Part 5 - Product, service, process and business model innovation
What actually changes when a business innovates?
Innovation can change what the business offers, how the product or service is delivered, how work is organized, how the customer meets the business or how the business creates and realizes value. Therefore, there are several ways to classify innovation. The OECD's Oslo Manual has been of great importance for the development of a common international conceptual framework, but the classification has also changed. At the same time, research on, among other things, service innovation and business model innovation has expanded the understanding of what can actually be the subject of innovation.
Innovation is not just about how new something is
In Part 2, we distinguished between incremental and radical innovation. That distinction is primarily about the degree and nature of novelty .
Here we ask another question:
What is actually being changed?
Is it the product the customer buys? Is it the service the customer receives? Is it the production or logistics? Is it the way the business organizes its work? Is it the relationship with the customer? Or is the very system the business uses to create, deliver and realize value changing?
These questions lead us to different types of innovation.
This is important because one innovation can affect several parts of the business at the same time. For example, a new digital service can be a product innovation for the customer, require new internal processes, change distribution, and at the same time be part of a new business model.
Innovation categories should therefore not be understood as watertight boxes.
They are analytical tools that help us understand what is actually changing .
Oslo Manual – an international language for innovation
Through the Oslo Manual, OECD and Eurostat have developed one of the most important international standards for how innovation is defined and measured.
It is essential to understand why the manual exists.
If researchers, governments and statistical institutions are to be able to examine how much innovation is happening in the economy, they must have concepts that can be used consistently across businesses, industries and countries.
Innovation must therefore be operationalized.
What should be considered innovation?
What should not be considered innovation?
And what types of innovation should the statistics capture?
The answers have evolved in step with both research and the economy. The OECD itself emphasizes that the revisions to the manual reflect developments in expert understanding of what innovation is and how it can be measured.
From four types of innovation to two
The third edition of the Oslo Manual from 2005 operated with four main types:
product innovation, process innovation, market innovation and organizational innovation.
This division became widespread and is still used in teaching, research and practical innovation work.
But in the fourth edition from 2018, the classification was changed.
The OECD and Eurostat reduced the four main types to two:
product innovation and business process innovation .
This was not because marketing, organization, or other forms of change suddenly ceased to be relevant. They were largely integrated into the broader category of business process innovation. The OECD explains, among other things, that management and administration include areas previously classified as organizational innovation, while marketing, sales, and customer support are among the business functions that can be covered by process innovation.
This is a good example of why innovation concepts must be treated historically.
The conceptual framework develops as the understanding of innovation develops.
Product innovation
In the Oslo Manual 2018, product innovation is defined as a new or improved product or service that differs significantly from the business's previous products or services, and that has been introduced to the market.
Product does not just mean a physical object.
The OECD's product concept encompasses both goods and services .
A new car model can be a product innovation. So can a new banking service, software solution, streaming service or digital advisory service.
The decisive factor is not whether the customer can hold the product in their hand.
The crucial thing is that the business introduces a new or significantly improved product or service compared to what the business previously offered.
And as we established in Part 1:
An idea is not enough.
The product or service must be made available to potential users. Implementation is part of the concept of innovation.
Service innovation
In everyday speech and much of the innovation literature, it is still useful to talk specifically about service innovation .
Services have characteristics that can make innovation different from the development of physical goods.
Production and use can occur closely together. The customer or user can actively participate in the service production. The experience can depend on employees, technology, information and the customer's own actions.
The OECD points out that services are intangible activities, and that the user's time, attention, information or effort may be necessary in the co-production of the service.
This makes service innovation particularly interesting in our professional universe.
A bank can develop a better digital self-service solution. A hospital can develop a new way to follow up patients at home. A municipality can make a public service available digitally. An online store can develop a digital customer advisor that helps the customer through the entire purchasing process.
In all cases, innovation occurs in the meeting between technology, organization, employees and users .
Thus, service innovation also becomes a natural bridge to our Customer series.
Process innovation
Process innovation focuses attention on how the business works .
It can be about how goods are produced, how services are delivered, how information is processed, how logistics are organized or how administrative tasks are performed.
A manufacturing company can automate parts of its production.
A warehouse can introduce robotic goods handling.
An online store can develop a new logistics process that makes delivery faster.
