State of Innovation

Patents and Innovation Economics

Innovation vs. Invention

I believe there is a lot of confusion regarding the difference between invention and innovation.  This confusion is the result of erroneous definitions and the purposeful intent of some to increase their importance by belittling the contributions of others.

I believe that most of this mischief started with the great economist Joseph Schumpter.  According to Wikipedia:

Following Schumpeter (1934), contributors to the scholarly literature on innovation typically distinguish between invention, an idea made manifest, and innovation, ideas applied successfully in practice

There is nothing inherently wrong with the distinction above, but the way it is applied blurs together a number of different skills.  Blurring skills together shows a  misunderstanding of the process of innovating.  Broadly speaking, innovation can be broken into two distinct sets of skills: creation and dissemination.  By creation I mean creating something new, not production – creating something old.

A subset of creation is invention.  An invention is a creation with an objective repeatable result.  A creation that is not an invention has a subjective result, such as the effect of a painting on a viewer, or the effect of a book on a reader.  Many activities combine both a subjective creation and an invention, such as architecture.  However, we can separate out the invention from the other creative elements and this helps our understanding of the process.

Dissemination may include a number of processes, such as education (marketing, sales), manufacturing, finance, and management.  This is not to say that marketing cannot be creative, it clearly often is very creative.  However, the creative part of marketing can be separated out from the dissemination or execution part of marketing.  The same is true of manufacturing, which can definitely include inventing.  But an invention related to manufacturing is part of the creation step not part of the dissemination step.

Finance can also have inventions.  For instance, the invention of a fractional reserve ratio bank is clearly an invention.  It has the objective result of securitizing assets and turning them into loans and currency.  A fractional reserve bank will securitize land and turn into a loan and currency.  Despite this, it is important to understand that the first person to develop the fractional reserve bank is inventing and the person operating the fractional reserve bank is disseminating.

All real per capita economic progress is the result of inventing.  This is not to say that it is unnecessary to disseminate inventions, but if there were no new inventions there would not be any economic progress. We would be stuck in static world once all the inventions had been completely disseminated.  Of course, if we stop all dissemination activities we will quickly starve to death.

It is my belief that business and economic professors have focused on “innovation” instead of “invention” because they have no idea how to invent or how the process of how inventing works.  They concentrate on what they know, i.e. business and economic practices.   As a result, the focus is dissemination,  under-appreciating the importance of inventing.  In addition, it results in misleading business theories, such as:

– Management teams are more important than the quality of the invention.

– Execution is everything; patents and other IP do not matter.

– Get Big Fast.

The truth-test of these theories is directly related to the strength of the patent laws at the time the company is created.  When patent laws are weak, these theories are more true and when patent laws are strong, these theories are less true.  Unfortunately, when patent laws are weak these theories do not overcome the disincentive to invest in risky new technologies.  Management teams do not build revolutionary or disruptive technologies, they just disseminate these technologies. These sorts of teams are like large companies and generally can produce a return with less risk by NOT developing high-risk technologies.  They tend to focus on incremental technologies or on stealing someone else’s technology.  While this may be good business advice in a period of weak patents, it is bad for our country’s competitiveness and our standard of living.

Technological progress (i.e., inventing), in the long run, is the only competitive business advantage.  The best management team in the world selling buggy whips at the turn of the century could not overcome the technological advance of the automobile and stay a buggy whip company.  The best management team in the world selling vacuum tubes in the 1940s, could not overcome the advance of transistors and semiconductors and stay a vacuum tube company.  This country is littered with companies that had great management teams that were overwhelmed by changes in technology.  For instance, Digital Computers had a great management team, but they could not overcome the advance of the personal computer.  Digital Computers failed to invent fast enough to overcome the onslaught of small inexpensive computers.  US steel was not able to overcome the onslaught of mini-mills, aluminum, and plastics.  This was not because they did not have a good management team, it was because the management team under- prioritized invention and over-prioritized execution or dissemination skills.  Ford & GM have not become walking zombies because they did not have strong management teams, but because they have not invented.  As a result, they have antiquated production systems and weak technology in their products.  86% of the companies in the Fortune 500 in 1959 are no longer there.  Some of these companies disappeared because of bad management, but most companies disappeared because they did not keep up with changing technology.  In other words, they did not invent.

Inventions or advances in technology are the ONLY WAY to increase real per capita incomes and the only long term business advantage.  Business school theories that do not prioritize invention, are bad business and bad for our country.

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July 13, 2010 - Posted by | Business Models, Innovation | , , , , , , ,

7 Comments »

  1. While I agree that invention is needed for significant economic progress, it is not the only thing needed. Hard work and savings are needed to build up the capital necessary to take advantage of inventions. I think your statement that inventions are the only way to increase per capita income is overstated.

    Along those lines, I think that many of the companies that “did not keep up” failed because they got lazy (lost the hard work ethic) and/or squandered their investments (savings) in all sorts of mistaken schemes.

    It is not surprising that companies don’t last very long: the founders usually have a vision that later management teams lack (or that the founders themselves dissipate). The founders are often driven by a goal of creating and proving some aspect of technology/business especially during the tough times of initial growth; the later leaders might unfortunately be driven by other things (such as benefits, bonuses, retirement plans, etc).

