Innovation and Limits to Growth

In a basic growth model, some finite resource is consumed at a rate such that the resource is eventually depleted. When that happens the growth that was dependent on that resource stops and the system begins to collapse. If it happens that the resource is renewable eventually the rate of consumption matches the rate of renewal and the system enters into a state of equilibrium (no growth). This is illustrated by the black line in Figure 1. In this second scenario if the rate of consumption exceeds the rate of renewal the system will again collapse.

In the Solow model of growth (neoclassical growth model) a new element is introduced: the effect of technology or innovation on the growth curve. Without innovation, in systems where technology stays fixed, growth will eventually stop. The introduction of innovative solutions to resource problems, however, has the effect of raising the upper bound to growth limits. This is illustrated by the red line in Figure 1.


Figure 1 – Innovation Boost
(click to enlarge)

A prevailing assumption with innovation is that it is necessarily synonymous with invention. To be innovative is to create something that has not previously existed. This is an erroneous assumption. History is filled with accounts of dominant societies furthering their success by adopting innovative discoveries made by smaller societies. The adoption of Arabic numerals by countries that had previously used Roman numerals is a striking example of a dominant society integrating an innovation from a smaller society.

The challenge for an organization, then, isn’t so much how to be innovative, rather, how to better recognize and adopt innovations discovered elsewhere. More succinctly, how to better seek out and distinguish innovative solutions aligned with the organization’s strategy from those that simply rate high on the coolness scale.