Part 8 – From innovation to value creation
When new ideas, knowledge and solutions become values that people can actually use
Innovation has no automatic value. A new idea can be creative without being implemented. An invention can be technologically impressive without finding users. An innovation can succeed in the market without necessarily creating positive values for everyone affected. Only when new products, services, processes, organizational forms or business models are put into use and create effects can we examine what values the innovation has actually contributed to. The last part of the series therefore collects the threads from Schumpeter, Christensen, Chesbrough, von Hippel, March and modern innovation research and connects them to the fundamental question in our professional universe: How do knowledge, people and innovation become value creation?
Innovation is not value creation
Through this series, we have defined innovation.
We have distinguished between incremental and radical innovation.
We have investigated disruptive innovation.
We have opened the boundaries of our business through Open Innovation.
We have distinguished between different types of innovation.
We have seen how customers, users and employees can contribute.
And we have examined the organization's ability to explore, learn and innovate.
Now comes the crucial question:
What does innovation lead to?
It is tempting to use the words innovation and value creation almost as synonyms.
We shouldn't do that.
The OECD Oslo Manual describes value creation or value preservation as an implicit goal of innovation activity. At the same time, it emphasizes that the outcome is uncertain and heterogeneous. Value creation cannot therefore be guaranteed in advance.
This distinction is fundamental.
Innovation describes a change that has been implemented. Value creation is about what values and impacts this change actually contributes to.
From idea to value
We can now draw a connection throughout the series:
Knowledge → idea → development → implementation → innovation → use → impacts → value creation
But reality is not necessarily linear.
The customer can influence the idea.
The employee can discover the problem.
Research can create knowledge.
An entrepreneur can see the commercial opportunity.
Public funding can reduce risk.
An investor can provide capital.
An established business can contribute with production and distribution.
A supplier may be sitting on a crucial technology.
The customer or user ultimately decides whether the solution actually has value in use.
And the experiences from use can in turn produce new knowledge.
Value creation through innovation is therefore often better understood as a system than as a simple value chain.
Schumpeter – innovation changes the economy
Joseph Schumpeter is a natural place to return to.
He was already central in Part 1 because innovation for Schumpeter is not just about inventions. It is about new combinations that change economic activity.
But perhaps Schumpeter's most famous contribution is the concept of creative destruction .
Innovation doesn't just create the new.
It can also make existing products, technologies, businesses and competencies less valuable or redundant.
The OECD uses Schumpeter's creative destruction as a starting point when the manual describes how innovations can disrupt existing economic activity through new production methods, products, services and entire industries.
This gives us an important corrective to the uncritically positive use of the word innovation.
Innovation doesn't just create. Innovation also displaces.
Creative destruction
Think about the digital economy.
Digital cameras created enormous new possibilities for photography, sharing, and image processing.
At the same time, large parts of the market for photographic film were displaced.
Streaming services created new ways to distribute movies and music.
At the same time, previous distribution models were weakened.
Online banking made financial services accessible in completely new ways.
At the same time, many tasks that previously required physical attendance at the bank disappeared.
E-commerce created new markets and forms of distribution.
At the same time, the competitive conditions for traditional trade changed.
Artificial intelligence can now create new products, services and productivity gains.
At the same time, technology can change work tasks and reduce
the value of certain existing competencies.
This is not a deviation from the innovation process.
That's part of it.
Aghion and Howitt – creative destruction as a growth mechanism
Schumpeter's idea later received a formalized economic foundation through, among others, Philippe Aghion and Peter Howitt.
In the Schumpeterian growth tradition, economic growth occurs through innovations that improve products and production methods, but at the same time make previous innovations less valuable or obsolete. Aghion, Akcigit and Howitt describe innovation-driven creative destruction as the core of it.
The Schumpeterian growth paradigm.
Thus, innovation takes on a dual role.
It can increase productivity and create new economic opportunities.
But at the same time it creates change.
Capital is being moved.
Job duties change.
Skills requirements change.
Some businesses are growing.
Others disappear.
And people can both win and lose from the same technological development.
