Innovation and Entrepreneurship
4 theoretical lectures + 1 empirical part (group ppt. + assignment)
Exam: does not include guest lectures
Assignment structure
Task 1: motivated choice for innovation -> a product not a company!
• iPod (NOT Apple)
• Surface (NOT Microsoft)
• Tesla Model S (NOT Tesla)
Task 2: presentation
You need to show
• how well you understand the subject you have investigated
• how you (as a group) are able to answer the questions that we ask during the presentation
session
Task 3: essay
Assessment
• Written exam (60%) – Closed book, on campus (on PCs)
• Group assignment (40%) – ppt not graded, just the assignment
• Not everyone has to present!!
, Lecture 1 - Entrepreneurship – An opportunity based framework
Creative destruction
• Schumpeter believed that innovation causes most markets to evolve in a characteristic
pattern
• Markets have periods of comparative quiet, when firms that have developed superior
products and technologies earn positive profits
• These periods are punctuated by fundamental shocks that destroy old sources of advantage
and replace them with new ones.
• Entrepreneurs who exploit the opportunities created by the shocks enjoy economic profits
during the next period of quiet, until a new opportunity arises.
Examples
• Blockbuster vs Netflix
• Taxi vs Uber
• DVD vs MP3
• Kodak vs digital camera
• Nokia vs Iphone
What allows firms to take on new opportunities and become disruptors and dominant firms? And who
takes this new opportunities?
Disruptive technologies
• New entrants are associated with the creation of disruptive technologies. Such disruptive
technologies are heralded as a key driver of rising living standards.
• Incumbent firms often are associated with incremental innovations that contribute more
marginal gains to innovation. Often believed to be aimed at preserving market power.
Creative destruction & Competitive advantage
What is the comparative advantage of startups vs incumbents at discovering and exploiting
opportunities?
• This is what we will focus on. A good question when evaluating innovations is to ask
ourselves whether the innovation created by a startup could have also been created by an
incumbent organization. Why yes and why not?
Entrepreneurship as an opportunity based framework
• Entrepreneurship (innovation): the discovery and exploitation of a lucrative opportunity
o 2 stages: discovery and exploitation and both do not necessarily need to take place in
the same firm.
• Opportunities: situations in which new goods, services, raw materials, and organizing
methods can be introduced and sold at greater [value] than their cost of production (Casson,
1982)
Opportunity and innovation are quite interrelated according to the definition of entrepeneurship!
, Who discovers opportunities?
Opportunities are objective, but the process to identify them is subjective. Entrepreneurship requires
that people hold different beliefs and capabilities about the value of resources.
o Not everybody is equally ready to identify or exploit an opportunity
Heterogeneity (e.g. different information, specific capabilities) generates a comparative advantage
that allows some individuals and not others to act on certain opportunities
• Heterogeneity is key in explaining why some people are entrepreneurial where others aren’t.
Startup vs incumbent innovation
• Entrepreneurship does not require (but can include) the creation of new organizations
• It depends on who discovers and who exploits opportunities (do not need to be the same)
• Four types of innovation depending on the locus (startups vs incumbent firms) of the two key
stages of entrepreneurship (discovery and exploitation)
A. Incumbent innovation – All in house
Incumbent innovation: innovation being commercialized or exploited by an incumbent firm
When we have both discovery & exploitation
taking place in an incumbent firm, we can
say that everything takes place in house.
Quite some of these innovations can be
quite incremental, it also offers the
environment for radical innovations -> iPhone
B. Incumbent Innovation – external invention
1st stage (discovery) taking place in a startup
but because they don’t have the resources to
exploit it, they sell it to an incumbent firm.
C. Incumbent Innovation – Spinout
The opposite from what happened in B.
It might be the case that the product
discovered does not align with the
direction/core products of the firm so a
new company is created.
4 theoretical lectures + 1 empirical part (group ppt. + assignment)
Exam: does not include guest lectures
Assignment structure
Task 1: motivated choice for innovation -> a product not a company!
• iPod (NOT Apple)
• Surface (NOT Microsoft)
• Tesla Model S (NOT Tesla)
Task 2: presentation
You need to show
• how well you understand the subject you have investigated
• how you (as a group) are able to answer the questions that we ask during the presentation
session
Task 3: essay
Assessment
• Written exam (60%) – Closed book, on campus (on PCs)
• Group assignment (40%) – ppt not graded, just the assignment
• Not everyone has to present!!
, Lecture 1 - Entrepreneurship – An opportunity based framework
Creative destruction
• Schumpeter believed that innovation causes most markets to evolve in a characteristic
pattern
• Markets have periods of comparative quiet, when firms that have developed superior
products and technologies earn positive profits
• These periods are punctuated by fundamental shocks that destroy old sources of advantage
and replace them with new ones.
• Entrepreneurs who exploit the opportunities created by the shocks enjoy economic profits
during the next period of quiet, until a new opportunity arises.
Examples
• Blockbuster vs Netflix
• Taxi vs Uber
• DVD vs MP3
• Kodak vs digital camera
• Nokia vs Iphone
What allows firms to take on new opportunities and become disruptors and dominant firms? And who
takes this new opportunities?
Disruptive technologies
• New entrants are associated with the creation of disruptive technologies. Such disruptive
technologies are heralded as a key driver of rising living standards.
• Incumbent firms often are associated with incremental innovations that contribute more
marginal gains to innovation. Often believed to be aimed at preserving market power.
Creative destruction & Competitive advantage
What is the comparative advantage of startups vs incumbents at discovering and exploiting
opportunities?
• This is what we will focus on. A good question when evaluating innovations is to ask
ourselves whether the innovation created by a startup could have also been created by an
incumbent organization. Why yes and why not?
Entrepreneurship as an opportunity based framework
• Entrepreneurship (innovation): the discovery and exploitation of a lucrative opportunity
o 2 stages: discovery and exploitation and both do not necessarily need to take place in
the same firm.
• Opportunities: situations in which new goods, services, raw materials, and organizing
methods can be introduced and sold at greater [value] than their cost of production (Casson,
1982)
Opportunity and innovation are quite interrelated according to the definition of entrepeneurship!
, Who discovers opportunities?
Opportunities are objective, but the process to identify them is subjective. Entrepreneurship requires
that people hold different beliefs and capabilities about the value of resources.
o Not everybody is equally ready to identify or exploit an opportunity
Heterogeneity (e.g. different information, specific capabilities) generates a comparative advantage
that allows some individuals and not others to act on certain opportunities
• Heterogeneity is key in explaining why some people are entrepreneurial where others aren’t.
Startup vs incumbent innovation
• Entrepreneurship does not require (but can include) the creation of new organizations
• It depends on who discovers and who exploits opportunities (do not need to be the same)
• Four types of innovation depending on the locus (startups vs incumbent firms) of the two key
stages of entrepreneurship (discovery and exploitation)
A. Incumbent innovation – All in house
Incumbent innovation: innovation being commercialized or exploited by an incumbent firm
When we have both discovery & exploitation
taking place in an incumbent firm, we can
say that everything takes place in house.
Quite some of these innovations can be
quite incremental, it also offers the
environment for radical innovations -> iPhone
B. Incumbent Innovation – external invention
1st stage (discovery) taking place in a startup
but because they don’t have the resources to
exploit it, they sell it to an incumbent firm.
C. Incumbent Innovation – Spinout
The opposite from what happened in B.
It might be the case that the product
discovered does not align with the
direction/core products of the firm so a
new company is created.
