1. M A R C U S

2. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-2 7 INNOVATION AND ENTREPRENEURSHIP

3. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-3 Chapter Learning Objectives Explaining the factors needed for successful innovation and entrepreneurship. Examining barriers to innovation and suggesting how to overcome these barriers. Understanding how to identify opportunities for innovation and entrepreneurship.

4. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-4 Chapter Learning Objectives (Continued) Being aware of the role leading-edge industries and environmental challenges play in innovation and entrepreneurship. Distinguishing risk from uncertainty and exploring different types of uncertainty. Seeing innovation and entrepreneurship as a long-term process.

5. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-5 Invention and Innovation A promising idea is an invention : It is the creation of an idea in a laboratory, a test of the principles involved, and an act of technical creativity where a concept may be suitable for patenting Innovation entails actually delivering on the ideas promise by creating distinctive value and paying attention to the needs of customers.

6. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-6 Ex. 7.2 Invention Versus Innovation InventionInnovation Creation of idea in laboratory Test of principle Act of technical creativity Concept suitable for patenting Idea put into widespread use Commercial exploitation

7. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-7 Ex. 7.3 Types of Entrepreneurs Stubborn dreamers –Stick tenaciously to vision despite odds (less than 1 in 10 new ideas bear fruit) –Sometimes exhibit foolhardy optimism to overcome natural inclination to caution Leaders of small companies –May not have access to capital, workforce, or other resources to complete the task Refugees from large corporations –Have solid business experience, which may mean more success

8. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-8 Ex. 7.3 (Continued) Women –Numbers are increasing Classic inventors without conventional credentials Well-connected individuals –Access to investment banks and venture capitalists

9. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-9 Sources of Funding for New Businesses Own personal fortunes and contacts Commercial banks Venture capitalists Initial Public Offering (IPO) Large corporations

10. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-10 Business Plan A business plan describes the business. It has an external analysis that covers such essentials as suppliers, customers, and competitors; an internal assessment of the organizations capabilities and its functional plans; an implementation schedule; an end-game strategy that indicates when the business will be viable; financial projections; and a risk analysis

11. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-11 Economic Growth Economic growth – the capacity to produce the goods and services people desire Economic growth depends on Quantity and quality of labor and natural resources Capital, machines, and equipment Management Values that encourage hard work, diligence/thrift High level of technology

12. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-12 Ex. 7.4 Innovation Waves PeriodTechnological Advances 1782-1845 Steam power, textiles 1845-1892 Railroads, iron, coal, construction 1892-1948 Electrical power, automobiles, chemicals, steel 1948-present Semiconductors, consumer electronics, aerospace, pharmaceuticals, petrochemicals, synthetic and composite materials, advanced telecommunications and the Internet

13. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-13 Ex. 7.5 Next Innovation Wave Extension of Human Sensory Capabilities and Intellectual Processes Genetic engineering Advanced computers/ telecommunication Robotics Artificial intelligence Alternative energy (solar, fuel cells, etc.) Advanced materials (molecular design, new polymers, high-tech ceramics, fiber-reinforced composites)

14. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-14 Ex. 7.6 Environmental Challenges as Opportunities Profits High Low BadGood Environmental Performance Old Model Win-Loss Compliance Model (neutral) New Model Win-Win

15. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-15 Ex. 7.8 Enhanced Efficiency via Pollution Prevention at Novartis InputsFinished Products Waste 197910030%70% 198810062%38% 200010075%25%

16. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-16 Ex. 7.9 Material Balance Model Process step 1 2 3 4 product Hazardous/ solid waste waste/ water air releases other TOTALOUTPUTSTOTALOUTPUTS TOTALINPUTSTOTALINPUTS Total inputs = Total outputs

17. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-17 Ex. 7.10 Minimizing Risk Focus on simple, well-trod areas Establish new generations of existing products Introduce new models Differentiate product rather than create different ones License others inventions Imitate others product introductions Modify existing processes Make minor technical improvements

18. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-18 Types of Uncertainty Affecting New Product Development Technical uncertainty Business condition uncertainty Market uncertainty Government uncertainty

19. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-19 Difficulties of Successful Innovation The entities that make the discoveries are not always the ones that profit from them Innovation rarely is instantaneous Diffusion is very uneven Since imitators face lower costs, the incentive to be innovative and entrepreneurial is not large

20. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-20 Ex. 7.11 The Innovation Journey – A Typical Path Coincidental events initiate gestation of many years Plans presented to resource controllers in form of sales pitches At start, disagreement and lack of clarity abound Ideas proliferate, making managing difficult Lack of continuity among personnel creates problems Emotions run high, leading to frustration, setbacks, mistakes, and blame Problems snowball and patience of resource providers weakens A struggle for power ensues Resources may run out before dreams fulfilled

21. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-21 Ex. 7.12 An Augmented View of Innovation