Innovation comes from many places. Often purposefully intentional, sometime accidental. Sometimes its driven by demand, and other times supply. Objectively there are three methods in which innovation is materialized: Serendipity, Errors, and Exaptation. Below gives an outline of what these methods are, and examples of discovers via these methods both from a broader perspective as well as personal.
Serendipity
Other than being one of the best Rom-Coms of the early 2000s (Chelsom, 2001), it is essentially the materialization of something by accident. Sometimes this is characterized as being “luck” (Tidd and Bessant, 2020). Luck however can come from both pure accidents, as well as simply the unintended result of a process that was otherwise methodical and purposeful. Typically, as Tidd and Bessant (2020) articulate, one does not was to rely or plan on luck. Processes for innovative thinking should be systematic and not rely on serendipity.
As we reviewed in deeper detail for Unit 4 IP (Van Duyne, 2022) there are many notable inventions over the decades attributed to accident or luck. Two identified in Unit 4 were Smart Dust and Pop-Rocks. Smart dust being the discovery that silicon particles can maintain connection to each other, which opened up a multitude of possibilities for micro-technology. The other, more cultured example being pop-rocks, which was the result of trying to create an ‘instant’ carbonated soda.
Error
I think in many ways, innovation through accident and error are similar. In both cases the ‘inventor’ is discovering an unintended and unseen benefit. The process flow, and at which point was the unintended deviation the fault of the operator or just happenstance, is somewhat inconsequential. One example of pure operator error that turned out to be a fruitful innovative breakthrough it the Pacemaker (Weber, 2019). Wilson Greatbatch, the inventor of the Pacemaker, was working on a portable device to record the rhythm of a human heartbeat, but he used the wrong-sized resistor in the circuit, which actually created the electrical rhythm of a heartbeat. In finance, errors typically don’t result in direct benefits. They do however result in widespread benefits. Charles Ponzi for example, now named for the technique, defrauded investors in the 1920s by using new client funds to pay off old client returns. A scam that eventually imploded and lead to increased regulation against securities fraud. The innovation in legislation was made due to an error in the laws guarding against fraud in markets.
Exaptation
When we reference exaptation innovation, this is refereeing to innovation that was done by leveraging or latent effects of pre-existing technologies. I think over the past 60 years, exaptation innovation has often been the civilian use of government developed tech, like the internet, 3-D printing, GPS, Search engines, AI and speech recognition. Generally, all the major technology firms today are using tech created by the government but repurposed for consumer use. In the finance space, a big one is the use of blockchain in the form of transactions. Initially purposed for sending illicit monies, such as arms or drug deals, where the seller and buyer wanted to stay anonymous. Has now evolved to more commercial uses due to the speed and security of the transactions.
Conclusion
Most innovation, at its core is a process of trial and error. Sometimes in a silo and purposeful, sometimes messier and a true ah-ha moment. I think in Finance, innovation is much more purposeful than other industries, as innovation in money only comes from three places: New ways to leverage things (hedge funds), new ways of securitizing things (sub-prime mortgage), and the regulations that come when the first two innovations blow up. And they always blow up at first, because innovation generates money and will always seek its natural eclipse as the crowd piles in.
References:
Chelsom, P. (2001). Serendipity. Miramax.
Beltaqui, A., Rosli, A., Candi, M. (2020). Exaptation in a digital innovation ecosystem: the disruptive impacts of 3D printing. Research Policy, Volume 49, Issue 1. https://doi.org/10.1016/j.respol.2019.103833
Tidd, J., & Bessant, J. R. (2020). Managing Innovation: Integrating Technological, Market and Organizational Change, Enhanced Edition (7th ed.). Wiley Global Education US. https://coloradotech.vitalsource.com/books/9781119713197
Van Duyne, J. (2022). Accidental Inventions (U4IP1). Blogger.com. https://www.blogger.com/blog/post/edit/preview/7241525362154854567/70472161213724625
Weber, B. (2019). 7 amazing inventions discovered by mistake. Big Think Magazine. https://bigthink.com/the-present/accidental-inventions
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