# The Ethical and Social Responsibilities of Entrepreneurs

## Developing a Workplace Culture of Ethical Excellence and Accountability

### Learning Objectives

By the end of this section, you will be able to:
1. Describe workplace challenges in an entrepreneurial culture
2. Distinguish between reactive and proactive approaches to managing ethics
3. Describe the foundations and framework of an organizational culture of ethical excellence
4. Define the components of an ethical workplace
Successful entrepreneurs understand that the workplace of 2020 is quite different from that of 2000, just twenty years ago. As the heading to this section suggests, progressive entrepreneurs want to create a workplace culture of ethical excellence. However, doing that means understanding a changing workforce, both in terms of demographics and values. Millennials, born between 1983 and 1995, now outnumber baby boomers in the workforce, and by 2025, will compose three-quarters of all workers on a global basis.Deloitte Reports. 2019. https://www2.deloitte.com/global/en/pages/about-deloitte/articles/millennialsurvey.html Entrepreneurs and managers who are in a position to hire and supervise millennial workers must adjust to the differing expectations and demands of a mid-twenty-first century workplace. This is especially true with regard to CSR/ethics. What matters most to millennials, according to a recent New York Times article, is that work aligns with their values.Elizabeth Olsen. “Graying Firms Wrestle with Making Room for Younger Lawyers.”
Approximately 60 percent of millennial workers would agree to work for 15 percent less money just for the chance to work for a company whose business values parallel their personal values.Elizabeth Olsen. “Graying Firms Wrestle with Making Room for Younger Lawyers.”  It turns out that millennials don’t just want a job, they want a job that matters—one in which they can do rewarding work that achieves a worthwhile outcome. In other words, they want the work they do to mean something. Furthermore, according to an article in the Texas Bar Journal by career coach and consultant Martha Newman, millennial workers place a high value on workplace policies that promote open communication, collaboration, and participation in short- and long-term decision making with their employer.M. Newman, “Decoding Millennial Lawyers,”  Newman also says that millennials expect a degree of work-life balance; career isn’t all that matters in their life.
What this means for entrepreneurs who manage employees is that they must adjust. For example, an owner can create a workplace in which there is a culture ensuring that people matter as much as money, where there is work-life balance with things like flexible scheduling, and where good work is recognized and rewarded. There’s an adage that says, “People don’t quit their job, they quit their bosses.” If you don’t want a very high turnover rate among your workforce, be the kind of boss that millennials want to work for and with.

### Entrepreneurial Culture

A fairly common characteristic of successful startups is charismatic, driven founders with competitive mentalities. After all, it takes a thick skin and powerful ego to get through the inevitable disappointments that confront a startup leader. Often, however, companies discover that a different leadership ethos is necessary as they grow. Could entrepreneurs still succeed if they also embraced a humanistic leadership style at the outset, or would this invariably undermine the already low initial odds of success? It is a difficult problem with which many firms wrestle. Dedicated employees may be put off by demanding leaders who are harsh, giving little back to loyal workers even after achieving success. New employees may decide the working climate is less congenial than they anticipated and simply leave.
One question an ethical entrepreneur should ask is this: Do my employees feel like they can speak freely? In reality, at many companies, according to SHRM (Society for Human Resource Management), human resources departments often find it difficult to get employees to complete employee workplace climate (satisfaction) surveys.Dana Wilkie. “Employee Engagement Surveys: Why Do Workers Distrust Them?” Society for Human Resource Management. January 5, 2018. https://www.shrm.org/resourcesandtools/hr-topics/employee-relations/pages/employee-engagement-surveys.aspx Workers often believe that if management really wants to find out who said what, they easily could, although the surveys are supposed to be anonymous. The difference between ethical and unethical entrepreneurial management is whether they want to find out. Whether it involves small, mid-size, or large companies, management should encourage employees to speak out, whether as an anonymous whistleblower or in person to their supervisor. Absence of this type of encouragement often allows unethical business practices to flourish, such as was seen in the Wells Fargo case example.
These observations identify what may be unique to entrepreneurial culture. This is a combination of personality and management style often identified with those business leaders who strike out on their own, bring a startup to life, and shape its initial business practices and culture on the job. If the enterprise is successful, the principles and philosophy of the founder become enshrined in the lore of the company, so that long after their departure, succeeding leaders find themselves beholden to the management philosophy exemplified from the early days of the firm.Steven Byars. Personal statement. Dr. Byars worked for many years in the 1980s in human resources at the Walt Disney Company at its corporate site in Burbank, California. A popular training course offered in-house to employees new to professional or managerial roles was “Disney Way,” in which the leadership culture of the company was traced back to its founding in 1926 and how that culture had remained greatly intact over the intervening years. As you seek the right leadership style to implement in your entrepreneurial plans, begin by asking precisely what kind of leader you would prefer to work for if you were not the boss. The answer you provide may very well be the best model to follow as you develop your own leadership personality.
The first employees of a startup realize what is at stake as the company tiptoes into new entrepreneurial waters. The founder may be the boss, but their associates sense a collaborative spirit that directly joins them to the founder as well as to each other. There can be a genuine camaraderie among those who have been with the firm since day one or shortly thereafter. Founding members of an entrepreneurial business are also often willing to undergo the strains and rigors attached to a startup in return for an ownership stake in the company that allows them to profit handsomely from its later growth and success.
Newer staff, however, may not share this mindset. They may simply be seeking a secure position with a growing business rather than a chance to get in on the ground floor of a risky startup. They will not necessarily have the tolerance for the demanding hours, chaos, and abrasive personalities that can characterize the early days of an enterprise. Can entrepreneurial founders shape a company’s culture so that it can accommodate talented employees who are looking for a corporate culture that supports some work-life balance?
Consider also the ethical practices of an entrepreneur and the ethical expectations of employees. Suppose that one of the distinguishing features woven into the fabric of the startup is the respect extended to customers or clients. An entrepreneur typically promises always to hold customers in the highest regard, never lie to them, and serve them well. Furthermore, suppose this entrepreneur successfully instills this same ethos among all employees from the outset. Respect for customers is intended to become a distinguishing feature of the business; even if it causes monetary loss to the company, this entrepreneur will neither cheat a client nor misrepresent the company’s services. Finally, presume that this ethos is embedded into the culture of the company while it is still in startup mode.
Now suppose the company becomes successful. This may signal the hardest time of all for the entrepreneur. Growth often accompanies success, and growth means, among other things, more employees. Not all these new hires will be as committed to the same degree of responsibility for customers. They will not necessarily set out to cheat clients, but they might lack the founder’s enthusiasm for the most honorable treatment of customers. How can an entrepreneur ensure that the initial commitment carries over to the second generation of leadership? He or she cannot simply order it to happen—human nature usually does not respond so easily. So entrepreneurs must do their best to ensure that their version of customer service, one that prioritizes respect for clients, is passed along to new employees. It may be ingrained in the longest-serving employees, but it must be nurtured to the point where it has the same significance for the newest hires.
As a leader, you need to plan and follow-up to ensure your organization follows the values and ethical principles you uphold. This planning process goes beyond taking a few simple actions such as hiring the right people, providing consequences, or setting expectations. It goes beyond communicating a few niceties and encouraging sound bites such as establishing trust and working with uncompromising integrity. It needs more than the application of a few popular concepts and slogans such as CSR, conscious capitalism, or servant leadership. It also needs more than the effective communication of a few success criteria and expectations.
There are effective techniques that can support the infusion of ethical principle into the daily work life of employees. Sometimes known as anchoring strategies, ethical values can become part of the business culture through the implementation of employee training, and reward/recognition programs. The Society for Human Resource Management (SHRM) website has a toolkit for entrepreneurs and managers that provides useful ideas on infusion and anchoring strategies.
While the use of popular management approaches can be successful, they can be inadequate to stop unethical behavior. Instead, you need a plan to nurture and develop a culture where ethical qualities and capabilities such as truthfulness, justice, responsibility, and compassion are developed and internalized as a moral compass. It also demands that these qualities and capabilities are infused into the fabric of organization, adhered to habitually, and are integrated into the organization’s daily operations.

