Friends,
I hope that all is well with you and yours.
Another newsletter, another seven days in the cardboard plastic mansion. Our private hellscape has transformed entirely, a domestic milieu no longer dominated by brown boxes but the pale, translucent grey of zipper doors and protection walls. Less Taskmaster and more Dexter, one might say.
While cans of paint are starting to appear on the horizon, they are still a long way away; we will be limited to “living” in the kitchen, bathroom, and bedroom for at least another fortnight. I am starting to suspect that our daughter’s first ever birthday party will have to be hosted elsewhere.
Happy days.
It is, obviously, also for this reason that this newsletter is tardy. I can only apologize. The proverbial candle is very much lit at both ends at the moment, but I will keep doing my best to provoke thought every Friday.
So, with that in mind, let us jump straight into le sujet du jour: innovation, part deux.
In particular, as it has been repeatedly suggested, I thought that we would have a look at Matt Ridley’s highly popular (and demonstrably market liberal) How Innovation Works. For the sake of full transparency, the book is still buried in a box somewhere, so I had to work off of memory. Should anyone want a full review, I strongly recommend this one by Philip Coelho for the Economic History Association.
Almost there, but not quite
It is undeniable that Matt Ridley’s work has been widely celebrated, though I tend to find that some parts of his analysis deserve more praise than others. At the core of the argument is that innovation is a matter of evolution, not revolution. Disruption, he correctly observes, is very much the exception, not the rule. This echoes what we discussed last week; inventions and innovations rarely come out of nowhere, nor are they typically ground-breaking concoctions created by lone geniuses.
In more technical terms, this phenomenon is a consequence of the principle of the adjacent possible. Search advertising cannot be created before search engines have been; search engines cannot be created before the internet has been; the internet cannot be created before computers have been. To quote Brian Arthur, existing technologies beget further technologies; any new technology will inherently be a combination of existing technologies.
In other words, the vast majority of innovation will, contrary to popular belief and columnist claim but to the author’s point, be slow and gradual – a tinkering with already-made details rather than a construction of entirely new foundations. In a sense, it is Darwinian.
However, as those who have followed my work over the years undoubtedly will anticipate, here we encounter a gap in Ridley’s reasoning. The theory of evolution, as originally proposed, is incomplete. Dinosaurs, for example, did not evolve to fly by means of trial and error; the chance of one being able to pass on its DNA while falling from a tree to its inevitable death beneath is, shall we say, low. It is much more likely that dinosaurs evolved to have feathers for sexual display or warmth. Then, for whatever reason, one of them realized that they could be used for gliding. Flight subsequently evolved over time, but it emerged from an adjacent possible that only came to exist once feathers had.
This is an important point. Exaptation (the radical repurposing of an existing technology) can be placed into the same folder as building upon pre-existing innovations, certainly, but at the same time, it is different; its radical nature creates disruption and leaps forward. It is admittedly quite often serendipitous – see, for example, how the microwave came about – but there are techniques for bettering the metaphorical odds of its creation. Similarly, there are undoubtedly ways in which one can improve the likelihood of, as Ridley sniggeringly puts it, ideas having sex. On an individual level, one can increase swirl and turbulence by reading broadly, for one. Organizations, meanwhile, can ensure that knowledge workers from across the firm interact in both formal and informal settings, and compose diverse teams.
That is not to say that innovation is something that one can necessarily plan for, though. Rather, as Ridley correctly observes, it is a bottom-up affair. Planning only really becomes useful once an innovation has proven successful and there is market traction. We know why, of course. A lot of innovation takes place in what Cynefin devotees would call the Complex domain. When dealing with complexity, hindsight does not lead to foresight, and practice is inherently novel. To put it more colloquially, one has to try shit out; parallel safe-to-fail experiments are the name of the game.
But this is not primarily a newsletter about product development; it is primarily a newsletter about strategic management. Thus, I have to acknowledge that experiments in the corporate reality also must be coherent. Put differently, they should at least be theoretically informed and justifiable (per the point of praxis). As much fun as it would be to start with a carte blanche and learn all by doing, the cost of trying anything is one that inevitably will be difficult to square with the finance department. The market can afford a failure rate that no company would.
Obstacles to innovation
Ridley, as we have here, takes a long look at what stifles innovation. In his view, three factors stand out: 1) an appeal to safety, 2) a degree of self-interest among vested interests, and 3) a paranoia among the powerful. Though theoretically correct, or so I would argue, one might again offer a bit of practical nuance.
Self-interests will always be an issue in any innovation effort that involves stakeholders, which is to say all of them. If one is lucky, there might be little discrepancy within a team, but the moment someone outside of it is involved, problems arise. With the right strategic approach, these issues can be managed, but do not expect them to ever be eliminated. Human beings have agency, after all.
Similarly, appeals to safety may be more or less warranted. Nassim Nicholas Taleb’s argument holds true; trial and error cannot be unconditionally effective. It causes planes to crash, buildings to collapse, and knowledge to regress. As I wrote in Strategy in Polemy, this adds a crucial second dimension to strategic and tactical endeavors that many fail to recognize: in certain contexts, it can be essential to not merely consider the likelihood of a favorable outcome, but also the potential cost of an error.
But Ridley is wholly correct in his observation that, to Steve’s point, a lot of innovation dies not because of a lack of sparks, but a lack of oxygen. Companies habitually do stifle innovation, be it by deliberate design or dark constraint.
On a final note, as I now hear the builders knocking on my door, one of the key points in How Innovation Works is the damaging effect of intellectual property laws, patents, and copyrights. In Ridley’s view, such regulations hurt significantly more than they help. In the case of near-perpetual copyrights (such as, per his example, Bambi), I am in full agreement. But when it comes to certain patents, it is indisputable that they also can enable innovation. From a corporate financial perspective, it is common practice to calculate the estimated value of a patent and distribute R&D budget accordingly. Without patents, there is no future protection, and thus less of an incentive to invest. A practical example of this is the way that certain contracts for city subway administration have been set up. Rather than ensure a favorable position for whoever won the previous contract, rules stipulate that a new round of offers should be collected and all negotiating parties be treated equally. While this may sound competitively sound, it ensures a lack of innovation; any major investment would ensure a cost burden that competitors would not have to carry.
And so it is with Ridley’s book. The overall argument is a good one, but it is undermined by a lackadaisical attitude to references and a sacrifice of practical nuance in favor of general rules. As so often is the case with these kinds of books, even though it is one of the best.
Next week, we will therefore dig ever deeper into practical aspects of innovation. Until then, have the loveliest of weeks.
Onwards and upwards,
JP
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