Recent years have shown how important the role of innovation is becoming. Large corporations are rebuilding their businesses, and the world's megacities are actively testing and implementing new technologies in order to significantly improve the quality of life for people and open up new opportunities for them.

However, there is still no common understanding of what innovation is. Could a technology or its implementation be an innovation? What environment is favorable for innovative activity and what does it depend on? ICT.Moscow discussed these issues with those who are engaged in innovations today, and tried to figure out what defines innovative activity in the industry, how the COVID-19 pandemic affected it, and what direction it will develop further.

How is innovation defined?

In 2019, the Institute for Statistical Studies and Economics of Knowledge of the Higher School of Economics (ISSEK HSE) tried to systematize the understanding of this type of activity and came to the conclusion that innovation is a process that consists of at least two stages, involving the creation of new technology, as well as its implementation to solve real problems (including commercial).

Moreover, experts practically identify modern innovations with processes where digital technologies are used in one way or another.

If you try to separate innovation in general from digital innovation, then perhaps this is not the most rewarding activity. Most of the innovations that take place in the world are digital in one form or another. Therefore, in part, these are already identical concepts. Of course, there are organizational, cultural, processing, managerial, as well as technological innovations that are not digital. However, the trend towards digitalization and the trend towards innovation go side by side. Therefore, I define digital innovation in much the same way as any other, that is, innovation in which the emergence of digital technologies prevails.

Dmitry Maslennikov

Founder of Disruptive Partners

MIT professor Tom Davenport argues that information technology (which in this case is digital) is at the very heart of nearly all innovation. The influence of IT on almost all industries from agriculture to sports is also traced by the US National Academy of Sciences, Engineering and Medicine. And the widely-cited author of the book “The Age of Innovation” Professor Felix Janszen called innovation the combination of technology and business, the commercialization of science through new goods, services or processes.

The last statement also corresponds to what the interlocutors of ICT.Moscow say. From their point of view, innovation is something already implemented (or being implemented): a product or service that performs some task. Therefore, the emphasis is on the second stage (if viewed in the context of the study by ISSEK), while the first is implied, but not necessarily voiced.

Innovation, generally speaking, is fundamentally new or improved products (goods or services). Separate business processes in a company can also be innovative. To create them, both digital and any other type of technology can be used, for example, neurotechnology. Accordingly, if the product is based on digital technologies, that is, technologies that make it possible to digitize information and provide it in a universally digital form, then this is a digital innovative product, digital innovation.

Alexey Parabuchev

CEO of the Moscow Innovation Agency

Of course, no innovation exists “in a vacuum”: it lives and develops in the environment and in time. This is fundamentally important if we consider the meaning of the word “innovation” that the process must be new.

 At the stage of theoretical and scientific work, we are only getting to the point of use, we outline the paths, not yet trying to implement something, but we rather pose a hypothesis, which is not an innovation yet. Then someone tries a solution, from now on we can talk about innovations. After a certain range of improvements, the solution goes into mass use, thus, no longer being an innovation. Context is also important for innovation. Uniqueness in innovations should be considered in certain markets, countries, in certain conditions.

Anna Polyushko

Head of Analytics at Innovation Laboratory, Moscow DIT

Admittedly, this context is not unique to cities.

If some technology has not been used before in a specific country, in a specific industry, in a specific company, or for some specific purpose within a company, then of course, this is an innovation for a given country, industry, etc. If something did not exist and then appeared, that is an innovation. On the other hand, where was this company when everyone else had already applied one solution or another?

Dmitry Maslennikov

Founder of Disruptive Partners

Dmitry Kurin from MTS explained with specific examples – what may seem like an innovation today, but is no longer it, and what, from his point of view, has innovative prospects.

The technology market is developing, and we see that the once trending models of consumption and business conduct SaaS (Software as a Service), e-commerce or artificial intelligence technologies are already a must-have for use. Now innovations in new formats of business models or the next horizon of mass use are, for example, the Direct-2-Customer model and blockchain technology, as well as the consumption of content in new VR/AR interfaces.

Dmitry Kurin

Director for Innovations and Investments at MTS

The expert clarifies that the technology itself will never become an innovation without solving a specific business problem. In an example, he refers to artificial intelligence (AI), a technology that today is really being implemented in a large number of processes and is often considered innovative. In addition to it (and big data as an integral part), such technologies and technological areas usually include virtual and augmented reality (VR/AR), Internet of Things (IoT), blockchain, etc. But it is important to understand that their “innovativeness” (that is belonging to innovative processes) also depends on a number of conditions.

