Path of genius and innovation management

In today's business realities, we often wonder how there are unexpected changes in the global economic environment and cannot find an explanation. Many financiers are ready to sell his soul to get information about future changes on the market. Economic analysts, scientists, as well as fortune‐tellers and extrasensor with vary success trying to predict our economic future. Most of us do not know, to realize the future, it is necessary to understand the past.

Common rules of innovation management based on the works of George Doriot, Harvard professor and one of the founders of the famous French business school INSEAD. Doriot developed a theory of management and financing of innovation, based on the following principles: technology innovation, financial investment instead significant share of company, a strong team of enthusiasts, value added strategy and exit plan. To implement his theory in practice, Doriot founded American Research and Development Corporation. Thus began the era of alliance of scientific and technological ideas and advanced capitalism. Doriot brought their companies hundreds of millions of dollars in profits that not always reflected in his own financial well‐being. As a genuine pioneer and true genius, he met fierce resistance to government agencies, financial institutions and their own colleagues. Nevertheless, the Doriot’s work, the Father of venture capitalism has proven itself. The first VC fund, “David and Rock achieved for its investors $ 100 million in return for 3 million of invested capital. Economic model of venture capital funds as instrument of management and financing of innovation used for more than 50 years, a full economic cycle, according to the theory of Kondratiev waves.

History of another genius, a Russian economist Nikolai Kondratieff, is no less interesting. In the middle 20 years of the twentieth century, Kondratiev proposed a theory that economic cycles of economic development follow each other every 50‐60 years. These cycles generated by innovation. Entrepreneurs pursuing innovative activities during the upward wave and shifting the economy above equilibrium, provide a basis for technological rents and, consequently, the well‐being. However, technological rents are reduced, as previous innovations become established practice in economic life. Therefore, the cycle is completed, giving rise to a new cycle. Unfortunately, Kondratiev, who lived in Russia during the
Stalinist period, failed to ensure reliability to his theory in practice: in 1928, he was arrested for promoting of anticommunist ideas, and executed in 1938. Nevertheless, for almost a century, despite all the doubts, the theory of Kondratiev has proved as absolutely true. Thus, we can see that genius economic theory capable of predicting the peaks and the bottoms of the world economy at present and the future, even if they developed many decades ago. Cycles of economic development according to the theories of Kondratiev and his follower, an Austrian‐American economist and political scientist Joseph Schumpeter as follows:
1 cycle ‐ from 1803 to 1841‐43 years .- Cotton‐based technology: spinning weaving; atmospheric
stationary steam engines replaced by high pressure engines, cast and wrought iron, canals
2 cycle ‐ from 1844‐51 to 1890‐96 years .- Age of steam railways and steam shipping, heavy industry, first inexpensive steel, machine tools, telegraph, animal powered combine harvesters, etc. Diffusion of interchangeable parts. Development of petroleum and chemical industries. Beginning of public water and sewer systems.
3 cycle ‐ from 1891‐96 to 1945‐47 years. ‐ Steel, electric motors, electrification of factories and households, electric utilities, aluminum, chemicals and petrochemicals, internal combustion engine, automobiles, highway system, mass production, telephony, beginning of motorized agricultural mechanization, radio.
4 cycle ‐ from 1945‐47 to 1981‐83 years. - Consumer goods, semiconductors, business computers, plastics, synthetic fibers, fertilizers, television and electronics, green revolution, military‐industrial complex, diffusion of commercial aviation and air conditioning, beginning nuclear utilities.
5 cycles ‐ from 1981‐83 to about 2018 (estimate) ‐ The development of electronics, robotics, computer, laser and telecommunications equipment. Beginning age of fiber optics, Internet, personal computers, wireless technology, on line commerce, biotechnology
6 cycles ‐ from ~ 2018 to ~ 2060 (projected) ‐ The onset of the technological singularity, which not
should be analyzed and forecasted today. The era of nanotechnology and artificial intelligence.

Singularity theory arose, of course, much later than the Kondratiev cycle, but unambiguously fit into the rules of cycles. Proponents of the theory of technological singularity believe that if there is fundamentally different from the human mind (posthuman), the fate of civilization is impossible to predict, based on the human (social) behavior. This theory has more related to futurology, than to traditional science, but in this era of rapid development of technology it is becoming more relevant than, well‐known to us, the analytic theory. The path of genius economy leads us to the following conclusions:

• The development of innovations is subject of certain sequenced rules. Knowledge and proper use of these rules allows us to predict the likely scenarios for the World economy.
• Unusual theory, despite the doubts and resistance, often might be proved in practice. Smart investors, right using the new theory can maximize profits and have a strategic advantage over other players.
• The existing rules of the game will change. In next future a classics scheme funding and management of innovation, like VC will becoming obsolete. Likewise, the Doriot’s theories mi ghtbe reviewed in the coming years. In addition, it is possible that the development of new approaches to innovation will be developed in emerging markets like Russia or China. Then these countries would have higher growth of the economy, which could make significant changes to the global economic map.
• Singularity theory requires further study, only by scientists, but by the financiers and entrepreneurs. Therefore, in the next decade we are entering a new economic cycle, which would make significant changes in the rules of the game on the world economic space. While this is a theory, but in the coming years we will see it in practice.

Ofer Vexler, MBA, CPA