Innovation Insights: What is innovation?

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Virtually every startup thinks of itself as innovative, but are they really? Every day I help companies claim cash for innovative activities through the R&D tax credit scheme. Most of these companies are somewhat innovative, however, to be truly innovative is really tough. In this column, I want to explore what innovation means and how you might apply it to your business.

Today I’ll share three different perspectives on innovation. Each perspective focuses on the benefits of curiosity, openness and asking the questions that no one else thinks to ask.

The historical perspective

‘Innovation’ first entered public use in 1548, when King Edward VI issued a declaration against those “that doeth innovate” against the teachings of the Catholic Church. At the time, innovators were seen as a big threat to people in the establishment who were already wealthy and powerful. That was not in their interests, so ‘innovators’ and free-thinkers were discouraged, punished and sometimes even killed.

This way of thinking stuck around for hundreds of years. From the 19th Century onwards, it became easier to make your own wealth. You didn’t need a family name, or old money. You could do it by challenging existing ideas and developing better products and services. The wealthy begun to realise that by working with innovators, they could become even wealthier, so they finally started encouraging innovation.

Fast-forward to 2020 and innovation is seen as a necessity. Big companies are often told that if they don’t innovate they will die. For example, 30 years ago Yellow Pages and AutoTrader were two of the most established UK industry leaders in local business search and selling cars. Both had opportunities to maintain their status by innovating from a physical product to an online service. However, Yellow Pages was slow to react and now has a minimal online presence in internet search, whereas AutoTrader reacted quickly and maintained its position as one of the leading sites online to sell cars. In summary, even the most established companies need to look at their industry and react to market changes in order to survive.

The government perspective

Politicians regularly talk about how innovation boosts the economy. However, in practice the government isn’t as open to innovation as they would have you believe.

One of the main ways the government supports innovation is through R&D tax credits. For every £100 a company spends on R&D, they can get up to £33 back in cash. The R&D tax credit scheme currently has three basic requirements to qualify, all limiting in their own ways:

  1. Only Companies can qualify for R&D tax credits

Oddly, this means that if an individual or a group of people in a partnership undertakes works classed as innovation, they do not qualify for R&D tax credits. For example, when a friend of mine started looking into AI and spent a couple of thousand pounds building an MVP, he couldn’t claim R&D tax credits on this research as he hadn’t formed a company yet.

  1. Companies must try to make a scientific or technical advance

The government specifically excludes certain activities from this, including arts, humanities and social sciences. Now most people I know would consider Banksy’s art brilliantly innovative, for example, the recent shredding of “Girl with Balloon” after being selling in Sotheby’s made international headlines. However according to the government, Banksy would not qualify for R&D tax credits as this was the wrong kind of innovation.

Scientific or technical advances in this context don’t just mean being the first in the world, but also includes ‘not being publicly known’. This creates an interesting situation, where a company can attempt to copy something else and it’s still considered innovative.

  1. There must be uncertainty related to the advance

Uncertainties are defined by the government as existing when it’s not yet known if something is “Scientifically possible, technologically feasible or how to achieve it in practice is not readily available”. E.g. It’s possible for Tesla to build a’ Tesla Model 3, but Tesla might not have optimised the production process yet. Any R&D activities that make the Model Tesla 3 production process more efficient could count as R&D, even if the Model Tesla 3 car itself doesn’t change as a result of changes to the production process.

Overall the governments’ definition is vague, biased against creativity and rewards copycats. In other words, it doesn’t reward or capture the true spirit of innovation.

A personal perspective

I think innovation starts with a simple question, what if? We’re all capable of this if we open our minds and begin questioning our assumptions. As a child, most of us went through a ‘why’ phase, constantly questioning and exploring every little thing. Aged three, I asked my mum “why does a dog work?” Now at first glance that might seem a stupid question with no real answer, but it’s a very good question when approached with curiosity.

It turns out that dogs ‘work’ because they’ve been deliberately designed by humans to undertake specific roles in our lives. Over the past 15,000 years humans have selected wolves that displayed useful qualities and bred them together to create dogs. By focusing on the qualities that were useful, they were able to develop thousands of species of dogs for specific roles and terrains. Now we have different breeds of dogs that excel at different tasks, for example;

  • Beagles are great hunting dogs with a strong sense of smell for tracking rabbits

  • Border Collies are great sheep dogs as they have a lot of energy and easy to train

  • Labrador Retrievers are the most popular guide dogs as they are intelligent, able to tolerate stress and work long hours

Innovation is more than just curiosity; it’s thinking without limits. As an engineer, I learned a process that I regularly use in my job when I want to come up with new ideas:

  • Identify - Identify the underlying problem that you’re trying to solve.

  • Imagine - Imagine how you could solve this problem if you had unlimited time and resources. At this stage, no idea is a bad idea, no matter how crazy or far-fetched. This is where curiosity comes in, as the knowledge gained from asking questions helps to come up with new ideas in a different context.

  • Edit - Edit the ideas down, using the practical constraints of time and resources.

By following these three steps, you can begin to free your mind from thinking small and start to get to crazy big ideas that may lead to some truly innovative thinking. Open your mind and start with why.

To find out more information check out Claimer here.