INNOVATE NOW: REPORT ON INNOVATION

Presented by

Dr. David Pistrui Coleman Foundation Chair in Entrepreneurship

Industry Professor of Business

Stuart School of Business Illinois Institute of Technology

May 18, 2007

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Executive Summary

This report provides answers to the questions posed by the Innovate Now program. The report is comprised of six sections. Section One provides an introduction and overview, including background information and definitions of entrepreneurship, innovation, and family business.

Section Two presents the primary questions addressed in the report, namely:

• What are businesses doing to compete on innovation? • How do we build future innovation talent? • What are the implications for higher education in Illinois?

Section Three addresses the question of how businesses are competing on innovation by presenting a multidimensional framework. This framework is supported by examples of local entrepreneurial enterprises, the majority of which are family businesses. Section Four covers the topic of building future innovation talent, including identifying necessary skills and experiences and examples of how IIT is designing educational programs to meet these needs.

Section Five presents an overview of what Illinois can do to help build innovation talent. This overview includes an integrated multidimensional model of economic learning and a measurement model that can be used to guide the process and offer suggestions for discussion.

Section Six provides some concluding thoughts on how to best leverage our resources to foster an environment of entrepreneurship, innovation, and socioeconomic growth for our communities, region, and state.

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Table of Contents 1- Introduction and Overview …………………………………………………………… 5 1.1 Defining Entrepreneurship, Innovation and Family Business …………………… 5 1.2 Innovation: The Essence of Entrepreneurship …………………………………… 5 2 - Questions and Direction of the Report ………………………………………………. 6 2.1 Three Central Questions Addressed in this Report ……………………………… 6 3 - What Businesses are Doing to Compete on Innovation …………………………….. 6

3.1 How Do You Instill Innovation at the Firm Level? ……………………………….. 6 3.2 Fostering an Entrepreneurial Mindset ……………………………………………. 7 3.3 Example of Entrepreneurial Mindset in Action …………………………………… 9 3.4 Fostering Value Innovation and Maintaining an Innovation Ecosystem ………… 9 3.5 Carrying Innovation to Practice and Application ………………………………… 11 3.6 Key Practices and Capabilities Required in Order to Compete on Innovation … 11

4 - Building Future Innovation Talent …………………………………………………….. 12

4.1 What Critical Skills, Capabilities and Experiences Do Students Need? ………… 12 4.2 What are the Implications for Designing Educational Programs at IIT? ………… 13

5 - Implications for Higher Education in Illinois ………………………………………….. 14

5.1 What Can Universities and Community Colleges Do Better? …………………… 14 5.2 Leading Practices at IIT to Improve the Innovation Talent Pool ………………… 14 5.3 How Can Illinois Help Education Improve the Supply of Innovation Talent? … 15

6 - Concluding Thoughts ………………………………………………………………….. 16

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Figures and Tables Table 1: Types of Entrepreneurship with Local Examples ……………………………. 5 Table 2: Three Central Questions ……..…………………………………………….. 6 Figure 1: Multidimensional Framework to Foster Firm Innovation …………………... 7 Figure 2: Key Components of an Entrepreneurial Mindset …………………………… 8 Figure 3: Behavioral Characteristics and Planned Growth …………………………… 8 Table 3: Example of Entrepreneurial Mindset in Action ……………………………… 9 Figure 4: Example of Phoenix Closures’ Innovation Ecosystem ……………………… 10 Table 4: Example of How Phoenix Closures Leverages its Ecosystem ………………. 10 Table 5: Carrying Innovation to Practice and Application in Illinois: Strategic Behavioral Characteristics Employed to Compete on Innovation .. 11 Figure 5: Critical Skills, Capabilities and Experiences that Students Need ………….. 13 Table 6: Leading Practices in Building Future Innovation Talent ……………………. 15 Table 7: Developing an Integrated Multilevel Model of Academic Learning ……….. 16 Table 8: Measurement Model of Innovation on a Firm and Regional Level ………… 16

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1 - Introduction and Overview 1.1 Defining Entrepreneurship, Innovation and Family Business Entrepreneurial thinking and leadership are fundamental factors in the creation of new enterprises and the sustained competitive advantage of both large and small businesses. Family businesses are the engine that drives socioeconomic development and wealth creation around the world, and entrepreneurship is a key driver of family businesses. The ability to foster an entrepreneurial mindset across generations is a major element of family business continuity and longevity. This ability is instrumental in effective strategic execution, innovation and growth. Cantillon (1755) recognized the entrepreneur as an individual who accepts an element of uncertainty in the course of profit-seeking business activity. Timmons (2004) defines entrepreneurship as creative human action that builds something of value from almost nothing through the pursuit of opportunity beyond the resources one actually controls. Entrepreneurship links vision, commitment, passion and people to a common cause. Table 1 presents four different types of entrepreneurship in the marketplace. Table 1: Types of Entrepreneurship with Local Examples

