Matt Ridley is the author of “The Rational Optimist” one of my favorite books that I’ve ever read. I’ve found his approach to explaining issues in the field of evolution, economy, and innovation highly cutting-edge and comprehensive.
Matt is a polymath, who makes bold statements, deep analogies, going back even to ancient times, and efficiently concludes them with these days. He makes comprehensive conclusions, connecting the dots in a refreshing and thought-provoking way.
His books are worth reading not only for their content but also for Matt’s thinking patterns that go beyond a narrow academic point of view, and test what is commonly believed.
The crucial point of “How Innovation Works” is that Matt Ridley:
argues that we need to see innovation as an incremental, bottom-up, fortuitous process that happens as a direct result of the human habit of exchange, rather than an orderly, top-down process developing according to a plan.
Matt derives lessons and points of view from the living stories of innovation, combining them into one whole consistent piece. His approach to innovations is very holistic and deep, going back from steam engines to search engines.
What we can learn about innovations, a mysterious, bottom-up process happens invisibly by people exchanging ideas and values?
Here are the insights of one of the greatest and most well-written books I’ve ever read.
1. How Innovation works? – Prelude and context
Ridley argues that innovation happens when people are free to think, experiment, and speculate. It’s not by setting the rules and standards, doing research, and operating according to plan but rather by setting people free.
Most innovation is a mysterious and gradual process based on people’s exchange. The ability to exchange ideas, plans, and recourses is the underlying principle of innovation. And that happens when we enable people to work for each other.
The great point that Matt stated is that human beings have achieved great things through the specialization by exchange and becoming interdependence. Humans became narrower in what they produce but wider in the range of what they consume:
“The main theme of human history is that we become steadily more specialized in what we produce, and steadily more diversified in what we consume: we move away from precarious self-sufficiency to safer mutual interdependence.“
We work forty hours to produce something for each other and in return, we can spend seventy-two hours consuming what other people provide. In addition, what we produce is becoming more specialized and narrower, but our leisure opportunities are becoming wider and more diverse.
Amazingly enough, we don’t understand how simple tools like the PC mouse came about. It shows our interdependence in the modern world, one person doesn’t build a mouse PC, but a group of people knows.
But this transition from self-sufficiency to interdependence was being witnessed before the digital era.
The author of “I, Pencil” an essay published in 1958, insightfully describes the process and amount of human cooperation, exchange, coordination, and trade that was needed to lead to happen for that simple creation like a pencil.
“Actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of others”
“Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me”
Matt Ridley based on the general principle that the growth of human history is related to specialization through exchange builds very insightful conclusions regarding innovation.
2. Insights on Innovations
“Failure is often the father of success in innovation“
1. Gradual process based on iterations, with no breakthrough moment.
The crucial point that Ridley made according to innovation is that is the long-term process of combining people who add the iterations of ideas and features based on trials and errors, with no breakthrough moment.
Matt started describing the history of innovation, starting from the energy and its history on which he based to conclude the typical features of innovation:
“And it was a gradual, stumbling change, with no eureka moment. These features are typical of innovation.“
2. It’s about connecting the dots – combining and recombining.
The process of innovation is about connecting, combining, merging, and bringing everything together. Ridley gave the example of Thomas Edison as a person who understood better than anybody before how innovation really works:
“Edison (…) may not have been the first inventor of most of the ingredients of a light bulb (…) he was none the less the first to bring everything together, to combine it with a system of generating and distributing electricity.“
Thomas Edison knew that innovation is itself a product, the manufacturing of which is a team effort requiring trial and error.
3. Innovation is turning ideas into practical things and learning by doing.
The most common practice of innovation is learning by doing. None of the innovators were clear about what was going to happen. They were just combining and trying.
The modern tech-giants innovators such as Steve Jobs and Bill Gates were very young and followed the most common path of innovation, which is learning by doing.
Innovation is the opposite of invention because it’s about turning ideas into practical, reliable, and affordable things easy to use.
4. Innovation often came before scientific understanding.
It is often that innovation and technology came before the scientific proof of understanding them, and then the science adapts to. Vaccination exemplifies a common feature of innovation: that use often precedes understanding. throughout history, technologies and inventions have been deployed successfully without scientific understanding of why they work. Science was beginning to catch up with technology.