This means that the societal value of innovation cannot be assessed simply by asking whether the innovative activity benefited
money.
Economic value creation
The most obvious form of value creation is financial.
Innovation can create new revenues.
It can reduce costs.
It can increase productivity.
It can open up new markets.
It can make resources more productive.
It can establish completely new businesses and jobs.
But economic value creation must not be reduced to the business's profit and loss account.
An innovation can create value for suppliers, customers, employees, investors and other businesses.
A new technology can create an entire industry around it.
Complementary products may arise.
New competence markets can be developed.
Thus, we move from the business to the ecosystem .
The innovation ecosystem
Ron Adner and Rahul Kapoor have shown why the results of innovation often depend on actors other than the business behind the central innovation.
A business can develop a great technology and still fail if the necessary complements, suppliers, or other parts of the ecosystem are not ready. Their research shows how innovation challenges in other players in the ecosystem can affect the value and performance of the business we originally considered.
This changes the perspective.
The business does not only compete with other businesses.
It may depend on others succeeding.
An electric car needs charging infrastructure.
A smartphone needs applications, mobile networks, components and digital services.
An online store needs payment, logistics, technology and suppliers.
An AI service may depend on computing power, models, data, software, expertise and digital infrastructures.
Value creation thus becomes interdependent .
From Open Innovation to the innovation ecosystem
Here we can draw a direct line back to Henry Chesbrough in Part 4.
Open Innovation taught us that the boundaries of a business are not necessarily the boundaries of the knowledge it can use.
The innovation ecosystem goes one step further.
This shows that the value of an innovation can also depend on what other actors are able to do .
The university can produce research.
The entrepreneur can develop the technology.
The investor can finance the scaling.
The public sector can fund basic research, develop infrastructure or establish regulatory frameworks.
The established business may have production capacity.
The supplier may be sitting on a critical component.
The employees have the expertise that makes the system work.
The customer decides whether the solution is actually used.
None of these actors need to have created the innovation alone.
Value arises through the combination.
Human value creation
This brings us back to humans.
Innovation can create human value when it makes life easier, safer, richer or more meaningful.
A medical innovation can provide better treatment.
A digital public service can save citizens time.
A new work process can reduce physical strain.
An accessibility solution can make a service accessible to people who were previously excluded.
A new learning technology can make knowledge more accessible.
Value can be real even when it cannot be fully expressed through a market price.
This is particularly important in the public sector.
Public sector and innovation
If value creation is understood only as private profit, a significant part of the innovation system becomes invisible.
Universities develop knowledge.
Research institutions build academic communities.
Public funding can make long-term research possible.
Schools develop human capital.
The healthcare system can develop new treatments and services.
Public infrastructure makes private economic activity possible.
Governments establish laws, standards, and institutions on which markets depend.
Mariana Mazzucato has been a central voice in the critique of the notion of the state as an afterthought to correct market failures. Together with Josh Ryan-Collins, she argues for a perspective in which the public sector can also actively participate in shaping markets and value creation processes.
This does not mean that every public investment creates value.
This means that public and private value creation cannot be analyzed as two completely separate systems .
Value creation is an ecosystem
This is perhaps the most important connection between the Innovation series and the Value Creation series.
Imagine the following sequence:
Publicly funded basic research creates new knowledge.
A researcher or entrepreneur sees a possible application.
A university or research environment contributes expertise.
Private investors add capital.
A business develops the product.
Suppliers contribute technology.
Employees build, sell and improve the solution.
Public infrastructure makes production and distribution possible.
Customers buy and use the product.
Tax revenues go back to society.
Competence is further developed.
New research is emerging.
New businesses can be established.
This is not public or private value creation.
It is a value creation ecosystem .
The customer determines an important part of the value
We also have to return to the Customer series.
A business can invest enormous sums in research and development.
Engineers can solve difficult technological problems.
The product can win awards.
Management can describe it as groundbreaking.
But if customers do not find the product relevant, understandable, accessible or worth the price, the economic value creation may not occur.
Innovation must therefore not only be developed.
It must be put into use .
