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What makes up innovation as we look at it today into the future?
Technological innovation encompasses more than research and development. However, since research and development is key, many policymakers have been keen to focus on ways in which they can be improved. Common areas of focus include national systems for research funding, systems for awarding and protecting patents (which are sometimes state-subsidized), the improvement of translating university research into value for the private sector; and tax incentives for innovative firms (such as R&D tax credits, or special tax regimes for revenue derived from the intellectual property).
R&D tends to be heavily concentrated. The Organization for Economic Co-Operation and Development’s Science, Technology and Industry Scoreboard 2017 reported that the 50 largest R&D performers account for 40% of all business R&D efforts in Canada and the US, and for more than half of such efforts in Germany and Japan. In addition, according to the report, the headquarters of the top 2,000 R&D corporations worldwide are concentrated mostly in the US, China, and Japan; about 70% of these firms’ total R&D spending is concentrated within just 200 firms. Organizations undertaking technical research may not have the expertise or the desire to bring new products to market, so innovation often entails transferring knowledge and technology from universities and research groups to other entities - often in conjunction with the licensing of intellectual property.
Artificial intelligence may yet rank among historic developments like the steam engine and the automobile
Some innovation, like the development of new pharmaceuticals, has an obvious and direct link to novel scientific research; other types may result from using existing technology in a new way, or even from developments in unrelated fields. Many companies behind the sharing economy, for example, are essentially offshoots of existing internet and smartphone technologies. While emerging technologies like drones and 3D printing may create new markets and disrupt existing value networks, radical technical innovation in the form of so-called "general purpose" technologies has the potential to disrupt entire groups of industries; examples include the steam engine, the automobile, the computer, the internet and, potentially, artificial intelligence - all of which have had profound consequences for society.
An alternative route to market, which may be preferable where no suitable organization already exists or where there is an opportunity to capture more value, is to form a startup or spinoff. In order to facilitate technological innovation in specific industries, some countries have established intermediary institutions, like Germany’s Fraunhofer Society institutes and the United Kingdom’s Catapult Centres.
Business Model Innovation
Business model innovation often flows from a unique take on customer needs, and on the best ways to satisfy them. The idea of software-as-a-service, for example, represented by offerings like Salesforce tools for businesses or Gmail, was driven by firms that realized customers do not necessarily care about owning software outright. Customer needs, however, are multi-faceted and often poorly articulated, making it a challenge for firms to judge whether or not a business model innovation has delivered what people actually want. As Clayton Christensen wrote in his 1997 book The Innovator's Dilemma, disruptive innovation of any sort will often first gain traction with a customer base that is difficult to identify (which is why many firms fatally ignore the threat of disruptive innovation until it is too late).
The internet has given us Netflix, freemium models and the rapid disappearance of physical shops
There is some evidence that business model innovation may provide greater competitive advantage, and shareholder returns, than product or service innovation. However, successful business model innovation often requires simultaneous change in multiple parts of an organization, the development of all new competencies, and, potentially, the cannibalization of existing products or services.
The internet has altered distribution channels (compare Netflix’s online content distribution with now-antiquated video rental stores), and enabled supply chain disintermediation; Dell and Amazon can now bypass traditional retail space and sell directly to consumers (according to a report published by Deloitte, a record annual total of 6,885 physical stores had already closed in the US during 2017 by December 1 of that year).
The internet has also given rise to the “freemium” model for services and software; Dropbox, for example, makes basic file storage free but charges for additional capacity. Offshoring has also been a result, as things like basic IT functions move to relatively low-cost places like Bangalore. Another result: a proliferation of businesses, like Facebook, trafficking in personal data and advertising.
Many successful innovators are said to have re-written the rules of their industry - which usually means that they managed to change accepted practices, and disrupt established relationships. Although not all business model innovation involves new technology, a lot of it has been driven by information and communications technologies that both enable the rapid reconfiguration of value networks and give rise to new forms of value creation.
A systemic view can be useful at the local level; people working with startups often refer to "startup ecosystems," for example, to describe the networks of organizations, both private and public, from which young enterprises can draw resources. Many efforts to improve entrepreneurship have focused on enriching these ecosystems with measures designed to facilitate connections and improve density. Innovation systems also exist in a narrower sense - many collective intelligence tools, such as wikis (websites developed and overseen by communities) and prediction markets enable people to make judgments that may be better than otherwise possible. It’s important to note that the notion of an “innovation system” is different from “systems innovation” - the latter refers to the challenges of innovating by re-configuring complex systems, like national health care systems or financial systems, and is often challenging because it requires coordinated action by multiple actors while creating complex feedback loops that lead to unpredictable, and sometimes unintended consequences.
Innovation does not occur in isolation and requires a diverse cast of characters
Innovation tends to involve a lot of players; innovation systems are composed of research institutions, universities, national laboratories, hospitals, corporations, startups, venture capitalists, and patent attorneys. The public sector can play a key role, in the form of funding bodies and intermediary organizations like technology transfer offices and accelerators (programs designed to turn raw startups into young companies).
The ways in which these participants interact are complex, and subject to local quirks like tax breaks, regulations, patent treaties, and competition rules. They are also influenced by factors including the availability of codified knowledge (publications and standards).
