How Innovation Works Book Summary – Matt Ridley

How Innovation Works Book Summary:

How Innovation Works is the first Matt Ridley book I have read and wow it did not disappoint. This book uses various examples of innovations historically and recently to show what Innovation really is and what the key drivers and barriers to Innovation are.

If there was one sentence to summaries this book that will clarify a few misconceptions about Innovation. It is this. Innovation is evolution, not a revolution. We seem to think of Innovations as out of the blue, world changing discoveries but this couldn’t be further from the truth.

Come discover what Innovation really is. 

 

What is Innovation?

Innovation, like evolution, is a process of constantly discovering ways of rearranging the world into forms that are unlikely to arise by chance – and that happen to be useful.

Innovation, means finding new ways to apply energy to create improbable things, and see them catch.

The Nobel Prize-winning economist Edmund Phelps defines an innovation as ‘a new method or new product that becomes a new practice somewhere in the world’.

Serendipity plays a big part in innovation, which is why liberal economies, with their free-roving experimental opportunities, do so well. They give luck a chance. Innovation happens when people are free to think, experiment and speculate.

 

The Innovation Hype Cycle

Innovation often disappoints in its early years, only to exceed expectations once it gets going, a phenomenon Ridley calls the Amara hype cycle, after Roy Amara, who first said that we underestimate the impact of innovation in the long run but overestimate it in the short run.

Remember this, the idea that innovation destroys jobs comes around in every generation. So far it has proved wrong. 

 

The myth of the Heroic Inventor:

“Failure is only the opportunity to begin again more intelligently.” HENRY FORD

The truth is that the story of the light bulb, far from illustrating the importance of the heroic inventor, turns out to tell the opposite story: of innovation as a gradual, incremental, collective yet inescapably inevitable process. The light bulb emerged inexorably from the combined technologies of the day. It was bound to appear when it did, given the progress of other technologies.

Why do such heroic myths persist? Perhaps the truth is that people like to think they too could become heroes with a single leap of imagination. Such magical thinking is deeply misleading as to the character of most actual innovators. 

Thomas Edison understood better than anybody before, and many since, that innovation is itself a product, the manufacturing of which is a team effort requiring trial and error.

Invention, he famously said, is 1 per cent inspiration and 99 per cent perspiration. Yet in effect what he was doing was not invention, so much as innovation: turning ideas into practical, reliable and affordable reality.

The Spithead moment is in some ways misleading. The history of turbines and electricity is profoundly gradual, not marked by any sudden step changes. Parsons was just one of many people along the path who incrementally devised and improved the machines that made electricity and power. It was an evolution, not a series of revolutions.

History endows the triers who made the fewest errors with the soubriquet of genius, but for the most part they were lucky to have tried the right thing at the right time. Gates, Jobs, Brin, Page, Bezos, Zuckerberg were all products of the technium’s advance, as much as they were causes.

To single out clever people who made the difference along the way is both difficult and misleading. This was a collaborative effort of many brains. Long after the key technologies had been ‘invented’, innovation continued.

Charles Townes, who won the Nobel Prize for the physics behind the laser in 1964, was fond of quoting an old cartoon. It shows a beaver and a rabbit looking up at the Hoover dam: ‘No, I didn’t build it myself,’ says the beaver. ‘But it’s based on an idea of mine.’

 

Innovation makes sense in retrospect:

Yet before search engines or social media existed, I don’t think anybody forecast that they would exist, let alone grow so vast, certainly not in any detail. Something can be inevitable in retrospect, and entirely mysterious in prospect. This asymmetry of innovation is surprising.

Technology is absurdly predictable in retrospect, wholly unpredictable in prospect. Thus predictions of technological change nearly always look very foolish. They either prove wildly overblown, or equally wildly underblown.

As we saw earlier, Amara’s Law states that people tend to overestimate the impact of a new technology in the short run, but to underestimate it in the long run. Exactly when Roy Amara first had this idea is not clear.