A hospital can reorganize the patient flow so that waiting times are reduced.
A public enterprise can automate routine case processing.
The common denominator is that innovation does not primarily consist of what the business offers, but in the way the activities are carried out .
In today's Oslo Manual , this category is considerably broader than the traditional notion of production processes.
Business process innovation – the broad category
The Oslo Manual 2018 identifies six broad business functions where business process innovation can take place: production of goods and services, distribution and logistics, marketing and sales, information and communication systems, administration and management, and development of products and business processes.
This shows how broad the concept of process now is.
Innovation can happen in production.
But it can also happen in HR, purchasing, finance, ICT, customer support, sales, management and organization.
That is why the modern classification makes it more difficult to maintain a simple distinction between “technological” and “organizational” innovation.
A digital transformation can require both at the same time.
Technology is changing.
Work processes are changing.
Skill needs are changing.
The customer meeting is changing.
The organization can be changed.
Innovation is a system of continuous changes.
Organizational innovation
Although organizational innovation is no longer a separate main category in the Oslo Manual 2018 , the concept is still analytically useful.
Organizational innovation is about significant changes in how work, responsibility, collaboration or external relationships are organized.
These may include new forms of interdisciplinary collaboration, new decision-making structures, new forms of work or new ways of organizing relationships with external partners.
Here, Part 5 directly meets Open Innovation from Part 4.
If a business moves from primarily internal development to systematic collaboration with universities, suppliers and start-ups, this requires more than just access to external knowledge.
The business must also organize itself so that it can absorb and apply the knowledge .
Thus, technological and organizational innovation are often linked.
Market innovation
The former category of market innovation included, among other things, significant new methods of marketing, product placement, promotion, design and pricing.
In the 2018 classification, large parts of this are integrated into business processes related to marketing, sales and customer support, while product design is more closely included under product innovation.
The history here is also interesting.
Digitalization has made the distinction between product, marketing, sales and distribution increasingly less clear.
An online store is not just a marketing channel.
It can simultaneously be a sales channel, service platform, customer service, distribution interface and data source.
A mobile app can be both the product and the channel the customer uses for
to buy the product.
Thus, innovation is increasingly becoming cross-cutting .
Business model innovation – when the very logic of value changes
Business model innovation brings us to another level of analysis.
Here we don't just ask what the product is or how the process is carried out.
We ask:
How does the business create, deliver and realize value?
A business model describes the relationship between several elements of the business: which customers it serves, what value proposition it offers, what activities and resources are required, which partners it collaborates with, and how economic value is realized.
Business model innovation therefore involves a significant change in this logic.
A well-known example is the transition from selling a product once to offering access through subscription.
The technology does not have to be new.
The product does not have to be fundamentally new either.
The innovation may lie in the way the business organizes value creation and revenue.
This makes business model innovation particularly important because it shows that innovation cannot be reduced to technology.
Business model innovation is not a separate Oslo Manual category
Here again we must be professionally precise.
Business model innovation is an important concept in strategy and innovation research, but the Oslo Manual 2018 does not establish it as a third main category alongside product and business process innovation.
A new business model may instead involve a combination of several innovations .
It can change the product.
It can change the sales process.
It can change the distribution.
It can change the organization.
It can change the relationship with the customer.
This corresponds well with the OECD's emphasis that one innovation can combine several types of product and business process innovation.
Business model innovation is thus another analytical perspective:
It examines the system of activities and mechanisms the business uses to create and realize value .
Three real examples
Netflix – from physical distribution to streaming
Netflix illustrates how multiple types of innovation can occur simultaneously.
The company began with DVD rentals via mail order and subscription. Later, streaming became the dominant distribution method.
For the customer, the service changed.
The distribution process changed.
Technology changed.
The customer interface changed.
Over time, the role of the business also changed through investments in its own content.
It is therefore inadequate to describe the development as a single type of innovation.
Netflix shows how product, service, process, and business model innovation can reinforce each other .
IKEA – the product is just one part of the innovation
IKEA's innovation model cannot be understood by just studying the furniture.
Flat packaging affects product design, production, warehousing, transportation and the role of the customer.
The customer carries out parts of the transport and assembly themselves.
This changes the cost structure and division of labor between the business and the customer.
The interesting thing therefore lies in the system surrounding the product .
