Innovators DNA Assessment

TECHNICAL REPORT
INTRODUCTION
Innovation. Its the lifeblood of our global economy and a strategic priority for virtually every CEO around the world. In fact, a recent IBM poll of 1,500 CEOs identified creativity as the No. 1 leadership competency of the future. The power of innovative ideas to revolutionize industries and generate wealth is evident from history: Apple iPod out-plays Sony Walkman, Starbucks beans and atmosphere drowns traditional coffee shops, and Skype uses a strategy of free to beat AT&T. In every case, creative ideas generated by innovative entrepreneurs produced powerful competitive advantages and tremendous wealth for the pioneering company. Of course, the retrospective $1 million question is: why are some people more capable than others at generating innovative business ideas? One of the central questions addressed in the field of entrepreneurship is why some individuals (entrepreneurs) recognize/discover opportunities for new businesses and products that non-entrepreneurs fail to recognize. (Baron, 2004, 2007; Kaish and Gilad, 1991; Shane, 2003). Prior research designed to answer that question has focused largely on the personality traits of entrepreneurs. The surprising result? Successful entrepreneurs and successful business executives do not differ significantly on personality traits (Brockhaus and Horwitz, 1986; Busenitz and Barney, 1997). According to Busenitz and Barney (1997: 11) After a great deal of research it is now often concluded that most of the psychological differences between entrepreneurs and managers in large organizations are small or nonexistent (Brockhaus and Horwitz 1986; Low and MacMillan 1988). Building on the more behavioral approach of social network researchers, the research described in this report focuses on the behaviors that individuals engage in that enable them to recognize or discover innovations for new products or new businesses. Gartner (1989:57) has argued for a more behavioral approach to

Innovators DNA Assessment Technical Report

entrepreneurship research claiming that research on the entrepreneur should focus on what the entrepreneur does, not who the entrepreneur is. Using a grounded theory approach, Jeff Dyer, Hal Gregersen, and Clayton Christensen conducted a ground theory study to inductively identify the behaviors of innovators that were relevant to creative idea generation.1 The relevant behaviors identified in the grounded theory study were: questioning, observing, networking, and experimenting. They then developed The Innovators DNA Survey Assessment to compare the extent to which a sample of innovative entrepreneurs displayed these behaviors compared to a sample of managers. Consistent with the grounded theory study, these behaviors are much more common and pronounced among innovative entrepreneurs than among managers, including senior managers, in large organizations. For an organization to be innovative, its leaders and workers must be innovative. The first step towards increasing ones innovative capacity is to assess the extent to which he or she engages in behaviors that have been found to facilitate opportunity recognitionand the generation of novel ideas. Then organizations, leaders, and individuals can act on those assessments to target those behavioral habits that are most likely to increase their innovative capacity. Gaining better insights through Innovators DNA (iDNA) Assessments about individuals and their Discovery skills is valuable to the individual and organization. iDNA Assessment feedback to the individual can help them in several ways: 1. Identify relative weights between Discovery and Delivery (Execution)2 skills, to enable individuals to pursue the ideal balance 2. Assess performance on specific Discovery (Execution) skills 3. Facilitate individual efforts to strengthen Discovery skills in order to foster innovation iDNA Assessment feedback can help organizations in several ways as well: 1. Facilitate training and education effectiveness by better matching training and education to the needs of the individual
1

For details on the grounded study, see: Dyer, Jeffrey H., Hal B. Gregersen, and Clayton Christensen (2008). Entrepreneur Behaviors, Opportunity Recognition, and the Origins of Innovative Ventures. Strategic Entrepreneurship Journal, Vol 2, pp. 317-338. 2 Our measures of ones delivery skillsanalyzing, planning, detail oriented implementing, and self disciplinedare drawn in part from survey items of Conscientiousness the Big 5 personality trait which has found to be significantly correlated with an individuals job performance in organizations.

Innovators DNA Assessment Technical Report

2. Help managers allocate resources to enable employees unique innovation approaches 3. Better determine the innovation capabilities of employees To accomplish these objectives, companies must ask several important questions about any self-assessment tool measuring innovation capability: How do we define innovation success? What characteristics are essential for innovation success? How can we trust an assessment of these characteristics and critical outcomes?

