Silicon Valley Losing Prominence: Understanding the Difference Between Invention and Innovation

The BBC warned in late June that the Silicon Valley in California was in danger of losing its number one status as the innovation and technology hub of the world.

Now, a Computerworld report out of Hong Kong suggests that that the world’s main tech innovation hub will indeed be moving to China.

That’s why it is important for both those in the United States and Canada to better understand the difference between invention and innovation in order to reclaim North America’s former tech glory.

The Dean of the University of Toronto’s Rotman School of Management Roger Martin and James Milway, of the Institute for Competitiveness & Prosperity  wrote a superb book called “Canada: What It Is, What It Can Be.”

They say most Canadians consider invention to be the whole sum of parts when it comes to being innovative. However, the two are very different.

INVENTION

Invention can be defined as the creation or discovery of something new to the world. Inventions are often producer-driven, following an inventor’s curiosity or area of expertise. While they are new, inventions in scientific institutes or corporate labs may or may not have any use in the world.

INNOVATION

Innovation is customer-driven, providing a new product or process that adds value to somebody’s life. Innovations can improve economic, health, or social well-being.

The authors continue in saying, “innovations are often built from inventions. Mobile telephony required new findings in cellular technology, and the Internet became widespread after the invention of fibre-optic technology. But we should not just assume that inventions naturally lead to innovation. And even if they do, that often takes a long time.”

Just how long of a time? The authors note that the U.S. National Research Council found that, in the communications and computer-technologies sector, the average time from invention to market was more than twenty years.

That’s why understanding what “innovation” really means and how it can create value is so critical for potential entrepreneurs. Scientist and designer William Buxton says: “Innovation is far more about prospecting, mining, refining, and adding value to gold than it is about alchemy.”

In fact, the authors say that innovation creates value in several ways:

1. It can make it possible for consumers to do something they could not have done at all or as well before.

2. It can reduce the cost of doing what consumers were previously doing in two ways:

a) Delivering the same benefits as existing offerings, but at a lower price.

b) Maintaining the price of the product or service but reducing overall costs of use.

Milway and Martin note that companies like Manulife, one of the world’s top five life insurance companies was innovative. They created the Manulife One account, which allowed homeowners to optimize their use of any excess cash to pay down their mortgage or to pay off their credit-card debt, versus either or. This in turn allowed for significant savings on interest costs.

Another example is the Cirque du Soleil, which recognized that traditional circuses did not fulfill consumers’ desire for exciting entertainment. By reinventing the concept of a “circus,” they appealed to a wider and affluent audience.

These are just two examples of Canadian innovation, but Canada’s global leaders have recognized the difference between innovation and invention for decades.

Now small and medium sized businesses as well as potential entrepreneurs also need to recognize the latter more often in order for Canada to continue to have a prosperous future in a wide number of industries. That’s because developing countries like Brazil, China, Ecuador, India, Vietnam, and others have a continued greater capacity for innovation as larger percentages of their populations become more educated.

And you can bet those internationally are hungrier to succeed outside the comforts of the western world after decades, if not centuries of affliction, than us native North American youth are. This can even be seen internally in Canada, where children of immigrants on average acquire more education than both the immigrant generation and the remaining native-born population according to UBC in a 2005 report

Still, in order for continued prosperity as a country, we can’t just close the door and hunker down. We must embrace more international trade partners like the Harper government is attempting to do. That in turn creates unique economic tradeoffs between Canada and other countries that can give us competitive advantages in order to build more multinational corporations.

The reason for Canada’s outstanding economic success is that we’ve managed to nearly triple the number of multinational corporations in this country since the early 1990s.

However, so few of those are technology based, and a lot do tend to get acquired before reaching that billion dollar value threshold. Nortel was one example, but it failed. RIM is another, but it will too likely fail unless they succeed wildly in Latin and South America. Nortel and RIM are mostly “invention” based as they have numerous patents, only using a few in their products that were brought to market.

So that’s why it is important for Canadian companies to realize the difference between innovation and invention, for continued invention tends to be much harder in building a lasting technology company. That’s not to say we shouldn’t try to invent. We should just consider both options more, and ask ourselves if what we’re trying to build will have market value rather than just build or acquire it anyway.