Financial and Monetary Systems

What does innovation mean in today’s world?

Lee Howell
Managing Director, World Economic Forum Geneva
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Each and every generation must contend with profound political, economic, social and above all, technological transformations. They not only change long-held assumptions about our future economic prospects but also create new expectations about human advancement and social progress. Yet the breadth and velocity of technological innovation appears equally inspiring and empowering as well as disruptive and ominous. Context, culture and circumstance all play a role in creating a positive or negative reaction.

For example, on one hand, a new era of industry advances in data analytics, nanotechnology, artificial intelligence, neuroscience and unconventional energy is transforming business, industries and economies. On the other, societal concerns such as structural unemployment, income inequality, skills training and national competitiveness are being framed in the context of technological innovation. The challenge is to arrive at a shared understanding of innovation and an awareness of how it can generate greater value for all for the people we serve, the organizations we lead and the societies to which we belong.

Approaching the issue innovation in such a way requires stepping back and examining the how the global economy itself is transforming.  For example, the McKinsey Global Institute conducted extensive research on how increasing global flows are contributing to GDP growth, and in particular new flows of data and communication.  Their latest report, published in April 2014, makes a strongest case to date that this is not a cyclical trend but a secular one:

  •         “By 2012, the combined value of goods and services plus financial flows reached $26 trillion [USD], or 36 percent of global GDP, compared with just $5 trillion, or 23 percent of world GDP in 1990.”
  •         “Global online traffic has grown from 84 petabytes a month in 2000 to more than 40,000 petabytes a month in 2012 – a 500-fold increase.”

The report also forecasts that global flows of goods, services and finance could reach between $54 trillion USD and $85 trillion USD by 2025 (or 38 percent to 49 percent of global GDP).  The inference to draw from the interconnection and dispersion of global flows and their networks is that ours is indeed an interconnected and interdependent world economy that is still evolving.  Although the study cautions that traditional companies will “need to brace themselves for new wave of competition propelled by the low cost of starting up a business in a digital era,” [1]the tone overall remains optimistic as “this era of new global is unfolding new opportunities for globally minded entrepreneurs to disrupt established business models by operating as micromultinationals within global value chains.”

Another interpretation of the impact of multidimensional global flows and their expanding network effects is more critical and cautionary.  It too recognizes global connectivity as “the defining characteristic of our age” but links its growth first to the concept of complexity whereupon complexity inherently generates various forms of instability.  In their recent book, The Butterfly Defect: How Globalization Creates Systemic Risk and What to Do About It economists Ian Goldin and Mike Mariathasan contend that increased connectivity both enables and creates systems that are globally integrated but also inherently complex.  They go one step further conceptually to state that “as a result of globalization, the world today should be defined as a complex system” and therefore argue for “reforms to promote a more transparent and a more resilient globalization.”

Distinguishing between complicated and complex systems becomes all the more important when looking at the future of innovation from the vantage of a globally competitive company. In their new book, Tackling Complexity, management experts Gilbert Probst and Andrea Bassi contend that such differentiation is critical and that complexity is relevant for the private sector as “the patterns of demand and supply from emerging countries are evolving, technology is developing rapidly, and energy and natural resource prices are highly volatile.” They also warn that such a spiral of complexity “may frighten decision makers, or they may be unable to appreciate and understand it,” which in term may slow or even hinder innovation, particularly in larger companies. Countering such a reaction requires emphasizing and reminding the aspirational and inspirational impact that the quest for innovation provides for an organization.

Professor Klaus Schwab, the Founder and Executive Chairman of the World Economic Forum, has long argued that companies will now depend on global development for their future growth as existing markets mature therefore it is in their strategic business interest to help improve the state of the world.  In his 2008 article in Foreign Affairs, Schwab put forth a new imperative for business which he described as “Global Corporate Citizenship”. In his view “international business leaders must fully commit to sustainable development and address paramount global challenges, including climate change, the provision of public health care, energy conservation, and the management of resources, particularly water. Because these global issues increasingly impact business, not to engage with them can hurt the bottom line. Because global citizenship is in a corporation’s enlightened self-interest, it is sustainable. Addressing global issues can be good both for the corporation and for society at a time of increasing globalization and diminishing state influence.”

Reframed in the context of innovation, Global Corporate Citizenship reflects the notion that value creation is undergoing a transformation in the 21st Century. Over the past three decades, value creation has shifted from the efficient production of goods and services globally to generating greater shareholder returns financially – both approaches are proving to be outdated and unsustainable. Today long-term success rests on two pillars: Creativity and Society. Creativity drives companies to identify unmet needs and to fulfil them in truly innovative ways. Society rewards those companies that today create economic value that is inclusive and sustainable. This is the design context for the 8th Annual Meeting of the New Champions which is organized under the theme “Creating Value Through Innovation.” The aim in Tianjin is to bring together the vanguard communities of the World Economic Forum that are committed to creating value through innovation that benefits all stakeholders for the long-run.

Author: W. Lee Howell, Managing Director, Member of the Managing Board, World Economic Forum

This article is also published on Harvard Business Review’s Chinese edition

Image: An employee works at a Chinese automobile factory in Hefei, Anhui province, March 15, 2014. REUTERS/Stringer 

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Financial and Monetary SystemsEconomic Growth
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