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Innovation Radars

1. The Geo-Innovation Radar

The figures are devastating. The US owes more than 50 per cent of the growth experienced by its companies during the latest decades to innovation generated by new technologies. These are the data supplied by the AAAS (American Association for the Advancement of Science), and they send a very clear message: new technologies are no passing fad. Quite the contrary: they have played an essential part in positioning the country as the leading world power of our times.

The figures for the US are not an isolated case. Thanks to new technologies, European Union countries achieved a GDP (Gross Domestic Product) growth of 25 per cent and a productivity increase of 55.6 per cent between 1995 and the beginning of the latest crisis. This reflects the fact that a significant proportion of its management understood the value of these tools and has been able to build them into its processes of innovation, transforming them into powerful and effective growth levers.

And yet at the present moment we can see how, although these economies are struggling to regain and consolidate the road to growth, it seems no note was taken regarding how they managed to get where they were: digital innovation. The ranking of innovative countries according to the Global Innovation Index (GII), worked out by Cornell University, INSEAD and the World Intellectual Property Organization (WIPO), clearly reflect this.

If we take a look at the 2015 ranking we see that the USA (world economic leader) is listed at number four, closely followed by rivals such as Singapore, in a field currently led by Switzerland. On the other hand, seven of the European Union economies are found in the Top 10. This group consists of Sweden, the United Kingdom, the Netherlands, Finland, Denmark, Ireland and Germany. But not all the EU nations are doing so well from this point of view. We can include here countries such as France and Spain, which, despite their leading positions in the last International Monetary Fund’s world economies ranking (positions 6 and 12), are seriously lagging in the classification which measures their efforts as innovators, where they hold positions 18 and 28 , a long way from where they should be striving to be.

In other words, innovation has become established as a key factor in economic growth. And yet the countries that now occupy chief positions are failing to maintain their leadership as innovative powers. This is the case for countries such as the US, France and Spain. Are we witnessing the beginning of a new world economic order taking place backed by this kind of ranking? Might it be that these countries will lose their current leadership positions if they fail to change their strategy and implement emergency measures to stimulate innovation? The facts and experience suggest that not only had they better do so, but that they had better do so now.

Now let’s change the focus and try to picture the scene from a global perspective. What’s happening in Latin America? Are any efforts being made to apply the statistics and lessons learnt from the US and the European Union?

A further look at the IMF world rankings shows that Brazil holds ninth place. And yet we are surprised to see that its position as an innovator is a long way back, at number 69. Why? Has this country with its huge growth potential opted for a deliberate strategy to adopt a different course? Or is it, perhaps, that something is not right?

We could assume that innovation is not so important in Brazil. This is one of the largest countries in the world, with an area covering 47 per cent of South America and with a population of around 200 million. This has led a number of analysts, such as Goldman Sachs, to see Brazil as one of the five countries set to dominate the economic world in the coming decades. This group includes Russia, India, China and South Africa, known in the world of international economics by the acronym of BRICS.

So perhaps the business fabric of Brazil has no need of innovation, given that it has the possibility of using other opportunities or tools as growth and development levers. But let’s take a look at the situation from another angle: what if innovation – or the lack of innovation, were their Achilles heel?

Chile leads Latin America in innovation. This economy, at position 42 in the IMF world ranking, occupies the 44th position in this global classification. One of the reasons behind this is that the government is fully aware of its importance as a source of growth, jobs and entrepreneurship. This country has very successfully undertaken a number of actions that have had the effect of stimulating interest in and enthusiasm for innovation within its ecosystem of businesses and entrepreneurs. Worthy of special notice is its Innovacion.cl project (www.innovacion.cl), a digital medium designed to boost creative and entrepreneurial behaviour. Thanks to attractive content that deals with technology, innovation and entrepreneurship, this medium has become an effective transformative force, one that people are quite excited about.

Chile has also begun to teach by example. Moving from theory to practice, it has launched a range of high-impact concrete measures intended to raise awareness and promote these new concepts. One example is that the government approved a draft bill that would allow for the creation of a company within 24 hours at a greatly reduced cost, thanks to the electronic signature. As with many progressive measures, its establishment has not been to everybody’s taste, given that there are group interests that do not gain by the decision. We trust that it will not remain frozen at the draft bill stage.

And this is not unique. In the same vein, this country has launched a new R&D law which provides significant private investment tax incentives for research and development projects. These are just a couple of examples of a proactive policy aimed at overcoming the old models’ resistance.