• Entrepreneurship and New Venture Formation – Creative human act that builds something of value from almost nothing at all: Cleversafe (Chicago, Illinois)

• Industrial Entrepreneurship – Innovative activities within manufacturing, supply chain, logistics and facilities: Phoenix Closures (Naperville, Illinois)

• Corporate Entrepreneurship – Champions leading ideas from development to complete profitability: Motorola’s Razr phone (Schaumburg, Illinois)

• Social Entrepreneurship – Mission-related work focused on solving social problems, challenging hegemony and alleviating suffering: Seguin Services (Cicero, Illinois)

Family businesses can be defined as owner-managed enterprises with family members

exercising considerable financial and/or managerial control (Ward & Aronoff, 1990). An estimated 90 percent of US businesses and 85 percent of European Union businesses are family controlled (Burns & Whitehouse, 1996; Shanker & Astrachan, 1996). Approximately 90 percent of the Chicago area's 200,000 businesses are family-owned. They employ 60 percent of the region's workforce and are responsible for 78 percent of all new jobs. Many of them date back to the mid-1940s (Mayor’s press office, 2002). However, family businesses are fragile. Only approximately 30% of all family-owned businesses survive into the second generation. Twelve percent will still be viable into the third generation, with just three percent of all family businesses operating at the fourth-generation level and beyond (www.ffi.org). Family businesses are not just small- and mid-sized companies. Walgreen’s, Motorola, and Ford Motor Company are also examples of family businesses. Family and closely-held businesses are the primary engine of socioeconomic growth and stability. They are the purveyors of business development, economic creativity, innovation and growth.

1.2 Innovation: The Essence of Entrepreneurship Business innovation can be defined as the creation of substantial new value for customers and the firm through creatively changing one or more dimensions of the business

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system. For example, Cleversafe, a startup company in the IIT University Technology Park, is developing an “open-source” distributive storage grid that provides affordable and very secure data storage. Innovation is also the application of an idea that results in a valuable improvement. An example is Phoenix Closures, which has developed a series of new processes and techniques in designing, engineering and manufacturing. These processes have helped customers apply new packaging ideas, improving their business performance. Innovation is the process by which companies convert technical capabilities into value-based, marketable ideas. The Motorola Razr is an example of how innovative technological design, in combination with marketplace understanding, led to the creation of a product that has become a global fashion statement. Fostering an entrepreneurial mindset is vital to the economy of Illinois and the United States. Our businesses, educational institutions, and communities must compete on innovation and build a talent pool of innovative leaders for the future. The next section of this report will address three questions that are critical to our future. 2 - Questions and Direction of the Report

2.1 Three Central Questions Addressed in this Report Three central questions are addressed in this report. The first question is “What are

businesses doing to compete on innovation?” This section will discuss and present examples of how entrepreneurially led innovation is occurring in Illinois. The second question, “How do we build future innovation talent?”, will present an overview of the critical skills, experiences and abilities that students need. The final question is “What are the implications for higher education in Illinois?” Specifically, this question asks what universities and community colleges can do to prepare our young people to be entrepreneurial and innovative. Table Two provides an overview of the questions addressed in this report.

Table 2: Three Central Questions

1. Competing on Innovation -What are businesses doing to compete on innovation? -What are the major challenges? -What are leading best practices and new capabilities?

2. Building Future Innovation Talent -What are the most critical skills and capabilities that students need to have? -What are the types of educational experiences students need early on? -What are the implications for program development at IIT?

3. Implications for Higher Education in Illinois -What can universities and communities do better to build innovation talent? -What are the current and planned initiatives and programs at IIT? -How can Illinois support universities and community colleges’ efforts?

