CREATIVE ECONOMY

1. 1 CREATIVE ECONOMY Prepared for SWUFE 2007 (Restricted use for students enrolled in this subject only) Chapter 1

2. 2 Preview The expressions Knowledge Economy, New Economy, and Creative Economy are used interchangeably by authors addressing what they see as new features of the economy, perhaps because the expressions have as common denominator the concept of Innovation. Unfortunately, a reading of the literature making use of these expressions shows that they do not refer to identical features or phenomena. The result is confusion for the reader and the danger of misleading and inaccurate understanding of the phenomenon in question.

3. 3 Road Map I will draw the lines of separation between the notions of �knowledge economy� and �new economy.� I will also distinguish the Old Economy firm from the New Economy firm and address the question How to effectively innovate? The answer to this (awkward) question naturally leads to ? the description of the basic steps to organize an Innovation Unit and ? the issue of outsourcing innovation

4. 4 Road Map (Cont.) There are two dilemmas associated with the New Economy firm, namely: ? The efficient firm�s dilemma and ? The innovator�s dilemma The innovator�s dilemma revolves around the concepts of �sustaining innovations� and �disruptive innovations.�

5. 5 Road Map (Cont.) I will round off the concept of the New Economy firm by introducing the notion of �knowledge capital.� Finally, I will introduce the notion of a Creative Economy that will be used throughout this subject. There are other definitions revolving around fuzzy concepts such as creative industries, creative products, and creative occupations.

6. 6 Innovating Effectively: Basic Steps Suppose that you have been appointed Innovation Coach to establish an Innovation Unit. How would you go about that?

7. 7 Organizing an Innovation Unit Step 1: Identify Human Capital Find the �right� people within your company i.e. employees with ability to sift through data and perceptions in order to come up with new ideas.

8. 8 Step 2: Define Membership Employees with potential to develop profitable new ideas will be members of the Innovation Unit. These �creative workers� should devote a substantial proportion of their time and energy to the Innovation Unit.

9. 9 Step 3: Specify the Type of Innovation Does the company need a technological innovation or an organizational innovation or both?

10. 10 Step 4: Discuss the �Can we/Should we?� Conundrum Two questions must be answered: What can we create? and What should we create?

11. 11 Step 5: Implement Resource Allocation Allocate appropriate financial resources for the innovation proposal.

12. 12 Step 6: Establish Sunset Clauses There has to be sunset clauses for the members of the Innovation Unit, at the end of which time the members of the Unit will be returned to their original units or divisions.

13. 13 Step 7: Formulate Reward Scheme It is important to have an incentive mechanism in place that rewards success rather than penalizes failure.

14. 14 Step 8: Use Innovation Blitz Approach All members of the Innovation Unit should meet with �representative� consumers and suppliers to focus on customers �satisfiers� and customers �delighters.�

15. 15 New Economy Firm Outsourcing Innovation There are companies offering innovation services to other companies. For example, The de Bono Group and the Silicon Valley design firm IDEO offer innovation services to other firms.

16. 16 Outsourcing Innovation The approach of The de Bono Group is based on two facts: Fact 1: Thinking is a skill that can be taught and learned Fact 2: It is possible to construct a thinking methodology with a view to innovation

17. 17 Outsourcing Innovation The �open sesame� to innovation is provided by the thinking tools developed by de Bono. These tools include: parallel thinking and lateral thinking.

18. 18 Outsourcing Innovation The approach of IDEO also revolves around two facts: Fact 1: Innovation skills can be acquired Fact 2: Everyone has an innovation persona

19. 19 Outsourcing Innovation The �open sesame� to innovation is to encourage employees to discover their innovation personas through specific activities. For example, senior executives should have brainstorming sessions with their employees.

20. 20 New Economy Firm Two Dilemmas There are two important dilemmas associated with the New Economy firm.

21. 21 The New Economy Firm and Its Dilemmas The Efficient Firm�s Dilemma ?Evident Success based only on efficiency may lead to failure. (see Diagram 1, Textbook, p. 16) The Innovator�s Dilemma ?Subtle This dilemma was formulated by Clayton Christensen, a Harvard professor, in 1997. The gist of his argument revolves around the difference between �sustaining innovations� and �disruptive innovations.�

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23. 23 The New Economy Firm and Its Dilemmas The innovator�s dilemma can be stated as follows: Success based on sustaining innovations may lead to failure. (see Diagram 2, Textbook, p. 18)

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25. 25 The New Economy Firm and Its Dilemmas The insight underlying both dilemmas is as follows: Short run success may lead to decay in the medium term

26. 26 New Economy Firm Knowledge Capital The essential distinguishing feature of the New Economy firm is the incessant creation and adoption of innovation.

27. 27 Knowledge Capital Centre of Gravity The centre of gravity of the firm has shifted from tangible assets (e.g. factories) to knowledge capital. (see Diagram 3, Textbook, p. 20) Knowledge Capital ?Definition A firm�s knowledge capital is the collection of knowledge-based assets (e.g. patents) possessed by the firm. (see Diagram 3, Textbook, p. 20) Important Remark What distinguishes knowledge capital from other forms of capital is the fact that a firm can use its knowledge capital simultaneously in multiple domestic and foreign locations.

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29. 29 Defining the Creative Economy New Term �Creative Economy� is a new term to mark the association of creativity and economic prosperity.

30. 30 Defining the Creative Economy Our Definition An economy in which the increase in the standard of living of its residents is primarily based on the production of profitable new ideas Insights There are 5 fundamental insights inextricably linked to a Creative Economy:

31. 31 Defining the Creative Economy #1 The act of innovation consists of reconfiguring old ideas in new ways to produce new ideas. #2 Innovation is essentially an economic phenomenon, or at least explicable in economic terms. #3 The act of human innovation is typically imperfectly appropriable. #4 The existence of intangible inputs renders increasing returns inevitable. #5 Ideas and human capital are inherently different economic products.

32. 32 Defining the Creative Economy

33. 33 Defining the Creative Economy To keep in mind (this is the intuition behind insight #4): A new idea has only to be created once. Once developed, the cost of making copies is negligible.

34. 34 Wrapping Up Our main task has been to demarcate the concepts of Knowledge, New and Creative Economy.

35. 35 Wrapping Up Knowledge Economy: Too Nebulous New Economy: Offspring of the IT revolution Creative Economy: Abstract framework (see Textbook, Diagram 4, p. 30)

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