Of course, AI, VR / AR and blockchain are modern solutions, but there are areas and specific cases where they are quite active and have been used for more than a year. In this sense, it is wrong to consider technology itself as innovation: innovation is something new that makes a product or service better or brings a new product and a new service to the market. Thus, or one area, AI is an innovation, for another, it is already a completely understandable working tool.

Ivan Yunin

Head of the Moscow Transport Innovations

Dmitry Maslennikov clarifies that “innovation determines its innovativeness not only by how long the technology used has existed but also by how effectively it shows itself in the place of its use.” He also points to the fact that new technologies enter different markets at different speeds — regarding the question of how, depending on the context, the implementation of a solution based on the same technology can be either innovative or not. Evgeny Dzhamalov from Magnit, one of the leading food retailers in Russia, develops this idea.

Innovative technologies can be considered those that have not yet been heard of, or that are determined through weak signals: patents, scientific articles, hiring narrow specialists in certain areas, etc.

Evgeny Dzhamalov

Chief Innovation Officer at Magnit

The expert adds that the introduction of a solution already used on the market, but new for the company that implements it, can be generally considered an innovation, but one must look at the degree of its prevalence.

Environment needed for innovation

For innovations to be successfully created, implemented and worked, an appropriate environment is necessary. It is rather difficult to talk about the business segment in terms of innovation. According to a recent study by ISSEK HSE, Russian companies tend to develop innovations on their own. Accordingly, the innovation environment in business largely depends on how much a particular company is ready for investments (including long-term investments) in innovation, or whether it has a high innovation culture. In regard to startups, the environment is determined by how successfully it can integrate into real business processes (possibly with the help of accelerators), which is also determined by a large number of factors. However, we can speak with confidence about one feature of the innovation environment in business: it is competitive.

The relevance of innovation today exists for every company because the day after tomorrow its customers will go to more innovative competitors. The main goal of introducing innovations is not to reduce costs, but to retain customers and find new ones.

Anton Pronin

Head of Acceleration Programs at the Information Technology Cluster of the Skolkovo Foundation

A similar thought is expressed by Roman Timaev from X5 Group, another leading food retail chain:

If a company has competitors, a strategy, ambitions, goals and a desire to make money, then, of course, it is necessary to invest in innovations, in the development of technologies. If this is not done, then competitors will go far ahead.

Roman Timaev

Head of the Innovative Products Portfolio, X5 Group

The urban environment, in turn, makes it possible to better understand the specifics of the innovation market. Moreover, it is cities that sometimes play a key role in it: this point of view can be traced. For example, Greg Satell, a digital strategy expert, called cities “the most important platform for innovation”. In terms of innovation, they perform two main functions: first, they create a favorable environment conducive to technological progress, knowledge exchange, and business development; secondly, they act as a competent customer in the interests of residents and to optimize urban processes.

One of the tools for assessing the innovation environment are ratings, both international and domestic. They, in particular, allow us to assess the level of innovative development by various indicators (for example, the potential of digitalization and scientific and technological development), the efficiency of the startup ecosystem (the work of funds, accelerators, etc.), the degree of innovation implementation depending on the current agenda (such as COVID-19 pandemic).

The interlocutors of ICT.Moscow agree that the innovative environment is usually formed on the basis of current requests. Alexei Parabuchev, the head of the Moscow Innovation Agency, explains the mechanics of the process: in particular, how this request is translated into the innovation market, forming an appropriate environment.

The metropolitan pilot testing program helps city structures find the technological solutions they need, test them and give an expert assessment of the effectiveness of the product. About 110 pilot tests of innovative developments have already been completed, and over 40 tests are in progress. The list of solutions that are being tested today at various sites in Moscow includes educational platforms, a system for adapting and supporting people with disabilities, as well as projects to introduce unmanned vehicles and high-tech medical equipment.

Alexei Parabuchev

CEO of the Moscow Innovation Agency

The tools for finding solutions, which the expert speaks about, in Moscow are not only accelerators and funds, but also specialized online platforms (a section with city queries on the “Map of innovative solutions” of the Agency of Innovations, a showcase of Moscow tech solutions by ICT.Moscow, etc.).

Head of the Innovation Laboratory of the Moscow Department of Information Technologies (DIT) Yulia Sharova explained to ICT.Moscow that when looking for any innovative project for a city, one must always proceed from the problematic issues and needs of the customer

Our task is to offer our customers a personalized innovative product that is relevant to them exactly at the moment when there is a need for it, and to some extent even predict this moment. Therefore, among other things, the Laboratory considers promising directions from the point of view of future development.

Yulia Sharova

Head of the Innovation Laboratory at Moscow DIT

At the same time, the expert emphasizes the importance of “when piloting, immediately involving all participants in the process in order to form and work out as many open questions as possible.”

