Rethinking Innovation

How can we achieve better results from innovation initiatives? Most of the time we underestimated the real power of effective innovation approaches inside organizations. We have to rethink the way we do it. We must recover it and redirect efforts to make it something more practical, and accurate, that allows us to grow in freedom.


Innovation is something inexorable, something that cannot be avoided, evaded, or stopped. We are all forced to innovate. The context of high uncertainty in which we’re living (pandemic, invasion, technological advance, new generations) is proof that the world we knew no longer exists. This new world is full of imponderables but also a lot of opportunities, and here is where innovation is totally necessary but at the same time becomes the solution to all problems, with extremely high expectations of achieving immediate results.


In this new economy, 9 out of 10 companies have innovation initiatives in their strategic plans. In most cases, these initiatives are related to digitization and artificial intelligence, business model transformation, agile organization, and sustainability.


But 80% of these companies fail and don’t obtain the expected results of innovation. What also happens is that after a while, not only does the interest in innovation initiatives disappear but also «innovation» becomes a dirty word within the organization. Over time, teams become disbelieving and even cynical about these issues.


In the end, we get bad results and an organization undigested by superficiality and false expectations. A very expensive cost, when the intention was radically the opposite.


Many organizations try, but most have a short impact. In many cases, it is just like fireworks. There is also a false or naive position related to these initiatives. “Simulated Innovation”, companies that pretend to change, was published by Sebastián Campanario, a columnist for La Nación in Argentina (2019), or the concept of “Innovation Porn” that data scientist and technologist Marcelo Rinesi commented on at the time. Just as pornography is a genre of fiction, the «innovative script» that many organizations follow is based on a superficial and ultimately ineffective reading of how a change process works.


Why something so necessary as innovation is so difficult to implement? Matt Ridley in his book «How Innovation Works» argues that companies invoke the word innovation in an alarming way and without meaning of what it implies. More than promoting, they end up bastardizing a noble concept as innovation. Many companies do not know how innovation happens, how it is generated, under what conditions, and what is worse, they do not know when the next innovation will occur in their teams.

Innovation is to create greater economic, social, and environmental value for stakeholders through the successful implementation of new ideas and new ways of doing things. What forces influence the attempt to innovate? How can we recover the essential ingredients of innovation?


Show me the money!

The Competitiveness Report prepared by the WEF (World Economic Forum) and the Global Innovation Index published by INSEAD each year, point out something decisive: Without investment, there is no innovation. How much money are we willing to invest to generate different products or new ways of doing things? The reality is very little or nothing. It is true that the costs of innovating fall year after year, due to laws such as Moore’s or the quantum capacity law, but in the end, companies try to generate innovation with little or no resources, both public and private.


According to the World Bank, investment in innovation is below 1% of GDP in most Latin American countries: it is only exceeded by Brazil (1.2%) and the rest are barely around half a point, as is the case with Mexico (0 .49%), Argentina, (0.53%) or Ecuador (0.44%).


And if we talk about patents, the results are worse. Latin America has practically no relevance at all. According to statistics from the World Intellectual Property Organization (WIPO), progress in terms of innovation in Latin America and the Caribbean has slowed down in the last 5 years.


Alejandra Luzardo, Innovation and Creativity Leader at the Inter-American Development Bank (IDB), states that there is a high correlation between investment in Research and Development (R&D) and the number of patents registered. «Since only novel and useful inventions are eligible for a patent, growth in the number of patents is often taken as evidence that an economy is evolving towards innovation.»


If innovation is an investment, what innovation are we talking about?…


Although there are some signs of increased investment in innovation processes, it is not enough. Much more public and private engagement are needed on this point. A window of hope is venture capital investment in Latin America. In 2021 there was an exponential growth in investment reaching 15,000 million USD, 3 times more than in 2019, which was already a record, and 2022 promises to be better.


The power of intangibles


On the other side reports on innovation (WEF and GII) measure only hard indicators of innovation. Investment, publications, and intellectual property patents are some of them. We know they are very necessary to measure properly the impact of inventions and avoid false innovation.


Since the exponential technological growth that we are experiencing, especially since 2008, many sectors have been radically transformed. This has allowed the creation of new business models. Uber, Airbnb, Tesla, Amazon, and Salesforce are some examples of companies that innovated based on their business model.


How do we measure a new and innovative business model? They don’t have an associated intellectual property (patents), they don’t have publications, maybe some R&D, but they do have the creativity and investment (time and resources) to set up a business in a way never thought of before. But creativity is an intangible that is difficult to measure, if not impossible.