INNOVATION SUCCESS
Given the enormous potential rewards of innovation and the penalties for being left behind, innovation success and failure are critical areas of concern. We define innovation success as the invention of a new product or launch of a new business venture that differs from other products or businesses already on the market. The new product or business should offer a different value propositiondifferent feature set, convenience, pricing, etc. At the organization level, we measure innovation success as the innovation premium that is built into the stock price of a particular company. We teamed up with HOLT (a division of Credit Suisse that had done a similar analysis for The Innovators Solution) to develop a methodology for determining what percentage of a firms market value could be attributed to its existing products, services, and markets. If the firms market value was higher than the cash flows attributed to its existing businesses, then the company shows an Innovation Premium. This is the proportion of a companys market value that cannot be accounted for from cash flows of its current products and businesses in its current markets. Investors give this premium because they expect companies to come up with new products or markets (for details on how to calculate the premium, see endnote #1).1 It is a premium that every executive, and every company, would like to have. Strong innovation capabilities are valuable to companies in a variety of ways, including: helping recruit high quality employees and attract new customers due to a reputation for innovation, creating new products or services for existing and new customers and markets, and creating new processes that deliver new products or services more efficiently. Missing out on innovation may not always manifest immediate or obvious consequences. But over time innovation failure can easily lead to a loss of market share, deteriorating morale, and deteriorating financial performance as customers shift their allegiance to competitors with superior innovation capabilities.

Innovators DNA Assessment Technical Report

Discovery Skills as a Key Component of Creative Capacity

Four behaviors and one cognitive skill are the Discovery skills identified as key components of an individuals ability to think creatively in a business context . The Discovery skills are: ask provocative questions, observe the world like anthropologists, network for new ideas especially with people very different from us, experiment and prototype and try new things, and associatively consider all of the ideas and information youve asked about, observed, networked for, and experimented with. Questioning requires both curiosity and courage. The iDNA Assessment measures a persons tendency to ask provocative questions, that challenge the status quo and approach reality from different angles. Questioning is the key building block that supercharges the other Discovery skill behaviors. Through questioning how and why things are the way they are, innovative approaches can be discovered. Observing involves seeing the world like anthropologists. When you observe as a Discovery skill, you are taking nothing for granted. You are forcing yourself to become aware of the environment and details which normally are mere background. You can adopt a fresh perspective to observe your own environment to which you are desensitized. Or you can go observe seemingly unrelated customers, products, environments, and situations which can yield novel insights to apply back to your core questions. Networking for ideas is a social process that is idea-focused. Idea-networking is distinct from resource-networking, in that you are recruiting peoples ideas rather than assembling resources. Life experiences and perspectives vary widely between individuals, but they typically vary most widely between those with the least overlapping types of experiences. Thus, the more diverse your idea networking pool is, the more likely you are to derive innovative value from it. Some dimensions to consider varying your pool on are age, education, religion, gender, ethnicity, geography, industry, rank, and function. Experimenting is the iterative process of trying things out; it also includes taking things apart. In both prototypical methods of experimenting, the experiment is interacting with the tangible world to see what might work, or to understand how things already work. Experimenters often excel when they iterate more often and more rapidly.

Innovators DNA Assessment Technical Report

Associating is a cognitive process whereby individuals connect previously unconnected ideas in new ways. New associations in the brain are more likely to be triggered when the brain is bombarded with novel knowledge, which is why new associations are often triggered when individuals are in the behavioral act of bringing in fresh knowledge inputs through questioning, observing, networking, and experimenting.

Key Study Controls

Conscientiousness, a concept from psychological research, is typically considered the main personality trait that predicts job performance in a business context. Controlling for Conscientiousness from the Big 5 Personality Test allows us to focus on exploration rather than exploitation behaviors. In some studies we use standard Big 5 wording of the items (adapted slightly to a work, rather than general, context). In other studies, we have tested respondents on four separate components of Conscientiousness, collectively dubbed Delivery skills. Delivery skills include analyzing, planning, detailoriented, and self-discipline. While these skills tend to be positively correlated with job performance, we found that certain dimensions of conscientiousness, notably planning and detail oriented implementing, have a significant, negative correlation with the discovery skills and with innovation outcomes. Analyzing and Self Disciplined have a non-significant effect on innovation outcomes. Age was an important control to determine what amount of successful outcomes (e.g., innovation, promotion) was attributable to experience. Age was significant statistically (i.e., the effect was not random) in predicting whether someone had invented a new product or launched an innovative venture, but the size of the effect was usually very small. Education was another important control to test for the specific skills as distinct from education levels generally. Education levels effect was not consistently significant nor large in effect size.

