The "binary" purpose of innovation

The concept of innovation is so broad that we probably enjoy stopping for a moment on the side of the road to breathe and reflect on the vast amount of information that keeps appearing on the subject. There is something for everyone and the forest is big. Very big.

On this occasion, I propose to reflect on the purpose of innovation: why should we (or should we not) innovate? Let this fundamental question be our starting point.

But first, let's refresh our memory with a key definition to frame this exercise: What do we understand by innovation? I'm sure everyone has a valid definition in this regard, but for practical purposes I suggest the following: the process that aims to successfully introduce new solutions to a "market."

So why should we bother investing time, effort and money into developing and introducing new solutions to the market? What's the incentive? Why not just leave things as they are?

I believe that at the core of the purpose of innovation (the “big why”) we find such “primary” instincts as survival and progress, two sides of the same coin that are in a constant state of tension. In other words, we innovate out of fear or out of ambition. Fear of being attacked and lose our “privileged” position which activates a defense mechanism to develop and launch solutions that hopefully will minimise the identified risks (survive). Ambition to overcome an unsatisfactory reality puts us in attack mode, ready to develop and spread new solutions that allow us to capture what we consider should be ours and thus improve our status quo (progress).

What I find sexy about this “binary” purpose is that, whether we innovate out of fear or ambition, whether we play defense or attack, both routes require us to develop and spread new solutions, and this in turn implies putting into action such virtuous human capacities as curiosity, reflection, collaboration and creativity (“I create, therefore I am”, sorry for the twist, René). Staying inactive seems to no longer be an option: either we eat them or they eat us.

Innovation, should we take the risk?

Now let’s briefly look at what we find when we use this “binary” definition of the purpose of innovation (survival or progress) through the lenses of two different levels of organization: public sector and private sector.

Why innovate in the public sector?

From a survival perspective, innovation is a tool used by governments to reduce various risks related to citizens and their territory. Some examples are: vaccines (public health), communication technologies such as satellites (defense and territorial control), infrastructure and technologies for the prevention of natural disasters, among others.

It is possible that public innovation projects that are focused on reducing risks can develop technologies that are exploitable by the private sector at later stages. This topic is widely covered in the book “The Entrepreneurial State” by Mariana Mazzucato, where she highlights, among other things, the important role that the American government played in the creation and financing of scientific agencies and programs such as DARPA that developed several of the technologies that currently make up Apple products (internet, GPS, touch screen, microprocessors, etc.) and that contributed to the digital revolution.

From the perspective of progress, public innovation is considered a source of diversification and economic growth, which increases the competitiveness and resilience of a country and brings it closer to sustainable prosperity. This progress also involves generating trust with citizens through the permanent understanding of their changing needs and the consequent development of solutions to satisfy them.

An example of progressive public innovation occurs when states define and invest in ambitious challenges (mission-driven innovation) that promote the development of science and technology. A classic example is the challenge established by the Kennedy administration in the 1960s in the US to put a man on the moon, a mission that boosted aerospace science and developed several technologies that found their way to the market, creating new jobs and expanding the economy. There are plenty of examples in the following link.

Why innovate in the private sector?

According to Michael Porter, companies compete in highly dynamic environments where five forces constantly “lurk” their sustainability. These forces are: competition between existing companies in the market, the bargaining power of customers, the bargaining power of suppliers, the threat of new competitors entering the market, and finally, the threat of substitute products entering the market. To these five forces we could add one more: the possibility of changes in the regulatory frameworks in which these companies compete. In this sense, innovation is offered as a tool to transform the pressures of these forces into opportunities for adaptability, growth and/or efficiencies.

From the perspective of “innovate to survive”, companies develop and launch solutions to the market to defend their profitability, defend their market share, and to comply with new regulations. Some examples of this defensive innovation strategy are:

• Profitability: investment in solutions that allow for increased efficiency in different areas. Some examples are the optimisation of operational and supply chain processes such as the optimisation of distribution routes or the improvement of stock management through WMS.

• Market share defense: the battle fought between Backus (SAB Miller) and Ambev in Peru in the early 2000s, where the former (re)launched several small brands onto the market (Pilsen Trujillo, Cusqueña, Arequipeña, Dorada) to protect the SOM of its main brands (Cristal and Pilsen) from the entry of Brahma beer into the market.

• Legal regulations: Peruvian food companies had approximately five years (from 2013 to 2019) to review their products and decide on the best way to react to the new “Law for the Promotion of Healthy Food for Children and Adolescents” (the famous octagons). This reaction may have included innovations in changes to the formulation and packaging of existing products or in the development of new products.

Finally, we arrive to the companies that innovate out of ambition and invest significant resources to develop and launch novel solutions to the market. Hopefully, they will do so before the competition and thus achieve that sweet period of value capture where they can enjoy the “super profits” and the good reputation that comes with having been “the first” to arrive.

I consider this attacking strategy to be the closest to the phrase “we are creating the future” because of their all-in attitude in the risky game of innovation and their desire to really transform things and push them further. They are the ones who innovate to create the next “curve”, the explorers, the pioneers, the ones who are full of confidence and are determined to change everything. We innovate because we want to create new rules and capture more value than anyone else for a longer period of time. It’s that simple. You can visit this link to have a quick look at the meaning of these “curves”.

In this category of “offensive” companies we can find Startups and large corporations with a significant culture of innovation. Generally, these types of companies create their own markets or play in very demanding sectors where consumers are accustomed to short innovation cycles with constant launches of new solutions (e.g. automotive, smartphones, household appliances, fashion, FMCGs, etc.).

Wrapping up

Innovation is not something we have to do, but it is very likely that our chances of long-term survival will increase if we finally decide to invest in it. The degree of investment and our attitude (defensive or offensive innovation) will depend on the risks and opportunities in which we are playing or where we want to play. Ultimately, what innovation seeks is to be a tool that brings us all closer to that beautiful idea of ​​sustainable prosperity. Let's go for it.