We are all after innovation. It’s human beings’ inherent ability and urge to keep recreating. Due to it, our society has been progressing. But what is innovation, and how to detect its opportunities? Is it a creative spark in the minds of creative genii? Despite the importance, why do startups begin the journey in loss and suffer from a high failure rate?
Despite the growing role of innovation in shaping business and our life, we are not often intuitively clear about many aspects of it. As a result, often, we get confused about how innovations grow and transform our society. Due to the high failure rate of innovative products and startups, we often think that innovations are a magical act of heroic characters. Furthermore, innovations are not benign. Besides, policy and management issues deserve attention. Hence, this article attempts to clarify 16 critical questions. These are:
- What is innovation?
- Why is innovation important?
- How does innovation differ from invention?
- What are their different types?
- How to we detect innovation opportunities?
- Why is a competitive market conducive to the growth of innovation?
- Why do startups fail, and why is innovation success uncertain?
- What is disruptive innovation?
- How does innovation diffuse in society?
- What are incremental and sustaining innovations?
- Why and how does innovation evolve and mature like living things?
- How to scale up?
- Do innovations kill jobs, harm the environment, and create inequality?
- How to manage?
- Does policy matter?
- How to develop an innovation culture and organizational capacity?
What is innovation?
Starting from getting a shower to moving from one place to another, we are always busy performing many jobs. And we have an endless desire to perform those jobs better, taking fewer resources, time, and effort. Hence, we are after ideas for finding better means of accomplishing those jobs. Innovation is about getting jobs done better with ideas. Innovations could be as simple as having an electric kettle and using it to get hot water. Or, it could be as complex as an airplane helping us fly from one place to another. Due to innovation, we are getting better products, making existing products obsolete. Innovation is also offering us new products, like Microwave Oven, which we did not have in the 1940s. Due to innovation, we have a better process of using products in a specific sequence to perform our numerous jobs.
Why is innovation important?
Let’s imagine life without having a phone, television, microwave oven, and many more products we use today. These products have been helping us in performing jobs by consuming fewer resources and creating more convenience. Without a telephone, we had to spend time and resources to travel to pass a message. Like the telephone, all innovations help us reduce resource consumption, save time, and create more comfort. Hence, innovation has been our core capacity for creating increasing wealth from depleting resources. Due to innovation, a growing number of fellow human beings have been enjoying an increasing quality of living standard.
How does innovation differ from invention?
In the discussion about innovation, we often get confused with the invention. An invention is an essential technique or technology of practical means, like how to produce light with electricity. Out of that technique, we innovate products and processes. For example, out of the invention of making light by passing electricity through a filament, Thomas Alva Edison invented the electric light bulb technology. We innovated different light bulbs for household, office, and street usages based on that technology invention. Yes, the progression of invented technologies improves innovations too. For example, the extension of filament’s life also improved the utility of light bulb innovations. Similarly, the automobile is a technology invention, out of which we have innovated numerous types of vehicles. Hence, the invention is the underlying technology core powering innovations.
What are the different types?
There are three major innovation types: product, process, and business model. Technology invention opens the opportunity for product innovation. Besides, the progression of the technology lifecycle keeps expanding innovation opportunities. For example, the invention of the technique of scanning images, sending over radio waves, and capturing and reproducing captured images created television technology. This technology led to the innovation of Television sets. The continued growth of this technology has been fueling the scope of innovation in varying types of television sets. The same is true for mobile handsets, automobiles, light bulbs, etc. In addition to products, technological invention also allows for innovative processes. For example, the invention of robotics has been at the core of production process innovation. Similarly, different product innovations have led to cooking process innovation.
Business model innovation is also significant. For example, advertisement-based three-party business model innovation has brought enormous success to Internet companies like Google and Facebook.
How to detect innovation opportunities?
