The obstacles to innovation
Juan Carlos Salazar-Elena
Depto. de Estructura Económica y Economía del Desarrollo
Universidad Autónoma de Madrid
Students’ opinion
• Fear of Failure / Risk Aversion, was the top concern in most responses.
• Lack of Resources / Funding was also frequently mentioned, especially as a second and third
most critical obstacle.
• Other obstacles such as Competitive Pressure and Bureaucracy/Regulation appeared less
often but were still noted in some responses.
Obstacles Most Critical Second Most Critical Third Most Critical
Bureaucracy / Regulation 0 2 2
Competitive Pressure 3 0 2
Fear of Failure / Risk Aversion 23 15 12
Lack of Resources / Funding 14 23 16
Lack of Skills / Expertise 2 0 2
Organizational Culture / Mindset 1 1 3
Other 13 18 19
Time Constraints 7 4 7
Underinvest in R&D
• In the late 1950s, there was growing concern in the United States
about its position in the space and arms race (Nelson, 1959).
• Why do companies underinvest in R&D?
• Is it all about R&D?
Measuring innovation capacity (basics)
• Innovation is about discovery, novelty, creativity, persuasión…
• We need to go beyond R&D
• What factors might affect the innovative capacity of individuals
(companies or organisations)?
Knowledge creation and flow
• What incentives do we have to innovate?
• How much knowledge do we use?
• Who we target with our innovations?
Uncertainty
• Success
• Markets
• Complexity
Success rate
Mullard, A. Parsing clinical success rates. Nat Rev Drug Discov 15, 447 (2016).
https://doi.org/10.1038/nrd.2016.136
What is the success rate of these industries?
• Pharmaceutical industry 9,6%
• Information Technology and Software Above or below 9.6%?
• Fashion and Design?
• Nuclear Energy?
Markets?
Creating markets
• iPhone (Apple, 2007): The iPhone revolutionized mobile phones by combining a phone, iPod, and
internet browser in one (expensive) device. Apple had to create demand for this multi-functional
device, educating users on the possibilities of mobile apps, which became an entire industry.
• Tesla (Electric Vehicles): Tesla introduced electric vehicles (EVs) at a time when the market was
dominated by gasoline-powered cars. They not only had to convince consumers of the benefits of
EVs but also invest heavily in charging infrastructure and address range anxiety, which was a
new concept for car buyers.
• Airbnb (Home Sharing): Airbnb disrupted the hotel industry by offering an entirely new concept:
staying in someone’s home instead of a hotel. It required creating trust between hosts and
guests and convincing travelers that staying in a stranger's house could be a positive experience.
• Amazon Web Services (Cloud Computing): When AWS launched, businesses were used to
maintaining their own servers and IT infrastructure. AWS had to educate companies on the
advantages of cloud computing, which involved a fundamental shift in how businesses thought
about computing and data storage.
• Spotify (Music Streaming): Spotify disrupted the music industry, shifting users away from
physical albums or downloads to streaming music. They had to convince both consumers and
artists of the benefits of this model, with its subscription-based service and new way of
accessing music.
Complexity (funding)
Who understands the value of my business?
• Traditional banks are generally risk-averse, favoring businesses with
stable cash flows and proven markets, which innovative ventures
often lack.
• Startups, especially in technology, usually don't have enough
collateral to secure loans, a key requirement for banks.
• Additionally, the uncertain market potential of disruptive innovations
makes it difficult for banks to assess future profitability, further
discouraging them from providing financing.
Who understands the value of my business?
• At very early stages FFF
• A venture capitalist (VC) is an investor who provides capital to early-stage, high-
potential startups or companies with strong growth prospects.
• In exchange for their investment, VCs typically receive equity or ownership stakes in the
company
• They take on high risk, knowing that many investments may fail, but successful ventures
can yield significant financial returns
• In addition to funding, VCs often offer strategic guidance, industry expertise, and
valuable business connections to help startups grow and succeed
Venture capital
US = Spain x 10
1.11%
0.11%
Profiting from innovations
• Appropriability regime
• Dominant design
• Complementary assets
Innovador
Innovator Imitador
Imitator
G.D. Searle (Nutra Sweet) IBM (Computadora personal)
Some cases… Ganador
Winner
Dupont (Teflón) Matsushita (VHS)
RC Cola (Cola de dieta) Kodak (foto instantánea)
Loser
Perdedor
EMI (TAC) DEC (Computadora personal)
Appropriability regime
Dominant design
Complementary assets
Inventiveness versus profit appropriation
Competitive
manufacturing
Other assets Distribution
Core
Technological
know-how
Complementary
Related services
technologies
Society
Underinvestment
Imitators in innovation
Innovators
Vertical
integration
Knowledge creation and flow
• What incentives do we have to innovate?
• How much knowledge do we use?
• Who we target with our innovations?
Interconnectedness
Freeman: The cases of Japan and the USSR,
and the importance of innovation networks
R&D in 1996 (% of GDP) R&D in 2019 (% of GDP)
3 6
2 4
% OF GDP
% OF GDP
3
1 2
0 0
Collaboration & innovation performance
Innovation propensity
Business R&D
Obstacles in connecting
with others
• Network management
• Scientific knowledge
• Tacit knowledge
• Imitators
Network management
The cost of networks
• High transaction costs for formal agreements and protecting
intellectual property
• The need to allocate resources like specialized personnel and budgets,
• Challenges of coordinating and integrating external knowledge or
technologies into the company’s operations
Knowledge
complexity
Absorptive capacity
• Absorptive capacity issues arise when companies lack the prior
knowledge to recognize external knowledge's value
• Face challenges integrating it into their existing processes
• Struggle to transform it into actual innovations that drive new
products or services
Can firms absorb scientific knowledge?
Tacit knowledge
Tacit knowledge
• Tacit knowledge is challenging for companies to absorb because it is
difficult to codify, relying on personal experience and interactions
• Its transfer depends on close relationships and direct
communication, making it costly and slow (Learning by D-U-I)
• As a result, tacit knowledge is hard to scale within an organization,
limiting its broader adoption and use for innovation
Example: The case of ERP
Imitators
How much should we collaborate with others?
Consequences
• Fragmented innovation system
• Underutilisation of knowledge
Knowledge creation and flow
• What incentives do we have to innovate?
• How much knowledge do we use?
• Who we target with our innovations?
Technology
push
Designed by Freepik
Demand
pull
Are all of us represented in the market?
Are all of us represented
in the market?
Overview of what has been studied so far…
• The market process as a learning process for firms
The building of strategic capabilities, SC imitation and refinement, path to
market equilibrium: pc, sd)
• A learning process constrained by the difficulty of acquiring new
capabilities
Specialisation, routinisation of behaviour, similar vs complementary
capabilities, ordinary vs dynamic capabilities...)
• Obstacles/challenges to innovate
uncertainty about success, market creation, funding, absorptive capacity, the
cost an effort of building networks, the (social) relevance of innovation…
So how can we measure
innovative c apapcibities of firms?