Technology, in most cases, is a pioneer that explores new grounds which, when innovation occurs, science has to adapt, learn from and draw conclusions.
5. Innovation is the product of collective incremental tinkering.
“For all of human history until the 1820s, nobody went faster than the speed of galloping horse. Then within a generation it became routine to travel at speeds three times that fast, and for hours at time.“
The feature of collectiveness in innovations is highly seen in the steam engine industry.
For example, contrary to common belief, Stephenson’s Rocket was not the first steam locomotive. The first steam locomotive to run on railroads was built by Richard Trevithick 25 years earlier but was not financially successful and wasn’t that advanced.
Stephenson’s Brothers were the first to bring together previous iterations and combine them with several innovations to produce the most advanced locomotive of its day.
The innovation of steam engines was the result of the evolution of the design of this type of vehicle rather than a revolutionary change. It was a gradual process based on collective incremental tinkering and improvements done by several people not a brilliant leap of imagination or genius. These features are usually in terms of innovations, as Ridley describes:
“A long and deep prehistory characterized by failure; a shorter period marked by an improvement in affordability characterized by simultaneous patenting and rivalries; and a subsequent story of evolutionary improvement by trial and error. “
Innovation is not an individual phenomenon but a collective, incremental and messy network phenomenon.
6. Innovation is about capturing the hidden value.
“Unlocking the potential value hidden away in people’s homes”
Business models provided by Airbnb, Uber, Lyft, and eBay are not breakthrough, innovative models rather most of them were quite simple and based on the non-technical concept known for centuries. But could only fulfill their potential in the modern world full of connectivity.
One of these concepts that can be widely used in today’s connected world and achieve great success is the sharing economy.
It’s one of the oldest ideas in the world, based on our original and primary approaches to trading and exchanging. Sharing economy is about connecting people who have more goods A than they need with people who have more other goods B than they need.
Airbnb’s innovation was going with the changing attitude of people towards living, renting, and the idea of traveling around the world. The connected, modern world allowed businesses based on sharing economy model to achieve great success, and there Airbnb was allowed to:
Unlocking the potential value hidden away in people’s homes, it brings welcome revenue to the person renting out the property. By supplying more properties to rent it keeps prices lower than they would otherwise be for the person renting.
7. Innovation is the phenomenon that we can’t fully describe.
“There’s a law about Moore’s law. The number of people predicting the death of Moore’s law doubles every two years. “
The origin of the computer is very mysterious and confusing, as are some ancient innovations, as no one truly deserves the accolade of the inventor of the computer. Instead of one brilliant turning point, we have a common pattern of innovation: key contributions to a gradual, incremental, and mutually inspired process.
The origin of the computer follows the usual path of innovation. It was about developing a series of small but crucial iterations.
Matt Ridley compared in a sense, the origin of the computer to the moment when a child becomes an adult. There’s no one breakthrough, a clear moment when we start dealing with an adult. Instead, there is a small series of improvements and evolutions
A phenomenon that we cannot fully grasp can be seen in Moore’s law, which says that the number of transistors in a microchip doubles every two years, although the cost of computers is halved.
Moore was successfully predicting steady but rapid progress in miniaturization and cost reduction that would lead to cheaper microcircuits for the same power output. This law was predictable from year to year, so it is more surprising and remarkable that no downturns and declines, wars, recessions, booms and discoveries, and people seemed to have no impact on Moore’s Law.
It was so surprising that from year to year more and more people were predicting the end of this law, and it didn’t happen. It seemed as if Moore had made a law that goes its way.
Most innovation consists of the non-random retention of variations in design.
3. 10 Innovations’ Essentials
1. Innovation is gradual.
“Innovation is nearly always a gradual, not a sudden thing. Eureka moments are rare, possibly non-existent.“
It’s the general rule that the Wright brothers are a great example. They didn’t expect to build a flying machine at the first attempt, instead, they were focused on doing iterations and slowly increments and improvements.
They were living proof that innovation is nothing more than the gradual and evolutionary process full of tinkering and retinkering and trials and errors.