### Proactive versus Reactive Approaches

Creation of an ethical workplace environment has both reactive and proactive components. The reactive side enables an entrepreneur to identify and address reckless behavior, irresponsible actions, and ethical deviations as they occur. However, there may be times that a reactive approach, which can be heavy-handed, may not be the best approach for addressing ethical deviations.
In contrast, a proactive approach to developing an ethical workplace strives to prevent reckless behavior, irresponsible actions, and ethical deviations by establishing and nurturing a culture of ethics, responsibility, and compliance. It also demands that you establish a workplace environment of ethics where every member of the organization is able to proactively develop, internalize, and apply a moral compass. This approach serves to operationalize popular—but often silent or nebulous—concepts such as truthfulness, fairness, trust, integrity, commitment, innovation, and excellence, leading to a sustained competitive advantage.

### Developing the Foundation and Framework of an Ethically Responsible Organization

An entrepreneur must build a foundation for developing an organization grounded in ethics and responsibility. Foundational building blocks enable an entrepreneur to systematically add the greatest value to society, and to do so responsibly. Additionally, for entrepreneurs modifying their businesses or taking over new ventures, building a foundation of ethical conduct should neither disrupt normal business operations nor add significant overhead, since the main concepts are infused into the fabric of the organization.
To develop an organization’s foundation for ethics and a framework for management, an entrepreneur needs to incorporate three essential ethical qualities—trust, fairness, and excellence—into the organization’s core values (see ). Additional ethical qualities, dependent on the enterprise’s specific goals, might include responsibility, commitment, compassion, and so on. The entrepreneur should infuse these qualities into all aspects of organizational governance and daily operations, and track these values to ensure they are being integrated into planning, and are met and enforced by all business units.Mehran Ferdowsian. “Total Business Excellence—A New Management Model for Operationalizing Excellence,” ,Thomas A. Hemphill and Waheeda Lillevik. “The Global Economic Ethics Manifesto: Implementing a Moral Values Foundation in the Multinational Enterprise.” ,Hans Küng. “The Global Economic Crisis Requires a Global Ethic: The Manifesto for a Global Ethics.” Symposium on the Global Economic Ethics, United Nations Headquarters, New York, NY. October 6, 2009. https://www.bbvaopenmind.com/en/articles/the-global-economic-crisis-requires-a-global-ethic/ The application and implementation of these three core qualities will begin to shape the framework and establish a foundation of ethics and responsibility.
 illustrates and approach to building a foundation for ethics-based behaviors, principles, and effective collaboration.
Second, the organization should consider what ethical principles it wants to prioritize. Examples of ethical principles might include:
1. Service and advancement of society
2. Collaborative excellence
3. Gender equity
4. Elimination of prejudices
Once the framework and foundation for an ethical and high-performing organization has been established, other qualities and principles can easily be integrated as needed to further strengthen this framework, differentiate the organization, and develop a sustained competitive advantage. It also enables leadership to align other aspects of organizational governance with ethics and responsibility. For example, if leadership wants to leverage the power of diversity to develop a sustained competitive advantage, they would adopt the principles of equality of sexes, the elimination of prejudices, and the principle of oneness of humanity. If leadership wants to develop and use teamwork and collaboration as a strategic competitive advantage, they would integrate the behaviors and principles for collaborative excellence and working cohesively as one.
The framework and foundation of ethics and responsibility will enable the entrepreneur to consistently manage the needed qualities and principles for success in all aspects of daily operations. These aspects include research and development, engineering, manufacturing, sales, marketing, planning, decision-making, problem solving, conflict management, and other aspects of organizational governance. To demonstrate what this means in practice, the leadership of each of functional area could serve as role models, raise awareness, and encourage individuals to internalize a line of ethical reasoning, asking questions such as, “Is my decision right or wrong (good or bad)?” “Am I dealing with factual information or is conjecture?” “What is the consequence of my action?” “Is my decision fair and equitable?” “Did I give the individual what they are due?” “Would I want to be treated this way?” “Will this action help me achieve the best results for the collective?” This mindset, line of reasoning, and congruence between individual and organizational ethics is often lacking, which leads to ethical deviations.Mehran Ferdowsian. “Total Business Excellence—A New Management Model for Operationalizing Excellence.” ,Shannon Bowen. “Organizational Factors Encouraging Ethical Decision-Making: An Exploration into the Case of an Exemplar.” ,Muel Kaptein. “Developing and Testing a Measure for the Ethical Culture of Organizations: The Corporate Ethical Virtues Model.” ,B. Elango, Karen Paul, and Shishir K. Paudel. “Organizational Ethics, Individual Ethics, and Ethical Intentions in International Decision-Making.” ,Ding-Yu Jiang, Yi-Chen Lin, and Lin-Chin Lin. “Business Moral Values of Supervisors and Subordinates and Their Effect on Employee Effectiveness.” ,Robert J. Sternberg. “Ethics from Thought to Action.”  Establishing the foundation outlined here enables each member of the organization to exercise sound moral judgment, develop ethical capabilities, and internalize a moral compass. It also allows employees to be aligned with the company’s grander purpose, vision, mission, and values that then translates into actions.

### Develop a Grander Purpose

Once the entrepreneur has designed and configured the organization to develop a sustained competitive advantage in a responsible manner, they need to develop a higher vision or a grander purpose for the organization. This grander purpose is not the same as a mission or vision (although they may overlap). It is not financially motivated, it is not product/service centric, and it is not shareholder driven. Instead, the grander purpose defines and highlights the reasoning for a firm’s long-term existence and success; it provides guidance and direction during decision-making, problem solving, and conflict resolution; it provides the motivation for individuals to achieve excellence and the sense of urgency for social change; and it enables individuals to be part of a larger cause. For example, the integration of the right grander purpose into the operations of an organization could have prevented the manufacturing of toys made with lead-based paint or the poisoning of the Flint, Michigan, water supply. The grander purpose provides a mechanism to help individuals calibrate their day-to-day activities against a more meaningful and stable target.Mehran Ferdowsian. “Total Business Excellence—A New Management Model for Operationalizing Excellence.”

### Develop a Culture of Collaborative Excellence

The establishment of a framework and foundation for ethical behavior opens up the organization for effective and meaningful teamwork and collaboration. Many existing approaches to collaboration, while demonstrating successes and benefits, also are sometimes inadequate in addressing complex group interactions dealing with mistrust, competition, politics, and ideological differences. A successful culture of collaboration should convince individuals to find the best ideas, leverage diversity, grow new solutions, gain wholehearted support, develop champions of change, nurture a safe environment, and encourage people to express all ideas.
An effective process for encouraging collaboration takes time to build; however, it’s worth it because it will provide the inspiration and motivation needed to accomplish tasks and exceed expectations. The organization should also have consequences in place for ineffective collaboration, which may be evidenced in gossip, backstabbing, self-centered behavior, and biases or prejudices. Such consequences could include probation plans and one-on-one meetings that work to determine the root cause and identify steps forward.
Creativity is also key for a team to think differently. There must be freedom in the workplace for creativity to blossom. When developing a culture of creativity, entrepreneurs should consider these issue and challenges:
1. How can we create a culture of creativity and innovation?
2. How can we encourage the members of the organization to collaborate and leverage each other’s creativity?
3. How can we reward and recognize people for their creativity?

