The saga of Research vs Innovation - VI

Innovation deployed in the context of a Value Chain with Zero Sum Gain at system level

6. Value Chain

I would like to finish this series of posts on Research vs Innovation by looking at how they hit the marketplace. In the case of research we have seen that the end product is knowledge, that may be protected by a patent. This result is standing alone, it does not have to enter into a relation with anything else (you have of course a relation in the sense of related knowledge and possibly related patents) but in a way you can look at the result in isolation from everything else.

In the case of Innovation, on the other hand, you are creating a change in the marketplace and this change, and where it is created, is as important, and meaningful, as the innovation itself.

In the “usual” economy you have many players organised along value chains. Your innovation can be within a single “ring” in the chain or it can be in the binding (transaction) between two rings.

In the first case your innovation is affecting the internal processes of a company, in the other case it affects the relation between the company deploying the innovation and its “customer” (in a value chain the flow is from one ring to the next and the former can be seen as a provider/supplier/seller, the latter as a customer/buyer).

The relations may be, and usually are, more complex. A given company, represented by a ring in the value chain can attach to several providers (rings) in order to create the added value that is passed on to the next ring in the chain.

Any innovation creates a displacement in the value chain. If internal, within a ring, it decreases the production cost, if external it decreases the transaction cost (or increases the perceived value). 

The total system is a zero sum gain: hence, if you are gaining in one point, someone else is losing an equivalent amount at system level: if I manage to sell a customer a new product, that customer will have less money to spend on something else, hence somebody is going to lose the money I am gaining.

This zero sum gain is not true in the research field, it is not a zero sum game (although, interestingly, discussion on entropy of information tells us that actually creating knowledge decreases entropy locally -you have more knowledge- but HAS to increase entropy at system level).

This is the other fundamental difference between research and innovation and it is not a marginal one!

Author - Roberto Saracco

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