
tend to be highly incompatible if they work together, as each one erases the others’
advantages.
Regardless of whether technology is high or low, the successful transfer of
appropriate technology has the ability to ‘break’ the vicious circle of economic
underdevelopment. In this context, has there are three different approaches to tech-
nology transfer (Samli 1985): improving export performance, import substitution,
and “neutral” approach.
Improving competitiveness and extroversion means that the country will import
a technology which will help increase exports. This way the country will escape the
vicious circle of underdevelopment. This tactic has been followed quite successfully
by Korea, Singapore and Taiwan. These countries imported technology which was
export oriented, in order to grow stronger and become competitive in the global
market. Their national economies experienced a large boom in the seventies.
Import substitution is considered to be an option of developing countries with a
large internal market and heavy dependence on imports. The imported technology
in this case will be used in the production of goods and services to replace imports
in this sector, for example, exploitation of domestic energy resources instead of
importing fuel from abroad.
The ‘neutral approach’ covers cases that are not covered by the other two
approaches. Under this approach, the imported technologies are often implemented
in some industry sectors that did not exist before or they are used to ensure balanced
development throughout the country, by providing opportunities to increase overall
profitability. As a result the host country will benefit from the proper use of its
resources, thus increasing economic efficiency.
176 7 Entrepreneurship and Innovation Practices

7.1.7 Technology Transfer Obstacles

The factors that prevent, restrain or delay the performance of transferred technology
are classified in two categories:
• Legal hurdles, such as government regulations and contract restrictions, and
• Sociotechnical barriers, such as infrastructure, cultural, communication or lan-
guage barriers.
The concept of culture includes all stereotypes and values developed within a
country. The language barrier is significant, as contact between people is essential
for technology transfer. Such a failure in communication can be caused either by the
language itself or by the fragmentary thinking and communication.
The infrastructure obstacle is most important in technology transfer, as its exis-
tence causes the occurrence of other obstacles. Researchers have at times argued
that the technological/scientific infrastructure often presents the most serious obsta-
cle. The technological infrastructure concerns the educational policy required in
order for the recipient company or country to increase its absorptive capacity and
use the transferred technology. This capability should be available to all levels of
technological process (Carayannis and Alexander 1998).

7.1.8 Success Factors for Technology Transfer

The lack of skilled personnel is considered to be one of the main problems faced by
developing countries, in the acquisition and utilization of the appropriate technol-
ogy. In 1969, the United Nations Advisory Committee on Science and Technology
for Development reported that the real obstacle for the above countries was neither
the lack of available technology nor its cost, but the lack of a country’s capacity to
absorb technology efficiently. This absorptive capacity of the transferred technol-
ogy depends on the levels of technological literacy, education and technical train-
ing. In general, ensuring high quality of comprehensive technology education would
definitely be the leading success factor in technology transfer.
Porter (1983) and Andrews-Miller (1985) recommend education and training
of the local workforce. Vaizey (1969) noted that education should take place simul-
taneously with practice and stop being limited to conventional teaching methods. A
study in manufacturing industries in Zaire showed that the most important compo-
nent of technology transfer was the know-how transfer through employee training,
in conjunction with practical experience.
Crawford (1987), Singh (1983) and Rodrigues (1985) pointed out another fac-
tor for successful technology transfer: undertaking and reinforcing Research and
Development (R&D) activities which will facilitate the introduction of high tech-
nology. In the past, lack of R&D has several times hindered the transfer of technol-
ogy to developing countries. Companies allocating 2 % of their sales on R&D
7.1 Technology Management and Transfer 177

activities are called technology-intensive, while those who spend more than three
percent are high-tech companies.
Gee (1981) observed that in order for imported technology to produce positive
results existing managers should be innovative at each given time. Wallender
(1979) reached the same conclusion, adding that managers should develop the abil-
ity to anticipate, diagnose, and solve problems. The ability to predict the probability
of future behaviors and decisions, through the extra-sensory perception called clair-
voyance (clear vision), supports the safe and efficient handling of coming changes
and facilitates crisis management and avoidance. Normally, ambitious senior man-
agers and executives, adhering to the corporate mission statements, use methods to
control their companies, in an attempt to energize and engage the workforce.
However, managers are in need of business executive coaching and cultivation of
their intuition, in order to navigate potential obstacles and lead a successful change
management process, when it is necessary. See also the concepts Strategic
Knowledge Serendipity and Arbitrage (Carayannis 2008) referring to ‘happy
accidents’ of knowledge discovery and utilization.

7.1.8.1 Selecting the Appropriate Technology

The concept of appropriate technology is not always fully understood. The question
whether the transferred technology is inappropriate has been posed many times, by
many writers. In order to choose the best alternative it would be necessary to calcu-
late the highest net profit, by evaluating expected benefits and estimated cost.
According to Samli, raw material requirements are the criterion for the selection
of appropriate technology. The three questions he poses concerning the candidate
technologies are the following:
• Can the technology make efficient use of the raw materials found in the recipient
country? If not, then it could be a national economic burden for ever.
• Does the manufacturing of the product require importing large quantities of raw
materials? If yes, then the candidate technology is of doubtful appropriateness.
• Does the product require using rare earth elements or draining scarce resources?
Even if these elements are available domestic materials in the recipient country,
depriving other more important sectors of these resources, makes this technology
unwelcome and unwanted.
The United Nations Industrial Development Organization (UNIDO) identi-
fied three factors to consider when selecting the appropriate technology:
I. Development goals:
• Increase work force employment and production through optimal utilization
of local resources
• Promote skills development
• Narrow the income gap of employees
• Satisfy the basic needs of poor people
• Improve the overall quality of life.
178 7 Entrepreneurship and Innovation Practices

II. Resource Supply:

• Examine the extent to which available resources are exploited by the new
technology
III. Implementation Conditions:
• Infrastructure status
• Climate and natural environment
• Social conditions in the host country
• Traditional cultural values
• Education standards
• Domestic and foreign market
Consequently, in order to avoid the choice of an inappropriate technology in devel-
oping countries, the recipient company or country should, initially, pay special attention
both to the type of agreement entered into by the parties involved and to the type of
imported technology: technologies that are outdated or have been unused for a long
time should be rejected. Moreover, technology recipients should be cautious towards
supplying companies, as the latter usually transfer technologies that are available but
not necessarily suited to the needs and special circumstances of a developing country, in
order to avoid wasting money and time to customize these technologies. Finally, recipi-
ents should never engage in technology transfer through poor communication channels,
internationally or locally, or if there is shortage of properly trained local workforce.
Considering all the factors mentioned in this subsection, we can safely assume
that the choice of the most appropriate technology is an important factor for suc-
cessful technology transfer. Our top candidate should definitely exhibit adaptability
to particular conditions (social, cultural, economic, etc.) of the host country.
However, the technology qualifying for transfer should above all meet the needs and
achieve the targets of the recipient company: in the manufacturing process, the eli-
gible candidate should facilitate the optimal management and utilization of avail-
able resources (raw materials, human capital, assets, etc.), while in the marketing
process, being embedded in products and services that circulate in domestic and
foreign markets, it should satisfy consumers’ preferences.