The same trend, i.e. the formation of an environment on the basis of pressing issues and, most importantly, unsolved problems, can be traced in the transport segment.

We collect requests from Moscow transport organizations. It is they who form their so-called “pains” and specific topics for which we would like to find a solution. Further, with these requests from the Transport Complex, we enter the market, connect scouting mechanisms and offer suitable projects to present their solutions to an expert council, which includes organizations in need of innovation. After a series of pitches, experts give marks, where they indicate interest in projects and select those solutions that are potentially interesting for piloting in Moscow.

Ivan Yunin

Head of the Moscow Transport Innovations Project

However, on several occasions, an innovation environment is formed due to external factors. A striking example is seen in the field of medicine, namely the COVID-19 situation. As expected, it caused an increase in demand for innovative solutions, as a result of which, in September, for example, a technology park was opened for the development of startups in the healthcare sector.

What innovations are currently in demand

Having a clear and well-formed environment, however, does not mean that the demand for specific innovations is always clearly articulated. In a conversation with ICT.Moscow, Anton Pronin from Skolkovo mentioned that none of the end consumers “can say directly what innovative products they would like to consume and how.” According to him, modern organizations spend millions on collecting “information dust” about users and forecasting consumer behavior.

According to Evgeny Dzhamalov from Magnit, there are only two types of companies in the business environment that are interested in introducing innovations.

On the one hand, a stagnant company or one looking for new businesses is ready to innovate in order not to die. On the other side, there is a technology leader who is already innovative at its core but has a hunger for everything new and uncertain. In between, there are mainly companies that do not want innovation and grow in traditional ways (operationally, through marketing, expansion) or cannot due to the lack of experts and budgets.

Evgeny Dzhamalov

Chief Innovation Officer at Magnit

Dmitry Maslennikov adheres to a similar point of view.

Even leading companies need innovations, but rather disruptive ones. And for companies that are simply lagging behind, incremental changes and systemic implementation of supportive innovations are enough.

If a company does not have new products and revenues from old ones are falling, if its costs do not decrease, but only increase, there is obviously a need for innovation, regardless of its readiness. If she is not ready and does not start implementing them, she will most likely die.

Dmitry Maslennikov

Founder of Disruptive Partners

What tasks businesses, as well as state and city organizations today, want to solve with the help of innovations, can be judged, for example, by the themes of the hackathons they hold. An interesting example is Sberbank with its blockchain platform and an intention to give hackathon participants access to it in order to find a new practical application for it.

National hackathons also outline a range of priority technologies: computer vision, natural language processing, speech recognition and synthesis, intelligent decision support, and promising artificial intelligence methods. The list of industries for which participants are invited to develop solutions is determined by which government agencies provide data sets for work. This is a very wide list, including public administration, health care, education, agriculture, industry, construction, etc.

The greatest demand for digital technologies (and, accordingly, startups) is observed in the industrial, transport and financial sectors. For example, our partners this year were such companies as Sibur, Russian Railways and Credit Bank of Moscow, which were just looking for digital solutions in key areas of their businesses.

Ekaterina Petrova 

Director of the Platform for the Development of Corporate Innovations, GenerationS

Effects of COVID-19: demand for innovation and the transition to metaverse

All experts also agree that the COVID-19 pandemic has greatly affected the demand for innovation, including from large businesses. Seemingly archaic and complex, they were able to successfully transfer all communications, employee management, project management, decision-making, control, etc., to online in a crisis situation. In the field of services for remote work, a large number of startups have grown, adds Dmitry Maslennikov, expressing the hope that this growth will continue. The same thing happened in the B2C segment: the change in demand and the format of consumption of services led to the emergence of new innovative solutions in the areas of food, education, finance. Magnit's Chief Innovation Officer lists the areas where the impact has been most noticeable:

The pandemic has affected digital innovation in different ways in different areas. The focus has shifted to a “safe environment” and COVID-free solutions. Also, all the solutions for remote work and the possibilities of organizing such work were “shot”. Fintech innovation has also grown a lot.

Evgeny Dzhamalov

Chief Innovation Officer at Magnit

The coronavirus pandemic has become a major challenge for cities as well. As the authors of The Global Startup Ecosystem Report 2021 point out, “in most industries digitalization has been accelerating for decades. Covid floored it.” A forced change in established processes and business models made us look at innovation differently. A 2021 survey by the Boston Consulting Group (BCG) showed that amid the pandemic, more than 60% of companies plan to increase investment in innovation, a third of them having a significant increase.

According to the latest estimates by ISSEK HSE, in Russia in 2020 the level of innovative activity of organizations not only did not decrease but, on the contrary, increased by 1.7 percentage points. up to 10.8%. At the same time, the highest growth rates are in the field of ICT (12.2% versus 9.8% in 2019).