Innovation is a big business. It is at the core of great companies like Microsoft, Toyota, Intel, Apple, and many more. Besides, Bill Gates, Elon Musk, and many others have become astronomical rich due to innovation. Hence, we are all after innovative ideas. But how do we detect innovation opportunities? Is it about just thinking differently, breaking the rules, collecting ideas everywhere, and believing in the impossible? They are essential but not sufficient. As opposed to being genius and randomly gathering ideas, we need a systematic process of finding ideas for creating wealth for both the producer and consumers.
For example, upon the innovation of the iPhone, Apple did not jump to innovate another great product. Instead, Apple has been systematically generating, gathering, and filtering out ideas to keep improving the same iPhone. Hence, detecting innovation opportunities demands a clear focus on innovating products, processes, and business models and enhancing them with a flow of ideas.
Why is a competitive market conducive?
Are not creativity, scientific discovery, and technology inventions good enough for innovation? Unfortunately, No. Invariably, all inventions emerge in primitive form. Starting from the cellular phone and television to airplanes, we have examples all around us. In reality, innovations arise having potential latent. We need a flow of ideas for unlocking. It happens that profit-making competition in making innovations increasingly better is a powerful means for this purpose. Due to it, despite having success in scientific discoveries and inventions, innovations in the former Soviet Union did not grow as fast as they did in market economies.
Why do startups fail, and why is innovation success uncertain?
Although innovations are at the core of our economic prosperity, why are we witnessing high startup failure? Yes, more than 90 percent of startups have been failing in taking innovations to market. On the other hand, as high as 80 percent of innovative products retire before generating profitable revenue. First of all, irrespective of the greatness, innovations appear to cause loss-making income. For example, Tesla’s electric vehicles showed up at a profound loss in the market. To turn that loss into profit, a flow of ideas is needed. Often, startups fail to create that flow. Among the reasons, technology uncertainty is a major one. Furthermore, the success of innovation depends on how they perform in the competition race. Hence, uncertainty and failures are inherent characteristics of succeeding with innovation.
What is disruptive innovation?
If an innovation grows as a substitute to an existing mature product and incumbent firms in producing that mature product fail to switch, incumbent firms suffer from loss of business. If an innovation causes this effect, we call it disruptive innovation. For example, iPhone emerged as a better substitute for keyboard-centric smartphone design due to the multitouch-based user interface. Like Nokia, RIM and a few smartphone makers could not switch and suffered from the burnt. Hence, iPhone unleashed its disruptive innovation effect on these once-dominant smartphone makers. But Samsung succeeded in switching and avoiding the burn from iPhone.
How do innovations diffuse in society?
If innovation is a static public good, it may diffuse as a social phenomenon. But technological innovation shows quite a different characteristic. Due to their uniqueness, only a few customers will find them useful early in the lifecycle. But to diffuse through other segments, innovations must grow and get released as successive better versions. As a result, technological innovations diffuse as a series of wavelets, forming a mega wave. For example, the digital camera served unique requirements like imaging-based real-time industrial control in the early days. But it grew and unfolded as successive better versions destroying film-based imaging.
What are incremental and sustaining innovations?
As explained, irrespective of greatness, all innovations emerge in primitive form. Hence, the race continues advancing existing features and adding new ones through incremental advancement. For example, Television, Automobiles, and many other innovations have progressed through a series of incremental steps. As multiple innovations are in a race in the competitive market, every innovation suffers from the erosion of willingness to pay. Hence, upon release, innovations have a natural tendency to drift downward. To counter it, innovators are bound to keep releasing successive better versions, with a burst of incremental features—giving birth to sustaining innovation effect.
Why and how does innovation evolve and mature like living things?
As stated, all innovations emerge in primitive form. In the beginning, there were only a few customers. For example, by 1899, German automobile makers sold only 900 cars. Similarly, there were just a few customers for mobile phones and microwave ovens in their early days. Innovators keep making innovations better and even less costly with empathy and technological advancement. As a result, innovations keep evolving. But they mature, forming an S-curve-like lifecycle. Often at maturity, innovations find new paths of growth due to the reinvention of the technology core. For example, in the 1950s, Radio and, in the 1960s, TV was reinvented by Sony.