7.1.9 Cooperative Research and Development

Agreements (CRADAs)

Cooperative Research and Development Agreements (CRADAs) function as a

mechanism that transfers technologies developed at Federal R&D laboratories to
private companies (Carayannis et al. 1997; Rogers and Carayannis 1998; Carayannis
and Rogers 1998; Carayannis and Alexander 1999; Carayannis 2001).
CRADAs constitute lengthy legal agreements establishing procedures for sharing
research personnel, equipment, and intellectual property in conducting joint research.
They are based on a model of cooperation and partnership with industry, in which
each partner will have to pay their share. The government contributes by paying
researchers’ salaries and certain research expenses, associated with the activities of
its researchers. It is prohibited for the government to make payments to firms.
7.1 Technology Management and Transfer 179

A thorough investigation by Rogers and Carayannis (1998) demonstrates the

importance of the dissemination of information to private companies about CRADA
opportunities, the need to facilitate exchange of technical information between
CRADA partners, as well as goal achievement and task attainment of both partners.
In this project we realize that the main obstacle in this agreement process was com-
plicated procedures. CRADAs are considered as an impetus for commercialization
and technology transfer as they often prevent the cancellation of the R&D in private
companies and Federal laboratories. The CRADAs can also serve to maintain the
smooth functioning of the R&D mechanisms. Consequently,
‘…such collaboration between two organizations with quite different organizational cul-
tures may be valuable to each of the partners because each has certain resources that the
other needs. However, successful collaboration depends on the Federal R&D laboratory
and the private company finding enough common ground to be able to communicate effec-
tively about their mutual interests. Because of their differences, such effective communica-
tion is often problematic. (Rogers and Carayannis 2008)’

7.1.10 Spin Offs

A Spin Off is a mechanism preparing technologies to be transferred from lab to

market, after they have originated in a parent organization, such as a university, a
Federal R&D laboratory, or a private company:
‘A spin-off is the commercial application of a product or technology originally developed
for a particular government mission. It can refer to commercial products stemming from
government R&D – vertical transfers of technology – and also to horizontal transfers in
which military devices, tools, or technology are adopted in new civil applications.
(Carayannis and Rogers 1998)’.

The term spin off usually refers to a new company created by a corporate parent.
In this scenario, an employee leaves a private enterprise, often taking—directly or
indirectly—trade secrets, business technology, or intellectual property intending to
compete with the parent company. The assiduous research of Carayannis and
Rogers (1998) defined spin off as: a new company formed by an individual or indi-
viduals who used to be or still are employees of a Federal R&D laboratory, around
technologies originating from a Federal R&D laboratory (see also: Carayannis et al.
1997; Carayannis and Alexander 1998, 1999; Carayannis 2001).
Radosevich et al. (1993), based on experience in national laboratories, describe
high-tech spin-offs as a form of technology transfer: “the laboratory context within
which the decision to become a technical entrepreneur is made, varies significantly
from laboratory to laboratory, and very few analyses have been made to improve
understanding of the spin-off phenomenon”. According to a thorough research
by Carayannis and Rogers (1998) concerning high tech spin-offs, technological
knowledge acquisition and unforeseen institutional consequences (e.g. various
mechanisms for financing high risk ventures and organizational culture problems)
can either be a success factor or a potential cause for failure, in growing and manag-
ing these new technology-based ventures.
180 7 Entrepreneurship and Innovation Practices

Stankiewicz (1994) observes that spin-offs, especially those coming from

universities, are considered to be a particularly significant mechanism for technol-
ogy commercialization. This view stems from the broader belief that these new
technology-based firms (NTBFs) apparently introduce a disproportionately large
number of commercially oriented innovations to the market. Stankiewicz (1994)
also makes comments on academic spin-offs that also hold true for spin-offs from
public laboratories: “Formation of a spin-off can be interpreted as an attempt to cre-
ate an institutional space for activities which do not quite fit into the established
structures of academia and business; a space which would allow the scientists and
engineers to preserve their professional identities while acquiring new roles in the
process of commercializing technology”.

7.1.11 Strategic Alliances

Yoshino and Rangan (1995) give their definition of the term strategic alliance as a
trading partnership possessing three necessary and sufficient features:
• “The two or more forms that unite to pursue a set of agreed upon goals remain
independent subsequent to the formation of the alliance.
• The partner firms share the benefits of the alliance and control over the perfor-
mance of assigned tasks—perhaps the most distinctive characteristic of alliances
and the one that makes them so difficult to manage.
• The partner firms contribute on a continuing basis in one or more key strategic
areas.”
There are four kinds of benefits connected with forming an alliance:
a. Economies of scale (static and dynamic) and economies of scope
b. Quick and easy access to knowledge and markets
c. Reducing capital requirements and risks associated with new product and tech-
nology development, and
d. Possible influence on the structure of competition in the relevant markets.

7.1.12 Technology Transfer and Commercialization Metrics

The measurement systems for technology transfer and commercialization perfor-

mance present difficulties, from definition and all the way through implementation.
The word ‘metric’ originated from the Greek verb ‘μετρώ’, meaning ‘to measure’,
that is, to determine the dimensions or calculate the volume of an object, using stan-
dard units of measurement. This deliberate process encompasses a wide range of
parameters, both qualitative and quantitative that can be used as benchmarks
(Carayannis and Alexander 1998; Carayannis 2001; Carayannis and Gonzales 2003;
Carayannis et al. 2003).
7.1 Technology Management and Transfer 181

Hence, it can be safely assumed that metrics exhibit a great diversity of types,
while trying to cover a wide scope of application:
‘Since technology transfer involves numerous processes that occur across multiple disci-
plines and organizations, appropriate metrics and the methods for quantifying them vary
considerably…Also, the choice of appropriate metrics depends on the availability of data
and may change with time as new data emerge (Carayannis and Alexander 2009).’

Numerous studies conducted over the years, have identified metrics that can be
categorized in three groups (Carayannis and Alexander 1999; Carayannis and
Provance 2008):
1. Inputs/Expenditure/Resources
2. Intermediate Stages/Activities/Cultural Changes
3. Outcomes/Long-Term Goals/Economic Impacts
The case studies described below focus on a number of inputs, intermediate and
short-term, as well as on long-term outcome-based performance metrics collected
from numerous past studies on technology transfer.
Table 7.1 is a comprehensive list of major performance metrics having been
adapted from the studies cited above.
It should be noted that most people experience difficulty in linking these perfor-
mance metrics categories. Penaranda (1996) examines the distinction between ‘pro-
cess’ and ‘outcome’ metrics and notes that ‘process’ metrics are less often used: “…
expediency and pressures to satisfy the ‘bosses’ often lead to the establishment of
purely ‘outcome’ metrics, even though these are the least quantifiable and least
accurate to predict”.