### Human Resources Development

A human resources development plan enables a company to continually grow its intellectual resources, enables individuals to develop ethical capabilities, strengthens individual creativity and organizational innovation, provides a steady stream of capable human resources for its leadership pipelines, and enables the firm to leverage and harvest those human resources to advance society in a responsible manner. This is achieved by providing a new employee assessment process where every member of the organization is given the needed opportunities and is expected to collaborate with their superior(s) to own and manage their lifelong development plan (LDP). At a minimum, an LDP should:
1. Include short-term and long-term career goals and objectives
2. Help identify, continually develop, and leverage individual strengths
3. Enable individuals to identify and measurably close gaps in deliverables, behavior, and professional improvement
4. Clarify major deliverables and success indicators
In sum, an LDP becomes the primary instrument to assist individuals to achieve excellence by raising performance, closing gaps in assessment, and aligning the individual with the grander purpose, vision, mission, goals, needs, and objectives.

### Develop Ethical and Responsible Leadership/Management

Significant research shows that the culture of the organization is mostly shaped by its leadership values—by how leaders develop the bonds of trust, by how they motivate their people, by their responsible decisions and actions, and by how they empower, delegate, and monitor tasks. A recent Harvard Business Review article, by a group of professors and entrepreneurs, synthesized the research of experts including Edgar Schein, Shalom Schwartz, Geert Hofstede, and other leading scholars on this topic.Boris Groysberg, Jeremiah Lee, Jesse Price, and J. Yo-Jud Cheng. “The Leader’s Guide to Corporate Culture.” January/February 2018.  The article indicates that the attributes of a business’s leaders define that organization’s culture. A business’s culture is essentially defined as the social order within an organization that helps shape attitudes and behaviors—delineating what type of behavior is encouraged and/or discouraged.
While it is possible for a company to hire individuals who possess these attributes, the organization should have a plan in place to systematically train and develop responsible leaders. At minimum, this should include the development and management of a leadership pipeline, the nurturing of ethical and intellectual capabilities, and rewards and consequences that enable a leader to develop and internalize a moral compass.

### Develop Internal/External Organizational Alignment and Cohesion

Key to ethical organizational success is the alignment and cohesion between individuals, groups, and the enterprise as a whole. This alignment starts with the development of a grander purpose that enables the entrepreneur and the organization to serve, add value, and advance the society in which it operates. It ensures individuals and units within the company understand the grander purpose, mission, vision, and the goals and objectives of the company, and it provides each member or the organization the opportunity to serve and fit into that grander purpose, mission, and vision. It is further strengthened by asking individuals to achieve excellence in their own right instead of competing with each other. It sets clear expectations about how people are to treat and deal with each other to deliver results. It deals with the alignment of corporate values with the espoused values, and the alignment between what leadership says and does. When combined, these and other alignments can enable individuals and groups to stay on track and reach the company’s goals efficiently.

### Develop a Culture of Creativity and Innovation

The next building block is developing a culture of creativity and innovation. This means going beyond a spark of creativity from select individuals or business units, and instead nurturing a culture where every member of the organization is continually creative and the organization is innovative. This also means providing the means and opportunities for individuals to be engaged, creative, and contributing members on a full-time basis. What makes this possible results from the prior building blocks. Innovation requires good leadership and management; a meaningful and effective process for teamwork and collaboration; a culture of learning and improvement; a consistent and measurable process to encourage, recognize, compensate, and track innovation; and company-wide focus on the training and development of the sense of creativity.Mehran Ferdowsian. “Total Business Excellence—A New Management Model for Operationalizing Excellence.”

### Develop a Culture of Delivering Responsible Results

Measurable results compose the final building block of a framework for ethics and responsibility. This involves developing systems and indicators that will demonstrate how your business is achieving ethical standards and progressively improving as it adds value to society. While the details of which indicators to select is left up to the discretion of the entrepreneur, this building block defines success in terms of ten dimensions of business excellence, shown in .
 serves as an easy-to-understand guide for entrepreneurs seeking to create a culture of excellence. Focusing on these ten dimensions can help a business achieve excellence, from which a company may derive multiple benefits. Examples of reasons why a company strives to achieve excellence include strengthening alignment between company values and those of stakeholders, balancing goals versus measures of success, clarifying strategic focus versus operational concerns, selecting areas within the company wherein improvement is needed, and shifting from a preoccupation with daily activities and processes to focus on outcomes. Companies seek excellence with regard to internal and external outcomes, both of which are important. Thus, whether examining internal aspects such as finance and operations, or external aspects such as product quality and customer service, each of these ten areas is an ingredient of company excellence.

### Creating an Ethical and Responsible Workplace Environment

A safe, healthy, and productive workplace is an environment in which an individual has a high level of trust and confidence that if they give their best, they will see a number of results and be afforded a number of things in exchange for their hard work. This concept resembles an employer-employee contract. This contract includes the following employee expectations:
1. They are treated with the respect, dignity, and courtesy they deserve as a human being.
2. They are given the needed support, equal opportunities, and resources to excel.
3. They are given what they deserve and what they are due in a fair and equitable way.
4. They are provided a safe, secure, and prejudice-free work environment.
5. They are not pushed, pressured, or expected to behave irresponsibly.
This type of workplace environment enables individuals to continually grow and develop to their full potential and then leverage that potential to add value to their own lives, careers, and society. This type of environment is one in which individuals are not afraid to speak their mind; they feel safe to discuss problems and concerns, and feel free to question and reject that which is wrong.

### Prejudice

Prejudice is often thought of as a negative attitude and/or feeling toward an individual based solely on one’s membership in a particular group. Prejudice is common against people who are members of unfamiliar cultural groups. In employment, it can be the root cause of unfair discrimination.Paul C. Holinger. “Understanding Bias, Prejudice, and Violence.”  One factor essential to the development of a safe and healthy work environment is that it strives to be a place free of prejudice. This is an environment where everyone is treated with the respect and dignity they deserve and are afforded equal opportunities for growth, development, and advancement both within and outside of the organization. For example, it is important to look at the merit or value of the work done by an individual and the manner by which those results have been delivered. It is unethical to treat people differently based on their race, gender, age, nationality, and other differentiating factors. To develop trust and respect, everyone needs to be afforded the same opportunities.

### Competition and Collaboration

Effectively managing a workforce includes a systematic approach to appraisal of employee performance. A manager/entrepreneur must decide how to do this within their company. A forced ranking system is one in which scoring employee performance is competitive and can pit employees against each other instead of fostering a collaborative work environment. Some employers have switched to a system that does not require forced rankings and attempts to downplay the competitive nature of assessment, focusing instead on individual continuous improvement. There is a legitimate difference of opinion on this issue. According to a Wall Street Journal article by the accounting and consulting firm Deloitte,Deloitte CIO Journal. “It’s Official: Forced Ranking Is Dead.”  executives are split on whether it is an effective practice. Jack Welch, former CEO at General Electric, was a proponent of it, whereas others see it as counterproductive. Companies that have discontinued the process include Microsoft and GE.
In an environment of collaborative excellence, individuals are encouraged to express their ideas and viewpoints in an unfettered and respectful way, where the merit of each idea is weighed against the merit of other ideas. In this environment, individuals are not reprimanded for being creative, taking calculated and reasonable risks, or challenging management or leadership.
One example of a problem that can arise in an overly competitive environment or culture created by an organization would be the faulty ignition switch scandal at GM. According to Valdes-Depena, and Yellin,Peter Valdes-Dapena and Tal Yellin. “GM: Steps to a Recall Nightmare.”  GM knew about this problem in 2001. However, it took the company over twelve years, more than 100 deaths, and 30 million vehicles being recalled to finally admit that there was a problem. In 2014, GM admitted that a faculty ignition switch may result in the engine of a vehicle being shut down while in drive, resulting in accidents, severe injuries, or death.Arthur W. Page Society. “General Motors’ Corporate Culture Crisis: An Assessment of the Ignition Switch Recall.” 2015 Case Study Completion. January 16, 2016. https://page.org/attachments/1edd5184509636aabbdc07ef0c3546e0facf5c0c/store/00f8d9b37cec4d725c881b7235467635aeab21b4d2333398c819839d426b/General-Motors-Case-Study-2015.pdf If GM had developed an effective environment of collaboration, individuals from leadership, management, sales, marketing, engineering, manufacturing, and human resources, as well as major stakeholders, might have collaborated and prevented the ignition switch problem.