3 - What Businesses are Doing to Compete on Innovation 3.1 How Do You Instil l Innovation at the Firm Level? To instill innovation at the firm level, three conditions need to be sustained: 1) the

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fostering of an entrepreneurial mindset at the top of the organization, 2) the development of an innovation ecosystem that connects and enables the entire organization, and 3) the implementation of new combinations of practices and applications that solve problems and create value in the marketplace. Figure 1: Multidimensional Framework to Foster Firm Innovation

Source: Pistrui, 2007 3.2 Fostering an Entrepreneurial Mindset

Firms that compete on innovation are led by people who have an entrepreneurial mindset. An entrepreneurial mindset is built on three primary characteristics: 1) seeking opportunities to solve problems in the company, for customers, and in the community, 2) focusing on creating value for customers and the community, and 3) engaging the marketplace by being in contact with customers, suppliers, universities and the community. An entrepreneurial mindset provides inspiration and identity for a firm and its employees (Figure 2). It creates an entrepreneurial culture, encouraging a continuum of activity that is fundamental to helping firms be innovative. Those employing an entrepreneurial mindset constantly scan the horizon for opportunities. This opportunity orientation is a pattern among growth-minded entrepreneurs. It can be spread through an enterprise by encouraging employees to focus on opportunities to solve problems rather than on resources or structure. The entrepreneurial mindset is distinctive in that leadership emphasizes and focuses on spotting opportunity gaps as performance is evaluated. At the same time, there is an identification of where the organization might be in the future if it proactively initiates change. As entrepreneurs and their employees identify timely and favorable opportunities with potential for success, they work together to solve problems and create value for customers.

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Figure 2: Key Components of an Entrepreneurial Mindset

Organizations that possess an entrepreneurial mindset have a distinctive future orientation that connects the vision of the entrepreneur with the focus of the organization and its employees. Business growth occurs by looking into the future and creating a set of specific measurable intentions and a plan of how to bring together new combinations of resources under uncertainty and risk for future gain (Figure 3).

Figure 3: Behavioral Characteristics and Planned Growth

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3.3 Example of Entrepreneurial Mindset in Action What follows is an account of Communication Coil, Inc., a manufacturing company

located in Schiller Park, Illinois. Since 1944, Communication Coil, Inc. has been designing and producing magnetic components and passive networks. These components are used for communications and signal processing in various military, industrial and commercial applications. Table Three shows Communication Coil’s entrepreneurial mindset in action.

Table 3: Example of Entrepreneurial Mindset in Action Opportunity Recognition/ Employing an Entrepreneurial Mindset

1944: Company founded Mid 1980s: Company outdated and failing 1991: Company purchased by entrepreneur

Problems and Challenges

-Outdated technology -Complacent employees -No visibility in the marketplace -No new products

Actions Leading to Innovation

-Invested in building employee skills -Restructured operations and processes -Dramatically reduced cycle times -Raised awareness in the marketplace -Challenged employees to be opportunistic

Results -Discovered a series of profitable and defendable specialty niche markets

-Rebirth of an established manufacturing firm Source: KEEN Industrial Lecture Series, IIT, Fall 2006-07, http://www.iit.edu/~entrepreneur /#keen.

3.4 Fostering Value Innovation and Maintaining an Innovation Ecosystem Competing on innovation requires a company to drive entrepreneurial thinking within all levels of the organization and connect it throughout its ecosystem. This is where the vision of the entrepreneur must be translated into the strategic logic of the organization. Value innovation is the simultaneous pursuit of providing superior value to customers and lower costs to the company. Instilling value innovation across the ecosystem helps unify a company by creating a network of champions and relationships. Organizations that compete on innovation must be engaged with the marketplace, including customers, suppliers, the government and professional service providers. Companies operate in complex ecosystems that include the internal components of the company and external aspects of the community and marketplace. Business innovation is about new value, not just new things. Value innovation is systematic and considerate of all aspects, holistic in nature.

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Figure 4: Example of Phoenix Closures’ Innovation Ecosystem

Figure Four presents a visual depiction of the ecosystem of Phoenix Closures, a

manufacturing firm. Phoenix Closures is an excellent example of how an entrepreneurial mindset has been ingrained throughout the company. This mindset has instilled a strategic logic focused on solving customer problems and has helped the company engage customers. For example, one of Phoenix Closures’ major beverage customers was suffering significant decline in the sales of its lead product. Rallied around the common objective of increasing sales of their customer’s product, internal subgroups at Phoenix Closures worked with their customer to design, prototype and produce a revolutionary and cost-effective new bottle cap that helped turn sales around. Table Four provides an overview of how Phoenix Closures influences and interacts with its ecosystem to compete on innovation. Table 4: Example of How Phoenix Closures Leverages its Ecosystem

• Comprehensive design approach has produced fifteen patents in three years.

• Family business continuity and generational succession grounded in good communication and protocols between family and business.

• Integrated and utilized outside expertise including professional service providers, universities and suppliers.

• Invested in evaluating and measuring vendor/supplier performance and made appropriate changes.

• Encouraged a problem solving mindset based on strong customer focus and spending time in the marketplace.

