New Developments in Evolutionary Innovation

The publication of ‘An Evolutionary Theory of Economic Change’ by Nelson and Winter has had a major impact on economics and related fields such as innovation and strategy. All of these fields have developed owing to recent re-examinations and extensions of evolutionary theory. A paradigm that underlies several studies in this tradition is the concept of neo-Darwinian evolution—the idea that the unit of the evolutionary process (e.g. a technological artefact) is subject to a dynamic of variation, selection, and retention leading to adaptation to a predefined function. This book refers to the frameworks of punctuated equilibrium, speciation, and exaptation, which, despite their significant influence in evolutionary biology, have been reflected only partially in evolutionary approaches to economics, innovation, and strategy. This chapter introduces the book’s aim to fill this gap, and outlines the approaches and perspectives of each of the chapters.

New Frontiers

Evolutionary thinking has grown significantly and has had a profound impact on various fields such as economics, strategy, and technological innovation. An important paradigm that underlies the evolutionary theory of innovation is neo-Darwinian evolution. According to this paradigm, evolution is gradualist and is based on the mechanisms of variation, selection, and retention. Starting from the 1970s, new theoretical advancements in evolutionary biology have recognized the central role of punctuated equilibrium, speciation, and exaptation in evolution and of Woesian dynamics. However, despite their significant influence in evolutionary biology, these advancements have been reflected only partially in evolutionary approaches to economics, strategy, and technological innovation. This chapter reviews these advancements and explores their key implications for innovation, such as the role of serendipity and unpre-stateability leading to disequilibrium in economics systems, and the importance of adopting an option-based logic during the innovation process.

On The Origins of The Airframe Revolution

The airframe revolution was the greatest development in aviation history after the Wright brothers, marking the advent of the modern dominant design in aerostructures, namely, the all-metal monoplane, which is still largely in existence. Therefore, the importance of the airframe revolution can hardly be overestimated. Nonetheless, its origin remains poorly understood. The common opinion is that the development of new materials and scientific advancements were the drivers of the transition. However, the historical record tells a different story. This chapter demonstrates that an event of ‘modular exaptation’, namely, the design of the Fokker D.VIII fighter, initiated the revolution in 1918, several years before its recognized inception. This evolutionary interpretation reconciles the gradualist Darwinian vision with the discontinuous character of radical innovation. The Fokker D.VIII case study suggests that detecting technological exaptations ex ante is possible and can provide firms with sustained competitive advantage.

Extended Cognition and The Innovation Process

Innovations advance into the ‘adjacent possible’, enabled and constrained by the current state of the world, in a way that is unpredictable and not law-entailed. Unpredictability is the hallmark of the idea that innovation processes are contingent and embodied in the interaction between individuals and artefacts in the environment. In this chapter, we explore the cognitive and behavioural factors involved in exaptive innovation processes by using the notion of ‘extended cognition’. Extended cognition builds on the hypothesis that cognitive processes are not limited to the brain but also extend into the physical world as the objects of the environment facilitate, integrate with, and even constitute specific cognitive processes. We argue that exaptive innovations can be better understood by focusing on practicality and procedural knowledge from an extended cognition perspective. Artefact manipulation is not merely pragmatic but also epistemic as it enables specific reasoning processes that lead to the discovery of new uses.

A Non-Predictive View

One of the central tenets of evolutionary thinking in economics, strategy, and innovation is that economic systems are continually evolving, out of equilibrium, owing to endogenous factors, such as technology, which is also intrinsically evolutionary. This view contrasts with that of neoclassical economics, which assumes the existence of equilibrium. In this chapter, we review some recent debates that show how the neoclassical notion of equilibrium traces its historical roots to classical physics, such as the first law of thermodynamics in a closed system. In reality, as indicated by these debates, economic systems are open, continually exposed to a growing diversity of technologies and artefacts and are inherently evolving out of equilibrium. A concept that acquires particular importance is that of exaptation because it implies a multitude of functions and uses that are latent in technologies and artefacts and cannot be simply pre-stated, and this is a possible source of disequilibrium.