What happens next? What will the economic repercussions of these concepts be? According to IMF forecasts (2016), Latin America will grow by 1,5 per cent in 2017 despite challenges, fatigue and market tensions. And even so, the forecast for Chile stands at 2,1 for this same period. My bet is that their innovation-boosting policies and strategies have had something to do with it.

The situation in Colombia and Peru is very different. In the IMF classification they hold positions 41 and 51 respectively, but in the innovation rankings, they fall to positions 63 and 71. Why are they not tempted by Chile’s approach? These countries are already moving forward with genuinely promising initiatives, such as iNNpulsa Colombia (www.innpulsacolombia.com) and Innóvate Perú (www.innovateperu.pe). There is no doubt that they will be opening up valuable opportunities.

We now want to focus more closely on Asia, particularly China, and also Israel. If we fail to mention them, given the pages devoted to them by the media when innovation (or the lack thereof) is the subject, this analysis would be incomplete. So we start with China, the number two economic power on the world map.

Although to a great many of us China is not seen as an innovator (an imitator, rather), its GDP percentage of investment in R&D has climbed by around 20 per cent a year since 1999 and forecasts suggest that within another decade it will have stolen the US’ leadership in this field. Even so, right now it holds position 25 in the ranking of innovative nations. So what is its problem? It’s the difficulty of transforming investment into innovation.

China shows that innovation is not the direct outcome of budget allocations in this area. You need an ecosystem which is kind to innovation and suitable management. To achieve this, efforts must be made to build such a bridge, and this requires an understanding of the status quo and expectations regarding the results to render such investment profitable. This is no easy task, given the existence of tough political hurdles – obstacles that require a great deal of thought and effort to overcome on a road that looks far from smooth.

Israel also devotes a high percentage of its GDP to R&D, some 4.7 per cent to be precise, which establishes it as the world’s leading nation in this respect. But the results are very varied. Tel Aviv (the economic centre) shows this clearly. According to a study carried out by consultant Startup Genome and Telefónica Digital, Tel Aviv has become the major entrepreneurial system in the world after Silicon Valley. It has managed to oust cities like New York, London and Paris which had assumed that such a leadership position was naturally theirs. Its recipe contains four ingredients: a highly developed financial ecosystem, a strong entrepreneurial culture, effective support mechanisms and a healthy supply of talent.

Not to put too fine a point on it, this country not only invests considerable resources in R&D, it has also moved forward and established a sound foundation for ensuring that its investments are profitable. This has meant that despite the fact that it only ranks 35th as an economic power, Israel occupies position 21 in the innovative countries ranking and has established itself as the number three economy with the most companies on the NASDAQ, after the US and China. In the same vein, it has managed to persuade companies such as Google, Hewlett-Packard, Facebook, Intel, Samsung, Microsoft and Apple to set up their R&D facilities on its soil, so that the list now includes over 250 organizations. Without a doubt, this points to a more than promising economic future for its entrepreneurs.

To round off the geo-innovative radar, we should spare a line or two for the case of New Zealand, as this is a country that provides a shining example that’s opposite the case of China. New Zealand occupies position 53 in the world economies ranking, way behind the leaders. But in the innovative countries classification, it stands at a much sought-after number 21, despite the fact that it invests less than 1.5 per cent of GDP in R&D. This figure seems very low compared with, for example, the European average, which is higher than 2 per cent. How can that be? What lesson do the New Zealanders have to teach us? It turns out that in fact their case does have an important lesson for us. It is certainly important to devote resources to R&D, but that alone is not enough. It is necessary to learn to efficiently manage the innovation process to ensure that the return on this budget allocation is as profitable as can be.

If we analyse what it is that has led New Zealand to occupy this position in the land of innovation, we realize that it has not simply been luck, but rather, the result of a successful, detailed plan of action. Known as Growth Through Innovation, the strategy launched by its government in 2002 has borne fruit. New Zealand has generated a powerfully innovative ecosystem with the capacity to get the best from each agent (business, university, entrepreneur, etc.) both individually and also via their interactions. This country has worked out how to generate an effective system of collaboration where a joint vision is shared by all: united for innovation.

Since our aim is to offer an overall perspective that will help explain the value of innovation – not produce an exhaustive study of the factor by geographical zone or country – we can leave the analysis here. Nevertheless, given that the exercise is extremely interesting and sources of data can be easily accessed, I would like to encourage readers to find out more about those countries that have not been included. This will certainly help to reveal fresh answers to the questions about innovation. You may explore the same sources of data I have used, or investigate others, such as the European Union’s Innovation Union Scoreboard (2016). The conclusions will be the same: innovation is a vital resource, a key to economic development and essential to entrepreneurship.

