The Future Of Innovation - Innovation Value And Risk.

Dr Carlos Pinho

Innovation is critical for companies’ success, yet still a tough endeavour for most innovators, due to the high risk and difficulties in assessing innovative value before reaching marketplace.

When looking for innovation trends/patterns, the growing importance of networks, multidisciplinary teams, knowledge sharing, and consumer participation are among the most frequent. Innovation emerges as a complex phenomenon, based on interdependence and complementarity, aligned to creative behaviour.

However, when looking at the role of finance in promoting such trends and facilitating innovation, we find it on the opposite side, with little stimulus to risk-taking and creative, untested enterprises. The validity of traditional tools is put to test, as uncertainty, complexity, irreversibility and contingency of the innovation process require integration of different perspectives and a different, more creative approach.

Knowing how important is the role played by finance as a ‘process driver’ in innovation context, we should reconsider our current perspectives of: innovation value and innovation risk, so as to leverage the innovation process and ensure its success. And this is how we see it.

Innovation requires collaboration. The dynamic interdependence of multiple agents in complex networks requires understanding the link between capturing value and creating value. Incentives for innovation depend on how much value can be created and how much it is captured. Therefore financial tools should stimulate an open context of innovation, e.g. stimulate cooperative behavior, to ease value creation, but also should promote mechanisms able to better capture that value.

Risk and failure are intrinsic components of innovation. Identifying and assessing which risks are involved, which risks must be considered in the investment decision, and deciding how these risks can be mitigated and hedged, is a complex matter. We believe that risk should be considered and assessed in innovation context, where it is typically higher, in a perspective closer somewhat to venture capitalists.

Without this vision, financial instruments are unable to support the inner dynamic of innovation process and eventually end up working against it. We should reinvent financial approaches in the context of the innovation management system, so that we can realistically contribute to increasing innovation value and reducing associated risks so as to leverage the innovation process.

Article © 2009 Dr Carlos Pinho. All rights reserved.

about the author...

Dr Carlos Pinho

Dr Carlos Pinho

affiliation:   Universidade De Aveiro

position:  Assistant Professor

country:  Portugal

area of interest:  Innovation Management

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