1. Innovation in Business and Society

Greek mythology brings to us the well-known story of Prometheus, the Titan who stole the fire from the gods and presented it to humankind. A particularly detailed narrative of innovation in ancient times also comes from the VIII book of the Aeneid. In this part of Virgil’s poem, Aeneas, who has fled Troy for the shores of Italy, is in trouble fighting the natives of Latium. To his relief comes Venus, goddess of love and passion. She seduces Vulcan, the god of fire and metalworking, who then heads for the volcano where he has established his workshop and manufactures a new set of weapons for Aeneas. These weapons bear the images of future and glorious events in Roman history and allow Aeneas to win a crucial battle, which paves the way for the future foundation of Rome. This story, written more than 2000 years ago, is very interesting by our contemporary standards. In fact, it shows three key ingredients to innovation: Aeneas, as the symbol of an urgency to change, which generally is due to competition of some sort (quite often, of military nature); Venus, as the symbol of passion and commitment, making events unfold; finally, Vulcan, as the symbol of technical prowess and know how. Even today, we might argue that innovation arises if and only if all three of these ingredients are present. A further detail is interesting. Vulcan carves scenes of the future of Rome on the shield, which Aeneas does not understand and simply enjoys their beauty. In other words, innovation is a force so strong, that it shapes the distant future in a way that baffles even the ones who pursue it in the present.

For instance, think of the role of complex booking systems based on revenue management techniques* in the airline industry, which have enabled significant business model innovation. Or, the use of digital mapping systems that have enabled innovations ranging from food delivery in cities to medical logistics during epidemics in developing countries, such as Rwanda (UNCTAD, Technology Innovation Report 2018).

As an example, the strategies followed by personal computer makers in order to make their proprietary solutions standard might be of some teaching to electric car makers. Similarly, methods used to manage software development projects can be applied to the design of industrial products, or even to the redesign of services and the reengineering of operational processes of a non-technology-driven organization, as a social cooperative.

In principle, an innovation occurs when a technical solution becomes a product (or a service) in such a way that the firm who offers it is able to ensure that the utility to customers is greater than the market price (otherwise customers would not buy it) and that the market price is greater than the cost in which the firm incurred (otherwise the business would not be sustainable). A number of interesting technical solutions have not been able to become innovations, because of the inability to properly balance this triad.

Many examples can be mentioned. One of the probably most striking ones is the incandescent light bulb, whose invention most people would credit to Thomas Alva Edison. However, what Edison really did, was to improve prior artifacts invented by a series of predecessors and make the light bulb commercially viable. To achieve this result, Edison blended technological and business acumen. First of all, he managed to identify beachhead markets to which he could direct his earlier and still underperforming products, such as ships, industrial facilities and wealthy individuals (Jonnes 2004). Then, he followed with street lighting and, finally, offices and households. Even more, he deeply understood the systemic nature of his invention and the need to develop complementary goods, such as generators, enabling the market to adopt his technology as a complete solution. Similarly, neither Henry Ford nor Bill Gates invented respectively the motor car or the personal computer. However, it is thanks to them if these artifacts have effectively become widely diffused innovations.

For instance, Stirling engines* (a special type of steam engine) were invented in the eighteenth century and have hardly ever been used in practice. However, they are now being considered as interesting solutions for generating electricity from the heat obtained in solar concentration plants.

For instance, we can say that a company like Google owes its success to the business model innovation introduced in the Internet search industry, and not only to the process innovation they have introduced in the search process, thanks to sophisticated algorithms.

For instance, Dell Computer has been an important innovator in the computer hardware business by selling directly to customers and assembling computers to order. We can safely say this has been a business model—and not simply a process—innovation, because of the change of upstream and downstream relationships. Similarly, low-cost airlines such as Southwest and Ryanair have introduced what we can define as business model innovations, because of the way they overturned traditional revenue flows and cost structures. For instance, meals and baggage handling have become a source of revenue instead of a cost. Sometimes, and with significant controversy, the same has happened for airport fees, thanks to the choice of flying to under-used airports owned by public authorities, who subsidize flights in order to stimulate local tourism.

For instance, one might wonder how to classify a new videoconferencing software. If one takes the perspective of the software firm that has developed it, it is clearly a product innovation. From the perspective of a university lecturer that uses it to teach online, the same artifact becomes the tool to perform a process innovation. For the university that decides (as it happened during the COVID-19 pandemic) to set up online courses, this can become an organizational innovation. If the same university, once the health emergency has subsided, decides to leverage on the experience gained and to change its teaching model in order to cater to remote students, this can become a business model innovation. Finally, this same software tool can become an important social innovation both for the communities of origin of these students (who can now access quality education without having to relocate and sustain the associated costs) and for the communities in which the university is hosted, who will see a marked decrease in the inflow of young students.

Experimental development is defined as “systematic work, drawing on knowledge gained from research and practical experience and producing additional knowledge, which is directed to producing new products or processes or to improving existing products or processes”. In order to aid in properly identifying R&D, the Frascati Manual proposes five criteria, which must jointly be present for a project to qualify as such:

The Frascati Manual suggests a further difference between prototypes aimed at validating the new and uncertain technical solutions being developed through experimental development, and the ‘final’ prototypes aimed at achieving certifications or launching a sales campaign.

Well-known technology clusters such as the Silicon Valley are characterized by a very high ‘churn rate’ of companies and jobs, which leads to the collective growth of the entire system.