Assessing Discovery Skills

Survey instruments (or questionnaires) can give individuals valuable insights into their Discovery skills. Individual characteristics such as conflict-resolution style or willingness to communicate can be reliably assessed with standardized psychological tests. In their own academic research and work with thousands of individuals over a 10 year period, Drs. Dyer, Gregersen, and Christensen have developed a

Innovators DNA Assessment Technical Report

standardized test that assesses several important behaviors vital to innovation. The Innovators DNA (iDNA) Assessment is an assessment tool designed to give individuals feedback on their strengths and weaknesses relative to behaviors that lead to innovation. It helps people assess themselves along the five critical dimensions and two corollary sets of skills just outlined.

TRUSTWORTHINESS OF PSYCHOLOGICAL TESTS

Before examining the specifics of the iDNA Assessment, it is important to briefly provide an overview of how we in general can determine if a psychological test is trustworthy. Trustworthiness comes from two basic sources--reliability and validity.

Reliability
Reliability is essentially the degree to which the results of a measure are free from error. For example, the odometer on your car would be considered reliable if it consistently measured out a mile each time you actually drove a mile. If it measured out 1.5 miles when you drove only one mile, it would not be completely reliable. There are three basic and widely used ways that reliability can be measured. Test-retest method The first is called the test-retest method. Using this method, an individual would take a test (such as an intelligence test) at one point in time and then retake the test at another point in time. If the test is reliable, the scores between the two tests should be quite similar. The correlation between these two scores is typically called a correlation coefficient. A high correlation coefficient (i.e., .60 to 1.0) would suggest high reliability. A low correlation coefficient (i.e., .59 to 0.0) would suggest low reliability, meaning the test or measure is basically not trustworthy. The Innovators DNA Assessment will be re-administered in early 2012 to hundreds of participants from the past one to five years. The results of that study will employ the test-retest method. Split-half method The second method is called the split-half method. Using this method, an individual would take a test and a score for half of the items would be compared to the other half of the items designed to measure the same thing, such as motivation. If the test is reliable, the scores between the two tests should be quite similar. Again, the correlation between these two scores is typically called a correlation coefficient. A high correlation coefficient (i.e., .60 to 1.0) would suggest high reliability. A low correlation coefficient (i.e., .59 to 0.0) would suggest low reliability.

Innovators DNA Assessment Technical Report

Internal consistency method The third method is called the internal consistency method. Using this method, several different items would be used to measure the same thing, such as conflict resolution style. If the test is reliable, the scores on all the items related to a given construct (e.g., conflict resolution style) should be quite similar to each other. The correlation among all these items is typically called a reliability coefficient. The most commonly used reliability coefficient is called Cronbach Alpha. A high alpha (i.e., .60 to 1.0) would suggest high reliability. A low alpha (i.e., .59 to 0.0) would suggest low reliability. In the scientific community, measures with internal reliability coefficients of less than .60 are usually not acceptable for publication in academic journals because the measures are considered untrustworthy. Innovators DNA internal consistency tests regularly yield Cronbach Alpha measures well over the 0.6 threshold, usually in the 0.76 0.86 range.

Validity
To be trustworthy, a psychological instrument must also be valid. Validity reflects the degree to which a measure actually measures what it purports to measure. There are a variety of measures of validity. Below we briefly describe the four most common. The first measure of validity is face validity. A measure has face v alidity to the extent that it appears to measure whatever it purports to measure. In the scientific community this is often assessed by simply looking at the definition of the construct (e.g., idea networking) and then examining the specific items that are supposed to measure that construct (e.g., Actively seek out individuals from very different backgrounds who can help find and evaluate new ideas.). Measures that lack face validity simply do not get published in recognized academic journals because they are not measuring the construct of interest. The Innovators DNA measures have passed the test of peer review as condition of being published in Strategic Entrepreneurship Journal. See Appendix A for measures of each construct. The second measure of validity is construct validity. Things that are abstract, which almost all personal characteristics are, are known as constructs. The construct validity of a measure is established by showing that it is an appropriate operational definition of the construct it purports to measure. An operational definition is essentially how the construct is measured. Construct validity is established in part by hypothesizing the relationship between the construct and some outcome and then seeing if the measure of the construct is in fact related as hypothesized to an outcome. For example, establishing the construct validity of experimenting behavior (as an antecedent to inventing a new product) would require creating a measure of the construct and then seeing if people who score high on experimenting are more likely to invent a new product or launch an innovative new venture compared to