2. Innovation is different from invention.
“All too often discoverers and inventors feel short-changed that they get too little credit or profit from a good idea, perhaps forgetting or overlooking just how much effort had to go into turning that idea or invention into a workable, affordable innovation that actually delivered benefits to people.“
Innovation is crucially different from invention because it’s more focused on the context, which means that they turn certain ideas into practical, affordable, and easy-to-use things. Where the invention is less associated with the context it’s more about putting some ideas.
3. Innovation is often serendipitous.
“Neither the founders of Yahoo! nor those Google set out in search of search engines. The founders of Instagram were trying to make a gaming app. The founders of Twitter were trying to invent a way for people to find podcasts.”
Innovation does not happen by strictly following a top-down plan, but rather by being able to adapt to changing circumstances and connecting the dots that come along the way.
I came to similar conclusions in one of my blog posts about side projects, where I also described the adventures of Twitter or Unsplash, which were successful in a different field than they planned. What enabled them to achieve success was not blindly following the path of the plan but noticing the chances.
4. Innovation is recombinant.
“Every technology is a combination of other technologies’ every idea a combination of other ideas.“
The principal source of innovation is recombination and combining the existing technologies in a fresh way.
Matt Ridley is well-known for his theory that innovation happens when “ideas have sex“ and that the growth of human beings was possible due to shifting the human attitude from self-sufficiency to independence. And it happened when people were allowed to exchange goods, services, thoughts, and ideas.
This also explains that innovation rather happens in a more crowded place, where trade and exchange are more frequent than in isolated ones. We expect innovation to happen in California rather than in North Korea.
And it’s worth remembering about exchanging and interdependency in collecting the dots because the more dots you collect, the more connections you have.
5. Innovation involves trial and error.
“Most inventor find that they need to keep ‘just trying’ things. Tolerance of error is therefore critical.”
Thomas Edison, who we previously pointed out, understood better than anybody how innovation works, perfected the light bulb not by inspiration but by perspiration and by bringing existing pieces together to create a new quality. It required a lot of effort and thousands of hours of work, not the magic breakthrough moment.
“I’ve found 10,000 ways that won’t work.”, Edison said. His team tested 6,000 different materials for the filament.
The error is a key part of innovation. It is said that the USA was built on great individuals that the government allows to fail, and then try again – “Fail fast and fail often”, says a famous saying.
6. Innovation is a team sport.
“The myth of the lonely inventor, the solitary genius, is hard to shake. Innovation always requires collaboration and sharing.”
Innovations are the result of a collective effort and are quite mysterious. Nobody truly knows how to achieve the whole innovative product, but the team of productive members knows.
Apple wasn’t based upon the single genius of Steve Jobs, although he was the powerful force of Apple’s innovations. However, he wasn’t the first one who was thinking about a PC with a graphical interface. His idea was inspired by Xerox PARC’s product, which didn’t achieve market success.
7. Innovation is inexorable.
“Most innovations lead to priority disputes between competing claimants. People seem to stumble on the same idea at the same time”
It’s quite funny how technology is ridiculously simple predictable in retrospect, but one big unknown in prospect. However, we can say with certainty that many innovations were inevitable, and if there were no people like Einstein, Da Vinci, others would take their place, although things could take longer.
There was a moment when there was a race for innovation and someone just won. Individuals do not matter much in the long run, but that makes them all more extraordinary in the short run.
8. Innovation’s hype cycle.
“Amara’s Law states that people tend to overestimate the impact of a new technology in the short run, but to underestimate it in the long run.”
Currently, when I’m thinking about innovations’ hype cycle, blockchain technology comes to my mind. I think that specifically this technology is underestimated in the long term but gathers a lot of hype and is commonly overestimated in the short run.
Many blockchain-based tech companies fail, and it doesn’t gather enough mainstream success. However, the long-term effects of blockchain could be mind-blowing, to name a few: reduce the impact of the global banking system or cut the overpaid intermediaries.
9. Innovation prefers fragmented governance.
“David Hume, writing in the eighteenth century, already realized this truth, that China had stalled as a source of novelty because it was unified, while Europe took off because it was divided.”
