The Four “Cs” of Innovation

Innovation is now widely acknowledged to be a prerequisite for sustainable economic growth. But, while this is true of developed and developing economies alike, the tried and tested approaches do not work for all countries.

PARIS – Innovation is now widely acknowledged to be a prerequisite for sustainable economic growth. Whether the changes are profoundly disruptive, or merely provide incremental improvements in products, services, or business models, the results boost an economy’s long-run productivity. And innovation is necessary not only for developed economies, but also for emerging markets, which are receiving diminishing returns from simply transposing advanced economies’ best practices. But, while every country needs to innovate, the tried and tested approaches do not work for all markets.

Clayton Christensen of Harvard Business School has identified three broad forms of innovation that make firms – and ultimately economies – stronger. Firms can make incremental changes to existing products, thereby becoming more competitive in an existing market segment; they can introduce products, like Sony’s iconic Walkman or Apple’s iPhone, that create new market segments; or they can develop a product – such as electricity, the car, or an Internet search engine – that is so disruptive that it renders an entire sector or way of doing business almost obsolete.

The challenge for governments is to devise ways to encourage firms or individuals to engage in more such innovation to bolster economic growth. Much of the research in this area, influenced by the work of Harvard’s Michael Porter, has been dominated by “cluster studies,” which typically focus on improving productivity in emerging economies and regions within advanced economies. As a result, over the past two decades, policymakers’ attention has shifted from trying to understand Asia’s so-called tiger economies toward recreating the successful clusters of Silicon Valley, Boston’s Route 128, Taiwan’s Hsinchu Park, South Korea’s Daedeok Science Town, and Israel’s Silicon Wadi.

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