Business Creativity

Course notes on creativity (the cognitive process of producing novel, useful ideas) and innovation (organizational change, institutional pressure, entrepreneurship, and social networks). Compiled from two sets of lecture notes (one anonymous, one attributed to “Xioung”). See Innovation and Creativity.

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Part 1 — Creativity

Creativity has two tests: Is it novel? and Is it useful?

Productive problem solving

Making connections between ideas is pivotal to actually finding a problem. Theories on problem solving distinguish:

• Solving problems by familiar means vs. by doing something new.
• Changing the view of a problem’s structure is the central component of producing new solutions.
• The same phenomena appear in both simple and highly-regarded instances of productive thinking — whether you’re solving sibling rivalry or a physics problem, you use the same cognitive process.

Insight problems

• Some form of new response is required for solution.
• A change in view of the problem is required.
• No specialized knowledge is required (the problem is within the competence of whoever it’s given to).

Obstacles to solutions

• Inappropriate organization of the problem.
• Functional fixedness — seeing objects/ideas only in their usual role.

How solutions occur

Through analysis of the problem, and through hints — which work by either confirming the current representation or triggering a new representation. (“Think outside the box” is too ambiguous to be useful guidance.)

Reproducing vs. restructuring

• Reproducing keeps the current solution shape: “how do we bring electricity to a far-away house?” → just use longer wires.
• Restructuring changes what the solution even requires: maybe you don’t need wires — use solar or wind.

New ideas can be creative while still being structured by old ones. The challenge is figuring out which existing ideas a new one stems from, then deciding which features to retain and which to change. Structural alignment = the features maintained across the transformation (e.g. symmetry in a design).

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Part 2 — Theories of organizational change

Four “motors” of change. (#Creative Destruction underlies the entrepreneurial framing in Part 4.)

1. Life cycle — organic growth

Looks at a single, independent firm. Small growth → success → peak → decline. Decline is usually driven by an inability to innovate and by forces beyond the organization’s control (developmentalism). At the peak, motivation drops and firms default to defending what they have — another radical change becomes hard. Two ways to interrupt the decline:

• Radical change: a new product, the same product via a new procedure, or more output from the same resources. (The assembly line is a major innovation — but it’s a process, not a product.)
• Developing a network: mergers & acquisitions (leverage someone else’s strengths), buyouts/takeovers (“deleting the competition”). “Someone else does something better. We can still defend our piece of market.”

2. Evolution — competitive survival

Geared toward multiple organizations competing; a probabilistic, “strongest survive” account.

• Lamarckian fitting: the innovation must fulfill the requirements and expectations of the environment. Whatever the market wants wins — regardless of quality. It’s not enough to be good; it must hit the right market at the right time.
  • Type of innovation — match product to cost (the Concorde flew NY→London in ~4 hours, but at ~$5,000 nobody would accept it).
  • Societal acceptance — VHS / home theatre succeeded in the ’80s though the tech was older; it needed acceptance. Any innovation requiring a major behavioral change rarely succeeds.
  • Timing — “there is a small window of opportunity.”
• Darwinian selection: pure probability — no specific reason something succeeds, only that it does. A cruel, irrational aspect that must still be accounted for.

3. Dialectic — opposition / conflict

A specific battle between two entities (thesis and antithesis) producing a synthesis different from both. Neither side need “win,” but the combined outcome is the point.

4. Teleology — purposeful cooperation

There is a goal / end point; the explanation of phenomena by the purpose they serve. Innovation is built starting from the end — it’s a tool/proxy to achieve something beyond innovation itself.

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Part 3 — Why some innovations fail: prescribed vs. constructive change

It matters as much to understand when innovation fails as when it succeeds. Radical solutions are often not the correct way to approach a market and lose money. Genuinely radical innovation is rare in the last ~20 years — most innovation is evolution of existing processes. (Every car is, in essence, still a Model T.) Because the market is now the dominant driver, broad social innovation is less common — everything is judged on profitability.

Mode	Order	Description
Prescribed / convergent	1st order	Within an existing archetypal template — recombination, incrementalism/addition, technical (= economic) efficiency. Small changes can accumulate into a major one. “Playing within the rules.”
Constructive / radical	2nd order	A break with the past framework; generates unprecedented, novel forms. Creation of new opportunities, enablement (airplane, phone, radio, internet). “Changing the rules” (divergent change).

Strategy vs. serendipity — serendipity = a fortunate happenstance / pleasant surprise. Can ideas be deliberately cultivated, or do they just happen?

Institutions

An institution = the rules, routines, and belief systems prevailing (and taken for granted) in a given environment (DiMaggio & Powell, 1983) — e.g. the family, marriage, being a student. Institutions become institutions when they are taken for granted; they provide stability and meet a psychological need for safety.

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Part 4 — Isomorphism and institutional pressures

Isomorphism (DiMaggio & Powell) = a constraining process forcing one unit to resemble others facing the same environmental conditions. Organizations compete not just for resources and customers but for political power and institutional legitimacy. Three pressures:

• Coercive (legitimacy) — from sources organizations rely on for survival/legitimacy: government agencies, policy-makers, legislative power. (Pollution laws, the FDA, app-store/technological rules.)
• Mimetic (copying) — imitate similar or successful organizations, especially under uncertainty about outcomes. (Samsung imitating Apple, fast-food formats, counterfeits, Pepsi vs. Coke.)
• Normative — as fields professionalize, normatively-laden ideas about practice diffuse via accreditation and professional networks. “People from the same educational backgrounds approach problems the same way; on-the-job socialization reinforces it.”