    Comment by Jim Lauffenburger | July 18, 2010 | Reply

  2. Thanks for your input. I am hardly the only one saying that technological advances are the only way to increase our real per capita income. See Robert Solow (Nobel Prize in Economics), Paul Romer (economist Stanford), Jacob Schmookler (Economist), and see the books, “Invention and Economic Growth”, “The Invisible Edge”, and “From Poverty to Prosperity.” I have a post on point at https://hallingblog.com/2010/05/11/source-of-economic-growth/

    I think one of the reasons companies fail is as you say founders are driven by a different goals that later management teams lack. But the question is why the founders do not win out over “lazy” management. I think a big part of this is due to our accounting systems showing no return on invention. This leads to under investment in inventions, and the not-invented-here syndrome. see https://hallingblog.com/2010/05/11/source-of-economic-growth/

    Comment by dbhalling | July 18, 2010 | Reply

  3. I’m PhD student and currently working on to finalize my dissertation. The working title is “MANAGEMENT OF COMMERCIALIZATION –
    Case Studies in Business to Business Product Innovations”

    You wrote:
    “Broadly speaking, innovation can be broken into two distinct sets of skills: creation and dissemination”

    I like this approach very much as I have used similar approach in my dissertation. Only that I decided to call them as “ideation and commercialization”
    I know that the word “commercialization” is also sort of buzz word (and many times confused with launch)

    Also my handicap as non native English speaker naturally creates some issues. However, I’d appreciate if you could briefly comment if my analogy with those two concepts seems meaningful to you?

    Comment by Henri Simula | June 7, 2011 | Reply

  4. …and to specify a bit more. Naturally there is NPD (new product development) phase involved in my conceptualization…only that the separation where actual ideation ends and NPD starts, as well as where NPD ends and commercialization starts is quite difficult…

    Any comments on that? 🙂

    Comment by Henri Simula | June 7, 2011 | Reply

    • Hi Henri,

      I think you are using the standard terms used in business management, but I don’t think they will ever fit the model you have built. If you define commercialization as including sales and marketing, which I would, there is no way to chronologically divide commercialization from ideation. For instance, Edison often sold his inventions, before they were invented. Many engineering firms sell their design and inventing services. Clearly, they are in the commercialization stage before, during, and after the ideation stage.
      I believe the term “Ideation” causes confusion. Generally, Ideation is the brain storming phase where people come up with a number of ideas. This is not the same thing as inventing. In the ideation stage, I can say I want a rocket that travels the speed of light. This is an idea, but not an invention. In order for it to be an invention it has to be enabled (in the words of patent law), meaning it has to be defined in enough detail that one skilled in the art can practice (build and operate) the invention. Ideation is a wish list. Inventing includes the hard work of actually creating the machine or process that fulfills that wish.
      The term commercialization according to Wikipedia is the process or cycle of introducing a new product or production method into the market. If this is true, then I assume we can take it for granted that the new product/service has been created (invented). Commercialization then boils down to standard business processes as applied to a new product/service. Standard business disciplines include: 1) sales & marketing, 2) production, 3) distribution, and 4) finance but are not limited to these. If the company introducing the new product is a well established company and the product is a line extension product, there is little change in how you approach these standard business disciplines. If the company is a startup then there are big differences on how these disciplines are approached and a new non-line extension product falls somewhere in between. For instance, a startup introducing a new product cannot afford name recognition marketing efforts. Their marketing and sales efforts usually have to have very short turn around to revenue generation, since the company usually has very limited funds. Production issues mainly vary in that a startup needs to be concerned with the lowest capital expenditure necessary to test the market for the product, instead of best long term ROI consideration. Distribution is a huge issue for startups, particularly today. Today it often makes sense to leverage other companies’ distribution channels, unless the product can be sold effectively online. Finance differs for a startup because the startup has few assets to leverage and does not have a history of stable cash flow to capitalize. The main asset of a startup is its intellectual property, particularly its patents. Startups may also include in their assets the strength of its management team and their business plan. But you cannot foreclose on a management team and it is hard to keep a business plan a secret once you start executing.

      I think the terms ideation and commercialization are poorly defined and therefore cause confusion, which may be what some business management people intend. I believe it is better to talk about the creation or invention stage and then discuss the standard business disciplines for various scenarios. I hope this helps clarify my position. I would be very interested in hearing/reading more about your dissertation.

      Comment by dbhalling | June 7, 2011 | Reply

  5. Henri,

    The short answer to your question is ideation and new product development are closest to the creation phase and commercialization is closest to the dissemination phase. If would be fair to say that all businesses start with ideation, then new product development and then commercialization. However, commercialization may include the idea of selling ideation services or new product development services and commercialization my include ideation and new product development.

    Comment by dbhalling | June 7, 2011 | Reply

  6. Hi,

    Thank you for taking your time and coming back to this topic.

    I could not not agree more when you say:
    “If you define commercialization as including sales and marketing, which I would, there is no way to chronologically divide commercialization from ideation.”

    The issues is that the “body of knowledge” in academic (product) innovation and product management literature has taken this (holy) trinity for granted!
    Please see the figure 1 for instance in this paper:
    http://www.stevens.edu/cce/NEW/PDFs/FuzzyFrontEnd_Old.pdf
    Interesting fact is that they have decided to call ‘ideation’ as ‘fuzzy front end’…and lately I think the discource have lead to drop the word “fuzzy” as many academics have pointed out that yes, you actually CAN manage that phase –> thus it should not be called fuzzy anymore… Well, management of ‘the front end ‘is out of the scope of my thesis, so I leave it to others to comment on that…
    Anyway
    I personally think that these three elements (no matter how we choose to declare them) are more or less coupled in reality. This “Koenian” way to put them in a linear order really puzzles me!

    I’ll be happy to notify you when my dissertation is available (may take several months still. :/ )

    Regards
    Henri

    Comment by Henri Simula | June 8, 2011 | Reply


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