 

The Future of AI is symbiosis:

Larry Page (Founder of Google) discovered that three of the four biggest search engines could not even find themselves online. As Walter Isaacson has argued: Their approach was in fact a melding of machine and human intelligence. Their algorithm relied on the billions of human judgments made by people when they created links from their own websites. It was an automated way to tap into the wisdom of humans – in other words, a higher form of human–computer symbiosis. 

The hype around AI is partly because when computers learn clever tricks, we tend immediately to think of the endless uses but we forget all AI  achieves is without deep understanding.

For the moment, the safest bet is that artificial intelligence will augment rather than replace people, as automation has done for centuries. 

 

Innovation Essentials – Patterns in Innovation:

“Liberty is the parent of science and of virtue, and a nation will be great in both in proportion as it is free.” THOMAS JEFFERSON 

Innovation is gradual and slow:

For a start, innovation is nearly always a gradual, not a sudden thing. Eureka moments are rare, possibly non-existent, and where they are celebrated it is with the help of big dollops of hindsight and long stretches of preparation, not to mention multiple wrong turns along the way.

That is why it is possible to tell the stories of unconscious, ‘natural’ innovation such as fire, stone tools and the origin of life itself as part of a continuum with modern technological inventions. They are essentially the same phenomenon: evolution.

If innovation is a gradual, evolutionary process, why is it so often described in terms of revolutions, heroic breakthroughs and sudden enlightenment? Two answers: human nature and the intellectual property system.

 

Innovation is about Execution not just Invention:

Inventors feel short-changed that they get too little credit or profit from a good idea, perhaps forgetting or overlooking just how much effort had to go into turning that idea or invention into a workable, affordable innovation that actually delivered benefits to people. The economist Tim Harford has argued that ‘the most influential new technologies are often humble and cheap. Mere affordability often counts for more than the beguiling complexity of an organic robot.’ He calls this the ‘toilet-paper principle’ after a simple but vital technology that we take for granted.

Again and again in the history of innovation, it is the people who find ways to drive down the costs and simplify the product who make the biggest difference.

To foster Innovation you need to stack odds in the entrepreneurs favour. Therefore, barriers to execution stifle innovation!

 

Innovation is recombination of existing technologies:

Brian Arthur was the first to insist on this point in his 2009 book The Nature of Technology: What It is and How It Evolves. He argued that ‘novel technologies arise by combination of existing technologies and that (therefore) existing technologies beget further technologies.’

How incredible to be the one human being among billions who first sees the possibility of a new device, a new mechanism, a new idea. That is arguably even more miraculous than achieving something that would never be achieved by anybody else, like the Mona Lisa or ‘Hey Jude’.

 

Innovation is Holistic:

One person may make a technological breakthrough, another work out how to manufacture it and a third how to make it cheap enough to catch on. All are part of the innovation process and none of them knows how to achieve the whole innovation.

 

Innovation needs decentralisation:

In China, the periods of explosive innovation coincided with decentralised government, otherwise known as ‘warring states’.

David Hume, writing in the eighteenth century, already realized this truth, that China had stalled as a source of novelty because it was unified, while Europe took off because it was divided.

America may appear an exception, but in fact it proves this rule. Its federal structure has always allowed experiment. Far from being a monolithic imperium, the states were for most of the nineteenth and twentieth centuries a laboratory of different rules, taxes, policies and habits, with entrepreneurs moving freely to whichever state most suited their project.

 

Innovation is about using less:

Much ‘growth’ is actually shrinkage. Largely unnoticed, there is a burgeoning trend today that the main engine of economic growth is not from using more resources, but from using innovation to do more with less.

 

What comes first Innovation or Science?

This ‘linear model’ holds sway amongst almost all policy makers and is used to justify public spending on science, as the ultimate fuel of innovation. While this can sometimes happen, it is just as often the case that invention is the parent of science: techniques and processes are developed that work, but the understanding of them comes later.

Steam engines led to the understanding of thermodynamics, not the other way round. Powered flight preceded almost all aerodynamics. Animal and plant breeding preceded genetics.