### Diversity

Entrepreneurs need to appreciate, respect, and learn to effectively leverage the unique and diverse qualities that each individual brings to the table. These qualities can be used to innovate, make better decisions, solve complex problems/conflicts, move an organization cohesively in a single direction, or rapidly change direction when needed. If used correctly, these differences enable an entrepreneur to develop a sustained competitive advantage by looking at the different thoughts, ideas, and viewpoints to make better and more informed decisions.
Diversity, in terms of a legal concept, deals with innate characteristics such as an individual’s sex, color, race, national origin, religion, and age. It might also include educational background, cultural background, socioeconomic background, and potentially even political affiliations. However, diversity in terms of an ethical concept rather than purely a legal one also deals with a number of not-so-obvious characteristics such as the diversity of behavior, thought-process, comprehension, attitudes, temperaments, and learning styles. Combined, these differences can be beneficial to a business organization and result in high-level performance by the workforce as a whole.
Diversity may be an actual legal requirement depending upon what type of business an entrepreneur enters. For example, if you plan on doing any government contracting work, whether local, state, or federal, the chances are that your business will have to meet a diversity standard. Many private companies also have diversity clauses in the supply chain contracts related to supplier diversity initiatives.

### Gender Equality

As an entrepreneur, you need to recognize the significance, value, and impact of the principle of equality of men and women on developing a sustained competitive advantage. Then you need to incorporate this principle into the fabric of your organization. Aside from being the right thing to do, one reason why this principle is so important is that close to one-half of the planet is female (and has traditionally been marginalized in the business world).R. A. Fisher. ,W. D. Hamilton, “Extraordinary Sex Ratios,”  If you overlook this fact, you will also be potentially overlooking one-half of the talent that can help you excel and develop a sustained competitive advantage. In turn, this will result in a loss of trust and confidence. A second and more important reason would be that any deviation from this principle goes against the whole concept of ethics and responsibility. Moreover, this principle will help your organization attract the best and brightest employees.
The principle of gender equality does not deny differences between men and women. This principle primarily asks that we give each member of society fair and equal opportunities for growth, development, and advancement. It also recognizes that women have been historically marginalized or excluded from the business world. This claim holds true today and is applicable to even to the most advanced countries in the world (e.g., the discrepancy of pay between women and men in Western societies). Therefore, women need to be afforded the same opportunities for education, rewards, recognitions, and promotions as men.

### Trust and Ethical Accountability

Finally, the development of safe environments also deals with an environment where individuals are able to develop unbreakable bonds of trust, where they don’t feel they have to constantly watch their backs, where individuals are free to point out misconduct without being reprimanded, and where individuals feel they will be given what they are due or deserve. This dimension of the development of a safe work environment deals with making sure individuals feel they are being treated in a fair and equitable manner and that their need for the development of an ethical and moral work environment is being met.
Ideally, it is best that entrepreneurs exemplify good ethical behavior, expect their people to do the same, and help the members of the organization develop a moral compass. However, it is equally as important that business owners take action and put in place the right checks and balances that verify that the organization’s people are complying with its policies and principles of ethical behavior.
Organizations should set up systems that monitor compliance. In addition, you should develop a leadership pipeline that ensures that individuals would be placed in the pipelines only if they exhibit good ethical behavior, working with each business unit manager to ensure this is happening. Individual assessments should clearly assess ethical behavior and provide rewards, recognitions, and promotions for good ethical behavior, and consequences and training/solutions for actions that do not meet company standards. You should provide meaningful, substantial, and timely consequences for lack of acceptable behavior, such as removing an executive from a leadership pipeline when it has been established that they will not govern responsibly.
Importantly, members of the organization should not be intimidated to blindly follow or accept the existing monitoring system without question. An entrepreneur needs to cultivate an environment where they expect, support, and encourage every member of their organization to be inquisitive, be creative, question authority, and search for the underlying truth in all matters. It must be noted that questioning authority does not mean anything goes; it simply means that employees are expected to think on their own. Accountability should be encouraged; it is both an ethical and legal issue.
An example of a system of accountability that is appropriate for entrepreneurs is one proposed by an article in the Harvard Business Review.Peter Bregman. “The Right Way to Hold People Accountable.”  A sound approach to accountability requires a multistep process that includes establishing expectations, ensuring employees have the capability to do it, measurement of results, feedback, and consequences for unethical behavior. In addition to an ethical approach, remember that there are federal laws mandating accountability. The most well-known of these is the Sarbanes-Oxley Act,Pub.L. 107–204. https://legcounsel.house.gov/Comps/Sarbanes-oxley%20Act%20Of%202002.pdf discussed elsewhere in this chapter, and other chapters in this text. Also called the Corporate and Auditing Accountability, Responsibility, and Transparency Act, the Sarbanes-Oxley Act requires publicly traded companies to have an internal system of control that emphasizes transparency and accountability.

### If You Make a Mistake

If you or your organization makes a mistake or misstep, you must decide how to address it. In general, you are faced with the choice of paying now or paying a hundredfold later. A closer look at the largest, most expensive, and most devastating corporate failures of our times shows that these failures have resulted in the loss of life, property, and/or monumental environmental disasters. For the most part, these corporate failures have been caused by one or more ethical deviations on behalf of leadership. To combat these problems, entrepreneurs need to start by first being responsible, accepting their failures, and admitting when they have made mistakes. This admittance needs to be genuine, transparent, prompt, truthful, and authentic if they wish stakeholders to accept and believe their remorse. Once that first step is taken, they need to take immediate steps to proactively address the problems they have caused. Many leaders or entrepreneurs have learned the hard way that they need to be open and transparent with their stakeholders at the outset. Failure to rapidly admit mistakes can and has resulted in paying a very steep price when exposed. The actions that an entrepreneur needs to take include:
1. Admitting their mistakes, failures, and shortcomings to all stakeholders
2. Effectively communicating the nature of the problem to major stakeholders
3. Informing the stakeholders of the impact, side effect, and causes of the problem
4. Taking necessary and immediate steps to address the issue and stop the bleeding
5. Conducting a thorough and unbiased root-cause analysis to identify the underlying cause
6. Addressing any people and systemic gaps that caused the problem in the first place
7. Putting in place measures that will prevent the repeat of the same mistakes
To summarize, the best approach is that you admit your mistakes and shortcomings, pay the price, fix and uproot the problem, and systematically prevent the repeat of the same mistakes. A few examples of corporate mistakes and shortcomings that were quickly addressed before turning into severe problems would be the Tylenol poisoning and the customer accounts stolen at Target. A few examples of a problem that were not handled correctly and resulted in multi-billion-dollar problems are GM’s faulty ignition switch problem, Volkswagen’s emission control fraud, and Wells Fargo’s account fraud.

### Summary

This section of the chapter covers the area of employment. We explored how entrepreneurs can make their company one for which people want to work: where being ethical is a highly regarded trait. This type of approach to employment includes both ethical and legal considerations, such as no discrimination, fair pay, encouraging/rewarding ethical behavior, and creating an atmosphere of collegial teamwork. This approach to creating a socially responsible workplace requires a long-term commitment to being an ethical employer, which is not always easy. For example, it may mean, even though you are the boss or owner, admitting you made a mistake, accepting responsibility for it, and correcting it. You do not want to be the type of boss who can never say I got that wrong, and I’ll do better next time.

