A new strategic innovation model offers a unified theory of innovation in a complete, consistent and coherent theoretical framework.

Xavier Ferràs

The Associate Dean of the Executive MBA at Esade, Xavier Ferrás Hernández, has developed a new model that illustrates how states can ensure initiatives to encourage innovation, and how companies should invest resources in a combination of high- and low-risk projects to create innovation clusters. 

In an article published in the IEEE Engineering Management Review, Ferrás Hernández explains how what he calls ‘blue innovation’ is a “geostrategic imperative” and sets out the simple model to contribute to the understanding of the innovation phenomenon. 

Rationalizing risky decisions 

Economic decisions on innovation traditionally fall into one of two areas: those with low risk of failure and low reward potential, and those that have a high risk of failure but also offer high reward potential. These are the rational areas on the innovation matrix. 

Innovation framework

On this matrix, low-risk and low-reward innovation is illustrated in red and generally represents known and saturated market spaces. The high-risk and high-reward innovation is illustrated in blue, and represents new market spaces with no competition

Rather than identifying ways to move forward in a proven market, blue innovation create new consumption markets

Competition in the red spectrum — a highly saturated market — requires ongoing improvements to innovation. A prime example of red innovation is the progress made by car manufacturer Toyota between 1960 and 1990, when the Japanese brand expanded extensive manufacturing, research and design facilities to establish it as a household name in Europe.  

The high-risk, high-investment spectrum — blue innovation — contains disruptive technologies. Rather than identifying ways to move forward in a proven market, this type of innovation creates markets to consume the product. Blue innovations are transformative, often world-changing products such as the car or the personal computer that are the result of an overflow of knowledge accumulated over the years. They eliminate the need for what came before, much like the digital camera replaced rolls of film and darkroom chemicals. 

Expanding the matrix 

Red and blue innovation represent the traditional economic risks of innovation, but Ferrás Hernández extends this matrix with two further models: gold and white. The gold innovation model represents low risk with high reward. Gold innovation creates simple, highly scalable businesses that are incredibly attractive to investors. 

Gold opportunities may be interesting in the short term, but they don’t usually create high barriers to entry for competition

The 21st century has enjoyed an explosion of gold innovation. Facebook led the way in a digital landscape that includes other social network giants alongside Airbnb, Uber and WhatsApp. Physical business models such as Starbucks, Ikea and McDonalds can also be classed as gold innovation opportunities — simple, scalable and globally successful.  

But although gold opportunities are very interesting for financial markets in the short term, they usually do not create high barriers to entry for competition and can quickly fall into the red zone. 

The final segment in the matrix — white innovation — represents high-risk innovation with low reward potential. However, despite the irrational prospect of this segment, this type of innovation — such as moon exploration or human genome sequencing — pushes the boundaries of human knowledge and lays the foundations of future technology. 

Particle physics, genetics, evolutionary biology and other core competencies that have shaped future generations are all prime examples of white innovation.  

Paving the way

Perhaps the most prolific example of the transformative capabilities of white technology is the internet. Developed within a scientific and military framework, the internet created an economic value impossible to quantify. 

Blue innovation

It also provides the perfect example of how white innovation paves the way for blue: without the internet, none of the 21st-century digital blue innovation would exist. It’s within these blue innovation spaces that companies are advancing technologies and providing the high-value investment opportunities (artificial intelligence, biopharmaceuticals, semiconductors and aerospace among many others) that drive innovation.  

White innovation is high risk and low reward, but it lays the foundations for future technologies

Companies such as Google, Apple, Moderna and Open AI are all pushing the boundaries of innovation and creating a cumulative effect of positive economic forces. Built on their own unique technological capabilities, they give birth to ecosystems of startups, investors, incumbents and research institutions. 

Strong frameworks

This complex evolutionary process, says Ferrás Hernández, is not a totally organic one. For all the separate agents to interact and grow successfully, a framework of supportive policy and state-led institutional initiatives is essential

The clusters of ecosystems that currently exist in areas such as Silicon Valley, Taiwan and South Korea are all the result of deliberate policy action. For other states to form successful innovation nations, they should recognize the role of disruptive technologies in economic growth and develop policies that foster innovation and provide incentives for R&D-intensive companies. 

At the company level, Ferrás Hernández suggests that businesses should avoid focusing only on the safe, red areas of innovation, and instead ensure a mix of investment into every area of the innovation model.  

With the appropriate state support, this will allow them to build on their technological capabilities and help to create new blue innovation clusters. 

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