To reject the linear model is most definitely not an attack on the funding of science, let alone on science itself. Science is the greatest fruit of human achievement, bar none, and deserves rich and enthusiastic support in any civilised society, but as a worthwhile goal in its own right, not just as a way to encourage innovation. Science should be seen as the fruit rather than the seed.

 

The Innovation Litmus Test:

To contribute to human welfare, and therefore catch on without subsidy, an innovation must meet two tests: it must be useful to individuals, and it must save time, energy or money in the accomplishment of some task. Something that costs more to buy than an existing device, but offers no extra benefits, will not thrive, however ingenious. 

 

Innovation levels the playing field for necessities:

For most people today in Western countries, much of the inequality that exists – though not all – is about luxuries, rather than necessities.

This is why rich people talk a great deal about things like wine and property, two forms of luxury where the sky is the limit in terms of differentiation, and not about trousers and books, which almost everybody can afford.

 

How Innovation is Stifled:

Big companies are bad at innovating, because they are too bureaucratic, have too big a vested interest in the status quo and stop paying attention to the interests, actual and potential, of their customers. Thus for innovation to flourish it is vital to have an economy that encourages or at least allows outsiders, challengers and disruptors to get a foothold.

Examples of Innovations in big companies:

Supermarkets, led by companies such as Walmart, Tesco and Aldi, brought their customers a constant stream of innovations during recent decades: barcodes, scanners, truck-to-truck loading docks, pre-washed salad, ready meals, own-brand products, loyalty cards and more.

The chief executive, A. G. Lafley, set out to change P&G’s culture, by obtaining half of all innovations from outside the firm. This ‘open innovation’ strategy had the desired effect, with P&G reviving the rate at which it launched successful new products.

 

Barriers to Innovation:

Here are characteristic features of opposition to innovation: an appeal to safety; a degree of self-interest among vested interests; and a paranoia among the powerful. Recent debates about genetically modified food, or social media, echo these old coffee wars.

One way in which the precautionary principle works to prevent innovation is by making experimentation difficult in the period between prototype and practical application. Think Nuclear power, too many regulations makes testing impossible!

 

Intellectual Property backfires because it stops ideas being shared:

In 2011 the economist Alex Tabarrok argued in his book Launching the Innovation Renaissance that the American patent system, far from encouraging innovation, is now discouraging it. Echoing the famous [[Laffer curve]], which shows that beyond a certain point higher tax rates generate less revenue, he drew a graph on a paper napkin to suggest that beyond a certain point stronger patents generate less innovation, because they make it hard to share ideas, and create barriers to entry. 

In the mid-2010s, Thiel made the following observation: ‘I would say that we lived in a world in which bits were unregulated and atoms were regulated.’ Software was evolving through ‘permissionless innovation’, while physical technology was tied down in regulation that largely stifled change.

 

Innovation and Freedom, the crucial link:

The main ingredient in the secret sauce that leads to innovation is freedom. Freedom to exchange, experiment, imagine, invest and fail; freedom from expropriation or restriction by chiefs, priests and thieves; freedom on the part of consumers to reward the innovations they like and reject the ones they do not.

Innovation is the child of freedom and the parent of prosperity.

Innovation is the child of freedom, because it is a free, creative attempt to satisfy freely expressed human desires.

 

Our Current Innovation Famine:

‘The machinery of creative destruction is slowing down, the evidence of which is increasing corporate profits, declining new firm formation, and disturbingly increasing stability of the top firms over time.’

A symptom of the disease is that companies are sitting on huge cash piles, measured in the trillions, and multinational firms have become net lenders, rather than borrowers, because they cannot see ways to invest their money in innovation.

 

Final Thoughts:

Of all the lessons taught by the stories told in this book, I think the most relevant is Thomas Edison’s. He was only one of many people who conceived the idea of the light bulb, but he was the one who turned it into a practical reality. He did so not by genius, but by experiment. 

Get experimenting!