### Review Questions

### Discussion Questions

### Case Questions

### Suggested Resources

Society for Human Resource Management: https://www.shrm.org


# Creativity, Innovation, and Invention

## Introduction

We enter the world as curious beings. However, as we grow up, we are told to color inside the lines and that real animals can’t talk—direction that can squelch creativity. Many successful entrepreneurs work to unlearn some of those messages in order to tap into creative thinking. What do you do when you are given a task that requires you to be creative? Do you get out your art supplies and start drawing? Do you pull out your phone or get on your computer and head straight for a search engine? Steve Jobs, the Apple founder and well-known innovator, had a preference when it came to creative contemplation, and it had nothing to do with art supplies or smartphones. Jobs did some of his best creative thinking when he went on a walk, or a walking chat.
Why did Jobs prefer walking as a way to develop new ideas? A Stanford University study found that walking improves creative thinking.Marily Oppezzo and Daniel Schwartz. “Give Your Ideas Some Legs: The Positive Effect of Walking on Creative Thinking.”  When you launch an entrepreneurial journey and set out to innovate and create, or when you hit a sticking point that requires a creative solution, it may be time to take a walk. Better yet, if you can find a friend, walk and talk. It might energize your creativity and lead to innovation and, possibly, to invention.


# Creativity, Innovation, and Invention

## Tools for Creativity and Innovation

### Learning Objectives

By the end of this section, you will be able to:
1. Describe popular, well-supported, creative problem-solving methods
2. Understand which innovation or problem-solving methods apply best in different settings
3. Know where to look for emerging innovation practices, research, and tools
Creativity, innovation, and invention are key concepts for your entrepreneurial journey. Fostering creativity and innovation will add essential tools to your entrepreneurial toolkit. In this chapter, first you’ll learn about a few practical tools that can assist you in your efforts to create and innovate. Then, we’ll define and distinguish creativity, innovation, and invention, and note the differences between pioneering and incremental innovation. Finally, we’ll cover models and processes for developing creativity, innovation, and inventiveness. The science, study, and practice of creativity and design thinking are constantly evolving. Staying on top of well-documented, successful approaches can give you a competitive advantage and may remind you that entrepreneurship can be fun, exciting, and refreshing, as long as you keep your creative spirit alive and in constant motion.

### Creative Problem-Solving Methods

Creative thinking can take various forms (). This section focuses on a few creative thinking exercises that have proven useful for entrepreneurs. After discussing ideation practices that you can try, we conclude with a discussion of an in-depth innovation exercise that can help you develop a habit of turning creative ideas into innovative products and services. In this section, outcomes are vital.
Three ideation practices are discussed here. Several others are offered in links at the end of this section. The first ideation practice comes from Stanford’s Design School.Stanford d.school. https://dschool.stanford.edu/ The objective is to generate as many ideas as possible and start to develop some of those ideas. This practice is the quintessential design thinking practice, or human-centric design thinking exercise, and it consists of five parts: accessing and expressing empathy, defining the problem, ideating solutions (brainstorming), prototyping, and testing (). Empathy is the human ability to feel what other humans are feeling, which in the context of creativity, innovation, and invention is essential to beginning a process of human-centric design. Practicing empathy enables us to relate to people and see the problem through the eyes and feelings of those who experience it. By expressing empathy, you can begin to understand many facets of a problem and start to think about all of the forces you will need to bring to bear on it. From empathy comes the ability to proceed to the second step, defining the problem. Defining the problem must be based on honest, rational, and emotional observation for human-centric design to work. Third in the process is brainstorming solutions. The other two ideation exercises or practices in this section delve more deeply into brainstorming (also discussed in Problem Solving and Need Recognition Techniques), what it means, and how you can brainstorm creatively beyond the basic whiteboard scribbling in almost every organization. Designing for other people means building a prototype—the fourth step—and to test it. Once you apply this process to developing a product or service, you need to return to the empathetic mindset to examine whether you have reached a viable solution and, thus, an opportunity.
To delve more deeply into ideation as a practice, we introduce here the Six Thinking Hats method ().“10 Creative Techniques for You and Your Team.”  There are different versions of this ideation game, but all of them are quite useful for encouraging thought by limiting the mindset of those involved in the game. Being encouraged to embody one mode of thinking frees you from considering other aspects of a problem that can limit creativity when you are looking for a solution. The six hats are:
1. White Hat: acts as information gatherer by conducting research and bringing quantitative analysis to the discussion; sticks to the facts
2. Red Hat: brings raw emotion to the mix and offers sensibilities without having to justify them
3. Black Hat: employs logic and caution; warns participants about institutional limitations; also known as the “devil’s advocate”
4. Yellow Hat: brings the “logical positive” of optimism to the group; encourages solving small and large problems
5. Green Hat: thinks creatively; introduces change and provokes other members when needed; new ideas are the purview of the Green Hat
6. Blue Hat: maintains the broader structure of the discussion and may set the terms by which progress will be judged; makes sure the other hats play by the rules, or stay in their respective lanes, so to speak
You can apply the Six Thinking Hats exercise to force structure on a discussion where, without it, several members of the group might try to wear several hats each. This game is not always easy to implement. If members cannot follow the rules, the process breaks down. When it works best, the Blue Hat maintains control and keeps the practice moving quickly. What you and your group should experience is a peculiar freedom arising from the imposition of limitations. By being responsible for only one mode of thinking, each participant can fully advocate for that point of view and can think deeply about that particular aspect of the solution. Thus, the group can be deeply creative, deeply logical, deeply optimistic, and deeply critical. This practice is meant to move entire groups past surface-level solutions. If you practice this exercise well, the challenges of implementing it are well worth the effort. It gives you the opportunity to vet ideas thoroughly while keeping many personality clashes at bay. If the participants stay in character, they can be accused only of acting in the best interests of their hat.
Your instructor may have your group members try different hats in different ideation exercises so you all can more fully develop each mindset.“Six Thinking Hats.”  This exercise forces you out of your most comfortable modes of thinking. You and your classmates can recognize in each other skills that you may not have realized you possess.
The third ideation practice is quite simple. If stagnant thinking has begun to dominate an ongoing discussion, it can be helpful to inject an ideation framework. This is the “statement starters” method.Michelle Ferrier. “Ideation.”  Ask, “How might we ________?” or “What if we ________?” in order to open up new possibilities when you seem to have reached the limits of creativity. This method is more than simply asking “Why not?” because it seeks to uncover how a problem might be solved. For entrepreneurs, the simplest form of framing a problem in the form of a question can be eye opening. It assumes open possibilities, invites participation, and demands focus. Statement starters assume that, at least, there might be a solution to every problem. Ideation is about starting down new paths. This mode of thought applies to social problems as well as consumer pain points (discussed later). Creating a list of statement starters can help entrepreneurs examine different possibilities by simply adopting different points of view when asking questions. For example, the question, “How might we keep rivers clean?” is similar to the question, “How might we prevent animal waste runoff from entering our city’s waterways?” but the implications of each question are different for different stakeholders. Recall that stakeholders are individuals who have a vital interest in the business or organization. Statement starters almost always lead to a discussion of stakeholders and how they might be involved in finding solutions, offering support, and perhaps one day purchasing or contributing to dynamic, disruptive inventions or changes in social practice.