Innovators DNA Assessment Technical Report

people who score low on the experimenting measure. Each of the Discovery skills, even after controlling for alternate explanations (age, education, gender, nationality, conscientiousness or Delivery skills, etc.) have been demonstrated to correlate with innovative product, process, intrapreneurial, and entrepreneurial outcomes. The third measure of validity is concurrent validity. This is established by measuring both the construct(s) and outcomes at the same point in time. For example, the concurrent validity of Discovery behaviors would be established by measuring the level of Discovery skills in a sample of businesspeople and then at the same time measuring their level of (co-)founded innovative businesses. The concurrent validity would be established if Discovery skills were positively related to starting new, innovative businesses. Typically correlation coefficients between .15 and .90 are statistically significant. Finally, the most rigorous measure of validity is predictive validity. Predictive validity is established by first measuring the construct (e.g., leadership style) at one point in time and then measuring the outcome (e.g., job performance) at another point in time and examining the relationship. For example, if we could measure the Discovery skills style of a sample of undergraduates before they entered the workforce and then measure the amount of innovative ventures they created some years later. If we found that those with higher Discovery skills were more likely to start innovative new businesses, then Discovery skills would have predictive validity.

DEVELOPMENT AND VALIDATION OF THE INNOVATORS DNA ASSESSMENT

Now that we have established the various definitions of innovative behaviors and how the trustworthiness of an instrument can be determined, we can examine the extent to which The Innovators DNA Assessment can be considered a reliable and valid measure of whether individuals are engaging in the behaviors that will lead to innovation outcomes (e.g., ideas for novel products, services, processes, and businesses).

Instrument Background
Dr. Jeffrey H. Dyer at Brigham Young University, Dr. Dr. Hal B. Gregersen at INSEAD, and Dr. Clayton M. Christensen at Harvard Business School have conducted several studies on all aspects of innovators and the behaviors which lead to their innovations. Their individual-level innovator investigations are a follow-up to the groundbreaking book on disruptive innovation, The Innovators Dilemma, by Dr. Christensen. Drs. Dyer, Gregersen, and Christensen wanted to figure out why innovative entrepreneurs recognize opportunitiesparticularly disruptive

Innovators DNA Assessment Technical Report

innovation opportunitiesthat non-entrepreneurs fail to recognize (Baron, 2004, 2007; Kaish and Gilad, 1991; Shane, 2003). In short, what distinguishes business innovators from non-innovators? They interviewed dozens of high (e.g., Jeff Bezos, Michael Dell, Herb Kelleher) and low profile innovators to look for consistent patterns of behavior. Over time, they developed and tested different survey questions to measure the behaviors that consistently appeared in their research. The studies led up to articles in Strategic Entrepreneurship Journal, and Harvard Business Review, and a book The Innovators DNA. All together, Drs. Dyer, Gregersen, and Christensen have dozens of publications on innovation, including books by Harvard Business School Publishing and articles in MIT Sloan Management Review and Harvard Business Review. The development of this assessment instrument began in 2001 with an exhaustive review of the research literature over the last 40 years on personal factors that affect innovation. Followed by interviews and iteratively refined survey research, Drs. Dyer, Gregersen, and Christensen identified four key behaviorsand one cognitive skillthat play an important role in facilitating the generation of novel and useful business ideas.

Empirical Validation Study 1

This investigative research led to a complete survey to measure Discovery and Delivery skills. The Discovery skills were the construct of interest, and Drs. Dyer, Gregersen, and Christensen officially published their empirical measurement and validation of behaviors leading to innovation in Strategic Entrepreneurship Journal, a premier academic publication on entrepreneurship. The initial sample included 72 innovative entrepreneurs and 310 executives. The 72 innovative entrepreneurs had started a total of 137 innovative business ventures, based upon positive responses to How many new businesses (e.g., not franchises or a business where identical or close product substitutes were already on the market) have you started or cofounded as an entrepreneur based on your own, original (novel, unique) idea? The reliability alphas for each of the four Discovery behaviors evaluated in this study were quite high: Questioning Observing Networking Experimenting Cronbach Alpha = .74 Cronbach Alpha = .78 Cronbach Alpha = .78 Cronbach Alpha = .78

The items each held together strongly as separate factors. See below for the exploratory factor analysis results.