Table 7.1 Sample input, intermediate, and outcome metrics

Input metrics Intermediate metrics Short-term metrics Long-term metrics
Technology transfer Invention disclosure Patents issued Return On Investment
expenses (ROI)
Time spent on Technical Licenses granted Cost-reduction
technology transfer presentations
Requests for technical Technical papers Licenses and Royalties
assistance required options executed
Number of on-site visits Technical papers Technical problems
published solved
Full-time professionals Patent applications Number of new product
filed
Accounting and legal Success stories New commercial sales
fees spent and reimbursed published Number of new
customers
User satisfaction degree
New start-ups
Job openings created/
positions lost
182 7 Entrepreneurship and Innovation Practices

Furthermore, the focus given to each particular category depends on the role of
the party involved (technology transferor vs. technology recipient, etc.):
‘As is often the case in every realm of public policy there has been no commensurate effort
to determine systematically the effectiveness of these new and accelerated technology
transfer activities of government laboratories… Even the more skeptical views of the poten-
tial of government laboratories in the technology transfer arena are more often based on
personal opinion or direct personal experience than on systematic data (Carayannis and
Alexander 1999).’

The evaluation of technology transfer activities started with examining input

metrics, as they were definitely easier to identify, monitor, and measure:
‘Persons responsible for technology transfer, and their superiors, sometimes count instances of
technology transfer and assume those numbers are a useful surrogate indicator of success. If
technology transfer is conceived as a probability distribution with success ‘parameters’, then
increasing the instance of transfer increases, ceteris paribus, the likelihood of successes. Thus,
the input to success becomes a surrogate for the output (Carayannis and Alexander 1999).’

However, the recent trends in evaluations of technology transfer performance

focus on output metrics, such as market share gains, new commercial sales, cost
reduction, and jobs created. Two well-known methods are used to measure both ‘out
the door’ technology transfer performance (e.g. number of technologies transferred)
and ‘market impact’ performance (actual improvements experienced by the recipi-
ent company from the transfer). These methods correspond to the categories of
short-term and long-term outcome metrics (Carayannis and Alexander 1999).
Nevertheless, this prevailing situation reflects a tendency for a choice of metrics
that is purely observers-based, without any scientific theoretical background:
‘In general, success suggests a performance outcome that satisfies an individual’s or an
organization’s objectives. However, given the large number of organizations and individu-
als involved in a technology commercialization effort, it is virtually impossible to have a
completely ‘successful’ commercialization (Carayannis and Alexander 1999)’.

Finally, intermediate metrics such as technical problems solved, technical papers

published, and success stories are necessary in order to support both assessments
and evaluations of technology transfer:
‘Assessments provide guidance for establishing what mix of activities would bring about
technology transfer… Evaluations measure actual performance, thereby providing infor-
mation for improving the overall technology process (Carayannis and Alexander 1999)’.

Intermediate metrics are often qualitative measurements that actually provide

in-depth descriptions of improvements in the technology transfer process and make
actionable recommendations, simultaneously with their routine efforts to increase
the rates of transfer (Carayannis and Alexander 1999).

7.1.12.1 Problems with Existing Institutional Frameworks

for Technology Transfer Metrics

There is a widespread dissatisfaction with many of the current metric systems used
to evaluate technology development. For instance, Return on Investment (or ‘the
ROI concept’) is known in industrial research communities by the derisive name
7.1 Technology Management and Transfer 183

‘restraint on innovation’. The reason for this is that it measures only short-term
benefits rather than the long-term advantages gained by research. Technology trans-
fer gurus equally express their dissatisfaction when over-simplified metrics are
applied on their attainments (Carayannis and Alexander 1999).
A permanent problem in evaluating technology transfer and providing actionable
recommendations is that there are no established standards for metrics to be used in
evaluation. Consequently, there is no consistent performance level to be used as a
basis for the measurement of a particular technology transfer effort.
As it is observed by Radosevich and Kassicieh (1993), a comparison of out-
comes to established standards or baseline performance would require sufficient
understanding of the process, in order to establish realistic expectations. Given the
fact that the possibilities for federal technology transfer processes have not been
well understood, only a few programs have actually been developed by agencies. In
a study of technology transfer programs at Marshall Space Flight Center in
Huntsville, Alabama, it has been pointed out by Spann et al. (1993) that:
‘The success of government-to-private-sector transfers has generally been less than satis-
factory…This low rate of transfer may be the result of inabilities to reach consensus on how
to define, track, or measure transfer progress and success. Organizational, financial,
behavioral, and other barriers in federal-to-private technology-transfer processes may also
effectively limit if not nullify the spirit behind…federal technology-transfer mandates.’

Technology transfer metrics vary not only across cases, but even within the same
case among the various parties involved. Span et al. (1993) also found:
‘…while [technology transfer] sponsors appear to be more aware of the need for measure-
ment, their apparent willingness to substitute input and intermediate outcome measures for
adopter-favored long-term outcome measures means the measurement approaches of the
two roles may be in conflict.’

In the case of CRADA agreements, Ham and Mowery (1995) state that the evalu-
ation of CRADAs cannot rely exclusively or primarily on short-term economic mea-
sures. The qualitative assessments of CRADA results may change drastically within
a 6-month period. Moreover, the legislative context in which technology transfer
takes place has undergone relatively frequent changes. Consequently, even an all-
inclusive historical survey would, upon completion, measure the outcomes of mul-
tiple processes with a high degree of variance due to the absence of a single process
model which is being consistently implemented (Rogers and Carayannis 1998).
Given the volatility of the situation, the adoption of a new approach is required,
in order to achieve an effective development of technology transfer metrics, for
evaluative purposes. The case study approach is a research strategy excellent at
facilitating the understanding of complex real-world issues and can serve as a prom-
ising alternative to address the continued shortcomings of current technology trans-
fer studies (Carayannis and Alexander 1999). More specifically, in the present paper
we focus on case studies not only to demonstrate the long term market success
achieved by some firms, but mainly to emphasize the intrinsic value of the qualita-
tive factors that are critical for success or failure.
The aforementioned factors may lead to a better understanding both of the inher-
ent nature of technology transfer and commercialization, and of the challenges that
emerge during the execution of the respective processes. Thus, the use of the case
184 7 Entrepreneurship and Innovation Practices

study as a research strategy adopts a global perspective in understanding both the

processes involved in the leap of technology concepts from lab to market, and their
potential short-and long-term value added. These are subsequently evaluated not
only in terms of strictly financial benchmarks but also in terms of quality of life and
other social benefits.