You can innovate with intellectual property, or without it. Although Latin America is not practically relevant in the development of patents worldwide, it is in the generation of innovative business models, such as climate change, circular economy, and services for the base of the pyramid.


There is still a long way to go in how we measure the processes and the generation of innovation. There are no tools and methods to measure the intangible. Patents are a source of measurement but are not enough, because they are not the only source for evaluating the impact of innovation.


Gradual connection versus the hand of God


In the biographies that Walter Isaacson wrote about Leonardo Da Vinci and Steve Jobs, he shows how the connection of different disciplines and their gradual interaction over time produce, step by step, connections, and creations that ultimately generate innovation.


The white dove did not land on the right shoulders of Leonardo or Steve and showed them the path of magical illumination, to help Leonardo to create the Vitruvian Man and Steve the iPhone. Innovation is not something sudden, does not happen suddenly.


It is true that Leonardo Da Vinci had a tireless curiosity, careful observation, and a playful imagination. But beyond these abilities that, according to Isaacson, any of us could develop… Leonardo’s brilliant creativity resulted from the intersection of technology and the humanities, especially art and science. He » lost his mind” in the gradual and deep experimentation of those themes.

Steve Jobs radically transformed many industries, connecting creativity with technology and design, he was an obsessive perfectionist who questioned everything and was not completely satisfied until he achieved the best version of what he was creating. The iPhone is not a single creation, it is thousands and thousands of versions of something that has been improving over time.


The gradual connection challenges us directly and asks us: why do we want to innovate? What do we expect from innovation? Because we have an over-expectation with obtaining immediate results. We are deeply obsessed with success; we are more interested in the result than the process. With innovation, there are no shortcuts. If the shortcut were good, the path would not exist. There is no «hand of God» to save us. Gradual is time, interaction, exploration, and being present. How long are we willing to wait for the results of innovation? Are we willing to let ourselves be carried away by the gradual connection?


Open and systemic: Shall we do a hackathon?…


At the end of the Second World War, Vannevar Bush, Dean of the Engineering Faculty at MIT in the USA, stated that the engine of innovation required the association of three forces: Companies, governments, and universities. These «powers» brought great innovations and allowed the United States to prosper economically and grow steadily.


In 2003 Henry Chesbrough, Professor at the Haas School of Business at the University of Berkeley proposed the concept of Open Innovation (Open Innovation) consolidating and expanding the concept of Bush at MIT.


Today we see that innovation must be open, integrating not only the three powers (companies, government, and universities) but also the entire ecosystem (professionals, entrepreneurs, investors, etc.). This does not mean that the competition is not healthy. Enriching rivalries have fueled many of humanity’s great discoveries.


The more we open the innovation processes, the more possibilities of obtaining disruptive results we will have. But there is something very important, we must not forget that the customer or end-user is at the center of open innovation. In many cases this is confusing and entrepreneurs are at the center of the scene. Keep in mind that entrepreneurs are a way to generate new ideas that make life easier for customers and users. They play an important role, but they are a “way to” and not the final goal of a co-creation process.


Open innovation is not a “Hackathon”, or “Innovation Talks”. These incentives are important to mobilize and raise awareness, but they are only the first step. Investor Peter Thiel popularized the concept of 0 to 1 «Zero to One», on how to take that first step to take over the innovation. This great first step is a «Tipping Point», very well explained in Malcolm Gladwell’s book. But when we talk about innovation, the key is how to go from 1 to 100. Make innovation a reality, growing and scaling in a sustained manner.


The interaction and iteration of the innovation movement produce the recombination of «pieces» or concepts and convergence towards the final model. Every idea is a combination of other ideas, and every new technology is a combination of other technologies. The basis of recombination is trust, collaboration, and teamwork, where they often have a different kind of interests.


Open innovation is a long-term commitment of different sectors and organizations to ensure technology transfer to make ideas come true. There is more value outside than inside an organization. Integrating perspectives from different disciplines and interests greatly enrich the process.


The hype versus real metrics: A cruel trade-off


It must be said: The entrepreneurial hype is at extreme levels. You have to have a stomach to bear it. Startups that are valued at 20 or 30 million but don’t sell a single dollar. How can it be? We know that for an idea, however innovative it may be, I would pay you a penny, and for a good execution a fortune (old as Peter Drucker). But there’s a movement of startups that aim at the valuation business and not at value creation.


Maybe these companies that do not sell a penny have a 40 or 50 million exit in the short term, and founders and investors will be really happy. This strategy is very simple: to increase its valuation. Unless we are in the Biotechnology sector where development is long-term and in long phases, in the rest of the cases it would not make much sense, would it?


