Innovation strategy as journey through economic airspace
A companion paper An Economic Trajectory proposes an economic space pervaded by a potential field, which is traversed by simple trajectories that are highly idealised. They correspond to physical trajectories of a thrown ball that are a direct consequence of its initial inclination and the energy input at launch. This is equivalent to assuming that enterprise investment in innovation and production is set initially and the subsequent life cycle of a product is determined. This is clearly unrealistic. More complex and combined trajectories are needed.
The trajectory of a commodity through an economic space must be different to that of a thrown ball. There will be strategic adjustments of investment in innovation and production and in pricing as the market for a commodity develops. However, there is still the need to overcome the resistance of the potential field that acts along the innovation axis to constrain the creation of value. A commercial strategy is then equivalent to a flightpath of an airborne vehicle that is piloted through this economic space. To chart this flightpath we need to split the Information Transfer Function kit(dI/dt)2 into its two primary components, as envisaged in A Labour Theory of Value Creation:-
dIx/dt for the component of information transfer in product replication
dIy/dt for the component of information transfer in value creation
where kit(dI/dt)2 = kit(dIx/dt)2 + kit(dIy/dt)2 as shown graphically below.
Uncoupling of the rate of information transfer into its Replication (x) and Innovation (y) components
In the mechanical trajectory kinetic energy becomes potential energy which returns in time back to kinetic energy. In the economic trajectories, the kit(dIy/dt)2 component of the investment in innovation becomes the value of the goods, up to a maximum point beyond which, without a further boost of investment, this value like the ball will begin to fall, ultimately to zero. In the economic space such a decline is indicative of a loss of potential energy from the Value Surface through the Sale Events which essentially transform this potential into income for the enterprise. This transformation of value into an information outflow as income may be interpreted as a natural forgetfulness of markets of previously high perceptions of value.
One can observe that for the simple trajectories considered in An Economic Trajectory the initial inclination of 45 degrees provides a balance of innovation and production that gives the greatest productive reach. However, commercial organisations can change the actual amounts of investment into innovation and production at any time. An advertising campaign can boost perceptions of value of a product well after it has been launched. Effectively, more realistic scenarios are composites of simple trajectories with appropriate mid-flight adjustments of energy (investment) input and inclination.
As an example, the figure below shows the effect of such an investment adjustment part way through a simple trajectory. At this intermediate point more emphasis on production, as shown by the 28 degree trajectory, can increase the productive reach of the subsequent flightpath. More generally as a product matures there is a shift from innovative activities to investment in production in a typical product life cycle.
Family of economic trajectories with the same invested capital from a high position, showing potential benefits of being a fast-follower
Before any product launch investment is entirely consumed by innovation with a creation of value that is graphically represented by a vertical trajectory. Then, typically, in the premium phase of a product life cycle a high price is set by the producers. This effectively sets a high inclination for the economic trajectory of these innovative products. In these steepest trajectories innovation still predominates though now with some transfer of information through replication. There are relatively few product sales at a high price. Investment into the business exceeds income through sales, so that the product soars into the economic space.
At some point the price of premium goods will be reduced prompting a move to a less steep orientation for the economic trajectory. A trajectory pitched at 45 degrees is equivalent to the conditions under which a maximum income is expected. This point corresponds to the commodity phase of the product life cycle. Innovation and production activities are balanced. The business has been launched and has reached its cruising height.
Reducing further the inclination of a trajectory with further reductions in price is associated with the maturation of the commodity. Those trajectories that are initially pitched at less than 45 degrees, as would be the case with a mechanical projectile, traverse less distance before returning to zero value. Sale Events will still occur but at a low price. Information replication through production now dominates, but this cannot last long without an adequate return of investment. The descent phase of the economic trajectory is underway.
The passage through a product life cycle can therefore be charted using a composite trajectory by joining the simple trajectories as shown in the figure below. In this way consumers acquire the commodities at a price commensurate with their individual valuation, potential energy retained within the raised Value Surface is largely converted through Sale Events into income and a return of investment.
Correlation of product life cycle phases and economic trajectory
The product life cycle then follows a sequence of economic trajectories, with the sequence itself being a consequence of the price reduction as a commodity matures in order to maximise return on invested capital. Within each of these trajectories there is a tendency for value to diminish, with the consumer inclined to forget the value earlier attributed to the commodity. Each trajectory that begins with a financial investment also ends with a financial return on that investment, just as the physical trajectory starts and ends with a physical kinetic energy.
The story of the economic trajectory ends in a final principle. For commodities that are made to enhance quality of life, they are on a flightpath that is fuelled by human endeavour. Despite this endeavour the journey will be very short without innovation. Innovation gives height to the economic trajectory and distance to any associated production. Innovation creates value but for an adequate return on investment the commodity life cycle must pass through the phases displayed above. Without the premium phase (A), trajectories (B) and (C) are unlikely to follow.
We must conclude by recognising that innovation needs inequality to thrive.
 A fast-follower commercial strategy seeks to detect as early as possible an innovation that has been successfully navigated its way into a favourable economic trajectory. From this higher vantage point the fast-follower might launch a competing product, on a quite different trajectory. For the fast-follower, time is of the essence. The economic journey is already underway and it will be far less profitable to enter the competition late during the descent phase of mature goods. Also, figure (3) does hint that some limited innovation to discriminate the product and make this slightly less me-too can efficiently raise the overall value through the trajectory.
 Such a scenario of large-scale information replication at low value and price may be more sustainable if the replication is achieved at zero cost or that this cost is otherwise subsidised.
 An interesting example is in the social provision of healthcare where equality of supply is an important political and even moral prerogative. Data shows that health systems with less equality (e.g. USA) are more favourable to innovation than those where equality is sought (e.g. UK). Historically, in the latter, early-adopter clinicians have had a freedom to enable innovation to enter the system, but with the increasing power of management with a priority to control costs against an ever rising demand, the opportunities for innovation to improve healthcare outcomes are suppressed. A solution for a politician of sufficient courage and vision would be to attribute innovation itself with a value metric. So innovative commodities would be valued partly on account of their innovative content – that is the angle they are pitched on their initial economic trajectory.