SBE 3 - Innovation and Sustainability in Small Firms
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Questions and Answers

What is the main difference between invention and innovation?

  • Invention is about producing a prototype, while innovation is about commercializing an idea. (correct)
  • Invention requires industry knowledge, while innovation requires technological skills.
  • Invention focuses on diffusion, while innovation focuses on radical changes.
  • Invention is bringing an idea to the market, while innovation is conceptualizing an idea.

    • Why did the perception of small firms change in the 00s regarding their role in innovation?

  • Small firms began to die out due to inefficiency in the market.
  • The dominant view shifted as technology became a significant part of the economy. (correct)
  • Small firms started to focus more on imitation rather than innovation.
  • Large firms proved to be more efficient and innovative than small firms.

    • What does diffusion refer to in the context of innovation?

  • The impact an innovation has on the market once it is introduced. (correct)
  • The step-by-step process of innovation.
  • The process of creating prototypes for new ideas.
  • Bringing an idea to the market.

    • Which type of innovation involves making radical changes in products or processes?

    <p>Radical innovation</p> Signup and view all the answers

    What characterized the dominant view on firm size and innovation in the 70s?

    <p>Only large firms were regarded as important innovators.</p> Signup and view all the answers

    What role did small new companies play in job creation towards the end of the 70s?

    <p>They provided most jobs compared to large companies.</p> Signup and view all the answers

    What is one of the challenges in the corporate model regarding innovation?

    <p>Difficulty in aligning incentives between the principle and agent</p> Signup and view all the answers

    How does the principle-agent problem manifest in big firms during innovation projects?

    <p>Principles struggle to observe the actions taken by agents, especially during early stages</p> Signup and view all the answers

    What is a characteristic feature of entrepreneurial firms in terms of incentives between principle and agent?

    <p>Aligned incentives between principle and agent</p> Signup and view all the answers

    What is a significant consequence for entrepreneurs seeking funding from venture capitalists (VCs)?

    <p>Loss of control through sales of shares</p> Signup and view all the answers

    What do VCs typically provide to entrepreneurs beyond just money?

    <p>Legitimacy, ideas, thoughts, consulting, and network</p> Signup and view all the answers

    Why does the agent-principle issue resurface with VCs owning a significant share of a firm?

    <p>Increased bureaucracy and control in the organization</p> Signup and view all the answers

    What are the components of the knowledge production function as discussed in the text?

    <p>Technological knowledge and past research</p> Signup and view all the answers

    Why is measuring technological change/innovation considered a problematic issue according to the text?

    <p>Every method used has its pros and cons</p> Signup and view all the answers

    What is an argument in favor of large firms being more innovative as discussed in the text?

    <p>Economies of scope</p> Signup and view all the answers

    In what context do small firms find it hard to break into the market according to the text?

    <p>Industry with deep knowledge requirements</p> Signup and view all the answers

    What characteristics differentiate start-ups from other types of firms?

    <p>Growth orientation from the start</p> Signup and view all the answers

    How do smaller firms gain an advantage in bringing innovations to market according to the text?

    <p>Ability to have first-mover advantages</p> Signup and view all the answers

    What organizational properties are needed during the early stages of the innovation process according to the text?

    <p>Creativity, openness, entrepreneurship, and flexibility</p> Signup and view all the answers

    'Paradox of creativity and control' refers to the balance needed between what two aspects according to the text?

    <p>'Creativity' and 'structure'</p> Signup and view all the answers

    'Heterogeneity in small business' is characterized by which of the following according to the text?

    <p>'Informal structure' and 'flexibility'</p> Signup and view all the answers

    What is one issue raised with using patents as a measure of technological change/innovation?

    <p>Many products and services don't use patents</p> Signup and view all the answers

    Study Notes

    Invention vs. Innovation

    • Invention refers to the creation of a new product or process, while innovation involves the implementation and commercialization of existing ideas or inventions.

    Perception of Small Firms in the 00s

    • The role of small firms in innovation evolved as they became recognized for their agility, quicker decision-making, and capacity to disrupt markets.

    Diffusion in Innovation

    • Diffusion refers to the process through which innovations spread across markets and industries, impacting adoption rates.

    Radical Innovation

    • Disruptive innovation involves making radical changes that significantly modify existing products or processes.

    Dominant View on Firm Size and Innovation in the 70s

    • The prevailing belief was that larger firms held a monopoly on innovation due to their resources, infrastructure, and market power.

    Small Firms and Job Creation in the Late 70s

    • Small firms emerged as key players for job creation, often outpacing larger firms in net job growth.

    Challenges in the Corporate Model

    • A core challenge involves rigid structures that can stifle creativity and slow down the innovation process.

    Principal-Agent Problem in Big Firms

    • In large firms, the principal-agent problem arises when executives (agents) have different interests than the shareholders (principals), leading to inefficiencies in innovation projects.

    Incentives in Entrepreneurial Firms

    • In entrepreneurial firms, a strong alignment between owner and investor interests fosters a conducive environment for innovative endeavors.

    Funding Consequence for Entrepreneurs

    • Entrepreneurs seeking venture capital often relinquish significant control or equity, which can lead to conflicts over vision and strategy.

    Value from Venture Capitalists

    • VCs provide more than funding; they also offer mentorship, industry expertise, and networking opportunities to help entrepreneurs grow their businesses.

    Resurfacing Agent-Principle Issue with VCs

    • The principal-agent problem re-emerges when VCs gain substantial equity, potentially conflicting with original operating strategies and goals of the entrepreneurs.

    Knowledge Production Function Components

    • The knowledge production function includes elements such as research and development (R&D) intensity, human capital, and collaboration that contribute to innovation.

    Measuring Technological Change

    • Evaluating technological change is complex due to the dynamic nature of innovation and its multifaceted impacts on the market.

    Argument for Large Firms' Innovation

    • Large firms are positioned advantageously due to their capacity for extensive R&D investments and the ability to leverage economies of scale.

    Market Entry Challenges for Small Firms

    • Small firms face difficulties entering markets dominated by well-established competitors with stronger resources and brand recognition.

    Start-Ups vs. Other Firms

    • Start-ups are characterized by their focus on growth, high risk tolerance, and innovative business models that differentiate them from larger, more established entities.

    Advantages of Smaller Firms in Innovation

    • Smaller firms can capitalize on innovations swiftly due to their flexibility and less bureaucratic decision-making processes.

    Organizational Properties for Early Innovation Stages

    • Start-ups require supportive organizational structures that encourage creativity, adaptability, and rapid response to change during initial innovation phases.

    Paradox of Creativity and Control

    • Balancing creativity with control is essential; firms need sufficient oversight to ensure alignment with business goals without stifling innovative thinking.

    Heterogeneity in Small Business

    • Small businesses exhibit diversity in terms of industry involvement, management styles, and operational strategies, contributing to a rich ecosystem of innovation.

    Patents and Technological Change Measurement Issues

    • Using patents as a metric for technological change can be misleading, as not all innovations are patented, and patents do not always equate to successful commercialization.

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    Description

    Explore how the dominant view on firm size and innovation has evolved over time, from the notion that only large companies are important for innovation to recognizing the potential of small firms in bringing positivity to the economy. Dive into the changes in perspectives towards small firms' efficiency and innovation.

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