### Matching Innovation Methods to Circumstances

Searching for innovation methods will often reveal many of the same, or similar, creativity exercises as we’ve just discussed. To go beyond ideation exercises, we will conclude with a foundation of thinking that can help when you are tackling all sorts of innovation problems. Simply put, open innovation involves searching for and finding solutions outside of the organizational structure. Open innovation is somewhat difficult to pin down. The educator and author Henry Chesbrough was one of the first to define it: “Open innovation is ‘the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.’”Henry Chesbrough. “Everything You Need to Know about Open Innovation.”  In other words, firms built on a structure of open innovation look beyond their own research and development capabilities to solve problems. This outlook can guide all sorts of product and service development processes. Open innovation models also allow innovations to be shared widely so that they can seed other innovations outside the original firm or institution.
Open innovation takes an optimistic view of sharing information and ideas across a society connected by instantaneous communication networks. It is also a shift from the classic research and development model. In a sense, you allow others to solve problems in your business, startup, or social entrepreneurship project. In this reciprocal world, you are open to the reality that information is difficult to keep under wraps. You may seek patents for your intellectual property, particularly in fixed product or service practice form, but you should expect, or even encourage, the widespread circulation of key elements of your solutions. This makes sense: If, as an entrepreneur or an innovative corporation, you are going to look beyond your own ideation, research, and development capabilities for solutions, you must expect that others will look to your solutions for ideas to borrow.
The open innovation model is far easier to describe in idealistic terms than it is to put into practice without ethical consequences. Unfortunately, industrial and corporate espionage, theft of intellectual property, and lawsuits are commonplace. Nevertheless, inspiration in innovation can come from myriad sources when constant streams of information are available to anyone with a high-speed data connection. Open innovation is a simple but essential framework for future innovation and for managing, even possibly guiding, disruption in an industry as discussed previously (i.e., disruptive innovation).  provides some examples of companies using disruptive technology.
Another element of the open innovation model is the connection between academic research and practical solutions. Reciprocal influence between academia, which often moves slowly, and leading corporate and entrepreneurial forces, which often focus too narrowly on short-term gains, could offer the balance this rapidly changing world needs. If you can manage to plug into the exchange of ideas between longstanding institutions and disruptive technological innovators, you may be positioned to effect positive change on society and to develop products that are received as useful and elegant, wildly new and creative, and essential to the human experience at the same time.

### Staying on Top of Emerging Practices

Consider searching for ideation and innovation practice links using a web browser and comparing those results to what you can find in the academic literature via Google Scholar or other academic databases. To adopt a truly open innovation mindset, it is essential to leave yourself open to all sorts of influences, even if it demands time and much cognitive energy. The financial, social, and personal rewards may be great.

### Summary

There are many practical approaches to being creative and developing innovations. Many programs and models encourage creative thinking. Some of the best encourage entrepreneurs to think like the stakeholders they hope their products and services will help. Human-centered design begins with empathizing with the people experiencing a problem or pain point. It continues through steps meant to clearly define problems and examine solutions through careful testing. Returning to empathy is essential in the human-centric design protocol. The Six Thinking Hats method of ideation can open up deep avenues of creative thought directed at solving problems by limiting the roles individuals in a group play. This reinforces the idea that creative thinking is a practice, that it can be guided, and that sometimes a combination of open thinking and rule following is ideal for collaborative creativity. The statement starter method of creative thinking frames every problem as though there must be a solution. This type of open thinking is an effective way to begin a creative journey that can lead to innovation and invention of products or services for social benefit.

### Review Questions

### Discussion Question

### Case Questions

### Suggested Resources

The World’s 25 Best Design Schools: https://www.businessinsider.com/the-worlds-25-best-design-schools-2012-11
Open Innovation Community: http://openinnovation.net/
The Seven All-Time Greatest Ideation Techniques: http://www.innovationmanagement.se/2013/05/30/the-7-all-time-greatest-ideation-techniques/
Ideation Method: Mash-Up: https://www.ideou.com/pages/ideation-method-mash-up
LUMA Institute’s LUMA System of Innovation: https://www.youtube.com/watch?v=qDyElJ0xe2o
Ideation Method: Top Five: http://www.designkit.org/methods/15


# Creativity, Innovation, and Invention

## Creativity, Innovation, and Invention: How They Differ

### Learning Objectives

By the end of this section, you will be able to:
1. Distinguish between creativity, innovation, and invention
2. Explain the difference between pioneering and incremental innovation, and which processes are best suited to each
One of the key requirements for entrepreneurial success is your ability to develop and offer something unique to the marketplace. Over time, entrepreneurship has become associated with creativity, the ability to develop something original, particularly an idea or a representation of an idea. Innovation requires creativity, but innovation is more specifically the application of creativity. Innovation is the manifestation of creativity into a usable product or service. In the entrepreneurial context, innovation is any new idea, process, or product, or a change to an existing product or process that adds value to that existing product or service.
How is an invention different from an innovation? All inventions contain innovations, but not every innovation rises to the level of a unique invention. For our purposes, an invention is a truly novel product, service, or process. It will be based on previous ideas and products, but it is such a leap that it is not considered an addition to or a variant of an existing product but something unique.  highlights the differences between these three concepts.
One way we can consider these three concepts is to relate them to design thinking. Design thinking is a method to focus the design and development decisions of a product on the needs of the customer, typically involving an empathy-driven process to define complex problems and create solutions that address those problems. Complexity is key to design thinking. Straightforward problems that can be solved with enough money and force do not require much design thinking. Creative design thinking and planning are about finding new solutions for problems with several tricky variables in play. Designing products for human beings, who are complex and sometimes unpredictable, requires design thinking.
Airbnb has become a widely used service all over the world. That has not always been the case, however. In 2009, the company was near failure. The founders were struggling to find a reason for the lack of interest in their properties until they realized that their listings needed professional, high-quality photographs rather than simple cell-phone photos. Using a design thinking approach, the founders traveled to the properties with a rented camera to take some new photographs. As a result of this experiment, weekly revenue doubled. This approach could not be sustainable in the long term, but it generated the outcome the founders needed to better understand the problem. This creative approach to solving a complex problem proved to be a major turning point for the company.“How Design Thinking Transformed Airbnb from Failing Startup to Billion Dollar Business.”
People who are adept at design thinking are creative, innovative, and inventive as they strive to tackle different types of problems. Consider Divya Nag, a millennial biotech and medical device innovation leader, who launched a business after she discovered a creative way to prolong the life of human cells in Petri dishes. Nag’s stem-cell research background and her entrepreneurial experience with her medical investment firm made her a popular choice when Apple hired her to run two programs dedicated to developing health-related apps, a position she reached before turning twenty-four years old.“Divya Nag, 26.”
Creativity, innovation, inventiveness, and entrepreneurship can be tightly linked. It is possible for one person to model all these traits to some degree. Additionally, you can develop your creativity skills, sense of innovation, and inventiveness in a variety of ways. In this section, we’ll discuss each of the key terms and how they relate to the entrepreneurial spirit.

