Part 4 - Open Innovation
When knowledge, ideas and technology move across business boundaries
No business has a monopoly on knowledge. Research, technology, ideas and experience are found among employees, customers, suppliers, universities, entrepreneurs, start-ups and other businesses. Henry Chesbrough's theory of Open Innovation describes how businesses can consciously open the innovation process to knowledge flows across organizational boundaries. It is about both obtaining knowledge from outside and allowing their own ideas, technologies and intangible assets to find new paths to application and market.
From closed to open innovation
Much of the 20th century industrial innovation model was built around a relatively simple notion.
The business conducted its own research.
It developed the technology itself.
It financed the development itself.
It protected knowledge.
It developed the product.
And if the project was successful, the company itself brought the product to market.
Large companies therefore built extensive research and development departments. Control over research, technology, patents, production and distribution could be an important competitive advantage.
This model did not disappear.
But the assumptions surrounding it began to change.
Knowledge became increasingly distributed. Universities and research centers gained greater importance. Highly educated employees moved between companies. Venture capital made it possible to establish new technology companies. Suppliers developed increasingly specialized expertise. Start-ups could commercialize technologies that large companies did not prioritize themselves.
Henry Chesbrough described this as a transition from a more closed innovation model to what he called Open Innovation .
When he launched the concept in the book Open Innovation: The New Imperative for Creating and Profiting from Technology in 2003, a fundamental point was that valuable ideas do not only arise within the business, nor do ideas necessarily have to be commercialized through the business's own channels.
It fundamentally changes the logic of innovation.
Henry Chesbrough – knowledge also exists outside the business
Chesbrough formulated a simple but powerful starting point:
Not all of the most talented people work for your business.
This does not mean that internal research and development becomes unimportant.
On the contrary.
The business needs significant in-house expertise precisely to be able to understand, assess, absorb and combine knowledge that comes from outside.
But businesses should not assume that all the best ideas necessarily have to arise internally.
Universities can rely on relevant research.
A supplier may have developed a technology the business itself lacks.
A customer may have discovered a need or developed a solution the business has not seen.
A startup can work with a technology that can be combined with the company's existing products.
An internal technology that does not fit the company's own strategy can, at the same time, be very valuable in another market.
Open Innovation is therefore about making the boundaries of the business more permeable to relevant knowledge flows .
What does Open Innovation mean?
Chesbrough's definition has evolved.
In the early formulation, the use of external and internal ideas and alternative routes to market were central.
In 2006, Chesbrough formulated Open Innovation as conscious inward and outward knowledge flows that can both accelerate internal innovation and expand markets for external application of innovation.
Later, the definition was further clarified.
Chesbrough and Marcel Bogers in 2014 described Open Innovation as a distributed innovation process based on deliberately managed knowledge flows across organizational boundaries , through both economic and non-economic mechanisms and in accordance with the organization's business model.
This development of the definition is important.
Open Innovation does not simply mean:
“We collaborate with others.”
It is about how the business consciously organizes and applies knowledge flows across its own boundaries as part of the innovation process .
Outside-in – knowledge into the business
The most intuitive form of Open Innovation is to bring knowledge from outside into the company's innovation work.
This is often referred to as outside-in or inbound Open Innovation.
Knowledge can come from many places:
universities and research institutes, customers, suppliers, start-ups, consultants, technology partners, competitors, innovation communities or individuals.
The business can purchase technology.
It can license patents.
It may enter into research collaborations.
It can invest in or buy a startup.
It can conduct innovation competitions.
It can work together with suppliers.
It can invite customers into the development process.
The common denominator is not the form of cooperation.
The common denominator is that external knowledge is consciously brought in and combined with the company's own resources and expertise .
However, this requires something from the business itself.
It is of little use to have access to the world's best research if the organization is unable to understand or apply it.
Transparency therefore does not replace internal expertise.
It makes internal expertise even more important.
Inside-out – when knowledge moves outwards
This is the part of Open Innovation that is often forgotten.
A business may have developed technology, patents or knowledge that it does not commercialize itself for various reasons.
Maybe the technology doesn't fit the company's existing business model.
Maybe the market is too small.
Maybe other projects are prioritized.
Perhaps the technology has greater value in a completely different industry.
In a closed innovation model, the result may be that knowledge remains unused.
Open Innovation opens up other possibilities.
The technology can be licensed.
Patents can be sold or licensed.
A new business can be spun off.
Other players may have the opportunity to commercialize the technology.
This means that the business does not necessarily have to ask:
How can we get this idea to market ourselves?