This means that the customer's role does not stop at user- or customer-driven innovation from Part 6.
The customer is also a key player in realizing the value of innovation.
Value creation and value absorption
Here we should make another important distinction.
There is a difference between creating value and acquiring value .
An innovation can create significant value for customers without the business being able to make money from it.
A platform can create value for other businesses.
An open technology standard can create value far beyond the organization that developed it.
A public innovation can create socio-economic benefits without any sales revenue.
Conversely, a business can be very skilled at extracting economic value without the total social value creation necessarily being as great.
Therefore, we need to ask two different questions:
What values are created?
and
Who gets to share in them?
This distinction becomes particularly important when innovations affect entire markets or societies.
Organizational value creation
Innovation can also create value within the organization.
A better process can reduce errors.
New technology can free up time.
Better information flow can improve decisions.
New forms of collaboration can make knowledge available across professional environments.
Employees can develop new skills.
The organization can increase its absorptive capacity.
Thus, one innovation can make the business better able to implement the next one.
This ties Part 8 directly back to Part 7.
Innovation doesn't just create a result.
The innovation process can build new organizational capacity.
But innovation can also destroy value
We must be clear about this.
Not all innovation creates positive value for everyone.
A new solution may create environmental problems.
Automation can make tasks redundant.
A digital service can reduce accessibility for people who cannot use it.
A platform can achieve market power that weakens competition.
An algorithm can create efficiency while introducing
new forms of discrimination or error.
An innovation can increase a business's profitability and at the same time incur other costs.
Therefore, innovation cannot be assessed solely on the basis of novelty value .
We need to examine the consequences.
Innovation, restructuring and people
Creative destruction becomes particularly concrete when we consider working life.
When technology changes production, the demand for expertise also changes.
Some tasks disappear.
Others are emerging.
Existing expertise may become less in demand.
New skills become valuable.
For the individual, this can be dramatic even if the innovation overall contributes to economic growth.
This creates a social task:
How do we enable people to participate in the new value creation?
Education, continuing and further education, labor market policy, the development of businesses' competences and the individual's learning ability become parts of the innovation system.
This is where innovation and human capital meet.
And thus we meet again The Invisible Capital.
Innovation and AI
Artificial intelligence makes the whole discussion particularly relevant.
AI can increase productivity.
Technology can make knowledge more accessible.
It can automate routine tasks.
It can help researchers with analysis.
It can enable employees to produce, program, and analyze more.
It can contribute to new products and services.
But the economic and societal value does not lie in the model alone.
The value depends on how technology is combined with people, expertise, organizations, data, processes and real needs .
The same applies to risk.
AI is thus not a break with the innovation theory we have reviewed.
It is a new and very powerful example of it.
The value of innovation arises in use
We can now formulate an important principle for the entire series:
The potential of innovation arises when something new is implemented. The value of innovation is revealed when the solution is put into use and creates impact.
This means that the value is not fully built into the technology.
It arises in the relationship between the solution and the world around it.
A technology that is never used creates limited value.
A product that no one needs creates limited value.
A public digital service that citizens are unable to use has not been successful just because the system technically works.
An organizational innovation that employees bypass in practice has not necessarily created the expected value.
Usage is the bridge between innovation and realized value.
From innovation to value creation – the entire model
After eight parts, we can summarize the reasoning.
Innovation begins with knowledge, problems, needs or opportunities .
Creativity can produce ideas.
Research can produce new knowledge.
Users can develop solutions.
Customers can highlight needs.
Employees can discover problems and opportunities for improvement.
Open Innovation can bring external knowledge into the business.
Capital can make development and scaling possible.
The organization's innovation ability determines whether knowledge can be absorbed, combined and implemented.
The innovation must then meet customers, users or society.
Only through use can we observe the consequences.
And only then can we begin to assess value creation.
From BI to Oxford and San Francisco
Here we can also gather the personal and professional journey that underlies the entire innovation universe.
Innovation and commercialization at BI asked the practical question: How do we move from idea and opportunity to something that can actually be realized?
Oxford represented the meeting of research, theory and international professional communities.