7.1.13 The Case Study as an Evaluation Tool

Case studies often receive negative criticism by the research community for being
an inappropriate tool for empirical research. According to Yin (1991), the cause for
this negative attitude is a great concern over:
• The lack of rigor in case study research, as there is absence of validity and
reliability
• The inability to use a case study as a basis for scientific generalization, and
• Their extensive descriptions, often resulting in ‘massive, unreadable documents’.
See also Carayannis and Alexander (1999)
Nevertheless, the case study approach, if used consistently and rigorously, would
alleviate understandable concerns and add new dimensions to the evaluation of tech-
nology transfer. Yin (1991) stresses that the case study constitutes a serious research
strategy rather than a methodology, as it can actually integrate diverse methodolo-
gies into a single study. Therefore, he defines the case study as an empirical study
(i.e. a way of gaining insight based on observation or experience rather than quoting
experts) that examines and analyses a current real-life situation in its general opera-
tional framework. Note, however, that the boundaries are not clearly evident between
the situation and its context, in which multiple sources of evidence are used.
Moreover, case studies can be a useful tool for evaluations, which constitute a
special type of research. Technology transfer evaluations often involve complicated
and difficult conditions regarding the conduct of research, mainly due to the change-
ability of processes and components involved. Technology transfer would therefore
be the ideal candidate for analysis using the case study strategy. As it has been dis-
cussed by researchers though, the term transfer becomes misleading when it refers
to technology: in theory, technology transfer may appear as a discrete act, present-
ing the recipient as a passive receiver of a technology, which is developed some-
where else and works like a plug and play device. However, in reality, technology
transfer is an extended process through which “application relevant knowledge is
usually what is transferred, not a device”. Case study methodologies offer a suitable
means of exploring such processes (Carayannis and Alexander 1999), being supe-
rior to surveys or other quantitative approaches, by providing rich descriptive and
prescriptive detail towards a better understanding of causal processes.
Yin summarizes that the case study possesses a distinctive ability to:
• Attend to project orientation and general framework
• Adapt its size to accommodate from single projects (cases) to situations with
numbers of cases or, even, to all projects within a country
7.1 Technology Management and Transfer 185

• Capture process and outcomes in a project matrix, assessing causal relationships

between project elements and providing useful and intermittent feedback to
managers and project evaluators
• Adapt to the availability of various types of evidence
• Assess outcomes and test both causal and conflicting theories, and
• Offer generalizable lessons on major substantive topics in a field.
All the aforementioned conditions, often encountered in studies on technology
transfer, make the case study a perfect choice as a strategic plan in the development
of metrics.

7.1.13.1 Case Studies as Examples of Technology Transfer

and Commercialization Performance Metrics

Existing metric systems rely on quantitative measures, which either miss major key
factors in the success or failure of technology transfer processes or measure initial
inputs and total number of outcomes as opposed to process improvements.
A case study approach should capture both prescriptive and descriptive informa-
tion of technology transfer and make it available for re-engineering technology
transfer processes. This kind of approach would also provide significant qualifiers,
which put the available quantifying factors in their appropriate context, as it can be
seen in the case studies described below. More specifically, they focus on input, out-
put and intermediate technology transfer performance metrics that have been identi-
fied and traced in each one of the cases presented. Based on the available information,
this study attempts a comparative evaluation of the role and intensity of influence of
each technology transfer performance metric, in each profiled case study.
Cases drawn from previous research (Carayannis and Bush 1997) are presented
in this essay through a new data analysis. Using the framework of input, intermedi-
ate, and short-and-long term outcome metrics, it is illustrated how a case study
approach can provide a richer understanding of the dynamics of technology transfer
and the elements of successful technology transfer.
Ending this analysis, case studies become ‘cash cows’, ‘dogs’, ‘question marks’
or ‘stars’, according to the Boston Consulting Group (BCG) matrix: this model
ranks case studies on the basis of their current and anticipated potential market suc-
cess, as a rough way of future case evaluation (Carayannis and Alexander 1999).

7.1.14 NASA Case Studies

The lengthy history of NASA’s technology transfer has often been controversial,
especially in the case of spin-offs. Government agencies, such as the National Space
and Aeronautics Administration, which are always under pressure to submit cost-
justification of their activities, boost the value of spin-off investments making extrav-
agant claims. Spin-offs, however, have always been regarded with skepticism.
186 7 Entrepreneurship and Innovation Practices

In the late fifties, Dr Ralph Lapp, annoyed by the Atomic Energy Commission’s
exaggerated claims for research spin-off benefits, created a simile comparing a spin-
off with a drip off. Insinuating the meager momentum, the lack in spirit, and the
hindered progress accompanying the transfer of defense technology from national
lab to market, he derisively equated this transfer process with a liquid moving from
one position to another drop by drop. Providing an explanation, Samuel Doctors
(Carayannis and Alexander 1999) concluded that NASA’s Technology Utilization
Program “was founded primarily in response to political pressures and has contin-
ued to be used as a device for partial justification of NASA R&D funding”.
This discussion will continue with the description of three cases of successful
technology transfer from NASA Langley to the private sector. These cases have
been identified for closer examination and will be presented in chronological order,
starting from the oldest: MacNeal-Schwendler Corporation (1960s), Pressure
Systems Incorporated (late seventies to eighties), and Tecnico (1993–1996)
(Carayannis and Alexander 1999).

7.1.14.1 MacNeal-Schwendler Corporation

MacNeal-Schwendler Corporation (‘MS Corporation’ or MSC) was formed in 1963,

specializing in Computer Consulting Services. Almost simultaneously, NASA
decided to fund the development of a finite element analysis (FEA) software pro-
gram, as a means to upgrade the analytical capability of the entire aerospace industry.
MSC was selected, together with a larger partner, in order to further develop this
software program and create the public domain NASTRAN code. In 1971, MSC
decided to offer its version of the NASA software code to the public on a leased basis,
incorporating original MSC code with the package developed for NASA. In the fol-
lowing years the income from the leasing of this code reached an annual rate of 50 %.
Grumman and General Motors were two of the first large companies to use this
commercial package. NASA’s reaction was to sue MSC over the intellectual prop-
erty rights to the code, but MSC won the case and continued marketing the product.
The commercial success of the product was so overwhelming that on May 5, 1983,
MSC went public with an initial offering of stock at $23.00 per share, only to close
at the same day at $36.75! The company’s commercial sales skyrocketed reaching
US$79 million in 1994 and $100 million in 1995, making MSC the world leader in
mechanical computer-aided engineering software capturing over 30% of the global
market, as measured by annual sales.