It can also ask:
Who can create value from this knowledge if we don't do it ourselves?
This is inside-out or outbound Open Innovation.
Coupled Open Innovation – when knowledge moves both ways
In practice, incoming and outgoing knowledge flows are often combined.
Businesses can enter into strategic partnerships, research collaborations, joint ventures or other forms of collaboration where knowledge and technology move between the parties.
This is often referred to as a coupled process .
Here, innovation becomes less linear.
A business can contribute with technology.
Another can contribute with market access.
A university can contribute with research.
A supplier can contribute production expertise.
Customers can contribute insight and experience.
Investors can contribute capital and networks.
Innovation is thus developed through a system of complementary resources rather than within a single organization.
Open Innovation is not the same as crowdsourcing
Here too, we need to clarify the terms.
Open Innovation is sometimes used as a collective term for any activity where people outside the business contribute ideas.
It's getting too wide.
Crowdsourcing can be one mechanism used in an open innovation process.
So can hackathons, innovation competitions, research collaborations, corporate venture capital, licensing, strategic partnerships and collaborations with startups.
But none of these activities alone is a definition of Open Innovation.
What is crucial is how knowledge moves across organizational boundaries and how the business organizes, integrates and utilizes these knowledge flows.
Open Innovation also does not mean that everything should be open.
The word "open" can be misleading.
Open Innovation does not mean that the business should publish all knowledge.
Nor does it mean that patents and other intellectual property rights become irrelevant.
On the contrary, control over intellectual property rights can be crucial for knowledge to be shared, licensed and commercialized in a controlled manner.
The business must decide:
What should be developed internally?
What can be developed together with others?
What knowledge should be acquired?
What should be licensed?
What should be protected?
What can be shared?
And what knowledge can create greater value outside the business than inside it?
Open Innovation is therefore not the absence of boundaries.
It's about consciously managing boundaries.
Three real examples
Procter & Gamble – Connect + Develop
One of the most well-known examples of Open Innovation is Procter & Gamble's Connect + Develop .
The business developed a systematic approach to searching for ideas, technologies and solutions outside of its own research and development environments.
The point was not to discontinue internal R&D.
It was about connecting internal expertise to a much larger external universe of knowledge.
External innovators, suppliers, researchers and technology communities could benefit from solutions that could be combined with P&G's markets, brands and commercial resources.
This illustrates a basic principle of outside-in Open Innovation:
A company's innovative ability is determined not only by how much knowledge it possesses, but also by how well it finds and applies knowledge it does not possess.
LEGO Ideas
LEGO provides another interesting example.
Through LEGO Ideas, users can develop and propose concepts for new LEGO sets. Proposals that gain sufficient support can be considered by the business and, in some cases, developed into commercial products.
Here, ideas move from the users and into the business's innovation process.
But LEGO also adds its own resources: design expertise, production, quality assurance, branding, distribution and marketing.
The example therefore illustrates something important:
External knowledge does not replace business.
Value arises through the combination of external creativity and internal resources.
It also provides a natural connection to Eric von Hippel's research on user innovation, which we will return to later in the series.
Universities, biotechnology and drug development
The pharmaceutical and biotechnology sector illustrates Open Innovation at the system level.
New treatments can be based on basic research at universities, publicly funded research, patents, biotechnology start-ups, venture capital, clinical expertise and the capacity of large pharmaceutical companies for development, testing, regulatory processes, manufacturing and distribution.
No single actor needs to control the entire knowledge chain.
Innovation can move through an ecosystem where different actors contribute different forms of capital and expertise.
This makes the sector particularly interesting in the context of both innovation and value creation .
Not Invented Here – when the organization becomes its own barrier
One of the cultural challenges Chesbrough has highlighted is what is often referred to as the Not Invented Here syndrome .
Ideas that come from outside can meet resistance precisely because they come from outside.
Employees and professional communities may have invested significant identity, expertise and prestige in their own solutions.
An external technology can therefore be perceived as a threat.
But if the business automatically prefers its own ideas over better external solutions, the value of the available knowledge is reduced.
Chesbrough has therefore emphasized that the transition to Open
Innovation also requires cultural change .
The business must be able to be professionally strong and at the same time recognize:
Someone else may have found a better solution.
Open innovation places greater demands on the organization
It may be tempting to believe that Open Innovation makes innovation easier.
In some areas it can do the opposite.
As the number of potential sources of knowledge increases, businesses must become better at:
find relevant knowledge,
assess the quality,
understand what actually fits the business needs,
integrate external and internal expertise,
clarify intellectual property rights,
build trust between partners,
coordinate cooperation,
and decide how the values should be distributed.