Agency and institutional entrepreneurs

The paradox of embedded agency (Beckert, 1999): if structures and strategies are pushed toward isomorphism by the environment, what room is left for strategic choice? Institutional entrepreneurs are actors (individuals, groups, or organizations) who leverage resources to create or transform institutions, acting on the basis of subject position, legitimacy, and power.

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Part 5 — Entrepreneurial theories of innovation

Two anchoring quotes:

No fixed capital can yield any revenue but by means of a circulating capital — information? — Adam Smith

Any existing structures and all the conditions of doing business are always in a process of change. Every situation is being upset before it has had time to work itself out. Economic progress, in a capitalist society, means turmoil, through a process of creative destruction. — J. Schumpeter

Theory	Core claim	What determines who becomes an entrepreneur
Neoclassical (Kihlstrom & Laffont)	Information is available to everyone; everyone can recognize all opportunities.	Fundamental personal attributes (personality, background, motivation). Opportunities exist — it doesn’t matter who you are.
Psychological (McClelland; Shaver & Scott)	Focus on the decision to exploit opportunities, not discover them. Traits → states → behaviour → actions.	Personal attributes plus the ability and willingness to take action. Matters who you are.
Austrian (Hayek, Kirzner)	The market is made of individuals with different information; people cannot recognize all opportunities.	Information about opportunities (not traits) — i.e. the network you’re embedded in. Depends on your environment / starting point.

Three lenses on innovation overall: Technical → the idea; Institutional → meeting society’s expectations; Entrepreneurial → the entrepreneurs themselves.

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Part 6 — Social network analysis

Firms aren’t independent — they work with partners and weigh competitors, so an institution is analyzed relative to other institutions. SNA tracks relationships across three levels: individuals, units, organizations/firms.

Ties and informal networks

You study whether a tie is present or absent and who connects to whom. The principal–agent problem (agency dilemma) arises when an agent who decides on behalf of a principal is motivated by his own interests. Social control holds when top and middle management share a circular flow of information (equal information); a linear chain detaches top management from the rest. Software like UCINet builds a matrix of these relationships. A person’s position in the network predicts outcomes, because resources — knowledge, ideas, advice, support — diffuse along the ties.

Network positions (the classic brokerage diagram)

• C — the broker / “network entrepreneur”: bridges two otherwise-disconnected sides. Low constraint; with only ~2 connections he reaches ~12 people and can recombine ideas across domains. Powerful but hard to trust — he’s not fully on anyone’s side, so help is scarce when he’s in trouble (and he carries principal-agent risk).
• A — the embedded actor: highest constraint. Everything he knows is redundant among the few actors around him; he gets social support but isn’t independent and can’t see outside the cluster.
• D — high degree centrality: lots of contacts, and therefore powerful.
• B — the gatekeeper / early adopter: enjoys a stable network and a window outside it. A weaker broker than C but with network support; he’s the one who opens the social circle to outsiders and translates innovations from other contexts. Not the inventor — the early adopter.

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Part 7 — Managing the life cycle of innovation

The debate over an innovation turns not only on the merit of the idea but on who is using it as a vehicle to gain power — innovation is fundamentally a question of legitimacy. Four problems in managing innovation (Van de Ven):

1. Managing attention — organizations are designed to protect existing practice.
2. Managing ideas into “good currency” — the social/political work of institutionalizing a new idea as a collective process.
3. Managing part–whole relationships — ideas must fit existing structure and be turned into concrete reality.
4. Institutional leadership — creating a mentality that supports innovation.

Innovation as a political process

• Institutional processes: the Euro, slow-food / fair-trade, WikiLeaks.
• Technical processes: America’s-Cup catamarans, new compact motors.
• Either/both: MacBook, iTunes.

Decoupling — the deliberate creation and maintenance of gaps between formal policy and actual practice, used to gain external legitimacy while preserving internal flexibility; often rests on the use (or abuse) of ideological belief. (E.g. BP’s “green” policy after the Gulf disaster.)

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Key concepts in review

• Innovation: radical (unprecedented) vs. incremental (recombination/reconstructive).
• Organizational change: life cycle · evolutionary · dialectical · teleological.
• Institutional pressures: coercive · normative · mimetic.
• Entrepreneurial theories: neoclassical · psychological · Austrian.

Sample exam prompt: “Explain what normative pressure is and how it differs from the other types of institutional pressure.”

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Follow-up reading (from the original notes)

Flagged in the source for later review (see #articles-to-read):

• Understanding radical change: bringing together old and new institutionalism
• Organizational change and managerial sense-making
• Agency, entrepreneurs and institutional change
• Explaining developing change in organizations
• Central problems in the management of innovation

“Often innovation is confused with breakthrough inventions. The reality is innovation is often the small, day-by-day incremental improvements. When you combine breakthrough inventions and process improvements, the effect is improving productivity in many ways — from asking ‘Why do we do this? Can we do it better?’ to minor improvements to the existing processes.” — Lindsey Ryan, CEO of Corporate Education Advisors

(Open question from the notes: Hypothesis 10, p. 1037 of “Understanding radical change…” — ask Stefano what it means.)