What is innovation, and how may it best be fostered by companies and other organizations?

I am just back from three weeks of travel, having visited biotechnology startups in Germany and media companies in India, and I return convinced that what is called the “innovation economy” is its own nation, whose citizens share a common way of seeing and working. (Earlier speculations on the subject were published on this page in the September/October 2006 issue.)

It is best to begin by asserting what innovation is not. Innovation is not invention, and still less is it scientific discovery. An innovation must be valuable, which means it must exist in a market or some more general social context of supply and demand.

A special report published by the Economist last October and edited by Vijay Vaitheeswaran floated a definition proposed by the Organization for Economic Coöperation and Development, a think tank. Innovation, according to this formulation, encompasses “new products, business processes, and organic changes that create wealth or social welfare.” The Economist also cites a simpler definition from Richard Lyons, the chief learning officer of Goldman Sachs: “fresh thinking that creates value.”

Either definition will do, although both smack of the jargon of management consultants. For me, neither definition captures the discomforting novelty of true innovations. Innovation disrupts our existing way of doing business or creates entirely new ways of doing things. Always, innovations are embraced by those who find them valuable, are hyperbolized by the companies and organizations that benefit from their adoption, but are resisted by incumbent companies and organizations and conservative customers and users. When an innovation is sufficiently accepted by enough people, however, resistance to that innovation becomes feckless and fruitless–it amounts to an attempt to pretend that reality is other than how it is.

Expressed this way, it might seem that innovation, while possessing the force of the inevitable, would be regarded warily by institutions whose function is to promote continuity and stability. Indeed, some bureaucrats and religious leaders would prefer to mitigate innovation’s influence.

But in the United States and Europe, and even more so among those who, no matter their physical location, really inhabit some outpost of the innovation economy, there is a common conviction that innovation is a powerful force for good that should be encouraged and lauded. That’s because innovation expands human possibilities and is the single most important cause of economic growth. In the same special report, the Economist cited the McKinsey Global Institute’s demonstration that competition and innovation, and not information technology alone, led to the productivity gains around the world during the 1990s.