San Francisco and Silicon Valley showed how technology, entrepreneurship, capital, universities and businesses can meet in concentrated innovation environments.
E-commerce and digitalization showed how technological changes actually meet customers, organizations, and markets.
And the experiences from businesses show the same lesson again and again:
It is rarely technology alone that creates value.
Value arises when people manage to make knowledge usable .
From Schumpeter to the innovation ecosystem
We began the series with the question:
What is innovation?
We can now give a much richer answer.
Innovation can be incremental or radical.
It can be disruptive under certain conditions.
It can be developed within the business or through open knowledge flows.
It can change products, services, processes and business models.
It can be driven by researchers, customers, users, employees and entrepreneurs.
It requires organizational capacity if the business is to be able to renew itself over time.
And it is part of larger systems of interdependent actors.
Adner and Kapoor show precisely why value creation in innovation ecosystems must be understood through such interdependencies; one company's success may depend on the innovation efforts of other actors in the system.
Innovation is thus not an isolated moment.
It is part of a larger value creation system.
Innovation and the Invisible Capital
Finally, we come back to the humans.
Behind innovation we find knowledge.
Experience.
Curiosity.
Relationships.
Professional competence.
Creativity.
Judgment.
The ability to collaborate.
The ability to learn.
The ability to see a problem others have stopped noticing.
Technology and financial capital are important.
But without people who can understand, combine and apply the resources, no innovation occurs by itself.
Therefore, human capital is not just an input factor in the innovation process.
It is one of the fundamental prerequisites for knowledge to become innovation – and innovation to become value creation.
A precise professional conclusion
We can therefore end the series with a definition that binds
Innovation and Value Creation Together:
Innovation is the implementation of new or significantly improved solutions. Value creation occurs when such solutions, through use and application, create economic, organizational, human or societal values that exceed or otherwise justify the resources and consequences associated with them.
The last link is important.
Because innovation has costs.
It uses capital.
It uses people's time.
It can displace existing solutions.
It can create winners and losers.
Therefore, we can never conclude that something creates value just because it is innovative .
We need to examine the results.
In short
Innovation is one of society's most important mechanisms for making new knowledge, new ideas and new combinations applicable.
But innovation is not the goal in itself.
Value creation is the question that comes next.
What got better?
For whom?
What resources were used?
What new opportunities arose?
What was repressed?
Who shared in the values?
And what consequences did the change have for the business, the people and society?
Schumpeter showed us the dynamics of creative destruction. Modern
Schumpeterian research has further developed the understanding of how these dynamics can drive economic growth.
Innovation ecosystem research also shows how value creation can depend on many actors who must succeed together.
Thus, the innovation series ends exactly where it should end:
Not by innovation.
But by the people, businesses and society that will do something valuable with it.
Innovation is not the end of the value creation process. Innovation is one of the mechanisms that can turn knowledge, ideas and human creativity into values that people can actually use.
Recommended literature
Innovation is a comprehensive field of research that has developed through contributions from economics, strategy, organizational theory, entrepreneurship, technology, and research on people and organizations. For those who wish to delve deeper into the theories and concepts covered in this series, there are a number of key original works and textbooks.
Among the most important contributions are Joseph A. Schumpeter's work on innovation, entrepreneurship and creative destruction, Peter F. Drucker's research and writings on systematic innovation, Clayton M. Christensen's theory of disruptive innovation and Henry Chesbrough's work on Open Innovation. Eric von Hippel's research on user innovation and lead users provides important perspectives on the role of users, while James G. March, Michael Tushman and Charles O'Reilly have been of great importance for the understanding of exploration, exploitation and organizational ambidexterity.
Teresa Amabile's research on creativity and organizations and Amy Edmondson's research on learning and psychological safety contribute to the understanding of the human and organizational prerequisites for innovation. The OECD and Eurostat's Oslo Manual is also a key international reference for how innovation is defined, classified and measured.
Through the individual articles in the Innovation series, relevant literature and research are presented in more detail. The goal is to return to key original sources where possible, while also using more recent research to show how the theories have developed, been challenged, and are applied today.
