Innovation: more or less?

There has been some discussions lately on whether the crisis will increase or decrease innovation (see for example Mark Evans or Jason Kolb). By innovation, I mean a new product/service addressing successfully an unmet need in a new manner (not a perfect definition but it should be sufficient for now). I've been changing my mind on this topic several times. Here is my latest attempt to answer the question.

 The different arguments go the following way:

• Less innovation: there is less funding available for ideas hence there will be less new products hence less innovation
• Same innovation: though there is less funding available, (all) good ideas will still get funded
• More innovation: me-too is not sufficient to build a business anymore. At the same time there are plenty of talented people with more time to find ideas. Hence innovation should increase.

The implicit assumption in the first two arguments is that investors are good judges of what is or is not innovative. Nothing proves this assumption. The third argument implies that they are constant economies of scale in innovation. The reality is that there are diminishing economies of scale when it comes to innovation. Big corporation with their massive R&D budgets tend to be less innovative than start-ups be it in the web or healthcare sectors. However, one characteristic of the process of innovation is serendipity so the more people do "stuff", the more people find innovative "stuff".

Taking the above ingredients and mixing those leads me to my current "work-in-progress conclusion": there will be much more innovation in relative terms but a bit less in absolute terms.

Comments

[ariel sommera-klein]

Hi,
it seems that you see innovation only from a business perspective. The best nnovation I see comes from scratching an itch, creating a service that you find is missing. This is often the starting point for open source projects. From this point of view, unemployment means more time to scratch the itch and create something, not necessarily for money, at least in a short term view. So more unemployed creative people means more innovation. And who knows, this innovation might lead to business.
Ariel

[Wallen's]

@ Ariel, thanks for your comment. I'm just repeating arguments I read and I think all of them have a bit of truth in them. Your point is basically the third bullet point and serendipity.
I admit that I have a bias in my conclusion towards "business" because that is the main element that changed in the environment with the financial crisis. The implicit assumption is that an idea needs funding at one point in time to be executed.
Moreover, technological innovation is a necessary condition but not a sufficient one (in most cases) to make it successful: you need the marketing, business development and sales force to bring it successfully to the market.

[Allan]

Interesting post and review of the prevailing sides out there. We're always a little biased towards the traditional technology sectors when we talk of innovation. Thus we're always focused on venture capital as a result. However, an overwhelming majority of companies do not receive venture financing. Most of these unfunded startups are of course not innovative - they are either in service companies or producing commoditized goods. Nevertheless, there are plenty of unfunded startups that introduce innovation; process innovation, financial innovation, product innovation, scientific innovation, etc.

My intuition is that innovation occurs in difficult times. I'm guessing that we'll see more innovation. And if you're an entrepreneur - it's an existential question. Despite the economic downturn, what else are you going to do? And if you're a passionate entrepreneur, you have to believe that you'll introduce innovation. I know no other way.

[Wallen's]

@ Allan, fair point. I was indeed thinking of tech/web start-ups here. Second comment that points to a implicit bias in my post. It just demonstrates again the power of framing...

[Lady VoIP]

I would assume that more innovation would occur when people felt they were under the pressure of a less than thrilling economic environment. Fewer people will find comfort and security in their little business nooks. Some may feel they have to take some defined action of their own to ensure their future. I can only see tough times as lighting a fire under people, giving them a greater push to think creatively. After all necessity is the mother of invention.

[Wallen's]

@Lady VoIP, that's what is so great about US mindset. A typical European (albeit not all) would think "oh-oh, times are tough, let's get a paid job and think of this start-up idea when things get better".