Societies that make much progress across all spheres tend to be defined by openness to experimentation, especially by those on the periphery of any endeavour, and having a high tolerance for failure, which must also be accompanied by the absence of stigmatisation of those who fail.
Such thinking and approach to running an economy demands the nurturing of a different business ecosystem. Overregulation can strangle innovation. So can stumbling blocks such as poor infrastructure and a weak legislative framework.
Research by three American academics confirms this, showing that most prescient ideas — those that challenge the convention and end up being widely accepted — tend to emerge from the periphery rather than the core.
This has serious implications for a country such as SA whose business ecosystem tends to favour well-established companies — the core. The country’s labour relations framework is hostile to the periphery — small start-up firms. It’s suitable for the core (the big companies with huge human resources departments and access to legal advice) and the labour insiders (the employed).
The research shows that start-ups are not hamstrung by loss aversion, the economic concept that sees the potential losses as being greater than the potential gains.
“Start-ups don’t have a lot to lose. They can try something wild and crazy, and if it doesn’t work out, no big deal. The cost of pivoting and going after a different customer segment is low — whereas if a big established company tries to radically reshape its business model, there’s probably going to be a lot of pain,” says Paul Vicinanza, one of the authors of the study.
And that’s why some companies — and this is more prevalent in the technology sector than in, say, manufacturing — run parallel institutions. One can be defined as the core (the traditional business) and the other the periphery, where new ideas are developed and incubated before being moved to the core.
The authors also identify another problem: societal focus on the moment of creation, not conception of innovation. “We see the tangible outcome, but who knows where the original spark came from,” asks Amir Goldberg, the other author of the study, adding that this invariably leads society to fixate on the “eureka moment” or “single inventor”.
Yet, as Goldberg says in an article published by Stanford Business, innovation is often “more of an organic process” rather than society’s leaning towards celebrating the “plucky outsider, the maverick who bucks conventional thinking”.
Stanford University economist Nathan Rosenberg, now deceased, argued this point about the evolution of technological change, including in his book, Inside the Black Box: Technology and Economics, first published in 1983.
Rosenberg once observed that the inventors of new technology are often not good predictors of how such invention will be used, citing radio, whose inventors thought its use would be limited to steamship companies.
The authors of the latest study talk to Rosenberg’s point too, when they note that prescient ideas can’t be determined upfront. They can only be detected “after the fact”.
Rosenberg also stressed that the success of a new technological idea depended on the ecosystem, meaning several enabling factors must be in place for the idea to be applicable and adopted widely.
All of this requires that policymakers have a good understanding of how the innovation machine works.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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