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Journal of Innovation Economics & Management

2014/3 (n°15)


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1

Many concepts are prone to misunderstandings, and this is certainly the case of innovation. Asking CEOs, executives, politicians, economists, engineers, journalists, and people in general what the term means will elicit heterogeneous definitions and views that range from compatible to contradictory. And the situation is similar in the academic sphere. Although the academic literature on innovation is absolutely prolific, the understanding of the concept in economics, marketing, strategy and technology management, for instance, is very diverse and subject to different paradigms, which regularly leads to artificial debates. This sometimes results in public policies informed by a misguided and partial view of innovation and a biased analysis of its stimulating factors at the macro and microeconomic level.

2

In this paper, we analyze the consequences of such a confused perception of the concept. We argue in favor of an enlarged and holistic view of innovation combining R&D and creativity and including recent trends such as design thinking, open innovation, digitalization, sustainable development, and resource-limited innovation. The first section presents the holistic approach to innovation. The second part analyzes the link between innovation and R&D and the consequences of frequent misconceptions in this regard, especially on public policies. The third part explores the role of design on innovation processes and the link between innovation and creativity. Since companies are radically changing the way they innovate, the last part studies the impact of three trends: the digital revolution, sustainable development, and the way resource limitation affects innovation approaches and processes.

A holistic view of innovation

3

We believe in the necessity of adopting a holistic view rather than focusing solely on technological innovation. Innovation is both a process and an output. It takes multiple forms. It can simultaneously affect goods and services, processes and business models. It can radically change the value chain of an industry.

4

Innovation is therefore a multi-faceted concept that not only concerns technology but also user experience and how innovations are used. It entails work on applications, business models, and design. Marketing should also be involved as a way to analyze customer experience and the ways they use innovations.

5

Innovation also plays an essential role, whose economic impact should not be underestimated. France, for instance, is ranked 6th in terms of the number of patents registered, but only 24th for innovation (WIPO 2012 rankings). Why such a gap? Because, even for technological innovations, an analysis of current practices is critical to their adoption, utilization and ability to generate revenues. Other key elements need to be included in the analysis:

  • Research, when it succeeds, produces an invention, which should not be confused with innovation. For businesses to be innovative, a number of functional and organizational factors must come together, especially in marketing, design and creativity. Design plays a growing role in a company’s operations. As for marketing, its role is evolving in order to address markets driven by supply and innovation, rather than by unfulfilled needs. In our post-modern societies, consumption is increasingly experiential (Holbrook, Hirschman, 1982), spurring innovation to be more about how to create emotions and experience rather than just providing functionalities and benefits. Consequently, demand can be driven by innovations, not just the reverse.

  • Innovation does not occur suddenly or by chance, it results from long-term iterative processes that integrate ingredients, procedures and outcomes. It is therefore necessary to encourage businesses to strongly stimulate their long-term capacity to innovate (Manceau, 2011).

  • As with any creative activity, it is the nature of innovation that makes success infrequent and often difficult to foresee. The large number of parallel projects is what ensures the economic equilibrium of the whole. The point is not to question the appropriateness of large projects, for instance on a European scale, but to underline the necessity for businesses and public bodies not to focus excessively on radical innovation, which is difficult to predict and even harder to plan for. An overzealous desire to plan and select winners can put a strain on the whole.

  • Innovation should not be considered to fall solely within the ambit of certain industries, occupations/positions or businesses of a certain size because, by definition, innovation thrives on the interconnected nature of sectors, businesses and occupations. Many industries are now converging, bringing every sector into the innovation race. As for business, innovation concerns all types of company: start-ups that question and replace business models and technologies; large companies because of their investment capacity, especially in R&D and marketing, and their key role in the diffusion of innovation; and SMEs for their ability to succeed in interfunctional approaches to innovation. Champions vary by country; the Mittelstand is the heart of Germany’s innovation capacity, for instance, while large companies are the most innovative in France and start-ups are an amazing driver of innovation in the US.

