How should we define innovation?

Dr Dave Richards offers a new way of thinking about this vital concept, focused on the perceived value of something rather than its newness or commercial application

Many organisations are talking about innovation without any real clarity or common definition, leading some people to conclude this is just a buzzword we should stop trying to have serious conversations about. But that naïve conclusion misses a vital truth. 

Deeply understanding what innovation is all about enables global industry leaders to establish and maintain superior performance, competitive advantage and winning strategies for long-term value creation. Some people might choose to ignore conversations about innovation – but they do so at their peril. Phrases such as ‘innovate or die’ come to mind.

Finding a definition

Do you know the ‘official’ definition of innovation, mainly used (not very well) by governments to measure and monitor national and regional levels of innovation? The Organisation for Economic Co-operation and Development wined and dined hundreds of academics and civil servants in one of the world’s most expensive cities, Oslo, for weeks to come up with it. The resulting Oslo Manual definition of innovation is: ”A firm connecting something new to a marketplace.” This definition is fatally flawed for three reasons:

  1. Only ‘firms’ can innovate, such that innovation within public or third (charitable) sectors is (by definition) impossible – which hopefully we all agree is not.
  2. Should we really accept that anything ‘new’ is innovation? 
  3. Again, because only firms can be the authors of innovation, users are precluded from driving or contributing to innovation, even though a considerable body of research shows users are often the first to come up with ideas for innovation, and that they frequently modify the products provided by firms to make them more useful and fit for purpose (for example, surgeons modifying surgical instruments).

Luckily for us, there are many far cleverer definitions of innovation offered by various experts. These include Drucker’s 1985 explanation – “Innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth” – and: “The starting point for innovation is the generation of creative ideas. Innovation is the process of taking those ideas to market or to usefulness” by Ijuri and Kuhn in 1988. In 2006, Kelley and Littman described innovation as “new ideas – plus action and implementation – which result in an improvement, a gain or a profit”. And in 2007, Vaitheeswaran said that it was “new products, business processes and organic changes that create wealth or social welfare”. In 2019, Barba defined innovation as “something new or different that delivers value to the world, with the key criteria that I’m not innovating if I’m not bettering people’s lives”.

Is innovation the successful commercialisation of ideas? 

Clearly that’s a measure of innovation success for commercial enterprises. But again, what about non-commercial enterprises, and what about users adapting products to better meet their needs, perhaps without commercial motivations? Clearly, we need to think beyond commercialisation and wealth creation to embrace concepts such as utility and wellbeing. But do we require so much complexity to define innovation? Isn’t there a single concept that embraces commercialisation, commercial success, wealth, utility, adoption and wellbeing? 

The concept of value does just that, but in a way that doesn’t unduly limit our definition or thinking about what constitutes innovation. ‘Value’ is a more comprehensive psychological construct than utility. Humans can value, appreciate and love things that aren’t useful.

Defining value

Value is a psychological experience or perception. Value is not absolute, and it’s not equivalent to money. Money, after all, is a human construct designed to enable commerce, trade and wealth. But if you think about it, even when money was made with precious metals, there was nothing inherently valuable about it, other than the value people placed in it based on their expectations for how they might use it. So even the concept of money is psychological, and the value humans place on various forms of currency is also based on their perceptions, expectations, hopes and fears – all psychological phenomena.

Based on the above, I offer this definition: innovation is the realisation of net new value as experienced by people, resulting from the implementation of ideas (by the same or other people) for value creation.

Being able to agree measures of value is critical for conversations about innovation, the development and implementation of innovation strategies, and of course the assessment of innovation results. But as alluded to above, if we focus only on money as our measure of psychological value, we might miss very important nuances. 

Leading organisations have learned that measures of customer experience, loyalty (eg net promoter scores) and love (of brands, products, etc) can be vital for predicting and measuring success or failure. Four key concepts to bear in mind are: garbage in, garbage out; not all that can be measured is important; not all that’s important can be measured; and the devil is in the detail.

Dr Dave Richards is co-founder of the MIT Innovation Lab