### Creativity

Entrepreneurial creativity and artistic creativity are not so different. You can find inspiration in your favorite books, songs, and paintings, and you also can take inspiration from existing products and services. You can find creative inspiration in nature, in conversations with other creative minds, and through formal ideation exercises, for example, brainstorming. Ideation is the purposeful process of opening up your mind to new trains of thought that branch out in all directions from a stated purpose or problem. Brainstorming, the generation of ideas in an environment free of judgment or dissension with the goal of creating solutions, is just one of dozens of methods for coming up with new ideas.Rikke Dam and Teo Siang. “Introduction to the Essential Ideation Techniques Which Are the Heart of Design Thinking.”
You can benefit from setting aside time for ideation. Reserving time to let your mind roam freely as you think about an issue or problem from multiple directions is a necessary component of the process. Ideation takes time and a deliberate effort to move beyond your habitual thought patterns. If you consciously set aside time for creativity, you will broaden your mental horizons and allow yourself to change and grow.Dawn Kelly and Terry L. Amburgey. “Organizational Inertia and Momentum: A Dynamic Model of Strategic Change.”
Entrepreneurs work with two types of thinking. Linear thinking—sometimes called vertical thinking—involves a logical, step-by-step process. In contrast, creative thinking is more often lateral thinking, free and open thinking in which established patterns of logical thought are purposefully ignored or even challenged. You can ignore logic; anything becomes possible. Linear thinking is crucial in turning your idea into a business. Lateral thinking will allow you to use your creativity to solve problems that arise.  summarizes linear and lateral thinking.
It is certainly possible for you to be an entrepreneur and focus on linear thinking. Many viable business ventures flow logically and directly from existing products and services. However, for various reasons, creativity and lateral thinking are emphasized in many contemporary contexts in the study of entrepreneurship. Some reasons for this are increased global competition, the speed of technological change, and the complexity of trade and communication systems.Ian Fillis and Ruth Rentschler. “The Role of Creativity in Entrepreneurship.”  These factors help explain not just why creativity is emphasized in entrepreneurial circles but also why creativity should be emphasized. Product developers of the twenty-first century are expected to do more than simply push products and innovations a step further down a planned path. Newer generations of entrepreneurs are expected to be path breakers in new products, services, and processes.
Examples of creativity are all around us. They come in the forms of fine art and writing, or in graffiti and viral videos, or in new products, services, ideas, and processes. In practice, creativity is incredibly broad. It is all around us whenever or wherever people strive to solve a problem, large or small, practical or impractical.

### Innovation

We previously defined innovation as a change that adds value to an existing product or service. According to the management thinker and author Peter Drucker, the key point about innovation is that it is a response to both changes within markets and changes from outside markets. For Drucker, classical entrepreneurship psychology highlights the purposeful nature of innovation.P. F. Drucker.  Business firms and other organizations can plan to innovate by applying either lateral or linear thinking methods, or both. In other words, not all innovation is purely creative. If a firm wishes to innovate a current product, what will likely matter more to that firm is the success of the innovation rather than the level of creativity involved. Drucker summarized the sources of innovation into seven categories, as outlined in . Firms and individuals can innovate by seeking out and developing changes within markets or by focusing on and cultivating creativity. Firms and individuals should be on the lookout for opportunities to innovate.P. F. Drucker.
One innovation that demonstrates several of Drucker’s sources is the use of cashier kiosks in fast-food restaurants. McDonald’s was one of the first to launch these self-serve kiosks. Historically, the company has focused on operational efficiencies (doing more/better with less). In response to changes in the market, changes in demographics, and process need, McDonald’s incorporated self-serve cashier stations into their stores. These kiosks address the need of younger generations to interact more with technology and gives customers faster service in most cases.Blake Morgan. “5 Fresh Examples of Customer Service Innovation.”
Another leading expert on innovation, Tony Ulwick, focuses on understanding how the customer will judge or evaluate the quality and value of the product. The product development process should be based on the metrics that customers use to judge products, so that innovation can address those metrics and develop the best product for meeting customers’ needs when it hits the market. This process is very similar to Drucker’s contention that innovation comes as a response to changes within and outside of the market. Ulwick insists that focusing on the customer should begin early in the development process.Tony Ulwick. “Reinventing Innovation for 25 Years.”
Disruptive innovation is a process that significantly affects the market by making a product or service more affordable and/or accessible, so that it will be available to a much larger audience. Clay Christensen of Harvard University coined this term in the 1990s to emphasize the process nature of innovation. For Christensen, the innovative component is not the actual product or service, but the process that makes that product more available to a larger population of users. He has since published a good deal on the topic of disruptive innovation, focusing on small players in a market. Christensen theorizes that a disruptive innovation from a smaller company can threaten an existing larger business by offering the market new and improved solutions. The smaller company causes the disruption when it captures some of the market share from the larger organization.Chris Larson. “Disruptive Innovation Theory: What It Is & 4 Key Concepts.” ,Rosamond Hutt. “What Is Disruptive Innovation?”  One example of a disruptive innovation is Uber and its impact on the taxicab industry. Uber’s innovative service, which targets customers who might otherwise take a cab, has shaped the industry as whole by offering an alternative that some deem superior to the typical cab ride.
One key to innovation within a given market space is to look for pain points, particularly in existing products that fail to work as well as users expect them to. A pain point is a problem that people have with a product or service that might be addressed by creating a modified version that solves the problem more efficiently.Lloyd Waldo. “What’s a Pain Point? A Guide for Startups.”  For example, you might be interested in whether a local retail store carries a specific item without actually going there to check. Most retailers now have a feature on their websites that allows you to determine whether the product (and often how many units) is available at a specific store. This eliminates the need to go to the location only to find that they are out of your favorite product. Once a pain point is identified in a firm’s own product or in a competitor’s product, the firm can bring creativity to bear in finding and testing solutions that sidestep or eliminate the pain, making the innovation marketable. This is one example of an incremental innovation, an innovation that modifies an existing product or service.Abdul Ali, Manohar U. Kalwani, and Dan Kovenock. “Selecting Product Development Projects: Pioneering versus Incremental Innovation Strategies.”
In contrast, a pioneering innovation is one based on a new technology, a new advancement in the field, and/or an advancement in a related field that leads to the development of a new product.Abdul Ali. “Pioneering versus Incremental Innovation: Review and Research Propositions.”  Firms offering similar products and services can undertake pioneering innovations, but pioneering the new product requires opening up new market space and taking major risks.
Is a pioneering innovation an invention? A firm makes a pioneering innovation when it creates a product or service arising from what it has done before. Pokémon GO is a great example of pioneering innovation. Nintendo was struggling to keep pace with other gaming-related companies. The company, in keeping with its core business of video games, came up with a new direction for the gaming industry. Pokémon GO is known worldwide and is one of the most successful mobile games launched.JV Chamary. “Why ‘Pokémon GO’ Is the World’s Most Important Game.”  It takes creativity to explore a new direction, but not every pioneering innovation creates a distinctly new product or capability for consumers and clients.
Entrepreneurs in the process of developing an innovation usually examine the current products and services their firm offers, investigate new technologies and techniques being introduced in the marketplace or in related marketplaces, watch research and development in universities and in other companies, and pursue new developments that are likely to fit one of two conditions: an innovation that likely fits an existing market better than other products or services being offered; or an innovation that fits a market that so far has been underserved.
An example of an incremental innovation is the trash receptacle you find at fast-food restaurants. For many years, trash cans in fast-food locations were placed in boxes behind swinging doors. The trash cans did one job well: They hid the garbage from sight. But they created other problems: Often, the swinging doors would get ketchup and other waste on them, surely a pain point. Newer trash receptacles in fast-food restaurants have open fronts or open tops that enable people to dispose of their trash more neatly. The downside for restaurants is that users can see and possibly smell the food waste, but if the restaurants change the trash bags frequently, as is a good practice anyway, this innovation works relatively well. You might not think twice about this everyday example of an innovation when you eat at a fast-food restaurant, but even small improvements can matter a lot, particularly if the market they serve is vast.