Innovators DNA Assessment Technical Report Table 2. Results of exploratory factor analysis of innovative entrepreneur behavior items Items / Factor 1 2 3 4 1. Experimenting E1 0.71 E2 0.67 E3 0.64 E4 0.59 E5 0.45 2. Questioning Q1 0.77 Q2 0.70 Q3 0.70 Q4 0.63 Q5 0.60 Q6 0.42 0.52 3. Observing O1 -0.72 O2 -0.72 O3 -0.70 O4 -0.44 4.Idea networking IN1 0.77 IN2 0.76 IN3 0.70 IN4 0.69 Alpha 0.78 0.74 0.78 0.78 Eigenvalue 6.05 2.13 1.21 1.16 Percentage of 31.88 11.21 6.38 6.09 variance
The cutoff point was 0.40.

10

The mean scores (on a 7 point scale) and standard deviations for each of the measures are provided below. The concurrent validity was examined by measuring the relationship between each of these characteristics and the number of innovative new businesses (co-)founded. As the following table shows, the behaviors were all statistically significant as correlated with starting innovative new businesses. Note also that the Discovery behaviors were related to each other.

Innovators DNA Assessment Technical Report Discovery Behavior 1. Questioning 2. Observing 3. Experimenting 4. Idea networking 5. Innovative new business Mean 5.48 4.93 4.93 4.29 1.29 S.D. 0.83 1.05 0.94 1.26 0.86 1 1.00 0.43** 0.39** 0.30** 0.12** 2 3 4

11

1.00 0.53** 0.54** 0.22* 1.00 0.51** 0.15** 1.00 0.24**

All correlations were statistically significant at the ** = .05 or * = .10 level.

Further, the discovery behavior constructs and concurrent validity were demonstrated through a negative binomial regression (see Appendix B), including important controls. The results from our quantitative study provide preliminary support for the assertion that innovative entrepreneurs are more likely than managers to engage in questioning, observing, experimenting, and idea networking behaviors. The regression results indicate that observing and experimenting were the most robust predictors of new venture creation, whereas questioning and networking were significant predictors of new venture creation when interacted with each other or the other discovery behaviors. Questioning is only a consistent predictor of new venture creation when interacted with each of the other behaviors separately. These results suggest that an individual who simply asks questions without actively observing, experimenting, or networking is unlikely to discover or act upon ideas for new venture creation. Given that many Discovery skills are normatively sanctioned, it was important to control for social desirability. While subsequent comparison of 360 versus individual responses (e.g., June 2011) have confirmed that social desirability bias is not a problem, in the initial study measures for social desirability were included (see construct items in Appendix A) and the most biased respondents answers thrown out, without materially affecting the findings. Indeed, there was a slight (but not significant) negative correlation between responses to the social desirability items and new venture creation, suggesting that innovators are less likely to give socially desirable answers. While 360 and individual responses are typically different from each other (usually 0.3 0.5 point apart), there are not consistent differences between those who are more or less prone to social desirability bias. This validation study examined the robustness of Discovery behaviors leading to innovation. That is, if the theory were sound, then these behaviors ought to be

Innovators DNA Assessment Technical Report

12

related to starting innovative business ventures. The results demonstrate that the measures are highly reliable and have strong validity.

Empirical Validation Study 2

A follow-up study included a sample of 1075 respondents. Innovators, who had created at least one of the following: innovative products (n = 296), innovative intrapreneurial ventures (n = 362), or innovative entrepreneurial ventures (n = 296), comprised 537 members of the sample. The alphas for each Discovery skill were even higher in this new sample than in the SEJ study: Questioning Observing Networking Experimenting Associating
Variable 1. Questioning 2. Observing 3. Idea networking 4. Experimenting 5. Associating 6. Innovative Entrepreneur 7. Innovative Intrapreneur 8. Innovative Products 9. Position Conscientiousness Mean 5.77 5.38 4.68 5.16 5.59 0.51 0.81 0.89 3.78 5.48 S.D. 0.03 0.03 0.05 0.04 0.03 0.04 0.05 0.06 0.05 0.03 1 1.00 0.50 0.39 0.52 0.60 0.25 0.21 0.20 0.19 0.24

Cronbach Alpha = .83 Cronbach Alpha = .84 Cronbach Alpha = .89 Cronbach Alpha = .79 Cronbach Alpha = .84
2 1.00 0.59 0.60 0.58 0.25 0.21 0.18 0.19 0.18 3 4 5 6 7 8 9

1.00 0.57 0.53 0.21 0.24 0.17 0.27 0.11 1.00 0.55 0.20 0.22 0.20 0.16 0.17

1.00 0.24 0.24 0.23 0.25 0.08 0.02

1.00 0.46 0.33 0.27 -.06 0.04 1.00 0.37 0.23 -.05 0.10 1.00 0.23 -.10 0.16 0.03 0.35

The means, standard deviations and correlations between variables were as shown above. All relationships shown were statistically significant at the 0.01 level or stronger, except for those with Conscientiousness, where less significant correlations are specified in italics.

