Objective: Define discovery, invention, and innovation. Discuss the interactions between these activities. Discuss the incentive system promoting each. Briefly discuss the evolution of institutions promoting these activities. Finally, discuss two learning strategies to promotes innovation. The index for this section is:
Definitions for discovery, invention and innovation are:
a. Discovery: A new increment to knowledge. In this course we consider three types of knowledge of physical, biological or social systems. Theoretical knowledge which increasing is expressed as a mathematical model. Empirical knowledge which represents systematic observations. Last, but not least, is practical knowledge. An important economic example is the practical knowledge acquired by a workforce to make a new manufacturing plant operate efficiently. This knowledge is intuitive and frequently very difficult to express as equations.
b. Invention: A new device or process. To qualify for a patent an invention must pass a test of originality-that is be sufficiently different from previous inventions. Most inventions are minor improvements on existing inventions which do not qualify for patents. Only a small percent of patented inventions have any economic value.
c. Innovation: A better way of doing things. Innovations can occur in all goal directed behavior such as profit maximization, reelection politics and personal lifestyles. Thus an innovation improves performance in goal directed behavior as measured by a criterion. An example of a criterion would be profit maximization in business. [Chapter 1 of the text presents theory of innovation based on bounded rationality]
It is important to distinguish between an invention and an innovation. Spreadsheet software is an invention. A new business application of spreadsheets which increases profits in as innovation. An example of innovation in government is submitting tax returns to the IRS by E-mail instead of regular mail. An example of an innovation in personal lifestyles is telecommuting by professionals from Telluride, CO.
Many current innovations are the result of applying new technology in (1) manufacturing and (2) processing of business and government paperwork. Empirically, better performance is not achieved by the new technology to improve the performance of the old process. Rather, the manufacturing or paperwork process is redesigned from ground up to make optimal use of the new combination of technology and people. A portion of the performance gain is from carefully analyzing the process to be replaced and asking what really needs to be done to maximize profits. In the business media, this is the origin of the work `reorganization.'
It is important to note several features concerning the interaction between discovery, invention and innovation.
a. Invention is promoted by discoveries in the natural sciences and more recently the biological sciences; whereas, innovation is promoted by discoveries in the industrial engineering, the social sciences and the business disciplines.
b. The interaction between discovery and invention is a two way street. Obviously, as science advances, it produces opportunities to create new inventions. However, frequently the development of the full economic value of an invention requires massive discoveries. For example, the modern airplane required the scientific development of aerodynamics. The economic development of superconductivity will require the physicists to develop a theory of superconductivity.
c. Similarly the interaction between discovery and innovation and between invention and innovation is two way.
It is important to understand that discovery, invention and innovation have very different incentive systems. Moreover, these differences create problems in transfer from one activity to another. For example, the culture for discovery and invention are very different and transfer between the two activities requires incentives.
a. Discovery: Fame. Scientists want to become famous. Such fame brings them both praise and wealth. With fame as an incentive system scientists have powerful incentives to immediately broadcast their results, thus creating a free flow of ideas. This means that researchers have at their disposal all the current results in conducting their ongoing research. However, fame does not create a sufficient financial incentive for funding basic research.
b. Invention: Intellectual property. There are three important forms of intellectual property: Patents, copyright, and trade secrets. Without property rights rivals would immediately copy inventions and the producer with the lowest costs would claim the financial reward. Incentives to invent would be diminished. However, the creation of a socially efficient form of intellectual property rights is difficult because such rights can grant excessive monopoly rights and create an atmosphere of secrecy which impedes the free flow of ideas.
Intellectual property law is modified over time to create better incentives in changing economic conditions. For example, copyright which originally was for books, plays and other literary works has been extended to software and integrated circuit masks. In the US, a patent is issued to the first to discover, not the first to file. As you might expect this leads to endless law suits. Bell's patent for the telephone is an example. Currently, there is a debate whether patents should be issued to the first to file, which is the practice in the rest of the world.
Surf the Net
Check out several intellectual property sites:
c. Innovation: Better performance. There are no property rights for innovation; consequently, imitators immediately copy any promising innovation. Imitation has become more important in the private sector with increasing international competition. The new buzz word is ``benchmarking'' which means to compare the firm's procedures with the best practice in the world.
