Summary Innovation Management and Strategy Full Resume (KULeuven - Van Looy) [D0H36a]

Innovation Management and Strategy
B. Van Looy
Notes de cours et résumé de syllabus

Année Académique 2025 - 2026




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,1) Innovation Dynamics & Systems




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,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