Innovators DNA Assessment Technical Report

13

In addition to robustness checks on previous SEJ findings and those detailed above, a strong motivation for the study was to test concurrent validity of Position and Discovery skills. In psychological and organizational research (most famously Barrick & Mount, 1991), Position has been most strongly correlated with Conscientiousness, of individual personality traits. We wanted to see how closely correlated Position was related to Discovery, controlling for Conscientiousness (and individual demographic differences). Position was an ordered, categorical variable measured as shown below, in response to a dropdown selection from the item Current/Most Recent Position: Title Individual Contributor Direct Supervisor Functional Manager Business Unit Manager Senior Executive/VP CEO | or CEO Founder / Senior Exec Total reported n 27 69 338 156 171 75 836

An Ordered Logistic regression tested concurrent validity for Organization Position as related primarily to Discovery skills, plus demographic controls, number of intraprenuerial successes, and importantly, Conscientiousness. No variables were imputed. The results show that Discovery skills are much stronger for people at higher level positions (see appendix for ordered logistic regression). Higher level positions did not score higher on Conscientiousness, though generally individuals in management positions score higher on conscientiousness than individual contributors. However, those with higher level organizational positions did score higher on discovery skills. These results suggest that individuals at higher positions are either selected for Discovery skills, or their responsibilities expect it. Regardless of which interpretation is made, these results suggest that there may be a threshold effect with regard to Conscientiousness and management positions. One needs a certain proficiency at Conscientiousness to be considered for managerial positions. However, to rise to higher levels of the organization, one needs proficiency at the Discovery skills. Robustness checks (including individual Discovery skills, controlling for industry, etc.) yielded similar strength of concurrent validity for Position as correlated with Discovery skill. Currently, a longitudinal study is in progress to test

Innovators DNA Assessment Technical Report

14

the extent to which Discovery skills lead to promotion into higher positions versus Discovery skills are manifested more strongly in higher position duties. In the meantime, Study 2s results demonstrate a strong case for the importance of Discovery skills for those who wish to progress to higher levels of leadership.

Empirical Validation Studies for Social Sector

Business executives, MBAs, and business employees are not the only populations who have been studied. We have tested these findings in the social sector (social innovators, NGOs, and Teachers) and find similar results. That is, the alphas are consistently strong (all above 0.70) often even above earlier samples, and the correlation matrices demonstrate significant relationships between Discovery skills and innovation success in non-business sectors. For example, a sample of teachers yielded the following alphas: Questioning Cronbach Alpha = .86 Observing Cronbach Alpha = .88 Networking Cronbach Alpha = .91 Experimenting Cronbach Alpha = .91 These studies bolster the case for the external validity of the Innovator s DNA Assessment. Discovery skills are not merely applicable in a business context, but rather can help innovation efforts towards solving an even broader set of problems and challenges.

Innovators DNA Assessment Technical Report

15

Further Empirical Validation- Testing Predictive Validity

Two additional studies designed to test the predictive validity of discovery skills and a) innovation outcomes and b) organizational position are currently in progress. One study has already tested roughly 120 undergraduate business students on their Discovery Skills over the past three years with plans for an even larger sample (500) this year and next. Our goal is to use the Discovery Skills scores to predict which students will launch innovative new ventures. A second study is in progress to test the predictive validity of the Discovery Skills with regard to organizational position. This involves a follow up assessment of over 2,000 individuals who have previously taken the assessment. The goal of this study is to see whether Discovery Skills predicts which individuals were most likely to be promoted to higher level management positions. Longitudinal data will allow us to make appropriate causal inferences.

CONCLUSIONS
Innovation is crucial to organizational survival and advancement. The Innovators DNA Assessment allows measurement of the Discovery skills which lead to innovation. Knowing scores and relative rankings allows better decisions on how to hone those Discovery skills. Further, knowing these metrics allows optimal resource and role allocation to take advantage of unique sets of Discovery skills. The Innovators DNA aids in better application of existing innovation skills, and properly aims future skill development. Firms, managers, and individuals all need innovation. The Innovators DNA Assessment is the premier tool for diagnosis and prescription.