MSC Case Analysis

MSC’s astonishing success can be attributed to the following critical success fac-
tors, identified by those involved in this case:
• Perfect timing—key elements such as funding, technology, science, and timing
came together seamlessly
7.1 Technology Management and Transfer 187

Table 7.2 Key metrics reflecting facilitating and impeding factors in MSC
Long-term
Input metrics Intermediate metrics Short-term metrics metrics
NASA funding Key champions inside Software development Growth of
NASA MSC sales
Technology Champions’ commitment to MSC success in following MSC
readiness level commercialization on NASA contracts customer base
State of theory and MSC’s founders’ persistence New feature development Market share
science of software despite NASA’s absence of for commercial market growth
continuous support

• Government funding—NASA’s capital investment to develop the NASTRAN

code was approximately three million dollars, of which one million from govern-
ment contracts
• A large pool of highly qualified human capital acting as internal and external
champions of MSC and its product
• The dedication and devotion of the main participants in the commercialization
process.
Information concerning metric systems of the MSC case is given in Table 7.2

7.1.14.2 Pressure Systems Incorporated

Since 1977, Pressure Systems Incorporated (PSI) has been developing, manufactur-
ing, marketing, and servicing pressure measurement instruments for aerospace and
industrial measurement applications. In the seventies, NASA had commenced
designing a National Transonic Facility (NTF) wind tunnel, where it would be pos-
sible to observe a speed range above or below the speed of sound. The Instrument
Research Division (IRD) at NASA’s Langley Research Center was planning to
develop a pressure scanning electron microscope, which would be a hundred to a
thousand times more rapid than conventional measuring techniques would allow
that time. During sensor development, NASA realized that the pressure sensor had
to be assigned to a manufacturer. Grasping the opportunity, a member of the IRD
left NASA and formed PSI in order to produce the sensors.
NASA agreed to license the technology to the newly formed company, on a non-
exclusive basis. PSI has become a very successful commercial entity supplying
pressure sensors worldwide. PSI’s annual sales reach approximately ten million
dollars, with a client list including some of the largest manufacturing companies
worldwide reigning high in aerospace, automobiles, and heavy machinery: Pratt &
Whitney (United Technologies), Asea Brown Boveri, Honda Motor Corporation,
Caterpillar and General Electric.
188 7 Entrepreneurship and Innovation Practices

Table 7.3 Key metrics reflecting facilitating and impeding factors in PSI
Long-term
Input metrics Intermediate metrics Short-term metrics metrics
NASA development of Work of champions Creation of a PSI sales growth
technology and application inside and outside NASA working prototype
Research funding from Development funding License technology PSI customer
NASA from NASA from NASA to PSI base growth
Collaboration for initial Export sales
development between success for PSI
NASA and PSI product

PSI Case Analysis

According to the former NASA official and founder of the company, the ‘combina-
tion of a technology and a champion’ was the key to PSI’s success story. Being
interviewed about PSI’s booming sales and skyrocketing shares, he stated that the
company’s story is a case of successful technology transfer, in which the founder
himself had acted as both internal and external champion, and as his own company’s
technology transfer agent. Initially, he played a key role in sensor technology devel-
opment at NASA Langley and then in the creation of PSI in order to bring that
technology to market.
NASA Langley’s instrumental role in this case was threefold: this leading edge
national research centre recognised a ‘real world’ need, funded the necessary
research and extended its research funding beyond the critical ‘go/no-go’ decisions
made after feasibility studies, all for the creation of a working prototype at
PSI. Acting bona fide, NASA Langley selected a start-up as the manufacturer of the
sensor technology it needed, taking the extra effort to work closely with that manu-
facturer in order to see the product reach commercialization.
Table 7.3 displays some of the factors impending or facilitating technology trans-
fer in the PSI case, on the basis of case study-driven metrics.

7.1.14.3 Tecnico

Tecnico is a privately owned industrial and marine manufacturing firm, specializing

in turnkey ship repair items, located in Chesapeake, Virginia. Founded in 1999,
Tecnico is activated in the field of structural welding, piping, electrical, painting,
rigging, blasting, and dry-dock work. Furthermore, the company offers shipboard
furniture fabrication, sheet metal fabrications and extensive welding capabilities.
The US Department of Defense has been the firm’s primary customer.
7.1 Technology Management and Transfer 189

In 1993, however, a wave of pending Navy budget cuts pushed Tecnico towards
new target markets. The invitation came from Loral Vought, a company located
in Texas interested in the investigation of the possibility to produce the mid-body
section for a missile system. For Tecnico, this would require the production of
composite material parts, for which the startup cost was prohibitively high.
As the situation was calling for a market scan, a Tecnico manager visited a
technology exposition at NASA Langley, in 1993. During the presentations, the
attendee observed a technique for composite material manufacturing called rubber
expansion molding. This technique was expected to reduce investment costs from
two million to 2,000 dollars.
On August 8, 1994, Tecnico signed a Memorandum of Agreement (MOA) with
NASA Langley, to jointly explore the transfer of the aforementioned technology from
the laboratory situation into a production facility. Taking for granted the positive
outcome of that cooperative venture, Tecnico signed an exclusive licensing agree-
ment. The new commercial activity, created by the adoption of the rubber expansion
molding, lead to the creation of a new group within Tecnico called Advanced
Materials Group. So, by May 1995, Tecnico had hired eight skilled engineers and
technicians to work in this group, which generated over 800 dollars in revenues.

Tecnico Case Analysis

According to one of the two NASA Langley technology transfer agents, the key to
the Tecnico project’s success lay on the critical activities of the ‘champions’.
Keeping track of the transfer process of the rubber expansion molding technique,
this lead NASA researcher was convinced that Tecnico’s commercial success would
not have been achieved without the effort of its key manager. In his opinion, there
were two critical success factors for the development of the rubber expansion mold-
ing technique: (a) the technology included information that was easily reproducible
and transferable into a commercial product, and (b) the NASA Langley Expo that
provided the ideal setting for the encounter between a lab researcher and a company
manager, who was on the lookout for a new technology.
According to the technology hunting manager from Tecnico, the critical success
factors in the commercialization of this technology transfer were three: (a) Tecnico’s
faithful commitment to the commercialization of the new technology (b) NASA
Langley researchers’ critical support, and (c) the emotional support stemming from
Langley’s valuable technical support. This psychological support, along with
NASA’s positive belief in this venture, reached out to Tecnico’s human heart and
soul like an innovation opportunity coming with the rustling of the breeze, making
the Tecnico staff members committed believers and, consequently, turning its cli-
ents into a powerful and sustainable marketing force. Credit was also given by the
manager to the lead NASA researcher, for his enthusiasm and his catalytic role in
the technology transfer process.
In Table 7.4 we can see some of the metrics emerging from this case:
190 7 Entrepreneurship and Innovation Practices

Table 7.4 Key metrics reflecting facilitating and impeding factors in Tecnico
Input metrics Intermediate metrics Short-term metrics Long-term metrics
NASA technology Tecnico’s commitment Technology patent by Fresh revenue
development to technology NASA Langley generated by
Tecnico
NASA Expo NASA’s technical and Exclusive license New positions
emotional support granted to Tecnico created for new
division
Two tech transfer Legal preparations by Investment cost savings Tecnico’s customer
agents cooperation NASA transfer agents base growth
NASA lead MOA for joint R&D Tecnico signs new
researcher’s between Tecnico and technology use
commitment NASA agreement