From Trees to Networks

Empirical models are very common in evolutionary approaches to economics, strategy, and technological innovation, particularly those models based on large samples of patent data. Patents are legal documents that protect technologies from imitation when there is novelty and non-obviousness with respect to a prior art. Dependence on prior art means that patents cite each other and, by implication, patent databases take the form of large citation networks. Despite this implicit network nature of patent data, most current studies in innovation tend to rely on patent-based measures that exploit information within the citation network only at the local level. Nevertheless, a new stream known as ‘connectivity analysis’ is slowly emerging in the patent literature. From an evolutionary point of view, this stream is of particular importance because of its approach to patent data from a global—rather than from a local—network perspective. The aim of this chapter is to review these new directions and propose some ideas for how they could be used for modelling some of the key evolutionary phenomena discussed in this book.

Organizing for Unprestateability

As discussed in the previous chapters, technologies and artefacts embody multiple latent functions and uses that emerge contextually and serendipitously in ways that cannot be easily pre-stated. These multiple functions and uses can be seen as multiple growth options embodied in the technology. This suggests a point of contact between new evolutionary theories and the theory of ‘real options’ and more recent versions of it, such as the theory of ‘redeployability’ of resources and capabilities. At the same time, given that new functions and uses cannot be simply pre-stated, these options must not be seen in a classical sense but rather as ‘shadow options’ that emerge gradually out of their latent state. The aim of this chapter is to explore these connections. We first argue that unpre-stateability urges us to adopt option-based logic during the innovation process. We then propose a shadow-option-based approach to the emergence of new functions and uses, followed by a discussion of the implications for competitive advantage and for the generation of options in an organizational context.

Conclusions

We began this book by highlighting that, since the 1970s, several important developments have profoundly changed the field of evolutionary biology. Of particular interest here are the concepts of punctuated equilibrium, speciation, and exaptation and their centrality for understanding the emergence of novelty. Despite their influence in evolutionary biology, these advancements have received only limited attention in evolutionary approaches to economics, innovation, and strategy. By reviewing and contextualizing these advancements within the current evolutionary debate in economics, innovation, and strategy, our goal was to show how they can shed new light on some of the key assumptions of evolutionary theory, such as the idea that economic systems are in a continual state of disequilibrium. In much of the existing literature, for instance, innovation is treated as an activity that aims to respond to a direct type of question: given a problem, what is the solution? This implies that a new technology is usually ‘a working architecture of parts and modules that performs a specific function that permits the satisfaction of a predefined need’ (...

The Search Function and Evolutionary Novelty

Search is a pervasive phenomenon of biological and economic life. But search is hard, especially in uncertain and dynamic environments. In this chapter we directly address the hard problem of search. We develop a generalized form of question-answer probing as a way of simplifying search, with implications for understanding biological and economic novelty. Question-answer probes are organism-specific search images and ‘search-for-functions’ that direct awareness. This form of search simultaneously constrains and enables search spaces in counterintuitive ways. Question-answer probing not only illustrates relatively mundane search activity (such as foraging for food or looking for a lost item), but also provides the foundation for explaining the emergence of both evolutionary novelty and economic value. An organism’s (or organization’s) directed search (especially the search for function) supplies a key mechanism for realizing adjacent possibilities and niches. Our approach contrasts with extant evolutionary, computational (such as serial processing or Bayesian priors and updating), and physics-oriented approaches to search, which lack organism-specific mechanisms. Our approach also contrasts with popular, physics-oriented conceptions of mind, organism, and consciousness. Throughout the chapter, we offer biological and economic examples to illustrate our points. We conclude with a discussion of the implications of our arguments for economics and innovation.

The Cultural Evolution of Creative Ideas and Social Innovations

We apply complex systems science to the study of social systems and show how a complex-systems-inspired theory of creativity, which is referred to as ‘honing theory’, provides insight into social innovation. We propose that creativity and social innovation are processes of self-organization that yield a lower-entropy state in worldviews, which are self-organizing webs of understanding. This allows us to offer a novel perspective on the evolution of technology, the role of creativity in cultural evolution and the manner in which creativity drives innovation in social systems, such as the economy. We also introduce creative destruction as having metaphoric relevance for a social system transition from entropy to negentropy, and offer a social innovation example addressing economic collapse and resilient reorganization. We conclude that concepts from complex systems theory, and particularly entropy, shed light on both creativity and social innovation and further our understanding of how innovation affects social systems, such as in cultural and economic change.