Similarly, Tesla has been leading the reinvention of automobiles. Due to the maturity creating an S-curve-like lifecycle and the formation of new waves out of reinvention, innovations keep evolving in episodic form through successive waves. For example, computer storage has been evolving through a series of waves, like floppy diskettes, CD Rom, flash drives, and cloud drives.
How to scale up?
Scaling up innovation is a core challenge in creating a market. It’s not about economies of scale out of spreading capital expenditure over the growing number of units. To scale up innovation, producers face two challenges: (i) creating a growing willingness to pay among an increasing number of customers and (ii) reducing the cost of production. Hence, innovators embarked on R&D to create a flow of ideas for reducing the cost and increasing the willingness to pay. Yes, R&D increases capital expenditure, but the marginal cost of replication of R&D outputs is negligible. For example, at birth in 1947, the willingness to pay for Microwave Oven was quite low, and the cost of production was very high. To scale it up, Japanese Sharp got into R&D, resulting in a smaller and better microwave oven at less cost—creating the scale effect.
Do innovations kill jobs, harm the environment, and increase inequality?
Yes, innovations kill jobs and cause harm to the environment. For example, telephone switch room innovation through automation has killed jobs. Similarly, robotic process innovation has been destroying jobs on the factory floor. But they are also creating jobs for R&D and other areas. But what is the net effect? It depends on the innovations and their maturity level. There is no denying that innovations cause harm to the environment for increasing consumption and causing emissions. But innovations also have the potential to reduce them. The net effect depends on the state of maturity, reinvention, and the governance framework. Furthermore, innovations have a natural tendency of creating inequality, as ideas out of high-paying R&D jobs kill low-paying labor and natural resource supplying jobs.
How to manage?
Managing innovation is challenging indeed. First of all, in contrary to common belief, innovations emerge in generating a loss. Hence, they should be improved through incremental advancement. Therefore, we need a flow of ideas. But not all of the ideas have a positive effect. Thus, in addition to producing ideas, management faces filtering challenges. Besides, for dealing with sustaining innovation challenges, management needs to deal with a predictable response. On the other hand, as innovations mature, the management faces a decision-making dilemma to embark on recreation out of self-destruction. In failing to do so, many incumbent large firms disappear, leaving the door for the new entrants to grow as giants. Hence, we need to focus on managing it in the market economy.
Does policy matter?
Often, we think of the natural correlation between education, research, creativity, publications, patents, and innovation. Unfortunately, in reality, it’s fragile. For example, 94% of patents fail to find applications. In addition to the supply of ideas, we also need to create demand by turning ideas into profitable product and process features. In many cases, potential opportunities out of ideas suffer from market failure. Hence, policy should look for creating and strengthening the market for ideas. The role of policies in developing the market for renewable energy and electric vehicle is a good example.
On the other hand, as innovations kill jobs, cause harm to the environment, and increase inequality, there should be a balanced transformation. Hence, innovation policy matters. Besides, in many cases, adopting innovation as a substitute for subsidies plays a vital role in the growth and diffusion.
How to develop an innovation culture and organizational capacity?
After reading all of these, we would like to know how to develop an innovation culture and organization capacity. At the core of it is empathy and passion for perfection. In this regard, the lesson from Apple’s innovation capacity developed out of empathy culture is quite important. Furthermore, innovations are not about playing with ideas. It’s about winning the global race. Hence, understanding innovation dynamics as reoccurring patterns highly matters for developing organizational capacity.
In shedding light on what innovation is, this write-up has attempted to clarify 16 significant dimensions. For sure, each of them deserves further explanations. I hope some of the references mentioned in this write-up would be useful.
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