Chapter 13: Strategic Entrepreneurship 423
integrating the skills available in the global workforce. Thus, the ability to have a competi-
tive advantage based on innovation is more likely to accrue to firms capable of integrating
the talent of human capital from countries around the world.^54
R&D and the new products and processes it can spawn affect a firm’s efforts to earn
above-average returns while competing in today’s global environment. Because of this,
firms try to use their R&D labs to create disruptive technologies and products. Although
critical to long-term competitive success, the outcomes of R&D investments are uncer-
tain and often not achieved in the short term, meaning that patience is required as firms
evaluate the outcomes of their R&D efforts.^55
As noted earlier, successful R&D programs must have high quality human capital—
star scientists. Yet, not all ideas begin in the laboratory. For example, firms have learned
that customers are often good sources for new products that will satisfy their needs.^56
They also use external networks such as other scientists, published research, and even
alliance partners (discussed later in this chapter).^57 They may even be able to use public
knowledge, such as that on a current technology, that can be combined to create an
improved technology or perhaps even a new technology.^58
Companies have created several means of obtaining employees’ ideas for new products
and other types of innovation. At LinkedIn, employees are encouraged to come up with
ideas for innovations, develop a team to work on it and to make a pitch for the innova-
tion to an executive team. Whirlpool uses structured ideation sessions with employees to
identify new ideas for innovations. At Ericsson, employees are encouraged to participate
in ‘ideaboxes.’ After employees submit an idea, they are matched with ‘idea-to-innovation’
managers to develop it further and determine if it is feasible and valuable. Ericsson then
has an internal venture funding group that provides startup capital to the best ideas.^59
13-5a Incremental and Novel Innovation
Firms invest in R&D to produce two types of innovations—incremental and novel. Most
innovations are incremental—that is, they build on existing knowledge bases and pro-
vide small improvements in current products. Incremental innovations are evolutionary
and linear in nature.^60 In general, incremental innovations tend to be introduced into
established markets where customers understand and accept a product’s characteristics.
Basically, incremental innovations exploit an existing technology to provide an improve-
ment over a current product. From the firm’s perspective, incremental innovations tend
to yield lower profit margins compared to those associated with the outcomes of novel or
breakthrough innovations, largely because competition among firms offering products to
customers that have incremental innovations is primarily on the price variable.^61 Adding
a different kind of whitening agent to a soap detergent is an example of an incremental
innovation, as are minor improvements in the functionality in televisions (e.g., slightly
better picture quality). Companies introduce more incremental than novel innovations to
markets, largely because they are cheaper, easier, and faster to produce, and involve less
risk. Yet, firms normally cannot rely solely on incremental innovations. If they do so, they
move from being market leaders to market laggards.^62 However, incremental innovation
can be risky for firms if its frequency of introduction creates more change than can be
appropriately absorbed.^63
In contrast to incremental innovations, novel or breakthrough innovations usually
provide significant technological changes (breakthroughs) and create new knowledge.^64
Revolutionary and nonlinear in nature, novel innovations typically use new technologies
to serve newly created markets. The development of the original personal computer was
a breakthrough innovation.
Google’s new self-driving car is an example of a novel innovation. Under development
for several years, Google announced in 2015 that several prototype vehicles were being