Another significant impact of the pandemic on business was the reduction of the planning horizon to 1-2 years. This is evidenced by the results of a study by Wikivote. 76% of top executives believe COVID-19 will affect their organizations' medium to long-term strategy, and 12% say the pandemic will force them to reorient themselves to new sectors. 67% of CEOs expect that the biggest threat to their business in the next three years will come from companies outside of their current sector. Another study conducted in 2020 by analysts at EY-Parthenon has similar findings.

There are also opposite examples: Evgeny Dzhamalov, the Chief Innovation Officer at Magnit, says that the pandemic did not affect the planning horizon of the company. “We always try to keep this horizon as low as possible for current pilots and as high as possible for our exploration work,” he explains.

There is another effect that is not yet directly associated with innovation, that is, a massive transition to online formats. They have existed for a long time, and innovations are quite rare in services launched or scaled up for 2020-2021. However, this may change for the foreseeable future: COVID-19 and the transition to online have done a lot of preparatory work for the most visible innovation process from a global point of view, which has attracted attention this year – the transition to the metaverse. Moreover, what is important, this process is happening globally and right now, becoming a vivid example of how an innovative concept is born and implemented – with the prospect of transforming almost all familiar business processes.

This concept of the virtual world was also mentioned in the first half of the year, but it attracted significant attention only in October–November 2021, when Mark Zuckerberg officially announced the transition of his company (formerly Facebook, now Meta) to the concept of metaverse.

Presumably, this concept has gotten so much attention, in part because many companies have already begun to switch to it in one way or another, namely, to introduce technologies that will be included in the future metaverses: digital twins (both objects and people, or avatars), virtual 3D modeling, VR/AR in general, NFT transactions. In the business environment, these processes are still point-like: technologies are introduced and solve certain problems, and in the future, they will probably be able to integrate into the metaverse. But what is characteristic, the concept is already beginning to be implemented in a much more complex area – city management, which creates the preconditions for the creation of another innovative concept: Metaverse City.

The first city that claims to become a full-fledged Metaverse City is the Asian metropolis – Seoul. Over the next five years, the city's leadership plans to develop the digital space of the Korean capital. Seoul is supposed to be an example of what the digital cities of the future will be like. Namely, in them it will allow at the very least:

• exploring sights – both existing and previously destroyed, but restored in a digital environment (this is where the technologies of virtual 3D modeling and the development of digital twins come in);
• holding events (the mayor of Seoul spoke about plans to launch the metaverse platform in the metropolis in a virtual format); 
• using various city services;
• making and spending money (for which it is supposed to use the NFT technology);
• buying objects (for example, souvenirs) with the money earned in the metaverse and moving them to other virtual worlds.

A fragment of a speech by the Mayor of Seoul, where he talked about plans for the development of the city in a digital environment. Source: The Washington Post

Seoul, however, is not the only one with ambitions to be a Metaverse City pioneer. If the South Korean metropolis and other Asian cities have such opportunities due to technological development, there are those who plan to develop in an innovative digital environment due to their small size, such as the island state of Barbados.

It is clear that ambition alone is not enough. The cities, as well as the market participants (most likely, jointly) in this innovative direction, have to solve many large-scale tasks. There are two main ones.

Existing innovative solutions based on developing technologies will have to be considerably modified. These technologies, in addition to the above mentioned, can also include those that were discussed by the interlocutors of ICT.Moscow: AI (an illustrative example is the creation of virtual 3D models of cities using neural networks based on cartographic data), blockchain.

One would also have to resolve a number of so far open legal issues. Some of them have been identified by the founder of the Singapore-based company Multiverz Randeep Sudan, and they are expected to stump existing regulatory systems due to the innovativeness of the metaverse. Here are just a few of them:

• How will avatars relate to real people in the regular world?
• How will law enforcement in the metaverse be monitored?
• How will access to the metaverses be regulated internationally?
• How will NFT purchases, including those of national treasure, be regulated?

Digital city governance is just one example of the metaverse concept. Of course, a commercial Metaverse segment is emerging, which will be formed, among other things, on the basis of already implemented point solutions. But it is not clear which ones exactly. As the founder of the MIXR community, Andrey Ivashentsev writes, “a huge number of adults are discussing as expertly as possible what does not exist yet (...) At the same time, it is difficult for everyone to argue that one of them is radically mistaken. It is simply too early for a qualitative assessment.”

In other words, one can observe the emerging innovation process at the global level and try to assess how much it transforms existing customary processes, stimulating the emergence of innovative solutions, changing the demand for today's innovative technologies and forms a new industry.

Original (in Russian)