10 Commandments of Innovation

Rokon Zman, P.hD

Often innovation is perceived as the spontaneous magical outcome of creative minds. In reality, the journey of taking ideas to market at profit is far more than the Eureka moment. Moreover, the path of wealth creation from innovation is often filled with traps of incurring a loss and causing harm. Understanding of multifaceted dynamic interplay between technology, innovation, and policies is critical to take rational decisions in the midst of uncertainty for benefiting from the endless frontier of wealth creation out of technology and innovation. Here are 10 basic principles of innovation: an attempt to theorize innovation led wealth creation dynamics in a competitive market:

Principle 1: Innovation opens endless Frontier of wealth creation

The purpose of innovation is about to create new wealth, measured as consumer and producer surpluses, by increasingly delegating roles to materials and machines—often from human–and from existing machines to improved machines, to get the job done better at less cost. Scientific development leading to technology progression underpins the idea generation of such increasing role delegation; the wealth creation from innovative ideas is often dictated by the market dynamics and public policies. Such wealth creation means is our primary tool to create increasing utility from depleting resources to meet growing consumption; but unfortunately there is no natural correlation between the science and technology competence,  intellectual assets developed through research and development, investment in infrastructure, risk capital finance, creativity and start-ups, and the wealth creation through innovation in a competitive market.

Principle 2: Has a natural tendency of loss-making revenue

Irrespective of the greatness of the idea and strength of the underlying technology core (often emerging one), any innovative product invariable enters the market in a primitive form; finding customers of such primitive products often is a daunting challenge–creating chasm to progression. Such a primitive product creates very little willingness to pay among a very small group of customers, resulting in loss-making revenue generation. Turning this natural tendency of loss-making revenue to profit is a critical challenge-often exerting significant stress on innovation team- to succeed in innovation journey in taking ideas to market at profit; unfortunately, such loss-making revenue often creates inescapable loss traps. Detecting such inescapable traps and deciding to stop pursuing further is also a useful competence to minimize wastage of resources. Innovation takes time and successive improvements for diffusing through different segments of the market. Understanding this process is critical, as new ideas are embraced first by “early adopters” all the way through to “skeptics”: 

Principle 3: More than Eureka moment– an incremental progression of both product and process is the key 

The subsidy is required to support the loss-making operation, also R&D investment is needed, but it’s not a sustainable solution. Rather the underlying technology core should be amenable to rapid improvement supporting the delivery of subsequent releases of better quality versions of the product at lower cost through the endless journey of incremental innovation–gradually turning the loss-making revenue to profit, preferably without increasing the price. Stepwise progress needs to make in making something Cheaper/Faster/Better.  Some of the likely customers’ questions affecting the adoption are:  Can we lay-off people if we buy your product? What are the trade-off costs? The switching costs? The trial costs? Why is it better than doing nothing at all? What is the payback? How long till we break even? Is the risk worth the reward? Understanding the nitty-gritty of economic value (aka what people are willing to pay for, and why?)

 Principle 4: Competitive force demands successive better versions

Irrespective of the greatness of the innovative product and IPR (intellectual property rights) regime, once the product enters the market, the willingness to pay for the product starts drifting downwards–due to the effect of competitive forces in the form of replication, imitation, innovation, and substitution. To counter the downward trend of the willingness to pay caused by such competition forces, and to create higher willingness to pay among a growing number of customers, increasingly better versions of the product, preferably at decreasing cost, should be kept releasing–demanding continued R&D in generating intellectual assets and ideas, and adding them to the product and the process to produce as well as deliver it. 

Principle 5: Newly formed wealth creation territory is invaded and expanded by followers

Irrespective of technology and innovation barriers (breakthrough ideas, technological superiority, legal protection of intellectual assets), replicators, imitators, follow up innovators and substation will keep taking away a share of the market being created by the innovation. Such reality creates the conflict of interest, and brews IPR lawsuits, and also intensifies the competition. Moreover, to take the advantage of the innovation, complementors also show up creating an ecosystem of a system solution, and also creating externality effect and raising the need of standardization.  

Principle 6: Successive waves of disruptive innovations keep emerging

With the maturity of existing technology core and emergence of new ones, every innovative product in course of time will start losing the market to substitution resulting in an eventual departure from the market—creating the discontinuity and posing the challenge of making the transition. Often incumbent firms fail to make the transition and new ones show up with better, less costly alternatives–causing disruption to incumbent products, and firms and industry in producing and delivering them. Such discontinuity is a threat to incumbents, but the opportunity for new entrants. Often technology innovations are perceived to be job killer, but successive waves of innovations open the opportunity of serving a greater number of customers, expanding the market, and creating new jobs.

Principle 7: Innovation is not benign: Transforms the job market and increases security concerns

Due to the delegation of roles from human to machine, innovation invariable reduces the role of human in both using and producing industrial products–causing job loss leading to human free production. Such increasing role delegation also increases security risks demanding smarter regulations, but innovation also creates new jobs by creating new products and processes and expanding the consumption of existing products by offering better versions. To take the advantage of innovation led transformation in the job market, successive waves should be predicted and accordingly, changes should be made. Moreover, technology progression also fuels the race of development of arms and weapons increasing security risks. Moreover, technology also influences broader social issues including inequality, isolation, erosion of moral values, and non-productive engagement.   

Principle 8: Fuels monopolistic market accumulation, and also expands trade

Innovation increases the producers’ (innovators’) capability to offer better products at lower cost resulting in price setting capability to make a profit, while compelling competitors to take a lower price to incur loss–leading to increasing monopolistic market power. Such reality poses challenges to public policies and regulations in creating possibilities of profitable competition while making sure that no one succeeds in monopolizing the market. In an extreme case, innovation fueled global monopoly threatens the power of Adams Smith’s invisible hands to govern the competitive market. But, technology also expands trade leading to the global distribution of production as well as consumption. 

Principles 9: Necessitates the dealing with conflicting outcomes

Technology and innovation led wealth creation is not benign. The continued progression of innovation leads to human free production and consumption of industrial products—posing threat to mass scale unemployment and growing inequality. Often reskilling does not offer a solution. Increasing role delegation to technology also accentuates unforeseen risks, often raising security concerns. Such realities necessitate smart public policies in governing innovation led to wealth creation and distribution to make sure that: innovation leads 1. better products at lower cost serving more consumers, 2. more jobs are created than lost, 3. less harm done to the environment and natural resource stock, 4. higher pay for all segments of the employment pyramid, 5. growing profit, 6. greater opportunity for Inclusive and equitable participation in wealth creation, 7. more tax revenue for the government, 8. increasing security and collective well being, 9. intensify competition, and 10. democratize innovation led wealth creation for the continuous uplifting of countries, firms, and individuals. The focus should be on creating possibilities of competition rather than regulation to address these conflicting variables.

Principle 10: Demands policy reform, realignment of cultural values and rational decisions

To turn new wealth out of scientific discoveries and technology progression fueling idea generation and entrepreneurship, broader policies governing a society, and deep-rooted cultural values play important roles. The capability of different actors in taking a series of rational decisions–by interpreting the dynamic interplay between technology, innovation, and policy– in the midst of uncertainty for turning faint potential into a profitable business is a critical capability for an individual and firm, and the society as a whole, to benefit from innovation.

If anyone observes deficiency of these principles in explaining real life innovation journeys, please do not hesitate to share.