6

This holistic view of innovation was the skeleton of a report we wrote based on a project entrusted to us in 2009 by Christine Lagarde, then Minister of Economy, Industry and Employment of France (Morand, Manceau, 2009). The challenge was to clarify, comment on and promote this view, in order to contribute to developing an alternative to the dominant French innovation culture, especially in public debate and the public decision-making process. We argued in favor of a view that makes a clear distinction between invention and innovation, not only including R&D but also the way innovations are used, marketing, design and business models. Our report also recommended changing the usual scoreboards for evaluating the innovation capacity of a country, to not only refer to the R&D/GDP ratio and the number of patents (which measure the R&D effort and the capacity for invention, respectively), but also to introduce metrics for the proportion of company sales based on innovative products and the number of companies that introduce innovations.

Commonly-held views on the role of R&D in innovation and their impact on public policies

7

The confusion between R&D and innovation can be explained by the importance accorded to technology in Western society, on one hand, and by the long supremacy of the linear view of innovation (fundamental research, applied research, development, innovation), on the other. Let us summarize the reasons why this view, cemented by shared vocabulary (such as the key concepts of knowledge and technology transfer in this paradigm) is wrong, or at least not necessarily true. It clearly masks the dilution process affecting this supposedly linear scheme, as well as the diversity of sources of innovation, which can start with an applied research project that does not follow a more fundamental one or no research whatsoever. Fundamental research does not necessarily lead to applied research and development, and when it does, it is often taken up by players other than those initially supposed to benefit from the transfer. There is a parallel scenario for the transfer from R&D into innovation, which is supposed to be facilitated by patents. But various factors also dilute the efficacy of patents: (1) their quality is very uneven; (2) many patents are not converted into any concrete innovation (one third according to EU numbers); (3) a number of companies prefer not to register patents because, paradoxically, they are afraid of being copied even more frequently, in a roundabout way, as the potential innovation becomes more visible to competitors; (4) companies often do not want to spend time and money on patents and prefer to forge ahead, believing that branding or innovative business models will constitute better protections.

8

These arguments have been developed numerous times. As Nathan Rosenberg (1994) observed, “everyone knows that the linear model of innovation is dead”. And many alternatives have been conceptualized. Rosenberg and Kline (1986, pp. 275-305), in particular, have proposed the alternative and more realistic “chain-linked model”, which emphasizes the importance of market opportunities, design, scientific and technological knowledge and of the multiple interactive processes along the value chain. Alternatives to the linear model of innovation have been described even in textbooks (Afuah, 2012). This shift has become so dominant that some scholars have felt it necessary to distance themselves from what they see as constant hostility towards the linear model, considering that not everything is wrong in it and pleading in favor of some kind of rehabilitation (Balconi, Brusoni, Orsenigo, 2008).

9

From another angle, industry specificities must be taken into account. The importance of R&D and patents in innovation depends on the type of industry, though, as we have pointed out, they still never guarantee innovation. Aeronautics, pharmaceuticals, chemicals, mechanics, information technology, for instance, incorporate the true importance of R&D. [1][1] A perfect illustration of this is the Reuters ranking... Conversely, focusing on R&D as the priority for consumer-oriented sectors does not make much sense. The same is true for services. This question of taxonomy, recently emphasized by Giraud and Weil (2013, pp. 67-70) in the French context, was extensively analyzed in the British context by Keith Pavitt (1984), who defined a famous taxonomy based on sector specificities: supplier-dominated firms, specialized suppliers, scale-dominated firms, and science-based firms, the linear model mainly mattering only for the last category. Furthermore, the situation never stands still, as shown by the transformation of the pharmaceutical industry, where biotech companies have destabilized the traditional R&D process. Moreover, the case of Apple illustrates – among many – that R&D does not have to dominate the innovation approach even in high-tech sectors. The fact that Apple is ranked by Booz & Co (2011) as the most innovative company but only 70th for R&D spending is an excellent illustration of the distinction between R&D and innovation.

10

This is why using the R&D/GDP ratio to measure innovation performance at the macroeconomic level does not make much sense, or at least needs to be put into perspective. The growing importance of open innovation [2][2] For an analysis of the concept and its implication,... even reinforces this disconnection, since innovation and its related expenses are outsourced and by definition do not appear in the expenses of the companies that depend on open innovation.

