Dutch ASML became the 32nd most expensive company in Europe. Apple became a trillion-dollar company. But Nokia and Kodak suffered colossal damages to their businesses. And Taiwan has attained high-income status. The underlying reason is straightforward—whether to grow ideas into profitable revenue or waste in a competitive market. Should we credit successes and blame failures to the innovation ecosystem? Are these successes and failures just outcomes of the national innovation system forming the innovation ecosystem? If that were true, why cannot Dutch keep breeding ASML-like companies one after another?
Despite the failure of Kodak, why has the USA been witnessing the growth of Apple, Tesla, and many more? Similarly, upon investing billions in strengthening the innovation ecosystem, why has Canada been suffering from erosion of its ability to create economic value from innovation? On the other hand, despite steady growth in the innovation index, why has Malaysia been getting poorer than Taiwan and South Korea?
Researchers have come up with a triple helix model for defining the innovation ecosystem. Government, academia, and industry interact in facilitating, generating, and commercializing ideas. The upgradation of the triple helix model has been quadruple and quintuple innovation helix frameworks. They describe university-industry-government-public-environment interactions within a knowledge economy. Researchers have developed those models for theorizing innovation economy—creating value from knowledge. Hence, due to the growing urgency of driving economic growth out of knowledge, there has been an emphasis on building the innovation ecosystem. Some of the standard building blocks are (i) high-quality universities, (ii) R&D centers, (iii) generous government funding for R&D, (iv) quality infrastructures, (v) the rule of law for fair competition, (vi) IP legal framework, and (vii) risk capital financing.
The genesis of creating economic value from knowledge and ideas
Creating economic value from ideas is not a recent development. It has been with us since the very beginning of human existence on this planet. To meet the urgency of getting jobs done better, humans have been on a relentless journey. They have been gathering knowledge and feeding it to the creative system in generating ideas. In the beginning, they used to rely on craftsmanship to implement them. Still today, some people rely on craftsmanship for idea implementation; we call it grassroots innovation. Hence, long before the formation of the Government and formal education system, let alone universities and R&D centers, human beings started an innovation economy. Therefore, without the presence of a conventional innovation ecosystem, our ancestors started economic value creation from knowledge gathering and idea production. Hence, the invention of the light bulb by Edison or the invention of automobiles by bicycle mechanics were no surprise.
In the 19th century, American society started to gain economic growth from innovation without the presence of a triple helix or many other innovation ecosystems. But despite massive investment in developing an innovation ecosystem, countries like Malaysia have been drawing a few benefits from innovation. Furthermore, despite the significant advancement of the national innovation system, the USA has lost many inventions like the light bulb or the camera to Japan and a few other countries. On the other hand, although Silicon valley’s ecosystem is perceived to be a role model, the valley has lost its silicon edge to little island Taiwan. Such reality raises a question: how far does the innovation ecosystem contributes to economic growth?
The innovation ecosystem tends to follow a linear model of innovation
It’s very easy to think that research will produce knowledge that will distill inventions—rolling out innovations. Yes, such a linear model does have the potential. For example, research done over decades has led to the invention of nuclear resonance imaging. But is it sufficient to create an innovation economy? If it were the case, why have Canada, Australia, and a few other countries been struggling to develop a strong innovation economy?
On the other hand, many great ideas, from cameras to automobiles, started the journey of tinkering efforts. Furthermore, are great ideas, whether formed through scientific discoveries or tinkering, good enough to consistently create wealth, developing an innovation economy?
Irrespective of the greatness of scientific discoveries or creative sparks, every big idea begins the journey in primitive form. They do not start the journey of creating economic value. They need to be grown. But as they grow and start showing profitable revenue potential, competition shows up—from anywhere in the world. As a result, sometimes, inventions migrate across national boundaries, making inventing countries importers. Therefore, the innovation ecosystem risks wasteful investment.
Role of incremental innovation—is the innovation ecosystem good enough?
As explained, embryonic ideas must be grown, requiring a flow of complementary ideas. Ensuring the systematic idea flow to keep increasing the perceived value and decreasing cost is a big challenge in turning ideas into economic value. Such reality demands empathy and passion for perfection. Often, the conventional innovation ecosystem does not offer this cultural trait. But in the absence of it, the innovation ecosystem fails to keep producing ideas that matter for the innovation economy. For example, although Xerox’s research center developed a graphical user interface, it was unable to create economic value due to a lack of empathy—subsequently shown by Steve Jobs. On the other hand, the invention of the Transistor, Charge Coupled Device, and many others was useless to the innovation economy. Empathy and passion for perfection became the driving force in leveraging the innovation ecosystem to grow them through a flow of incremental ideas.
Pursuing a creative wave of destruction
Invariably, the life cycle of all great ideas reaches saturation, easing the economic value creation from the additional flow of ideas. Yes, the innovation ecosystem maters to reinvent itself to create a new wave of growth. But that is not sufficient. It demands an understanding of innovation dynamics and timely and synchronized responses. Often, new entrants, having access to a weak innovation ecosystem, succeed in reinvention, migrating the innovation epicenter. For example, in the 1970s and 1980s, Taiwan’s innovation ecosystem for Silicon was far inferior to that of Silicon Valley or Japan. But despite this reality, Taiwan has taken away the global silicon edge—making it an advanced economy. Along the way, Taiwan has been developing its suitable innovation ecosystem. But the USA’s superior innovation system creating Silicon success could not retain it. Because, actors failed to predict and act on creating and leveraging a new wave.
Ensuring synchronized response at the right time and the right strategy
Innovation success distills neither from a linear model nor individual solo creativity. The globally connected competitive market economy has turned the innovation economy into an intense race. Even though winners take all, winners are constantly at risk to sustain their position. Hence, the focus should be on (i) theorizing innovation dynamics, (ii) collecting intelligence, (iii) predicting the unfolding future, (iv) detecting entry, growth, and migration opportunities, (v) forming strategy, and (vi) ensuring synchronized responses.
Flawed thinking about innovation ecosystem for developing an innovation economy
Notably, upon exhausting natural resources and labor, aspiring developing countries have targeted to enter an innovation economy for sustaining growth. Hence, they have been accelerating investments in higher education, R&D, infrastructure, technology adoption, and many other tangible areas. But unfortunately, they are not focusing on innovation dynamics and targeting a few products for incremental advancement and reinvention. Instead, they are after number of publications and graduates and patent counts. They measure uplifting positions in the innovation index and university ranking as indicators of progress. Such exercise has already been causing stress on foreign currency reserves and worsening graduate unemployment.
If the linear model out of the innovation ecosystem were sufficient, all countries could have reached high-income status through an innovation economy. Creating economic benefits out of innovation is about winning the global innovation race. This is far different from than linear approach to innovation. Yes, the innovation ecosystem matters, but that is not sufficient.