By By Amir Gal-Or
Innovation: it is a vital part of evolution and a term we all see on just about every industry conference program and hear in almost every discussion of the latest and greatest in any given sector. When Infinity Group set up its first RMB fund in 2004, innovation was not a clear target in most of the government and business entities of China. However, in recent years, innovation has become a constant focus more and more in China. This is reflected, among other things, by the growing number of innovation investment vehicles established in China.
Let’s explore the definition of innovation, and ask ourselves, why is being innovative so very crucial to long term success?
Businessdictionary.com states that innovation involves deliberate application of information, imagination, and initiativein deriving greater or different valuefrom resources, and encompasses all processes by which new ideas are generated and converted into useful products. It goes on to state thatinnovation is synonymous with risk-taking and organizations that introduce revolutionary products or technologies take on the greatest risk because they have to create new markets.
From my point of view, this definition of innovation is too broad. There are different levels of innovation as well as various definitions. When we use the term innovation, we may not all understand the meaning the same way - different people, different understandings. However, I prefer to refer to The Four Levels of Innovation as introduced by Mr. Kris Minerand published in 2010 by Pepperdine University’s Peer-Reviewed Journal of Relevant Information and Analysis, Graziadio Business Review:
The first level emphasizes minimal changes to existing products, a low amount of new investment, and very low risk. But to keep up, these minimal changes must be made often.
The second level requires a higher level of changes. Level Two changes include integrating new features into existing products on the market or creating differentiated versions of the same new product to sell to various demographic groups. These new features require what can be considered a medium level of investment and risk.
The third level is where large financial and product risk begins, but it is also where the rewards are potentially larger. At the third level changes are introduced that create a new product line without a proven demand.
And, the fourth and highest level of innovation is where companies are able to create innovations that change how people live. The inventions of print, electricity, telephone, air travel and the internet are prime examples of level four.
Most of the innovation cases I have seen in China are at the first and second levels and have a very practical approach, while the innovations in Israel are at the third and fourth levels and are, in many cases, less practical but with an inspiring vision. One of my favorite stories and one that I believe illustrates the true art of innovation quite well is that of the creation of Israeli company Better Place, a present day pioneer of the electric car.
Though other companies may have tried in the past, it appears that Better Place CEO Shai Agassi and his team, have successfully created the technology and the appropriate system to realize this vision and in doing so, a new global market is emerging.
How did he do it? The innovation lay in creating an “affordable” electronic car with a “safe” power source. Agassi solution: an entirely new technology and infrastructure - wire thousands of parking spots, build battery swap stations and coordinate it all over a new smart grid. The key: customers own the car, but Better Place owns the batteries, which can be charged well enough at home for short drives and can be safely switched with fully charged batteries in around one minute at swapping stations for longer rides. By doing it this way, the company is able to spread the cost of the battery and the car over four or more years. As Agassi stated in the book Start Up Nation: The Story of Israel’s Economic Miracle, “you get to go completely green for less than it costs to buy and run a gas car.”
Better Place is already marketing in Israel and Denmark, where it will begin selling its services to customers in the fourth quarter of 2011 and the first quarter of 2012, respectively. The company has plans to roll out a network in China and Australia as well.
Just recently, on April 27th, Better Place signed an agreement in Tel Aviv with officials from China Southern Power Grid Co. to open a battery switch station and joint education center in Guangzhou, China, by the end of 2011.
This is in line with China’s existing plans to spend as much as 200 billion yuan ($30.8 billion) over the next decade to deploy a fleet of five million new energy vehicles, In fact, as part of the newest five year plan, new-energy vehicles have been named by China as one of the strategic emerging industries that the nation’s economy will be geared to support. Currently, China has pilot programs in 25 cities to promote and subsidize electric vehicles.
China can debate whether it should have the same type of “level four” innovative thinking that led to Better Place’s electric car and infrastructure, and which could be implemented in any given industry.
However, it is clear that China is on a present path to build an economy supported by innovation rather than manufacturing the innovative products designed by others. And, the government is doing its great part to encourage this. One example of a supportive decision is the State Intellectual Property Office of China’s “National Patent Development Strategy (2011-2020)” published in November 2010. This document states China’s goal is to have an annual patent filing of two million by 2015. This number includes both “invention patents” and “utility-model patents”; the latter typically covers items like engineering features in a product. Toencourage “innovative thinking” China has introduced an array of incentives. They include cash bonuses, better housing for individual filers and tax breaks for companies that are prolific patent producers.
I am sincerely appreciative of the Chinese culture and applaud the government’s introduction of incentives to inspire innovation. At the same time, I believe that more than mechanisms need to be put in place, mostly in the education field, to encourage the type of innovation that will produce world class companies that can compete well internationally. Innovation of this nature is born from not accepting the status quo, but in developing a healthy habit of asking questions and exploring the unknown. High innovation changes our basic assumptions and produces a new generation of thought. The idea that man could fly was once considered absurd. This thought was questioned, and practically challenged. Today, not only is air travel common place, but so too is space travel. The practice of asking questions and the art of thinking “out of the box” could be taught at an early age, introduced into the school system and laced throughout higher education. In turn, over time, corporate culture would evolve in parallel to a point where innovative thinking would become a natural process.
Let’s ask ourselves, how did such a big idea like that produced by Better Place originate from such a small country like Israel? Israel is a country famous for its creative energy and innovative spirit which has produced many truly novel products that have fundamentally changed the way we do things and the way things are done -from medical devices, to clean water technology and of course, the electric car. In fact, Israel is one of the leading “innovation” patent producers in the world. What is the source of Israel’s innovative spirit? The answer: the natural drive, built into the fabric of Israeli society from a young age, to repeatedly ask the questions “why” and “how”?
For many companies in China, however, there is neither an urgency nor a need for a high level of innovation in the near term. Many companies feel their activities are good enough for the existing situation: the Chinese market is huge and it continues to grow. The focus is on market share not on ways to reinvent themselves. Companies aim to improve efficiency and focus on how to better market their product offerings. All of this is totally understandbale, but conceivably detrimental in the long term. This approach will less support sustainable growth when the market becomes more competitve, which it will, and when it does, the situation will become extremely challenging. Those who refused to accept this enevitable change will go under.