Places without tightened and highly centralized structures are more prone to innovation than central-planning ones. For example, the periods of explosive innovation in China coincided with the decentralized government, known as the ‘warring states’
10. Innovation increasingly means using fewer resources rather than more.
“The bigger cities get, the more productive and efficient they become, in terms of their use of energy to create improbability, just as the bodies of animals do: a whale burns proportionately less energy than a shrew and so lives longer, has a bigger brain and behaves in more complicated way“
Innovation in growth is strictly associated with the better and more effective use of resources, and for example, London, a bigger and more complicated city than Bristol, proportionately burns less energy.
It may sound counter-intuitive, but in the ten years from 2008, America‘s economy grew by 15 percent but its energy use fell by 2 percent.
4. The economics of Innovation.
1. Innovation is bottom-up phenomenon
“It as recently become fashionable, especially in Britain, to argue a somewhat ‘creatonist‘ view of innovation, namely that it is a product of intelligent design by government, and that the government should therefore adopt an industrial policy of directed innovation“
Innovation often came from an unregulated place rather than central government planning and initiative to help with research and management.
Ridley noticed that the USA grew to the most advanced and innovative country in the world in the early decades of the twentieth century without any significant public subsidy for research and development before 1940.
2. Innovation is the mother of science as often as it is the daughter
“Invention is the parent of science: techniques and processes are develop that work, but the understanding of them comes later. Steam engines led to the understanding of thermodynamics, not the other way around. “
Many innovative products were built before any scientific understanding, and we can say that science adapted to technology, not the opposite.
The steam engines are the best example and proof of technology trailblazing before science.
3. Innovation cannot be forced upon unwilling consumers.
One of the most important components of successful innovation, especially when it comes to technology, is the proper timing. As Peter Thiel, the co-founder of PayPal noticed:
“The next Bill Gates will not start an operating system. The next Larry Page won’t start a search engine. The next Mark Zuckerberg won’t start a social network company“
In the dot-com bubble, we witnessed many unsuccessful businesses whose ideas started working after a few years. If the market and its consumers are not ready, the chances of success are quite low.
4. Innovation increases interdependence
“Most modern people have a less varied job but much more varied life“
This point is related to the great Ridley’s view on human history that we simultaneously increased our specializations – what we produce, with the increasing diversification of what we consume. And it’s contributing to increased interdependence between people.
It is also good to point out that innovation happens not within but between brains. We rely more and more on the dependence on others. Self-sufficiency is not a good way to innovate.
5. Innovation does not create unemployment
“In 2011 President Obama used the bank teller as an example of a job that disappeared because of cash machines. He was wrong: there are more tellers employed today than before cash machines were introduced, and their jobs are more interesting than just counting out cash“
The idea and fear of losing jobs because of innovation are around every generation. So far it turned out to be the wrong assumption.
Contrary to popular belief, innovation even allows for an increase in the number of people of working age employed for remuneration. For instance, farmworkers moved to cities and got a job in manufacturing.
6. Big companies are bad at innovation.
“From Thomas Newcomen to Steve Jobs, again and again the great innovators have come from obscure origins, in unfashionable provinces and without good contracts or education.“
Peter Thiel once said: “Microsoft is betting on the world not changing.“ There may be a lot of truth in this statement. Big companies are too formal and bureaucratic but also too comfortable and confident in their position to see the upcoming danger in the form of another great innovation.
7. Setting innovation free.
“The ultimate open-source innovation is that done by consumers themselves.“
Eric von Hippel of the Massachusetts Institute of Technology calculates that tens of millions of consumers spend tens of billions of dollars every year developing or modifying products for their use.
The opportunities for free innovations are growing because people have many tools at their disposal that help them to build. Computerized design tools and lower costs of communication are great contributors to free innovations.
To conclude this insightful book, I would say that Matt’s point is that innovation happens when people are set free and contribute by exchanging and developing small but significant improvements. It’s a bottom-up process that requires hard work, trials, and errors. Innovation is a fluid and collective process that is often far from the leap of genius. We tend to underestimate it short term but overestimate it in the long perspective.
Additionally, the general principle Matt is known for is that the grand theme of human history is that people are becoming narrower in their specialization but diverse in their consumption.
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