2. The Innovation Leadership Radar

Every year the European Commission publishes its EU R&D Scoreboard, a report which reflects the efforts devoted to R&D by those countries most concerned with this factor. This information is supported by the addition of its market development, which makes it possible to obtain a broader perspective on each of them and assess the impact (or absence thereof) of the investment made in each case.

It also performs an analysis of the 2,500 companies who invest most at the global level, representing, in total, the equivalent of 90 per cent of the market’s total investment. According to the latest listing, companies investing most in R&D and holding the Top 10 positions are Volkswagen, Samsung, Microsoft, Intel, Novartis, Google, Roche, Johnson & Johnson, Toyota and Pfizer.

The US placed five of its companies at the top (Microsoft, Intel, Google, Johnson & Johnson and Pfizer), the remaining five come from Germany (which actually occupies first position, thanks to Volkswagen), Switzerland (Novartis and Roche), Japan (Toyota) and South Korea (Samsung). By sector, we note that pharmaceuticals and biotechnology occupy four positions while the rest are automobiles & parts, electronic and electrical equipment, software, technology and computer services.

Curiously, all the companies that form part of the Top 10 have made significant increases in this field in the past year.

Figure 1.1 Top 10 R&D Investors, According to the European Commission

world rank	Name	Country	Industrial sector (ICB-3D)	R&D 1 year growth	Sales 1 year growth
1	Volkswagen	Germany	Automobiles & Parts	11,7	2,8
2	Samsung	South Korea	Electronic & Electrical Equipment	10,0	-9,8
3	Microsoft	US	Software & Computer Services	5,8	7,8
4	Intel	US	Technology Hardware & Equipment	8,7	6,0
5	Novartis	Switzerland	Pharmaceuticals & Biotechnology	0,8	2,9
6	Google	US	Software & Computer Services	24,3	18,9
7	Roche	Switzerland	Pharmaceuticals & Biotechnology	2,4	1,5
8	Johnson& Johnson	US	Pharmaceuticals & Biotechnology	3,8	4,2
9	Toyota	Japan	Automobiles & Parts	10,3	6,0
10	PFIZER	US	Pharmaceuticals & Biotechnology	26,9	-3,8

The European Commission offers an interesting view of the companies that have done a lot to improve their products, but are they the most innovative companies? Perhaps all we can really say is that these are the companies that invest most in this area. This doesn’t deprive them of value, but it does highlight the fact that we should take a step back in our analysis if we want to be able to answer the question: “Who are they?”

The investment of resources does not always produce results. I suggest that we look a little further than measuring the effort made (input), and also look to classifying the results (output). This is what Thomson Reuters has done with his awards: Top 100 Global Innovators[1]. In this case, what we are looking at is not exactly a classification, but a list that includes all the best positioned companies in this area; a methodology that highlights the relevance of the patents obtained regarding which success, volume, global reach and influence are factored in.

Would these, then, be the most innovative companies? That could be the case, although this information only allows us to pick out those that have obtained the greatest value because of their patents.

Innovation means more than just patents or new products. The definition that the Organization for Economic Cooperation and Development (OECD) includes in the Oslo Manual (2005) makes it very clear: “the introduction of a new, or significantly improved, product (good or service), a process, a new marketing method or a new organizational method in the in-house practices of the company, the organization of the workplace or external relations”. This is the clearest and most widely accepted definition internationally. For this reason, although the two previous classifications offer interesting and valuable perspectives, they fail to provide any answers to the question about which companies are the most innovative. Where, then, can we find the answer?

Each year, recognized classifications worked out from an alternative point of view are published. One very interesting perspective is that of Fast Company2016[2]. They produce a ranking that incorporates very diverse sectors and companies of all ages. In their latest ranking, leadership went to BuzzFeed, for having transferred its specific brand of virality to deep political coverage, personal and critical essays, and breaking and in-depth global news. Even so, the focus of their analysis is very concentrated on the US.

One other classification system is that of Forbes[3], developed to a large extent in keeping with the principles that guide the Oslo Manual. In this case, leadership tends to go to very powerful companies with more international images.

But again, we are forced to ask whether these companies are really the most innovative.

The most innovative companies may be the huge multinationals, but they could equally be small family firms. They could be private companies, but public bodies could also fill the bill, old-established organizations might fit, as could start-ups. The most innovative companies are those that are capable of harvesting the totality of their intellectual and creative potential and that can channel it efficiently towards the generation of profitable ideas.

This book is dedicated to them, to all those companies and professional entrepreneurs who are staking everything on being a part of this new, as yet unpublished, ranking, but that will set the future for the markets. A promising future awaits them all: innovation leadership.