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Introducing technology and innovation management
Introducing technology and innovation management

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10 Adding value through innovation

A key element of the innovation process is the idea of creating or preserving value. For business organisations, this value is principally about creating value in financial terms (profits) through gaining competitive advantage, whereas public or third sector organisations may be more focused on goals to create value in human, social or environmental terms. The value that an organisation seeks to create usually shapes their business model and strategy.

You may have heard of the Five Capitals Model, developed by Forum for the Future (2007). This model describes five capitals, or stocks of capitals (i.e. types of value or benefit), that might be created or added to by innovations (Figure 7).

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Figure 7: The five capitals: natural, social, human, financial and manufactured capitals
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A nested system of circles presenting the five capitals (types of value or benefits) on which we depend. The outer circle in pale purple represents the most important capital – natural capital, relied on by all other capitals. The next circle inside this is pale orange and comprises social capital and human capital. The inner circle within this one is pale green and represents financial and manufactured capital.

Figure 7: The five capitals: natural, social, human, financial and manufactured capitals

Activity 4: The five capitals and innovation

Timing: Allow 20 minutes

Consider the different types of capitals (types of value or benefits) that can be created or added by an innovation of your choice.

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Discussion

You can compare your ideas with the following classification of capitals or types of value (Forum for the Future, 2007):

Natural capital: the value added by natural, ecological or environmental resources and processes.

Human capital: the value added by individuals, including their health, motivation, knowledge, skills, and capacity for relationships and achievements.

Social capital: the value added by relationships, communication networks, partnerships and cooperation.

Manufactured capital: the value added by materials, goods, buildings, technologies and infrastructure.

Financial capital: the value added by tradeable assets.

While the way in which capitals or types of value are classified can vary, these areas are clearly relevant to value creation, increasingly seen as a critical element of the innovation process. The value that an innovation seeks to create will also indicate which measures are appropriate for evaluating an innovation.