Innovation: a perspective on value

Innovation is one of those words.

It inspires, it frustrates, it challenges, it depresses, it engenders a whole host of emotive response. 

I’ve written, somewhat frequently, about the word.  If you are interested in my past perspective, the search utility to the right is incredibly useful.

While reading a post on The BankWatch I was struck by a reference to a blog entry entitled Missing The Point On Innovation by Adam Smith.  I’m going to start by quoting a somewhat lengthy section.  However, I encourage you to read both entries and the comments as they are extremely valuable and intriguing.

I’m really not sure that it matters who does the actual innovating….if we’re defining the innovating as the science and engineering which leads to a new product or service. Yes, of course, Nokia and their domination of the mobile phone market is very nice for the people that own it and there are spill over effects into the rest of the Finnish economy. But those things are trivial compared to the value that we the users get out of being able to use mobile phones. That is, after all, why we buy them, because they are valuable to us.

William Nordhaus, in what might be my favourite economics paper of all time, outlined this here.

We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.

It’s actually only 2.2 % of the value that goes to the innovators. The rest goes to the users of the products.

So, in keeping with the focus of my thoughts, how does this apply to the world of commerce?  Quite directly actually…

Every new payment modality, new tender, new workflow is pitched as innovative.  Are they?  The exercise of decision is up to you…However if you consider that only 2.2% of value goes to the innovator, perhaps we can establish a simple litmus test.

When you read of a new payment methodology or scheme ask yourself, who does this benefit?  Does it benefit the merchant?  Does it benefit the consumer?  Does it benefit the payment service provider?  Or, ideally, is there clear measurable benefit for all players in the value chain?

If the latter, there is the opportunity for adoption and true innovation.  To steal a platform term, a “positive feedback loop.”

What’s your perspective? Agree? Disagree? Anything to add? Critiques? The comment form is below. . .

December 4, 2008

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