Global Risks and Innovation: Is it time to account for the dark side?
Associate Professor, Finance & Economics and Research Lead, CISD, SPJIMR
‘Nothing changes if nothing changes’ and ‘change is the essence of evolution’ are oft-quoted phrases in different settings and contexts. However, these phrases must be reconsidered in light of rising conversations about austerity, frugality, necessity, and responsibility. Changing the status quo for the sake of it does not seem to make sense in the new world order with heightened sustainability-oriented sensibilities. This thought leads me to ponder upon a word that comes immediately to one’s mind when one talks of change – innovation – especially in the case of business enterprises. At the same time, I wonder – where is the need to change/innovate constantly taking us?
The question becomes even more significant in the context of the recently released Global Risks Report 2023, a collaborative publication of the World Economic Forum and Marsh McLennan, presenting an intimidating and unnerving picture of the world in crisis. Surprisingly, even with the climate risks intensifying and geopolitical tensions rising to near World War II levels, the report highlighted the cost-of-living crisis as the highest immediate risk that the world faces.
Where will most current innovations that fuel a consumption orientation and offer a costly yet marginally different way of doing things stand in the face of this unfolding crisis which might require cautious consumption? Indeed, it is time to rethink innovations as a panacea for all business challenges and a source of competitive advantage.
Innovation: How deeply entrenched is it in our lives?
David Landes’ (1969) inspired use of metaphor Unbound Prometheus highlighting the role of innovation in driving the growth of advanced economies, epitomizes the essence of all that is good about innovation. Innovations have indeed ignited humankind’s growth trajectory from the time of the invention of the wheel or perhaps even before that. The power of innovation continues to drive us.
If we look at the word innovation from a research perspective, it is one of the most researched words, with 525,730 publications on Scopus. These publications span 27 areas as diverse as engineering, social science, business, management and accounting, energy, mathematics, physics, dentistry, and nursing, to name a few. This underscores the importance of ‘innovation’ in our academic lives.
If we look at the practice of innovation, i.e., innovation in action, we find an even more dynamic scenario. According to a Standford study, innovations are instrumental in driving 85% of our economic growth1. A testimony of this is that the total global expenditure in research and development (R & D) activities as drivers of innovation amounted to about USD 2.5 trillion in 20222 . Such is the importance of innovations in global life that the OECD and Eurostat publish the Oslo Manual to serve as a reference for measuring innovations worldwide3.
The best evidence of how the world is committed to innovating unabatedly is the fact that the COVID-19 pandemic and the ensuing economic crisis did not dampen the pace of innovations. Specific indicators, such as the venture capital (VC) pool for funding innovations that typically shrink during difficult times, witnessed an unprecedented increase, with deals growing by 50 percent year on year4. Interestingly, the latest GII 2022 report mentioned that this year’s theme is the future of innovation-driven growth5.
Where does the problem lie? The Janus face innovation
The driving need to innovate has led many businesses on the perilous path of innovating for the sake of it, ignoring the original purpose of value creation. The act of innovation and the conversation around it take a turn and become controversial and less palatable when we consider many latest innovative (or incrementally innovative) offerings in the market.
To explain my point further, I will take the example of the iPhone 14. Using Apple as an example has an intrinsic appeal since it was ranked first in 2021 in the list of 50 most innovative companies published by Boston Consulting Group . I agree with the assessment. To my mind, iPhone has played a significant role in shaping not only the smartphone industry but also has been a harbinger of other transformative innovations such as FinTech and e-commerce, amongst others.
1 Rosenberg, N. (2004). Innovation and economic growth. https://www.oecd.org/cfe/tourism/34267902.pdf
2 Statista Research Department (2022, September 20). Research and Development worldwide-Statistics & Facts. Statista.
https://www.statista.com/topics/6737/research-and-development-worldwide/#topicOverview
3 OECD and Eurostat (2018, October 22). Oslo Manual 2018: Guidelines for Collecting, Reporting and Using Data on Innovation, 4th Edition, The Measurement of Scientific, Technological and Innovation Activities. OECD Publishing.
https://www.oecd.org/science/oslo-manual-2018-9789264304604-en.htm
4Dutta, S., Lanvin, B., Leon, L.R., & Wunsch-Vincent, S.(Ed) (2022). Global Innovation Index 2022: What is the future of innovation-driven growth? 15th Edition. WIPO. DOI 10.34667/tind.46596
5World Intellectual Property Organization (WIPO) (2022). Global Innovation Index 2022: What is the future of innovation-driven growth? Geneva: WIPO. https://www.wipo.int/global_innovation_index/en/2022/
6 Jenik, C. (2021, April 16). The Most Innovative Companies Over Time. Statista.
https://www.statista.com/chart/24645/ranking-of-the-most-innovative-companies-over-time/
However, the past few years of witnessing the annual fest of a new iPhone edition release make one wonder about its marginal contribution to economic growth. If we do a cost-benefit analysis (CBA) of this almost ritualistic presentation of a new edition year after year, it might reveal that its tangible and intangible costs to the world far outweigh any commercial gains (profits) that the firm may earn. Recently (in September 2022), Apple released a report on the distribution of greenhouse gas emissions (GHG) for its watches by series, noting that there has been a noticeable decline in relative carbon footprint, with series 8 having lower emissions at production as compared to series 7. The data exhibited in Figure One tells its own story, a rather worrying one at that. Another important aspect that remains a concern is the burden of e-waste created by the allure of switching to the latest generation and discarding the previous one.
Figure One: Distribution of greenhouse gas emissions for Apple watches 2022, by series
Data Source: Statista7
I see so many other products and wonder if they were adding value in a tangible or, for that matter, in any intangible way. Do we not need to contemplate their socioeconomic impact? Is the impact always positive? What is each innovation taking away from us? The questions are vital because every product in the market comes at a cost to the planet and, by default, to the people inhabiting it. All this boils down to a moot point — is innovation always worth it?
7Laricchia,F. (2022, November 25). Carbon footprint distribution of Apple Watches 2022, by series. Statista. https://www.statista.com/statistics/1255434/ghg-emission-distribution-apple-watch-series/
To seek an answer to this question, we first need to acknowledge the Janus face of innovation, the existence of a dark side, which has remained ignored so far, shadowed by the over-powering attraction of the bright side !!