During the first hundred years of the republic, there was little need to promote discovery, invention and innovation because technology could be adapted from England. Nevertheless, educational developments in the first hundred years created the foundation for a much higher rate of discovery, invention and innovation in the second hundred years. These developments were public primary and secondary education in the industrializing states and research universities.
During the second hundred years the rate of invention was increased by the creation of corporate research and development. In addition, federal funding of research after WW II especially through the National Science Foundation, NSF, further stimulated discovery. Another US institutional innovation is the concept of a startup, which is a small company specializing in new technology. Most startups fail; however, enough succeed in becoming Fortune 500 companies to create powerful incentives to entrepreneurs. Startups are financed by another US institutional innovation, venture capital. Venture capitalists pool their resource and invest in a large number of startups with the expectation that all it takes is one success to become rich. Also, the government in 1984 relaxed the antitrust laws to allow firms to form consortia to promote invention. Consortia are also useful to establish industry standards which promotes the industry.
Currently, there is a considerable effort to increase the rate to technology transfer from both university and government research laboratories to the marketplace.
Surf the Internet:
Check out two examples of corporate R & D:
President Clinton initiated several programs to advance automation. A program to promote technology in small manufacturers is the National Institute of Standards and Technology (NIST). To check this program out click here.
An important aspect of our competitiveness is how fast we can transfer ideas from university and government labs into the private sector. To view some resources on this topic click on
Since 1984 innovators have created numerous consortia to promote research on joint projects and the development of industry standards. Check out the following:
For a longer list of consortia sites, courtesy of Yahoo, chick here.
Many private consulting firms earn their revenues by promoting innovation and imitation in their public and private clients. The following list gives such a sample of the various types of consulting firms:
A longer list is provided by the Yahoo, a private firm providing an internet search service. For the list , click
here.
To return to the notes remember to click back at the top of your screen. You may have to click several times depending how deeply you delve into the NSF files.
To study what NSF does to promote discovery, click here. Much of the information presented is for researchers in order to process their research proposals. Other information lauds the accomplishments of NSF.
Much less progress has been made to stimulate innovation. Currently worldwide economic competition is based on the rate of discovery, invention and innovation. The US is currently weak in the area of manufacturing innovation; however since the mid 80s progress has been made in catching up to the Japanese. We have copied many of their innovations such as creating design teams with members from all departments of the firm and with the power to make decisions. Most promotion of innovation takes place in the private sector by consultants who aid firms and government agencies in implementing innovation and imitation. Also, to aid in imitation of innovations, organizations have been created which collect files on the best practices in each industry. They act as clearing houses disseminating the information to imitators.
Surf the Net Check out several organizations which promote benchmarking:
Both inventions and innovations require much applied research to achieve their market success and their potential performance respectively. An important aspect of this applied research is the learning strategy. A simple learning strategy is an improvisatory strategy which is a trial and error approach to learning how to achieve market success in an invention and better performance in an innovation. In the 19th century most invention was by trial and error methodology, that is improvisatory methodology. An improvisatory strategy for innovation means the innovator is simultaneously trying to learn and achieve performance at the same time. For example, GM in installing new automation equipment in a factory must simultaneously learn how to effectively use the new machinery and produce autos for sale at the same time. In an improvisatory learning strategy for innovation the participants to achieve performance are highly constrained in how much experimentation they can perform to achieve better future performance. This is especially true in government innovation where equal treatment before the law effectively eliminates variation in administration.
A better learning strategy is a separation strategy which requires separating the learning activity into a formal research setting. For example, corporations currently develop new products in research and development laboratories. In agricultural innovation research is performed at research stations before the results are transmitted to farmers. The second strategy provides a systematic approach to the learning aspect of invention and innovation. An example of a systematic approach to learning is the use of statistically designed experiments to test the affect of variations in fertilizer application on crop yield. Currently most invention is done using a separation strategy; however most innovation still uses an improvisatory strategy.
Surf the Internet: Check out USDA research and development towards agricultural productivity. The southern region has the best home page for explaining what the USDA does. To check it out click here.