Why Innovation Is Tough to Define — and Even Tougher to Cultivate

Innovation: It’s something everyone is in favor of, everyone likes the idea of, yet no one really understands it, according to Wharton legal studies and business ethics professor Kevin Werbach. Werbach moderated a panel on the topic at the recent Wharton Economic Summit 2013 held in New York City, during which he challenged the participants to define innovation, talk about its relationship to entrepreneurship, and explain what is needed to nurture it. He noted that innovation is essential for companies to grow, and that it is transformative.

In response to a question about whether innovation is necessarily related to new technology and big breakthroughs, Lady Barbara Judge, chairman of the United Kingdom’s Pension Protection Fund, defined innovation as either “using something new, or something known, but in a different way, different time or a different place.”

To illustrate the latter, she spoke of two men who are bringing car sharing, a concept popularized most notably by the Nasdaq-traded company Zipcar, to India in the guise of a company called Zoom. “It is not new technology but somebody saw it, used it, did it in a different place, in a different time and it’s really very innovative,” she said of the fledgling firm.

George Damis Yancopoulos, president of Regeneron Laboratories and chief scientific officer of Regeneron Pharmaceutical, defined innovation as “an approach … that addresses a major imminent want or need that people have, [something] they know they want or need or that they will want or need once we provide it.” He pointed out that innovation isn’t always easy to spot. “A lot of things get hyped as innovation but ultimately … they’re not really that innovative because they’re not all that useful.”

Yancopoulos put his definition of innovation in the context of the industry in which he works — biotechnology — reminding the audience and fellow panelists that at the turn of the millennium, the sequencing of the genome was being hailed as a great innovation. “A lot of people thought that was going to change everything,” he said. “The problem was that [for] the people who really knew about the challenges in providing new treatments for diseases, it was just an incremental step.”

He cited his company’s discovery of a new kind of medicine to address disease mediators as a genuine example of innovation. The medicine was first tested on an “orphan disease,” one that afflicts only a few hundred people. Yancopoulos noted that the medicine was innovative because it addressed the needs of those patients, giving them enormous relief, yet it was only seen as an innovation when the approach was applied to a more common ailment, macular degeneration, which robs elderly people of their vision.

“It’s now in the history books as the third-biggest drug launch in biotech history. It’s transformative for the company,” he said of the later use of the medicine. “The interesting thing is that it’s gotten lots of hype, it’s gotten a lot of credit and there’s very little recognition of where the true innovation actually occurred. We got very little credit for it at the time.”

The Key Ingredients

Key ingredients for innovation also include entrepreneurship and execution, pointed out John Rogers, executive vice president of Goldman Sachs. “There’s probably an oversupply of innovation,” said Rogers. “It’s the execution that makes a difference.”

With that distinction in mind, Goldman Sachs made changes to its foundation five years ago to focus more on program-driven initiatives like 10,000 Women, which offers a business education to females in underserved places of the world. The program’s curriculum and business model provides women with mentorship and teaches critical business skills such as planning and negotiating. The program now successfully operates in 22 countries. “As innovative as the program is, it’s no substitute for the entrepreneurship of the women themselves,” Rogers noted. “Goldman Sachs had nothing to do with the innate skills or the capabilities of those women.”

Looking at innovation on a larger level and the critical role of entrepreneurship, Ted Dintersmith, a partner in Charles River Ventures, put forth the supposition that the single biggest factor that has improved the world over the past two millennia is the U.S. innovation ecosystem. He pointed out that in the 50 or so years it has been in existence, some $500 billion has been invested, approximately half the amount of the stimulus package or one-third of the cost of the war in Iraq. He added that 11% of the private sector workforce in the U.S. and 21% of the U.S. GDP are a result of venture-backed startups. “The single biggest source of global competitiveness, improving productivity, improving quality of life is due to what entrepreneurs are doing every day,” said Dintersmith.

Government has a key role to play, according to Jay Schnitzer, former director of the Defense Sciences Office, and must become more innovative and more supportive of it. Schnitzer added that while there may be no formal department of innovation or innovation czar in the United States, DARPA — the Defense Advanced Research Projects Agency — is actually an innovation engine for the federal government. “In fact, I would argue that DARPA’s product is innovation,” said Schnitzer of the agency, the arm of the U.S. Department of Defense charged with the development of new technologies for use by the military.

He called for adapting the DARPA model across other government agencies. “The aspect of letting the best and the brightest do what they do best, [while] getting out of the way, and providing adequate resources for them to do so…. Why can’t other parts of government work that way?” he asked. DARPA’s approach is “built on fulfillments, milestones and metrics,” Schnitzer noted. “It’s not built on entitlements or equality.”

The government also has a role to play in enabling innovation in the private sector, with both policy and regulation. “It’s going to be really important, particularly in the health sector, to have good public policy…. Likewise with the regulatory agencies,” said Schnitzer. “Even though patient safety has to come first, there has to be some intelligent, reasonable approach to how you identify, measure and then mediate the risk.”

Education’s Role

Education is also critical for innovation and entrepreneurship, the panelists agreed, adding that greater emphasis is needed on areas that the U.S. school system doesn’t currently focus on, and a more enlightened approach to teaching children about failure. Judge said that the United States can no longer afford to ignore the need to educate engineers. “We don’t have enough engineers across the country,” she noted, adding that there is too much attention given in the U.S. to training future financiers. “We don’t need these financial engineers. We need real engineers if we’re going to build things.” She also noted that there is a need to encourage women to become engineers. “If we don’t educate women [in this area], we are missing a bet.”

According to Dintersmith, the approach to education taken in this country does little to advance innovation. “What are we doing to make sure that our truly innovative, entrepreneurial people make it through the education process and come out confident in their position to start companies and do great things?” he asked. “The [Steve Jobs-types] of the world are incredibly rare, and the education system can’t create one … but it can destroy one. Today’s schools largely crush the innovation out of kids.”

Based on the experiences of 10,000 Women and another Goldman Sachs-sponsored program, 10,000 Small Businesses, Rogers agreed that entrepreneurship is not a learned skill, but he believes that schools have a role to play in fostering it. “I know that we can’t just teach it,” he said. “We can give skills that help to enhance it, to help move to the next stage, but the determination and the absolute pervasive optimism about possibilities are innate.” It’s critical that schools learn how to channel natural, innovative entrepreneurs into places where they can execute and create, he added.

A characteristic that innovators and entrepreneurs share, Dintersmith noted, is their lack of fear, and their understanding of the importance of failure. “Success is key, but it’s quite possibly the case that you can’t succeed unless you understand failure and every aspect of it and you’re comfortable with it.”

The danger is that schools don’t allow, or encourage children to fail. “How many kids in school are being given the message that it’s OK to try things that are different and then fail because you’re going to recover versus how many are told: `Don’t take a course you might not do well in; you’ve got to have a high grade point average?’” he asked.

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