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All the wrong innovation

By James Falk - posted Monday, 10 March 2014

Politicians and academics love the "test tube, circuits and buildings" view of innovation. You know, innovation that involves universities, laboratories, factories and photo opportunities.

But innovation is just change. It's doing something different in such a way that it develops a new product that meets someone's needs, or delivers an existing product using fewer resources. In economic terms innovation that doesn't do either of these things isn't really innovation. If it doesn't eventually deliver something, it's just an idea.

Why is this kind of innovation or productivity improvement important? Because it allows us to do more with what we've got, and hence, to meet more needs. We used to be able to say "because it makes all of us more wealthy" (increasing income per capita), until people misrepresented increasing wealth as something negative, rather than the basis for building better lives.


Politicians are captured by the need for innovation to be visible - because how else can they be seen to be thoughtful and future-focused? Too often that results in bureaucratic control, picking winners, or pointless waffle like this from former Queensland Premier Beattie, arguing as usual for a dollar-driven, generalised "investment in innovation".

But academics and policymakers of all stripes - economic, innovation, entrepreneurship or commercialisation - are also captured by their need for data. And that need for convenient data predisposes them to a particular view of innovation that ignores the constant minor adjustments that people make in their lives, products and businesses.

They are caught by using proxy measures of innovation such as research spending or number of research employees, or research hours, or IT spend. This misses the point: there is no innovation until someone has actually done something with an idea, that is, until it is executed in a useable way. Because they are captured by that type of data, they focus on areas that have those measures - while missing the far more prevalent innovation without those features.

Consider the following:

A baker who employs five people rearranges his roster to better match peak loads. It frees up half a worker that the baker wants to start working on designing new pastries. At the same time the baker happens to gain a Small Business Innovation grant he applied for months earlier.

So where is the innovation in that story?  Evidently the change that made the difference was the change to the roster. This is not, and is never, captured by any innovation reporting mechanism that any policymaker or academic gets to see. Eventually, in an aggregated number, it may flow through to productivity growth numbers if the half day of pastry designing is classified as Research and Development spending (so bakery output is from 4.5 workers). If the half day isn't classified as R&D, five workers are still 'producing' exactly the same output and no-one knows differently.


In contrast, consider if the half day per week spent in developing new pastries is reportable as R&D expenditure, even if no new pastry ever makes it to market. Then we record it as innovation spending even if there is no successful innovation. This sort of spending is frequently used as a proxy measure for innovation, while the roster innovation with real results is missed completely.  And in this case the bakery that sets aside that half day is lauded as a champion of innovation, even though nothing may have changed because of R&D.

At the same time, some local department and the OECD record the Innovation Grant as government's contribution to innovation, even though the business owner views it simply as a windfall that underpins what he would have done anyway.

This is a variation of the seen and unseen: the daily adjustments, changes and responses to the market that ordinary businesspeople make to improve productivity are unseen in the innovation discussion, because for the most part they are immeasurable and indescribable in a statistical sense. But innovation they are.

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About the Author

James Falk is a process and productivity consultant.

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