Innovation, sustainability and competitiveness

Submitted by Bruno Santos Pimentel on Thu, 08/10/2017 - 14:10

The idea that innovation, sustainability and competitiveness go hand in hand is not at all new. Robert Solow i, who won the Nobel Prize in Economics in 1987, has proposed that economic growth is a function of the available labor force, accumulated capital, and a "productivity factor." Work and capital were able to produce goods (or more capital), a part of which should be reinvested in productive capacity. But work and capital presented decreasing gains in scale: that is, over time it took more work and more capital to produce ever-smaller increases in results.

The only way to deal with diseconomies of scale is through the productivity factor, which we know today as technological innovation. Advances in products, processes, and business models are able to positively shift production levels, generating higher levels of results but still constrained by the inescapable limitation of diminishing returns – which today demands new cycles of technological innovation to sustain expectations of growth in production. Advances in products, processes and business models would be able to shift production levels positively, generating higher levels of results, but still constrained by the inexorable limitation of decreasing gains - which in the future would require new cycles of technological innovation to sustain growth expectations of production.

Of course, like any good model the Solow model greatly simplifies reality, but it has been able to convey important insights regarding the success factors of a given organization. Reliable numbers exist to illustrate this argument.

The Global Innovation Index (GII) is an annual report jointly published by INSEAD, Cornell University, and the World Intellectual Property Organization that seeks to highlight the elements that influence capacity for innovation in a given country.

The Global Innovation Index score represents the evaluation of objective criteria regarding the resources available for innovation – institutions, human capital, infrastructure, market sophistication – and their respective results with regard to creativity, knowledge, and technology.

In the 2017 edition of the GII, among 127 countries evaluated, Brazil is stagnant in 69th place, after dropping more than 30 places since 2010. Like other Latin American countries, Brazil presents relatively good numbers for inputs for innovation, like investment in research, scientific production, and market scale and sophistication, but still faces serious difficulties in producing innovative results having significant quantity and impact.

But perhaps the most important evidence from the Global Innovation Index is the strong relationship between the capacity for innovation of a country and its GDP per capita: statistically, 64% of this ratio can be explained by the data evaluated.

Innovation, sustainability and competitiveness


The GII analysis suggests that a strong balances is needed between the strength of public and private institutions, the quality of human capital, the strength of basic infrastructure, including health, technology, and education, and the sophistication of the market and of the business environment so that the results of investments in innovation can be obtained efficiently and result in benefits for society, completing a virtuous circle of development.

In other words, innovation leads to competitiveness, which leads to more innovation and consequently more competition... 

Of course, another index of interest in this discussion is the World Economic Forum's Global Competitiveness Index (GCI), which defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of an economyiii. The GCI takes into account more than one hundred indicators related to institutions, macroeconomics, education, health, market efficiency and sophistication, technological readiness and, once again, innovation.

In the 2016-2017 edition Brazil was in 81st place, again with a significant drop in the past few years, as evidenced by serious problems in the political and economic environment, but also by the deficit in productivity and education.

However, it is essential to consider that any development must be sustainable in all its dimensions: economic, social, and environmental.

To reinforce the argument for environmental sustainability, we can draw on one more important source: the Global Sustainable Competitiveness Index (GSCI), which evaluates a series of indicators organized on the pillars of Natural Capital, Social Capital, Resource Management, Sustainable Innovation, and Governance Capability.

Among the 180 countries evaluated in the 2016 edition, Brazil occupies 41st place, reinforced primarily by the abundance of natural resources; however, this position is still well short of that of the Scandinavian leaders, which can be explained by the relative lack in Brazil of practices of more structured management of these important resources.

The GSCI also suggests a relationship between sustainable competitiveness and the level of wealth of the countries evaluated (32% of the relationship could be explained by the available data), but with an important difference: the long time needed for investments in sustainable development to return in the form of effective benefits for the economy and for society. As a Chinese proverb says, "the best day to plant a tree was 20 years ago; the second best day is today."

The calculation methodology and GSCI numbers demonstrate some very important points:

  • there is a direct connection between investments in research and innovation and economic development;
  • the exploitation of natural resources can bring economic benefits in the short term, but invariably entails reducing the potential bases for sustaining future growth;
  • the greater the efficiency of resource usage, the greater the competitiveness.

Investing in projects, initiatives, and technologies with a focus on innovation and sustainability is undoubtedly challenging – scarce resources, relatively long maturation horizons, technological and market uncertainties... delicate issues we will discuss again in another article.

However, as discussed here, such investments have the direct potential to strengthen competitiveness, contributing to the building of wealth that, if well managed, will bring even more competitiveness and more sustainable development to our organizations and to our country.

Viridis products help our customers' operations become ever more efficient in the consumption of energy and utilities, which has positive impacts on the economies and communities where these operations take place – in economic and social terms, through the promotion of employment, income, and quality essential services; in environmental terms by the reduction of emissions, waste, and consumption levels of both renewable and non-renewable natural resources.

Product Manager, Viridis

Viridis Product Manager, with more than 20 years of leadership in innovation and technology programs in large industrial organizations. PhD and masters degree in computer science from UFMG, bachelor’s degree in mechanical engineering, innovation and sustainability fellow at Sloan School of Management, MIT. Extensive experience in project management and open innovation teams with industry, academia, and startups, applying digital technologies and analytics to challenges in productivity, strategy, and sustainable development.

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