The Innovator's Solution: Creating and Sustaining Successful Growth
Authors: Clayton M. Christensen and Michael E. Raynor
Short review
In this sequel to The Innovator's Dilemma, Clayton Christensen shows how businesses can translate innovation theory into practical strategy. The book explains how companies can identify new growth opportunities, develop disruptive innovations, and build organizations that thrive in rapidly changing markets.
Why we recommend the book
While The Innovator's Dilemma explains why established businesses are often challenged, The Innovator's Solution provides concrete advice on how to meet the challenges. The book is therefore a natural next step for anyone who wants to understand innovation, strategy and long-term value creation.
The Innovator's DNA: Mastering the Five Skills of Disruptive Innovators
Authors: Jeff Dyer, Hal Gregersen and Clayton M. Christensen
Short review
What characterizes people who create groundbreaking innovations? The authors identify five key skills – observation, questioning, experimentation, networking and association – that are common to the world's most innovative leaders and entrepreneurs.
Why we recommend the book
This book shifts the focus from organizations to the people behind innovation. It shows that creativity and innovation can be developed through deliberate training and experience. The perspectives align well with the philosophy behind Invisible Capital, where human competence and curiosity are the most important drivers of development.
Competing Against Luck: The Story of Innovation and Customer Choice
Authors: Clayton M. Christensen, Taddy Hall, Karen Dillon and David S. Duncan
Short review
In this book, Clayton Christensen further develops the theory of Jobs to Be Done – the idea that customers do not primarily buy products, but "hire" them to solve specific needs. Through practical examples, the authors show how businesses can develop products and services that address customers' real-world challenges.
Why we recommend the book
For anyone working in customer experience, service design, and innovation, this is one of the most insightful books ever written. It reminds us that value creation always starts with understanding the people we are developing solutions for – a fundamental principle of Invisible Capital.
The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail
Author: Clayton M. Christensen
Short review
The Innovator's Dilemma is considered one of the most influential books on innovation and technological change. Clayton M. Christensen introduces the theory of disruptive innovation and explains why even the most successful businesses can fail when new technologies and business models challenge established markets. Through a series of examples, he shows how companies often focus on today's customers and incremental improvements, while overlooking innovations that later change entire industries.
Why we recommend the book
This is one of the books that has had the greatest impact on modern innovation thinking. When I first read it, it gave me a whole new perspective on why some businesses succeed in transformation, while others lag behind – even when they are well led. The insight has been an important part of my own understanding of digitalization, innovation and change management, and many of the reflections in The Invisible Capital build on the ideas Clayton Christensen presents in this classic. The book is as relevant today, in the face of artificial intelligence and digital transformation, as it was when it was published.
Open Innovation: The New Imperative for Creating and Profiting from Technology
Author: Henry Chesbrough
Short review
Henry Chesbrough introduced the concept of Open Innovation and changed the way many businesses think about research and development. He shows how companies can create more innovation through collaboration with customers, universities, start-ups, suppliers and other external partners.
Why we recommend the book
Open Innovation has had a major influence on modern innovation thinking and was also an important topic during the seminars in Oxford and San Francisco. The book shows why future value creation occurs in the interaction between people, businesses and knowledge environments – not within closed organizations alone.
Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant
Authors: W. Chan Kim and Renée Mauborgne
Short review
Blue Ocean Strategy challenges businesses to shift their focus away from fierce competition and instead create new markets with little or no competition. The authors present strategies and models that help organizations develop innovative products, services, and business models.
Why we recommend the book
This book has inspired leaders around the world to rethink strategy and innovation. Instead of competing for the same customers, it shows how businesses can create new value through creativity and differentiation. The perspectives align very well with the themes of innovation, digitalization, and long-term value creation in Invisible Capital.
Outside Innovation: How Your Customers Will Co-Design Your Company's Future
Authors: Patricia B. Seybold
Short review
Patricia Seybold shows how businesses can create better products and services by actively involving customers in the innovation process. The book describes how dialogue, co-creation and close collaboration with users can provide better solutions and stronger competitiveness.