11

Why then is this ratio still referred to so often as a metric for innovation? And why do economists frequently refer to this criterion, and then conclude that growth or foreign trade surplus are not necessarily correlated to innovation? More generally, how is it possible then that the linear model is still so much alive, stimulating numerous comments and supporting government policies? Why is there such a gap between current academic research on the one hand and the policy-making framework and related decisions on the other?

12

To understand this, let us first go back to the roots, which is not so easy since it is unclear when the linear model first appeared. An important date was the publication of Schumpeter’s book, Capitalism, Socialism and Democracy, in 1942 and, three years later, the report and book by Vannevar Bush, Science: The Endless Frontier, which popularized the linear model in the United States and the Western world, and laid the groundwork for it even though it is not formally defined in the text (Godin, 2006; Edgerton, 2004; Forest, Faucheux, 2011). Other influences can be seen in the Schumpeterian analysis of technology-push innovation. And the emergence of R&D labs following the foundation of the Menlo Park center by Edison in 1876 legitimated this approach. A global and consistent ideology was on its way to acquiring a dominant position in public debate.

13

However, important contributions pointed out and rejected this mechanical illusion. The famous report and book, Made in America, resulting from the work of an MIT Commission headed by Michael Dertouzos, advocated a plural and vigorous approach for restoring American competitiveness and productivity gains, and in particular recommended paying much more attention to downstream innovation (Dertouzos et al., 1989). This vision was in stark contradiction to the commonly-held idea whereby the State and central authorities should only look after the upstream end, while downstream aspects depend on private business initiatives. This thesis was all the more influential as it emanated from a university particularly rooted in a research culture.

14

What is sure is that favorable changes have occurred in recent decades, as shown by the development of clusters in many regions of the planet, which are sometimes very successful – the cooperation between public and private decision-makers having led to the creation of stimulating ecosystems. Innovation involves cooperation and synergies, concerns big companies as well as SMEs, profit and non-profit organizations, governmental authorities and entrepreneurs, researchers and professors. In other words, innovation is first and foremost a culture. Still, this indisputable truth is often misunderstood.

15

Five reasons can be offered to explain this enigma of the persistent return of the linear model as a surprising phoenix. First, this is a typical case of bounded rationality, where complexity is reduced by identifying a small number of factors to focus on – in this case just one. How simple it is to focus on R&D expenses! This also applies to innovation indexes, in a more reasonable way. A second factor lies in the new economic analysis of education, encouraged by the success of incubators set up in close proximity to universities and reinforcing their role in the knowledge economy and society. This view can be summarized in the Aghion and Cohen (2004) argument whereby the closer a country wants to be to the technological frontier, the more it must invest in higher education rather than secondary education, which has been certainly influential for some governments including in France. It is also the source of a paradox: investing in research means investing in specialization, whereas innovation is cross-disciplinary, which can make the “conversion” from R&D into innovation more difficult and uncertain. Third, the best academic specialists of innovation generally work on a micro level, in connection with companies, which implies that they are not necessarily in close touch and engaged in dialogue with public decision-makers, who tend to listen to economists working at a macro level and are more specialized in the field of macro policy and its traditional components. Fourth, the Shanghai ranking syndrome – another case of bounded rationality within globalization – has amplified this trend, since the research accumulated by the best universities is assumed to reflect their quality and stature and therefore the potential of the countries they belong to, which has led to government policies to catch up and get a better ranking, under the implicit domination of the linear model. Last, the traditional view of technology in the Western world matters and it is often associated with an analytical approach which could be illustrated by an adage such as “The more you search, the more you find and then innovate”, whereas considering technology as a or the science of creative rationality generates a more fruitful paradigm, the adage of which could be: “The more creative you are, the more you innovate and benefit from technology”. [3][3] On the traditional view of technology and the importance...

