Assessing innovation capability

Professor Nathan Furr, INSEAD

Member of EFG Future Leaders Panel

Professor Nathan Furr from INSEAD, and a member of the EFG Future Leaders Panel, addressed the issue of what makes a management team and an organisation innovative. He looked at three aspects: innovation behaviour, innovation capability and innovation capital.

Innovation behaviour

Many people see the ability to be innovative and creative as genetic: it is not something that can be encouraged or taught. However, tests on twins, raised apart, have shown that roughly 80% of intelligence, but only one third of creativity, is genetic.

The core cognitive skill in producing a creative idea is associating: seeing connections between seemingly unrelated ideas. In turn this is driven by questioning, observing, experimenting and networking. Steve Jobs, the late CEO of Apple, commented that “creativity is connecting things…creative people connect experiences they’ve had and synthesise new things”. So, most innovation involves borrowing ideas from somewhere else.

US Patent applications

Innovation capability

Of course, it is one thing to have ideas, but it is not always possible to do something with them. Many designs are patented – six times as many today as in 1960 (see Figure 2); 50 million new start-ups were formed in 2015 – 137,000 per day. While only a small proportion of these may succeed they put relentless pressure on established companies. The life expectancy of a company in the S&P 500 was 75 years in 1937; by 2011 it was just 18 years.

The management of a start-up company with disruptive, innovation ideas needs to be completely different to that of an established company. There is little respect for traditional management in the start-up world.

Most traditional management is designed to make large organisations work well. It is focused on flawless planning, avoiding failure, rigorous analysis, optimisation and execution. Management for start-ups focusses on trial and error, failing fast, rigorous testing, learning and innovation.

Innovation capital

The third aspect of creative success is having innovation capital. Historically, that may have meant financial capital. Nathan contrasted the success of Edison with that of Tesla. Edison took out 1093 patents and is credited with inventing the carbon microphone, phonograph, stock ticker, mechanical vote recorder, motion picture camera and many other devices. He created the first research laboratory and founded Edison/General Electric with financing from J P Morgan and members of the Vanderbilt family. Tesla took out 112 patents and invented the technologies behind radio, wireless communication, hydroelectric generation and the electric motor. Although he never profited from these innovations – he died destitute – his innovations are the basis of today’s wireless communications systems.

Nowadays, innovation capital is more intangible than financial. It has three sources –human, social and reputational. It is often carefully nurtured and managed through the use of impression amplifiers. Nathan gave the example of Mark Andreesson, a co-founder of Netscape. The company cultured his reputation as the “barefoot genius”, not least through his appearance on the cover of Time Magazine.

Conclusions

Creativity and innovative ability are not primarily genetic. The core cognitive skill involved is associating: making connections between seemingly unrelated ideas. Management of start-up companies with innovative ideas necessarily has to be different to that of established companies. The capital needed to make such innovative ideas successful is increasingly of an intangible nature – based on human, social and reputational factors.

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