Why we recommend the book
Customers often hold the most important insights into how products and services can be improved. This book emphasizes the importance of listening, involving, and learning from users – a perspective that is echoed in many of the articles on The Invisible Capital. Innovation rarely happens alone; it is created in the interaction between people.
Blown to Bits: How the New Economics of Information Transforms Strategy
Authors: Philip Evans and Thomas S. Wurster
Short review
This book analyzes how digital information is changing competitive conditions, markets, and business strategies. The authors explain how the internet is disrupting established structures and creating new opportunities for businesses that are able to think differently.
Why we recommend the book
Although written early in the internet revolution, the book describes many of the developments that still characterize business today. It provides valuable perspective on how digitalization affects value chains, competition, and innovation – themes that are central to Invisible Capital.
Wikinomics: How Mass Collaboration Changes Everything
Authors: Don Tapscott and Anthony D. Williams
Short review
Wikinomics shows how openness, sharing and collaboration across organizations create new forms of innovation and value creation. Through a number of international examples, the authors describe how digital networks make it possible to develop products, services and knowledge together.
Why we recommend the book
This book was groundbreaking when it was first published, and many of the ideas have since become a natural part of everyday digital life. The perspectives on collaboration, knowledge sharing, and open innovation processes align very well with the philosophy behind Invisible Capital, where people and networks are at the center of value creation.
The Competitive Strategy: Techniques for Analyzing Industries and Competitors
Author(s): Author: Michael E. Porter
Short review
Competitive Strategy is Michael E. Porter's classic work on how companies can understand the competition they find themselves in and develop a position that provides a basis for long-term profitability. Porter shifts the focus from the individual competitor to the structure of the entire industry and shows how competition is affected by customers, suppliers, new entrants, substitutes and the rivalry between existing companies. This forms the basis for what has later become known as Porter's Five Forces. The book is also about how companies can choose a competitive strategy on the basis of this analysis. It thus established an analytical language for strategy that has gained great importance in both research, teaching and practical strategy work.
Why we recommend the book
We recommend Competitive Strategy because it provides the analytical foundation for much of the thinking Porter later develops in What Is Strategy?. If a company is to choose a unique strategic position, it must also understand the competitive forces, the industry structure and the factors that affect the ability to create and retain value. The book is particularly useful because it reminds us that strategy is not just about internal goals, plans and ambitions. Strategy must be developed in the face of customers, competitors, suppliers, technology and structural changes in the market. Together with What Is Strategy?, the book therefore provides a much richer picture: First, the company must understand the competitive arena. Then, it must choose how to be different.
Competitive Advantage: Creating and Sustaining Superior Performance
Author(s): Author: Michael E. Porter
Short review
In Competitive Advantage, Porter moves the analysis from the industry to the business itself. The main question is how competitive advantage is actually created. One of the book's most important contributions is the value chain, where the business is understood as a system of activities that collectively develop, produce, market, deliver and support a product or service. Competitive advantage cannot therefore be understood only through products or overall strategies; one must examine the activities that create costs, differentiation and value. This understanding later becomes central to Porter's argument about strategic fit: the activities must not only be good in isolation, but also fit together and reinforce each other.
Why we recommend the book
We recommend Competitive Advantage because it brings strategy right down to where value is actually created: in the activities the business performs. This makes the book particularly relevant together with What Is Strategy?. When Porter argues in 1996 that strategy consists of performing different activities than competitors, or performing similar activities in other ways, this builds on the thinking he developed here. For our perspective on value creation, this is particularly interesting. Value does not arise because the business has formulated a strategy on a document, but through people, expertise, technology, processes, collaboration and activities that together enable the business to create something that customers value. The book therefore provides an important connection between strategy, competitive advantage and actual value creation.
The Competitive Advantage of Nations
Author(s): Author: Michael E. Porter
Short review
In The Competitive Advantage of Nations, Porter raises the perspective from business to countries, regions and business environments. The book is based on extensive studies of the competitiveness of ten leading trading nations and examines why certain countries and business clusters are particularly successful in certain industries. A central premise is that national prosperity is not simply something a country inherits through natural resources or other given conditions. It is created, and productivity, innovation, competence, competition and the quality of the environment in which businesses operate are crucial. Here, Porter also develops the well-known diamond model to explain how different national and regional conditions can interact and stimulate competitiveness.