IKEA illustrates how product design, logistics, processes, customer involvement and business model can be part of one coherent innovation logic.
Salesforce – software as a subscription
Software was traditionally often sold through licenses and installed locally at the customer's premises.
Salesforce was among the companies that helped establish software delivered over the internet through subscription-based models.
Here, several elements were changed at the same time.
The distribution of the software changed.
Technical operation changed.
The customer's access to the service changed.
The payment model changed from large license purchases to ongoing subscriptions.
The example illustrates why business model innovation often cannot be isolated from product and process innovation.
Types of innovation and digitalization
Digitalization makes the distinction between types of innovation even more interesting.
Think of an online store.
An AI-based customer advisor can be a new or significantly improved service for the customer.
The technology can also automate parts of customer service.
It can change the sales process.
It may affect product information.
It can give employees new work tools.
It can create new data that is used in product development.
And if the business changes how it makes money from the service, the business model may also be affected.
It is therefore misleading to ask:
"What type of innovation is AI?"
AI is a technology.
The correct question is:
What actually changes when technology is used?
Only then can we begin to classify the innovation.
Types of innovation and the customer
This article also provides an important connection to the Customer series.
Product innovation can provide the customer with a better product.
Service innovation can improve the customer experience itself.
Process innovation can reduce waiting times, errors and costs.
Innovation in marketing, sales, and customer support can make your business easier to find, understand, and use.
Business model innovation can change what the customer pays for, how the customer pays and what role the customer themselves play in value creation.
Thus, the customer is not just the recipient of innovation.
The customer can be part of the logic of innovation.
This becomes even more important when we later come to user- and customer-driven innovation.
Innovation and value creation
The types of innovation show why the link between innovation and value creation must be understood broadly.
Product innovation can create value through better products and services.
Process innovation can create value through higher productivity, better quality, lower resource use or better work processes.
Service innovation can create value through accessibility, security, time savings or better user experiences.
Business model innovation can change how value is created, who participates in value creation, and how economic value is realized and distributed.
But – as we have emphasized previously – innovation and value creation are not synonyms .
The Oslo Manual does not actually require an innovation to be economically successful or positive for society. An innovation can fail commercially, and it can also have negative social consequences.
This distinction is fundamental to our professional universe.
The concept of innovation describes the change and its implementation .
The value creation perspective asks what the change actually leads to for
the business, employees, customers and society.
From theory to practice - BI, Oxford and San Francisco
The distinction between types of innovation becomes particularly clear when theory meets businesses in practice.
Through Innovation and Commercialization at BI, the question becomes not just whether an idea is new, but how it can be developed, implemented and create value.
The Oxford seminars provide the connection to research and academic perspectives on technology, organizations, management, and economics.
The San Francisco seminars also provide a practical window into businesses and innovation environments where products, digital services, technology and new business models are continuously developed and combined.
And through the website's subject areas of e-commerce and digitalization, we can study precisely how several types of innovation meet in practice.
A digital customer experience rarely consists of just one innovation.
It is the result of products, services, technology, processes, people and business logic working together .
A precise professional understanding
We can therefore summarize the article's main points as follows:
Product innovation changes or develops the product or service offered.
Service innovation focuses particularly on new or significantly improved services and the way in which value is created together with the user.
Business process innovation changes how one or more of a business's functions are performed.
Organizational and market innovation are still useful technical terms, but are largely included within the broader process classification in the Oslo Manual 2018 .
Business model innovation examines changes in the system the business uses to create, deliver and realize value.
The categories do not necessarily compete with each other.
A significant innovation can affect several of them at the same time.
In short
The question “what type of innovation is this?” may sound simple.
It's not.
An innovation can change the product, service, production, organization, customer encounter and business model all at the same time.
Therefore, the international conceptual framework has also evolved.
The Oslo Manual went from four main types in 2005 to two broad main types in 2018: product innovation and business process innovation .
But other professional concepts are still useful because they help us examine different aspects of innovation.
The crucial thing is therefore not to squeeze innovation into one box.
The crucial thing is to understand:
What's new? What has been changed? How has it been implemented? Who is affected – and what values are being created or changed?
This naturally takes us to the people who often discover needs before the business itself does: the users, customers and employees.
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 had a major impact on 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 the 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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