What is Innovation?

[Braden Kelley]

What is your definition of innovation and how can companies achieve it?

[Dan Robles]

Branden;

Good question - the holy grail in fact. Search the web, youtube, wikipedia, etc. and you will find countless definitions for innovation. Most of these definitions, at a minimum, define innovation as a new idea introduced producing an economic outcome - or some variation. While intuitively, this makes a lot of sense - it is not very useful as a definition. We are presented with a single equation with three (or more) unknowns; what is new, what is "introduction" , what is an economic outcome, etc. Change one and the others change too - it's a moving target. I saw one innovation guru on YouTube tell us that there are 51 variables! and only he could solve the puzzle - for a price (yeah right). If we ever expect to climb out of the knowledge economy and enter the innovation economy, we need a definition that everyone can use. Innovation must be actionable, measurable, and repeatable.

So first let's break up the problem into two problems, the "idea" part and then the "economic" part.

We know that innovation is derived from knowledge and knowledge is derived from information. So we can use calculus to write an expression for this: Innovation is defined as the rate of change of knowledge with respect to time. Knowledge is defined as the rate of change of information with respect to time, and information is defined as facts and data.

I = dk/dt, K = dn/dt (I=innovation, K=knowledge, N=information)

Now, we can use all of the tools and methods of economics and finance to analyze innovation. But to keep it simple: Have you ever had an Ah-Ha moment when the rate of change in your knowledge about something occurs in a very short period of time? Have you ever looked at facts and data and experience a large increase in your knowledge about something in a short period of time? Yup, that's how innovation is manifested. This is a handy definition because you can't often observe innovation directly, but you can observe a proxy for innovation. By measuring the rate of change of knowledge in a population, you can extrapolate and identify the existence and magnitude of innovation that is happening. Simple.

Of course, not all of that innovation is useful which leads to another misconception. People think that Microsoft products are the innovation that creates money. This is false. Money is a fictional representation of human productivity (if not human productivity, then what?). You trade an hour of your productivity for an hour of someone else's productivity or some period of time of a Japanese or Chinese person's productivity, etc. Therefore, wealth is created by the increase in productivity of the billions of people who, say, use Microsoft products now instead of typewriters and carbon paper. Therefore, the economic outcome that we are looking for is anything and everything that increases human productivity. If it increases human productivity - it is money. Simple.

Now the corporation can identify the occurrence of innovation by measuring the rate of change of knowledge. Then they can know what is economically feasible by determining if there is an increase in human productivity. Anything else is a waste of time. Simple.