Innovation Management and Strategy
B. Van Looy
Notes de cours et résumé de syllabus
Année Académique 2025 - 2026
1
,1) Innovation Dynamics & Systems
2
,1. Why innovation?
Innovation is an engine behind wealth creation !
Historically: Major drivers of competition & value creation:
60 – 70s : productivity
70 – 80s: quality
80 – 90s: flexibility
90s – … : innovation
Evidence at firm-level: Intel, Apple, Google,…
Evidence at geographic / regional level: North-Italy, South-Germany, Cambridge, Silicon
Valley,…
Evidence at national level:
OECD data of Total Factor Productivity (TFP) & economic growth.
OECD evidence on R&D spending.
Production function approach (Solow, 1957)= analyses how output (Y) in an economy is
produced from inputs (labour L + capital C), while also accounting for technological progress
(A(T)).
Y = F(L,C) * A(T)
If we add knowledge indicators (innovation), the explanatory power of these functions
increases significantly !
Example: Blackberry vs. iPhone
1° Disciplines of understanding innovation dynamics
Economics
Sociology
Management
Psychology
History
2. Who drives innovation?
1° Schumpeter
2 types of agents:
Exceptional individuals / heroic entrepreneurs rare, bold people who take on
uncertainty and push new combinations into the market (not just “firm-founders”).
Imitators / managers larger crowd who copy, scale, and routinize what pioneers proved
works. 3
,1) Schumpeter I (1928)
Schumpeter I = Theory of heroic entrepreneurship and creative destruction:
o Entrepreneurs are “destabilizers” :
Introduce new products / processes, inspired by science & technology (exogeneous
factors).
Disrupt old ways (creative destruction).
Push resources to better uses.
Fuel growth.
o Invention ≠ innovation :
You don’t have to ‘invent’ the science yourself !
Apply it under uncertainty & make it work in the market.
o Science / tech is exogenous: useful knowledge exists “out there”, and entrepreneurs pull it
into the economy.
Exogeneous science
& technology
Entrepreneurial Investment in New production Profits or losses
activities innovation patterns / market
structure
Recent examples: Zuckerberg, Elon Musk, Jeff Bezos,…
2) Schumpeter II (1942)
Schumpeter changes his mind !
In large firms, innovation gets bureaucratized and organized (labs, budgets, processes,…)
Science and technology as internal part of large firms (R&D)
Engineers inside R&D can play the “entrepreneurial role” (sponsoring projects, presenting
ideas,…)
Firms become the key innovation engines !
Exogeneous science 4
, & technology
Endogenous science Investment in New production Profits or losses
& technology innovation patterns / market
(mainly inhouse structure
R&D)
! Reaction of Baumol : not a “replacement” story !
Small / entrepreneurial firms excel at breakthroughs.
Large firms excel at incremental improvements.
Both are complementary !
2° Obligatory reading : Baumol
Entrepreneurial Enterprises, Large Established Firms and Other Components of the Free-
Market Growth Machin (Baumol, 2004)
! Big firms & entrepreneurs matter and both have their distinctive role !
2 types of innovation:
Game-changing, “revolutionary” leaps (small entrepreneurial firms).
Small “incremental” upgrades (large firms).
o Large firms
Oligopolies innovation as main weapon (arms race) must keep investing in
innovation.
Funding of innovation more and more by oligopolistic firms.
Focus on dependable, market-ready improvements reliable & scalable.
Incremental gains can exceed impact of single breakthrough !
o Small firms
Primary source of the radical, high-risk breakthroughs.
Airplanes, PCs, air conditioning,… originated in small firms.
Small firms are more science-linked, more high-value, and more innovative per
employee than large firms.
Conclusion : breakthroughs + incremental improvements today’s innovations !
Additionally: 5
B. Van Looy
Notes de cours et résumé de syllabus
Année Académique 2025 - 2026
1
,1) Innovation Dynamics & Systems
2
,1. Why innovation?
Innovation is an engine behind wealth creation !
Historically: Major drivers of competition & value creation:
60 – 70s : productivity
70 – 80s: quality
80 – 90s: flexibility
90s – … : innovation
Evidence at firm-level: Intel, Apple, Google,…
Evidence at geographic / regional level: North-Italy, South-Germany, Cambridge, Silicon
Valley,…
Evidence at national level:
OECD data of Total Factor Productivity (TFP) & economic growth.
OECD evidence on R&D spending.
Production function approach (Solow, 1957)= analyses how output (Y) in an economy is
produced from inputs (labour L + capital C), while also accounting for technological progress
(A(T)).
Y = F(L,C) * A(T)
If we add knowledge indicators (innovation), the explanatory power of these functions
increases significantly !
Example: Blackberry vs. iPhone
1° Disciplines of understanding innovation dynamics
Economics
Sociology
Management
Psychology
History
2. Who drives innovation?
1° Schumpeter
2 types of agents:
Exceptional individuals / heroic entrepreneurs rare, bold people who take on
uncertainty and push new combinations into the market (not just “firm-founders”).
Imitators / managers larger crowd who copy, scale, and routinize what pioneers proved
works. 3
,1) Schumpeter I (1928)
Schumpeter I = Theory of heroic entrepreneurship and creative destruction:
o Entrepreneurs are “destabilizers” :
Introduce new products / processes, inspired by science & technology (exogeneous
factors).
Disrupt old ways (creative destruction).
Push resources to better uses.
Fuel growth.
o Invention ≠ innovation :
You don’t have to ‘invent’ the science yourself !
Apply it under uncertainty & make it work in the market.
o Science / tech is exogenous: useful knowledge exists “out there”, and entrepreneurs pull it
into the economy.
Exogeneous science
& technology
Entrepreneurial Investment in New production Profits or losses
activities innovation patterns / market
structure
Recent examples: Zuckerberg, Elon Musk, Jeff Bezos,…
2) Schumpeter II (1942)
Schumpeter changes his mind !
In large firms, innovation gets bureaucratized and organized (labs, budgets, processes,…)
Science and technology as internal part of large firms (R&D)
Engineers inside R&D can play the “entrepreneurial role” (sponsoring projects, presenting
ideas,…)
Firms become the key innovation engines !
Exogeneous science 4
, & technology
Endogenous science Investment in New production Profits or losses
& technology innovation patterns / market
(mainly inhouse structure
R&D)
! Reaction of Baumol : not a “replacement” story !
Small / entrepreneurial firms excel at breakthroughs.
Large firms excel at incremental improvements.
Both are complementary !
2° Obligatory reading : Baumol
Entrepreneurial Enterprises, Large Established Firms and Other Components of the Free-
Market Growth Machin (Baumol, 2004)
! Big firms & entrepreneurs matter and both have their distinctive role !
2 types of innovation:
Game-changing, “revolutionary” leaps (small entrepreneurial firms).
Small “incremental” upgrades (large firms).
o Large firms
Oligopolies innovation as main weapon (arms race) must keep investing in
innovation.
Funding of innovation more and more by oligopolistic firms.
Focus on dependable, market-ready improvements reliable & scalable.
Incremental gains can exceed impact of single breakthrough !
o Small firms
Primary source of the radical, high-risk breakthroughs.
Airplanes, PCs, air conditioning,… originated in small firms.
Small firms are more science-linked, more high-value, and more innovative per
employee than large firms.
Conclusion : breakthroughs + incremental improvements today’s innovations !
Additionally: 5