Source: KEEN Industrial Lecture Series, IIT, Fall 2006-07 http://www.iit.edu/~entrepreneur/#keen

This illustrates how a local manufacturing firm is able to use its ecosystem to leverage a growth and learning orientation. This orientation helps Phoenix Closures determine where, when and how to compete. Phoenix Closures has created a type of innovation radar that interacts with different parts of the internal and external ecosystem. They use this to accumulate knowledge on

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how to provide solutions to their customers’ problems. It is important to note that Phoenix Closures engages in visualizing and prototyping products in a team environment with customers, suppliers and their “customers’ customers.” Attention will now shift to some examples of how firms practice and apply entrepreneurial and innovative thinking. 3.5 Carrying Innovation to Practice and Application Table Five presents an overview of five local manufacturing companies and what type of innovation they are carrying to practice. The president or CEO of each company participated in the KEEN Industrial Entrepreneur Forum series at IIT during the previous academic year. Based upon their lectures and subsequent discussions, each of these companies exemplifies an entrepreneurial mindset, an innovative ecosystem, and the carrying out of new combinations of activities to solve problems and create value. Although one might claim that other dimensions of innovation are taking place in each company, Table Five identifies three clearly occurring themes. All of these companies serve as role models of how local family businesses are able to compete very successfully on innovation.

Table 5: Carrying Innovation to Practice and Application in Illinois: Strategic Behavioral Characteristics Employed to Compete on Innovation

Company Industrial Sector

Location

New Commodity

New Method of Production

New Markets Served

New Sources of

Supply

New Organization of Industry

Communication Coil, Inc. Electronics

Schiller Park X X X

Arrow Gear, Inc. Aerospace/Family Business

Downers Grove X X X

Phoenix Closures, Inc. Packaging/Family Business

Naperville X X X

Chicago Metal Rolled Products Fabrication/Family Business

Chicago X X X X X

Atlas Manufacturing Group Manufacturing/Family Business

Chicago X X X

Source: KEEN Industrial Lecture Series, IIT, Fall 2006-07 http://www.iit.edu/~entrepreneur/#keen

3.6 Key Practices and Capabilities Required in Order to Compete on Innovation

Five central themes need to be understood and addressed in order for businesses to compete on innovation. They include:

1. Instilling and sustaining an entrepreneurial mindset throughout an organization via: a) problem solving, b) value creation, and c) understanding the market.

2. Working through leadership succession and family matters to ensure business continuity

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and transgenerational entrepreneurship between family and non-family members.

3. Finding, educating, rewarding and retaining talented people from diverse backgrounds and cultures who can work in a team environment.

4. Preserving healthy internal and external ecosystems that foster growth, learning, and collaborative problem solving and value creation to instill perpetual innovation.

5. Linking and employing new combinations of entrepreneurial thinking, creativity and incisiveness to build defendable and sustainable business models that engage stakeholders and serve the greater community.

The abovementioned components are all prevalent in the examples presented in this report.

Strengthening these capabilities and helping more organizations embrace and apply these concepts will ensure that Illinois continues to foster innovation. Attention will now turn to discussing how we can build future innovation talent in Illinois.

4 - Building Future Innovation Talent

4.1 What Critical Skil ls, Capabilities and Experiences Do Students Need? Today’s students need a wide range of skills, capabilities and experiences in order for universities to build a successful pool of innovation talent. These factors are critical to students’ early careers. These findings are based on feedback from entrepreneurs and the business community. There are five categories that transcend the technical, scientific and business aspects of entrepreneurship, innovation and business development, including:

1. Creative thinking and problem solving

2. Broad systems perspective that looks at subsystems of an ecosystem and culture

3. Technical knowledge channeled toward value creation

4. Interpersonal and human skills

5. Communication skills including written, verbal, and sales techniques

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Figure 5: Critical Skills, Capabilities and Experiences that Students Need

4.2 What are the Implications for Designing Educational Programs at IIT?

IIT is poised to meet these demands. The quality of our faculty and students has been improved, broader curricular offerings in strategic areas are in place, our research focus has expanded, alliances with leading institutions have been established, and our financial base has been strengthened. IIT is committed to three strategic initiatives that will position the university to build a new pool of innovation talent. The three strategic initiatives include:

1. Interdisciplinary Collaborations between academic units, the University Technology Park (UTP), and the community. A prime example is the Stuart School of Business, which has collaborations with the Armour College of Engineering, Institute of Design, School of Architecture, Applied Mathematics, and the UTP. The Interprofessional Project Program (IPRO) was introduced twelve years ago as a unique project-based learning program required by all IIT undergraduates. The program has expanded to include entrepreneurial projects (EnPROs) and has been placed within the Stuart School of Business for better management and coordination. IPRO/EnPRO projects draw from faculty research, local entrepreneurs, corporate sponsors, student generated ideas, and nonprofit organizations.

