FGV Jr.

Part i: the importance of innovation

Por Andrea Rodríguez Ramírez

When we think of an innovative company, the Facebooks, Apples and the Googles often come to mind. We think of tech-based companies that have created products from scratch and introduced them into markets in which they were previously unknown, but most importantly, we think of companies that have revolutionized our day-to-day behaviour. Although this may be our conventional vision of innovation, the truth is it only represents a specific image of what an innovative company may look like.

An innovative product is one that brings a certain degree of novelty and added value to its market and has the ability to be applied or commercialized. Innovative products can be both tangible or intangible, meaning that new processes or methodologies may be just as impactful on a society as a physical product. Furthermore, an innovation can be radical; one that is entirely new and has the potential to destroy existing industries (ie. the car, the telephone and the Internet, or the conventional idea of innovation) but it may also be incremental; which consists of making small but significant improvements on existing products. Although radical innovations have the potential to become breakthroughs, they often require more capital investment, extensive R&D and are bound to more risk. On the other hand, incremental innovations are more accessible, less risky but don’t usually result in the same level of returns as radical innovations.

Why is important for a firm to invest in innovation? On one hand, through innovation, firms have often succeeded in using their resources more efficiently and reducing their costs. A perfect example of this is Zara’s unique distribution technology, an innovation that required years to develop and perfect. With its application, Zara is capable of designing, creating a completely new line of clothes and delivering it around the world in simply 2 weeks, an asset that any fast-fashion retailer would desire. On the other hand, carrying the title of the innovator for any firm has become an important point of differentiation, appealing to both the end-consumer and the potential employee. For instance, could part of Google’s success be allocated to its distinct organizational culture (one that allows employees to bring their pets to work)? Could this new way-of-doing actually be fostering more creative ideas?

Beyond the potential financial benefits of being an innovative firm, which may be the sole interest of some, overall, innovative activities are particularly crucial for the economic and social advancements of any society in the long-term. If we look at the greater picture, high investment in innovation will not simply benefit firms and consumers, but could actually represent an entry door for developing nations (as was the case for South Korea). In fact, economist and political scientist Joseph Schumpeter believed that innovations, particularly breakthroughs, were at the heart of capitalism. He referred to this as “creative destruction”, the process in which the creation of a new technology makes an existing one obsolete, thus constantly advancing and renewing the economy.

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