Innovation and design

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Design, as well as innovation, is increasingly understood in an holistic and all-embracing way, emphasizing the process as well as the product itself, although the traditional debates persist, where supporters of a functionalist Bauhaus approach stand in opposition to those of a more aesthetic understanding of the concept. It is now recognized that design is a comprehensive activity in which rational and creative dimensions come together to make new products and services more desirable and better used by customers. We observe that the design concept is increasingly integrated in management approaches, supported by both management practice and research on design thinking (Brown, 2008, 2009) and design-driven innovation (Verganti, 2009; Ravasi, Gojacono, 2005). Approaches such as quick prototyping, market embeddedness, innovation based on emotion and sense-making, multidisciplinary work including anthropological and ethnographic approaches are of key importance. This does not deny the benefits of a scientific approach to foster the systematicity of design and the necessity for structuring its process in a complex environment, following Herbert Simon (1996) or more recently the axiomatic approach proposed by Sue Nam Pyo (2005). But this must permanently interact with creativity, in line with the ancient Greek concept of logos which blends rationality and emotion.

17

Creativity, which by its very nature is not linear, remains central to design (Abecassis et al., 2012). As Nathan Rosenberg (2004) puts it, “the impact of a technological innovation will generally depend not only on its inventors, but also on the creativity of the eventual users of the new technology”. Thus, it is crucial to seize creativity in its essence, and to acknowledge that creativity is fundamentally emotional and uncertain, in other words human, while depending on the creative talent and experience of designers.

18

The industries most affected by innovation are the creative industries. [4][4] On creative industries, see Richard Caves (2002) and... This is why they are considered in the UK to be an exemplary sector for innovation and why Sir George Cox, then Chairman of the Design Council, was commissioned by Gordon Brown in 2004 to produce a report to stimulate the creativity and hence the competitiveness of British SMEs and large companies (Cox, 2005). Admittedly, the renewal of creative products does not necessarily involve innovation. A fashion collection, a new piece of furniture, a new movie or video game are not necessarily innovative, but a creative spirit is well disposed to come up with new uses, to understand emerging lifestyles and the new products that are expected to go along with them.

19

This role of creativity explains why creative industries are increasingly considered to be a key asset in stimulating innovation, even in more traditional industries. Creative industries also demonstrate strong performance in technological innovation and thus contribute to the level of industrial innovation far beyond the creative sector (Müller, Rammer, Truby, 2008). They develop innovative methods that can be usefully transferred to other industries. Another crucial point is that creative industries break up the functional syndrome: their success is not based on functionalities but on the desire they create on the market. In this regard, they are exemplary of today’s postmodern society where the demand for goods and services is driven by the uses and desires created by new products, and not by unfulfilled preexisting needs (Badot, Cova, 2003; Kotler, Keller, Manceau, 2012). This principle of creative industries applies to many sectors and is reflected in Steve Jobs’ well-known phrase, “people do not know what they want until you show it to them”, referring to Henry Ford’s “image of the faster horse”. In an environment where smartphones and cars try to create emotions and to generate new uses, innovation is not about how to improve functionalities but how to create new experiences and uses through creativity combined with technology.

20

This approach, which can be called supply-side or innovative/creative marketing, is overtaking the market-pull approach to innovation and shows that the dichotomy between the technology-push and market-pull views of innovation is all the more passé. It is no longer a matter of whether the idea comes from consumers expressing needs or technology showing a way to develop new functionalities, but combining the approaches and competences to be more creative in terms of the way innovations are used and experienced. This is why the marketing of innovation has been reinventing itself for the last decade (Le Nagard, Manceau, 2001, 2011), by relying less on traditional market research and more on new methods. These include ethnography and observing what consumers do and do not do with products (even though it is hard to observe what does not happen), cocreation with clients (Prahalad, Ramaswamy, 2000, 2004; Vernette, Hamdi-Kidar, 2013) and especially with lead users (von Hippel, 1986, 2005), ideation with external actors through crowdsourcing and web communities (Howe, 2006; Franke, Shah, 2003). These methods have been implemented in various industries, even highly technical ones such as scientific instruments (von Hippel, 1977; Franke et al., 2006). In R&D, methods have also changed and rely more on external sources through open innovation and joint work with external research labs, universities, and suppliers (Chesbrough, 2003). The challenge here is then to combine these new approaches in an overall innovation process and to enable the company to embrace this external knowledge and competences. Firms need dynamic capabilities (Teece, 2007) and absorptive capacities (Cohen, Levinthal, 1990; Abecassis-Moedas, Ben Mahmoud-Jouini, 2008) to integrate and reconfigure this internal and external knowledge, to combine creativity and technology, and to combine use and functional paradigms.