Innovators DNA Assessment Technical Report

16

APPENDIX A Measures
Questioning (alpha=0.74) 1. I am always asking questions. 2. I am constantly asking questions to get at the root of the problem. 3. Others are frustrated by the frequency of my questions. 4. I often ask questions that challenge the status quo. 5. I regularly ask questions that challenge others fundamental assumptions. 6. I am constantly asking questions to understand why products and projects underperform. Observing (alpha=0.78) 1. New business ideas often come to me when directly observing how people interact with products and services. 2. I have a continuous flow of new business ideas that comes through observing the world. 3. I regularly observe customers use of our companys products and services to get new ideas. 4. By paying attention to everyday experiences, I often get new business ideas. Experimenting/exploring (alpha=0.78) 1. I love to experiment to understand how things work and to create new ways of doing things. 2. I frequently experiment to create new ways of doing things. 3. I am adventurous, always looking for new experiences. 4. I actively search for new ideas through experimenting. 5. I have a history of taking things apart. Idea networking (alpha=0.78) 1. I have a network of individuals whom I trust to bring a new perspective and refine new ideas. 2. I attend many diverse professional and/or academic conferences outside of my industry/profession. 3. I initiate meetings with people outside of my industry to spark ideas for a new product, service, or customer base. 4. I have a large network of contacts with whom I frequently interact to get ideas for new products, services, and customers

Innovators DNA Assessment Technical Report

17

NOTE: The above items are the property of Innovators DNA Inc. and are not available for private use without written permission from Innovators DNA Inc. Conscientiousness items, adapted to work context (alpha=0.84) 1. Do not make rash decisions. 2. Do careful analysis to make well-thought-out decisions at work. 3. Do not jump into new projects and ventures or act quickly without careful thinking and analysis. 4. Do work according to an organized plan. 5. Must have everything finished 'just right' when completing a work assignment. 6. Pay attention to details at work. 7. Am careful to avoid making mistakes. 8. Consistently follow through on all commitments and finish what is started. 9. Hold self and others strictly accountable for getting results. 10. Don't need a push to get started on new tasks and assignments. Social Desirability items 1. I can remember playing sick to get out of something. 2. There have been a few times when I felt like rebelling against people in authority even when I knew they were right. 3. On a few occasions I have given up doing something because I thought too little of my ability. 4. I am always willing to admit it when I make a mistake. 5. No matter who Im talking to, Im always a good listener. 6. There have been occasions when I took advantage of someone. 7. When I dont know something I easily admit it. 8. I sometimes try to get even rather than forgive and forget. 9. I have never deliberately said something to hurt someones feelings. 10. I am sometimes irritated by people who ask favors of me.

Innovators DNA Assessment Technical Report

18

Appendix B Negative Binomial Regression (Study 1)

Column 1 Negative binomial Innovative ventures founded 0.008 (0.01) 0.149 (4.86)** 0.436 (5.67)*** -0.223 (1.67) Column 2 Negative binomial Innovative ventures founded -0.013 (0.03) 0.076 (1.00) 0.436 (5.72)*** -0.230 (1.80) 0.152 (4.26)** 0.278 (4.81)** 0.296 (4.84)** 0.003 (0.39) 0.056 (5.10)** 0.950 (19.93)*** 382 375 381.5 -741.1 0.003 (0.51) -0.051 -0.054 (4.68)** (4.23)** 0.928 0.955 (19.08)*** (20.32)*** 382 374 379.1 -739.1 382 374 378.7 -738.9 0.003 (0.54) 0.003 (0.38) -0.052 (4.32)** 0.970 (20.91)*** 382 374 348.5 -738.7 Column 3 Negative binomial Innovative ventures founded -0.102 (1.28) 0.157 (5.39)** 0.255 (1.62) -0.193 (1.27) Column 4 Negative binomial Innovative ventures founded -0.113 (1.50) 0.149 (4.88)** 0.394 (4.62)** -0.320 (2.32)

Method Dependent variable Behavioral factors Questioning Observing Experimenting Networking Question * observing Question * experiment Question * networking Control variables Age Education Intercept Number of observations DF Pearson chi-square Log likelihood

Notes: All significant tests are two-tailed. * indicates p <0.10, ** indicates p <0.05, and *** indicates p <0.01. For the regression coefficients, the t-statistic (Wald chi-square) is provided in parenthesis.

