Innovation is a powerful word. It attracts a premium and denotes superiority, competitive advantage and potential. It is considered universally positive. It is expensive. It is an objective, an approach and a consequence. It is something you can recruit, something you can learn, something you can cultivate and something you can buy. It is a word used in the business world to describe just about any concept, product, service or strategy that is potentially, currently or retrospectively commercially advantageous, but evidently different than competing offerings. It simultaneously imbues both a sense of mystique and enigma. Mystique, however, is just an exciting word for ambiguity and enigma is mystique with some degree of profundity. Innovation is ambiguous and anything that is ambiguous is economically meaningless.

Over the last two decades innovation has become a by-word for the accumulation of organizational complexity through technology, design, philosophy and entrepreneurship; all ambiguous concepts in their own right. Innovation has become one of the most indefinite words in today’s business lexicon rendering the actual concept almost redundant and the practice of it nearly impossible. The definition of “Innovation” lacks consensus and if we can’t define it, we can’t refine it.

Most people would accept that a failure to clearly establish the fundamentals of a concept would inhibit or diminish its development. It would be difficult, for example, to build a car if we couldn’t agree whether or not a car had to be motorized or needed more than two wheels. Any conversation about any topic requires consensus understanding and acceptance of the subject matter prior to engagement. For “Innovation” to be functional, we must first define it.

Academics, CEO’s, strategists, politicians and entrepreneurs have often tried to define the word in its 21st century context. While they have done a fair job representing the manifestation of innovation (Creating something new that is of value etc), they have failed to establish an understanding that reflects the fundamental human inclination towards innovating.; they fail to capture the “why”.

People have innovated for millennia but we have rarely stopped to question why. A century and a half ago people travelled by horseback and relied on gaslights and candles to illuminate the nighttime. As a result the distance people could travel and the circumstances in which they would travel was limited. Additionally, the workday was far shorter and social activities were significantly curtailed. Consequently the range of activities that an individual could enjoy was reduced and society as a whole was less satisfied in the aggregate. These two simple constraints affected everything from urban planning, to social architecture, to distribution of wealth, to equality to governance and everything in between.

Through the creation of cars, a truly innovative concept, people had more employment options, which forced up wage rates leading to increased equality. It also meant there were more social, commercial and cultural options available to them, which improved trade relations and reduced cultural friction. The introduction of electricity meant safer streets, longer working hours, new industries and significantly more time every day to be productive.

In both examples innovation allowed humans to achieve more in less time. This then translated into higher levels of satisfaction and value in society as a whole. This is a consistent theme across all great examples of innovation; the ability to achieve more with less. The consequence being that humans will always push for more innovation because it allows them to increase the level of utility they derive without having to expend additional effort through the reduction of friction in the transactional experience.

Progress, it seems, is innately expected; long-term stagnation and regression seem like environmental abnormalities. Across all living things, evolution appears to be essential for survival and the rate of that evolution will determine environmental domination. There is ample evidence to suggest that humans have augmented that evolutionary process through innovation. The increased accumulation of knowledge through increasing convergent populations and longer lives has automatically led to technological advancement through interaction, cooperation and shared insight.

Innovation then, is the process of reducing friction between two points resulting in the derivation of increased utility for a commercially optimal number of end users or stakeholders. Any product, process or service that improves the journey or makes it easier to get from A to B is innovative. Innovation helps us to maximize the utility enjoyed by individuals and consequently increases aggregate satisfaction across society. By increasing aggregate satisfaction per individual we increase the impetuous for trade and diplomacy whilst simultaneously decreasing the likelihood of conflict, which in turn facilitates further cultural progress. Innovation then, is the process of maximizing both real and potential utility by decreasing transactional friction.

Defining innovation allows us to better understand how amalgamated human motivation and ambition is likely to manifest itself in technology, governance, economics and society in the future. Over the next number of articles I will look at how innovation has an observable curve, and that curve is the most linear and understandable indicator humans’ posses of what might happen next because it acts as a proxy for the aggregate of all of our ambitions, our hopes and our dreams. It is, in turn, the role of financial services to facilitate the achievement of those objectives in a manner that imposes the least possible harm to the user. A task that financial services have heretofore failed to accomplish.

Innovation 1. Defining Innovation was originally published in #hackingfinance on Medium, where people are continuing the conversation by highlighting and responding to this story.