2. The 2010 Plan is designed to address challenges currently faced by the university. The plan is comprised of both academic and “platform” initiatives, which are of great importance to the future prosperity of the region and nation. These initiatives include the application of engineering and science to solve problems of human health (life sciences), the development of sound policies and technical solutions for the use of natural resources (energy and sustainability), the creation of jobs and businesses based on science and engineering research (innovation and entrepreneurship), and mathematics and science

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education.

3. The University Technology Park represents the best features of technology and design. These features function together to create an ecosystem that supports innovation at every stage of company growth. Phase One consists of a four building complex and includes: 1) incubator space with 19 wet lab and 15 dry lab suites (TBC 2008), 2) the IIT Research Institute Life Sciences Group, a nationally renowned CRO, 3) the Technology Business Center (TBC), and 4) the IIT Tower.

IIT is in a unique position to bring students, faculty, entrepreneurs and scientists together in one location. With its emphasis on interdisciplinary collaboration, IIT is bringing students and faculty together to advance science and solve real world problems. The university’s focus on five core initiatives, especially its commitment to innovation and entrepreneurship, position the institution to serve as a catalyst in building future innovation talent within the region. The UTP will serve as a regional hub to provide additional real world exposure and experiences to our students while providing facilities and infrastructure to advance science, assist established enterprises, and support the development of new businesses, all of which are vital to the state’s strategic competitiveness. 5 - Implications for Higher Education in I l l inois

5.1 What Can Universities and Community Colleges Do Better? Based upon our experiences at IIT, we set forth the following seven-point action plan to

support the development of entrepreneurship and the innovation talent pool:

1. Make entrepreneurship and innovation education a priority on every campus.

2. Develop and support a group of “innovation champions.”

3. Demand cross curriculum and interdisciplinary collaboration between students, faculty, universities and the community.

4. Invest in educating and building the knowledge and skills of educators and community leaders.

5. Connect the regional university communities with entrepreneurs, industry, and government to enhance strategic competitiveness.

6. Build a regional coalition of universities, community colleges, and high schools around entrepreneurship and innovation.

7. Raise the funding necessary to support such initiatives and develop a leadership council to direct and lead such efforts.

5.2 Leading Practices at IIT to Improve the Innovation Talent Pool

Table Six presents an overview of leading educational practices at IIT. We currently focus on four components. These components are: 1) Student-centered activities, focused on student interaction with entrepreneurs, scientists, industry and community, 2) Faculty-centered

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activities, designed to unite faculty around the concepts of innovation and entrepreneurship and link regional schools, 3) Curriculum-centered activities, focused on embedding entrepreneurship and innovation courses across the university, especially within engineering, the sciences and architecture, and 4) Community-centered initiatives, focused on uniting and connecting our campus with entrepreneurs, scientists, faculty, students and other schools. IIT is unique in that we have a self-contained ecosystem to foster the development of innovation talent. Our goal is to leverage these assets with other local, regional and global initiatives to foster innovation. Table 6: Leading Practices in Building Future Innovation Talent

5.3 How Can Il l inois Help Education Improve the Supply of Innovation Talent?

Illinois must do five things to improve and augment its supply of innovation talent:

1. Make entrepreneurship and innovation education a statewide priority and embed it within all educational levels and curricula.

2. Develop an integrated, multilevel model of economic learning that links industry, education, research, and community (see Table 7).

3. Bring junior high and high school students into entrepreneurship and innovation programs that feed into universities and industry.

4. Provide entrepreneurs with access to financial resources, innovative talent, infrastructure, and tax incentives to start or relocate a business in Illinois.

5. Develop tools and techniques to measure the impact of entrepreneurship and innovation education on talent development, job creation, and economic growth (see Table 8).

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Table 7: Developing an Integrated Multilevel Model of Academic Learning

Table 8: Measurement Model of Innovation on a Firm and Regional Level

6 - Concluding Thoughts

Competing on innovation is critical to the socioeconomic viability of our state, region, and nation. Innovate Now provides a comprehensive framework that brings key stakeholders

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together around a common focus and cause. IIT is uniquely positioned and is actively engaged in a strategy to build future innovation talent, foster innovation in established enterprises, and help launch new businesses. We are eager to continue these efforts and to work with others to encourage entrepreneurship, innovation, science, and community well-being.

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