Certain Habits

I think “innovation” is one of the most overused words in our culture today. It’s come to mean so many things to so many people that it may never become a term of art. I think what most people mean when they say that something is “innovative” is that it is a) new and b) cool. If we’re lucky, they substitute “clever” for “cool”. If we’re really lucky, when they say “clever”, what they mean is “profitable”. “Innovation” ought to mean the execution of new ideas to create net wealth for (or enhance the welfare of) society as a whole. The “new” implies a process of discovery. “Ideas” is important because wealth can be created through the invention of physical goods, the creation of intellectual property (e.g. software, art), improvements to business process, even new ways of organizing the relationship between consumers, producers and distributors (“business model innovation”). “Execution” implies that innovation isn’t just having the idea; it’s what you do with the idea, how you make it a reality, that matters. “Create wealth (or enhance welfare)” is important because too much of what has passed for innovation lately is the increased skill of financiers, lobbyists, lawyers and executive management at playing “heads I win, tails you lose” games. Innovation must be positive sum. It is never rent seeking. The lion’s share of the benefit should go to consumers or to society as a whole (e.g. by ameliorating negative market externalities), even as it creates tremendously profitable businesses. “Innovation” may not be the best word for what we’re talking about. After all, in the last 250 years, we’ve witnessed an astounding increase in wealth and reduction in poverty that thousands of years of human history suggested was impossible. All without a perceived need for a science of innovation. We do need a term, though, for what we’re working on, because it is important and it is different. We need a word like “innovation” because the challenges we face are in many ways more difficult than what came before. The success of the last 200 years is in many ways a constraint. Innovation is path dependent. Our predecessors’ success has created a very well-worn path. A lot of our infrastructure is built and aging. A lot of the really important and easy stuff to invent has already been invented. (Flush toilets, anyone?) Knowledge has advanced to such a point that new discoveries are highly specialized and resource intensive. Best practices in finance, management, and strategy became best practices because they work. They are good at protecting and growing a business. But the way they work often precludes revolutionary improvements. (Revolutionary change is often a threat that could kill the host business.) The reason we need a word like “innovation” in our society is that we need to get better at discovering new, wealth-creating ideas that provide not just incremental and marginal gains but tangible leaps forward. We need to learn how to make these ideas real, to succeed more often, more quickly, with less risk and at lower total cost. Silicon Valley produces a number of breakthroughs. But even it struggles to do that reliably and sustainably. We need to be better able to balance our skill at incremental gains from existing products and business models with the need for great leaps forward. So-called Rust Belt communities in particular need a word like “innovation”. In many ways, they’re still living off the entrepreneurs of two and three and four generations ago whose businesses were global powerhouses. The decay now evident in many of these communities demonstrates how much we need the skill to reliably transform existing businesses for sustainable growth. Detroit is evidence enough that no industry can coast forever. We face a number of seemingly intractable social problems, moribund schools and inefficient public services; an ever growing debt and even more off-balance-sheet promises that we will be unable to keep; and a persistent and growing population of under– and unemployed workers. A better understanding of innovation could aid needed institutional change; improve existing nonprofits and foster new ones; and provide jobs that provide dignity and reduce poverty.