We live in an agile world. According to a study by the Massachusetts Institute of Technology (MIT) and the University of San Diego, information doubles every 9 months and according to the World Economic Forum, the half-life of knowledge has fallen to just 5 years. It’s hard to imagine that a business can persist without innovating and continually adapting to new trends and emerging technologies.
According to the McKinsey Global Institute, global investment in innovation and research and development (R&D) grew by around 5% a year between 2013 and 2018, reaching US$1.7 trillion in 2018. In addition, globalization and digitalization allow companies to access talent and resources around the world, creating an environment conducive to innovation. Even so, innovation is still in its infancy: a Deloitte study showed that, in 2018, only 17% of American companies said they had an effective innovation strategy. In addition, regulations and trade barriers can create obstacles to innovation, especially for small businesses.
Innovation is inevitably risky. A 2018 survey by the Boston Consulting Group showed that only 1 in 3 company innovations are successful, and this makes many companies risk-averse, even if they say otherwise. a survey carried out by PWC in 2019, shows that 78% of companies believe that innovation is important for the success of their company, but only 25% of them say they have an effective innovation strategy.
In the global “Innovation Benchmark” survey carried out by the McKinsey consultancy, around 60% of companies say they face difficulties in their innovation efforts, and only 20% of companies consider themselves to be efficient in innovation. Furthermore, according to a Harvard Business Review study, around 75% of companies that innovate fail to monetize their innovations. This data suggests that there is a high risk of innovation failure and that many companies may not be prepared to deal with this risk.
But those who choose not to take the risk of innovation incur another risk: that of being put out of business by a competitor.
However, the risk of doing nothing is perhaps more difficult to measure, which is why many companies remain where they are until it’s too late. A survey carried out by McKinsey & Company found that around 75% of the companies that were among the market leaders in 1995 were no longer there in 2015. Another survey, conducted by Innosight, showed that the average lifespan of Fortune 500 companies has fallen from 75 years in 1955 to less than 15 years today. This data points to the importance of companies remaining innovative so as not to be overtaken by competitors and excluded from the market.
The affair with innovation is therefore one of love and hate. They would rather not have to do it, but they can’t help it. Bad with her, worse without her.
In the knowledge economy, it’s hard to imagine innovation without scientists.
The scientific method is the best problem-solving tool created by humanity to date and a scientist is an individual who, regardless of their area of knowledge, has mastered the scientific method and its application. According to a study carried out by the US National Science Board (NSB), around 80% of patents registered in the US have at least one inventor with a background in science, technology, engineering or mathematics (STEM). In addition, a Thomson Reuters survey showed that between 1996 and 2015, scientists and engineers led the way in patents filed worldwide, accounting for around 60% of patents. These data suggest that the scientific contribution is fundamental to the development of new technologies and innovations.
But academia is not the most suitable place for innovation. And especially in Brazil, it is not prepared for this. According to a 2019 survey by the European Patent Office (EPO), Brazil ranks 39th among the countries with the most patents filed, although Brazilian universities rank first in terms of the number of patents filed. Even so, these inventions generate little revenue for institutions, as licensing is even lower: according to a 2017 survey by the Brazilian Innovation Agency (Finep), only 2% of patents filed in Brazil are licensed.
Nor would industry be the most suitable place for innovation, although there are many industries that innovate. Industry is characterized by scale production, which requires mature, well-established and controlled processes; for markets, the same. Innovation requires constant interaction, inventing things, revising methods. It requires flexibility, agility. Room for testing and failure. None of this is welcome in industry.” According to a survey carried out by the Brazilian Micro and Small Business Support Service (Sebrae) and the Brazilian Institute of Finance Executives (Ibef) in 2020, only 15.5% of Brazilian companies consider themselves innovative, and most of them find it difficult to implement innovations due to a lack of resources and training.
That’s why, all over the world, innovation takes place mainly in small companies. According to a study carried out by the Organization for Economic Cooperation and Development (OECD) in 2018, around 60% of small and medium-sized enterprises (SMEs) are responsible for around 85% of the new jobs generated by innovation in the world. What’s more, according to the Global Innovation Index study published in 2020, small companies are responsible for around 34% of patents registered worldwide.
In Brazil, however, small technology-based companies are a recent novelty and our innovation ecosystem is not yet fully structured to support them. The innovation law in Brazil is the Innovation Law (Law No. 10.973/2004), which was regulated in 2005. The angel investor law (Law No. 13,964/2019) was enacted in 2019 and the startups law (Law No. 14,129/2021) was enacted in 2021. According to Startup Genome’s “Global Startup Ecosystem Report 2021”, Brazil comes 17th in a ranking of global competitiveness of startup ecosystems, behind countries such as the United States, China, India, the United Kingdom, Germany and Canada. The report also highlights that Brazil has one of the lowest growth rates of technology-based startups among emerging countries and a low amount of investment in venture capital. In addition, the country has a low number of incentive programs and public policies to support the development of startups, compared to other countries.
Incentives for innovation in industry, on the other hand, are more mature. According to data from the Ministry of Economy, the Good Law (Law 11196/2005) and the Sector Funds (such as FINEP and FNDCT) have already generated around R$20 billion in investments in R&D and innovation since their creation in 1997. According to the 2019 report by the Brazilian Agency for Industrial Development (ABDI), these funds have contributed to increased investment in R&D by Brazilian companies and an increase in the number of patents registered in the country. It has also been important for strengthening national production chains and developing cutting-edge technologies. Perhaps that’s why in Brazil we have created the expectation that the responsibility for fostering innovation lies mainly with industry.
However, industry investment in R&D in Brazil is modest. According to data from the Brazilian Institute of Geography and Statistics (IBGE) from 2019, investment in R&D in Brazil was around 1.2% of GDP. However, much of this investment has been made by the public sector, such as universities and research institutions, rather than by the private sector. According to data from the Brazilian Institute of Geography and Statistics (IBGE), investment in R&D in the industrial sector in Brazil was around 0.5% of GDP in 2017. In addition, data from the National Petroleum, Natural Gas and Biofuels Agency (ANP) shows that Petrobras is responsible for around 70% of R&D investment in the oil and gas sector in the country. However, it is important to note that this data may vary according to the source and the time period evaluated. According to data from the Brazilian Innovation Institute (IBRINN) for 2018, Petrobras invested around R$1.5 billion in R&D, which represents around 20% of the total invested by Brazilian industry.
According to data from the Ministry of Mines and Energy, in 2019, electricity concessionaires and permissionaires invested around R$1.3 billion in R&D projects, which represents around 0.5% of the sector’s gross revenue. According to the National Petroleum, Natural Gas and Biofuels Agency (ANP), the special R&D clause in oil and gas concession contracts in Brazil, regulated by ANP regulation 33, has generated around R$1 billion in R&D investments annually. However, it is important to note that the effectiveness of these investments in terms of generating new knowledge and technologies is still a matter of debate in the academic literature.
How could we improve innovation in the country without the need for major changes to the infrastructure and legal framework, given that the current resources and regulations are already considered minimally sufficient?
One way to increase innovation would be to promote more effective communication between academic scientists and industry professionals. The place where this communication takes place is not so important, whether it’s at university, in startups or in industry. However, for this communication to be successful, it is essential that scientists and industry professionals better understand the needs, objectives, challenges, incentives and limitations of each party.