Tuesday, October 25, 2005

Innovation as Alchemy?

Innovation is the way of transforming the resources of an enterprise through the creativity of people into new resources and wealth.
Paul Schumann
Building an Innovative Enterprise

The proto-science of alchemy sought, among other things, a process to change "base metals" into gold. The tool thought to be the key to this process was called the "Philosopher's Stone."

In my new definition of innovation given above, it is innovation that transforms resources into new resources and wealth, and the equivalent of the "Philosopher's Stone" is the creativity of people.

The resources of an enterprise include people, capital, knowledge, strategic partners, equipment and tools, facilities and land and natural resources. And, an innovative enterprise, in pursuit of future opportunities or avoidance of future threats, uses the creativity of people, who are enabled with resources, to convert those resources into wealth. At the same time, the quest for innovation creates new resources.

Innovation does more than just make money for the innovators. Innovation creates true wealth. In the sense of the roots of the word, innovation improves the common weal. Everyone within the market, as well as society in general benefit from innovation. As a matter of fact, economists state that the social rate of return from innovation is greater than the private rate of return.

Innovation within an enterprise not only makes money for the enterprise, its employees and owners, it raises the level of economic prosperity in the community within which it operates.

Einstein's equation relating energy and mass is familiar to all, E=MC2. His theory, subsequently proven many times, provides the fundamental relationship between energy and mass with speed of light squared providing the linkage. This simple, but profound equation provided one of the steps to the alchemists' goals. It also provided the basis for nuclear fission and nuclear fusion as means for releasing vast amounts of energy.

By making the analogy I'm about to make, I'm not suggesting that this new definition of innovation is in any way close to the significance of Einstein's equation, but there are some similarities. The definition could be written W~RCi2. That is, wealth is proportional to the resources times the square of the creativity index of the enterprise. Now, I don't know for a fact that it is the square of the creativity. I do have the sense that creativity within an enterprise multiplies. Creativity begats more creativity.

Carrying the analogy one step further, like nuclear energy, innovation can come from fusion or fission (synthesis or analysis). And, while both create energy in nuclear processes, it is fusion that creates much, much, more energy (H-bomb vs. A-bomb). In my experience, synthesis creates more wealth than analysis.

An innovative enterprise creates a "virtuous cycle". A virtuous cycle is a condition in which a favorable circumstance or result gives rise to another that subsequently supports the first - in other words, a positive feedback system. In economics there is an assumption that a complex system will tend to a state of equilibrium. In non-equilibrium condition two cycles can be present - a virtuous cycle or a vicious cycle. A vicious cycle leads to decline and failure. A virtuous cycle leads to growth and wealth. The difference in an enterprise between a vicious and virtuous cycle is determined by the initial conditions, the innovation success rate and the percentage of resources reinvested in the creation of more innovation.

1 comment:

  1. Interesting thoughts. I haven't thought about that specifically, but your 'analysis' that synthesis is more powerful than analysis is certainly correct. Nice work.