Innovators DNA Assessment Technical Report

19

Appendix C Ordered Logistic Regression (Study 2)

Iteration Iteration Iteration Iteration Iteration 0: 1: 2: 3: 4: log log log log log likelihood likelihood likelihood likelihood likelihood = = = = = -1049.5775 -981.27738 -979.77482 -979.77054 -979.77054

Ordered logistic regression Log likelihood = -979.77054

Number of obs LR chi2(7) Prob > chi2 Pseudo R2

= = = =

688 139.61 0.0000 0.0665

-----------------------------------------------------------------------------position | Coef. Std. Err. z P>|z| [95% Conf. Interval] -------------+---------------------------------------------------------------discovery_~g | .607676 .0965529 6.29 0.000 .4184357 .7969162 age | .0591422 .0092781 6.37 0.000 .0409575 .077327 education | -.0898597 .0919575 -0.98 0.328 -.2700932 .0903737 female | .3519692 .1591954 2.21 0.027 .0399519 .6639865 us_nationa~y | -.1435725 .1451922 -0.99 0.323 -.428144 .140999 newbiz_inc~s | .2843444 .0645449 4.41 0.000 .1578386 .4108501 conscient_avg| -.0259025 .0087637 -2.96 0.003 -.0430791 -.0087259 -------------+---------------------------------------------------------------/cut1 | -.2949672 .7518539 -1.768574 1.178639 /cut2 | .8490939 .7377928 -.5969534 2.295141 /cut3 | 3.338204 .747348 1.873429 4.80298 /cut4 | 4.286601 .7542044 2.808388 5.764815 /cut5 | 5.969984 .7694917 4.461808 7.47816 ------------------------------------------------------------------------------

Innovators DNA Assessment Technical Report End Notes

1

20

How the Innovation Premium is Calculated.

Step 1: In assessing a companys current valuation, HOLT determines the next two years of cash generation from existing businesses for each firm based upon the consensus estimate of earnings and revenues by analysts. The consensus estimate of earnings and revenues is based on the median of the combined estimates of carefully screened analysts covering a public company as selected by Institutional Brokers Estimate System [I/B/E/S]). Benchmarks for historical periods (as are used in the Innovation Premium) use actual reported profitability and reinvestment rates as the starting point for the cash flow forecasts. Step 2: HOLT then projects future free cash flows over the next 38 years from existing businesses based upon fade algorithms developed from an analysis of historical cash flows from over 45,000 firms and more than 500,000 data points. The concept of fade embodies the commonsense notion that competition is the one enduring constant in free markets (ala Schumpeters creative destruction) and that technological change and changing market dynamics all militate against the persistence of excessively high returns (this is consistent with prior research that consistently shows a regression to the mean effect with regard to firm profitability). The fade algorithm for a given company is based upon the following: a) The forward two year consensus estimate of ROI level. Firms with higher levels of profitability and ROI maintain higher returns into the future. However, the historical experience of most firms shows a regression to the mean effect, meaning that high ROIs will gradually fade towards the average ROI of firms in the economy. The higher the current level of profit, the faster the expected decline. (Firms will tend to maintain their rank order; however, the spread between the top and bottom performers tends to narrow.) b) Historical ROI volatility (over the previous five years). The greater the volatility of ROI historically, the faster the firms ROI tends to fade towards the average of all firms going forward. Firms with consistent and stable ROI are more likely to maintain a consistent ROI into the future. c) A companys reinvestment rate. The faster a companys recent growth and the greater the amount of cash it has reinvested, the faster the firms ROI will fade towards the mean profitability of firms in the economy. Its hard enough for a management team to maintain high levels of financial performance; doing this while also growing rapidly is even more difficult. Step 3:

Innovators DNA Assessment Technical Report

21

The difference between the companys total enterprise value (market value of equity plus total debt) and this value of existing business constitutes the Innovation Premium, expressed as a percentage of the enterprise value, While HOLTs fade algorithm is based specifically on the historical and future projected performance of the given firm, it may appear to reflect sector identification or industry position. To the extent that firms in an industry or sector share the characteristics of ROI level, variability, and reinvestment, the pattern of fade will also be similar. There is also an apparent correlation between a companys fade expectations and its position in the industry, since most industry leaders have higher and more stable rates of ROI and having been through their growth phase in achieving their leadership position, no longer need to grow at aboveaverage rates. Finally, we require at least 10 years of financial data for a given firm in order to be considered on our list of most innovative companies. We also use a Research and Development screen requiring that companies make some investment in research and development. Also, to control for size differences we only include those with a market value greater than $10 billion. The innovation premium shown in the tables in this chapter reflects a weighted average innovation premium over five years with the weighting as follows: most recent year (30%), years 2-4 (20%), year 5 (10%).