Research on Open Innovation has therefore increasingly examined the organization and management of the boundaries between enterprises . Chesbrough and Bogers' later definition explicitly emphasizes that knowledge flows should be purposively managed – they must be handled with intention.
Opening the door is not enough.
The business must know what it is looking for, what it can contribute and how to translate knowledge into innovation .
Open Innovation and value creation
Here we get one of the strongest bridges between the Innovation series and
Value creation series.
Open Innovation shows very clearly why value creation can rarely be understood as the result of a single actor.
A university can develop knowledge.
An entrepreneur may discover a commercial application.
An investor can finance the development.
An established business can contribute with production.
A public actor can fund research or develop infrastructure.
A supplier can provide specialized expertise.
Customers and users can contribute with problems, experiences and ideas.
When resources are combined, values can arise that neither actor could create alone.
Open Innovation therefore gives us a concrete innovation theory perspective on a main point in the Value Creation series:
Value creation occurs in ecosystems.
But the theory also introduces a new question.
There is a difference between creating value and capturing value .
Multiple actors can contribute to creating the overall value, while the distribution of the economic gain is determined by, among other things, business models, intellectual property rights, market power and complementary resources. Research on distributed innovation points precisely to the tension between value creation and the actors' ability to appropriate parts of the value.
Open Innovation, digitization and e-commerce
Digitalization has reduced the costs of finding, sharing, and combining knowledge across geographic and organizational boundaries.
Developers can build services on external APIs.
Businesses can use cloud services developed by others.
Online stores can integrate external payment, logistics, search, and analytics platforms.
Software can be developed through extensive ecosystems of businesses and individual developers.
Artificial intelligence further enhances this development.
But here too we must be precise.
Using external technology is not automatically Open Innovation.
The interesting thing arises when external knowledge resources are consciously included in the company's innovation process and combined with its own resources to develop or commercialize new or significantly improved solutions.
This connects Open Innovation directly to the website's subject areas of digitalization, AI, e-commerce, customer experience and value creation .
Open Innovation does not mean that business becomes less important
It may sound paradoxical.
If knowledge is everywhere, why do we need business?
The answer is that distributed knowledge makes the ability to combine knowledge increasingly important.
The business must understand its customers.
It must be able to assess the technology.
It must have the competence to absorb the knowledge.
It must be able to organize cooperation.
It must finance development.
It must develop a working business model.
And it must bring the solution to use.
Open Innovation therefore does not necessarily reduce the importance of internal expertise.
It changes what the expertise is used for.
From the performance:
“We have to be able to invent everything ourselves.”
to:
“We must be skilled enough to understand what knowledge we need, where it is found, how it can be combined with our own – and how it can be converted into value.”
A precise definition
Based on Chesbrough's original work and the later development with Bogers, we use the following working definition in this series:
Open innovation is a distributed innovation process in which an organization consciously manages relevant knowledge flows across its own organizational boundaries to strengthen innovation and realize value through internal or external paths to application and market.
This means that Open Innovation can encompass knowledge that moves:
from the outside in, from the inside out, or both ways at the same time.
And that means that open innovation is not the opposite of internal innovation.
It is based on another realization:
The business can create more by combining what it knows with what others know.
In short
Henry Chesbrough gave innovation research a language for a development that had already become increasingly clear:
Knowledge is distributed.
The best ideas don't necessarily come from within the company's own walls.
And a good idea doesn't necessarily have to reach the market through the company that first developed it.
Open Innovation is therefore not primarily about being "open".
It is about consciously organizing knowledge flows across borders .
That is also why people, relationships and expertise are so important.
Because knowledge does not move between organizations on its own.
People find it, share it, understand it, combine it and translate it into innovation and value creation.
And thus we are ready for the next big question in the series:
From theory to practice - BI, Oxford and San Francisco
Open Innovation fits particularly well with the experiences from Innovation and Commercialization at BI , because innovation and commercialization are precisely about how knowledge, people, technology, capital and markets can be connected.
Oxford represents another part of the knowledge ecosystem: the role of the university and research communities in the development and dissemination of knowledge.
And San Francisco and Silicon Valley illustrate how universities, technology companies, entrepreneurs, investors and expertise communities can form part of larger innovation ecosystems.
None of these environments demonstrate that all innovation must be open.
They show something more important:
Innovation often occurs through connections between people and organizations that possess different pieces of the knowledge needed.
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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