21

Design, as a multidisciplinary approach embracing aesthetic and functional ideas, has a key role in this process (Le Masson et al., 2010), and innovation cannot afford not to strongly integrate design thinking. The important contradiction resulting from this imperative is that innovation demands significant diversity of talents and cross-fertilization. New positions are appearing in highly innovative companies, such as CTOs (Creativity and Technology Officers) – a “creative geek” profile that brings together and combines several competences that are key to innovation.

Current changes in the way companies innovate

22

In analyzing current ways of integrating R&D and design, we have shown how much innovation processes have been changing in the last decade, leading to complex policy making choices. Companies do not innovate today as they did ten years ago. We have already mentioned the non-linearity of the innovation process, open innovation, design thinking, new marketing approaches. There are other changes that influence companies’ practices and still need to be taken into account by policy makers. We will discuss three of these changes: the digital revolution, sustainable development and frugal innovation.

23

A key feature of today’s globalization has been the revolution brought about by ITC since the 80s, and more actively since the 90s, the consequences of which have been the unbundling of the value chain, [5][5] The most important reference here is the report by... a constant climate of suddenness and uncertainty, the greater value of talents and qualifications, along with an immense flourishing of innovative and entrepreneurial projects. As for consumption, we are not living through the beginning of the end but the end of the beginning of a revolution that is shaking up every economic and social aspect of life, as did the Gutenberg revolution five centuries ago. As the philosopher Michel Serres (2012) contends, we are experiencing the third anthropological revolution for human beings – after the invention of writing and that of printing. This reinforces the idea that innovation should never be limited to technological aspects, even though technology is transforming the world, because the “overdetermination” of ICT on lifestyles cannot be planned, in the same sense that former industrial revolutions inspired innovations that in fine created new lifestyles. Clearly, the one inherent in Fordism is dying and the immaterial revolution is on the way, bringing a complete review and overhaul of business models, a new organization of production, the invasion of the digital lifestyle and the greater importance of the immaterial value of goods and services.

24

Big Data is changing the way companies understand markets. Flexible manufacturing capacities enable them to customize products, allowing innovation to emerge after sales rather than before. We still do not know to what extent 3D printing will change the structure and business models of many industries (Andersen, 2012). Some experts predict that it will radically revolutionize the distribution of roles in the supply chain of all industries since customers will manufacture many products at home on their 3D printers. Others, on the other hand, consider that, for cost reasons, these new technologies will mostly have an impact on B2B industries whose production runs are under 10 000 pieces. What is sure is that FabLabs and 3D printing will change the way all companies innovate since 3D prototyping is now easy and cost-limited and any incremental innovation can be permanently implemented on a short production run. These changes are burying the linear model of innovation even further and revolutionizing the way companies innovate, increasing the need for rich local ecosystems to stimulate innovation.

25

Another key change is the impact of the growing importance of sustainable development. In energy-related industries, the energy transition is transforming both the activity and business models. These evolutions are often described as being technical and functional. But the energy transition is much more holistic and must be treated that way under any circumstance involving new landscapes (for instance wind power), new cities, new lifestyles intertwining with the digital revolution, as illustrated by the appearance of smart grids and new relationships between consumers and energy.

26

Sustainable innovation does not only concern industries that are energy-related. In every industry, the resources available for innovation are scarcer. Companies are trying to develop ecodesign to use less raw materials and energy. Product design now includes the final stages of a product’s life cycle – when it is thrown away (McDonough, Braungart, 2002). On the customer side, the sharing economy is shaking up our traditional understanding of consumption and exchange, and transforming business models. Corporate social responsibility is a major organizational and managerial challenge (Acquier, Daudigeos, Valiorgue, 2011), that impacts the way companies conduct innovation (Nidumolu, Prahalad, Rangaswami, 2009). The impact of such changes has not been fully analyzed yet and we are just starting to understand it.

