Guest post by author, patent attorney and entrepreneur, Dale Halling
I believe there is a lot of confusion regarding the difference between invention and innovation. This confusion is the result of erroneous definitions and the purposeful intent of some to increase their importance by belittling the contributions of others.
I believe that most of this mischief started with the great economist Joseph Schumpeter. According to Wikipedia:
There is nothing inherently wrong with the distinction above, but the way it is applied blurs together a number of different skills. Blurring skills together shows a misunderstanding of the process of innovating.
Broadly speaking, innovation can be broken into two distinct sets of skills: creation and dissemination. By creation I mean creating something new; not simply production – creating something old.
Invention is a subset of creation. An invention is a creation with an objective repeatable result. A creation that is not an invention has a subjective result, such as the effect of a painting on a viewer, or the effect of a book on a reader. Many activities combine both a subjective creation and an invention, such as architecture. However, we can separate out the invention from the other creative elements and this helps our understanding of the process.
Dissemination may include a number of processes, such as education (marketing, sales), manufacturing, finance, and management. This is not to say that marketing cannot be creative, it clearly often is very creative. However, the creative part of marketing can be separated out from the dissemination or execution part of marketing. The same is true of manufacturing, which can definitely include inventing. But an invention related to manufacturing is part of the creation step, not part of the dissemination step.
Finance can also have inventions. For instance, the invention of a fractional-reserve ratio bank is clearly an invention. It has the objective result of securitizing assets and turning them into loans and currency. A fractional reserve bank will securitize land and turn into a loan and currency. Despite this, [and leaving aside all the arguments about the legitimacy or security of a fractional-reserve banking system] it is important to understand that the first person to develop the fractional-reserve bank is inventing and the person operating the fractional-reserve bank is disseminating.
All real per-capita economic progress is the result of inventing. This is not to say that it is unnecessary to disseminate inventions, but if there were no new inventions there would not be any economic progress. Once all the existing inventions had been completely disseminated, we would be stuck in a declining world of diminishing returns. [“The law of diminishing returns applies in a given state of technology, but not under the conditions of an improving state of technology.” – George Reisman.] Of course, if we stop all dissemination activities altogether we will quickly starve to death.
It is my belief that business and economic professors have focused on “innovation” instead of “invention” because they have no idea how to invent or how the process of how inventing works. They concentrate on what they know, i.e. business and economic practices. As a result, the focus is dissemination, under-appreciating the importance of inventing. In addition, it results in misleading business theories such as these:
- “Management teams are more important than the quality of the invention.”
- “Execution is everything; patents and other IP do not matter.”
- “Get Big Fast.”
The truth-test of these theories is directly related to the strength of the patent laws at the time the company is created. When patent laws are weak, these theories are more true and when patent laws are strong, these theories are less true. Unfortunately, when patent laws are weak these theories do not overcome the disincentive to invest in risky new technologies. Management teams do not build revolutionary or disruptive technologies, they just disseminate these technologies. These sorts of teams are like large companies and generally can produce a return with less risk by NOT developing high-risk technologies. They tend to focus on incremental technologies or on stealing someone else’s technology. While this may be good business advice in a period of weak patents, it is bad for competitiveness and for our real standard of living.
In the long run, the only competitive business advantage is technological progress (i.e., inventing). The best management team in the world selling buggy whips at the turn of the century could not overcome the technological advance of the automobile and stay a buggy whip company. The best management team in the world selling vacuum tubes in the 1940s, could not overcome the advance of transistors and semiconductors and stay a vacuum tube company.
America is littered with companies that had great management teams that were overwhelmed by changes in technology. For instance, Digital Computers had a great management team, but they could not overcome the advance of the personal computer. Digital Computers failed to invent fast enough to overcome the onslaught of small inexpensive computers. US steel was not able to overcome the onslaught of mini-mills, aluminium, and plastics. This was not because they did not have a good management team, it was because the management team under-prioritized invention and over-prioritized execution or dissemination skills.
Ford & GM have not become walking zombies because they did not have strong management teams, but because they have not invented. As a result, they have antiquated production systems and weak technology in their products. 86% of the companies in the Fortune 500 in 1959 are no longer there. Some of these companies disappeared because of bad management, but most companies disappeared because they did not keep up with changing technology. In other words, they did not invent.
Inventions or advances in technology are the ONLY WAY to increase real per capita incomes and the only long term business advantage. Business school theories that do not prioritize invention are bad for business, and bad for our prosperity.
Dale Halling is an American patent attorney and entrepreneur, and the author of the book The Decline and Fall of the American Entrepreneur: How Little Known Laws are Killing Innovation.
Read his regular thoughts at his State of Innovation blog.
(NB: This post originally appeared at the State of Innovation blog. It has been lightly edited and reformatted for clarity.)