7.1.15 New Mexico Federal Laboratories Originating

Case Studies
7.1.15.1 Amtech Corporation

The Animal Management Technology Corporation (Amtech) was founded by a vet-

erinarian, who served at Los Alamos National Laboratory (LANL) as a liaison offi-
cer from the U.S. Department of Agriculture. He was assigned to explore the ways
in which the LANL technology, used in its Electronic Identity (ID) Project, could be
applied to problems in agriculture and the dairy industry. In 1983, at exactly the
right time, the liaison official founded Amtech in order to commercialize this tech-
nology. In the spring of 1984 LANL allowed him to borrow a reader, an antenna and
half a dozen html tags to use as demonstration equipment, in order to attract invest-
ments for Amtech. Amtech eventually became one of the first spin-offs to purchase
patents from the U.S. Government.
Amtech initially had great difficulty in raising capital for the commercialization
of its products, until the moment when one of its key investors told the founder that
the problem lay in direction of the company’s marketing efforts; in other words,
Amtech had the right product for the wrong market. Following the investor’s recom-
mendation, the vet ex-liaison turned the company’s focus from the dairy industry to
the commercial transportation industry and saw the fortunes of his company turn
around. Amtech was far more successful in this field, as the company was able to
attract start-up capital through informal networks, by demonstrating the technology
in its new application.
7.1 Technology Management and Transfer 191

Table 7.5 Key metrics reflecting facilitating and impeding factors in Amtech
Input metrics Intermediate metrics Short-term metrics Long-term metrics
LANL development of LANL’s continued Sale of patents to Acquisition of
technology support Amtech startup
Capital to launch
Amtech
LANL transfer of Use of informal Investor interest
prototypes to Amtech networks to raise prompted by
Founder investment capital demonstration
Amtech team’s decision to Streamline processes
leave LANL and found a governing technology
new company transfer

Amtech Case Analysis

According to Amtech’s founder, a prevalent reason for the initial success of the
company was the entrepreneurial spirit exhibited by the founding partners of
Amtech. The original founders had worked together at Los Alamo, on the electronic
ID project for a period of 10 years, having a good personal rapport with each other
and sharing the same dream of developing and commercializing the electronic ID
technology. In general, LANL offered extensive support and assistance throughout
the formation and growth of Amtech.
As it was observed by Amtech’s founder, the existing bureaucracy in technology
transfer has increased in direct proportion with the rising emphasis on technology
transfer. As a result, this highly appreciated practice of moving new technologies
from the creator or researcher to a user is inhibited and usually becomes a bureau-
cratic headache: the numerous technology transfer mechanisms get caught in the
slow grinding gears of bureaucracy, while trying to obtain an approval or clearance
in order to finalize technology transfer agreements, and are often immobilized,
wrapped up in the bureaucratic red tape.
Table 7.5 illustrates the key metrics developed from the case study on Amtech.

7.1.15.2 Permacharge Corporation

Permacharge Corporation (PC), founded in 1987 by two women entrepreneurs, was

built around the Electret technology. The Electret technology is based on the electret
(electricity and magnet), a dielectric material that can retain a near-permanent elec-
tric charge embedded at the time of its manufacture, thus being the electrical equiva-
lent of a magnet that has a near-permanent magnetic field instead. It is mainly used
as a microphone element in multimedia computers, telephones, camcorders, hearing
aids, etc. In 1990, PC was granted exploitation rights over a patent on microporous
foam technology, from Sandia National Laboratories (SNL), aiming to combine it
with the dielectric material Electret, in order to develop a filtration system. PC made
modest sales of its proprietary technology product to cleanroom, construction, and
192 7 Entrepreneurship and Innovation Practices

asbestos removal industries. However, the increasing costs and difficulties of selling
to the cyclical semiconductor industry lead PC to the development of a new core
product called WallWrite.
The WallWrite electrostatically charged sheets are made of a microporous, high
quality polypropylene material and can be used repeatedly as a writing surface.
These easy-to-transport sheets, also called ClingZ, come in roll form and once they
are placed on any wall surface, they cling and stay there without sellotape or pins.
For the development of this product there was a need to repurpose the previously
approved foam technology, licensed from SNL. As a result, WallWrite’s annual
sales reached two hundred thousand dollars, between 1990 and 1993, mostly through
the company’s own marketing efforts at training conferences. This was the time for
PC to seek a strategic partner to embark on the next higher growth stage. Following
the consummation of fervent negotiations in 1994, the strategic partner provided PC
with access to major distribution chains such as Wal-Mart, gaining in return a pro-
prietary technology for product line filling. The WallWrite success translated into a
total of eight to ten hundred thousand dollars from PC’s sales in 1995.

PC Case Analysis

The PC case highlights the important role of serendipity, entrepreneurial initiative,

and continuing support from The Federal Laboratory that helped in turning an
apparent transfer failure into a success story. The initial support coming from SNL
was decisive: apart from gaining access to the basic technology, the co-founder
made use of her laboratory contacts in order to meet with potential customers in the
semiconductor industry. Thus, it is fairly obvious that the founders placed their
emphasis on the market-pull orientation of PC, rather than the adoption of a tech-
nology push attitude. Nevertheless, the original application was not a viable prod-
uct, and this was apparent from the initial development and marketing process.
Recognizing the limits of the market, PC took the daring step to reformulate its
business plan and focus on an entirely new application, also supported by SNL
technologies. In this case, the Federal Laboratory support definitely played a key
role in this transformation; however, the entrepreneurial initiative exhibited by the
founders of Permacharge was the crucial factor in the company’s success.
Table 7.6 presents these and other metrics of the process of technology transfer
in the PC case.

7.1.15.3 Radiant Technologies Incorporated

Radiant Technologies Incorporated is a premier test equipment company focusing

its activities on the measurement and testing of ferroelectric materials, and the
application of thin ferroelectric films to products found almost everywhere: cam-
eras, cell phones, automobiles, electronic equipment, etc. (Ferroelectric materials
have the property of a spontaneous electric polarization which can be reversed by
7.1 Technology Management and Transfer 193

Table 7.6 Key metrics reflecting facilitating and impeding factors in PC

Input metrics Intermediate metrics Short-term metrics Long-term metrics
Existence of Contact with customers Initial technology Modest success of
established electret and prototype through license from SNL clean room technology
technology with no SNL connections and similar
existing applications applications
Market scan to Lack of interest from Further technology Sales growth for
determine best target strategic partners to development and WallWrite
applications fund development for initial sales to
contaminant removal high-tech industry
Decision by PC to Securing of
refocus on consumer strategic alliance
application (WallWrite) for WallWrite
and distribution
agreement

the application of an external field. The prefix ferro, meaning iron, is used to
describe this very property in analogy to the ferromagnet, as most ferroelectric
materials do not contain iron).
Radiant is a unique spin off, as its core technology did not come from a Federal
Laboratory. Being U.S. Air Force officers at the time, its founders had been exposed
to the electronic modulator technology while working at the Phillips Air Force
Laboratory, formerly called Air Force Weapons Laboratory. Fully aware of the
implications for making integrated circuits (IC) using that basic technology, the two
ex-officers and others created Chrysalis Corporation in 1984, a company that
declared bankruptcy in 1987. After that, the two of them founded Radiant
Technologies, and initiated two CRADAs with Sandia National Laboratories and
one CRADA with Los Alamos National Laboratory, in 1992. Since Radiant tech-
nologies had previously established contacts with labs, it took only 6 weeks to for-
mulate the CRADAs. The company tested its technology at the Sandia laboratory
for IC manufacturing technology, located just across the street from Radiant
Technologies, and technical information was formally and informally exchanged
between Radiant employees and the neighboring Sandia R&D personnel.
Τhe company had 14 in 1996 and had reached ten million dollars in sales by
1994. Furthermore, it was able to enter the Japanese market through the formation
of a strategic alliance with BDM corporation and Rio Grande Corporation. Radiant
Technology sells about a third of its testers in Japan, through an agreement with a
Japanese company that handles their distribution.

