Innovation - the hunt for a gem in a new age of competition
Early economists asked a simple question: why is it that something as useful as water is available so cheaply whereas diamonds, with such limited practical use, are so expensive? The answer to this intriguing riddle was that water is widely available and diamonds are not. From this we derive a fundamental economic principle: it is the degree of scarcity that puts different price tags on different things.
The deeper dimensions of this idea are best left to academic lecture theatres. For the practical world of economic enterprises the principle sheds a useful light on vital business inputs such as labour, capital, land or ideas. Their scarcity, availability and affordability will change dramatically over the next twenty years when the balance of global economic power shifts further towards emerging countries, reflecting the trend towards globalisation.
Let's look at it like this: there is the old world that most of us are familiar with and the majority of enterprises still see themselves as being up against. Here, things like skilled workers, suitable factory sites, natural resources, access to funding, affordable energy or even the right customer groups are vital business ingredients and hard to come by. Our experience tells us that these ingredients are available to different degrees - and therefore today still command substantially different market prices - around the world. Hence, a software engineer in Bangalore is still paid a fraction of the wage his identically skilled colleague in Boston receives. And it is certainly still true today that getting hold of a hard-currency loan in Botswana is more difficult and expensive than it is in Berlin.
But this is the core point about the not too distant future: in the new world of global competition - the birth of which we are witnessing - the hunt for rare business factors, these diamonds of various quality, purity and value, will become much less important if not, at some point, insignificant. Labour, capital, knowledge and other inputs necessary to set up shop will adopt the quality of commodities and be available - almost like water - at more or less globally harmonised prices. That does not necessarily mean they will become more affordable, but their still widely differing market values will gravitate into a narrower band. When virtually everything is available to everyone at a similar price, businesses around the world will find themselves in pursuit of a last remaining precious gemstone - innovation. Unlike the other inputs, this factor, by definition, is always "rare" enough to command outstanding prices. A distinct product, an exclusive patent, a pioneering production process, distribution channel, supply-chain mechanism or brand promise - any of these could make the difference for a company. In the new age of hyper-competition, what will distinguish you in the eyes of customers, rivals and shareholders will simply be the quantity of successful innovations you can come up with. This all-important capacity will hinge on you having a viable innovation process in place and the consistency with which you can make it work for you.
You might think innovation is something relative. How can novelty be measured accurately? How good is a good idea or a clever invention? There is a surgically precise answer: a good invention is nothing unless it can prove itself to be a success in the market place. Numerous truly good ideas falter because of bad implementation on their way to market. And an equal number initially thought to be wonderful end as hopeless cases because, contrary to preliminary assumptions, they simply fail to strike a cord with customers. The Austrian-American economist Joseph A. Schumpeter put it in a nutshell back in 1911: "Innovation is the process of findin