Why we recommend the book
We recommend The Competitive Advantage of Nations because here Porter extends the strategy perspective to the ecosystem surrounding the business itself. Value creation does not occur in a vacuum. Businesses develop in societies with education, research, infrastructure, capital, suppliers, demanding customers, competing businesses and public institutions. This makes the book particularly interesting for understanding value creation as an interaction between people, businesses and society. It also provides an important corrective to the notion that a country's competitiveness can mainly be understood through low costs or access to natural resources. Innovation, productivity and the ability to continuously develop are far more central to Porter's explanation.
Understanding Michael Porter: The Essential Guide to Competition and Strategy
Author: Joan Magretta
Short review
Understanding Michael Porter brings together and explains the most important parts of Michael Porter's strategic thinking in one accessible whole. Joan Magretta herself worked on strategy at the Harvard Business Review and organizes Porter's ideas around two fundamental questions: What is competition, and what is strategy? She explains, among other things, the Five Forces, competitive advantage, the value chain, value creation, trade-offs, fit, and strategic continuity. This makes the connection between Porter's various works clearer than when the concepts are studied separately. The book also includes an interview with Porter.
Why we recommend the book
We recommend Understanding Michael Porter because it helps the reader see the whole picture of Porter's understanding of strategy. Porter is often reduced to the Five Forces or a few models used in isolation. Magretta shows why this is too simple. Competition, value creation, strategic positioning, trade-offs, activity systems, fit and continuity are interconnected. This makes the book a particularly good supplement after reading What Is Strategy?. It makes it easier to understand why Porter does not view strategy as a plan or a collection of goals, but as a coherent system of choices about how the business will create value and compete over time.
HBR's 10 Must Reads on Strategy
Authors: Harvard Business Review, Michael E. Porter, W. Chan Kim, Renée A. Mauborgne and more
Short review
HBR's 10 Must Reads on Strategy brings together some of Harvard Business Review's most influential writings on strategy. The original collection from 2011 features Michael E. Porter's What Is Strategy? as its main article and combines it with works on competitive forces, Blue Ocean Strategy, the organization's vision, business models, strategy execution, and the Balanced Scorecard, among others. The result is not one unified theory of strategy, but multiple perspectives on how organizations can develop, formulate, and execute strategy.
Why we recommend the book
We recommend HBR's 10 Must Reads on Strategy because it places Porter in a broader strategic context. After reading What Is Strategy?, it will be interesting to encounter other central perspectives and see how they complement, challenge, or extend Porter's understanding. The collection also shows why strategy cannot be reduced to a single model. Competitive position, choice, innovation, business model, execution, priorities, and measurement must be seen in context. For the reader who wants to move on from Porter and into the strategy discipline more generally, this is therefore a very good introduction.
Creating a Learning Society: A New Approach to Growth, Development, and Social Progress
Author: Joseph E. Stiglitz and Bruce C. Greenwald
Short review:
Creating a Learning Society examines how knowledge, learning, and technological development contribute to economic growth and long-term value creation. Joseph E. Stiglitz and Bruce C. Greenwald challenge the notion that economic development is primarily about accumulating more physical capital. They argue that society’s ability to create, disseminate, and apply knowledge is crucial to productivity growth and improved living standards. A key point is that learning does not only occur in schools and universities. It also occurs in businesses, through work, production, innovation, and interaction between people and organizations. Knowledge can also spread from one business and one part of the economy to others.
The book thus provides an important perspective on why human capital, competence, innovation and learning must be understood as central parts of a society's ability to create value over time.
Why we recommend the book
We recommend Creating a Learning Society because it expands the understanding of what lies behind economic value creation.
Machines, technology and financial capital are important, but they do not create productivity growth alone. Behind the development are people who learn, develop knowledge, improve work processes, share experiences and find new solutions.