Radiant Technologies Case Analysis

The experiences of Radiant Technologies clearly illustrate the challenges spin-off

companies face and the special requirements placed on technology transfer and
commercialization purposes. Lessons gleaned from the failure of Chrysalis steered
the founders towards sustaining their company through internal growth, rather than
194 7 Entrepreneurship and Innovation Practices

Table 7.7 Key metrics reflecting facilitating and impeding factors in radiant
Input metrics Intermediate metrics Short-term metrics Long-term metrics
Availability of Assistance of SNL Initial CRADAs with SNL Growth in sales to
technology from contacts in and LANL domestic market
Phillips laboratory establishing CRADA
Founders’ decision Proximity to SNL Continuing contracts and Expansion into
to create radiant researchers and CRADAs with DOE, Labs, international market
after the failure of facilities and defiance advanced
Chrysalis research projects agency
(DARPA)
Work of former Development of Initial product development Development of
SNL employees on alliances with BDM for semiconductor industry new related product
core technology and Rio Grande and technology
for radiant Corporation capabilities
Experience of Growth of company
founders from through internal efforts
previous failure

exposing the firm to the unpredictability of the venture capital market. It can also be
observed that support from Federal Laboratories, in technology transfer and com-
mercialization processes, comes both through informal mechanisms (e.g. contacts
within the labs and exchanges with lab researchers) and by formal methods, such as
granting access to user facilities. So ultimately, we can say that Radiant’s commer-
cial success would not have been possible without the help of private sector partners
(BDM and Rio Grande Corporation) as well as the Federal facilities involved.
Table 7.7 summarizes the Radiant case analysis using key metrics of the transfer
process.

7.1.15.4 Yamada Science & Art Corporation

Yamada Science and Art Corporation (YSA) is located in Santa Fe, New Mexico.
Before establishing YSA, its founder had worked in the Environmental Sciences
Division of LANL, where he studied air pollution simulations, numerical weather
predictions, atmospheric sciences, and meteorology. As a natural consequence,
YSA specializes in atmospheric modeling solutions predicting the patterns and
effects of airflows, as well as the dispersion of airborne materials over urban areas,
coastal regions, and complex terrain. This spin-off was established in 1988, when
the founder merged his scientific interests and computer modeling technologies
with his wife’s fine art business.
Yamada was one of the first spin-offs from LANL to receive an exclusive technol-
ogy license for a three-dimensional numerical model, developed by the founder him-
self while he worked at LANL. As the process of acquiring a technology license was
at that time unprecedented, the three parties involved, namely, the U.S. Department
of Energy (DOE), LANL, and YSA, had to overcome emerging issues over the
6 or 7 month period required for the acquisition of an exclusive technology license.
7.1 Technology Management and Transfer 195

YSA’s client list now includes weather bureaus, utility companies, U.S. Army and
Air Force research laboratories, national research laboratories, Japanese universities,
and construction companies.

Yamada Science and Art Corporation Case Analysis

Resembling the MSC case described above, the YSA case reflects the success of a
technology transfer against the obstacles posed Federal laboratories. The Department
of Energy has since then streamlined the processes for spinning off technologies
and signing CRADAs, thus making the environment for spin-offs more favorable
than it was in the YSA case.
Table 7.8 provides the key metrics used to analyze the Yamada case.
In the diverse cases described above, we can be observe the existence of a repeat-
ing pattern involving the presence of internal and external champions, appropriate
technology, and long term, patient risk capital: it is exactly this recurrent pattern that
distinguishes an attempt and makes the winning difference in a competitive environ-
ment. Part of the same pattern, however, is the absence of any identifiable ‘success
recipes’ as critical factors appear to be situation-specific.

General Findings from Case Studies

Using the discussion framework constructed above, we are in a position to draw

some preliminary conclusions concerning the degree of significance of metrics, in
measuring success in technology transfer.
In the NASA cases, the common denominator of success was the presence of
internal and external champions in all three cases, additionally to government fund-
ing, appropriate technology, and a license grant, existing in two of the three. All the
above elements were also critical success factors for technology transfer, as revealed
by a closer analysis of these case studies.
In the case of New Mexico projects, it is clearly observed that the idiosyncratic
nature of spin-off creation would not fit into any cut and dried clichés. Nevertheless,

Table 7.8 Key metrics reflecting facilitating and impeding factors in Yamada
Input metrics Intermediate metrics Short-term metrics Long-term metrics
Technical ability Difficulties in Exclusive license to key YSA Growth in applications
of the founder licensing technology technology from LANL for YSA technology
Modeling Problems with Lack of a continuing Growth of YSA
technology CRADA relationship between YSA customer base
developed at negotiations and federal laboratories
LANL
Absence of related Successful launch of YSA Continued relations
resources in area between YSA and
near YSA customers
196 7 Entrepreneurship and Innovation Practices

despite variety and uniqueness of each case, there seem to be three recurring critical
success factors: (i) the technical entrepreneurs, (ii) the risk-capital supporting
technology-based ventures, and (iii) the underlying technology behind these
ventures.
Despite the abundance in technological knowhow and assets with considerable
commercial promise in New Mexico, the roadmap for successful technology trans-
fer and the commercialization paths to be followed were fraught with difficulties
(Carayannis and Alexander 1999).
As it can be observed, the profiles of the four spin-offs and their founders’ per-
sonalities definitely seem to confirm Radosevich’s views: in the cases analyzed
above, we notice that the founders are either inventor- entrepreneurs, that is, ex
laboratory employees seeking to commercialize their own inventions or surrogate
entrepreneurs, that is, not inventors but license holders of federally sponsored tech-
nologies, willing to launch a new venture. Between the aspiration phase and the
launching of the new venture, in both models, there is a complicated preparation
phase (Carayannis and Alexander 1999).
Overemphasizing short-term metrics in the ‘out-the-door’ concept often leads
government laboratories to end their involvement with a technology after the trans-
fer process. In many cases though, continued laboratory involvement is considered
to be necessary until the transformation of the technology into a product is achieved.
Ham and Mowery (1995) discovered that the CRADA process followed in labora-
tories often dictated the disengagement of the personnel as soon as a prototype was
demonstrated, even though their expertise would still be necessary to incorporate
technology into production. This finding is consistent with other authors’ conclu-
sions, such as those drawn by Eldred and McGrath (1997) who note: “The transition
team is central to the technology transfer process. It has evolving membership…
The transition team may ultimately evolve into the product development core team
after the initial phase of product development”.