### Invention

An invention is a leap in capability beyond innovation. Some inventions combine several innovations into something new. Invention certainly requires creativity, but it goes beyond coming up with new ideas, combinations of thought, or variations on a theme. Inventors build. Developing something users and customers view as an invention could be important to some entrepreneurs, because when a new product or service is viewed as unique, it can create new markets. True inventiveness is often recognized in the marketplace, and it can help build a valuable reputation and help establish market position if the company can build a future-oriented corporate narrative around the invention.Morten Thanning Vendelø. “Narrating Corporate Reputation: Becoming Legitimate through Storytelling.”
Besides establishing a new market position, a true invention can have a social and cultural impact. At the social level, a new invention can influence the ways institutions work. For example, the invention of desktop computing put accounting and word processing into the hands of nearly every office worker. The ripple effects spread to the school systems that educate and train the corporate workforce. Not long after the spread of desktop computing, workers were expected to draft reports, run financial projections, and make appealing presentations. Specializations or aspects of specialized jobs—such as typist, bookkeeper, corporate copywriter—became necessary for almost everyone headed for corporate work. Colleges and eventually high schools saw software training as essential for students of almost all skill levels. These additional capabilities added profitability and efficiencies, but they also have increased job requirements for the average professional.
Some of the most successful inventions contain a mix of familiarity and innovation that is difficult to achieve. With this mix, the rate of adoption can be accelerated because of the familiarity with the concept or certain aspects of the product or service. As an example, the “videophone” was a concept that began to be explored as early as the late 1800s. AT&T began extensive work on videophones during the 1920s. However, the invention was not adopted because of a lack of familiarity with the idea of seeing someone on a screen and communicating back and forth. Other factors included societal norms, size of the machine, and cost. It wasn’t until the early 2000s that the invention started to take hold in the marketplace.Thomas J. Fitzgerald. “For the Deaf: Communication without the Wait.”  The concept of a black box is that activities are performed in a somewhat mysterious and ambiguous manner, with a serendipitous set of actions connecting that result in a surprisingly beneficial manner. An example is Febreeze, a chemical combination that binds molecules to eliminate odors. From a black box perspective, the chemical engineers did not intend to create this product, but as they were working on creating another product, someone noticed that the product they were working on removed odors, thus inadvertently creating a successful new product marketed as Febreeze.
The process of invention is difficult to codify because not all inventions or inventors follow the same path. Often the path can take multiple directions, involve many people besides the inventor, and encompass many restarts. Inventors and their teams develop their own processes along with their own products, and the field in which an inventor works will greatly influence the modes and pace of invention. Elon Musk is famous for founding four different billion-dollar companies. The development processes for PayPal, Solar City, SpaceX, and Tesla differed widely; however, Musk does outline a six-step decision-making process ():
1. Ask a question.
2. Gather as much evidence as possible about it.
3. Develop axioms based on the evidence and try to assign a probability of truth to each one.
4. Draw a conclusion in order to determine: Are these axioms correct, are they relevant, do they necessarily lead to this conclusion, and with what probability?
5. Attempt to disprove the conclusion. Seek refutation from others to further help break your conclusion.
6. If nobody can invalidate your conclusion, then you’re probably right, but you’re not certainly right.
In other words, the constant underlying Musk’s decision process is the scientific method.Abby Jackson. “Elon Musk Uses This 6-Step Process to Make Decisions.”  The scientific method, most often associated with the natural sciences, outlines the process of discovering an answer to a question or a problem. “The scientific method is a logical organization of steps that scientists use to make deductions about the world around us.”Joan Whetzel. “Formula for Using the Scientific Method.”  The steps in the scientific method line up quite nicely with Musk’s decision-making process. Applying the scientific method to invention and innovation makes sense. The scientific method involves becoming aware of a problem, collecting data about it by observing and experimenting, and coming up with suggestions on how to solve it.
Economists argue that processes of invention can be explained by economic forces. But this hasn’t always been the case. Prior to 1940, economic theory focused very little on inventions. After World War II, much of the global economy in the developed world needed to be rebuilt. New technologies were developing rapidly, and research and development investment increased. Inventors and economists alike became aware of consumer demand and realized that demand can influence which inventions take off at a given time.N. Rosenberg. “Science, Invention and Economic Growth.”  However, inventors are always up against an adoption curve.Everett M. Rogers.
The Rogers Adoption Curve was popularized through the research and publications of the author and scientist Everett Rogers.John-Pierre Maeli. “The Rogers Adoption Curve & How You Spread New Ideas Throughout Culture.”  He first used it to describe how agricultural innovations diffused (or failed to) in a society. It was later applied to all inventions and innovations. This curve illustrates diffusion of an innovation and when certain people will adopt it. First is the question of who adopts inventions and innovations in society: The main groups are innovators, early adopters, early and late-majority adopters, and “laggards” (Rogers’s own term).Everett M. Rogers.  The innovators are the ones willing to take a risk on a new product, the consumers who want to try it first. The early adopters are consumers who will adopt new inventions with little to no information. Majority adopters will adopt products after being accepted by the majority. And finally, laggards are often not willing to readily adopt change and are the hardest to convince to try a new invention.Wayne W. LaMorte. “Diffusion of Innovation Theory.” September 9, 2019. http://sphweb.bumc.bu.edu/otlt/MPH-Modules/SB/BehavioralChangeTheories/BehavioralChangeTheories4.html
Rogers’s second way of looking at the concept is from the point of view of the invention itself. A given population partially or completely adopts an invention or rejects it. If an invention is targeted at the wrong population or the wrong population segment, this can dramatically inhibit its chances of being adopted widely. The most critical point of adoption often occurs at the end of the early adoption phase, before the early majority steps in and truly confirms (or not) the diffusion of an invention. This is called the diffusion chasm (though this process is usually called the , for our purposes, it applies quite well to new inventions as we define them here).
The diffusion curve depicts a social process in which the value of an invention is perceived (or not) to be worth the cost (). Early adopters generally pay more than those who wait, but if the invention gives them a perceived practical, social, or cultural advantage, members of the population, the popularity of the invention itself, and marketing can all drive the invention over the diffusion chasm. Once the early majority adopts an innovation (in very large numbers), we can expect the rest of the majority to adopt it. By the time the late majority and the laggards adopt an innovation, the novelty has worn off, but the practical benefits of the innovation can still be felt.
Inventors are constantly trying to cross the diffusion chasm, often with many products at a time. Crossing the diffusion chasm is a nearly constant concern for business-focused or outcomes-focused inventors. Inventors put many of their resources into an invention during the innovation and early adoption stages. Inventions may not turn a profit for investors or the inventors themselves until they are well into the early majority stage of adoption. Some inventors are pleased to work toward general discovery, but most in today’s social and cultural context are working to develop products and services for markets.
One shortcoming of the diffusion of innovations model is that it treats inventions and innovations as though they are finished and complete, though many are not. Not all inventions are finished products ready for market. Iterative development is more common, particularly in fields with high levels of complexity and in service-oriented ventures. In the iterative development process, inventors and innovators continuously engage with potential customers in order to develop their products and their consumer bases at the same time. This model of business learning, also known as the science of customer development, is essential.Eric Ries.  Business learning involves testing product-market fit and making changes to an innovation or invention many times over until either investment funding runs out or the product succeeds. Perhaps the most accurate way to summarize this process is to note that many inventions are hit-or-miss prospects that get only a few chances to cross the diffusion chasm. When innovators follow the build-measure-learn model (discussed in detail in Launch for Growth to Success), they try to work their way across the diffusion chasm rather than making a leap of faith.

### Summary

Creativity is defined as the ability to develop something original, particularly an idea or an artistic representation of an idea. Innovation occurs when an individual or a firm applies something new to an existing product or service that adds value. Innovation can be planned or spontaneous, incremental or pioneering. Some pioneering innovations rise to the level of being unique inventions—truly novel products, services, or processes that, though based on ideas and products that have come before, represent a leap.
The diffusion curve is related to iterative innovations versus black box innovations. Innovators and inventors conduct the iterative innovation process by engaging with potential consumers on a near-continuous basis in order to develop the product and the consumer base at the same time, thus bridging the diffusion chasm. Black box innovations either jump the chasm or not, depending on the social perceptions through which they are perceived by potential users, the quality of the product itself, and marketing strategies.

### Review Questions

### Discussion Questions