This makes the book particularly relevant to Invisible Capital and our perspective on value creation: A significant part of society's value-creating capacity is found in the knowledge, competence, and learning ability of the people who participate in the economy.
Stiglitz and Greenwald thus provide an academic foundation for one of the most important relationships in modern value creation:
The Value of Everything: Making and Taking in the Global Economy
Author: Mariana Mazzucato
Short review
In The Value of Everything, Mariana Mazzucato asks a fundamental question: What exactly is value – and who creates it? Mazzucato returns to the historical discussions of value in economics and shows how the understanding of value creation has changed. She challenges the notion that high income, high prices or large profits necessarily mean that correspondingly large values have been created. One of the book's most important contributions is the distinction between value creation and value extraction . Mazzucato examines the financial sector, the pharmaceutical industry, innovation and the public sector, among others, and argues that we must become better at distinguishing between activities that actually create new values, and activities that primarily extract values that have already been created.
The book also challenges the traditional notion that the private sector creates value while the public sector mainly consumes or redistributes it. Innovation and economic development often arise through a complex interaction between public investment, research, businesses, capital and people.
The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations
Author: Philippe Aghion, Céline Antonin and Simon Bunel
Short review
The Power of Creative Destruction is about one of the most important drivers of long-term economic growth: innovation.
Philippe Aghion, Céline Antonin and Simon Bunel build on Joseph Schumpeter's classic idea of "creative destruction" – the process by which new technologies, businesses, products and ideas challenge and replace existing solutions.
But the book is not just about the disappearance of the old. The authors examine why some economies manage to create continuous innovation and productivity growth, while others stagnate. Competition, entrepreneurship, research, education, institutions and public policy thus become important parts of the explanation.
Creative destruction also comes at a cost. New technologies and businesses create opportunities and jobs, but can also make existing skills, tasks and business models less relevant. The challenge is therefore to create societies that both promote innovation and enable people to participate in the transition.
Why we recommend the book
We recommend The Power of Creative Destruction because it shows why innovation is a fundamental driver of value creation .
Value creation is not just about producing more of what we already produce. It also occurs when people develop new ideas, technology, and ways of working that enable us to solve tasks better than before.
This makes the book particularly relevant to The Invisible Capital. Behind innovation are people with knowledge, expertise, creativity and experience. But Aghion's perspective also shows that human capital must be part of a larger system where competition, institutions, research, investment and policy create the conditions for new ideas to actually turn into economic and social development.
The book thus provides an important context in our understanding of value creation:
Knowledge → new ideas → innovation → productivity growth → long-term value creation.
Institutions, Institutional Change and Economic Performance
Author: Philippe Aghion, Céline Antonin and Simon Bunel
Short review
Institutions, Institutional Change and Economic Performance is one of Douglass C. North's most important works on why some societies are more successful than others in creating economic development over time.
North shifts attention from traditional factors of production such as capital and labor to the institutions that shape how people, businesses, and governments act and cooperate. Institutions are society's formal and informal rules of the game – including laws, regulations, norms, traditions, and established ways of organizing interaction.
These rules of the game affect the incentives that people and organizations face. They also affect investments, knowledge development, cooperation, transaction costs, and which economic activities emerge.
North also shows that institutions develop over time. History therefore matters: Today's economic opportunities are influenced by institutional choices and development paths that can stretch far back in time.
Why we recommend the book
We recommend Institutions, Institutional Change and Economic Performance because it explains a crucial aspect of value creation that easily becomes invisible:
Value creation needs good rules of the game.
People may have knowledge. Businesses may have capital. Entrepreneurs may have great ideas. A society may have natural resources and advanced technology. But outcomes are also influenced by the institutions that determine how people can collaborate, invest, compete, make deals, and develop businesses.
This makes North particularly interesting for our understanding of trust as part of invisible capital. Trust is not the same as institutions, but stable rules of the game, credible agreements, and well-functioning institutions can reduce uncertainty and make economic interaction easier.
North thus gives us another important part of the value creation picture:
Institutions → predictability and incentives → cooperation and investment → productive activity → long-term value creation.
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