HBR talks about the types of innovations that builds nations


Innovation drives economic growth. Summary  by Taniya Hasan

The notion that innovation is the key stimulator of economic growth has convinced many government leaders, policy influencers and development enthusiasts that innovation is the answer to ever-growing unemployment and economic deficiencies.

A look back at 2014 shows, that from India’s Narendra Modi, who embraced innovation to resuscitate Indian Manufacturing and overall growth to Nigerian businessman Tony Elumelu, who launched $100M entrepreneurship grant program to unlock Africa’s economic potential –leaders from all over the world are convinced that innovation is pivotal to economic growth.

But the question still remains has it been proved that greater innovation leads to macroeconomic growth and prosperity?

According to experts, while innovation can enable macroeconomic growth, it can’t be seen as a root cause of growth because different innovations contribute differently to economic prosperity.

To understand how innovation truly interacts with prosperity, we should first identify the types of investment in innovation. In simple terms, there are three types:

  • Sustaining
  • Efficiency
  • Market-creating investments

Sustaining innovations – which replace old products with new and better ones – and efficiency innovations – which allow companies to make and sell established products for less – help retain existing customers better, but do not attain new ones.

Market-creating innovations, however, focus at making products and services accessible to non-consumers or those who are under-served. For example, India’s Narayana Health and Kenya’s M-PESA transformed how healthcare and financial services were made accessible to non-consumers. As a result, new value networks were created with net new jobs that eventually led to economic uplift.

Market-creating innovations offer rapid growth and job creation, and, when executed successfully, some market-creating innovations can be disruptive in foreign markets. The secure cost models they develop and their knack for going after non-consumption often gives them an edge over global competitors. This allows tiny economies to come to the fore and build globally relevant companies.

However, market-creating innovations are almost always harder to execute – because in pursuing non-consumers, they are more susceptible to myriad infrastructural loopholes and social challenges most developing nations face. Their execution also requires unparalleled synergy between policymakers, investors, entrepreneurs and other stakeholders.

In conclusion, we can say that while leaders in developing nations are right in reviewing how policy and other factors drive innovation, they still need to focus on the right kind of innovation instead of seeking innovation for its own sake.


The Type of Innovation That Builds Nations by Bryan Mezue (JANUARY 7, 2015)




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