The liquidity excess, which fortunately was abruptly cut off, means that everything is returning to healthier levels, and that will balance the entrepreneurial hype again and focus them on the road of value creation. With resounding falls in the tech markets of 50%, it is heard out there that the party is over.


On the other hand, there are other types of startups where that aim to create value, have real metrics, grow steadily through a differential value proposition to their clients, standardize processes and automation to be efficient, etc. Focused on going from 1 to 100, rather than from 0 to 1, in this type of company where creativity and innovation find their natural place.


If we analyze the hype of innovation, we could say that it works in a similar way to the hype of entrepreneurs. Roy Amara, director of the Institute of the Future in Palo Alto California, created the “Amara” law on the hype of innovation. Affirming that we tend to overestimate the impact of innovations in the short term and underestimate the impact in the long term.


In short, we need a more balanced, more productive, healthier hype.


Elephants and gazelles


In the ranking of the most innovative companies of 2022 by Forbes, on the top ten there is only one large company: Microsoft, the rests are startups and very young companies: Stripe, Solugen, Twelve, and SpaceX…to mention some of them.


Large companies (with love Elephants) are bad at innovation. Especially in Latin America. They are focused on the exploitation of resources, they are too complex, and hierarchical, with a command-control approach, in many cases based on distrust. The innovation DNA practically does not exist in these companies. There are some cases, but they are exceptions.


Young companies (with love Gazelles) are oriented toward the exploration and creation of new resources. They are agile organizations with self-management skills, where the basis of all is trust. They have in their DNA the ability to create and innovate.


The challenge is not for the elephant to become a gazelle, because that would be utopian. Although it is true that every once in a while, you see elephants with a tutu out there… The real opportunity is to connect and integrate large companies with young ones. There is high complementarity between both genes. One has the ability to go from 0 to 1, and the other to go from 1 to 100.


The integration between large companies and startups is clearly seen in the aggressive growth of «Corporate Venturing» (a collaboration between established companies and innovative startups) in recent years. But according to Josemaría Siota, Director of Innovation & Entrepreneurship at IESE in Spain, 75% of these collaborations do not get the expected results. How do increase the chances of success? Among other actions, it is relevant to define clear objectives from the beginning. Also, diagnose the corporate areas most exposed to disruption and high growth opportunities. Based on data (not intuition), design the Corporate Venturing architecture, which is accompanied by a system of concrete and measurable performance metrics.


Finally, Corporate Venturing is missing a critical point, the letter C from Capital. These initiatives truly become a reality when companies are committed to capital investments in the collaboration process with startups. Corporate Venture Capital or CVC is the ultimate expression of open innovation between elephants and gazelles.


Magic methodologies: Shall we design a CANVAS?


There is a great contribution of tools and methodologies to innovate. From «Change by Design» by Tim Brown, «Ten Types of Innovation» by Larry Keeley, «Disciplined Entrepreunserhip» by Bill Aulet, or «Business Model Generation» by Alex Osterwalder, are just a few examples of very good methodologies published in recent years. years.


The tools and methodologies are necessary but they are not enough. They are some approach exercises. Perhaps the design thinking movement went the furthest, with results in more incremental than disruptive innovations.


Most of these methodologies have a practical approach based on WHAT and very little development on HOW and less on the WHY side. Especially when we need teams to achieve high levels of connection and co-creation. The context in which creation occurs is unique, so it is very difficult to standardize it and “package” it. This is a critical methodologies limitation.


Visionary physician Halbert Dunn published in 1958 that in health, the focus should be less on curing disease and more on finding the causes of health. This was perhaps the first wellness manifesto ever written. The interesting thing about Dunn is that he argued that a person’s well-being is influenced by several factors: his physical, mental, spiritual, and social well-being. When trying to improve well-being, we cannot analyze the factors separately. This integrative vision and how the context influences well-being can be applied in the same way to the innovation process. We cannot isolate the factors that influence innovation: Context, sector, leadership styles, type of organization, and team capabilities.


The last mile of innovation is not structured in any methodology yet. More than ever, we must keep learning how innovation actually occurs.


We need to rethink innovation, redesign it


Innovation is energy focused on the improbable, on what does not yet exist. It is vital energy, clean and open to the unknown. It is produced from the bottom up. We have to rethink how we approach innovation. Recover it and redirect efforts to make it something useful, something real allowing us to grow freely and solve complex problems.


Preparing ourselves for the serendipity behind innovation requires people who are aware and fully connected to the nature that surrounds them. It is an awakening from the inside out. Where the key ingredient is freedom.


Patricio Guitart

Founder of @GuitartPartners y @NewGenVentures

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