As an example of the issues associated to technological neutrality, one can think of the policies that are promoted worldwide to decarbonize the automotive industry. These include support to the rolling out of recharging infrastructure, a rapid reduction of allowable CO₂ emissions in new vehicles and citywide bans for the circulation of polluting cars. The former policy is explicitly not technology neutral, since recharging stations are specific to Battery Electric Vehicles (BEVs). The other two are technology neutral in principle, since they could also support Fuel-Cell Electric Vehicles (FCEVs). However, this neutrality is only apparent, since FCEV development is trailing BEVs’ and the velocity of these new regulations is such that only BEVs can effectively qualify. Should markets adopt BEV technology and its complementary recharging infrastructure, this will reduce the market space available to FCEVs, together with the financial incentives to develop this technology, regardless of the possibility that it might be (in principle and in perspective) superior to BEVs’.

Many large firms, such as P&G and pharmaceuticals, have reduced their internal R&D expenditure and increased the cooperation with other entities that may already have developed solutions to relevant problems, or have the competencies to do so quickly.

Another striking example is Apple which is, as of today, one of the world’s largest firms by market capitalization. However, it is a relatively small firm in terms of employment, and it certainly does not derive its market value from its fixed assets. Its success is mostly due to its capability of directing the innovative effort of a complex ecosystem of suppliers (e.g., component manufacturers who develop new products specifically for Apple) and complementors (e.g., application developers).

In a similar way, many other firms innovate by leveraging on a focal Internet company (e.g., games developers on Facebook) to deliver innovative products and services.

The shift to electric mobility is a typical example of a complex innovation, since it heavily depends on the rollout of a recharging infrastructure. In turn, this requires disparate actors such as vehicle manufacturers, energy producers and distributors, municipalities, recharging service providers and manufacturers of recharging infrastructure, to cooperate around business models and interaction patterns that are still undefined.

As a B2B example of simple customization, a paint maker can provide customers with primary pigments and a colorimeter and leave them the task of blending the colors in order to achieve the desired shades. In the case of B2C, one can think of the way each of us tailors in an original way our appearance on social media and the associated interactions. As an example of a deeper role of customers in innovation, one can think of including ‘makers’ communities’ who produce their own gadgets thanks to domestic 3D printers and Raspberry PI microcomputers.

For instance, narratives of the ‘Silicon Valley’ phenomenon (Castells 2011) point to a long sequence of events, from the foundation of Stanford University in the late nineteenth century, to the establishment of US Navy bases and technology centers in the early twentieth century and, finally, to the emergence of high-tech entrepreneurship funded by modern venture capital in the post-WWII economy.

This can be done via upskilling (i.e., providing them with the new skills that are needed to go on with their existing job) or via reskilling (i.e., providing them with skills that might enable them to operate in a different professional role). At the same time, some authors argue in favor of measures such as Universal Basic Income, which implies a more or less permanent loss of a job.

Think of nuclear power or, more recently, the impact of plastics waste and microplastics on ecosystems. The latter might seem quite iconic, given that plastics were commonly considered, up to recent years, as the epitome of contemporary industry and human progress.

The phenomenon can be observed quite starkly when modern technology is introduced in a primitive society and when technological progress is particularly fast. The number of contemporary examples is abundant. For instance, one could think about the addictive and compulsive effects of digital content, from social networks to games, especially on children and adolescents, with their potential impact on cognitive and social development, and whose long-term effects on the psychological, emotional and affective spheres will probably be discovered by the next generations. Similarly, one can consider genetic screening and editing of human embryos, with techniques such as CRISPR. Aside from the controversies associated to the nature of embryos (“is it a human being we are discarding and/or working on?”), the objectives can be debatable. These techniques were originally intended to avoid giving birth to babies with genetic diseases. However, when technology will allow it, and given the choice, what parents will not try to use it in order to have better looking and more intelligent babies too? How is society going to make sure that this will not develop into fully fledged eugenics, as in Huxley’s “Brave New World”? Finally, similar controversial aspects can be tied to the use of artificial intelligence (AI) supporting decision-making in many different fields, from recruitment in firms to university admissions, and from granting bank loans to deciding bail for people charged in court, all the way to deciding whether a subject is friend or foe in military operations. AI algorithms are intrinsically ‘opaque’ to decision-makers and tend to reinforce the stereotypes that emerge from the datasets on which they were trained, thus opening the way for potentially unjust decisions. Moreover, even if procedures imposed by the organization or by regulators dictate that a human decision-maker is kept firmly in the loop, one might wonder to what extent she/he will be willing to assume the responsibility of going against the recommendations of an algorithm, lest this decision turn out to be a bad one.

A caveman with a club is not simply a stronger man than his peers. According to his tendencies, he might become a man of order who protects the village from enemies, the village chief or a mugger. Similarly, a social media user of today might develop into a more informed and socially connected citizen or professional, but might also end up as a social outcast, or even be affected by mental illness. Companies know this phenomenon quite well and marketing effort often lever on the effect.

In the case of GMO crops and food, European markets have long resisted adoption out of distrust toward producers. Even if, in the end, they will end up accepting this technology, this delayed adoption might have had significant financial impact.

There are cases in which product liability can raise complex issues even for technology that is not particularly innovative. For instance, a pharmaceutical company might decide to withdraw a socially desirable product, such as a drug, if its profitability is not high enough to offset the potential liability that might emerge, because of rare but highly damaging consequences on particular customers.

Dramatic and well-known examples of such phenomena are tobacco smoke and asbestos, which have led to countless casualties and decades of debate between the first detection of the problem, legislative action restricting their usage and corporate lobbying trying to resist.