A lot of innovation policy has focused on filling institutional voids, improving innovation capability, and strengthening networks; in some countries, there are dedicated innovation agencies that aim to serve as system fixers by addressing failures in markets and networks, often without preference for specific technologies or sectors. Enterprise Singapore, for example, was formed in the city state in 2018 to champion entrepreneurial innovation while overseeing standards and accreditation.
Innovation for Social Benefit
Social innovation is often defined as innovation that aims to both tackle social problems and upgrade the means used to address those problems. This can take the form of new products, services, initiatives, organizational models, or simply novel approaches to accessing public goods - often achieved by creatively re-combining already-existing elements. The field has developed rapidly in recent years, as new sources of funding, public policies, academic research, and networks are developed to service it.
Profit is not the only source of inspiration for innovators
The everyday work of social innovation typically happens within social enterprises (organizations trying to solve social problems by using practical, market-based approaches), charities, non-governmental organizations, social movements, or patient groups. Universities, large companies, and governments can also play important roles, particularly in terms of validating and scaling up valuable ideas; past examples of this scaling up include the expansion of the kindergarten movement to privately-run nurseries, the construction of public playgrounds, and the commercialization of open-source software developed by communities).
One particularly interesting area of social innovation involves the development of tools used to support digital democracy, or “civic tech,” designed to encourage broader civic engagement - by, for example, promoting political campaigns, working to stop corruption, or helping communities self-organize. Social innovation faces barriers that are different from those standing in the way of other kinds of innovation, however.
The lack of immediately-apparent commercial incentives in social innovation typically makes it more difficult to raise the capital needed to support it, for example, and some innovation can threaten existing power structures - which may respond accordingly. In order to cope with such challenges, the people driving social innovation may sometimes deploy “frugal innovation”; closely tied to the Indian concept of “jugaad innovation,” frugal innovation involves doing more with less in order to reach normally-overlooked consumers, or to make scarce public resources stretch further.
Examples of social innovation are all around us; they include everything from kindergartens and hospices to more modern innovations like Wikipedia and microfinance (small loans made to entrepreneurs in the developing world without access to traditional bank loans).
One example of this is the M-Pesa mobile phone-based payment and microfinancing service, which has been deployed in countries in Africa, Asia, and eastern Europe to enable people to access banking services on an everyday device - without requiring access to an actual bank.
A lot of government innovation is being spurred by new approaches to digitalization, in the form of digital services, smart cities, and open data (made freely available for reuse). Estonia is perhaps a leading example; the country has established secure digital authentication and digital signatures, enabling more online interaction. On a more local level, city governments are weaving the Internet of Things, which ties devices together via an internet connection, into the fabric of cities in order to better address hot spots for crime, or to determine where emergency responders should be positioned at different times of the day.
Governments are spurring innovation, while benefiting from new ways to fix potholes and reduce crime. Disillusionment has fueled innovation aimed at making government more representative. Examples of “digital democracy” tools include systems that enable people to receive real-time notifications about issues important to them, new methods of crowdsourcing and collaboration, new means of participatory budgeting, and software that can make online voting secure. Some public-minded innovation draws on diverse pools of knowledge and expertise to solve complex problems. For example, a number of ambulance authorities now use GoodSAM, a mobile system that can alert trained first responders when someone in their vicinity may be suffering cardiac arrest, and also locate the nearest defibrillator.
Some cities are using information delivered via apps like StreetBump to locate and prioritize potholes for repair. However, government innovation is often stifled by bureaucracy. For that reason, many governments have established dedicated innovation teams designed to overcome the inertia of large public entities and provide space for experimentation.
"Government" may not be the first thing that comes to mind when one thinks about innovation, but some of the greatest innovations - like space flight and the internet - have only been made possible because governments took risks and provided the resources needed to scale up big ideas. Governments themselves also require innovation. They are generally faced with significant expectations, shrinking budgets, and fragile public trust; adequately responding requires new tools, and entirely new models.
The London Datastore, a free, publicly-funded data portal, provides datasets to help enterprising members of the public develop solutions for London’s problems; one result is Citymapper, an app that makes use of open data from public transport operators to provide real-time alerts. Meanwhile citizen-generated data is being used by many governments to make processes more efficient.
The next wave of digital change is here, providing forward-looking companies with an opportunity to act today to be ready for the future.
Innovation is the process of turning new ideas into value, in the form of new products, services, or ways of doing things. It is deceptively complex, and goes beyond mere creativity and invention to include the practical steps necessary for facilitating adoption.
New innovations tend to build on earlier versions, in a way that fuels the vast majority of the world's productivity and economic growth. It is now abundantly clear that truly innovative firms can significantly outperform their peers if they are allowed to flourish.
The physical world is coming alive with new capabilities, environment by environment, each with its own rules. We already have small-scale intelligent physical worlds like smart factories, intelligent cruise ships, and automated ports.
According to The Tech Trends Report of 2022 by Deloitte, Tomorrow we’ll see these grow into smart neighborhoods, cities and countries, where massive digital twins mirror physical reality. And purely digital worlds are expanding as well. Major companies will have their own internal metaverses to let employees work and interact from anywhere. In our free time, new consumer metaverses will transport us to almost any type of world we can imagine, to play games, socialize or relax.