27

In a context of economic crisis, companies also want to reduce the budgets devoted to innovation. Affordability and sustainability become key words when dealing with innovation. This is the current trend in favor of frugal innovation, also referred to by the Indian term Jugaad (Prahalad, Mashelkar, 2010; Radjou, Prabhu, Ahuja, 2012). The pioneers of this change are innovators from emerging countries who are developing alternatives and make-dos to overcome a lack of resources and solve seemingly insoluble problems. A frequently-cited example for this approach is the Mitti Cool refrigerator that is made of mud and preserves food without any electricity. Examples also exist in the IT sector, the automotive industry, health care and deep-water drilling. However, this approach not only deals with new types of products, but also disruptive business models, combining technologies and changing innovation processes to make them less formalized and resource-consuming. As a result, the links between capital and innovation are becoming more blurred.

Conclusion

28

Contemporary innovation is radically different from ten years ago. While there has been a decades-long misunderstanding on what innovation is about, with the preeminence of the linear model that every specialist knows is biased if not wrong, this conception is more misleading today than ever because of major changes in how we innovate. In this paper, we argue in favor of a holistic view of innovation combining R&D and creativity and including recent trends such as design thinking, open innovation, digitalization, sustainable development, and resource-limited innovation.

29

Certainly, we must take a step back from Schumpeter if we are to promote such a holistic vision, but we need to understand the abundance of innovations following the IT revolution and shaking up the world, where his thought is fully contemporary, although this does not lead to a linear but rather an entropic blossoming of innovations emerging from new combinations of technology and creativity.

30

These changes call into question the way innovation is handled in terms of a public policy approach. Just as innovation is cross-functional within companies, it relies on different types of departments and ministries within governments and public authorities in general: research, often connected to universities; culture, since art and creativity are usually considered part of this department; economy, because innovation is aimed at supporting competitiveness. Other ministries/departments are also involved such as industry, SMEs, technology and/or labor/employment, depending on the naming and combinations adopted by each government. Just as large companies are not fully comfortable with stimulating crossfunctional work and projects, governments have trouble handling such a multi-faceted challenge as innovation, which requires a coordinated approach and policy to stimulate all the ingredients and catalysts for innovation. However, if they want to handle innovation efficiently, they need to share an updated view of innovation that is not just associated with research but also includes a detailed view of ecosystems and the competences that need to be fostered.


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Notes

[1]

A perfect illustration of this is the Reuters ranking for innovation, based upon the number of “innovative patents” in the last three years. In 2012, companies in chemicals, semiconductors and electronics, telecommunications hold the top nine positions, followed by Boeing (Top hundred global innovators, top100innovators.com).

[2]

For an analysis of the concept and its implication, see Chesbrough (2003). For a recent analysis of the impact of open innovation practices on innovation policies and IP issues at the company level, see Manceau, Moatti, Fabbri, Kaltenbach, Bagger-Hansen (2012 a and b).

[3]

On the traditional view of technology and the importance of creative rationality, see Forest and Faucheux (2011).

[4]

On creative industries, see Richard Caves (2002) and Pascal Morand (2012).

[5]

The most important reference here is the report by Richard Baldwin for the Economic Council of Finland, The Great Unbundling, Finnish Prime Minister’s Office, 2006.

Résumé

English

Innovation is an often-misunderstood concept that generates confusion. It is systematically associated with research and technology – often in relation to the linear model that underestimates the various factors and the complex processes that lead to it. This sometimes leads to public policies shaped by a misguided and partial view of innovation and a biased analysis of its stimulating factors at a macro and microeconomic level. This paper argues in favor of an enlarged and holistic view of innovation combining R&D and creativity and including recent trends such as design thinking, open innovation, digitalization, sustainable development and CSR, and resource-limited innovation.
JEL codes: O30, M21

Key words

  • innovation
  • R&D
  • research
  • design
  • marketing
  • open innovation
  • sustainability
  • digital
  • frugal innovation
  • jugaad

Plan de l'article

  1. A holistic view of innovation
  2. Commonly-held views on the role of R&D in innovation and their impact on public policies
  3. Innovation and design
  4. Current changes in the way companies innovate
  5. Conclusion

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