7.2 Conclusions and Recommendations

In the light of the findings from the seven case studies presented above, a hybrid
portfolio approach will be used in assessing the success of technology transfer and
commercialization efforts. Incorporating both quantitative and qualitative measures,
this approach is flexible in its implementation. It definitely should be based on raw
data and facts, rather than having underpinnings on economic models that introduce
levels of uncertainty and are more open to criticism. This approach would require an
attitude without any preconceptions or prejudices and openness to learning by doing
(Carayannis and Alexander 1999).
The hybrid portfolio approach consists of input, intermediate, and short and
long term output, qualitative and quantitative metrics. The platform for identify-
ing and synthesizing major facilitating and impeding factors that can determine mar-
ket success or failure is provided through systematic case study development and
7.2 Conclusions and Recommendations 197

analysis, as it is outlined in this paper (Carayannis and Alexander). Consequently,

based on these factors, we can link key drivers of the technology transfer and com-
mercialization processes to market success or failure and gain the ability to reengi-
neer the above process, according to the situation.
More specifically, in the case studies outlined above, the facilitating or impeding
factors focus on the collaboration both between government and industry, and
between marketing and technology. These factors fall under the following broad
categories:
• Financial
• Technology lifecycle/maturity
• Market lifecycle/maturity
• Cultural (trust issues, openness/sharing issues)
• Systemic (bureaucratic issues, intellectual property rights issues)
• Strategic orientation (competitive vs co-operative or collaborative/competitive
issues)
• International vs. domestic market and technological orientation, and
• Timing and selection of all the above factors (synchronization issues).
Table 7.9 provides a typology of technology transfer and commercialization
outcome factors, outlining and grouping both facilitating and impeding factors from
all seven cases discussed in this chapter. The factors are then labeled as common or
differentiating, based either on whether they were common and in how many of the
cases or on their being unique in only one case.
As we can see from the findings in the table below, a common facilitating factor is
the presence and role of internal and external champions, whereas a common imped-
ing factor, being systemic in nature, is the conflict over the transfer of ownership of

Table 7.9 Categorization of key metrics derived from cases

Common, Common, Differentiating, Differentiating,
Key metric facilitating impeding facilitating impeding
Emergence of internal y
and external champions
Cultural barriers separating y
laboratory and industry
Financial support of laboratory y
Continuing support from y
laboratory researchers
Experiences of entrepreneurs Y
Outside advice from investors/ Y
sponsors
Difficulty of negotiating IPR y
ownership
Lack of available investment capital y
Legend: Common Factors are those found in three or more of the case studies
Differentiating Factors are those found in only one of the case studies
198 7 Entrepreneurship and Innovation Practices

Table 7.10 Analysis of case Potential or actual market share, profitability, customer base, etc.
portfolio using Business
Cash cows Stars
Consulting Group (BCG)
MSC Yamada
framework
PSI
Dogs Question marks
Permacharge Radiant
(Particle Filtration) Amtech
Permacharge
(WallWrite)
Potential or actual rate of growth in market share, profits, etc.
Not applicable: Tecnico

intellectual property rights, in a collaborative rather than in a competitive context.

A differentiating or unique factor was the laboratory connections held by the found-
ers of Radiant Technologies, while a differentiating impeding factor was the usage of
the lawsuit filed by NASA against MacNeal-Schwendler Corporation in order for the
company to stop using NASA’s intellectual property in their software.
In Table 7.10, a grouping of the case studies is attempted into the four categories
defined under the Boston Consulting Group (BCG) model: the terms ‘cash cows,
dogs, question marks, and stars’ are used to indicate the relative current and
expected technological and market prowess of the companies, profiled as case stud-
ies. The classification of these companies, according to the market success mea-
sures identified earlier, is performed by guesstimating the private companies’
individual levels and rates of growth, as field data are limited in these cases.
Consequently, the following table provides only a framework to be used along with
more robust empirical data samples.
Linking tangible inputs with tangible outputs, namely, technology as input and
money as output has always been fruitful. However, the situation becomes unman-
ageable when linking intangibles, namely, the transfer of processes, knowledge, and
skills with tangibles, such as money or other measurable return on investment
(ROI). Thus, the most effective way for examining and understanding a process
dealing with both tangible and intangible inputs and outputs, seems to be the case
study approach capturing at the same time the value added in the case of intangi-
bles,. However, in a case study there may not be sufficient information accessible to
researchers, in order to create a comprehensive ‘picture’ that would allow proper
evaluation of technology transfer (Carayannis and Alexander 1999). It should be
noted that the choice of who will conduct the case study research is as important as
the research itself, in determining whether a true evaluation is achieved.
According to Penaranda (1996):
‘If credible, substantiated cause-effect statistics are to be gathered so appropriate benefits
may be attributed to the technology transfer and commercialization processes, every tech-
nology transfer event or ‘hit’ must be tracked and documented to its ultimate conclusion…
but the sources of the most critical information are often uncooperative. These are the com-
mercial partners themselves… Sometimes the information is impossible to extract from the
overall corporate records… Very often, however, there is a general reluctance to share this
information with the ‘feds’ for fear of ‘revenues’ knocking at their doors, literally or
figuratively.’
References 199

Therefore, one may consider a case study as a ‘performance metric’ in a broad

sense: unlike econometric statistical models, it provides a context or frame of refer-
ence, common enough to make meaningful comparisons, rather than focusing on
the identification of ambiguity and uncertainty, anyway inherent in the intangi-
bles of technology transfer and commercialization.
Consequently, a case study as a ‘performance metric’ could be a source of
insight and information both in depth, as a ‘well’ of knowledge, and in breadth, as a
check-pattern ‘fabric’ across which case studies emerge as distinctive, recurrent pat-
terns (Carayannis and Alexander 1999).
The case study method can serve as the conceptual ‘bridge’ between tangible
outputs and intangible processes and critical success factors. Undoubtedly, a com-
bination of qualitative and quantitative measures provides a more comprehensive
assessment not only of the degree of success but also of the reasons for success.
Furthermore, just raw data can be very enlightening in the evaluation of the value
added of intangibles, such as technical assistance, for instance, through the correla-
tion of technical assistance to jobs created. This kind of data should include quanti-
tative measures of value added such as survey data, numbers of cooperative
agreements, number of patents and licenses, streams of future royalty payments, as
well as qualitative measures of value added such as quality of life, etc. (Carayannis
and Alexander 1999). These quantitative data, rather than absolute numbers, can be
very informative in distinguishing trends and predicting their evolution over time,
and can prove very useful as benchmarks.
Finally, such a hybrid approach can help leverage technology and gain special
advantage from its knowledge content in order to increase the potential return of an
investment. It provides the grounds for building and sustaining competitive advan-
tage for both the transferor and the transferee of technology: both financial and
strategic imperatives, short and long term criteria are allowed to come into play in
evaluating the outcomes and reengineering the process of technology transfer and
commercialization.

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