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Reddi - SMU
1. Designing a System for Disruptive Innovation
Reddi Kotha
Associate Professor of Strategic Management
Academic Director of Master of Science in Innovation
Lee Kong Chian School of Business
Singapore Management University
22 November 2018 Strategy & Innovation Forum
1
2. SMU Classification: Restricted
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Disruptive Innovation System:
3 Questions
1. Sources
What are the sources of disruptive innovation and how
can they be brought to the market?
2. Employee participation
How to increase the proportion of employees engaged in
disruptive innovation?
3. Rewards
How to reward team members engaged in disruptive
innovation?
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4. SMU Classification: Restricted
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Theory: Recombination as a Source of
Innovation
• Firm as repository of specialized
knowledge and providing setting for
the integration of knowledge to turn
inputs into outputs (Grant, 1997).
• Unique recombination of existing
knowledge repositories (Basalla, 1988;
Fleming and Sorenson, 2001;
Henderson and Cockburn, 1994;
Schumpeter, 1939).
• Breakthrough innovations result from
recombining non-obvious technology
components (Basalla, 1988;
Utterback, 1994).
Firm i = (a, b, c, d)
# of pairs= (ab, ac, ad,
bc,bd, cd)
7. SMU Classification: Restricted
Two Types of Inventions
(Recombinant View of Innovation)
• Combining proximate sciences
▫ High mutual knowledge
LOW coordination problems!
• Combining distant sciences
▫ Low mutual knowledge
HIGH coordination problems!
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8. SMU Classification: Restricted
Count of Inventions Licensed by
Science DistanceCount of Inventions by Science Distance
Not Licensed
Not Licensed
Not Licensed
Licensed
Licensed Licensed
0
1000
2000
3000
4000
5000
6000
Proximate Moderate Distant
Science Distance between Inventor Teams
CountofInventions
10. SMU Classification: Restricted
How can We Get the Frown to be a
Smile?
• Prior joint work experience of innovators
▫ Indicator of ex-ante stocks of mutual knowledge
• Prior licensing experience of innovators
▫ Indicator of competence/motivation
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13. SMU Classification: Restricted
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Summary of Study 1
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• Recombination of distance domains as a source
of disruptive innovation
• Importance of mutual knowledge in the team
(relationships)
• Importance of market opportunities (licensing
experience)
14. SMU Classification: Restricted
Summary
• Positive association between celebrating failure
and subsequent success.
• The theory model as long as the rewards for
unsuccessful attempts are an anodyne then firm
performance improves.
• Ex post surveys of senior managers reveal
perceptions consistent with the results and the
model.
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15. SMU Classification: Restricted
Working paper in collaboration with
Dan Lovallo (University of Sydney),
Young-Choon Kim (UNIST) &
Colin Camerer (Caltech)
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16. SMU Classification: Restricted
Teams as the Locus of Disruptive
Innovation
• The day of the solo heroic entrepreneur is over.
• Most of the ‘impactful’ innovation is done in
teams (Wuchty et al., 2007).
• How do innovative teams share rewards?
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17. SMU Classification: Restricted
Rewards Sharing
• The ubiquitous 50-50 split between artists and
the gallery owners who display and sell their art
(Velthius, 2011).
• Equality also appears to be prevalent among
entrepreneurs (Hellmann & Wasserman, 2016).
• Quick Negotiation that takes the value 1 if the
negotiations were concluded in one day or less
and 0 otherwise. Somewhat surprisingly, 42% of
all ventures concluded their negotiations in one
day or less.
•
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19. SMU Classification: Restricted
Samples
• Sample 1
▫ Two or more inventors from 1996 to 2014.
▫ 1,038 inventions.
▫ Average revenue $500k
• Sample 2
▫ Two or more inventors from 1990 and 2004
▫ 415 inventions
▫ Average revenue $43.9 K
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20. SMU Classification: Restricted
Summary of Rewards
• Equity principle
▫ Marginal contribution
▫ Individual’s share is equal her contribution
divided by the total contribution of the team
• In practice hard to isolate
▫ We all think we are better than average
▫ We all worked hard
▫ Have selective memory
21. SMU Classification: Restricted
Summary of the Studies
• One meta level theory of recombination as a source
of disruptive innovation and its application in
licensing of academic science.
• Design of system for innovation in organizations to
increase the number of agents engaged in disruptive
innovation.
• How rewards in disruptive teams are shared and
what consequences such a distribution may have on
performance of the teams.
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